The SGB Sector in 2017

2017 Trends in South Africa

1. Business Development Services Provider (BDSP) space is active, and programming is dependent on the funding structure. There are many BDSPs in South Africa, and this expansion has led to a lack of clarity about what that constitutes. Corporate Enterprise and Supplier Development funds contributed to the growth of this industry. Most programs rely on a multitude of funding sources, with donor funding still the largest source of funding. Many have revenue-generating activities, though few generate enough revenue to be sustainable through these activities alone. The priorities of funders influence program structure and outcomes, and these effects need to be better understood.
2. Supplier development mandates of Broad-Based Black Economic Empowerment are driving resources to the sector. More support has been provided to SGBs as a result of legislation which requires corporates and state-owned entities to spend two percent of their annual net profit after tax on supplier development and another one percent on enterprise development. South African-based ANDE members have played key roles in enabling corporations to meet these requirements. As a result, many corporations are moving away from ‘box-ticking’ to get Broad-Based Black Economic Empowerment points, and towards integrating SGBs as a core element of company strategy. That said, some in the sector argue that these policies are yielding unintended negative consequences, such as the stifling of potential growth and job creation in SMEs, as companies are disincentivized to grow too much.
3. As the number of Venture Capital Companies (VCCs) grow, so do governance concerns. In 2017, the South African Revenue Service released several addendums to the VCC tax incentive, set up under Section 12J of the Income Tax Act, which grants a tax reduction to investors who make investments in approved VCCs that then invest in qualifying small companies. The number of approved VCCs now stands at 103, and much of this growth is attributed to Section 12J originally enacted in 2009. The Southern African Venture Capital and Private Equity Association (SAVCA) has expressed concerns that the increase in the number of approved VCCs could lead to governance issues in some VCCs that could taint the broader industry. [33]
4. Investor confidence is on the rise. A stronger Rand was triggered by the election of the new ANC president, Cyril Ramaphosa. The new leadership is supportive of job creation, entrepreneurship development, and private sector partnerships such as the national Youth Employment Service, a private sector led initiative involving corporations and Small, Medium and Micro-sized Enterprises to provide work placement opportunities to youth.