Economic growth is key to addressing unemployment, gender equality, health and other poverty-related issues worldwide. Enterprise development (ED) is an important tool in the belt of South African corporate citizens and is an essential element to economic growth.
Enterprise development can be defined as investing time, knowledge and capital to help Small and Medium Enterprises establish, expand or improve businesses including empowering modest income-generating informal activities to grow and contribute to the local economy.
Enterprise development policy should be developed with outcomes in mind such as:
Economic transformation through empowerment of underserved communities
Building public private partnerships that embrace social investment as a common vision
Scaling the entrepreneurship and innovation mindset already at play in communities
Market development, commercial business services and social enterprise are part and parcel of Enterprise Development. Moreover it encompasses finance, entrepreneurship development, investment and growth in Small Medium and Micro Enterprises (SMMEs), including initiatives that range from enabling the start-up of small businesses to providing business skills development through training, mentoring, coaching.
There is a fast-developing understanding of the efficient integration of enterprise development into transformation strategy. Developing black-owned and black-run businesses is good for business and presents an an impact channel for companies to implement an aspect of its transformation agenda.
What else counts as enterprise development?
Support such as preferential credit terms, preferential pricing structures, mentorship and business skills training given by large companies to emerging black-owned businesses can be seen as enterprise development.
Compared with other forms of empowerment enterprise development has the advantage of building the capacity of smaller suppliers, giving them the ability to do larger deals, gain valuable experience and improve their profitability and sustainability.
According to the South African Enterprises Agency Forum other examples of enterprise development initiatives included are:
Grants and loans
Investment in beneficiary entities
Providing seed capital
Access to capital through provision of collateral/relaxed security requirements
Early and/or timely payments for goods supplied
Extended credit terms for procurement amounts owed by the beneficiary entity
Infrastructure support to suppliers and other entities in the same area or community
Labour-intensive production and construction methods
Investment and support to enterprises operating in rural communities
The structure of an Enterprise Development strategy will depend on a number of variables such as the size of the ED budget and whether the aim is to invest in building businesses in your company or organisation’s value chain, or take an ‘arms length’ view and invest in businesses outside of the value chain.
Investments in BBBEE enterprises must result in real economic benefit flowing to the recipients, enabling them to run on a sustainable basis and have active participation by black people. To score enterprise development points, businesses need to help firms that are 50% or more black owned, or, in the case of those with an annual turnover of less than R35 million, that are 25% or more black-owned.
Earning points on the scorecards requires each company to measure their contributions as a percentage of their net profits per annum. Enterprise development makes up one element of the BBBEE scorecard which illustrates the elements that may glean points towards BBBEE Compliance.
Enterprises that have an annual turnover of more than R35 million may glean a maximum of 15 points plus five bonus points. QSEs (Qualifying Small Enterprises) that have an annual turnover of between R5 million and R35 million, may glean 20 points from this element.
See also our article on BBBEE for social investors HERE
Benefits to the ED contributor
BBBEE Score Card: Contributions towards ED are recognised for point towards your B-BBEE scorecard. In the case of NEDA, 100% of the contribution value is recognised for ED points.
Accountability for sustainable SME development, job creation and poverty alleviation: Through enterprise development companies can demonstrate a conscious responsibility towards fellow citizens helping to create a sustainable business for fellow South Africans by giving them the necessary tools, knowledge and finance to do so. Through this, one can reduce the dependence on Government and businesses for grants and subsidies. When ED Funds are applied responsibly the impact will be felt on a national level and the economy will experience growth through an increase in the number of self sustained individuals.
Return on Investment: Companies can earn a return on investment through the strategic application of Enterprise Development Funds (EDF) which would result in growth in turnover and profits. This allows the contributor to not only recover the funds spent, but exceed the minimum contribution value in many cases
GrowZA is proud to support our partners' enterprise development programmes by identifying, vetting and programme managing opportunities that lead to shared growth and impact.
If you would like to learn more or nominate a social enterprise for funding please follow this link to our Homegrown Heroes page to celebrate and resource community changemakers.