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Growth Ambitions Of Middle Market Companies In South Africa Rebound On A Wave Of Political Optimism

Middle-market companies across the globe are significantly more optimistic about business conditions and opportunities than last year, according to the findings of the annual EY Growth Barometer 2018.

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  • EY survey shows a resurgence of confidence among South African middle market companies with almost one in three predicting growth above 10%
  • A further 30% are targeting growth in excess of 10%, a marginal increase from 2017, when 24% of companies were in this high growth band
  • 75% of South Africa middle market CEOs say they are already adopting or planning to adopt artificial intelligence (AI) within two years (last year only 8% had this view)
  • South Africa continues to be placed as a diversity leader among the global cohort, with 15% of respondent CEOs being female.

Middle-market companies across the globe are significantly more optimistic about business conditions and opportunities than last year, according to the findings of the annual EY Growth Barometer 2018. This is no different for South African middle market companies, with one in one in three predicting growth above 10% for the coming year. This is the finding in EY’s Growth Barometer report for South Africa released today, which is well above the International Monetary Fund’s GDP forecast that South Africa’s economy will expand by 1.5% this year.

The global annual survey of 2,766 middle-market executives across 21 countries and nine key middle-market sectors reveals that global confidence in business growth has strengthened in the last 12 months, particularly in South Africa as indicated in the local report.

“Business confidence has soared since Cyril Ramaphosa was elected in February as the country’s president, says Azim Omar, Africa Growth Markets Leader at EY. “Economic growth forecasts are stronger this year, where last year there was a risk that we were heading for a recession.”

In South Africa, the data shows that 58% of middle market companies are targeting growth between 6-10%, which compares favourably with only 32% of companies having the same growth ambitions a year ago. A further 30% are targeting growth in excess of 10%, a marginal increase from 2017, when 24% of companies were in this high growth band. What’s more, only 12% of respondents in 2018 expect a decline in growth, compared with 44% in 2017.

Related: 10 Ways To Grow Your Business For Entrepreneurial Success

Twenty seven percent (compared to 23% for the rest of the world) of South African middle market leaders have overseas expansion as the top strategic growth priority. South Africa’s survey respondents are also among the most bullish of the Brazil, Russia, India, China and South Africa (BRICS) group, on export growth, trailing only China. South Africa’s C-suite is also keen to move into adjacent activities or sectors, a priority cited by 21%; this reflects the rise in industry convergence, which is considered the second-most disruptive megatrend by the country’s cohort. A further 18% prioritise internal growth, in line with their BRICS peers.

The race to AI adoption

Intelligent automation and machine learning have moved centre stage as vital enablers to ambitious middle-market growth. Attitudes toward new technology have evolved rapidly since last year. In 2017, 64% of South Africa middle market CEOs said they would never adopt robotic process automation (RPA), yet just 12 months later 75% of respondents say they are already adopting or planning to adopt artificial intelligence (AI) within two years.

The survey shows that South African middle market companies are evolving fast. In fact, South Africa is joint third with Singapore in the early adoption of AI, above leading economies such as the US, Russia and Germany.

Omar says: “Successful and profitable responses to convergence favour the fast. Agile companies who can adjust their offering or business model to align with a shifting consumer environment are the ones who will thrive.”

Technology is seen as a great enabler in South Africa, with 27% of respondents naming it as a key factor in improving productivity. A sign of South Africa’s IT maturity is that business leaders regard improving the customer experience as the number one purpose of technology investment, ahead of more routine uses such as improving process efficiencies and financial data. However, IT is not a universal panacea: 17% consider technological disruption as the greatest operational challenge to growth, after insufficient cash flow.

Regulation driving, not stifling, innovation

This year regulation has emerged as a new force in stimulating innovation, not obstructing it. In contrast to most of their global peers, South African middle market leaders put more regulation (26%, 17% elsewhere) above lower taxes (24%) as the best thing the Government could to boost growth.

“One of the largest media companies in South Africa says it’s lost hundreds of thousands of subscribers because of competition from unregulated streaming services,” says Omar.

Contrary to the broadly held assumption that red tape stifles growth, regulation is also cited as the third-greatest innovation driver (19%), behind profitability (23%) and competition (22%). Customer demand trails in fourth place but elsewhere the customer is paramount; when it comes to ways of increasing innovation, the preferred approach for three out of 10 (30%) is using customer data.

Related: How to Grow a Small Business into a Big Business

Concerns over cash flow and funding remain

Slow or flat global growth is a major a concern for South African middle market companies, with 27% of leaders naming it as the biggest external risk to growth, up 15 percentage points on last year. This is directly linked to their burgeoning expansionist agenda.

While access to credit continues to be an issue, this year company leaders cite insufficient cash flow as a more significant challenge, cited by around one-third (32%) of the South African C-suite, in line with elsewhere (34%). This may reflect the changing nature of sales patterns worldwide, as industry convergence, unpredictable online buying patterns, and the need to invest quickly to satisfy changing consumer demands increase the need for ready money.

The right skill set key to growth ambitions

South African executives in middle market companies are convinced that their growth ambitions are inextricably tied to the right skill set. A lack of skilled talent is named as the third-greatest challenge to growth, cited by 15% — above the rest of BRICS (8%) and elsewhere (14%). And 35% say an ideal organisational culture is one that attracts younger, digitally native talent.

More than four out of 10 (43%) South African respondents plan to increase their full-time staff numbers — in line with the rest of the BRICS (43%) but above elsewhere (38%). However, three out of 10 (30%) are more cautious and are looking to maintain current levels, versus 22% in the rest of BRICS. As globally, gig hiring is down, with only 8% planning to hire contractors or freelancers.

“The reality in South Africa of our youthful population — with 47% of the country’s 56.5 million people under 25 — may exacerbate the country’s skills challenge and explain why demographic shifts are cited as the most disruptive force facing businesses,” explains Omar.

“However, we continue, in South Africa to be placed as a diversity leader among the global cohort. With 15% of respondents’ CEOs being female, versus 3% for the rest of the world, this proportion looks set to rise even further, with almost half (46%) putting diversity at the top of their hiring priorities, compared with 41% for the rest of the world,” says Omar. “As we mark Women’s Day in South Africa this year, this is a notable achievement for the South African middle market, with many more opportunities for women business owners in the future.”

Meanwhile around the world, EY’s global data in this survey confirms that women-led companies are significantly affected by a lack of funding, with 18% citing access to capital as a major barrier to growth, compared to 11% of their male-led peers. However, 30% of female-led companies are targeting growth rates of more than 15% in the next 12 months, compared with just 5% of male-led firms, even though more than half the women-led companies (52%) say they have no access to external funding.

Omar says: “The funding gap matters because companies with high-growth potential that do not secure early investment can have a harder time scaling-up, and much of the time, these companies are led by women. Financial support for women-led businesses represents a major challenge and only a handful of organisations around the world are focused on supporting the growth of women-led businesses. In South Africa, this narrative is different, and we look forward to seeing the acceleration of more women owned businesses in this country.”

View the report online at ey.com/growthbarometer/southafrica

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AlphaCode Awards R16 Million To Fintech Start-ups In One Of SA’s Richest Start-up Initiatives

This R2 million scale up accelerator offers mentorship, expert guidance and support services to help these more established businesses to scale and create jobs.

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Last night, Rand Merchant Investment Holding (RMI), through AlphaCode, awarded entrepreneurial packages valued at R16 million to eight of South Africa’s most promising financial services start-ups. The entrepreneurial packages consist of R1 million in grant funding and R1 million in support, which includes mentorship, monthly expert-led sessions, exclusive office space in Sandton, marketing, legal and other business support services as well as access to the broader RMI network.

The AlphaCode Incubate initiative, in partnership with Merrill Lynch South Africa and Royal Bafokeng Holdings, identifies South African financial services entrepreneurs with extraordinary ideas and businesses that could impact the financial services industry. More than 200 start-ups applied to participate. Of these, sixteen made it to final pitch evening and eight recipients were selected.

The eight winning businesses are:

Name Description Founders Video link
Akiba Digital A gamified mobile app making it easier and more rewarding to set, manage and meet savings goals. Tebogo Mokwena and Kamogelo Kekana https://bit.ly/2yOjYoX

 

ISpani Group Provides access for insurers into traditionally under insured communities through prepaid vouchers and USSD sold by a network of spaza shop vendors. Prince Nwadeyi, Khathazile Moroe, Patrick Machekera and Louis Buys https://bit.ly/2CrgbkE

 

Jamii De-risks tenant rent default through offering tenants incentive-based discounts on food and transport and bolt-on retrenchment cover. Adrian Taylor, Marc Maasdorp and Bartek Dutkowski https://bit.ly/2ytdc8F

 

Nisa Finance An invoice financing platform that enables financiers to issue invoice-backed loans to SMEs quickly and affordably by fully-automating the application and invoice verification through ERP system integration. Thando Hlongwane, Tekane Ledimo and Sinqobile Mashalaba https://bit.ly/2yptcIW

 

Pago A low cost mobile micro payments platform for the informal sector to enable an inclusive economy by digitising remittances through the use of blockchain technology. Philip Mngadi and Noel Lynch https://bit.ly/2S1QKvn

 

Prospa A mobile savings wallet for low-income earning South Africans that makes it easy to save small amounts infrequently using prepaid vouchers. Dhanyal Davidson and Carl Ngwenya https://bit.ly/2JbwbJf

 

SELFsure Enables millennials to significantly reduce car insurance premiums by self-insuring part of the risk via peer to peer lending. Proud Chitumba, Amos Mugova and Tshepiso Shamane https://bit.ly/2J6HVfV

 

Yalu A self-service credit life insurance platform which replaces a customer’s current policy with a more affordable, simpler and rewarding policy. Nkazi Sokhulu, Tlalane Ntuli, Steve Goeieman and Life Mhlanga https://bit.ly/2PH87QF

 

The programme has disbursed R13 million in funding to 15 black-owned financial services businesses since it began three years ago. “Some have experienced exponential growth and we have been amazed at the level of traction they have received locally and internationally. The intention behind AlphaCode’s Explore, Incubate and Accelerate programmes is for RMI to discover the next OUTsurance or Discovery; we want to identify, partner and grow the future of financial services in South Africa,” says Dominique Collett, head of AlphaCode and a RMI senior investments executive.

During the event, contestants had just three minutes to pitch their businesses, with a couple of minutes set aside for questions from a formidable panel of judges. These included Phuti Mahanyele, CEO of Sigma Capital; Raymond Ndlovu, investment executive, Remgro; Nakedi Ramaphakela, finance director, Royal Bafokeng Holdings; Anthony Knox, MD Investment Banking of Merrill Lynch South Africa and Dominique Collett.

Julie Benadie, regional executive of Operations and Corporate Affairs at Merrill Lynch explained: “We believe in supporting disruptive ideas so that creative fintech solutions will emerge to address the challenges that South Africa faces. We want South Africa to become a fintech centre of excellence with its already advanced financial services infrastructure.”

The AlphaCode Incubate programme deals with common challenges that financial services startups face. All participants are early stage businesses, under two years old and at least 51% owned by black South Africans.

“AlphaCode is also now also seeking additional fintech entrepreneurs for our Explore programme. This offers a 12-month data science and business skills programme for 20 aspirant South African fintech entrepreneurs in conjunction with The Explore Data Science Academy,” Collett added.

Candidates will go through an intensive six-month data science-training programme, where they will learn how to design a 10X business along with the core digital skills needed to build a fintech organisation. This will be followed by three-months of business skills training. Interested fintech entrepreneurs should apply at www.alphacode-explore10x.club by 30 October 2018.”

In addition, AlphaCode recently selected four more established fintech businesses for its Accelerate programme: Entersekt, Livestock Wealth, Click2Sure and Invoice Worx. This R2 million scale up accelerator offers mentorship, expert guidance and support services to help these more established businesses to scale and create jobs.

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The Sky Is The Limit For South Africa’s Top Women Achievers

High-powered women achievers from across the private and public sectors, academia and diplomatic spheres gathered for a charged two-day conference in Johannesburg this week to share experiences about empowerment, achievement and the role that women are destined to play in a competitive global environment.

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Several hundred women attended the 15th Annual Standard Bank Top Women Conference which, with the Top Women Awards, has become one of the premier events for women on the national calendar. The objective of the gathering at the Maslow Hotel on the 17th and 18th of October, was to showcase the achievements of South African women and reignite their passion as they have major roles to play in all arenas of endeavour, says Ethel Nyembe, head of Card Issuing at Standard Bank.

“The delegates to the Top Women Conference were inspired by speakers such as Yvonne Chaka Chaka, singer, songwriter and an entrepreneur in her own right; Phuti Mahanyele, executive chair of Sigma Capital, a black-owned investment group, and political and academic stalwart Geraldine Fraser-Moleketi, now Chancellor of Nelson Mandela University and other women who are playing leading roles in many of the nation’s listed blue-chip corporations.”

“The overall message is that women are playing a central role in growing all facets of our economy and are helping to build a future from which other women can benefit and, in turn, inspire others. Women, regardless of whether they are entertainment icons, professionals engaged in helping shape the minds of future generations, businesswomen or scientists are part of building a new global reality.”

Related: 13 Female Entrepreneurs Rising To The Top In SA

To inspire delegates about the breadth and depth of the future for women, the conference examined all facets of economic life from the impact that IT and scientific research is having on building businesses, through to the development of entrepreneurs and leadership skills. Insights were offered through the contributions of speakers and roundtable panel discussions in which leading women offered observations and advice gathered from their vast experience.

“Standard Bank is proud of the role it has played in enabling women achievers to reach their full potential within its ranks. The bank also recognises that women across society have a broad role to play in the future of South Africa. It is through support for events like the Top Women Awards and the Top Women Conference that this approach is made visible and tangible.”

“We expect this year’s conference deliberations to deliver insights and inspiration that will not only spur established women to new heights of achievement, but also stimulate young women starting new careers,” says Ms Nyembe.

More information on the Top Women Conference can be found at https://topwomen.co.za/ and it can be followed on the #SBTWConference conversation on Facebook and Twitter  

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The Ins And Outs Of A Good Exit Strategy

The thought of parting with a business you’ve grown from the ground up may be unsettling, but Gugu Mjadu, spokesperson for the 2018 Entrepreneur of the Year® competition sponsored by Sanlam and BUSINESS/PARTNERS, says that it is better for both your business and yourself to plan for this as early as possible.

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“The challenge that business owners often face in this respect is comparable to the difficulty that many new parents have with imagining their children grown up and leaving for university. Imagine, however, if parents did not plan ahead for the cost of their education – that would be detrimental to the future of their children. The same could be the case for your business.”

Mjadu says that a good exit strategy is about sustainability and being able to measure your business performance against the goals you have set for it. “It’s really about being able to say, ‘this is when the work is done and I can exit the business or take on a different role – this is what success looks like in terms of monetary return on investment and other business growth indicators’.

“The lack of an exit strategy could be telling of a fundamental lack of measurable business goals and this needs to be addressed,” she says.

From immediate liquidation to liquidation over time; family succession; selling to staff or external investors; the open market or another business; or the gruelling but profitable exercise of taking your company public – there are many different ways in which an entrepreneur can exit their business, but Mjadu says that whatever the process, a strong and solid strategy is essential.

She shares five key points of a good exit strategy:

1. It tells you when you are done

Mjadu says that a good exit strategy should reflect a core understanding of all the intricacies of your business and should be able to tell you when the lifecycle of your business (or of your involvement in the business) should come to an end. This is usually done by including a set of tangible measurables or objectives so that it is easy to ascertain when these have been achieved.

Related: When Do You Know It’s Time To Sell Your Business

2. It sets out the right environment within which to exit

A good exit strategy considers the economic, social and political environment at the time of your exit. Mjadu says that this is important in order to plan for a secure financial future.

“Failure to think about this could result in short-changing yourself by exiting during a tough economic climate when the risk to buyers reduces the value of your business.”

She references the case of Victoria’s Secret when founder, Roy Raymond, sold the failing business for $1m unknowing that it would later grow into the multi-billion dollar empire it is now. “While Raymond’s exit was ultimately necessary for Victoria’s Secret’s growth, he sold it in 1982 during the global recession of the early eighties – one of the world’s biggest financial crises and this influenced the selling price at his exit”.

3. It compensates those who have contributed to the life of your business

It is important to consider the impact your exit could have on investors and staff, says Mjadu. “Closing shop for example, means that your staff no longer have employment at your business. Selling could mean the same.” She adds that it is important to consider ways in which your exit could also benefit these stakeholders – for example, selling to a bigger business could mean more career opportunities for your staff, as well as continued job security.

4. It compensates you

Mjadu says that entrepreneurs often struggle to recognise their own true worth, especially when this involves attaching a monetary value to what has been achieved. “The time of exiting a business is no place to short-change yourself. You need to get out the full worth of what you put in,” she says, explaining that this means ensuring that you are financially secure before and while you go into your next venture.

“Your needs for retirement and medical insurance, as well as the maintenance of your living standard, should be met at your exit.”

Related: Want to Exit the Company? Here’s Your Shareholder Exit Strategy

5. It sustains your entrepreneurial drive

Mjadu says that while you may be nearing the end of one journey, your exit should enable and encourage you to continue to be an entrepreneur – and to look forward to the next journey. “Your entrepreneurial skills and capacity do not end when you exit your business and whatever your strategy, it should egg you on to more entrepreneurial activity including becoming a mentor to aspiring entrepreneurs.”

Mjadu says that exiting your business should allow you a good retrospective look at what you have done over the years – and so planning the strategy early on in your business lifecycle will set you up in regards to what you hope to achieve. “Upon exit, you should be able to say that you have done what you set out to do, financially and socially, and you have some energy left to do more elsewhere.”

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