Entrepreneurship

Entrepreneurship report reveals how startups can drive growth in a disrupted world

USB News

Entrepreneurship report reveals how startups can drive growth in a disrupted world

  • JUNE 11
  • Tags Entrepreneurship, South Africa, GEM Report, startups, entrepreneurs, economy, growth, social change

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USB launches Global Entrepreneurship Monitor South Africa (GEM SA) report in partnership with GEM SA and Seda.

The economic and social upheaval caused by the COVID-19 pandemic underlines the need for a collective, and robust national strategy to unlock entrepreneurship in South Africa.

Already before the pandemic, many aspects of the country’s entrepreneurial ecosystem needed a major overhaul. This is highlighted in the Global Entrepreneurship Monitor South Africa (GEM SA) 2019/2020 report.

The University of Stellenbosch Business School (USB), the Global Entrepreneurship Monitor (GEM) and the Small Enterprise Development Agency (Seda) launched the report on Monday, 8 June 2020.

GEM’s research output is considered the world’s most authoritative annual report on the global state of entrepreneurship. USB is the new custodian of this research in South Africa. The study included a survey sample of 3 300 people, and the national expert survey involved the input of 36 experts from diverse fields.

Angus Bowmaker-Falconer and Mike Herrington co-authored the report. Bowmaker-Falconer is a research fellow at USB. Herrington, previously the executive director of the Global Entrepreneurship Research Association, established GEM SA in 2001.

The GEM SA report – titled Igniting startups for economic growth and social change – contains the hard facts, data and figures that highlight trends in entrepreneurship in South Africa. The results of the study reveal the fundamentals to consider when developing an informed response aimed at securing economic recovery.

Bowmaker-Falconer says: “The pandemic has intensified the country’s economic challenges. We know that earnings have been affected, that further job losses are likely, and that many small, medium and micro enterprises may not survive under these extraordinary high stakes.” Most local companies are small or medium-sized enterprises and many will battle to stay afloat after one to three months with no or limited trade and income. “Early-stage entrepreneurial startups (new ventures less than 3,5 years old) are likely to be ravaged,” he says.

The economic and social recovery could take several years. GEM’s research during the 2008/2009 global financial crash showed a significant dip in early-stage entrepreneurial activity across the globe. Entrepreneurial ecosystems took two to three years to reach pre-2008 levels after this event. The recovery curve was driven directly by country-specific economic policy and financial support responses.

Unpacking the results
Here are some key findings from the report:

  • South Africa’s entrepreneurial ecosystem was rated one of the most challenging in the sample of participating economies in 2019 and has exhibited little sign of improvement over the past few years.
  • In 2019, South Africa ranked 49th out of 54 economies on GEM’s National Entrepreneurship Context Index, ahead of only Croatia, Guatemala, Paraguay, Puerto Rico and Iran.
  • Societal values regarding entrepreneurship show an upward trend from 2003 to 2019. Specifically, there has been an increase from 2017 to 2019 in the number of people who see entrepreneurship as a good career choice (from 69.4% to 78.8%) and one with high status (from 74.9% to 82.2%).
  • There has been a substantial increase (from 43.2% in 2017 to 60.4% in 2019) in the number of individuals who perceive that there are good entrepreneurial opportunities in South Africa and believe that they have the skills and capabilities to start a business. This number is relatively high compared to many other economies.
  • Yet fear of failure is high at 49.8% among South Africans. This factor – likely a deterrent for individuals to start a business venture – has increased significantly from 2017 to 2019.
  • Only 11.9% of respondents have entrepreneurial intentions. This means one in every eight South Africans are latent entrepreneurs who intend to start a business within the next three years.
  • There was a small increase in the total amount of early-stage entrepreneurial activity (TEA) in the country between 2016 and 2017. This momentum was not, however, carried through to 2019, which showed no real increase from 2017 at only 10.8%. This TEA rate was below the average of 12.1% for the other participating African countries in 2019.
  • South Africa’s business exit rate decreased from 6.0% in 2017 to 4.9% in 2019, but is still higher than the established business rate of 3.5%. This confirms that more businesses are being closed down, sold or otherwise discontinued than being started.
  • There is clear evidence of purpose-driven entrepreneurship taking hold at a grassroots level – an encouraging sign of a collective will for future business sustainability.

Changing gears, moving forward
Moving from startup to scale requires the right support from the government and the private sector alike. The report calls for interventions in terms of government policies and initiatives, market openness, entrepreneurship education and training, and the availability of and access to finance to foster entrepreneurship.

Bowmaker-Falconer says: “Government is an enabler and fully supports and understands the importance of entrepreneurial development for inclusive economic growth and social cohesion.”

“The Department of Small Business Development (DBSD) announced significant new measures before this crisis related to access to funding. These measures include harmonising funding applications across all developmental finance institutions and introducing a blended financing model to reduce financing costs for entrepreneurs. Overall, the focus for the government should now be on achieving policy and support initiative alignment priorities.”

The government’s economic stimulus package to help bridge COVID-19 is significant, and the impact thereof for SMME’s needs to be evaluated and made public. “Big business needs to partner with the government and play their part in opening markets and value chain participation for smaller enterprises,” Bowmaker-Falconer says.

“Financiers, together with incubators and accelerators, need to help better prepare and educate entrepreneurs on how to pitch their business ideas, how to approach funders, and to navigate what kind of funding is most appropriate to their specific enterprise. What is very clear is that a cohesive and collective response is needed to ignite economic development and social cohesion potential beyond this crisis we are now in.”

An underlying key requirement for managing South Africa’s economic recovery is data. Integrated and public information is critical in understanding and planning how best to stimulate and support the entrepreneurial ecosystem going forward.

Furthermore, there is also a need for more intense entrepreneurial education to engage with the opportunities offered by the Fourth Industrial Revolution (4IR).

As the sponsor of the study, Seda will now facilitate the implementation of the recommendations across the broader small enterprise development support system with its partners. One of the areas currently being pursued by Seda is identifying partners who can enhance its service offerings in research.

Bowmaker-Falconer concludes: “Entrepreneurship matters. Now, more than ever, startups, and specifically those driven by young entrepreneurs and women, need to deliver the innovation required to move us forward in a highly disruptive (and disrupted) world.”

Read the report here

About GEM
Global Entrepreneurship Monitor (GEM) is a consortium of national country teams, primarily associated with top academic institutions, that carries out survey-based research on entrepreneurship around the world. GEM is the only global research source that collects data on entrepreneurship directly from individual entrepreneurs. Visit www.gemconsortium.org for information.

About Seda
Seda is an agency of the Department of Small Business Development. It is mandated to implement the government’s small business strategy; design and implement a standard and common national delivery network for small-enterprise development; and integrate small-enterprise support agencies across all tiers of government. Visit www.seda.org.za for information.

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Township entrepreneurs fighting hunger in communities

Township entrepreneurs fighting hunger in communities

USB News

Township entrepreneurs fighting hunger in communities

Township entrepreneurs fighting hunger in communities

  • JUNE 02
  • Tags SBA, small businesses, community, COVID-19, Community Feeding Network,

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SBA participants pull together to feed disadvantaged communities.

With millions of people during COVID-19 in need of food and NPOs struggling to service the alarming rate of hunger, entrepreneurs in Cape Town’s disadvantaged areas started the Community Feeding Network, pulling forces to make a difference.

The group of small business owners in Khayelitsha, Strandfontein, Mitchell’s Plain and Mfuleni purchase fruit and vegetables from urban and township farmers, package them in family units and delivery to vulnerable people living under the bread-line in their areas.

One fruit and vegetable unit can feed a family of 10 and at R150, each of these boxes are financed through the kind donations of caring South Africans and as far afield as Belgium and Germany.

Currently they are weekly feeding over 60 families and expanding their service further as donations are received. They are also servicing a number of feeding schemes with fresh produce that can be turned into wholesome cooked meals. The network is also growing with more entrepreneurs coming forward to join the fight against hunger.

The small businesses owners who are pulling resources and supporting each other are either current or past participants of the Small Business Academy of the University of Stellenbosch Business School (USB) which offers sponsored tuition in order to strengthen and grow small businesses in underprivileged communities.

Community Garden

Using the knowledge acquired whilst on the programme the founders of this network had to think literally outside of the box as the businesses they had built up over many years, closed literally over night as lockdown was enforced.

Sandy Hendricks and Jackie Julie Brock (both from Mitchell’s Plain) and Kiki Bantom (from Khayelitsha) all had their own catering business. With the lockdown restricting the preparation of hot meals they were without any form of income.

In order to survive and noting a gap in the market, Sandy applied for an essential services certificate and started delivering fresh fruit and vegetables from her contracted farmers to her usual clientele, at the same time selflessly sharing produce with community feeding groups battling the huge challenge of hunger.

Meanwhile Kiki applied for an essential services certificate to open a Spaza Shop, and upon speaking one day to Sandy, decided that together with Jackie they can expand their reach of supplying nutritious food to those in need, whilst having some form of income, albeit minimal, to keep their own families fed.

They were soon joined by Alfred Sonandi from Mfuleni who’s waste picking business came to an abrupt halt and was desperate for income. Together with a friend who used to own a fish and chip shop, they are now delivering fresh produce to families in need as well as preparing soup to try and assist in alleviating the dire need for meals. Jody Morris, who has a graphic design business in Strandfontein, also joined the network to distribute food to 20 vulnerable families from the Strandfontein Children’s Cricket Club that he supports. Alfred, Kiki and Jody are also planning to teach the recipients to start their own backyard gardens to supply fresh fruit and vegetables post lockdown.

Giving-back has always stood out as a central theme amongst all our participants over the past six years of running this programme.

Coordinating the efforts of the entrepreneurs and creating a central hub for the network is Edith Kennedy, lecturer at USB’s SBA programme. She said the lockdown has pushed small businesses into uncharted waters, especially in the informal settlements, and she realised the desperate need for them to during this trying time to find some form of income whilst supporting their communities.

“Giving-back has always stood out as a central theme amongst all our participants over the past six years of running this programme. Naturally, they want to see their business grow and succeed but not at the expense of supporting their communities and sharing skills, time or money to uplift those who are struggling. During the lockdown I helped them to look for new opportunities, how to pull resources and find solutions with the assistance of other entrepreneurs, all whilst providing a service to the community.”

If you would like to sponsor a box please contact Edith Kennedy on edith.kennedy@erunway.co.za

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Life after lockdown: Survival of the fattest

USB News

Life after lockdown: Survival of the fattest

(Source: Pexels)

  • APRIL 21
  • Tags COVID19, coronavirus, lock down, business, pandemic, markets, economy, government

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The coronavirus will lead to business failures, market consolidation and entrench incumbents with strong balance sheets. Should policymakers react?

South Africa’s state of national disaster, lockdown and regulations have restricted movement of people, curtailed the free market and blurred the lines between business, government and society, raising the question of how their roles and responsibilities might shift in a new, post-pandemic social contract.

University of Stellenbosch Business School (USB) visiting lecturer in Corporate Finance Brett Hamilton, said it was clear that the COVID-19 pandemic would lead to business failures, with the SA Reserve Bank estimating an additional 1 600 business insolvencies this year¹, while the “fattest” – those with the strongest cash reserves – would likely survive.

We find ourselves in one of the most uncertain periods of human history. It is blurring the lines between business, government and society.

“We find ourselves in one of the most uncertain periods of human history. It is blurring the lines between business, government and society. Policymakers are confronted with an unprecedented, and impossible, trade-off between public health and economic growth.

“Given the speed and uncertainty under which these complex decisions are made, we have seen unprecedented actions from governments, central banks and businesses. In many cases, governments have overstepped their usual political and ideological boundaries and business has somewhat embraced stakeholders over shareholders.

Fighting the spread of the coronavirus requires ‘big government’ and ‘business with a heart’ to work together.

“Fighting the spread of the coronavirus requires ‘big government’ and ‘business with a heart’ to work together – it may be expected and the right thing to do in a crisis, but the question is if these roles will remain after the pandemic,” he said.

Hamilton, a director at First River Capital, said cashflow was “the lifeblood of any organisation” but lockdown had severely restricted businesses’ ability to generate cash through operations, while accessing cash through debt or equity investment were limited in the current economic climate, and possibly unwise.

The latest downgrade by Moody’s of South Africa’s credit rating to sub-investment grade severely restricts the country’s access to debt and has seen a spike in the cost of debt, he said, noting that the South African 10-year government bond yield reached a maximum of 12.36% on 24 March compared with a low of 7.9% in 2018.

“So, debt may do more harm than good during these times, even with the debt relief pledges made by banks,” he said.

This leaves “Alpha companies” – large, mature and cash-flush – in prime position to “weather the storm, buy out their competitors and continue to invest for growth after the pandemic”, he said.

“Markets will become more concentrated and the position of incumbents more entrenched. The business world will look different after the pandemic and it will most likely fall on governments to regulate the new ‘Alphas’ to ensure better competition. If it should do so and how it should be achieved remains to be seen,” he said.

Hamilton said the shifting of roles brought about by the pandemic raised the question of the role of companies in the market: “Is it to ensure its own survival, by accumulating cash, or to stimulate growth at all costs? If companies decide to pursue stimulus over being conservative (retaining cash for rainy days), what responsibility then do governments have to support businesses that now have no further cash holdings due to operations being suspended by the pandemic and lockdown?”

During the pandemic we have seen many companies shift to a more socialist stance, offering free products, expertise and financial aid to their employees and to other virus-related efforts.

“During the pandemic we have seen many companies shift to a more socialist stance, offering free products, expertise and financial aid to their employees and to other virus-related efforts. Is this perhaps the dawn of a new social contract?”

Hamilton pointed to a 2017 report funded by the South Africa Department of Trade and Industry and published by the University of Johannesburg’s Centre for Competition, Regulation and Economic Development² which held that South African companies were accumulating reserves as opposed to investing it in the economy and, thus, stimulating economic growth.

The report noted that between 2005 and 2016, the cash reserves of the top 50 companies on the JSE increased from R242-billion to R1.4-trillion and called for policy intervention from government to stimulate domestic investment by these companies and put an end to the “investment strike”.

He said that while there were counter-arguments to this – that “cash hoarding” was a myth and merely a reflection of the business environment at the time³– if government policy had been used then to force South African companies to spend their cash holdings, fewer would now be in a position to weather the current storm.

“This could support the view for lower government involvement in business and the protection of the free market. That being said, government intervention during the pandemic has not only been welcomed by many, but in most cases has been expected. Similar to the financial crisis of 2008/9, governments have moved to act to protect the free market, but in many countries the interventions for the coronavirus have been more radical.

“Putting a freeze on the free market by way of lockdown is counter to the political and economic ideologies of many countries, but they have acted nonetheless,” he said.

Government intervention should also focus on the ability of the economy to recover after lockdown has lifted.

At the same time, he said, government intervention should also focus on the ability of the economy to recover after lockdown has lifted – “to ensure that enough businesses remain standing and that people are employed through the crisis to quicken the pace of recovery after the pandemic”.

“What is required is the ability for companies to maintain payroll, gain access to debt financing and for central banks to provide the latitude for banks to reschedule loans (possibly with forbearance through credit guarantees). For this, governments must pull out all stops in terms of fiscal action,” Hamilton said.

With South Africa’s “limited fiscal latitude”, external finance would be required and should be accessed from as many sources as possible, including bonds, accessing the capital market, as well as a reliance on development banks such as the IMF.


Sources

¹SA Reserve Bank. Monetary Policy Review. April 2020. https://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/9839/Monetary%20Policy%20Review%20%E2%80%93%20April%202020.pdf

²CCRED. 2017. Companies hoarding R1.4-trillion in cash. CCRED article. 4 August 2017. https://www.competition.org.za/seminars/2017/8/4/companies-hoarding-r14-trillion-in-cash

³Tambo, O. & Theobold, S. 2017. The myth of corporate cash hoarding. Intellidex research report. September 2017. https://www.intellidex.co.za/wp-content/uploads/2017/09/The-Myth-of-Corporate-Cash-Hoarding-Final-Report.pdf

Brett Hamilton is a visiting faculty member at the University of Stellenbosch Business School (USB), where he teaches Corporate Finance and Decision Analysis (Managerial Statistics) in the MBA programme – as well as short-term classes for various academic institutions in South Africa and abroad.

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StatsSA Covid-19 Survey

StatsSA Covid-19 Survey

USB News

‘4 in 10 businesses feel that they cannot continue to operate’ – StatsSA Covid-19 Survey

StatsSA Covid-19 Survey
(Source: https://www.pexels.com/photo/red-and-white-signage-3962259/)

  • APR 21
  • Tags COVID-19, lockdown, coronavirus, businesses, operations, survey, StatsSA

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Seraj Toefy, Custodian of Entrepreneurship at the USB, comments on the rapid response survey, conducted by Stats SA during lockdown, on how the current crisis is affecting businesses.

COVID-19: Four in ten business feel that they cannot continue to operate

The statistics paint a grave picture to the extent to which Covid19 is affecting businesses, and while it is comprehensive, it still doesn’t paint the severity of the overall situation.  In South Africa, we have a huge workforce that is paid weekly, and is most likely without income while the company they work for still hangs on to survive.  For many companies that will try their best to stay alive during this period, they are having to shed their weekly workforce and short pay their full-time workforce.  The devastation of the lockdown will be felt for months to come, as many people are putting themselves into further debt just to survive this period.

The devastation of the lockdown will be felt for months to come, as many people are putting themselves into further debt just to survive this period.

More about the survey: http://www.statssa.gov.za/?p=13236

I find it hard to compare the 2008/9 with the current situation only because of the sheer scale of what we are going through. In 2008/9 there were many sectors that were affected to a very small extent, and some countries and regions could ride the wave because of the different stages of economic cycles they found themselves in.  This crisis is all-consuming. There is NO person or company on the planet that is unaffected by this, and within that lies both the problem and the opportunity.  If everyone is going through this, then the strong, and those who are adaptable and resourceful, will not only survive but thrive after.

There is no person or company on the planet that is unaffected by this, and within that lies both the problem and the opportunity.

Another factor to consider is that the survey was done with companies that turnover over R2 million or more per annum.  Once again, in an environment like South Africa, we have thousands of smaller traders, formal or informal.  These companies or individuals will be suffering immensely because even though their overheads are low, their liquidity is very tight and they have very little cash on hand to ride out this period.  Even if they can survive to feed their family during this period, it is severely impacting their ability to bounce back when the lockdown is lifted because they are most likely living off their working capital.

The bottom line is that the COVID-19 crisis is very quickly shifting from a medical emergency to an economic one.  There is just way too little money in the fiscus.  Just like a giant machine with many cogs intertwined to make it work, without money in the system, the country grinds to a screeching halt. The longer we wait to lubricate the cogs, the harder it will be to get back up to speed.  We CANNOT afford to extend the lockdown in its current capacity.

Seraj Toefy USB*Seraj Toefy lectures Entrepreneurship at the University of Stellenbosch Business School (USB) and is Head of Africa at Centuro Global.

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Life after lockdown

USB News

What does life after lockdown look like?

  • MAR 31
  • Tags COVID-19, Coronavirus, Lockdown, Economics, Corporate finance, Business, Development Finance, Industry, Investments, SARB, Moodys, EBITDA

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Guest lecturer in corporate and development finance at USB, Jason Hamilton, forecasts the covid-19 21-day nationwide lockdown will have on South African industry.  

The global COVID-19 pandemic has made its presence felt in South African retail and consumer-focused businesses, especially in tourism and hospitality, but the full impact on earnings, cash flow and employment will last far longer than a three-week lockdown.

With the 21-day nationwide lockdown in place, the full effects will now ripple through all sectors and industries at least until the end of this year – in an “economic cycle like no other we have ever seen”, says University of Stellenbosch Business School (USB) guest lecturer in corporate and development finance, Jason Hamilton.

Hamilton, a director at First River Capital, said with the South African economy already under severe pressure – the SA Reserve Bank (SARB) having revised its GDP forecast down to 0.2% for 2020 – it was expected that the impact of slowed-down global growth (expected to contract by 2.1%) due to the pandemic would see South Africa’s GDP retracting by between 2.5% to 3.5% with some models estimating up to 5%.

Moody’s downgrade of South Africa’s credit rating on Friday (27 March) would result in further outflows which the country can ill afford, he said, and the cost of debt would increase.

“Up to the lockdown businesses were able to trade and generate some earnings to keep the lights on, keeping employees employed and earning some level of income. A total lockdown will bring significant retrenchments across all sectors and industries, with cashflow and earnings under threat in businesses of all sizes.

A total lockdown will bring significant retrenchments across all sectors and industries, with cashflow and earnings under threat in businesses of all sizes.

“It is also looking likely that some form of control and restrictive measures will remain in place for months to come, which means we will be dealing with this until the end of the year – even if we look to China, which now has a flattening curve, they are more than five months into the battle against the disease while trying to keep their economy alive,” Hamilton said.

Data from the last 11 global recessions indicate that it takes on average a year-and-a-half for the economy to start recovering, but the current economic cycle is unlike any other.

“Recessions we have seen, and we have traded through them, and the average of 18 months to the start of recovery in theory gives us a timeline to follow. But the market sell-offs and economic cycle (reduced GDP growth or recession) we are busy entering is based on an event, not on fundamentals or underlying economic systems issues, which means it’s very difficult to predict how long and how impactful it will be.

“What we can, however, focus on is that it is event-driven and hence the recovery and comeback should be quick, the question is just when,” said Hamilton.

Interest rates – room to move

Unlike many developed economies where interest rates are already close to zero, Hamilton said it was a positive that the SARB still had “significant room to provide support of at least 300 basis points” even after the repo rate was lowered by 100 basis points, as the inflation outlook remains within the target midpoint.

“We have seen significant cuts in short succession from the economic powerhouses (US, UK, Germany, France etc) acting very quickly, which further supports the view that South Africa has further room and drastic action can and should be taken. The balancing act is, however, on inflation targeting and the exchange rate,” he said.

Access to liquidity will be key in the months ahead, he said, which would require direct action from government.

“Credit will need to be extended and/or restructured to individuals and companies to bridge cash flows as the trading environment tightens or, as in the case of a lockdown, grinds to a halt for many industries. This will require support from government, and the announcement by President Cyril Ramaphosa of the first phase of these is to be welcomed.”

…even if we look to China, which now has a flattening curve, they are more than five months into the battle against the disease while trying to keep their economy alive

Government & business support welcomed

Hamilton said the use of the tax system to assist firms with liquidity at the employee level by fast-tracking claims and reimbursements, and to delay up to 20% of PAYE for smaller businesses, was a positive move that would assist business – and recommended that further stimulus could come from deferment of VAT, provisional and income tax, and a higher percentage of PAYE deferred.

“The clear focus on SMEs and vulnerable sectors like the informal sector, with establishment of the independent Solidarity Fund, will support the public sector’s efforts and it is hoped that large businesses will follow the lead of the Rupert and Oppenheimer families which have allocated R1-billion each to the support initiatives,” he said.

Financiers (banks) have indicated their commitment to the national efforts and Hamilton said this would entail case-by-case restructuring of loans, likely through payment holidays or deferments to assist companies (and individuals) with three to six months’ grace to improve the underlying cash flows.

“This has been made slightly easier through relaxed regulatory requirements to free up head room from a capital holding point of view.

“Last week we saw the SARB taking further action to provide liquidity to the market through an active bond buying programme announced and increasing its refinancing operations to 3 months; and it’s likely that we will shortly see longer tenors on offer of 6 and 12 months,” Hamilton said.

Highlighting the knock-on effect of the economic challenges, he said further clarity would be needed in the real estate sector, as landlords would need the support of their funders or backers if they are to assist tenants with rent moratoriums.

The clear focus on SMEs and vulnerable sectors like the informal sector, with establishment of the independent Solidarity Fund, will support the public sector’s efforts…

Similarly, some firms might be able to approach their insurance companies with claims for loss of income, although this will in turn place the insurance companies under threat and likely facing liquidity concerns themselves.

National finances

With South Africa’s budget deficit projected to be just under 7% of GDP by 2021, the national finances are already under great pressure, Hamilton said.

Moody’s previously hinted towards giving South Africa time to recover, however any runway is now gone with the impact of the pandemic felt globally, and as such on Friday (27 March) they downgraded the country to below investment grade (Ba1) and maintained a negative outlook.

“A downgrade will result in further outflows which we don’t need right now, with foreign investors selling more than $41 billion in emerging market stocks and bonds since the beginning of the year, which is double that seen during the 2008 financial crisis,” Hamilton said.

There is slight reprieve, he said, in that the other ratings agencies have since 2017 rated South Africa as junk, which has seen investors price and treat the country as such since then, which has come through in the spreads of the credit default swap (CDS) markets.

“Although with this downgrade the debt cost will increase,” he said.

He said government remained in a difficult position with a projected 6.8% GDP deficit, about R370bn, to address, and “now also a stimulus package required to limit or soften the blow of the COVID-19 pandemic”.

“Moody’s in its statement reviewed this number up to 8.5% although in my view it will likely be at 10%, which means SA will over the medium term require much higher debt levels than previous modelled and for much longer,” Hamilton said.

Although economies around the globe have made available funds of between 1% to 4% of GDP, he said it was unlikely that South Africa would require the upper limit of such stimulus – “but this still implies a need of between R80 billion to R170 billion”. The UK and Germany have announced stimulus of at least 15% of GDP and the US 30%.

A downgrade will result in further outflows which we don’t need right now…

“The impact will be felt but most of these funds could be sourced from within the current budget through reallocation of non-essential or non-critical spending. Yes, there is an element of borrowing from the future in this strategy, but current circumstances require drastic action, this is also in line with what we are seeing globally.”

Economic sector outlook

Accommodation and travel booking cancellations are the “first wave” of the impact on the tourism sector, with effects now moving into the hospitality sector, such as restaurants, bars and coffee shops.

The manufacturing sector has seen some factories close and Hamilton said it was likely that many would retool to assist with the manufacturing of medical equipment.

“The agricultural sector is a key driver of the economy and very reliant on international trade. As they are in the food supply chain, they will maintain a level of trading although with all the markets globally also facing a recession or lockdown, luxury agricultural products will suffer while staple foods are set to show more resilience,” he said.

Consumer-focused businesses will remain attractive for investors, Hamilton predicts, with those that have adopted online strategies “likely to weather the storm successfully as they have managed to adapt or pivot quickly in the response to the crisis and are best placed for what might be a big shift in buying behaviour post the pandemic”.

The key growth driver has been the Business and Financial Services sector and as they are also positioned to service clients remotely, they are likely poised to be able to bounce back quickly.

“The only sectors that will not be affected, or suffer the least damage, will be the essential service providers, being the food suppliers, food and medical supply chains and medical support providers,” he said.

No sector is immune to the impact and fall out of the crisis and survival has a lot to do with cash reserves and low debt positions, hence firms with net debt to EBITDA of less than one and healthy pre crisis operating margins are best placed to navigate the next few months successfully.

No sector is immune to the impact and fall out of the crisis and survival has a lot to do with cash reserves and low debt positions,

Investors

“How investors will navigate this crisis from an investment and cash flow management point of view, is also an important consideration. Globally, and this holds true for South Africa as well, there are significant amounts of capital allocated for new and follow-on investments – available capital sums are at historic highs.

“This also suggests that investors in SME’s and other private businesses, and the listed space as well, have the ability to inject further funds through debt and equity packages into investee companies to support and navigate the coming months,” Hamilton said.

This will have a lasting impact on the companies’ finance and potentially their shareholding structures, as any equity raised or injected will come with very specific conditions.

He said some of the development finance institutions (DFIs) active on the continent had specifically stated their support to investee companies in ensuring employees can be supported through these times. Similarly, in South Africa, the IDC and the Department of Trade and Industry have allocated R3-billion for specific investments in critical businesses, with applications to be fast-tracked.

Hamilton concludes that “2020 is viewed as a lost year for many but we also have to look back in history and see what has been overcome before.

“It is up to all of us, the people and nation of South Africa, to unite and jointly fight this pandemic and with government, business and the public aligned we will overcome.”

Jason Hamilton is director at First River Capital. He has over 15 years of experience in the banking and the financial services sector where he focused on corporate finance, project finance, leveraged and acquisition finance. He is Guest Lecturer on USB’s Development Finance Programme, present on Capital Raising for Public and Private Projects. He is also Guest Lecturer on USB’s MBA programme, present on Corporate Finance, Mergers & Acquisitions and Funding Strategies. He serves as Faculty at USB Executive Development, and Facilitator for USB’s International Affairs programme. He has been appointed to the Thought Leadership and Business Ethics Committee of AICPA (The Association of International Certified Professional Accountants) | CIMA (Chartered Institute of Management Accountants) effective 1 June 2020.

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Entrepreneurs from low-income areas excel

USB News

Entrepreneurs from low-income areas excel

From left to right: Barbara Thandeki from Gugulethu, co-owner of hand-made wig makers Khubar Hair & Beauty, (The De Beers Business with the Most Potential award), Nicholas Lamohr director of Linchpin-PM digital agency in Diep River, ( Distell Top Student) and Michelle Mzee, managing director of Parow cleaning and security company Cleanstation (Absa Best Business Plan award)

  • Dec 12
  • Tags Entrepreneurship; Small Business Academy; Entrepreneurs

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Diep River digital entrepreneur, Nicholas Lamohr, grew his company to profitability through perseverance and a gap in the market despite lacking start-up capital and a business plan. Nicholas is the recipient of the Distell Top Student award at the 2019 Small Business Academy (SBA) award ceremony on 5 December 2019.

From left to right: Nichole Solomons (Distell), Gerhard Claassens (Distell), Nicholas Lamohr ( Distell Top Student), Michelle Mzee (Absa Best Business Plan award), Lunga Madonela (Absa) and Barbara Thandeki (De Beers Business with the Most Potential).

Linchpin-PM offers website and digital strategy services to small businesses, and Nicholas achieved the highest mark overall in the 2019 SBA programme run by the University of Stellenbosch Business School (USB) for 21 entrepreneurs from low-income areas of the Western Cape.

The De Beers Business with the Most Potential award went to Barbara Thandeki from Gugulethu, co-owner of hand-made wig makers Khubar Hair & Beauty, while Michelle Mzee, managing director of Parow cleaning and security company Cleanstation (CSI), won the Absa Best Business Plan award.

The 22 small business owners graduating from the sponsored eight-month programme, demonstrate the power of small enterprises to improve the economy and contribute to alleviating poverty.

Sponsored by Distell, Absa and De Beers, the SBA empowers small business owners in low-income areas with knowledge to grow their businesses, become more sustainable and increase their potential for creating employment.

Each participant is also matched with a USB MBA alumnus as a mentor, proving to be one of the most significant game-changers of the programme. In recognition of this, for the first time, the top mentor and mentee pair was awarded. This was awarded to participant Martin Okolo and his mentor USB MBA Alumnus, and business coach, Louis-Delien Pienaar. Martin’s company, Vogue Exchange (PTY) LTD specialises in forensic registration and compliance services.

From left to right: Martin Okolo owner of Vogue Exchange (PTY) LTD, Dr Salome Van Coller-Peter (USB) and mentor Louis-Delien Pienaar, USB alumnus and business coach.

SBA head, Dr Marietjie Theron-Wepener, says the education, private and public sectors need to collaborate in supporting small businesses in order to contribute to reducing unemployment in South Africa.

“We are all aware of the National Development Plan (NDP), targeting GDP growth of 5% and unemployment reduction to 6% by 2030, to be achieved through the creation of 11 million jobs. The majority of this job creation is expected to be realised by small and expanding businesses, yet there is very little knowledge-based support for such entrepreneurs.

“Research shows that not all small businesses survive their first years. Typical hindrances include the inability to create a business plan, poor market research and financial planning and management. Business and entrepreneurial education is fundamental in sustaining these small business owners. Education providers, corporate and government need to step-up their involvement to share their knowledge and skills.

“By launching the SBA in 2013 we aimed to bridge this knowledge gap and have since trained 236 small business owners, equipping them with relevant business education, knowledge and practical skills,” she said.

The success of the programme to date is encouraging. The SBA’s ongoing impact study indicates an increase of 98% in full-time employment, a 187% increase in part-time employment and a 67% increase in revenue for the small businesses that received training at the SBA.

This approach to growth leaves uMhlathuze with a youth unemployment rate higher than for South Africa as a whole, while human development indicators as diverse as provision of water to homes, internet access, criminality and violence, and corruption lag behind. A situation in which minerals and profits are sent abroad, while relatively few local people have good jobs and the majority see no prospect for their own or their children’s advancement, is a recipe for disaster – a point underlined again and again in studies of private sector development in developing countries².

Rio Tinto’s response is to call on government to solve the problem. The company makes no mention of its own role in contributing to longstanding challenges or its responsibilities for generating and implementing solutions. Yet Rio Tinto tells us in its communications that it is a good corporate citizen attentive to the Guiding Principles on Business and Human Rights; the Performance Standards of the International Finance Corporation; industry standards such as those of the International Council on Mining & Metals of which it is a member; and the United Nations Global Compact, of which it is a founding member.

Nicholas Lamohr director of Linchpin-PM digital agency in Diep River, was awarded as the Distell Top Student, achieving the highest mark overall.

Even though top student Nicholas Lamohr, who grew up in the Cape Flats, started his business with no capital, no plan, no mentor or business training, he believed in his idea and persevered.

“I started Linchpin-PM after seeing a gap in the market for assisting small businesses. While working at a printing and design company for twelve years, I saw numerous small businesses’ requests for website design being turned away. Since the owner of the company was not interested in pursuing this opportunity, I registered my company and studied web design. Although I have been trading for eight years, I have been operating full-time for the past three years.”

Nicholas employs four freelance designers and runs his business from Diep River and his home office in Zeekoevlei. His company evaluates its small business clients’ website content, updates their corporate identity and branding, and other marketing collateral, and also provides them with a digital strategy.

“One of our key strengths is investigating whether their product or service could be marketable through e-learning, or if their business would benefit from an e-commerce solution as opposed to a conventional website. We have the necessary design and software programmes to pivot their business digitally to reach more customers.”

He credits the SBA programme for opening up a world of knowledge he never had.

The most impactful for me was the SWOT analysis which helped me to identify and plan around my business’s strengths and weaknesses. This, together with the marketing module which assisted me in addressing my business’s biggest flaw

“The most impactful for me was the SWOT analysis which helped me to identify and plan around my business’s strengths and weaknesses. This, together with the marketing module which assisted me in addressing my business’s biggest flaw – not marketing robustly enough – and creating a business plan as the blueprint to my vision and purpose, has given my business structure and future growth projection.”

Barbara Thandeki, co-owner of Khubar Hair & Beauty and winner of the De Beers Business with the Most Potential award, sees the business of hand-weaving wigs from human hair as more than a means to make a living.

Barbara and her business partner Khunjulwa Makaluza run their business from home in Gugulethu and view it as an opportunity to share their experience and knowledge, to teach and empower other women to go into their own businesses too.

“Starting the business has been a personal journey for me. Many people think that buying wigs is all about vanity. It’s not. I needed a solution to my own hair-loss problem and we realised a gap in the market for affordable, fashionable human hair wigs.”

Almost two years later the business is profitable and the pair plan to take home-based KhuBar Hair & Beauty online and into retail spaces, invest in technology to ramp up production and eventually franchise the business.

Starting the business has been a personal journey for me. Many people think that buying wigs is all about vanity. It’s not. I needed a solution to my own hair-loss problem and we realised a gap in the market for affordable, fashionable human hair wigs.

One of the handmade wigs can take up to five hours to make, and the women can make no more than four per day between them, but an investment in the advanced technology of a specialised sewing machine could ramp production up to 60 per day.

Barbara said wigs made from human hair (sourced from India, Mongolia, Brazil and Peru) have the advantage of being washed and conditioned, as well as styled and refurbished, making it a true investment piece – unlike synthetic wigs.

Michelle Mzee of Parow received the Absa Best Business Plan award for family-owned Cleanstation (CSI) in Parow, founded by her father after his retrenchment from a security management job.

CSI offers outsourced janitorial, office cleaning and private security services for estates, office buildings and schools in Parow and Goodwood and as far afield as Retreat in Cape Town. With very few businesses in the area offering both cleaning and security, their business is well positioned, especially considering the experienced skillset of their employees.

My father started the business out of necessity but ended up employing some of the people that were retrenched along with him, positively impacting them through his business venture. Today one of our greatest strengths is prioritising the wellbeing of our employees.

Michelle says the SBA experience has been truly life changing.

“I have learned so much from this course! I have moved from viewing my business as a source of income to something that I can grow and make a big success of. One of the most helpful aspects of the course was my mentor, Louis-Delien Pienaar, a USB MBA graduate who went above and beyond to assist me. She’s an accountant, a business coach and runs her own business so she really was able to help my business in many different aspects while also assisting me with my personal growth.”

Michelle advises budding entrepreneurs to seek advice often and from a variety of sources. “Build your knowledge and be strong. It will help you survive when you fail to get up and try again and again, as many times as it takes to succeed. Never give up!”

Applications are now open for the 2020 SBA programme.

The programme is substantially sponsored, although a commitment fee is payable by participants. Applications close on 31 January 2020 and the programme starts 11 March 2020.

For more information, call Lynette Goosen on 021 918 4379.

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