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Development Finance
• A number of provincial and national development agencies offer funding to viable start-ups and entrepreneurs seeking to expand
• A provincial Accelerated Shared Growth Initiative agency, AsgiSA Eastern Cape, was launched in 2007
Funding for start-up businesses and ventures regarded by traditional institutions as high-risk is hard to come by. This is where development-finance agencies play a vital role in economic growth. In the Eastern Cape, budding entrepreneurs are spoilt for choice in finding potential funding.
In the context of reports of farms being repossessed by financial institutions and national government applying the principle of ‘use it or lose it’ to parcels of land allocated to emerging black farmers, the story of a Kirkwood collective paying off its mortgage 15 years ahead of schedule is heartening – and quite remarkable.
In July 2009, The Herald reported that the 59-strong Luthando Workers Trust made the final payment on its 137-hectare citrus farm in the Addo Valley. In 2004, the group received money from the Land Redistribution for Agricultural Development subprogramme (LRAD), a national government initiative to support new landowners, and borrowed the balance of the purchase price from the Land and Agricultural Development Bank of South Africa.
Another successful enterprise in the rural parts of the province illustrates just how important microfinance can be in improving lives. Women’s Development Businesses (WDB) Group is a not-for-profit financing institution that focuses on rural women. It was formed in 1991 by female South African leadership figures Zanele Mbeki, Gertrude Shope and Sally Motlana, and makes loans of between R300 and R10 000. In mid-2009, the bank, in a joint venture with the owners of Trinco Tea (AngloVaal Industries), opened a new branch in Flagstaff in the Qaukeni Local Municipiality, an area with few modern facilities. Loans from the WDB are enabling women to invest in things like cameras (to take photographs for identity documents or for weddings) and to expand small businesses they are already running, like small-scale poultry farms or selling vegetables.
Provincial development agencies
Eastern Cape Development Corporation
One of the roles played by the Eastern Cape Development Corporation (ECDC) is to provide development finance. The ECDC has several financial products tailored to meet the various needs of business, entrepreneurs and investors, ranging from short-term to long-term finance and small and micro loans.
Services offered by the ECDC include advice and assistance with project planning, skills support and a unique aftercare facility for the use of contractors.
The ECDC’s Development Finance Unit is one of the strongest drivers of SMME growth in the province. The ECDC aims to fill the gaps left by conventional lending institutions, helping more people graduate to the mainstream economy. The unit is not limited to any particular sector, but does focus on sectors with the potential to have a multiplier effect, specifically construction, agri-processing, commerce, tourism, manufacturing and the services sectors.
AsgiSA Eastern Cape
In line with national policy, a provincial Accelerated Shared Growth Initiative agency was launched in the Eastern Cape in 2007. AsgiSA Eastern Cape leases about 4 400 hectares in four rural communities, including Qunu and Butterworth, on which it has produced 17 561 tonnes of maize. Families that agree to lease their land to the company receive 500kg of maize per hectare each season.
The first phase of the project cost R60-million. A further R85-million has been set aside for 2009/10, with three times as many hectares to be planted. Long-term plans envisage half a million hectares being planted with sugar beet, fruit, sugar cane, canola, sunflower and soya beans.
Blue Crane Development Agency
The Blue Crane Development Agency is a relatively small development agency, focusing as it does on the Blue Crane Route Local Municipality, but it has achieved some remarkable successes. Most notably, the town of Somerset East has become the focus of investment around its renovated airfield. Among other initiatives, an especially light kind of aeroplane is being developed there, with the collaboration of the University of Witwatersrand in Gauteng.
National development finance institutions
Industrial Development Corporation
In 2008/09, the Industrial Development Corporation (IDC) approved funding in the amount of R10-billion, a new record value. Most of this money was set aside for expansions and new businesses.
It is estimated that 2 500 jobs were saved through IDC interventions to the value of R500-million. As much as R6.1-billion will be spent on helping distressed businesses between 2009 and 2011. This funding programme is expected to create 24 200 direct new jobs in South Africa. A R1-billion fund has been established specifically to support transformation and entrepreneurial development. Eastern Cape projects that the IDC supports involve sugar beet, fruit production, highpressure aluminium castings, fuel pellets, wood processing and citrus farming. In collaboration with the European Union, the IDC raised a total of R45-million for the establishment of a blueberry farm in the Stutterheim area. This is a labourintensive project that will create more than 2 000 jobs and is expected to be fully operational by 2015.
Development Bank of Southern Africa
The Development Bank of Southern Africa (DBSA) has approved approximately R30-billion in loans since its inception in 1983. The bank plays the role of financier, advisor, partner, implementor and integrator to mobilise finance and expertise for development projects.
Land and Agricultural Development Bank of South Africa
The Land and Agricultural Development Bank of South Africa has been the leading agricultural financier in South Africa since 1912, offering development finance to established and emerging farmers.
National Empowerment Fund
A National Empowerment Fund (NEF) initiative saw the launch in 2009 of an online business planner in five languages. Small businesses often have trouble developing a business plan, so it is hoped that this tool will help budding entrepreneurs with planning and presentation. A nine-step process takes the small-business owner through a series of items such as cash-flow projections, managing financial statements, capital expenditure and balance sheets. A simplified accounting process that complies with international standards is also included. While the online business planner does not guarantee that a small business will gets the required funding, it will greatly assist in the compilation of supporting documents.
Khula Enterprise Finance Ltd
This financing agency will lend about R3-billion to SMMEs between 2009 and 2013 via a subsidiary called Khula Direct. Khula is also looking for private investors to partner with the agency in supporting smaller enterprises. A mentorship programme involving 400 experienced businesspeople will be rolled out in Gauteng, KwaZulu-Natal and the Western Cape to begin with. The programme will then be taken to the other six provinces.
National Youth Development Agency
This entity was launched on Youth Day, 16 June 2009, out of a merger of the Umsobomvu Youth Fund and the National Youth Commission. As a statutory body, the agency will be closely monitored in the way that it disburses its R1-billion, threeyear mandate.
Small, medium and micro enterprises
Training of entrepreneurs has been a particular focus of the provincial government, municipalities and agencies. The Nelson Mandela Bay Municipality (NMBM) has put trainees from more than 800 small and medium-sized businesses through training since 2004. Advice on financial management, marketing and tendering are included in the courses.
The NMBM has also done its best to encourage entrepreneurs at the micro level by building stalls to accommodate informal traders. The upgrading of Govan Mbeki Avenue, the centre of Port Elizabeth’s CBD, created new selling spaces in areas where there is high pedestrian traffic.
The pursuit of the entrepreneurial spirit has even entered Eastern Cape schools. The South African Institute for Entrepreneurship (SAIE) has partnered with the several organisations to introduce its BusinessVENTURES module. Schools in areas such as Mdantsane and Stutterheim benefited and the adult version of the programme was rolled out at the Hommoequa Craft Community project in Humansdorp.
Online Resources
Development Bank of Southern Africa: www.dbsa.org
Eastern Cape Development Corporation: www.ecdc.co.za
Industrial Development Corporation: www.idc.co.za
Khula Enterprise Finance Ltd: www.khula.org.za
Land and Agricultural Development Bank of South Africa: www.landbank.co.za
National Department of Trade and Industry: www.thedti.gov.za
National Empowerment Fund: www.nefcorp.co.za
National Youth Development Agency: www.nyda.gov.za
