‘More black business owners are vital’
The National Empowerment Fund (NEF) says more black people should own and manage successful businesses if high unemployment and the cost-of-living crisis are to be addressed.
Acting CEO Mzi Dayimani said in an interview with Business Times that black people, the NEF’s target market, were still not well represented in the mainstream of the economy, and the fund has made it its mission to fix the imbalance.
“Black people need to manage and own businesses, not just the traditional way of doing BEE, where they own passive minority stakes. They must own the businesses, they must become the majority shareholders and actually run those businesses,” he said.
The NEF was established 20 years ago as a development finance institution to lead the participation of black people in the economy by providing loans and equity finance to help them get off the ground.
It has funded 1,617 individuals and businesses over the past two decades, who in turn have created 121,000 jobs. Of the R14bn it has approved, the fund has received R5bn in repayments, with the balance being loans that are serviced monthly by clients. Blackowned businesses can apply for between R250,000 and R50m to operate across various sectors of the economy
“If you support 121,000 jobs, and consider each of those persons supports 10 people, the multiplier effect is huge. For us as a country, job creation is huge.”
One of the NEF’s most successful beneficiaries was Busamed, a private hospital group started by a group of black doctors who approached the fund when they obtained five hospital licences.
“All they had were the hospital licences. We assisted them to commercialise those licences through feasibility studies.”
Dayimani said Busamed, whose operations include a cardiac hospital in Strand, Western Cape, and hospitals in the Free State, KwaZulu-Natal and Gauteng, received its first R5m from the NEF. To date, it has funded Busamed to the tune of R100m.
“The net asset value of that business is now more than R3bn as they managed to also secure funding from commercial banks. Over the next few years, we are looking forward to seeing them listed on the JSE.”
The NEF has also funded more than 100 service stations, a portfolio valued in excess of R600m, almost half of them womenowned.
It has disbursed R900m to 26 manufacturing projects that have the potential to create 3,600 jobs.
Dayimani said while lending is not without risks, the NEF makes sure its “bad debt” levels are kept at about 18% of its book, which is in line with other entities engaged in developmental funding.
“In the development finance space, you have to support businesses that will not ordinarily be supported by the commercial funders. We take that risk, and you will have bad loans. We have what is called the turnaround, workout and restructuring unit. When the loans struggle, we put them in that unit, it is like an ICU ward for what we do.”
He said action is taken to assist businesses in distress, including offering mentorship, restructuring loan terms and implementing reviews of business models.
However, the NEF must address market failure, and unlike commercial banks and other such funders, it cannot require potential borrowers to provide security or collateral upfront.
“We do not look at your bank balance, so you can come to us even if you do not have money to put into your transaction. As long as we believe in the opportunity you are presenting to us, we will support you.
“So, when things go bad, most of our clients do not have the collateral. What we do is work with you to turn that business around. We are a patient financier, our motto is we are a funder with a soul. We have restructured a number of loans where people would have lost their jobs.”
Citing an example, he said where an NEF client employs 100 people or more, the fund ensures that when things go wrong it works with them so the distressed business does not retrench workers but can be salvaged and turned around.
“A normal bank would come and foreclose the business. We would not do that unless we believe there has been mismanagement and funds have been stolen, there we give what we call tough love to our clients. Some people have not run businesses before, and when they see money sometimes they make mistakes. [We intervene] and when someone is open and receptive then things go back on track. Sometimes you have to take drastic steps.”
He said the NEF had set a strategic focus on funding viable businesses in less economically active provinces such as the Northern Cape, Limpopo, North West, Free State, Mpumalanga and the Eastern Cape.
“If you look at poverty in the country and the unemployment situation, you can clearly see that in those provinces there is a greater need for job creation and transformation of the economy. There are business opportunities there, they just need to be stimulated and need financial and non-financial support. We don’t only fund businesses, we also develop economic activities.”