Government seeks to create at least 100 black industrialists over the next three years. What is the plan for making this a reality?
The Black Industrialist Programme (BIP) is a key component of the Department of Trade and Industry’s (dti) Industrial Policy Action Plan (IPAP). According to the South African Government, “the Black Industrialists Scheme is the incentive programme of the Black Industrialists Policy which aims to promote the participation of black industrialists as manufacturers in key sectors of the economy as identified in IPAP.”
IPAP describes a black industrialist “as a juristic person that includes co-operatives, incorporated in terms of the Companies Act (2008), owned by Black South Africans (as defined by the Broad-Based Black Economic Empowerment Act) who create and own value-adding industrial capacity and provide long-term strategic and operational leadership to a business.”
Why a BIP?
The importance of the inclusion of black industrialists across the entire value chain of IPAP sectors and infrastructure projects is highlighted by this initiative – and will be achieved through financial and non-financial aid, as well as state policy and institutional support. The programme has been implemented in order to increase the country’s industrial base by rectifying the skewed ownership in the economy. The BIP’s main focus is directed towards manufacturing, industrialisation and economic growth, and is set to accomplish this by including the previously disadvantaged black population into the mainstream economy.
According to President Jacob Zuma, “The economy must produce authentic black entrepreneurs, who own factories and manufacture textiles, furniture, metal products, and whatever the market requires.”
Amina Patterson, Head of Business Development at Edge Growth, says the contribution to GDP by the manufacturing sector has declined from 20% in 1994 to a meager 12% in 2013. Being a key driver of job creation, it is imperative that the country invests in and enables a new generation of black industrialists to help repair South Africa’s concerning unemployment figures.
The enabling of black industrialists will generate large-scale job creation – one of the key pillars of the National Development Plan.
The role of government
There has been a steady absorption of the previously disadvantaged black population into the mainstream economy, and the black middle class has grown significantly over the last couple of years. However, the role of government remains to accelerate the deracialisation of the South African economy by encouraging the development and growth of black enterprises.
According to Malebo Mabitje-Thompson, Chief Operations Officer of dti’s Industrial Development Division, there’s a direct correlation between the growth of a country and the percentage of the general population included in the country’s economy. She also stated that “For the economy to grow and create jobs, SA’s industrial sectors need to open up to include entrepreneurs who were previously disadvantaged.”
Support to black-owned entities
It will take more than just state-owned enterprises to facilitate and offer support to the BIP. The importance of the role that the broader capital markets play in the success of this programme cannot be over-emphasised. According to Moneyweb, “Development Finance Institutions (DFIs), banks, institutional investors (including pension funds and asset managers) and private equity will all have to participate in order to make this vision a reality. The success of the policy will require innovative tailor-made funding solutions which address both the financial position of the entrepreneur and the economic realities of the targeted business”.
Support will be given in the following ways
Access to finance
The dti will invest approximately R1-billion in seed capital into black manufacturing enterprises in order to equip them with the necessary equity to gain access to the private banking sector. In addition to this, Economic Development Minister Ebrahim Patel announced earlier in 2016 that the Industrial Development Corporation (IDC) would invest R23-billion in funding over the next five years into the Black Industrialist Programme, with an additional investment of R100-billion for expansion over the same period.
The following productive sectors will be the key focused areas of the programme:
Access to markets
Because of high barriers to entry, limited marketing capacity, lack of capacity to explore niche and overcrowded markets, high transaction costs and market research, many new black entrants to the industrial sector find it increasingly difficult to access relevant markets.
These factors result in limited access to appropriate networks, making market penetration extremely difficult. Barriers to entry are also created in cases where already established networks block new entrants to market.
According to the dti, these challenges will be overcome by means of strategic contracts and procurement.
The Department will assist black industrialists by:
Two key factors that are imperative in operating a business successfully and sustainably are: access to relevant skills and industry-specific knowledge. Many new entrants do not necessarily have the required technical skills to operate optimally within their relevant sector. The dti aims to remedy this by training owners and workers, thereby building capacity so that black enterprises can thrive.
In the industrial sector, margins are quite small and it is important that high-end skills such as operational and financial management are developed, ensuring that enterprises, which rely on positive cash flow, are successful.
To ensure this is addressed, the dti will focus on the following measures:
The BIP will assist black industrialists in accessing capital markets and growing in their respective sectors by forming stakeholder relationships with corporations, banks, development finance institutions and state-owned enterprises.The granting of funds from the dti depends on a number of factors:
The cost-sharing grant can range anywhere between 30% and 50%, with a maximum grant of R50-million. The percentage of funding received by enterprises depends on:
According to the dti, the grant will cover the following:
Rob Davies, Minister of Trade and Industry noted that, for a country that relies so heavily on the exportation of raw materials and intrinsically linked to the commodity market, the importance of industrialisation is paramount.