(JOHANNESBURG): J.P. Morgan announced today that its two-year pilot programme for South African Small and Medium Enterprises (SMEs) successfully achieved the objectives set out at inception. All companies in the SME Catalyst for Growth Programme (C4G Programme) are still successfully operating, with an overall median annual revenue increase of 27%, growth in employment and an increase in successful applications for finance by 14%. Furthermore, as planned, a business development services (BDS) analytics platform is being established and the C4G Programme is transforming into an independent not-for-profit organisation where the platform will be housed.
The C4G Programme has also added its first corporate partner, Anglo American, through its Zimele enterprise development initiative. As a corporate partner, Anglo American will commit to using the C4G analytics platform when procuring BDS. As buyers of BDS, corporate partners have an opportunity to drive quality in the BDS market by intentionally moving their enterprise development investments towards BDS providers that create value for their SME clients and away from those that are unable to assist SMEs in reaching their full potential.
The C4G Programme, supported by the JPMorgan Chase Foundation, was the firm’s first significant social investment in the SME space in South Africa, with an investment of more than $1.5 million to date. The two-year pilot programme has been run in collaboration with three core partners: Aurik Business Incubator (Aurik), Raizcorp and Dalberg Global Development Advisors (Dalberg). The C4G Programme supports the provision of BDS to selected entrepreneurial companies, while building knowledge and experience on the value and impact of effective BDS services.
Historically, the inability to assess or compare different types of BDS has been a hurdle to SMEs seeking assistance to grow. The BDS analytics platform being built by the C4G Programme will address this knowledge gap by providing performance data on BDS providers. The platform combines both objective measures of SME and BDS provider success with qualitative evidence related to SMEs’ experience of BDS. It aims to improve allocation of scarce resources to the best providers, improve the quality of the BDS pool by introducing transparency and competition, and attract investment into BDS by demonstrating its impact.
75% of SMEs who participated in the C4G Programme experienced revenue growth from their baseline levels in 2012. In contrast, only 60% of SMEs tracked in the SME Growth Index – the largest survey tracking SMEs over time in South Africa, with approximately 500 SMEs included – experienced revenue growth during the same period. Between financial years 2011 and 2013, the C4G Programme’s SME median annual growth was 27%, a number substantially above the 10% threshold that the SME Growth Index classifies as high growth.
Between 2012 and 2014, 60% of the C4G Programme’s SMEs managed to increase their number of customers, with median growth at 49%. While only 5% of the businesses had accessed growth capital before entering the programme, by the close of the programme 20% of SMEs had accessed growth capital. Employment growth amongst the SMEs has been particularly encouraging. Between 2012 and 2014, 50% saw an increase in staff. In contrast, only a third of SMEs in the Growth Index managed to grow their staff numbers, including part-time staff during the same period.
On average, the SMEs involved in the C4G Programme gained one job each. This may seem small, but if just one job was added to 15 % of existing SMEs in South Africa 0.8 million jobs could be created, potentially leading to a 4 percentage point drop in unemployment. Combining this intervention with improving the five-year survival rate of South African SMEs to 40%, using high quality BDS, would decrease South Africa’s unemployment rate by 6 percentage points and create 1.2 million jobs. This would represent 24% of the 5 million jobs envisioned by the country’s National Development Plan.
Brian Smith, Head of Investment Banking for J.P. Morgan in Sub-Saharan Africa (SSA) said:
“We are extremely pleased with the strong growth of the companies who participated in the C4G Programme. The programme led the SMEs to tangible growth in revenue, employment, customer reach and enhanced access to capital. In two short years, the pilot has proven that BDS has strengthened key business systems and instigated greater focus, prioritisation and strategic thinking amongst SMEs. At the close of the programme, all 20 SMEs were still in business, which is impressive given that about 18% of their peer firms fail each year. We are excited that the first corporate partner Anglo American will join the growing list of partners of the C4G Programme, a strong endorsement of this successful initiative.”
The current C4G Programme investment partners are Cadiz Asset Management (through their Protected High Impact Fund), GroFin, Imprint Capital, IDF Managers and Makuna Growth. These partners have the funding, interest, and capability to invest in SMEs in South Africa, and have committed to consider C4G SMEs for investment. They will have access to a pipeline of high-performing SMEs that are currently seeking finance, and information for investment already collated and verified directly by the BDS providers, thereby limiting transaction costs. As the programme enters the next phase, and begins collecting data from an increasing number of SMEs, there will be an even bigger role for investment partners to play.
Pavlo Phitidis, the CEO from Aurik, said:
“The J.P. Morgan C4G Programme provided us with the opportunity to prove the benefit of our BDS programmes across start-up, early stage and growth companies in the eye of the public domain. The fact that this programme was monitored and evaluated by a third party specialist agency has provided the evidence of our impact and lent credence to the fact that BDS grows businesses that grow our economy. J.P. Morgan’s contribution to the South African economy through this programme is invaluable and humbling. SMEs are the job generators and fiscal contributors that collectively can have a major impact on our economic development. These facts are now apparent, as demonstrated through this programme.”
Allon Raiz, the CEO from Raizcorp, said:
“It has been wonderful to see such an organisation of the size of J.P. Morgan put their weight behind a programme in a way that keeps the entrepreneurs’ best interests at heart. We have seen such huge strides in terms of this programme. The C4G Programme has allowed Raizcorp to develop its programmes further and use some cutting edge approaches to BDS. This has already produced benefits and results for the entrepreneurial ecosystem.”
James Mwangi, the Global Managing Partner of Dalberg, said:
“Dalberg is pleased to have had this opportunity to partner with J.P. Morgan in the creation of the C4G Programme. The programme has brought rigour to the assessment of business development support and creates a pathway though which the field can objectivity maximise the long-term impact of such programmes on SMEs. The C4G Programme not only promises to drive much needed improvements in the support available to South Africa’s SMEs, but it also creates a means to transfer these learnings from South Africa’s relatively well developed SME support ecosystem to more nascent SME support environments across the developing world.”
Khanyisile Kweyama, Executive Director of Anglo American in South Africa, concluded:
“Partnership is an important part of our strategy for enterprise development in South Africa and we are constantly finding new partners and initiatives to help us not only create sustainable jobs, but thriving local economies in the areas where we have a presence.”
About J.P. Morgan
J.P. Morgan’s Corporate & Investment Bank is a global leader across banking, markets and investor services. The world’s most important corporations, governments and institutions entrust us with their business in more than 100 countries. With $21.1 trillion of assets under custody and $412 billion in deposits, the Corporate & Investment Bank provides strategic advice, raises capital, manages risk and extends liquidity in markets around the world. For more information, go to www.jpmorgan.com.
About Aurik Business Incubator
Aurik Business Incubator was started in 2001 from a genesis of starting, building and selling 12 businesses. With two failures, two listings and eight trade sales, the overall portfolio achieved an IRR of 44.2%. This direct experience led to the development of three business development support programmes suited to start-up, early stage and growth businesses. With over 512 businesses engagements in Aurik’s programmes, an average annual revenue growth rate of 102% has been achieved across the portfolio. The programmes include proprietary selection, assessment and engagement processes focused on achieving a single outcome, working with entrepreneurs to build their businesses into an asset of value. Aurik provides its services in five of South Africa’s provinces, serving individual entrepreneurs and business owners directly as well as big businesses and corporates through various supplier and enterprise development programmes. For more information, go to www.aurik.co.za.
About Raizcorp
Raizcorp is Africa’s only unfunded for-profit business incubator/Prosperator model, which provides full-service business support programmes that guide entrepreneurs to profitability. Raizcorp was founded in 2000, and has since become one of Africa’s premier business incubator models. Raizcorp has developed a rigorous selection process that ensures that those who make it into the various programmes are indeed those with the highest potential to succeed. Once selected, the entrepreneurs are exposed to a high touch support programme that continues to produce excellent results. Raizcorp has worked with over 1 500 businesses and currently supports in excess of 500 companies in eight locations in South Africa and Angola. Approximately 86% of Raizcorp’s partner companies have growth rates of over 15% per annum. Over a period of one to two years, Raizcorp has managed to increase the revenue and profitability of over 95% of its partner companies. For more information, go to www.raizcorp.com.
About Dalberg Global Development Advisors
Dalberg Global Development Advisors is a strategy and policy advisory firm focused on global development.. Its mission is to mobilize effective responses to the world’s most pressing issues. Dalberg works with senior decision-makers in governments, international organisations, NGOs and corporations to help bring about change and lasting impact.
Dalberg’s core advisory services include: (i) the development of innovative strategies, approaches and market mechanisms; (ii) internal organizational reforms and restructuring initiatives; (iii) market and investment analysis and market-entry strategies; and (iv) coordination and facilitation of large multi-stakeholder initiatives. We focus on eight key sectors: Access to Finance, Agriculture, Conflict & Humanitarian Aid, Corporate, Economic Development and Competitiveness, Energy & Environment, Global Health, and Strategy & Performance.
Dalberg has a global network of offices located in Bogota, Copenhagen, Dakar, Geneva, Johannesburg, London, Mumbai, Nairobi, New York, San Francisco, and Washington, D.C. It serves global clients and fields international and local teams in developing countries. For more information, go to www.dalberg.com.
About Zimele
Since 1989, Anglo American’s enterprise development arm, Zimele has successfully empowered numerous black Small and Medium Enterprises (SMEs) and entrepreneurs, and generated sustainable job creation and socio-economic development in predominantly peri-urban mining communities. Zimele enables the companies it invests in to stand on their own feet and to grow through a strategic blend of financial support and incubator-style mentorship.
Between 2008 and 2013, Zimele invested R921 million in 1 619 businesses which collectively employ 30 092 people. With 2 358 transactions during this time, the businesses’ collective turnover was approximately R4.5 billion annually.
About Anglo American
Anglo American is one of the world’s largest mining companies, is headquartered in the UK and listed on the London and Johannesburg stock exchanges. Our portfolio of mining businesses meets our customers’ changing needs and spans bulk commodities – iron ore and manganese, metallurgical coal and thermal coal; base metals and minerals – copper, nickel, niobium and phosphates; and precious metals and minerals – in which we are a global leader in both platinum and diamonds. At Anglo American, we are committed to working together with our stakeholders – our investors, our partners and our employees – to create sustainable value that makes a real difference, while upholding the highest standards of safety and responsibility across all our businesses and geographies. The company’s mining operations, pipeline of growth projects and exploration activities span southern Africa, South America, Australia, North America, Asia and Europe. For more information, go to www.angloamerican.com.
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