SMEs: The Building Blocks of a Post-COVID Economy
December 9, 2020
The COVID-19 pandemic and resulting economic shocks have wreaked havoc on businesses globally. SMEs (Small and Enterprise Enterprises), with their limited resources, have been particularly hard hit and have struggled to weather the storm. At the same time, it is recognised that South Africa’s growth path, as presented in the National Development Plan, is heavily reliant on SMEs for both job creation and to stimulate economic activities. According to targets set out in the plan, small businesses are set to create 90% of new jobs by 2030; a tall order considering the economic reset we have experienced as a country.
However, the government and private sector have a long history of forming solid partnerships to support SME growth in South Africa. The good practice from these efforts should be carried forward to assist in creating meaningful jobs in the economy and building a robust entrepreneurial ecosystem in a post-pandemic economy.
An example of one such public private partnership is Jobs Fund and Caleo Capital, together with Secha Capital, an impact investment firm that seeks to grow SMEs and create jobs. Secha and Caleo partnered with the Jobs Fund in 2018 to launch a project that would invest in SMEs within the consumer goods and agribusiness sectors.
The project demonstrates the viability of SME investing, from both a capital and social return on investment perspective. SMEs have experienced business growth leading to more sustainable businesses and jobs have been created. Secha Capital implements an “early-stage” private equity investing model, with an emphasis on value creation. Secha collaborated with the Jobs Fund to solve a key challenge faced by many growing SMEs: the ability to fund growth. Secha intervenes by investing equity in these businesses and providing key Enterprise Development (ED) support to fuel SME growth while at the same time de-risking their investment.
The current pandemic has reiterated the importance of impact-focused investments that grow local SMEs to create jobs and a robust economy. “Both financial and social returns form the basis of each investment we make,” says Yusuf Shaikh, Principal at Secha Capital, “Job creation and empowerment potential is critical and the examples of these supported enterprises demonstrate the value and results of providing financial and human capital support to SMEs.”
COVID-19 (C19) has indeed posed a great challenge to the continued operation of the participant SMEs, however, Secha, together with the support of the Jobs Fund C19 Relief Grant of R1.86 million, has ensured that the supported SMEs have continued to grow, despite C19 restrictions. Secha’s operator-investor model takes a hands-on approach to SME investment: each SME within Secha’s portfolio is assigned a highly skilled resource to help support the founder, to act as a COO to the CEO, and to assist in building and stabilising the company. To control for the negative effects of C19, the Secha team shifted the majority of its resources to help SMEs build resilience. This evolved support ranged from shifting sales to online channels and building new business models, to ensuring that SME employees were upskilled to take on new responsibilities.
The additional support has assisted SMEs to remain at full employment during lockdown, some of which have even made new hires. An example of this is RUSH Nutrition, a healthy snack and beverage brand based in Cape Town. RUSH was established to provide the market with products that are better for people, that are better for the planet and that promote overall health. As we grapple with the effects of C19 as a nation, the importance of preventative healthcare and staying healthy has become part and parcel of the mantra ‘stay safe’, and this forms part of RUSH’s core offering.
During the lockdown RUSH Nutrition has continued on a positive trajectory, and unlike the majority of SMEs in the economy, has managed to create jobs. Securing a job is a lifeline for any workseeker and, recently hired merchandiser, Elias Maake is grateful to have secured a position after losing his ability to earn an income during the COVID-19 restrictions. Elias had been working as a self-employed meter-taxi driver for five years until the nationwide lockdown resulted in the loss of this revenue stream. He realised that he needed to find employment elsewhere to survive.
Elias, originally from Polokwane, had always had the desire to start his own business and the entrepreneurial tenacity required to be a self-employed meter-taxi driver therefore appealed to him. He moved from Polokwane to Florida (Gauteng) to begin his entrepreneurial journey. However, the drastic drop in business due to COVID-19 required him to migrate his entrepreneurial skills from work in the gig economy to find a new role.
Elias found the job and opportunity market to be especially difficult during the lockdown. He found out that RUSH Nutrition was growing, so he reached out to the CEO of RUSH, Lara Mare. Lara recognised his entrepreneurial skills as well-suited to merchandising and Elias was hired to take on the role.
The experience of working in an SME has given Elias new insight into entrepreneurship, “This role has exposed me to new ideas and skills which take me one step closer to achieving my dream of starting my own business and helping others in South Africa. This job has been an amazing experience so far and I have had strong support from my manager, team as well as the CEO herself.”. Working for an SME can bring with it added opportunities that may not necessarily be available when working for a large organisation, for example, the flexibility to experience different tasks and functions within the enterprise, taking on a higher level of responsibility at an early stage, better access to management, and the opportunity to innovate. From a skills development perspective, SMEs are fertile ground for learning and growth.
WUKINA, the online marketing arm of a Secha investee company, which assists women to start their own hair businesses via a ‘business-in-a-box’ digital platform, has also seen gains in spite of the economic challenges brought on by C19. WUKINA’s online platform allows members to sell WUKINA products directly to the consumer and earn a commission on each sale. The Secha team worked closely with WUKINA’s owner and founder to provide both management and employees the skills and support they need to grow the platform’s membership and sales during the lockdown.
The impact of WUKINA’s growth has also been felt by the members of WUKINA, including Portia Mofokeng. Portia registered as a member of WUKINA to earn an additional income to support her family. As the breadwinner in her family of four, Portia is responsible for household expenses and knew that a single salary would not cover the expenses. Portia, based in Soshanguve, joined WUKINA in March this year. Her interest in entrepreneurship grew after studying a financial management module at university. WUKINA’s business model provided the opportunity for her to begin to pursue entrepreneurship and to become her own boss without requiring a capital outlay. Her goal is to expand her beauty product offering to her customers by including makeup in her product line. “Since joining WUKINA I have been able to cover my parent’s insurance policies. I know that if I sell 3 wigs in a month, I can cover the policy; anything extra is a bonus. WUKINA has also assisted me in preparing for my future. As I sell, I get to meet other women that provide me with advice on earning my degree in teaching.” – Portia Mofokeng.
It is not only the owner and founder of WUKINA who has benefited from the partnership with Secha. Maureen Sibanda, employed by WUKINA as the community manager, has been upskilled through the support and mentoring from Secha to take on this evolving digital media role at WUKINA. She was hired a week before the national lockdown to support the on-boarding of WUKINA members. When she started at WUKINA there were 50 members and now there are 500, a testament to Secha’s support and Maureen’s go-getter attitude and willingness to learn. “The highlight of my job is empowering my WUKINA members and seeing them make sales to support themselves and their families.” – Maureen Sibanda.
The Head of the Jobs Fund, Najwah Allie-Edries reiterated the importance of ramping up relevant support to Small, Medium and Micro Enterprises (SMMEs) in this time of crisis in South Africa, “In the delivery of the Economic Reconstruction and Recovery Plan, President Cyril Ramaphosa highlighted the importance of supporting and promoting SMMEs as a vehicle for economic inclusion and job creation. The Jobs Fund-Secha partnership is an example of an initiative offering comprehensive support to SMEs, facilitating their growth and enabling them to create new jobs in the economy”.