DAVID MPARUTSA: Co-ordination of supplier development stakeholders is critical for Africa

The recent announcement by the Treasury that SA infrastructure projects would, in future, only make use of locally manufactured cement, was an important policy decision as the government seeks to support local businesses and develop manufacturing capacity.

This is a perfect example of how the government can play a critical role in protecting African economies from cheap imports and smartly deploy policy and legislation to protect and develop local businesses.

With the Absa Business Day Supplier Development Awards around the corner, this cement industry decision gives us an opportunity to think about how all the different role players need to co-ordinate their efforts to create high-quality small and medium enterprises (SMEs) through various supply-chains.

While “tendering” has certain negative connotations in SA, the reality is that in most countries, the government is among the largest procuring entities, and this makes it a potential major supporter of SMEs. Bridging this gap between SMEs and the government remains a major challenge, but there are some exciting initiatives being developed.

In Kenya, the Access to Government Procurement Opportunities programme, founded in the country’s constitution, espouses fair, equitable, transparent and cost-effective public procurement of goods and services. Through this programme, 30% of government procurement opportunities are set aside for enterprises owned by women, youth and the specially enabled. This allows small and marginalised businesses a chance to get a seat at the table and acquire critical experience executing on contracts.

Similarly, in Mozambique and Uganda, their governments are using policy to drive the support of SMEs in and around areas where major natural gas and oil discoveries are being made. If you want to do business in this part of the sector the development of local suppliers is essential.

Moving through the value chain, corporates need to understand the role they can play in developing small businesses through their own financial muscle and preferential procurement. But this is where co-ordination becomes so important for sustainability. On paper it is great to support small businesses and give them access to market and access to opportunities, but if the business does not have the financial or technical resources to actually fulfil the order, it is being set up to fail.

This is where banking and financing partners become so critical. Tools such as invoice factoring and contract finance are an important part of the product mix when it comes to supporting these SMEs, but in reality it is also a bit of a “chicken-and-egg” situation: if you win the work we will give you finance and fund your purchase order … You as the small business simply need to get yourself to the point where you can actually do the work.

Key in closing this gap is to ensure there is an environment developing the nonfinancial requirements of the business. SME support to develop technical and business acumen is an area that cannot be ignored. Failure rates among SMEs are high, particularly in Africa where economies tend to be dominated by a handful of key players and there is limited access to capital and market opportunities. Business incubators and accelerators offering mentoring, accounting and business process support are becoming a key feature in high-growth economies looking to stimulate start-ups and small businesses.

While the sector is still in its infancy, there are now more than 600 technology hubs across Africa stimulating the development of African start-up technology businesses. These are typically funded by a mixture of government and private-sector initiatives passionate about seeing small businesses thrive.

This investment is starting to show dividends in countries such as Kenya and Nigeria, which have seen a number of their high-growth technology businesses attract interest from foreign investors. The likes of Interswitch, Opay and PalmPay are examples of African technology businesses that have raised money in recent years.

In Mozambique, ExxonMobil in conjunction with its Rovuma LNG Area 4 partners, have launched the MozUp Enterprise Development Centre, which seeks to develop competitive small businesses as the country begins to benefit from growing market opportunities including those linked to the liquefied natural gas (LNG) market. MozUp will work closely with smaller businesses to help them prepare for growth opportunities that come their way.

The Invest in Africa initiative is another that is gathering momentum on the continent, with offices in Ghana, Kenya, Senegal and Mauritania. This not-for-profit organisation connects large businesses with more than 8,000 local suppliers, helping build long-term capacity and technical capacity training for more than 10,000 SMEs and ensuring that more than $116m is retained in local economies rather than exported out of Africa.

As Africa emerges from the economic devastation of the Covid-19 pandemic it is clear that supplier development and the capacitation of the SME sector will be a key focus for role players. It is imperative that efforts are co-ordinated across all stakeholders to ensure we can build a diverse range of suppliers that create meaningful employment and economic value.

• Mparutsa is head of enterprise & supplier development at Absa Corporate & Investment Banking. Absa is sponsor of the Absa Business Day Supplier Development Awards.