JP Morgan banks R340m on SA’s SMEs

Aims to create 1 000 permanent jobs over eight years.
The programme will also provide business and mentorship support to early-stage enterprises. Image: Michael Nagle/Bloomberg

International investment banking giant JP Morgan together with the Department of Trade, Industry and Competition (dtic) on Tuesday announced an investment programme that will see R340 million being deployed to address critical funding gaps for small and medium enterprises (SMEs) mainly in SA’s industrial and ‘green economy’ sectors.

The two entities said during a media briefing that the programme intends to finance the South African economy and generate a positive economic and social impact in the country by supporting SMEs that do not meet the traditional underwriting criteria of general commercial banking requirements.

The initiative will not only provide funding, but also business and mentorship support to early-stage businesses.

Fund, grant

This programme will see JP Morgan becoming the first international investment bank in South Africa to launch a dtic-approved Equity Equivalent Investment Programme (EEIP) called the Abadali EEIP, consisting of The Abadali Fund, a black business growth fund, and the Abadali Grant.

The deployment of JP Morgan’s initial R300 million through the fund and R40 million through the grant is expected to result in R2 billion worth of financing transactions which is expected to create a minimum of a 1 000 permanent jobs over the designated eight-year period of the Abadali EEIP.

“Funding is intended to support small and medium-sized businesses in sectors of significant public importance, ranging from transactions in the green economy to funding for firms with manufacturing operations,” said Trade and Industry Minister Ebrahim Patel.

“South Africa needs more jobs for young people and deeper levels of industrialisation.”

Ebrahim Patel, Minister of Trade, Industry and Competition. Image: Jairus Mmutle/GCIS

“This transaction will give a boost to the country’s localisation efforts, creating employment and helping to strengthen economic output. I welcome the commitment to the creation of 1 000 new jobs and the focus on supporting a segment of the market that is not adequately served by the financial system,” he added.

Short-term finance will be provided to businesses with minimal or no initial revenue, with capital requirement of at least R250 000 over one to 12 months.

The programme aims for applications to be efficiently processed, with turnaround of about a week from application to payment.

Additionally, businesses with no trading history, financials or security will also be considered if they are in the supply chain of large corporates or government as the sole purpose is to develop these SMEs into sustainable businesses and transfer them into the traditional commercial funding sector.

JP Morgan’s senior country officer in South Africa, Kevin Latter, said Tuesday’s announcement “is a key milestone” for the group “after more than two years of constructive engagement with the dtic”.

From concept to reality

“What was an aspirational concept at the start of our thinking in 2017 has developed into a structured programme focused on creating sustainable and inclusive economic growth.

“The South African private sector has great capacity to multiply impact through partnerships, as we are aiming to do with the dtic. Although the current growth rate in South Africa is low and the impediments in the economy well known, now is the time to reinforce and increase our commitment to equality and inclusive growth and work harder across our business to better serve our people, our clients and the communities of South Africa,” said Latter.

The Abadali Fund will offer medium to long term finance at significantly subsidised rates to businesses with revenue starting from R1 million that require funding for two to five years.

Most of the selected and eligible businesses will be black-owned and managed enterprises with a track record of at least 12 months of trading.

The Abadali Grant expects to extend grants of R40 million towards developing black enterprises into sustainable and successful businesses, with a key focus in supporting entrepreneurship and advancing jobs and skills for in-demand sectors such as digital and the green economy.

The fund will be overseen by JP Morgan and will be administered by Masakhe Partners, a joint venture between Edge Ventures, an established fund manager, and ProfitShare Partners, a fintech short-term capital solutions partner. Both are majority black-owned and controlled.

JP Morgan will manage the Abadali Grant.

Palesa Mofokeng is Moneyweb intern.

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Patel : “ South Africa needs more jobs for young people and deeper levels of industrialisation.”

Quite weirdly, only black african owned businesses need finance to create jobs and deepen industrialisation. A youngster I know needs R50m for an import replacement food manufacturing new business. He should not bother applying for this.

I wish this government could try and comprehend how every idiotic move like this (or a dozen others one can recite) merely serves to harden and embitter investors that believe in a free market and might have been inclined to help. Decide whether the 500 Viva shouts among the EFF comrades are worth the 50 capitalists that just shake their heads.

It is quite a unique situation where SA desperately needs job creation and innovation but it now forces other youths that don’t fit the category to find funding and support buy themselves. However, one would expect that a black youth would have the least resources available to them compared to others in terms of financing and building their business.

All I’m saying is something does need to be done in order to uplift the black youth. I don’t know what is and how it will work but they need the extra support. But sadly, a lot of these government programmes rarely yield any results.

Weird that your youngster has the idea and can get the funds but another youngster has no idea about this wealth creating oppertunity. Where did your youngster appropriate these ideas from?

Versace:

He is looking for funding, doesn’t have it. I’ll assume you are sarcastic about the rest

https://blogs.worldbank.org/jobs/how-much-does-it-cost-create-job#:~:text=Costs%20include%20rent%2C%20reserves%20for,jobs%20can%20%2410%20million%20create%3F

1,000 jobs with 340Mil = R340,000 per job

According to the world Bank report and Business Unity South Africa a single job costs an estimated R620,000. That would mean 548 jobs would be created.

I guess the uneducated masses fall prey for numbers very easily and when news like this arrive on front covers as it give them a False Sense of Hope that will spur them to vote again. It happens every election year, numbers get thrown around about the future and then after the X is marked all hope fades…

South Africa employment problem is 20mil people X R620,000 = R12,400,000,000,000

2020 report – Given the size of the economy R4,5Tril divide by R620,000 per job would suggest that we have roughly 7.3mil employed persons whilst at the same time 5.3mil are tax payers (Tito Mboweni).

Stats SA data show that there are 16mil employed persons at variable Working Hour per week Categories (less than 15 , between 15-29, 30-39, 40-45 and more than 45)

This is not a news worthy story. R340m is a paltry sum and is not even worth mentioning on a macro level.

Here she comes to save the day. Cause we wont invest in that doo doo

End of comments.

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