SME financiers all grow market share
S ASFIN BANK, Business Partners and the Industrial Development Corporation (IDC) have all recently announced sharply improved results. They are operating in a sector that has demonstrated some resilience.
The current environment of violent labour unrest, while knocking morale among many small and medium enterprises (SMEs), has not had a financial impact on SMEs other than on those directly or indirectly involved in supplying the mining industry.
Roland Sassoon, CEO of Sasfin Bank, says that in this regard SMEs are better off than larger businesses because they are typically less unionised. However, labour strife is but a symptom of what is going on in the country, which is the build up to a contentious national election. According to Business Partners CEO Nazeem Martin, this is likely to negatively affect SMEs.
“A business slowdown ahead of a national election is quite a usual feature of all economies. Businessmen are reluctant to take important business decisions in the 12 month run-up to an election, because they don’t know what form of government they will have.”
While the ANC is virtually assured of victory, Martin says this characteristic still applies in South Africa because of lingering policy uncertainties within the ANC, meaning it isn’t known what style of ANC government the country will have.
“The mere fact that Corporate SA is sitting on a war chest of more than R500bn, and unwilling to commit it to new capacity, points to the impact of policy uncertainty, as well as a world economy still in the doldrums,”
Nonetheless, Martin says entrepreneurs should not allow themselves to be unduly depressed by the relentless stream of bad news emanating from Europe, North America and even China. “On the bright side, our economy is growing by 2-3 percent, mid-point between the 5 percent we achieved in the boom years and the average 1 percent growth during the 90s.
“This is an economy that is open for people with good ideas,” says Martin.
As to where those opportunities are, it remains an economy skewed by political issues. Sassoon suggests that anyone in the business of supplying government or quasi-government is in a difficult sector “as they are still not getting paid on time”.
“In addition, the mining sector is a particular concern right now, as is residential property and the durable consumer goods sector.” Martin agrees that SMEs in the retail sector are doing poorly as consumers are still not spending. Large retailers are doing well only because of their ability to offer credit – hence the unsecured debt bubble.
Tourism is also struggling, as the money-spending visitors to South Africa typically come from those regions of the world most in difficulty at the moment.
“One of the big opportunities at the moment is in food security, from farming through to agri-processing. Another is anything that taps into the growing environmental awareness of the consumer, from ‘green’ technologies and renewable energy to recycling,” says Martin.
He points to South Africa’s tertiary institutions as fruitful sources of new business ideas. In the past, many new technologies developed were simply sold off to big business and often never commercialised. Increasingly, these institutions are recognising the missed opportunity and encouraging the developers to build a business plan around their own ideas.
“We have some very good research facilities among our universities. The trick is to commercialise these ideas, and here is an opportunity for entrepreneurs to collaborate with these innovators,” he says.
One of the largest sources of dealmaking at Business Partners at the moment is property. Martin says many businesses are acquiring their own premises so as to secure tenure, a vital step towards investing in future capacity, as well as creating a pension plan for an entrepreneur.
SMEs are also starting to follow larger companies into Africa. While Martin says he does not see a lot of this, Sasfin reports more activity. Sassoon adds: “We are seeing our clients moving northwards, primarily into our neighbours and Southern African Development Community (SADC). There are big things happening in Mozambique and Zimbabwe, though the challenge lies in getting paid, as even credit insurance is not easy to get.
“Africa is the big growth opportunity of the moment, and for many products South Africa alone is a relatively small market. This is a pioneer market for many and they have to be cognisant that many jurisdictions lack the legal infrastructure in which to enforce rights and payment. You therefore need to know exactly who you’re dealing with, and some of the biggest problems in this regard are likely to emerge when dealing with dignitaries,” adds Sassoon.
Martin echoes this warning, adding that potential exporters should additionally research that their products/services work in each export market.
Both Business Partners and