MAGDELINE Paledi is one of over 33 000 business owners and co-operative members who received funding from one of three national agencies and four grant incentive schemes in the last financial year – a year in which government finance to small firms doubled over the 2011/12 financial year.
If funding from the Industrial Development Corporation’s (IDC) various funds that go to small firms and those disbursed by provincial development finance institutions are also included, the amount channelled to small businesses by the government in 2012/13 come to tens of millions of rands more.
A further over 54 000 enterprises were assisted by various national state agencies with non-financial support, such as business incubation, marketing help and funding for research & development (R&D).
Paledi, the chief operations officer at Limpopo-based Mudzhadzhi Mmagongwana Joint Venture, received R3 million in bridging finance to help complete a school in Serafa Village for mining company Anglo Platinum.
“It (the funding) has removed a lot of stress,” said Paledi, who added that the contract has helped create 70 jobs, with 11 sub-contractors hired from the local Burgersfort community.
Most of the over R1 billion in funding given out in 2012/13 to small firms was in the form of cost-sharing grants from the Department of Trade and Industry – to assist small businesses to buy equipment, improve business practices and to attend trade shows and help them to export.
The department more than doubled its disbursements through four of its incentives schemes aimed largely at small enterprises – from R242.6 million in grants to 1 396 enterprises in 2011/12, to R646.5 million to 2 612 enterprises in 2012/13.
The four schemes are: the Black Business Supplier Development Programme (BBSDP), Co-operative Incentive Scheme, the Export Marketing and Assistance Incentive (Emia) and the Small Enterprise Development Agency’s (Seda) Technology Transfer Fund.
A further R437 million was given out in loans to over 31 000 small and micro enterprises by the National Empowerment Fund (NEF), the Small Enterprise Finance Agency (Sefa) and the National Youth Development Agency (NYDA).
This is significantly up from the R272 million lent out in the previous financial year by these agencies, but down from the over 73 000 loans lent out in 2011/12 – most of these micro-loans.
Much of the increase in the number of grants given out was driven by the dramatic increase in disbursements through the BBSDP – which helps to fund equipment and improvements in management practices for black-owned firms – with disbursements climbing 396% between 2011/12 and 2012/13.
The department attributed the increase in approved applications to intensive marketing of the programme and an enhanced adjudication process.
The department is implementing an online system to improve the administration of incentives and aims to have this in place during the current financial year.
This would improve turnaround times for applications, while making it easier to monitor disbursements.
The bulk of small firms funded – 28 300 (most of them micro enterprises) – were financed by the Sefa, which was launched in April last year after the merger of the SA Micro-finance Apex Fund (Samaf) and Khula Enterprise Finance.
Sefa provides funding both through intermediaries and banks (via a credit guarantee scheme) and direct to small businesses through its branches.
The R198 million that the agency lent out in 2012/13 – which is expected to create over 19 900 jobs – is significantly higher than the combined R130.7 million lent out by the agency’s predecessors Samaf and Khula in 2011/12.
Although disbursement were up, the number of beneficiaries fell over 2011/12 when Samaf lent out loans to 62 459 recipients through a network of micro-finance institutions and financial service co-operatives in 2011/12.
This year the agency plans to set up 14 new branches – co-located with Seda or the IDC. It has also entered into partnerships with the SA Institute of Chartered Accountants (Saica) and others to provide businesses with pre-loan support.
While impairments increased from 40% to 43%, Andile Ramavhunga, Sefa’s chief financial officer, said in the agency’s 2012/13 report that impairments in the loan portfolio were high due to the existence of legacy transactions, which were provided for, but not written off.
However notably impairments under the R41 million direct-lending portfolio was low. The move to direct lending raised concern among bankers when it was initiated in 2011 under Khula because of the risk of lending direct to enterprises.
“These are mainly as a result of late payments by government departments,” noted Ramavhunga in the agency's annual report.
The bulk of Sefa funding, R157 million, was lent out in wholesale finance – through banks (via a credit guarantee scheme) and finance intermediaries.
The agency aims to revive the credit guarantee scheme which it inherited from Khula, but which ground to a virtual halt in 2009 after defaults rocketed – to over 42% between 2006 and 2010. This has made banks weary to make use of the scheme. Last year just R21.4 million was approved under the scheme.
In April officials at the agency met with banks to discuss their concerns over using the scheme, and had in the last year introduced a more flexible claims process – which up till now has been one of the banks’ central gripes with the scheme.
Sefa’s head of wholesale lending, Dennis Jackson, said earlier this year that the agency now settles claims immediately upon the bank having secured judgement against a borrower. Any subsequent outstanding monies recovered from the borrower are then paid to the agency.
Meanwhile changes are afoot at the NEF and NYDA, while the NEF, which was initially capitalised in 2004 by the government to the tune of R2.5 billion, is focusing on getting new funds, the NYDA took a decision in May to no longer give out loans.
In its place the agency will offer grants of between R1 000 and R100 000 to survivalist micro firms. Previously the agency had offered loan finance of up to R5 million.
The IDC and Sefa have stepped in to together make available R2.7 billion in loans to youth entrepreneurs over the next five years.
New NYDA chairperson Yershen Pillay, who was appointed in March, said earlier this year that the agency would complement the loan finance offered by the IDC and Sefa with business support and mentorship.
Pillay, who was appointed in March, said the agency had about R25 million which would fund business vouchers and mentorship support and allow it to disburse grants to about 37 000 youths.
In the last financial year 1 833 youth entrepreneurs, most running micro enterprises, received funding of R30.2 million from the agency.
Pillay said at the time that the decision to drop loan finance and focus on education and skills development was taken in that just 4.6% of those between the age of 15 and 24 derive their income from business-related activities.
Impairments at the NYDA were at just under R193m or 52% of its book in 2012/13, up from 47% the previous financial year, and steps have been taken to contain defaults.
In a parliamentary reply in April by the Minister of Performance Monitoring and Evaluation Collins Chabane detailed a number of measures to collect outstanding repayments – using debt collectors and court judgments. He said some clients had already started calling in to make the necessary offers and arrangement to settle their outstanding loans.
The state’s national agencies and funds also assisted 54 000 enterprises and individuals with non-financial support.
The NYDA assisted the largest number of those assisted were 36 000 youth entrepreneurs, by the National Youth Development Agency (NYDA) with training material developed by Seda and business vouchers which helped fund business support such as marketing materials and company registration.
A further 10 208 business owners and potential entrepreneurs were assisted by Seda with business support such as helping to draw up business plans to assistance with marketing.
Most of those assisted with interventions (72%) have fewer than five employees, 13% are not operational yet and the remainder (15%) employ between six and 200 people.
During 2012/13 60% of small firms assisted by the agency grew their sales (compared to 56% in 2011/12) and 35% grew the number of employees (32% in 2011/12).
During the last financial year Seda also assisted 2 247 entrepreneurs with business incubation, helping to create 2 161 jobs – the highest number of clients assisted and jobs created in the last four financial years of the programme.
The agency has helped created 1 119 new enterprises in the last four years, with 376 in the 2012/13 alone, through its technology programme.
During the last financial year the agency also set up eight new incubators, bringing to 42 in all the number of incubators.
Siphiwo Soga, the programme’s acting executive manager, said earlier this year that a further three incubators were in the implementation phase, and that a rapid enterprise development programme is also under consideration. This will involve nine Further Education and Training (FET) colleges spread nationally.
Seda’s chief executive Hlonela Lupuwana noted in the agency’s 2012/13 annual report that the agency’s client journey model is now well entrenched and that client satisfaction levels had reached unprecedented levels, with 98% of clients who received Seda services rating the interventions as either good or excellent.
Seda also increased its network in the Western Cape with the addition of 12 satellite branches, it also provided.
However just 60% of incubation clients were satisfied with the support Seda offered (down from 70% the year before) – most of it about access to finance and research – and the agency said it would address this in the current financial year.
Other agencies also provided business owners with various business interventions – including:
· 1 770 entrepreneurs assisted with product development through the Technology Innovation Agency’s (TIA) 13 technology stations, three tooling stations and 15 platforms – slightly up on the 1 718 assisted in 2011/12.
· Over 3 600 tourism enterprises were assisted with training and mentoring by the Tourism Enterprise Partnership. This is up from 3 500 in the previous financial year. This support helped small tourism businesses to create 4 901 jobs and increase their revenue by over R775 million.
· 1 460 budding entrepreneurs trained by the National Empowerment Fund (NEF), with 90% based in rural areas.
· 427 small businesses which took part in the Productivity SA’s the Workplace Challenge Programme, which gets firms of different sizes to work together in a cluster to improve their productivity. Participation has climbed from 2009/10 when 92 small enterprises were assisted.
· 198 small enterprises which received Technology and Human Resources for Industry Programme (Thrip) grants to help carry out research with the help of academic institutions – slightly up on the 2011/12 year where 191 received grants.
This feature originally appeared in Public Sector Manager (PSM) magazine in November 2013.
Stephen Timm is a