By Lusapho Njenge, Exxaro Resources Manager for Enterprise and Supplier Development, and Armel Ciamala, Tysys Capital Group Manager for SMME Development and Financing
There is no doubt that small businesses are the backbone of the economy. They make up a majority of the country’s businesses yet face a number of challenges that prevent them from thriving. With around five out of seven small businesses in South Africa failing in the first year, they face challenges such as attracting customers, maintaining profitability, increasing revenue, securing finance, and managing dayto-day operations. Small businesses have the potential to increase employment and uplift the communities in which they operate, but only if they receive the support they need to thrive.
Of course, government has a role to play when it comes to creating a policy and economic environment that will nurture SMMEs, but the private sector is critical too. Large enterprises that have the means and the expertise to aid entrepreneurs through enterprise and supplier development (ESD) can assist with our economy’s recovery through creating opportunities for these small businesses. But how can companies make the most of these programmes and build initiatives that can maximise their impact?
Ensuring sustainable communities
Exxaro’s ESD initiatives are a key component of our socioeconomic development response and are critical to our sustainable growth and impact strategy objectives. Because we are so involved with our host communities, we know we need to understand needs and challenges first before developing programmes designed to support those communities. This makes it easier to provide focused financial support and tailormade initiatives that will result in successful ESD responses – ultimately upholding our purpose of ‘Powering better lives in Africa and beyond’. Because we are striving for strong working relationships with our communities, operations generally have a harmonious operating environment, which means we are able to invest more of our resources into communities.
Our ESD Loan Fund, managed by Tysys Fund Managers, allows us to do this. Since its inception in 2018, the fund has disbursed R367m to 41 beneficiaries in 0% interest loans to ESD beneficiaries. The fund has helped retain or create 1663 jobs , and 29% and 47% of the beneficiaries have been youthowned and women-owned companies respectively.
In 2020, the fund’s impairment rate was an impressive 3%. This number increased to 7% in 2021 because of tough economic conditions caused by the pandemic. Research by Tysys Fund Managers indicates that similar funds were averaging impairment rates of around 15% in 2020, and this increased to 30% in 2021. These figures clearly show that Exxaro’s fund is exceptional in its ability to provide funding to the right small businesses. Part of that success also lies in the additional non-financial support that Exxaro provides to these beneficiaries.
The fund has received R127 571 697 in loan repayments since inception which is committed to finance additional demands from the surrounding and host communities. This is the loan fund and Exxaro’s commitment to going beyond compliance in the provision of support to SMMEs.
Breaking free from the silo mentality
When it comes to ESD programmes, some companies see them as standalone exercises, providing capital to SMMEs but no business support – or sometimes providing support and no capital. What differentiates Exxaro’s ESD strategy is our holistic approach to development.
The Contractor Development Programme we have established with GIBS, for instance, addresses the common challenges many SMMEs face, such as the basics of running a business, operations management and mentorship. Exxaro has also partnered with the South African Institute of Chartered Accountants Enterprise Development (SAICA ED) to implement SAICA ED’s Financial Excellence Programme to allow our suppliers to learn about the financial management systems needed to run effective operations and, in doing so, become more robust and sustainable.
In addition to skills development, it is essential to establish and maintain relationships with beneficiaries. Lines of communication should stay open, and not only be used when businesses start defaulting on their loans. With regular meetings and engagements, large corporates can learn more about what ESD beneficiaries need to succeed. In many cases, the corporates are in a good position to meet these needs and being proactive can make the difference to a growing business and contribute to a thriving community.
In some instances, offerings may need to be tailored to the needs of the beneficiaries themselves. In the case of Exxaro’s loan fund, for example, Tysys has developed specific agricultural loan products to meet the seasonal and risk requirements of beneficiaries in the agricultural sector. These insights and the tailored products that result from them are enabled by proactive stakeholder engagement and a real commitment to helping beneficiaries and applicants succeed.
In these ways, we look to support these SMMEs in a holistic way – not just financially, but through a complete suite of solutions. None of this support and engagement would be possible without buy-in and commitment at the highest level, which is another key differentiator of this ESD programme.
Where to from here?
Exxaro’s ESD programme will continue to be an integral part of our business going forward. It will assist us as we focus on a just transition to a low carbon future, encouraging small businesses to embed climate adaptation and mitigation strategies in their own operations and taking on new business opportunities with a combined social, environmental and financial return. ESD is essential to our communities’ success, and our aim is to diversify our supplier base and develop local enterprises for economic development and long-term social stability through job creation. Together with Tysys, we will continue to power possibilities in our host communities and enable sustainable businesses through the fund, and the holistic support that must accompany financial support. Commitment at the highest level, which is another key differentiator of this ESD programme.