In 2017, South African SMEs reportedly contributed thirty-four percent to the country’s GDP and sixty percent of employment. There are about 2.8 million diverse SMEs in the country, meaning there’s a great desire by young idea-starters to bring their business visions to life, but the sector has needed some additional help for a long time. That might just become reality, thanks to a Dutch public-private social impact investment fund, Buxeros Capital, which has just entered the South African SME market.
In a statement, Fund Director, Corne Melissen said one of the criteria for selecting what emergent SME it will invest in is the social impact, as well as economic and commercial end-product. He said Buxeros will act as “co-investor and a partner.”
President Cyril Ramaphosa takes the SME sector seriously. Not just because of what it already contributes to South Africa’s GDP, but because of how much more it can contribute. For instance, the National Development Plan 2030 intends for SMEs to play a big role in driving the economy.
But many of the country’s 2.8 million SMEs are still young, with as many as sixty percent of businesses younger than three years, and up to seventy percent being first-time business owners. This is why, for instance, only twenty percent of SMEs say they generate higher than R200,000 annually, and why only one percent of SMEs have more than twenty employees.
SMEs make up for shortfalls in the government’s provision of employment and supports the economy. And yes, the potential for employment and expansion only happens at the speed of business growth. But if there’s no growth, people will not only lose jobs, businesses will shut down. South African business owners say access to funding is their major problem, with government sources providing up to fifty percent of all SME funding in the country. Not to mention highly restrictive government regulations like license processes and harsh taxation. It costs R200 to register with the Companies and Intellectual Properties Commission, for instance.
Jonathan Mundell, CEO of In On Africa, an independent research consulting firm thinks more support needs to be given to emergent SMEs. “Something that really struck me through this research was how many SME owners in our country want to have a positive impact – they want to add value and make a difference. This is an amazing quality that needs to be nurtured and utilized in the growth of South Africa’s economy,” he said.
Buxeros is chiefly focused on SMEs whose ideas will impact the local economy, especially if they already have a scalable business model. The company sees major African cities like Johannesburg, Cape Town, Lagos, Luanda, and Cairo as “increasingly relevant cities.” And knowing that three of those cities have raised more than $40 billion in the last ten years, Buxeros knows exactly what it is getting into with this fresh market incursion. Small South African business owners will be chuffed.
By Caleb Ajinomoh