Miller, Esselaar

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Miller, Esselaar Associates
The SAITIS Project
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Capital Mobilisation in context
Reinforcing Cycle of Economic Prosperity
reinforcing
Wealth-creating Infrastructure and
Environment
Gross
regional product per
capita
High quality of life
which yields
Attract establish a base for
Outstanding Business Performance
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Capital Mobilisation in context

• High Quality of Life
• covers
• High per capita income
• Favourable distribution of income
• Positive resident perceptions
• Low crime
• Vibrant cultural environment

and
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Capital Mobilisation in context

• Outstanding Business Performance
• includes
• Extremely strong shareholder returns
• Large venture capital flows
• Robust employment growth
• Dramatic productivity advantage
• over comparative regions
• and

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Capital Mobilisation in context
Wealth-creating Infrastructure
and Environment translates into

• Outstanding graduate research programs
• Strong research productivity
• High private sector investment
• Highly educated workforce

in other words
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EUREKA !
Utopia
Camelot
Nirvana
South Africa has made it!
Hip Hip Hurrah !
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Capital Mobilisation

• Issues are
• Availability of Capital
• Access to Capital

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Sources of Capital
(i) Private Contacts - Within the formal
economic system - Marginalised
communities Group lending schemes
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Sources of Capital (contd)
(ii) Private Sector - Microlenders -
Venture Capitalists (Angels) - Specialist
Organisations - Stock Exchange Venture
Capital Sector
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Sources of Capital (contd)
(iii) Public Sector - Micro-Small
Business Development - Incentive Schemes -
Part of large-scale Government projects
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Sources of Capital (contd)
(iv) International
- Private Sector Trans National
Corporations which have been
responsible for initiating the
SA computer industry - Donors / NGOs
Large no of International Aid
Agencies / NGOs involved in the RSA
USAID CIDA, IDRC
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Sources of Capital
(iv) International (contd)
- Goverments Directly. on multiple
levels - Traditional partners, such as
Britain,
Germany - Scandinavian countries
- North America Via agents such as
- United Nations -
World Bank - IMF
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International (contd)
(v) USAID

• 1998 Development Fund for Africa was
• 47-million (R280-million)
• In Southern Africa, US support seen to be
• critical for successful political
  economic
• transformations taking place
• Disbursed approx 450-million (R2.7-billion)
• to SADC since 1991
• Initiative for Southern Africa (ISA) focuses
  on
• Small medium scale business development
• Infrastructure
• Etc

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The Private Sector in SA

• Microlenders
• - Many small lenders
• - Rates usually exorbitant
• - Some established players (eg Theta)
• - Impact on ICT sector small

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Private Sector (contd)

• Venture Capitalists (Angels)
• - Wealthy individuals looking for
  investment
• opportunities
• - Interface between angels and
• entrepreneurs not well
  structured
• - Particularly so for black entrpreneurs
• - Initiatives such as Emerging
  Enterprise Zone
• (JSE), First Tuesday Tribel Capital
  will help

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Private Sector (contd)

• Specialist Organisations
• A number of initiatives are in place
• Business Partners (prev. SBDC)
• Private Equity Funds
• (eg BOE Investment Partners, Brait,
• HCI)
• Corporate SMME Development
• Forum (formed by large corporates)
• Etc.

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Business Partners

• 80 private, 20 state-owned
• Have lent R3.9 - billion to over
• 62 000 businesses since 1981
• Including over 35 000 micro-
• businesses where average loan is
• less than R10 000
• Of their loan exposure as at
• 25/1/2000, the ICT Industry
• accounts for lt 10

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Approvals Classification per Amount - YTD
Value Number R0 - R500
000 420 65.93 R500 001 - R1 000
000 119 18.68 R1 000 001 - R1 500 000 42
6.59 R1 500 001 - R2 000 000 28 4.40 R2 000
001 - R2 500 000 9 1.41 R2 500 001 - R3
000 000 12 1.88 gt R3 000 000 7
1.10
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Corporate SMME Development Forum (CSDF)

• Established in 1996
• - Aimed at affirmative procurement
• - Really a facilitation group to
• enable big business to support
• small business
• - Has established a DB of
• Accredited SMEs for use by
• members

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Johannesburg Stock Exchange

• The JSE is a well-established
• vehicle for raising capital
• Capital Mobilisation (excluding
• derivatives) will be discussed
• There are two sectors
• - Development Capital
• - Venture Capital

which cater for IPOs from small companies
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Johannesburg Stock Exchange

• There are two other sectors
• - Private Equity Funds
• - Development Stage
• The Guidelines for Listing are
• - Development Capital
• - Venture Capital
• Activity in both Sectors has
• increased markedly

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No. of Listed Companies over time
Date Development Venture Capital
Capital May 1997 7 8 Nov 1998
16 27 Feb 2000 22 47
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Public Sector in South Africa

• Micro/Small Business Development
• Framework established by National
• Small Business Act
• - National Small Business Council
• - Ntsika Enterprise Promotion
• Agency
• Provides support programmes
• and services

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Public Sector in South Africa (contd)
- Khula Enterprise Finance Ltd
Programme No. Amt
Women Assisted
(R-million) Credit Guarantees 805
126 40 Seed Loans
27 RFIs 30
NA Business Loans 35 259
67 65
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Public Sector in South Africa (contd)

• Incentive Schemes
• - Large variety managed by the DTI
• - Biased towards manufacturing and
• agriculture in the past
• - A no. of programmes address the ICT
• sector directly or indirectly
• Entrepreneurial Finance Schemes (IDC)
• including related schemes aimed at
• assisting empowerment initiatives
• Export Schemes

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Public Sector in South Africa Incentive
Schemes (contd)

• Foreign Direct Investment
• Small/Medium Manufacturing Development
• Programme (SMMDP) - undergoing change
• Innovation Fund (DACST)
• Micro-lending (Khula start)
• Issues of security risk need to be
• addressed
• Service sector not favoured because of
  lack
• of tangible assets

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Public Sector in SA (contd) Micro/Small
Business Development

• Part of large-scale Government
• projects are
• - Spatial Development Initiatives,
• attracting local international, eg
• Maputo Development Corridor
• Fish River
• West Coast Investment Initiative
• Wild Coast
• Lebombo
• - SDIs promoted through complementary
• necessary public private
  investment

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Capital Requirements during Company Lifecycle

• Seed
• Start-up
• Early Stage
• Expansion
• Other reasons
• Bridge Finance
• Management Buy Outs/Buy Ins
• Turnaround
• Replacement

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Capital Mobilisation in the ICT Sector in South
Africa

• All the above channels used
• Dynamic industry with
• opportunities exploited
• Main differences are
• - ICT startups require more background
• and skill
• - Very few occur in informal sector
• - Reliant on relatively small group of
• insiders
• - Marginalised Communities only
• involved as part of project

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Capital Mobilisation in the ICT Sector in South
Africa (contd)

• - Capital easy to raise on JSE in Internet
• or E-Commerce arena
• - Heavy concentration in Gauteng
• - Little activity outside urban area
• ICT Startups on the JSE

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Capital Mobilisation in the ICT Sector in South
Africa (contd)

JSE at 15/2/2000
Development Venture
Capital
Capital No. of companies
22 45 Market
Capitalisation R1655-million
R3332-million No of ICT companies
7 12 Market
capitalisation of R762-million
R659-million
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What are the issues ?

• Capital requirements for
• infrastructure
• - eg Tellecommunications backbones,
• cellular operators
• - Dependent on a variety of factors
• Macroeconomic stability
• Risk (crime, availability of labour, etc
• Regulatory environment
• (Telecommunications Act)
• - Serves as foundation for business dev.

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Further Issues

• Capital requirements for RD
• - question of priorities
• - importance needs to be sold

• Capital for well-established cos.
• - Global market facilitates this
• - Most large ICT companies listed
• on multiple exchanges
• - JSE responsive to these needs

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Further Issues

• Capital for smaller companies, in
• different phases

A draft document from the DTIs Centre
for Small Business Promotion, entitled Financial
Access for SMMEs published in April 1998,
highlighted the following facts
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Further Issues

• SMMEs account for 60 of employment,
• 40 of output
• SMMEs receive 2.6 of investment capital
• flows, formal and informal
• Formal financial institutions serve need of
• large corporates
• NGOs do not have the infrastructure to
  reach
• many SMMEs
• Lack of finance available for amounts from
• R10 000 to R50 000

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Objectives for finance

• This document outlined 4 objectives to
• provide SMMEs with affordable finance
• Significantly increase lending
• _at_ reasonable rates
• Improve outreach of conventional and
• alternative financial institutions
• Stimulate start-up and small-scale equity
• products for the JSE
• Expand number of SMMEs listed on
• the JSE