Everyone is talking about enterprise development. A mechanism that fuels economic growth and creates jobs, it is seen as the answer to some of our most pressing problems as a nation. With potential new funding models for social businesses on the horizon, enterprise development seems to be top of the agenda. But finding suitable investment opportunities in this area is proving a challenge – not everyone, individuals and non profits alike, is cut out for enterprise.

Enterprise development is the new hot topic in development circles. Companies want to finance it, the government is pushing it as the solution to unemployment and, increasingly, ordinary people want to support it (look at the success of Kiva, which channels micro-loans to emerging entrepreneurs).

Why all the excitement? Enterprise development helps people earn a living; raising them out of poverty, creating jobs and empowering individuals, as well as the communities in which they live. According to SASIX sector research, small businesses represent 98% of the total number of firms and employ 55%of the country’s labour force. Overall, small firms account for 35% of GDP.

Scorecard

So keen on enterprise development is the government, they have allocated 15 points to it on the Broad-Based Black Economic Empowerment (B-BBEE) Scorecard. “In comparison,” says GreaterCapital’s Business Development Consultant, Roxy Mitchell, “Socio-Economic Development earns a maximum of five points.”

According to the Scorecard, enterprise development is categorised as indirect empowerment and comprises two elements:

• Investment in black-owned and black-empowered enterprises.
• Joint ventures with black-owned and black-empowered enterprises that result in skills transfer.

“Many of our clients want to identify businesses such as these to support but are finding it increasingly difficult,” continues Mitchell. “We advise our clients to look into their own value chain for opportunities. Who provides airport transfers for executives, for example, or the company’s canteen facilities?”

Investment readiness

“The main problem is investment readiness,” says GreaterGood group CEO, Dean Hand. “While there is a great deal of entrepreneurial activity in South Africa, the reality is that most of these businesses are survivalist, struggling to generate enough income to put food on the table. Very few are at the point where they can expand to scale and employ other people.”

The South African Social Investment Exchange (SASIX) specifically looks for community projects that support enterprise development and entrepreneurs in South Africa. “Even finding projects that assist entrepreneurs has proved to be a challenge,” continues Hand. “We sent out a call for concept notes last month specifically looking for enterprise development projects and got quite a disappointing response.”

“The sector is crying out for well-run projects that support enterprise development by providing education, finance and technical assistance to emerging entrepreneurs to get them ready for investment.”

New sources of capital

In last month’s newsletter, we covered the implications of Minister of Economic Affairs, Ebrahim Patel’s announcement that a percentage of pension fund investments will be tagged for community development. This means a potential R70 billion available for businesses with a social mission.

Another recent development, the Social Stock Exchange initiative, is working to create a fully regulated board under the Johannesburg Stock Exchange, dedicated to impact investments – financial investments that address social and/or environmental concerns and deliver a financial return. A good example of this is a business that uses microfinance as a tool for improving the housing conditions of poor communities. They could use the Exchange to list equity or debt to raise investment capital and fund expansion.

Investment continuum

“Organisations, businesses or entrepreneurs with a social or environmental focus are going to have a whole new mechanism for raising the capital they need to grow and thrive,” says GreaterGood founder and lead on the Social Stock Exchange Initiative, Tamzin Ractliffe. “Of course, there is a continuum of social investing, from giving to lending to investing at various different rates of return. There will always be not for profit organisations in need of grant funding that fulfill critical social functions but this development will provide for the impact investment side of the continuum in a regulated way – for the first time in South Africa.”

The key is going to be helping emerging businesses to become investment ready by building their capacity to take on investment and grow.

Investing in enterprise development is an effective way to generate wealth, create jobs and improve social and economic conditions. Improving the growth of small businesses by unlocking access to financial services can empower individuals and communities to rise above the poverty line.

> Find out more about Enterprise Development on SASIX

> Are you an organisation, business or entrepreneur with a social or environmental mission? Map your organization on the Social Stock Exchange Initiative website.