A collaborative initiative by several role players – comprising a mine, an enterprise supplier development specialist, equipment suppliers and a financier – has afforded a start-up contractor access to market, as well as the necessary funding to purchase its first fleet of equipment. The model – which saw the contractor use its awarded three-year contract as collateral to secure financing to purchase capital goods worth R8,5-million – can serve as a blueprint for SMME development across an array of other sectors, writes Munesu Shoko.
In recent years, lack of access to funding has largely been regarded as a major slippery slope for upcoming contractors. However, Otukile Moshori, MD of of Regoapele Capital, a leading enterprise supplier development specialist, says the funding drawback can’t be resolved without dealing with the issue of access to markets first. “Unfortunately, many corporates do not create feasible access to markets for emerging SMMEs. This exacerbates the lack of financing because any form of funding is based on the ability to repay,” says Moshori.
Regoapele Capital is an experienced company in this area. The firm focuses on opportunity-based development for upcoming businesses. This entails funding, financial planning, financial management and effective market access strategies for SMMEs. “We have a footprint across three provinces. We strongly believe in presence and proximity to markets and clients for effective and sustainable delivery,” says Moshori.
Regoapele Capital recently played a major role in a collaborative initiative which Moshori deems as a blueprint for SMME development – the initiative balances the creation of access to markets with access to funding for SMMEs. As an enterprise and supplier development partner to Glencore Lydenburg Smelter, Regoapele Capital led the negotiations in securing a three-year contract for Sicediwe, a 100% black woman-owned small contractor based in rural Mpumalanga.
Access to market
Sicediwe was established in 2014 by Mary Mkhabela through her involvement in the Mashishing local economic development forum. This is an SMME development initiative led by Regoapele Capital and aimed at taking small businesses through the intricacies of running a business. Through the initiative, Regoapele Capital helped Mkhabela identify an opportunity to provide metal breaking services at Glencore Lydenburg Smelter, a crucial niche application in the mining/smelter industry.
Prior to that, the company had previously undertaken various jobs for Glencore Lydenburg Smelter, such as painting, renovations, paving and construction, to build its profile and a trust base with the client. This gave it the required experience in terms of Mine Health & Safety requirements.
Glencore went on to award Sicediwe a three-year contract. “We awarded Sicediwe a three-year contract with an option to extend for a further two years. The scope of the contract is to break down run-of-mine ferrochrome material just before it goes into the crusher,” explains Conroy van der Westhuizen, general works manager at Glencore Lydenburg Smelter.
Sicediwe has been tasked to break 30 000 t of ferrochrome in a R700 000 per month contract. “This is a true empowerment initiative which will see the black woman-owned company servicing a core mining activity, employing 12 permanent people in the process,” says Van der Westhuizen.
Access to funding
Regoapele Capital’s role entailed interacting with Glencore Lydenburg management to assess the viability of the opportunity. This was a detailed process where all aspects were looked at, ranging from the right equipment to execute the job and the costing of the machines to comparison between different OEMs’ offerings and interacting with existing owners to get advice on what works best.
“After gathering the relevant information, the next step was to look at different finance houses to get the best funding package for purchasing equipment needed to execute the contract. We found the process to be educational for most financiers too as they don’t necessarily have the skills sets to asses mining operations,” adds Moshori.
“We are working with three financiers to date. We also see a big change in this industry’s approach to funding SMMEs. We have recently seen that some of the larger financiers that wouldn’t normally look at SMME transactions are opening up to funding small companies,” says Moshori.
In Sicediwe’s instance, Masisizane Fund, part of Old Mutual Life Assurance Company, was the financier of choice for the Sicediwe transaction. Masisizane financed Sicediwe to the tune of R8,5-million for the purchase of a fleet of yellow metal equipment and related attachments.
Sicediwe purchased two Komatsu PC200 excavators from Komatsu Southern Africa, two new JCB backhoe loaders form Kemach JCB, a Cat-certified second-hand 428F2 backhoe loader and five new Epiroc hammers from Riviera Hire. The two new Komatsu PC200 excavators will be equipped with the two Epiroc EC120TCL hammers, while the three backhoe loaders will be equipped with the three Epiroc SP302 hammers.
Blueprint for SMME development
Commenting on the lack of financing for SMMEs, Moshori concurs that in most cases small businesses are denied access to funding due to their limited operating history and low gross margins. However, he is of the view that limited history can be overcome if corporates are willing to share the risk. “With Glencore we structured finance terms that mitigated the risk for financiers. This helped overcome the barrier of historic challenges Sicediwe had. The partnership is based on both the financier and the corporate creating an enabling platform,” says Moshori.
Van der Westhuizen says this model can act as a blueprint for small contractor development. The same view is shared by Moshori, who says the same model can be applied in various other sectors, such as manufacturing, banking and retail, among others. “We have also previously assisted entrepreneurs purchase businesses like fuel stations and other businesses outside the scope of supply chain based funding,” says Moshori.
Van der Westhuizen commends the concerted efforts by all various parties that came together to make the Sicediwe venture a success. He says the initiative is a winning formula for levelling the playing field for SMMEs in order to allow real economic capacitation. “As part of our CSI responsibility, Glencore is committed to capacitating young, vibrant business leaders that can take the economy forward,” says Van der Westhuizen.
In 2011, Glencore took a decision to make real change in communities it operates in line with its corporate strategy. “It is our desire to uplift previously disadvantaged economies through economic emancipation,” adds Van der Westhuizen. “We are aggressive in our approach and the Sicediwe deal is a true indicator of how committed we are to building local capacity.”
Van der Westhuizen reasons that Glencore’s success depends on how fast it capacitates emerging businesses in the local community. “It took us about five years to identify local businesses and today we have numerous service providers from the area,” he says. “We acknowledge Regoapele Capital for its commitment to opportunity-based development for SMMEs. Its service is purely out of passion to build local capacity and empowering local businesses.”
Maphala Mosomane, provincial manager for Limpopo and Mpumalanga at Masisizane Fund, says if finance houses are serious about helping entrepreneurs finding their feet in the business world, it will take more than just relying on balance sheets to qualify them. “We are open to financing small businesses despite their limited operating history, as long as they can prove that they have solid contracts in place,” says Mosomane.
Mkhabela, who previously worked for a large retailer in the Lydenburg area, is grateful to the various players who have each played a big role in helping her business with access to a life-changing contract and the financing she needed to purchase the necessary equipment to execute the job. “I commend the various parties for the roles they played in this initiative. Capacitating small businesses will not only boost their growth prospects, but also the economy at large,” says Mkhabela.
In conclusion, Moshori says without greater focus on small businesses and specifically emerging black business owners, the country will continue to have a shrinking tax base and that will have a negative impact on the entire economy.