SMMEs accessing BBBEE support: South Africa
From www.entrepreneurstoolkit.org
Aligning the current support measures with the broad-based black economic empowerment strategy
Excerpts from South Africa’s Economic Transformation: A Strategy for Broad-Based Black Economic Empowerment [1]
A number of studies, reviews and consultative processes commissioned by the dti and allied organisations over the past five years to address black-owned small and medium enterprises have uncovered systemic constraints that, individually or in combination undermine their growth and development. Access to finance has been identified as the core problem. The dti SMME Finance Reference Group Report confirms that “…in surveys among small enterprises all over the world, access to finance comes out as one of the most urgently felt needs.” The criticism of post –1995 support for small business in South Africa centres around the difficulties that individual, mainly black-owned and black-controlled businesses experience in their efforts to acquire start-up finance or funds for the establishment and expansion of their businesses. Rural communities, particularly black women, are denied access to affordable financial services. Most of these women still cannot open bank accounts. Furthermore, millions of black persons are unable to access any form of credit. The financial sector remains geared to meet the needs of the minority section of the population and those in urban areas. The poor in general, and small- and medium-sized enterprises in particular, have not been able to secure sufficient funding from the formal financial sector. Despite numerous attempts to address this problem, by both government and the private sector, access to funding remains a major challenge. (…) South Africa has a relatively large venture capital market with over R25 billion available for investment; however, this is mostly targeted at large “safe” investments. Funding available for start-up and risk capital for small and medium enterprises (SMEs) is estimated at R1 - R2 billion. It would be concluded that the amounts of venture capital accessible to BEEs would be a minor percentage of the R1 to R2 billion precisely because of red lining and the view of financial institutions that BEEs constitute a higher financial risk. Regrettably even those organisations that have specific development and empowerment agendas remain risk averse and prescribe as an imperative prerequisite that prospective entrepreneurs make own financial contributions to the intended businesses. For instance the Khula Equity Fund requires that the promoter of a business concept contributes between 15% to 20% of investment cost, while the National Empowerment Fund “will invest only where the HDPs are making a significant commitment of their own resources (financial, skills, etc).” Current and past incentives, whether offered in the form of investment grants, tax allowances or matching grants by the dti through The Enterprise Organisation, a division of the dti, can only be accessed after an entrepreneur has invested and brought the business into operation or if the entrepreneur can contribute a matching amount. To date the number of BEEs who access the dti incentives is still unacceptably low. This limited access can be attributed to the following factors:
- Of the applications for incentives to the dti, 80% to 90% are submitted by consultants, who have limited links or accessibility to black entrepreneurs,
- BEEs have limited knowledge of government policies and enterprise support measures and,
- Distribution channels are limited.
South Africa's BEE portal
The Department of Trade and Industry (DTI) has launched a new website in 2008 offering a wealth of resources, including legal information and useful tools, related to black economic empowerment (BEE) in South Africa.
See the portal under: [2]
The new portal is in line with what was expected by the BEE codes of good practice, and aims to help the government monitor and report on the implementation of BEE across the economy. The portal aims to promote business opportunities, manage the flow of information to the department, and provide a channel through which members of the public could report on BEE "fronting". Visitors to the portal can use an interactive self-assessment tool, likened to a BEE calculator, which will help companies gauge their empowerment credentials. The portal further aims to simplify compliance and minimise costs associated with broad-based black economic empowerment, standardise the reporting process by stakeholders, and encourage broader participation. The system is being phased in gradually, with more information expected to come from verification agencies, state-owned entities and sector charter councils as required by empowerment legislation.
See also:
