Real empowerment of SME suppliers critical
SMALL and medium-size enterprises (SMEs) are expected to create 90 percent of the 11-million jobs envisaged by the National Development Plan (NDP) by 2030. Yet research in South Africa shows that 56 percent of new businesses close their doors within the first 12 months; by year three, 72 percent have gone under; and after five years, only seven percent will still be going. How can we possibly create enough jobs and encourage significant black ownership of new businesses against these odds?
Speaking at a Consumer Goods Council of SA summit recently, Small Business Minister Lindiwe Zulu expressed government frustration at the high failure rates of small businesses. She listed a number of interventions that would enable small, medium and micro enterprises (SMMEs) to evolve into sustainable businesses, as envisaged in the NDP. These include: preferential private and public-sector procurement, and incubation support programmes.
Many enterprise development programmes (ED) cover this ground. When recently releasing Hulamin’s Enterprise Development Sustainable Report 2014, Reginald Nyandeni, Hulamin Enterprise Development Leader, put it in the context that the Broad Based Black Economic Empowerment (BBBEE) Codes of Good Practice on Enterprise Development provide that companies make monetary or nonmonetary contributions either recoverable or non-recoverable for development, sustainability and financial and operational independence of beneficiaries. In order to achieve the maximum 15 points, the Department of Trade and Industries (DTI) has set out a target of three percent of a company’s net profit after tax (NPAT).
Hulamin is the JSE-listed Pietermaritzburg-based aluminium semi-fabricator.
Nyandeni says: “In line with the DTI’s Codes, Hulamin’s ED objective is to facilitate the development of sustainable businesses that will create jobs and add stimulus to the economy. Hulamin is committed to this process by providing business opportunities to new enterprises and support for SMMEs through the provision of professional, financial and logistical support as well as various start-up support services. An important element of ED is the emphasis on the value chain, where Hulamin has influence to create opportunities for new businesses as customers or suppliers,” says Nyandeni.
ED development strategies and activities are mandated by the BBBEE Review Committee at quarterly intervals, where feedback is provided on ED performance against targets. Resources are allocated and fresh mandates are provided.
“Wholly African-owned enterprises had lagged behind those of other races in terms of Hulamin’s procurement spend in relation to their population proportion in the country. Hulamin decided to earmark various business opportunities within its supply chain to grow its spend within the ED framework. Targeted opportunities include: forklifts and equipment, logistics, skid covers, air conditioning, pallets and buttons, pest control services, hazardous cleaning and engineering services,” he says.
In 2014, Hulamin provided business advice and counsel to its African-owned enterprises whose business spend with Hulamin reached a record R82 million from R1.3 million in 1996. These enterprises employ 350 workers on a permanent basis which corresponds to 18 percent of Hulamin’s total staff complement of 2,000.
“For the past two years, certain strategic interventions have resulted in Hulamin scoring maximum points in its ED scorecard.
“These include: the sale of some of Hulamin’s non-core assets to black businesses; favorable payments terms; monetary and non-monetary support for black enterprise including the Business Support Centre (BSC) in Pietermaritzburg; and management time devoted towards conceptualising, guiding and rolling out various elements of the enterprise development,” explains Nyandeni.
As a result, he says, Hulamin’s ED scorecard has risen (out of 15 points) as follows: 2009 (0.04 points), 2010 (2.8), 2011 (12.54), 2012 (15), 2013 (15) and forecast for 2014 (15).
“Hulamin has played a key role in the establishment of the BSC in Pietermaritzburg, which has contributed enormously to the development of entrepreneurs as well as job creation in the region. Since its inception in 1997, the BSC has provided business training to approximately 13,500 SMMEs, of the total of 92,000 aspirant entrepreneurs that have visited the BSC.
“Currently, the BSC registers approximately 75 new businesses a year as well as mentoring these new enterprises and inte- grating them into Hulamin’s supplier chain programme. In 2014, the BSC coordinated in excess of 50 BEE verification certificates for SMMEs in support of Hulamin’s preferential procurement requirement. Since 2005 the BSC, together with the SMMEs, has been instrumental in creating more than 2,500 jobs.
“Of nearly 150 employees that have been retrenched - and some took early retrenchments packages in 2012 - Hulamin has arranged that the BSC assist them through implementing a wide range of business support programmes to ensure that they start sustainable enterprises.
“The intervention includes: seminars and one-on-one business counseling, primarily to assist them navigate through the early start-up business challenges. These entrepreneurs were also considered, like any other companies, for business opportunities within Hulamin’s supply chain opportunities if they met Hulamin’s commercial criteria.
“Hulamin’s expenditure with these entrepreneurs has grown from zero in 2012 to over R5 million in 2014 and they collectively employed 50 people on a permanent basis,” says Nyandeni.
In 2014, Hulamin and BHP Billiton collaborated to form Aluminium Beneficiation Initiative (ABI), an economic development initiative focused on developing and supporting high-level entrepreneurs in aluminium fabrication or beneficiation. The initiative plans to identify, support, and train 100-150 entrepreneurs and guide them into sustainable businesses within three years which will result in these businesses consuming at least 100 tons of aluminium each.
A key objective of the ABI is to grow local market usage of aluminium. The latter will have a positive impact on the local economy by generating job creation and providing an opportunity for skills transfer.
The value-add downstream aluminium projects envisaged will ideally result in products which are exportable and which look at import replacement. The project will commence in Q1 2015.
A foundational element of ensuring the success of the participating entrepreneurs, and ultimately the success of this project, include putting into place mentors and coaches who will guide, advise and provide general direction to the selected candidates.
The aluminium industry in South Africa depicts an industry that exports large volumes of un-beneficiated material whilst at the same time imports finished products. Through ABI, Hulamin and BHP Billiton want to promote a business model for the industry that will encourage local sales through significant beneficiation or value add.
The Small Enterprise Financial Agency has partnered with ABI by putting up an Aluminium Fund to the value of R80 million. In South Africa the per capita consumption of aluminium far lags that of the developed countries. The ABI project seeks to influence growth in local consumption of aluminium through beneficiation.
Reginald Nyandeni, Hulamin Enterprise Development Leader.