SMALL BUSINESS GETS BILLION-RAND BOOST:
State and business join forces to boost SMEs, but a critic says the money is too little
AHEAD of this week’s visit by one of the three ratings agencies that has South Africa sitting on the cusp of a ratings downgrade, the private sector and the government have established a R1.5billion fund for small and medium enterprises.
Saddled with a sluggish economy and political tensions that centre on the president, policymakers are in a race to increase growth, create jobs and convince investors and ratings agencies that the country is still an investment-grade destination.
Brazil and Russia, South Africa’s emerging market peers and fellow members of the Brics bloc, have long fallen off the wagon.
Representatives of Moody’s, which has South Africa just two notches above junk status, arrive in the country tomorrow.
On Friday, business leaders and President Jacob Zuma launched the SME Fund, which is aimed at stimulating entrepreneurship and the growth of SMEs.
The fund was the private sector’s way of demonstrating that domestic business was not on an investment strike, the fund’s interim CEO, Lisa Klein, said in an interview.
It was also about showing confidence in the country by implementing plans even in the face of heightened political risk.
“Given the political noise and uncertainty in the political environment, business’s ability to look through the noise and continue to build is a very important signal,” Klein said.
The SME Fund forms part of the Presidential CEOs Initiative, a grouping of about 90 chief executives and business leaders working on plans and measures with labour and government to invest, create jobs and grow the economy.
Investors have been spooked by tensions surrounding the National Treasury and Finance Minister Pravin Gordhan.
Given the scale of the faultlines in the domestic economy, including a youth unemployment rate that is among the highest in the world, Ralph Mathekga, the head of political economy at the Mapungubwe Institute for Strategic Reflection, was dismissive of the size of the fund.
“I find this to be a clear public relations exercise. They are just trying to defuse the notion that they are sitting on billions of rands which they are not investing,” he said.
“This R1.5-billion is just symbolic. If they really have confidence in the economy and investing in it, why don’t they invest individually instead of just R1.5-billion collectively? If they want to be taken seriously, they should invest more.”
South African corporates, with confidence levels at multiyear lows, have not been investing in the low-growth domestic economy and have been looking to expand into markets outside the country and the continent. A more than 50% depreciation in the rand over the past five years has also led to costs of imports rising and further dented confidence levels.
Klein said the aim was to boost the fund to R10-billion, depending on the success of the model.
The fund would not invest directly in enterprises, she said.
A team will be appointed to begin accreditation of private equity and investment funds in the fourth quarter of the year, with the first money deployed in the first quarter of 2017.
“In turn we will invest with those entities in their underlying portfolios of SMEs,” Klein said.
The fund will invest in highpotential entrepreneurs and SMEs and will provide them with access to experienced mentors.
Klein, who has been driving the initiative and setting up the company, said the last stretch before capital was deployed would be the appointment of a permanent CEO.
Anglo American Platinum, Barclays Africa, Discovery, Investec, the JSE and MTN Group are among companies that are part of the fund.
Government and business leaders have not yet stopped trying to convince ratings agencies that South Africa should be given time to address its challenges. They will undertake one more international road trip to woo investors early next month before Gordhan tables his mediumterm budget policy statement on October 26.
Ratings agencies have regularly warned that a failure to grow the economy and address rising government debt could result in a downgrade.
Moody’s this week released a credit opinion — a regular update on South Africa.
It said it would likely downgrade the country’s rating in the absence of growth recovery and more fundamental structural reforms that would put the economy on a high and sustainable growth path.
Moody’s — unlike Fitch and S&P Global Ratings — rates South Africa two levels above sub-investment grade. It was particularly scathing of state-owned enterprises, saying continued guarantees to loss-making companies such as SAA pointed to “avoidance of difficult structural reforms”.
Moody’s this week sounded a strong warning against other SOEs, putting their ratings under review for a downgrade. This was after asset manager Futuregrowth said it would stop lending to Eskom, the South African National Roads Agency, Land Bank, Development Bank of Southern Africa and the Industrial Development Corporation.
They are sitting on billions of rands which they are not investing Leaders trying to convince agencies SA should be given time
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