According to Standard Bank, entrepreneurship has the potential to drive the growth of the “buy local” economy. However, the growth shouldn’t be expected to happen immediately. Head of Business and Commercial Banking at Standard Bank, Craig Polkinghorne, says that “buying local must begin to form part of general business practice if an industry and a country’s capabilities are to grow.”
A better understanding of the different phases and life cycles of locally produced products, together with more tailored financial solutions, are needed to move the growth of local industries to the next level.
“It will only really come alive when advice and financing solutions are matched by a greater take-up of local products by local businesses, and notably by local entrepreneurs,” says Mr Polkinghorne.
The problem, however, is that buying local is not always the cheapest form of procurement due to the higher input costs associated with these products, relatively lower skills, higher labour costs and limited expertise to develop the products.
“Buying local should not only be exploited during a particular season or quarter. What is important is that strong local economies can help to drive local jobs and buying local would eventually create critical mass which would then lead to the creation of more jobs,” says Mr Polkinghorne.
Even in current volatile conditions, there are a number of opportunities to be exploited by businesses that buy, build and beneficiate locally. For example, while the rand is a perennial bugbear for local businesses, it is giving exporters a potential edge. “Businesses would do well to take note of where their capabilities lie and look to exploit opportunities when market conditions dictate,” says Mr Polkinghorne.
Businesses need to be constantly aware of market information, while also being intuitive about the next step. The evaluation of risk a business would be willing to take becomes even more important in these conditions.
“It does not serve a business to just be aware of something without actively thinking about and planning for the next few steps – foresight is critical in the business environment. The level of reward would depend on the timing of the move and the appropriateness of the decision given the circumstances. One needs to be prepared to lose a little to gain a lot sometimes. Some opportunities may be hidden in negativity,” says Mr Polkinghorne.
The businesses that would be supported by buy local initiatives would most likely be entrepreneur driven and owned, according to Standard Bank.
“The industry therefore needs passionate entrepreneurs that could bring about new ways of working. This is why Standard Bank is so passionate about supporting and driving the development of future entrepreneurs and will continue to do so,” says Mr Polkinghorne.
A real example of a company who has followed this path and developed a local business that caters for local needs is Motheo Construction, one of South Africa’s leading social housing developers with more than 80 000 units to its credit.
The company was founded in 1997 operating under the leadership of Dr Thandi Ndlovu, a medical doctor who has seen the company complete projects valued at more than R5.5 billion.
The result is an enterprise where black women own 54% of the equity and work in the business on a daily basis. Like their male colleagues, Motheo’s women work on site in both rural and urban environments. The success of the company’s empowerment initiatives is measured in the achievement of the 20 Motheo Trust beneficiaries who progressed from newly qualified, inexperienced individuals to full members of Team Motheo. Today they manage projects and departments within the business.
The development of small- to medium-sized enterprises is another passion served by Motheo, assisting identified companies with bridging finance, technical skills and guarantee facilities so they can undertake projects on their own account.
“This is a truly South African company. It is built on a model where everybody works together for its benefit and the greater good of the communities they work in. The founders are still true to their original business development model, sending in highly skilled professionals, getting them to upskill and develop young people, in close alignment with both their social and business imperative,” says Mr Polkinghorne.
Developing a larger and more capacitated industry has broad benefits that go beyond the mere purchase of a product or service – it is an investment into the growth of an entire industry; as the Motheo example illustrates.
Thinking more locally could, for instance entail businesses collaborating with other businesses requiring similar inputs to support and develop local businesses.
Diversity of goods and services will be crucial to the development of higher levels of local purchasing across Africa too. The African continent, however, has provided numerous examples of the dangers of an undiversified economy.
“A lot of countries that are commodity driven have seen their fair share of disappointments as the demand for commodities decreased – especially from the Chinese market which has been slowing down. Once thriving economies were now buckling under pressure as commodities aren’t bringing in the expected income,” says Mr Polkinghorne.
Countries such as Nigeria, which focused heavily on oil, have seen first-hand the importance of spreading their options for growth. Uganda and Kenya on the other hand offer more diversified industries which can withstand more economic pressures. Kenya and Uganda’s GDP forecast for 2016 is sitting at 5.9% and 5.0% respectively, with these countries being some of the fastest growing on the continent.
“It is imperative that foundations are laid for growth in a number of sectors as it prevents an over-dependence on sectors that may experience short-lived booms and crashes. The challenge comes in with the initial stages of developing a previously dormant sector. There needs to be additional investment in skills and infrastructure that will revive the industry,” says Mr Polkinghorne.
A diverse economy provides more resilience in times of economic challenges.
“It may however, not be wise to be too diverse to the point where resources are spread too thin. The country should have a few key sectors that drive its growth,” cautions Mr Polkinghorne.
Organisations could also benefit from strategic trade agreements which bring about economies of scale in local organisations and protect them from global competition
“This collaboration would help countries within the region to raise funds, develop their industries and increase purchasing power of the countries. Regional integration policies can be very important to promote sustainable development in Africa,” says Mr Polkinghorne.
There is little doubt that economies across the continent are crying out for passionate entrepreneurs that bring about new ways of thinking and working.
“Standard Bank has realised this need and is therefore actively assisting in developing entrepreneurs of the future by providing training and mentorship at our new innovation incubators, where creative young minds with great ideas can be given the tools to become profitable,” says Mr Polkinghorne. Apart from developing small businesses this also provides an opportunity for larger businesses to collaborate in order to achieve shared business objectives. An example would be development of supply chains. “Our incubators are moving into this area which means we are we offer a solution with a different value ascribed to it – this isn’t a product, it’s a growth partnership”, he continues.
It is equally important for advisers to “be in touch” with the businesses and where they are in their respective growth journeys.
“Sector experts are needed to help develop solutions during each stage of the growth journey over coming years. Essentially, we need to begin seeing entrepreneurs as value add partners of businesses,” says Mr Polkinghorne. Over the past 154 years we have developed sector expertise to include Agriculture, Natural Resources, Public Sector, Retail and Wholesale Trade and Financial Services – and then of course Africa where we are well represented in many countries.”
“These entrepreneurs may simply need to test their products or ideas with like-minded people, or get insights from experts as to how best to tackle the competitive marketplace. Financing and business advisory solutions then need to play an active role in getting product to market quickly. But before you even get to financing – it is the mentorship and support phase that will ultimately determine success,” concludes Mr Polkinghorne.