By Rentia Mahoney
Of the estimated 2.6 million micro, small and medium enterprises (SMEs) in South Africa, about 37% are considered formal. Of the total, 54% are micro-enterprises, and 15% are located in rural areas. The owners include individuals who have identified a business opportunity as well as those conducting some sort of business because of necessity and for whom no alternative sources of income are available.
This makes up a huge percentage of the South African economy.
At the same time, it is clear that these businesses would need some kind of funding in order to function at maximum capacity.
It should, however, be noted that the lender should take caution not to accept a loan with excessive interest rates, like anything above 20%.
Some of the current interventions and solutions are outlined below.
NYDA
The agency’s full mandate, as outlined by the NYDA Act, is as follows:
Develop an integrated youth development plan and strategy for South Africa.
Develop guidelines for the implementation of an integrated national youth development policy and make recommendations to the president.
Initiate, design, co-ordinate, evaluate and monitor all programmes aimed at integrating the youth into the economy and society in general.
The agency supports three broad categories of young people that include:
Unskilled and unemployed. These are largely young people who may have matric or dropped out of school but with no vocational skills.
Skilled and unemployed; employed but unskilled; and those in skills programmes.
Skilled and employed and those in self-employment.
These categories of young people are supported by the NYDA through the implementation of the following programmes:
National Youth Service Programme
Education and skills
NYDA Grant Programme
NYDA Voucher Programme
Business Management Training
Mentorship
Market Linkages
Sponsorships and Thusano Fund
Solomon Kalushi Mahlangu Scholarship Fund
Crowdfunding
Every entrepreneur will need some form of financial support to get their business off the ground. Fortunately, there are several different options when it comes to financing a new business or expanding an existing one, from banks and government funding to alternative funders.
The majority of small businesses in South Africa are not funded by traditional banks. Instead, entrepreneurs have to bootstrap their new ventures and fund their businesses using their personal savings, income or sweat equity.
Increasingly, entrepreneurs are turning to alternative funding options like crowdfunding. With crowdfunding, entrepreneurs can raise funds through the collective effort of friends, family, customers and/or individual investors.
Crowdfunding is well suited for entrepreneurs as it allows them to raise capital in a way that does not load them with debt or force them to part with equity in the early stages. This model is gaining traction as a viable option for raising capital in South Africa, largely because of the wide range of benefits it offers, such as helping entrepreneurs reach a broader spectrum of investors and providing market validation as well as marketing benefits.
DTIC for small business
The Department of Trade, Industry and Competition (dtic) provides institutional support for industrial development in the country. Together with a range of institutions and stakeholders, it develops strategies and policies to achieve rapid industrialisation of the country’s manufacturing sectors.
The South African government has identified industrialisation as central to unlocking the country’s economic growth as it boosts economic activity, increases the productivity of the workforce and generates formal employment. An industrialised economy also relies less on exports by developing its own domestic industries.
South Africa’s industrialisation efforts focuses on a broad range of sectors, including manufacturing, mining, transportation and retail, among others. These are sectors that are labour-intensive and highly productive activities/sectors that can help tackle major South African challenges of poverty and unemployment.
To support these important sectors, the dtic’s policies function to lower barriers to entry, stimulate innovation and open opportunities for entrants with new business models and products.
Government funding in South Africa
One of the key takeaways is that the South African government drives the growth and sustainability of small businesses by providing development funding. This is because the SME sector is of great importance as it contributes to job creation and is an engine of growth for the economy.
In recognition of the role small businesses play, the government has prioritised the promotion and development of small businesses in an effort to reduce the SME failure rate and to help small businesses to grow.
The funding landscape.
There is great demand for funding in South Africa. According to the SME South Africa Landscape Report, ‘An Assessment of South Africa’s SME Landscape: Challenges, Opportunities, Risks and Next Steps’ (Landscape Report), the majority of small business owners surveyed said they are actively looking for funding. However, the vast majority (94%) had not received any kind of funding from the government. Only 6% said they had received funding of this kind.
Of the 6% of business owners who noted that they had received government funding, the largest share pointed toward government grants (21%) as the key funding mechanism used. Business owners indicated that they had received funding from other government structures such as the DTI (17%), the NYDA (16%), SEDA (15%), and the GEP (15%). A small portion (13%) of these business owners did indicate ‘other’ government avenues that they have pursued to secure funding, including the Umsobomvu Youth Fund, the National Film and Video Foundation, and the Gauteng Department of Enterprise Development.
Government funding challenges
The Landscape Report points to several reasons for the low uptake of government funding, primarily a lack of accessibility to and knowledge about the various funding options available to the small business community, as well as a lack of funding readiness.
Darlene Menzies, CEO of Finfind, an innovative online platform linking finance seekers with matching SA funders, highlighted the following concerns in the article ‘SA Funders And Finance Seekers – Where Is The Gap?’.
“Most entrepreneurs don’t know where to start when it comes to applying for finance. The world of funding is largely foreign territory to them, and learning to navigate it can be a challenge. Applying for finance is a daunting task. When you ask about Government funding, the common response is that they know there is funding available, but that it is very difficult to secure. If you are successful, it takes forever for the funds to be paid to you, which often occurs after the opportunity which required funding has been lost.”
Mahoney is an independent analyst.
BUSINESS REPORT