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How Corporate South Africa can support SMME Development

How Corporate South Africa can support SMME Development

by | Oct 1, 2019 | ,

by Karabo Mashugane for IOL, sourced by Fariba Bowen

A 2018 IOL opinion article by Karabo Mashugane argues that the BEE codes are hindering SA’s SME development. The Enterprise Development (ED) scorecard was introduced to drive entrepreneurship and SME development. These became accepted as key drivers of economic growth and job creation. ED requires corporates to invest 3% of Net Profit After Tax (NPAT) on developing SMEs. Unfortunately, most corporates simply donated the required money without bothering much about the development impact realised. What mattered was that the compliance box was ticked.

The amended B-BBEE Codes were introduced in 2013 and ushered in Supplier Development. Corporates were now required to spend a portion of the 3% (ie 2% of NPAT) on the development of black-owned SMEs from whom they procured goods and services.

The logic was that corporate companies would open market opportunities to SMEs and use the 2% of NPAT contribution to capacitate those SMEs. It was hoped that this would encourage entrepreneurship, increase the number of SMEs, drive economic growth and ultimately create jobs.

In the amended B-BBEE Codes, small businesses were split into two categories to ensure the codes really had a broad-based reach. SMEs with annual turnover below R10million were categorised as Exempt Micro Enterprises (EMEs), and those between R10m and R50m labeled as Qualifying Small Enterprises (QSEs).

Corporates are required to spend 15% of their procurement spend with each SME category (30% in total). For large corporates with billions in annual procurement, this created a serious headache. Corporates struggled to meet the targets and some simply gave up.

Unfortunately, those who succeeded were faced with a dilemma. The SMEs which they developed and gave market opportunities might grow turnover beyond the stipulated categories. If that happened, the corporate would not be able to claim the BEE points they sought in that category.

For example, issuing an EME with a contract for R20m per annum increases the EME’s turnover above the R10m threshold. When this happens, the corporate can no longer claim BEE points on that procurement spend in the EME category. It thus risks non-compliance despite acting in the true spirit of BEE.

The result is that, to maximise B-BBEE compliance, corporates avoid developing SMEs or issuing them with large contracts even when it is feasible. The SMEs only receive small purchase orders designed to keep them as unsustainable “one-man” businesses.

As a possible solution, Mashugane suggests corporate tax incentives to encourage corporates to issue large long-term contracts to SMEs (Business Report Opinion&Analysis, April 5). Treasury can lean on its years of experience with tax incentives to design a framework that would keep negative unintended consequences to a minimum. In addition to the tax incentives, another amendment should be introduced to the B-BBEE Codes.

The amendment should allow all procurement spend on a contract issued to an EME to be claimed in the EME category for the duration of that contract. This should remain, even if that EME grows turnover above R10m. Equally so with QSEs that grow above R50m.

For example, a corporate entity issuing a 5-year contract of R20m per annum to an EME should be allowed to claim R20m each year in the EME category on its B-BBEE scorecard. This must continue each year over the 5-year period, even though the turnover of that SME would obviously grow above R10m. This amendment would encourage corporates to issue large long-term contracts to SMEs. It would then lead to more meaningful SME development, economic stimulation and accelerated reduction in unemployment and poverty.

Enquire about our B-BBEE consulting services here.

Experts and Entrepreneurs on Enterprise Supplier Development

Experts and Entrepreneurs on Enterprise Supplier Development

by | Sep 28, 2019 |

by Alex Kinmont

South Africa’s unemployment crisis is showing no signs of improvement. The unemployment rate was most recently recorded at 29%, the worst it’s been in over a decade. According to the National Development Plan, Small, Medium and Micro Enterprises might just be the solution, as globally they tend to employ 60-70% of the population.

South Africa’s SMEs are failing to do this, providing jobs for only 30% of South Africans. Where are we going wrong and how can we fix it? At our September Community of Experts, we discussed the current state of South Africa’s Small, Medium and Micro-sized Enterprises sector and how we can support it.

Workshop speakers were divided into two panels, starting with two seasoned B-BBEE and Enterprise Development specialists, followed by three up and coming entrepreneurs operating township retail, freelancing services and commercial farming enterprises.

Dzivhululwani Mudau and Garry Whitby – both with big four consulting backgrounds – opened the workshop with expert insights into the SMME development and B-BBEE environment.

Mudau is an Enterprise and Supplier Development professional at Accenture with extensive experience in the transformation space. Whitby is a private sector and livelihood development expert with over 40 years of experience in international development, including SME consulting, in Sub-Saharan Africa and South East Asia.

As a PhD scholar researching the effects of B-BBEE on business effectiveness, Mudau provided an overview of the B-BBEE legislative codes around Enterprise Development and emphasised the importance of changing the mindset of companies from a tick-box mentality to a focus on authentically striving for change. He defined Enterprise Development as working with a company or supplier on a one to one basis to improve quality, performance and sustainability. He shared best practices for corporates to consider in developing their enterprise and supplier development policies. These include:

  • Developing policy that outlines the financial and non-financial (including sustainable development) criteria that will be used to evaluate suppliers and the conduct that will be expected from them;
  • Reaching agreement on the governance of Enterprise and Supplier Development  (ensure proper resourcing);
  • Developing a preferential procurement policy that outlines clear objectives and the minimum BBBEE criteria that suppliers must comply with;
  • Developing an Enterprise and Supplier Development strategy and measurable implementation  plan;
  • Setting aside certain commodities for ESD beneficiaries.

Whitby, an independent enterprise development and livelihoods consultant with over 40 years global experience, expanded on his integrated model of required inputs to support enterprise development. These included five fundamental enterprise skills competency pillars; access to key enabling business support and development services; and a stable and conducive political and policy environment.  Whitby, who was one of the pioneers of the Challenge Fund model, noted the importance of involvement of the private sector – especially business associations – in supporting business development financially, through lobbying government and in provision of business development services.

The Entrepreneurs panel opened with Oscar Monama, Chief Operations Officer and Co-Founder of Vuleka, a grassroots economic development initiative. Vuleka is an online platform which facilitates the buying and selling of stock from large corporates and small-scale manufacturers to township-based businesses.

After a decade’s experience in the FMCG market, Monama recognised the enormous potential of the township economy in South Africa. Through Vuleka, he and co-founder, Brian Makwaiba, have found a way to combine tech with grassroots business in a way which is actively building the South African economy. Three years ago they were making their deliveries to their network of township retail outlets with a Mazda 2. Today they have a warehouse with three trucks.

The next entrepreneur to present was Scelo Makhathini, a Chartered Accountant who left a lucrative career in investment banking to follow his passion for entrepreneurship. Makhathini is the Chief Executive Office and co-founder of freelance talent platform, LinkdPro. This online talent matching service was founded based on his experience within the financial services industry, where there was an ongoing need for specific skills sets on a temporary basis. It is also founded on the growing trend towards the gig economy. 

As a beneficiary of a corporate enterprise accelerator programme, Makhathini emphasised the importance of ESD programmes in how they can support entrepreneurs who will in turn provide jobs for our unemployed. LinkdPro now serves blue chip clients locally and globally and is poised for growth and expansion.

Our final speaker and entrepreneur was Sonto Mujakachi from Treasure Trove Farms in North West Province. After following an illustrious international academic and corporate career, Mujakachi decided she wanted to do more for the country and food security became her calling. The name Treasure Trove came through delving into her family’s long tradition as commercial farmers and realising its significance and potential. In the last three years, Treasure Trove farms has become a 7 day operation and is one of the top suppliers of fresh produce to brand name retailers such as Pick n Pay, Shoprite Checkers and Woolworths.

Mujakachi pointed out the difficulties of being an entrepreneur, and explained the risks she took when she used her own cash to finance the start of her business. She shared about a storm that hit her farm in its first year and wiped out all her crops and how this ordeal taught her to be resilient and not give up. Her key pointers to aspiring entrepreneurs are to focus on integrity and quality. Today, Treasure Trove farm is preparing to enter the global export environment.

Enterprise and Supplier Development can have huge impact on the South African economy. Our SMMEs currently form around 98% of enterprises, yet they only employ less than 30% of the population. Globally, SMMEs employ between 60 and 70% of the population, illustrating their enormous potential.

If ESD programmes can build up our SMMEs to meet global standards, such as the examples  of the entrepreneurs profiled, they can have huge impact on the economy. As Mudau and Whitby point out, the focus areas should be on market access and funding and the integration of technology. If corporates focus more on supporting enterprise development initiatives, not only will they meet their B-BBEE requirements but they will be contributing towards building up small enterprises and the economy. With some training and some mentoring, Small, Medium and Mico-sized Enteprises can fulfil their potential and provide jobs to more people.

For a copy of the presentation, click here.

For more information on our New Venture Creation qualification, click here.

Reskilling a Priority to Prepare Workers for the Fourth Industrial Revolution

Reskilling a Priority to Prepare Workers for the Fourth Industrial Revolution

by | Feb 20, 2019 | , ,

Written by Lameez Omarjee for Fin24

A significant amount of reskilling and upskilling is necessary to prepare the workforce for future jobs created by the fourth industrial revolution, according to a report.

The World Economic Forum’s (WEF) Future of Jobs 2018 report released earlier this week, unpacks the potential of new technologies to disrupt and create jobs and what should be done to prepare the workforce for new roles. The findings are based on a survey of chief human resources officers and strategy executives from companies across 12 industries and 20 developed and emerging economies.

According to the research, more than half of all workplace tasks will be performed by machines and algorithms as opposed to 29% currently. However, the evolution of machines in the workplace could create 133 million new roles, compared to the 75 million jobs that will be displaced between 2018 and 2022.

 “While we expect net positive job growth, there will be a significant shift in the quality, location, format and permanency of new roles,” the report read.

Although disruption such as automation will have an impact on the nature of work – the quality, location, format and whether roles are permanent or not – it also presents opportunities and demand for new roles. These roles include data analysts and scientists, software and application developers, e-commerce and social media specialists.

There is also expected to be increasing demand for roles which require human skills – such as sales and marketing professions, innovation managers and customer service workers, according to the report. However, roles which could become redundant include “routine-based white-collar roles” such as accounting and pay-roll clerks.

As for the displacement of jobs, surveyed companies indicate job losses in mining and metals, consumer and information technologies industries is projected to be higher than companies in “professional services”, while job demand will be created in other industries.

Businesses are likely to increase the use of contracted workers doing task-specialised work, more flexible work arrangements to be introduced, increasing use of remote staff, and increasing access to talent by shifting the location from which the organisation operates.

In turn workers will require new sets of skills to keep up with changes. Saadia Zahidi, head of the centre for the new economy and society at WEF noted that companies need to invest in human capital to remain competitive in an age of machines”.

“There is both a moral and economic imperative to do so. Without proactive approaches, businesses and workers may lose out on the economic potential of the Fourth Industrial Revolution,” said Zahidi.

But the survey showed that over half of the companies plan to reskill only those in key roles, while only a third plan to reskill at-risk workers.

Even though all industries are expected to have skills gaps, the aviation and travel and tourism will have the highest reskilling needs between 2018 and 2022.

“Skills gaps are also a particular concern in the information and communication technology, financial services and investors, and mining and metals industries,” the report read. Global health and healthcare, chemistry, advanced materials and biotechnology sectors are most likely to retrain their workers. 

The demand for roles will also vary across regions – for example in sub-Saharan Africa, Latin America, Middle East and North Africa there will be demand for assembly and factory workers. While in East Asia and the pacific and Western Europe there will be demand for financial and investment advisors.

The WEF highlighted the role of government in addressing the impact of new technology on labour markets. This past week stakeholders in government, business and organised labour came together for the Presidential Job Summit in an effort to address the challenges to job creation. Business and government plan to create 275 000 jobs every year for the next five years. Among the solutions proposed includes a focus on training of technical skills in the automotive, construction and hospitality sectors.