Small and medium enterprises (SMEs) are a vital component of any economy a key area in sustainable job creation and socio-economic development — but their importance to the overall prosperity of the country is often overlooked.
In South Africa, with a high unemployment rate (officially 25.2% but unofficially much higher) and widespread poverty resulting in approximately a third of the population living on social grants, stimulating and growing the SME sector is imperative. It is pertinent to note the role that big business is playing in stimulating economic development in the sector.
Anglo American, one of the world’s largest mining companies with approximately 83 000 permanent employees in South Africa, has a dedicated SME enterprise development fund, Anglo American Zimele. “The recent recession and ensuing shortage of job opportunities has highlighted the importance attached to nurturing SME growth as a means of boosting this relatively underdeveloped sector of the South African economy,” says Nick van Rensburg, the managing director of Anglo American Zimele.
“Unfortunately, many entrepreneurs still struggle to acquire the financing they need, as aspiring business owners in townships, peri-urban mining communities and rural areas are not always considered bankable, owing to a lack of assets or equity,” Van Rensburg says. “Therefore, most of these entrepreneurs have a much higher risk profile than someone who can pledge, for example, their house against a loan. Subsequently, they are at a major disadvantage.”
He says that Zimele bridges this gap by providing financial security for would-be entrepreneurs in situations like these. Once their businesses are up and running, and have a steady cash flow, other funding institutions are more willing to invest in them. Zimele was helping to create sustainable, empowered and commercially viable enterprises to operate in the mainstream economy years before BEE was legislated or viewed as a social imperative for South African society.
Zimele funds start-up ventures and the expansion of existing ones, Van Rensburg says. “The fund was not created as a reactionary mechanism that attempted to placate empowerment legislation or address the economic downturn. Rather, it was set up as part of the group’s commitment to development in South Africa and has, over time, evolved into what it is today.” Zimele was established because of the foresight that a black entrepreneurial class would be required to sustain economic growth, long before there was certainty that South Africa would have a peaceful transition to democracy.
“Essentially the aim of the fund was to provide a platform for big business to engage actively in the creation of a sustainable SME sector and foster entrepreneurial development in South Africa,” Van Rensburg says. As a starting point, the group sought to integrate SME business into its supply chain and change the nature of the businesses that were already supplying goods and services to the company. This led to the creation of the first of Zimele’s four funds, the Supply Chain Fund.
To date, 40% of Anglo American South Africa’s procurement is from blackowned suppliers. Aside from the Supply Chain Fund, Zimele has added three more funds to its stable — the Anglo American Khula Mining Fund, the Community Fund and the Olwazini Fund — in its 21 years of existence. Collectively, these funds support 933 businesses that employ 14 399 people and collectively contribute billions to the economy.
The group has committed more than R434-million to SMEs. These funds are not related only to corporate social responsibility and local socio-economic development but are integral to the businesses and, as part of Zimele, they receive professional support and guidance, says Van Rensburg. This approach allows the businesses, over a predetermined time, to stand on their own two feet, which is essential to long-term economic development.
Van Rensburg says that many companies are not providing adequate long-term support with their SME funding, and should consider employing the best practice model used by Zimele to encourage the development of SMEs and, ultimately, a prosperous South Africa. As part of Zimele’s pledge to the Business Call to Action initiative, it aims to create 25 000 new jobs in up to 1 500 businesses over the next seven years, Van Rensburg says.
To ensure that it reaches this goal, 12 new enterprise-development hubs, in addition to the existing 12, will have been established in areas of high unemployment by end of this year. He concludes that developing entrepreneurs and SMEs should remain a priority for companies, despite recent tough economic times.
Network of support
Company overview
Anglo American Zimele invests in small and medium enterprises and provides loan and equity finance to support start-up or expand businesses. It also provides a suite of offerings and services.
Community Fund
It supports entrepreneurs and small businesses in the communities in which Anglo American operates with the use of a wide footprint of small business hubs.
Khula Mining Fund
It is responsible for funding mining-related investments and is a joint initiative between Anglo American and government-owned Khula Enterprise Finance, which promotes SME development.
Supply Chain Fund
It assists Anglo American’s group procurement departments in identifying BEE suppliers and channelling of business opportunities to black-empowered SMEs.
The Olwazini Fund
It assists historically disadvantaged individuals — particularly women, the youth and the disabled — to establish and operate their own small businesses.
Who is eligible for funding?
Black-owned small and medium enterprises and small-scale blackowned mining companies in startup and expansion phases. For the Community Fund, entrepreneurs must be located within an approximately 50km radius of an Anglo American operation or in a mine labour sending area.
General funding criteria?
- Commercial viability — the business must be sustainable in the long term and meet return requirements.
- Transfer of skills — there must be potential for BEE entrepreneurial development.
- Owner’s equity contribution minimum of 10% preferred.
- For the Supply Chain Fund, there must be an existing or potential link into the Anglo American supply chain.
- The owners of the investee companies must be involved in the day-to-day management and operation of the business.
Financial funding criteria
Maximum funding per deal:
- Supply Chain Fund — R5-million (equity and loans)
- Anglo American Khula Mining Fund — R20-million (equity and loans)
- Community Fund — R1-million (loans)
- Olwazini Fund — R20 000 (loans)
For the Supply Chain Fund and the Anglo American Khula Mining Fund, Zimele acquires minority equity participation (10% to 49%). Working capital requirements are currently funded through shareholder loans at various interest rates with commercial repayment terms and conditions.
- Supply Chain Fund at prime interest rate plus 1% per annum.
- Anglo American Khula Mining Fund at prime interest rate per annum.
- Community Fund at 6% interest rate per annum.
- Olwazini Fund at 6% interest rate per annum.