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South African small businesses face a myriad of unique challenges, rooted not only in the precariousness of the country’s current economic climate but also due to South Africa’s turbulent history. Since the inception of democracy, the South African government has implemented some initiatives, through various social and legal means, to boost the small and medium-sized enterprise (SME) sector in light of its importance as a key contributor to GDP with varying success.

BBBEE and its connection to ESD Programmes

In 2003, by means of the ratification of the Broad-Based Black Empowerment (BBBEE) Act, government extended a helping hand to SMEs with the ultimate goal of bridging the gap between large South African corporates and small businesses. The Act gave rise to what we now refer to as Enterprise Supplier Development (ESD) programmes – initiatives owned and run by corporates to promote a conducive environment for the creation of sustainable partnerships between corporates and SMEs.

It is in the interest of large corporates operating within South Africa, to establish and drive the success of ESD programmes. This is because BBBEE scorecards include enterprise development as one of its key elements, namely: ownership, management control, skills development, employment equity, preferential procurement, enterprise development and socio-economic development.

ESD Programmes vary in terms of their prerequisites and objectives

Some of the country’s largest companies have fully-fledged ESD programmes. South African Breweries (SAB), for example, has a long-standing one that provides support for black business owners who can supply goods and services across the SAB supply chain. Another example is ICT leader, Telkom. Its ESD Programme, which was launched in 2015, provides support for startups in the technology sector and uses preferential procurement methods to give small businesses the chance to gain a competitive edge by becoming a Telkom supplier. These are just two examples of how the public and private sector are working together to boost the workhorse of the South African economy – its SME sector.

Look beyond capital

In the quarter 3: 2021 Business Partners Ltd SME Index – a survey measuring the attitudes and confidence levels of South African SME owners – the top three challenges impacting small businesses, were cash flow, economic conditions and funding. Predictably, all three relate to a small business’s financial position, but the struggle extends beyond rands and cents. A lack of ongoing support and access to networking opportunities and expertise, also pose a significant threat to the growth of small businesses. This is where a well-structured ESD programme can provide a viable solution.

Tips on choosing the right ESD

For small businesses who are looking to increase their market share, boost revenue and become key players in the local SME environment, an ESD programme could serve as a stepping-stone to success. The key to choosing the correct one is to refrain from looking for a “quick fix” in the form of a capital injection. The most viable ESD programmes are always geared towards “bigger picture thinking” and long-term growth, and include components such as mentorship, a focus on skills development and support from experts in the field.

Today, the vast majority of corporate South Africa has active ESDs that are marketed aggressively, because their stance and position in the broader market rests largely on their compliance with BBBEE legislation. The first step to finding the right ESD partner is to search for corporates within industries that depend on the goods or services that your small business offers.

Furthermore, participation in an ESD programme assists SME owners to assess their progress, plan their future growth and become more disciplined about tracking, recording and monitoring the steps they are taking towards those goals. The relationship between a corporate and an SME in an ESD partnership is a symbiotic one – it must be mutually beneficial and aligned with each party’s business objectives.

With the right strategic partnerships, ESDs can be powerful vehicles for building small businesses that can stand the test of time and eventually find a place on the same playing field as the country’s larger companies.

About the Author: David Morobe

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David Morobe is our Executive General Manager for Impact Investing. He has been working with small and medium business entrepreneurs for more than 25 years and has amassed considerable experience from the various positions he has occupied. Even after working with entrepreneurs for so many years, David still appreciates the opportunity to be of service to their needs, recognising that they play a very important role in the socio-economic development of our country. His greatest fulfilment is seeing SMEs grow and sustain both in good and challenging times, thereby creating wealth not only for themselves but also for those in their employ. He is our go-to-spokesperson for our SME Confidence Index, SME sector policy and trend matters, mentorship, and business leadership articles.