Development programme encourages economic growth

To date, steel service centre and distributor Macsteel’s Usizo development programme has assisted in creating 175 new jobs in the steel sector.

The programme was first initiated by Macsteel in May 2015 to assist small, medium-sized and microenterprises (SMMEs) in the steel industry by facilitating access to cost- effective credit at no interest, addressing the financial gap between them and larger industry players.

Macsteel regards SMMEs as an important driver of economic activity and growth in South Africa’s steel industry.

However, Macsteel has found that SMMEs struggle to access funding and establish healthy credit profiles, which result in their limited growth.

Macsteel group corporate social responsibility manager Kim Allan states that Macsteel is working with SMMEs to address these funding challenges.

“Large businesses receive access to trade credit and it doesn’t cost them, but SMMEs need to apply for micro-financing and are then forced to pay exorbitant interest rates, which hampers their growth potential.”

Through a supplier credit programme, Macsteel, in partnership with small business loan provider Small Enterprise Finance Agency (Sefa), is offering SMMEs less stringent access to trade credit. The end-goal of the programme is to increase access and provision of finance to SMMEs through Macsteel’s national footprint and thereby contribute towards job creation.

Allan explains that Macsteel now enables small businesses that would not usually qualify for an account with Macsteel an opportunity to access a trade credit account. Thereafter, SMMEs develop a credit rating, enabling such companies to apply for other credit accounts and, thus, giving them an opportunity to join the financial mainstream. The eventual goal is that SMMEs will be able to access capital lending without the burden of exorbitant interest rates.

Since its establishment, the Usizo programme has achieved notable progress in developing SMME growth, industry growth and boosting economic development in South Africa. Through the programme, 70% of SMMEs that traditionally could not access credit have been granted cost-effective credit with Macsteel at no interest.

“The programme has demonstrated that a supplier credit model has the ability to scale financing to SMMEs, resulting in a reduction of the finance gap,” Allan points out.

According to Sefa, the National Development Plan has set a target for the SMME sector to contribute 90% of employment opportunities to be created by 2030. Allan adds that a supplier credit model demonstrates that strategic partnerships can assist in developing SMMEs through leveraging their resources and those of large industry players.

Macsteel currently works with 147 SMMEs that collectively employ 585 people. The company states that, when SMMEs can obtain access to production inputs, they manage to create new jobs in industry.

The R10-million total credit facility approved in 2016 increased to R13.2-million in 2017. This credit facility allocated to the Usizo programme to date has allowed for an estimated injection of R50-million into the South African economy, according to Macsteel research. The company suggests that this is primarily, owing to the revolving nature of credit and the growth potential demonstrated by SMMEs within the steel industry. “These business activities will contribute to tax revenue and the sustainability of small businesses,” says Allan.

Challenges
Allan states that two of the biggest challenges in implementing the programme have been assisting SMMEs in establishing a healthy cash flow and ensuring that those in the programme maintain their credit profiles.

“For the Usizo programme to achieve its main objective, SMME business owners need to establish a positive trade credit history to qualify for credit elsewhere,” says Allan. The Usizo programme attempts to make use of formal coaching and support to try to address these challenges.

As a result, the programme has since established several programme partners that strengthen the programme offering by facilitating training and financing courses. The programme’s current partners include Sefa, collective community initiatives and enterprises service provider Ekurhuleni Economic Community Development, business incubator Shanduka Black Umbrellas, base metal business incubator Lepharo and education and skills training centre and job placement centre St Anthony’s.

Allan concludes that Macsteel expects the programme to grow from strength to strength in 2018 and in years to come.