Blend of private and government finance is a formula for success
Programmes that rely on both sources have proved to be effective in fixing some of our economic woes
President Cyril Ramaphosa has done well in building bridges with the private sector after many years of fractious relationships between business and government.
Simmering tensions remain over issues such as the Mining Charter, land reform, energy policy and the liberalisation of telecommunications, but relations are so much better than they were.
Having a president who has served time in the private sector and has also been active in the trade union movement means Ramaphosa’s vision and approach are different to those of a career politician, which is unarguably a good thing.
However, I would argue that we have yet to see bridges built between the public and private sectors that will practically reform the way we rebuild our economy and reverse the years of industrial decline that have been caused by the terrible trio of corruption, mismanagement and, more recently, Covid-19.
The government is not going to solve all our economic woes, and nor is the private sector; there is a definite need for teamwork, and this is where blended finance can play a role.
In essence, the strategy involves the combination of state funds with funding from the private sector, which results in more investment than would have taken place without this partnership. We see this concept at play in large infrastructure projects, and it is time to see it playing a role in the development of small businesses.
As the budgets for government investment incentives continue to be whittled away, signs of blended finance playing a role are appearing more often, for instance in the way the department of small business development is supporting enterprises in the tourism sector via the Small Enterprise Finance Agency. Other examples have cropped up in the agriculture and agro-processing sector, with the government partnering with commercial banks.
Programmes are being structured so that while public funds are still on offer the private sector is also required to come to the party. The concept is hardly novel or revolutionary, but it is being seen as a better way to operate. With limited resources focusing minds, this combination of part-government, part-private sector is the direction government is taking. But it must be bolder and do a lot more.
While there is movement from the government’s side, we also need to see more action from the private sector, especially in the field of enterprise and supplier development (ESD). ESD is a crucial tool to nurture and support small businesses, predominantly black-owned, to get through the difficult start-up phase and beyond, at a time when the odds often seem stacked against success.
The department of trade, industry & competition does have a programme, the strategic partnership programme, wherein government provides funding to big corporates to develop mostly black-owned businesses in their supply chains. While it may be the right idea, the uptake has been regretfully small, counted on the fingers of one hand.
It is important to understand why corporates have not been able to access this support. With only a handful of successful applications, something must be going wrong. The theory is excellent but the reality on the ground is different. What is the impediment?
In my opinion, the root of the issue is that both government and the private sector are too focused on working independently. The private sector either has no knowledge of the support available from government or steers away from it because of red tape. Government programmes that are available are also not attractive because they were not designed with businesses in mind. So while the availability of funding is a big constraint government money is just too slow to flow.
The ideal would be for the government and private sector to work together in the initial design of these programmes. This would result in schemes that are better implemented with buy-in from all stakeholders, and that achieve the objectives they are set out to achieve.
We see from the master-plan concept that has become the focal point of the department’s industrial strategy that there is a core undertaking to consult. Where it has happened, or is happening, we have sectoral industrial strategies that have greater buy-in and hence greater prospects of success.
The theory is sound, and we see that it does work where it is successfully implemented. We must try a lot harder, work better together — and get on with it.
• Blake is a manager at Cova Advisory.
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