Business

Getting a foot in the door

2016-10-02 06:00

Nurturing young entrepreneurs into the formal economy is a national imperative if there is going to be inclusive and meaningful economic growth.

Young South Africans have the ideas, but more often than not, they do not have the capital or experience to get a foot in the door.

“Almost weekly, we receive truly innovative applications,” said Daniel van Vuuren, a senior youth enterprise specialist at the new development impact support (DIS) department at the Industrial Development Corporation (IDC).

“Very often these are castles in the air, but there are concepts and applications that show promise, ranging from guys using 3-D printing for construction, people coming up with new composites to build bricks, new chemical compounds to clean Converse All Star tekkies, right through to technological advances in relation to tablets and phones.

“We want to see an influx of young entrepreneurs who will be the industrialists of tomorrow. We will be looking for the next Sasol to come from young, black industrialists. That is our intention,” said Van Vuuren.

“Sometimes you will find a transaction would simply be rejected owing to insufficient proof of market, viability issues, whatever it may be. We will then see how we can bolster it,” said Van Vuuren.

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That’s where the DIS comes in.

“We concentrate on how to get marginalised people and groups into the centre of the economy,” said Stuart Bartlett, who heads up the department.

More specifically, its mission was to get people excluded from the IDC into the IDC, said Mzwabantu Ntlangeni, also a senior specialist at the DIS, focusing on youth enterprises.

In 2013, the IDC adopted funding for “youth-empowered” (25% to 50% ownership) and outright youth-owned businesses as a formal target.

The increase in deals with young business people since then has been spectacular – growing from R143 million in the 2014/15 financial year to R970 million in 2015/16.

For young people in particular, the IDC has committed to providing funding of R4.5 billion over five years, including through its R1 billion Gro-E Youth Scheme.

“We provide concessionary pricing if the business demonstrates it can create jobs at less than R500 000 per job. Potentially, the pricing can be as low as prime minus two, but it can go to prime minus three for youth-owned businesses – the cheapest development finance in South Africa. We are quite proud of that,” said Van Vuuren.

The IDC uses the African Union’s definition of youth: people up to, and including, the age of 36, instead of the usual 35.

“The young people that we deal with tend to be between 25 and 36,” said Van Vuuren.

“Your real outliers will be the 19-, 20-year-olds coming through the door with a fantastic industrial opportunity. Those are few and far between, let’s be honest.”

Practically, the kind of deals that are done with young people range from capital for a small-scale brick-making operation right through to funding participation in multibillion-rand renewable energy projects.

“We are proactive, we go out and engage with the broader ecosystem and clients and try to get them to send the pipeline our way,” said Bartlett.

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Recent approval

The IDC recently approved its Youth Pipeline Development Programme.

This programme is currently in a pilot phase, but is already sitting on a project pipeline of R2 billion related to 130 different projects.

The intention is to guide young business people through the stages of a transaction with the IDC, starting with making their projects more “investment-ready”.

“Not all of them are going to be appropriate to the IDC. Sometimes it is not within our mandate,” said Bartlett.

The IDC provides funding and support in a range of sectors.

However, those that fall outside its mandate are referred to appropriate entities in what the DIS team call the youth entrepreneurship “ecosystem”.

“We try to help young entrepreneurs precisely to avoid a situation where they are turned away,” said Bartlett.

Referring applicants to the right place, as well as ensuring that appropriate applicants approach the IDC, is becoming an important part of the development financier’s model for young people.

This includes other state-owned entities such as the Small Enterprise Finance Agency and National Youth Development Agency, but also a whole constellation of public and private agencies that do work in support of youth entrepreneurship.

“You must be linked to other places and spaces,” said Van Vuuren.

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Various stages

An application to the IDC would go through various stages, ranging from pre-assessments to full-scale due diligence investigations, each with its own challenges.

“These processes are often daunting, so we try to ease the navigation through what often feels like a maze to the entrepreneur – so they understand what is expected of them,” said Van Vuuren.

If a transaction is approved, another set of major obstacles arise.

“You will often find that this is where entrepreneurs battle most. They get the transaction approved as if that wasn’t hard enough, but the cost of meeting some of the conditions is sometimes so prohibitive that it inhibits them.

“We assist particularly young entrepreneurs with the clearance of those conditions.”

Ultimately, all the players in the ecosystem positioned to guide young entrepreneurs to business success have the same goal: to build the economic capacity of the country to create jobs and future economic prosperity.

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July 23 2017