ENTERPRISE SUPPORT AND FINANCE SHAPE DURBAN PRESENTED BY: D.Ramklass DATE: 21 | 11 | 2018
STRUCTURE Township Socio-economic data Challenges faced by SMMEs in South Africa Access to finance in townships and informal settlements Existing funding and business support mechanisms New Small Business and Innovation Fund Conclusions
Socio-economic Data Four major settlement types in South Africa: rural areas, urban townships (TS), urban informal settlements (IS), and other urban areas (OUA). T&IS has the highest population growth About half of South Africa’s urban population live in T&IS (Stats SA 2011a)
Socio-economic Data T&IS do not exist in isolation from rural and OUA; they are connected to the broader economy through the mobility of factors of production (labour and capital) as well as through the markets for goods and services. The IS typically are the first stops for migrants from rural areas and other foreign countries who are seeking employment opportunities. Subsequent movements from IS to TS and OUA occur as successful households improve their incomes over time.
Socio-economic Data In the rural areas, the poor employment trends in the past two decades have exacerbated the pressures on the T&IS, whose own economic structures are not geared to bear the added burden. According to national data sources, rural employment fell by 1.5 million in the past decade — from 4.4 million in 2000 to 2.9 million in 2011 (Stats SA 2000, 2011b). This was because of a fall in commercial farm employment, the virtual collapse of homeland agriculture which sharply reduced self-employment opportunities there, and job cuts in the mining sector. As a consequence, only one out of every four persons of working age in rural areas is currently employed
Socio-economic Data The broad unemployment rate has grown especially rapidly in rural South Africa, as job losses and lack of employment opportunities led to a sharp increase in the number of discouraged workers. The end result is that rural areas, despite out-migration in the past decade, still contain a reservoir of surplus labour. In spite of the bleak overall employment situation, per capita consumption improved and poverty rates decreased in all settlement types but the IS. The IS also have the lowest per capita consumption, followed by rural areas, TS, and OUA, whose share of national consumption is more than twice its population share.
STRUCTURE Township Socio-economic data Challenges faced by SMMEs in South Africa Access to finance in townships and informal settlements Existing funding and business support mechanisms New Small Business and Innovation Fund Conclusions
Size, structure and growth rates In the South African context, there are various types of Entrepreneur, each with distinct needs and aspirations.
Access to Funding is a Key Challenge for SMEs Various research reports have identified access to funding as one of the main challenges facing SMEs Source: SA SME Fund Presentation to DST and NT, September 2017
Segmenting the Market Source: SA SME Fund Presentation to DST and NT, September 2017
Size, structure and growth Summary: Size, structure and growth rates The formal SA business The number of SMMEs has sector comprises c.700K decreased in recent years companies and SMMEs (both informal and formal) Owners of formal SMEs tend Nearly 25% of entities are in to live in urban areas, and are financial services, followed by more likely to be older, white wholesale and retail trade, and males with a higher level of construction. education
International comparison SMEs across the globe, and in South Africa in particular, are still faced with numerous challenges that inhibit entrepreneurial growth. Apart from poor SME funding and access to finance, the Global Enterprise Monitor(GEM) Report (2016) noted that South African SMEs also suffer from poor management skills, which is a result of a lack of adequate training and education. This results in high rates of business failure - SA has one of the lowest SMEs survival rates in the world. Figure 1 below from the GEM 2016 shows that South Africa’s early stage entrepreneurial activity is very low when compared to similar economies.
Expert ratings of the Entrepreneurial Eco-system (ranked out of 65)
Industry attributes, key challenges and proposed solutions The SME market in South Africa is severely challenged, with many interlinked problems which cannot be fully addressed via a single intervention Highly Inadequate Insufficient/ Slow and concentrated management inappropriate costly CCMA corporate skills in the skills for processes sector workforce scale-up Inability to Inefficient High cost of Infra- raise or government regulatory structure access equity agencies compliance constraints capital Poor cash Lack of Inadequate Low R&D flow due to appropriate market late business levels linkages payments support
Industry attributes, key challenges and proposed solutions Recommendations to address the industry challenges focus on improving the regulatory burden on SMMEs, access to finance and an improved support structure to enable entrepreneurship Provide Improve entrepreneurial access to and support cost of structures available (mentorship finance platforms and tools) Improve Improve Improve labour payment force entrepreneurial timing of education and education government access to (education and big information system) business Provide Decrease greater tax regulatory incentives burden for (SMEs and SMMEs investors)
STRUCTURE Township Socio-economic data Challenges faced by SMMEs in South Africa Access to finance in townships and informal settlements Existing funding and business support mechanisms New Small Business and Innovation Fund Conclusions
Access to finance in Townships and Informal Settlements Both households and businesses in townships are less likely to own an account, and, if they do, are more likely to be underbanked than their non-township counterparts. The financial inclusion challenge for both poor households and MSMEs is thus twofold: Expanding access to financial services to currently excluded parts of the population and business community Decreasing the percentage of “underbanked” in the system — that is, those who are technically financial included but make low use, if any, of formal payment and savings products.
Access to finance in Townships and Informal Settlements Access to financial services is uneven. While individuals and businesses in non-township urban areas are primarily served by formal financial institutions such as banks, those in townships rely disproportionally on informal financial services such as savings clubs, Stokvels, and burial societies as well as friends and family to access saving products and credit. The lack of greater uptake of formal sector financial products among township residents might in part be explained by the lack of financial products tailored to their needs; such as low-cost accounts.
Use of informal financial services
Urban firm size, by location
Sectoral distribution of urban firms, by location
STRUCTURE Township Socio-economic data Challenges faced by SMMEs in South Africa Access to finance in townships and informal settlements Existing funding and business support mechanisms New Small Business and Innovation Fund Conclusions
Mapping OECD Policy Response against SA Government Support Policy response Status Government Support Available Government loan guarantees Limited Small Enterprise Finance Agency (SEFA) provides a credit guarantee scheme, which provides credit guarantee products to lenders (commercial banks and other financial institutions) for SME borrowers. The Guarantee is underfunded, inefficient and under-utilized by banks Special guarantees and loans None No public support for start ups Limited Provided through DTI Export Credit Insurance Corporation of South Government export Africa SOC Ltd (ECIC) but does not target SME’s guarantees, trade credit Direct lending to SMEs Available Small Enterprise Finance Agency (SEFA) has Direct lending products: These are loans that sefa provides directly to Small and Medium sized Enterprises as well as co-operatives operating in all sectors of the economy. The facilities range from a minimum of R50 000 to a maximum of R5 million. Subsidised interest rates Available Small Enterprise Finance Agency (SEFA) Venture capital, equity Limited Very limited – some funding through the Technology Investment funding, business angel Agency (Tia) under the DST support There is equity funding available from the IDC and NEF but generally for large significant transactions only, i.e. not SMMEs Significant funding is also available through a number of grant programmes, notably the Jobs Fund, although these are typically targeted at specific projects rather than enterprises. SME banks None There are no publicly supported / funded SME banks, however SEFA does operate a direct lending loan portfolio.
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