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As we emerge from the pandemic, we need an environment where SMEs can thrive. Picture: UNSPLASH
As we emerge from the pandemic, we need an environment where SMEs can thrive. Picture: UNSPLASH

Small businesses are a critical component of the African economy. They account for 90% of all private firms and contribute more than 50% to employment rates and almost 40% of GDP in African countries.  

The role of small businesses in stimulating growth, creating jobs and helping to alleviate poverty is recognised globally, even more so in the wake of the pandemic. 

A recent discussion by panellists from business, finance, and small and medium-sized enterprises (SMEs) emphasised access to finance as one of the most important (yet missing) levers to enable the growth of small businesses. How can finance be unlocked for small suppliers, and can there be inclusive economic growth without it?

As financial markets become more risk averse, confirmed market access and confirmed purchase orders have become requirements for small businesses needing finance — yet small suppliers often struggle to penetrate or create markets, creating a no-win scenario. They cannot compete with existing big businesses because they lack access to the working capital and investment finance to serve these markets. 

This is where supplier development plays a pivotal role: where markets exist but links do not. Big businesses that develop inclusive supply chains, allocating procurement spend and resources to develop, support and enable access to small suppliers, have an immediate impact on the growth of those suppliers. Such holistic strategies unlock the capital required to help small, well-performing suppliers grow.

Funders can assist small suppliers directly and partner with corporates that want to provide procurement finance. For example, ProfitShare Partners, a fintech business, supports SMEs along the steep learning curve involved in delivering to corporates. A good contract or purchase order will give SMEs access to this service, which grows SMEs to independence and bankable viability within a year. 

Another corporate helps SMEs with debt collection to manage their own credit risk, mentoring them to run their businesses in a mature and disciplined way. Studies show that SMEs grow within a few years of partnering with a corporate supplier.

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Corporate champion

Pavati Plastics Southern Africa MD Mthobisi Nhleko is an example of how an SME, corporate and funding partnership can bear fruit. The key to unlocking value for his business was to have a corporate champion that understood the business, its vision and its people, and then advocated for them. Entrepreneurs need quality relationships to build trust with strategic partners who invest time and money in their development and growth. 

Investors look for entrepreneurs who have integrity, resilience, commitment and self-discipline to communicate, network and find the right partnerships. SMEs have to focus on the basics to build sustainable businesses with proper financial records, business models and systems. They need margins that cover costs, diversified customers and a cash-flow plan. 

Entrepreneurs also need to package their business cases for investment well, and they have to show grit and patience while establishing key relationships and partnerships. Thereafter, it is a natural progression to matching their business with the right funder.  

As we emerge from the pandemic, we need an environment where SMEs can thrive and contribute to economic revival. Corporate supplier development has taken on larger proportions that support a localised strategic vision and enable growing strong businesses in the supply chain. We have to be part of growth across Africa to create opportunities for entrepreneurs and SMEs beyond SA’s borders. We have to grow our supplier base to replace imports and create a domino effect to boost our economy through exports.

Key learning points

  1. Corporates and investors partner with entrepreneurs who have the right qualities, integrity and grit.
  2. SMEs have to consistently get the fundamentals right, over time, to build sustainable businesses — and the rest will follow.
  3. SMEs need support to develop skills and capacity, access to markets, and funding, in that order.
  4. SMEs need a champion to help them gain access to markets, capital and unlock value.
  5. SMEs can be developed into sustainable businesses through quality relationships with key stakeholders over time. 
  6. Corporates and funders must work with SMEs to determine the best options for their businesses and find innovative ways to support them.
  7. SME supplier development benefits all stakeholders and boosts the SA economy.
  8. We can build our economy towards exports by growing the supply-chain ecosystem.

Click here to join the 2021 Absa Business Day Supplier Development Awards, an initiative of Arena Holdings, Cold Press Media and Fetola, and be part of this dynamic network of people changing the future of SA.

This article was paid for by the Absa Business Day Supplier Development Awards.

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