THE DAYS where Black Economic Empowerment (BEE) meant selling 25.1% of your company to a black shareholder are fast coming to an end, as an increasing number of large companies respond to the pressing need to transform their supply chain and assist black-owned enterprises.
Companies can score BEE points if they support black empowered businesses or black-owned small enterprises – through such measures as mentoring, preferential payment terms and interest-free loans or grants. But few companies have been spending big on enterprise development.
The government too is keen on promoting enterprise development, particularly as it looks to create five million jobs by 2020 and is already looking at ways to further incentivise companies to help develop more black entrepreneurs.
BEE consultant Keith Levenstein, of EconoBEE, believes a company’s supplier is their best enterprise development beneficiary as the buyer has the potential to score both enterprise development points and BEE points for buying from a black supplier.
On top of this if one company shows confidence in purchasing from a black business, it may let other firms know about the supplier, which is a form of free marketing for the black entrepreneur.
The Minister of Trade and Industry Rob Davies announced in his Budget Vote speech earlier this year that the government intends using enterprise development to incentivise large companies to set up more incubation programmes to assist small businesses.
Corporates often complain of there being too few suitable black businesses that can supply them. Likewise, many black entrepreneurs view the private sector as unfavourable to black business. Incubation or supplier development programmes may just be the answer – especially since it could unlock a further R12 billion in funding a year – according to estimates by Endeavor SA last year.
Yet the government also intends getting tougher too. One consideration, already mooted by Davies who is a member of the Presidential BEE Advisory Council, is to take away BEE points for those corporates that fail to invest in real enterprise development support.
But most big companies are against such a measure, with some like Pick n Pay, arguing that what is needed is more incentives, not disincentives.
However Shawn Theunissen, managing director of Growth Point’s Property Point, backs the idea that businesses that don’t fully comply with enterprise development should be penalised.
He says enterprise development can be one of the main drivers for broad based black economic empowerment in that it is in line with the intention of the BEE Act – namely “empowerment not just for individuals but for a larger segment of the economy”.
Theunissen said a problem was that many corporates were not always willing to open up their supply chain to enterprise development beneficiaries and that they would rather spend the money on any black-owned or empowered business – as long as they could make up the necessary two or three percent of profit on spent on enterprise development.
Theunissen said since Property Point was launched in 2008, 30 businesses had been assisted, 220 jobs had been created, R24.7 million had been generated in business linkages since 2007. In all 18 of these businesses contracted with Growth Point.
BEE consultant Ajay Lalu, of Blacklite Consultancy, Lalu also backs the idea of penalties and points out that too many corporates have been scoring enterprise development points by taking empowerment stakes in other companies rather than on mentoring new black entrepreneurs.
He believes the enterprise development fund launched by the National Empowerment Fund (NEF) in July contradicts the department’s incubation drive, as it may act to discourage large companies from setting up their own supplier development programmes.
Rather than do the hard work of mentoring these firms themselves, large firms may opt for the easier option of gaining instant BEE points by placing fund with the NEF, which will then invest the money on their behalf in small firms.
However the NEF’s Portia Maseogane said the fund would provide the usual mentoring which beneficiaries already have access to through its existing funds and would also offer to develop corporates’ supply chains.
But it remains a moot point on how in-depth this kind of support will be compared to the often very hands-on support offered by buyers to suppliers.
Anglo American’s successful Anglo Zimele model demonstrates that twinning mentorship with funding – either in equity or loans – is one of the most effective ways to transform ones supply chain.
The programme, which initially focused on supporting the outsourcing of non-core services has become so successful in its mix of funding and mentorship, that paper-producing giant Mondi has set up there own programme modeled on Anglo Zimele.
In the period up June 30 since Anglo American’s partnership with Business Call to Action in 2008, 921 enterprises employing 16 596 people, with a total annual turnover of R1.8bn, have been assisted by Anglo Zimele with R495m in funding.
From initially focusing on its supply chain, Anglo Zimele has branched out into four funds – one targeting suppliers, another targeting junior mining companies, a third businesses based around its mines and a training programme for first-time entrepreneurs.
A 2005 study by Oxford University on Anglo Zimele revealed that 74% of all Zimele’s past projects are still in operation today.
Another example of how solid business support can often reaps good results, can be seen by brewer SAB’s Kickstart programme – an annual competition aimed at young entrepreneurs which includes business training and grant funding.
Since its inception in 1995 over 22 930 young entrepreneurs have been through the programmes and over R51 million in grant funding has been disbursed to fund. About 38% of those that pass through the programme become SAB suppliers.
Most telling is that an independent impact assessment of the programme’s performance between 2001 and 2007 indicated that over 80% of grant recipients are still in business after three years of operation and that SAB KickStart businesses create an average of 6.7 full-time jobs
Hepsy Mkhungo, SAB’s head of transformation, SAB has learned that there is more value to be gained by selecting and aligning enterprise development beneficiaries to match the profile of the suppliers the company needs.
In some instances large companies are teaming up with enterprise development and incubation experts. For example Massmart recently announced that it will partner with private-sector incubator Raizcorp to train black suppliers with a R100m fund set aside as one of the conditions on which the Wallmart deal was agreed to.
Massmart corporate affairs director Brian Leroni said much of the fund, which is still being finalised, would largely support small black farmers.
Leroni said the idea is that while Raizcorp will mentor potential black suppliers, Massmart will use its knowledge of product and merchandise development to advise these entrepreneurs on the viability of their business idea.
The challenge that Massmart, Pick n Pay and other retailers face is that a handful of suppliers – largely multi-nationals – dominate the retail supply chain.
Leroni said one idea Massmart was looking at, was that which Wallmart in Central America was using to great affect – setting aside certain space in some stores for products produced by small suppliers.
Standard Bank is setting up its own enterprise development scheme, using enterprise development contributions from corporates, to mentor black entrepreneurs and link them with these same big companies.
Leora Rajak, head of enterprise development at Standard Bank, describes the bank’s new initiative as “a safe environment” where a big company can get support in mentoring credible black suppliers, while the bank helped finance them. So far she said large and medium-sized companies have been interested.
The initiative will include a network of business consultants and training providers, as well as an online business support tool to assist black entrepreneurs with payroll and other information and
Rajak believes if such a system comes into operation it won’t be necessary for BEE points to be taken away if companies don’t carry out effective enterprise development.
But to be effective enterprise development must form part of all the buyer’s various business processes and be owned by managers at different levels of the firm, says Pick n Pay’s transformation director Suzanne Ackerman
Ackerman points out that the problem with outsourcing ones enterprise development programme to a service provider is that one isn’t able to build up a relationship with suppliers and enjoy a one-on-one interaction with them.
Supply chain programmes may soon develop a new breed of black entrepreneurs, one able to become less reliant on government tenders.
Sibusiso Tshabalala’s four-year-old business supplies Pick n Pay stores across the country with charcoal, some of which is sourced from 210 members of co-operatives in KwaZulu-Natal. Thanks to contracts with the retailer his Berry Hill Trading has shot from a turnover of R100,000 a month to R700,000 after a R500,000 grant in 2009 helped him to buy a warehouse in Walkerville.
Says Tshabalala, who was also assisted with training courses and mentorship: “Without their (Pick n Pay) help this business wasn’t going to take off”.
This article was featured in October 2011 in the Wits Business School Journal (Vol 3, 2011).
Stephen Timm is a