Citrum Khumalo. Picture: SUNDAY TIMES
Chef Citrum Khumalo had to scale back his businesses after taking a hit during the 2008 recession. Now he has a culinary school and a restaurant. Picture: SUNDAY TIMES

FUNDING and support to the tune of R36.2bn could be available annually from the private sector for small, black-owned companies through black economic empowerment (BEE) and big donors, an auditing firm estimates.

The figure is contained in a review presented to Parliament in November by auditing company SizweNtsalubaGobodo (SNG) of the Department of Small Business Development’s support programmes. The firm estimates that of the R36.2bn, R25bn can be spent on enterprise and supplier-development by listed and unlisted companies. The remainder can be transferred to small, black-owned companies through corporate social investment and donor funds.

Of the amount available for enterprise and supplier development, the auditing firm estimates that SA’s top 100 listed companies might account for R8bn.

Under the amended BEE codes of good practice, which came into effect last year, companies with an annual turnover of R50m or more are required to spend 3% of their net profit after tax on enterprise development and supplier development. For companies with a turnover of between R10m and R50m, the target is 2%.

Companies can score points for enterprise development through early payment terms; mentoring; and offering subsidised rental, accounting costs and salaries; as well as by making loans and grants to small, black-owned companies.

SizweNtsalubaGobodo consultant Michael Harris says the auditing firm calculated the figures by using both the net profit after tax of listed companies and economic modelling to include the contribution from unlisted firms.

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PREVIOUSLY, a 2010 report by entrepreneurial support organisation Endeavor SA reckoned enterprise development could provide R10bn in support to small business.

In 2009, Edge Growth, which manages three enterprise and supplier-development funds, estimated that the top 100 listed companies could provide between R13bn and R14bn a year in support.

MD Daniel Hatfield says the R25bn figure "sounds about right". But he reckons that in the past, no more than a fifth of available enterprise-development spend was allocated by companies. He ascribes this to noncompliance, or because previously companies could score enterprise-development points without having to spend money by granting early payment terms.

In addition, loans were often housed in vehicles that were not always deployed in the year in which actual spend was counted, thereby artificially inflating the spend.

Hatfield says companies should use enterprise and supplier-development programmes to help improve innovation in the supply chain by, for example, looking at new areas of commodity growth and delivery lines, but few are doing so.

Companies have to get away from transforming only the "low-risk" areas in their supply chain such as catering or cleaning, he adds. "If we are just substituting (black for white suppliers) we won’t add economic value," he stresses.

To begin nurturing more sophisticated entrepreneurs, corporates have to develop an intense selection process, he says.

Enterprise Development Council of SA president Sisa Ntshona attributes many of the challenges experienced by firms in implementing enterprise development to a lack of co-ordination. He says one way to tackle this is for companies to join with others in their sectors to help grow the supplier market.

The council, which was formed in 2014 and has about 800 members, is working with the Gordon Institute of Business Science to build a matrix to measure the effect of enterprise and supplier development. The council is also developing a code of ethics and practising standards to help professionalise the sector.

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THE government is involved in facilitating enterprise-development spend as well. As part of its 2015-16 targeted outcomes, the Department of Small Business Development intends to obtain funding commitments from 10 partners in 2016-17 to start an enterprise and supplier-development fund administered by the Small Enterprise Finance Agency.

The SizweNtsalubaGobodo review says private sector responses have been mixed. Ntshona believes companies may be reluctant to work with the department because of the fear of "government inefficiency".

Rather than funding businesses with enterprise-development funds, he believes the state should act as an enabler, cutting red tape and helping to bring companies together.

The review suggests the department should not match funding, as this would limit its ability to scale its effect.

But enterprise-development expert and executive director of the Beesa Group Andrew Bizzell says without matching the contributions companies are interested in making, the government will have a harder time trying to convince corporates to take an interest in the fund.

He adds that because corporates should know their supply chain better than the state does, there should be little need for the government to be involved unless it can bring something to the party. Matching funding might help.

The initiative could smack of duplication, particularly as the National Empowerment Fund (NEF) has run an enterprise and supplier development fund since 2011.

Spokesman Moemise Motsepe says the fund has R102m available. To date, R74.5m has been approved, and the balance will be approved by the end of the financial year on March 31 to meet demand. Contributions into the fund come from large corporations and medium-sized enterprises.

Figures from two big companies with the longest-running enterprise support programmes indicate that enterprise development could have a significant effect. Since the inception of its Zimele programme in 1989, Anglo American has invested almost R1.4bn in 1,885 businesses that employ 38,296 people and have generated a combined R6.1bn a year up to December 2014.

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BETWEEN 1995 and last year, SAB spent R90m assisting 24,558 young entrepreneurs through its KickStart programme. This resulted in the creation of 3,458 youth-owned businesses that created an average of 6.7 jobs each.

An independent impact study conducted in 2013 showed that at least 84% of businesses that participated in SAB KickStart were still in operation after three years.

But it’s not always easy-going. Ten years after he was crowned an SAB Kickstart regional and then national winner, netting R155,000, Citrum Khumalo had to scale back his businesses after taking a hit during the 2008 recession.

The money he won went to fund a refrigeration truck and a walk-in fridge and freezer.

Khumalo had been running his business part-time for two years while he was airline head chef at Virgin Atlantic. After winning the SAB competition in 2005, he quit his job to run his catering company.

With contracts from several big companies, he grew his staff quota to 70, before the recession hit and clients closed their contracted kitchens, leaving him struggling with the debt. Now he has about six full-time staffers at a culinary school, a new restaurant, and is hosting fine-dining events.

He says the programme still has an important role to play: "It has an influence in terms of entrepreneurship, especially among the disadvantaged who don’t have financial support to kickstart their business."