BEFORE I get into the meat of my column this week, I would like to give some kudos to the team at City Press for
this article on the National Youth Development Agency (NYDA).
For those who are crying out for nationalisation of banks or government intervention, read the maths in that article: a budget of half a billion rand to support young, primarily black, entrepreneurs who are not getting small and medium enterprise (SME) capital from the banks – and only 12 loans were approved in the last year.
You cannot be surprised then when on the same day
an article about the "new" Enterprise Development Fund (EDF) gets slated by readers who are tired of hearing about mismanagement of money.
The EDF will basically see big businesses contributing 3% of their profits into developing the small business sector.
While there is a certain irony in both articles being written by the same journalist, I think one thing needs to be made clear: while the NYDA and many of its predecessors are an absolute dog show, the EDF fund is a game-changer of note for the small business sector and South Africa as a whole.
Why will this fund survive while others before it have been a disaster?
Good groundwork makes the differenceThe short answer is that this is not a new fund. It has been on the cards for the last 18 to 24 months in various guises. This has meant there has been an SME "ecosystem" of sorts, which has been laying a great deal of groundwork in this space without a lot of excess money sloshing around. The challenge has never been the availability of money for the SME sector, but rather moving it into the sector in a sustainable manner.
This ecosystem will go a long way to managing the process, and eliminate a lot of these NYDA-type stories. The investment in experienced people will be a difference maker when one reassesses this fund down the line.
Does big business care that it is going to be "taxed" 3%? Again, I would argue that it doesn't.
We know South Africa is not the world's most competitive country - it has been proven time and again in various international studies. This, coupled with historic imbalances in society, have meant that there are concentrations of power in sectors like mining, financial services, media and even retail to some extent.
If you are a big business, there are very few instances where an SME is going to prove significantly competitive. The Capitecs of the world are great to point to, but in the bigger picture they are still relatively small fry.
Anybody who can do basic maths can see that we cannot move forward in a position where 40% of the country can't find work. If you asked any CEO of a top 40 JSE-listed company if he or she were prepared to sacrifice 3% of profits for greater employment and in theory lower crime (less insurance and private security investments), a bigger middle class and less populist vitriol from the ANC Youth League, I suspect they will vote in a pretty predictable manner.
For these reasons, I genuinely believe that the EDF is a game-changer for the South African small business environment.
Before I sign off this week, I would like to throw two stats into the whole nationalisation debate. Firstly, at the end of the last year foreign inflows into South African government bonds denominated in rands was about R60bn; we are a net importer of capital and that is not even talking about money that moves in and out of our equity market.
Secondly, the dividend yield of Anglo American is 1.4% and that of BHP Billiton 2.5%. Would you rather that there be R60bn in foreign money coming into our market added to 3% of corporate profits from the EDF, or part of 1.4% flowing to offshore shareholders?
- Fin24