While progress has been made with expanding the number of black industrialists in the economy, they face challenges that require coordinated responses from within the state and the private sector. This was said by the Minister of Trade, Industry and Competition, Minister Ebrahim Patel, during a presentation to the Parliamentary Portfolio Committee on Monday, 1 September 2020.
He tabled information in an interim report to the Parliamentary committee that showed that R32.6 billion in funding has been approved to more than 900 Black Industrialists and black-owned businesses, by the DTIC and its agencies in the last five years.
Funding by the DTIC and its agencies the Industrial Development Corporation (IDC) and the National Empowerment Fund (NEF) for black industrialists and majority black-owned businesses have had a broad impact, predominantly used to start-up new businesses or expand existing businesses owned and managed by Black Industrialists. Approximately 50 000 jobs are supported, and more than R75 billion in annual turnover generated by these businesses. Most of the funding was in the form of loans and equity in the companies concerned.
In 2015 Cabinet approved the Black Industrialists Policy, to increase the level of participation of black South Africans in the ownership and control of productive enterprises in key sectors and value chains. Minister Patel also established transformation targets for the IDC, in his capacity in 2015 as Minister of Economic Development, to focus more industrial funding on black industrialists and women- and youth-empowered businesses in productive sectors of the economy. These targets, Parliament was informed, had been met and exceeded over the period.
The Presentation by the department took the Portfolio Committee through examples of more than 150 businesses supported through the programmes across a range of sectors from food production, creative industries, metals and mining, energy, tourism, healthcare construction and digital technologies.
Minister Patel noted that the government’s black industrialist programme complements other pipelines of empowerment and transformation driven by the DTIC and its agencies.
“This includes Supplier Developments Funds committed to by private-sector firms during competition settlement processes of R4.5 billion. Already more than 500 black farming businesses have been supported through these programmes. Government has also agreed worker empowerment structures with private sector firms, which so far covers more than 25 000 employees with an estimated equity value of more than R7 billion. The DTIC has also negotiated commitments from multinational firms as part of the Equity Equivalents Investment Programme under the BBBEE Act; and additional commitments with industry stakeholders as part of sector masterplans like the R1 billion committed towards transformation in the sugar industry; and the R6 billion committed to by the automotive industry towards the Auto Transformation Fund. All of these pipelines of empowerment and transformation are designed to bring greater numbers of black-owned businesses into the economy,” said Patel.
Minister Patel noted that the government’s black industrialist programme complements other pipelines of empowerment and transformation driven by the DTIC and its agencies
Minister Patel mentioned that while there will be many examples of successes, a number of Black Industrialists continue to face challenges with breaking into markets or managing sustainable enterprises.
“Some of the difficulties include limited access to support and facilities from commercial banks, based on lack of business track records or collateral. Other challenges include concentrated markets where incumbents and dominant firms effectively limit the entry of new players. For example, the Grocery Retail Market Inquiry conducted by the Competition Commission found that exclusivity leases in shopping malls have kept smaller grocery retailers out of major market platforms,” said Patel.
Minister Patel highlighted other challenges that include limited market experience in some sectors, which result in over-expansion, or limited ability to respond to fast-changing market conditions or reliance on a limited number of large customers, weak governance arrangements in company boards, loss of major customers or contracts or export markets and recently the impact of Covid-19 on businesses.
“Aside from the problems at the level of the individual entrepreneur, other challenges we have identified within the DTIC are that we can reduce duplication of screening and approval processes, so that staff can be redeployed to post-investment support services, and overhead costs can be reduced. Across government, programs need to be more integrated, so that industrial funding is accompanied by other forms of support like procurement, access to infrastructure, and export promotion, to facilitate a joined-up package of support,” added Minister Patel.
Economic transformation is wider than BBBEE policies and embraces a number of elements, including transforming the structure of the economy to grow faster and more inclusively by addressing high levels of market concentration through competition policies; shifting the dependence on the export of raw materials; building a more balanced and dynamic economy; promoting the participation of black South Africans, women and young people in the economy; and broadening the base of entrepreneurship and promote fairness.
Minister Patel added that broad-based transformation is a vital component of government policy and that greater focus on transformation policies are needed to determine what mechanisms work and what do not and that policy-makers have an open mind on ways to enhance the objective of economic inclusion. He said the government will make changes where these are warranted by the evidence and experience and will need to scale up the successes so that more South Africans benefit. He called for a stronger alignment between empowerment and growth policies.
“The transformation agenda must include equitable provincial spread so that development is a reality across the country – this may require either dedicated resources to the IDC and NEF or partnerships with provincial financing agencies to promote this objective. Township and rural enterprises and small enterprise development through falling principally in the scope of the Department of Small Business Development must also be promoted through transformation policies across government. This will open the economy to many more South Africans,” he said.
