At the July MPC (Monetary Policy Committee) meeting, the Sarb (South African Reserve Bank) made the insightful decision not to raise interest rates, leaving the benchmark Repo rate at 7%. The big disappointment however, came in the form of a lower revised GDP growth outlook for 2016. We cannot continue on this slippery slope; with population growth closer to 2% and GDP growth at zero, the average South African is getting poorer every year. More now than ever, the focus needs to shift to policy and pro-active solutions that will drive South Africa’s economic growth.
Post the ANC’s NEC meeting last week, the ruling party reaffirmed their commitment to the National Development Plan (NDP). There’s a long way to go from zero to the target 5.4% annual GDP growth outlined in the plan. At least there may have been a glimmer of hope when June’s manufacturing output number surprised to the upside, growing 4.5% yoy – followed by a collective economic sigh of relief. But the question remains; how do we create sustainable economic growth?
I’m nervous to (again) bring up the topic of inclusive growth, as I fear dinner party invitations may dry up; nobody likes a stuck record as background music. But, as an asset manager, I am constantly reminded of the fact that meaningful disposable income and direct investments on the JSE still remains in the hands of the privileged few. Not to mention the stubbornly high 27% unemployment rate, which is higher still amongst the youth, and feels like a ticking time-bomb.
In 2016 the Bureau of Economic Research indicated that small, medium and micro enterprises contributed 42% to the country’s GDP. I’d like to think that accommodative policy which supports entrepreneurs and start-ups would be the silver bullet, but I know it’s not. Most entrepreneurs struggle with the high level issues of access to finance, access to markets, and access to skills.
If you did not grow up in a family that discussed business issues, saving or share ownership around the dinner table, or what about simply inviting business executives to that dinner table? Where would you have learned the necessary skills or met with business influencers who could help take your business to the next level? Even from the outset, where would you get funding for a business that has not yet established itself; or in banking speak – is a “bankable deal”?
Fortunately, for even seemingly intractable problems, there is often an innovative solution. I recently met Evan Jones, who is founder and portfolio manager of the Inyosi Enterprise and Supplier Development Investments. These balance sheet investments provide companies with BEE points in terms of the B-BBEE Scorecard, whilst providing much needed funding to black owned SME’s – a win-win solution.
The Inyosi solution specifically looks to target those very issues that have bedevilled most SME’s. The Inyosi Enterprise Development portfolio provides a stable source of loan capital to black owned companies who are looking to expand their business. While the Inyosi Supplier Development solution provides companies, who are looking for supplier development BEE points, with access to a procurement portal. This portal specifically provides black owned companies with access to their target market.
Evan explains “Many small businesses are not able to access markets. When they are successful in securing business, sometimes they have to turn down an order because it is too big for their capacity – i.e. they do not have the working capital to take that deal on. Our solution tries to address this in 2 ways:
- Our preferential procurement platform connects our invested clients with black owned businesses – think of it as a Gumtree for corporates, and
- If a black owned business is successful in securing an order from one of our clients they can approach Inyosi Supplier Development for working capital funding – thereby overcoming a key constraint on smaller businesses.”
At the most recent dinner party, an entrepreneurial friend highlighted the benefits of investing in the Inyosi fund. As well as building her own IT company, she also wanted to support BEE businesses and up the ante on her BEE scorecard. For a time-poor business owner, an investment in a debt fund is less onerous than managing an equity investment and it has the added benefit of being annually re-investable. In addition, as an investor in the fund, she gets access to the Supplier Development Portal where she can procure from the businesses the fund has supported. She’s likely to invite me back as she understands the near unquantifiable positive impact of inclusive growth.
Since 2012 Inyosi Enterprise Development has managed to advance over R160m to black owned beneficiaries which has created scores of jobs and has assisted the loan beneficiaries in successfully growing their businesses. Evan highlighted that they have not suffered a single missed interest or capital repayment since inception.
It is the well-managed, practical solutions like this one that will help drive South Africa’s economic growth. I’m keeping eyes open for more of these, and in the meantime; bring on 2030 and the 5.4% per annum GDP growth target.