In order to grow the South African economy, President Cyril Ramaphosa has unveiled a $95 million fund to be invested in Small and Medium Scale Enterprises and startups operating in the country.
The South African SME Fund is an initiative stemmed from the CEO Initiative which was set up by the heads of major firms to address some of the most significant challenges restraining the country’s economic growth, particularly in the SME sector.
The scheme will fund SMEs with turnover between $1.40 million and $35.23 million and will support ten prominent black businesses, 200 SMEs, and five black entrepreneurs over the next five years. Just like any VC funding initiatives, it will help in the mentoring of the enterprises to be invested in.
“This initiative is beginning to pay off and is operating at a level that matters most. SMEs create the jobs we need the most. It is the SMEs you are targeting, and that is precisely where we want you to keep your focus,” said Ramaphosa in a launch speech in Johannesburg.
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The fund, equivalent to ZAR 1.4 billion includes pledges from South African businesses and already, R725 million ($50 million) has been committed. Ketso Gordhan, the CEO of SA SME Fund said that the fund will be the largest institutional venture capital investment in South Africa.
“The ecosystem is broader than just funders — funders that will create the impact process that is required. What we are seeking to do is address the challenge of unemployment, which is huge. There are certain initiatives we can embark on to address it”, said Ramaphosa.
The fund was set up under the leadership of South Africa’s top-echelon business leaders, with Adrian Gore, the CEO of Discovery as chairperson, and celebrity banker Michael Jordaan as the fund’s Investment Committee Head.
According to the World Bank, SMEs play a significant role in most economies, particularly in developing countries. Formal SMEs contribute up to 60% of total employment and up to 40% of national income (GDP) in emerging economies. These numbers are significantly higher when informal SMEs are included.
“With this fund, small and medium enterprises with growth potential would be identified and put through partnerships with our members, who would offer them support and access to new markets. The fund is about creating the growth for black businesses and building them into companies that would contribute to employment, which is the biggest problem facing the country,” said Gore at the launch.
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