South Africa is facing a dire unemployment crisis, with highly skewed patterns of ownership in the business sector. Reams of red tape and legislation, such as Broad-Based Black Economic Empowerment, which have been put into place to address racial inequality in the business environment, have been criticised for being more of a hindrance to doing business than anything else.
The CEO Initiative is working on various projects, such as the launch of an SME fund to help boost job creation in the country, and President Cyril Ramaphosa says these efforts are starting to pay off.
Speaking at an event in Johannesburg on Thursday, Ramaphosa said: “When we started off, people thought we were smoking something but it is beginning to bear fruit. When funds flow into the country, it will lead to continuous growth in our economy.”
The CEO initiative was formed shortly after the firing of Nhlanhla Nene in an effort by Pravin Gordhan and a group of about 90 CEOs and business leaders to manage the fallout that followed and avert a credit ratings downgrade.
The grouping, led by Eskom chairman Jabu Mabuza, is working to improve the relationship between business, government and labour and to assist SMEs with mentoring and access to market. The SME Fund and Youth Unemployment Service (YES) are part of the five streams that have been created by the initiative. Business Leadership SA’s Connect platform, which is working to link corporate SA with black suppliers, is another one of these efforts.
While the YES project got off to a slow start, it has created 3 360 job opportunities for young people since it started operating five months ago. The figure was unveiled earlier in March by YES CEO Tashmia Ismail-Saville, who said that 400 companies committed to creating 11 446 new jobs during this period. The positions are yet to be filled.
While these efforts are positive, SA businesses from banking to mining are currently shedding jobs and there is more pain ahead as higher electricity tariffs kick in. The Minerals Council has forecast that 90 000 mining jobs could be lost as a result of the price hike.
Ramaphosa said Thursday that job creation will no longer come from the big mines and factories. He said that SMEs are going to create the jobs South Africa needs, and that the initiative is operating where it matters most.
According to UNIDO-Harvard University research, there are various opportunities that could be availed to SMEs through linkages with large firms including procurement, enterprise development, distribution and franchising, among others.
This is where the CEO Circle, which was launched on Tuesday, comes into play. It aims to filter approved small companies to shareholders of the SME fund in so that the bigger company can provide the support and mentorship necessary for these smaller companies to grow.
Shareholders in the fund include more than 50 listed businesses such as Anglo American, Growthpoint, Curro, Vodacom, Imperial, FirstRand, Mr Price, Sasol and Sun International, among many others.
Discovery CEO Adrian Gore, who also spoke at the event, said that the shareholder base of the SME fund will be leveraged to develop black companies and incorporate them into their supply chains. He says that the new project has received a collective commitment from CEOs of big business to support SMEs in SA.
In terms of the search and selection process, mentor businesses must have a current annual growth rate of 20% and higher for five years with an annual turnover of over R50 million. Gore says the team will look for a company that has been in operation for at least five years with a strong leadership team.
Around R1.5 billion in seed funding has been committed to the SME Fund by shareholders to invest in venture capital and social impact funds, which invest directly in scalable SMEs with the potential to become drivers of growth in the economy. Half of this capital will be allocated to black funds with the other half split by Indian and white.
Of the almost R1.5 billion pledged to the fund, R725 million has been committed to ventures to date. Ketso Gordhan, CEO of the fund, said that the remainder will be committed to a pipeline of deals by August. By this point in time, “we will be the largest institutional investor in venture capital in SA”.
However, he explained that this pales in comparison to the VC market in the US. “Economies grow because of innovation and technological advances and venture capital brings this together, In the last year, the US invested $82 billion in venture capital. This is almost three times SA. In a day, they invest more than we do in a year.”
While the fund’s focus is on SMEs, the desire is to create large big businesses, Gore explained. “The goal is to create 10 significant black businesses, 200-plus SMEs and five global businesses in five years.”
In adding to the update on the fund, Gordhan said that at the end of the investment process, they want to see that the business has grown three to five times. “We are finding the fund managers to deliver this outcome.”