FUNDING AVAILABLE FOR SMALL BUSINESSES WANTING TO TRADE IN AFRICA

SME development has been given a major boost through the structuring of a groundbreaking investment facility financed by the Industrial Development Corporation (IDC) of South Africa Limited working in collaboration with the NEPAD Business Foundation (NBF).

"Access to finance for small enterprises, has continually hampered the growth and expansion of SME development across the continent with the challenges relating to access to capital and the cost of financing", says Demetri Pappadopoulos, Chairman of the NBF working group on FMCG development in Africa. Adds Pappadopoulos, "This continent has an extremely large informal sector, which needs to be serviced. SME companies play a pivotal role in progressing the industry within this sector. Therefore, SME development is critical to the creation of employment, poverty reduction and the harnessing of skills from the informal sector."

Traditionally commercial banks have been reluctant to finance SME development due to the risk profile involved and it has been extremely difficult for SMEs to both trade across borders into other African countries and access funding. Following 3 years of discussion, the IDC in collaboration with the NBF, has created a funding mechanism that will facilitate SME access to finance across the continent and help grow this sector. This innovative initiative spreads a strong message of support for this burgeoning sector across the continent.

To fully understand and explore this business model, a sample structure was established by Coastal Hire in Swaziland, as a test case study, via Pivot Holdings, a company owned by Mr Pappadopoulos. The purpose of this was to expand on the business model on offer from the IDC, in order to formulate a tried and tested model that could be launched into the market place that was both effective and sustainable. The incorporated model included the development of a Coastal Hire franchise outlet, which empowers local small businessmen through both shareholding and the transfer of skills whilst incorporating the correct corporate governance procedures to educate and structure sustainable business practices on the back of a managed and structured business model.

The success of this trial has resulted in a line of credit being made available by the IDC for similar SME developments across Africa, which is a significant milestone for the entrepreneurial spirit of the continent

The IDC facility which has been established for the opening of Coastal Hire outlets, makes available $1,68 million with an allocation of a maximum of $120 000 available for each of the 14 operations in ten different countries.

The focus for now and going forward is to take this model and to implement it across other interested and affected parties within the sector. This applies not only to SA but to the continent as a whole with key focus countries at this stage being Kenya, Zambia, Botswana, Tanzania, Mozambique and Mauritius.

This financial model is versatile in its structure and can be applied to more than one country at a time and takes into consideration political risks and other challenges associated with doing business in Africa and in particular to this sector. The model is applicable across the sector to all associated goods including food, cosmetics, clothing, entertainment and general retail.

"The fact that this model has been tried and tested, demonstrates the capacity that it can work." Says Pappadopoulos, himself an entrepreneur as well as experienced at SME trading across Africa and renowned speaker at business forums on the topic of "Entrepreneurship".

About the IDC:

The IDC (www.idc.co.za) is a self-financing, South African state-owned national development finance institution that provides finance to promote industrial and entrepreneurial development. Its primary objectives are to contribute to balanced sustainable economic growth in Africa and to the economic empowerment of the South African population, thereby promoting the economic prosperity of all citizens of the African continent. The IDC identifies and funds projects in partnership with others and focuses on promoting and investing in viable new industries and differentiates itself through risk taking and flexibility in structuring, particularly in promotion of BEE, SMEs, regional investment diversification and job creation.

ABOUT THE NEPAD BUSINESS FOUNDATION

The NEPAD Business Foundation’s mission is to create a platform for dialogue between the private and public sectors in order to actively partner the governments of the continent to realize the objectives of the programme, but also to serve as an instrument which will directly influence public sector policies, bring about greater trade synergies and co-ordination and craft a more enabling business environment.

The Foundation, which is endorsed by the NEPAD Secretariat, will contribute actively to the implementation of the NEPAD Action Programme by ensuring constant communication between the Secretariat and the business community, representing the interests and vies of the private sector, and developing best practice standards in corporate governance for the entire region.