By Lusapho Njenge, Exxaro Resources Manager for Enterprise and Supplier Development, and Armel Ciamala, Tysys Capital Group Manager for SMME Development and Financing
There is no doubt that small, medium and micro-sized enterprises (SMMEs) are the backbone of the economy. According to The Small Business Institute (SBI), these small businesses make up 98.5% of the country’s economy yet face several challenges that prevent them from thriving. With around five out of seven small businesses in South Africa failing in the first year, the start-up costs include attracting customers, maintaining profitability, increasing revenue, securing finance, and managing day-to-day operations. Small businesses have the potential to increase employment and uplift the communities in which they operate, but only if they receive the support they need to thrive.
Of course, government has a role to play when it comes to creating a policy and economic environment that will nurture SMEs, but the private sector is critical too. Large enterprises that have the means and the expertise to aid entrepreneurs through enterprise and supplier development (ESD) can assist with our economy’s recovery while creating opportunities for these small businesses. But how can companies make the most of these programmes and build initiatives that can maximise their impact? ESD programme impact can be maximised through providing support that is holistic in nature. This includes partnering with organisations that share the same values and objectives when it comes to developing small enterprises. The support needs to be based on a comprehensive assessment of small enterprise challenges as well as the opportunities they can exploit.
Ensuring sustainable communities
Exxaro’s ESD initiatives are a key component of our socio-economic development response and are critical to our sustainable growth and impact strategy objectives. Because we are so involved with our host communities, we know we need to understand needs and challenges first before developing programmes designed to support those communities. This makes it easier to provide focused financial support and tailor-made initiatives that will result in successful ESD responses – upholding our mantra of ‘Powering better lives in Africa and beyond’. Because we have strong working relationships with our communities, operations are provided a harmonious operating environment, which means we are able to invest more of our resources into communities.
Our ESD Loan Fund, managed by Tysys Fund Managers, allows us to do this. Since its inception in 2018, the fund has disbursed R367 million to 41 beneficiaries in 0% interest loans to ESD beneficiaries. The ESD Loan Fund has helped retain or create 1663 jobs. In addition, the beneficiaries have been 29% youth-owned and 47% women-owned companies.
In 2020, the fund’s impairment rate was an impressive 3%. This number increased to 7% in 2021 because of tough economic conditions caused by the pandemic. Research by Tysys Fund Managers indicates that similar funds were averaging impairment rates of around 15% in 2020, and this increased to 30% in 2021. These figures clearly show that Exxaro’s fund is exceptional in its ability to provide funding to the right small businesses. Part of that success also lies in the additional support that Exxaro provides to these beneficiaries.
The fund has successfully recovered R127 571 697 in loan repayments since inception which is committed to be used to finance additional demands from the surrounding and host communities. This is the loan fund and Exxaro’s commitment to going beyond compliance in the provision of support to SMMEs.
Breaking free from the silo mentality
When it comes to ESD programmes, some companies see them as standalone exercises, providing capital to SMEs, but no support – or sometimes providing support and no capital. What differentiates Exxaro’s ESD strategy from other initiatives is our holistic approach to development. We have two such partners and the collaboration with them enables us to provide holistic support to small enterprises in host communities.
The Contractor Development Programme, which we have developed with GIBS, for instance, addresses the common challenges many SMEs face, such as the basics of running a contract business, operations management, and mentorship. Exxaro has also partnered with the South African Institute of Chartered Accountants Enterprise Development (SAICA ED) to implement SAICA ED’s Financial Excellence Programme to allow our suppliers to learn about the financial management systems needed to run effective operations and, in doing so, become more robust and sustainable.
In addition to skills development, it is essential to establish and maintain relationships with beneficiaries. Lines of communication should stay open, and not only be used when businesses start defaulting on their loans. With regular meetings and engagements, large corporates can learn more about what ESD beneficiaries need to succeed. In many cases, the corporates are in a good position to meet these needs and being proactive can mean the difference between a growing business and a loan default.
In some instances, offerings may need to be tailored to the needs of the beneficiaries themselves. In the case of Exxaro’s loan fund, for example, Tysys has developed specific agricultural loan products to meet the seasonal and risk requirements of beneficiaries in the agricultural sector. These insights and the tailored products that result from them are enabled by proactive stakeholder engagement and a real commitment to helping beneficiaries and applicants succeed.
In these ways, we look to support these SMEs in a holistic way – not just financially, but through a complete suite of solutions. None of this support and engagement would be possible without buy-in, which is another key differentiator of this ESD programme.
Where to from here?
Exxaro's ESD programme will continue to be an integral part of our business going forward. It will assist us as we focus on a just transition to a low carbon future, encouraging small businesses to embed climate adaptation and mitigation strategies in their own operations.
ESD is essential to our communities’ success, and our aim to diversify our supplier base and develop local enterprises for long-term economic development and social job creation. Together with Tysys, we will continue to power possibility in our host communities and enable sustainable businesses through the fund, and the holistic support that must accompany financial support.