I have been intrigued by the explosion of vitriol caused by the National Empowerment Fund (NEF), who gave money to Khanyi Dhlomo and her partners to launch the Luminance luxury goods store in Hyde Park. The argument is that the NEF should not be giving money to “successful” people to sell high-end goods and services.
Would it make a difference if she were selling baskets on the side of the road? Would that be a smarter use of the NEF money because the entrepreneur is more “deserving”?
South Africans wouldn’t recognise true entrepreneurship if it hit us in the face with a hammer. We are obsessed with supporting survival entrepreneurs and we aim for a “feel good” factor rather than trying to invest in businesses that can grow.
The NEF’s job is to deploy capital. That capital needs to achieve an economic return for the lender and, with any luck, for the business itself.
If the NEF doesn’t get a return on capital, tax payers will ask for heads to roll.
How does the NEF minimise its risk?
- They identify whether a business is sustainable and has the potential to grow
- They look for an entrepreneur with a track record and a supporting network
- They ask themselves whether the entrepreneur has the ability to actually repay a loan
To points 1 and 3, luxury goods is a growth market in South Africa. Andrew Amoils, a senior analyst at New World Wealth, reported last week that there are more than 35 000 millionaires living in South Africa. He estimated that there would be 30 000 millionaires living in Johannesburg alone by 2020. For the purposes of his report, he defined millionaires as individuals who own over R9.5m ($1m) in assets.
This is not the only report which shows that luxury and high-end goods are on the up in South Africa and the broader African continent. To be blunt, luxury goods will probably trump selling baskets on the side of the road.
To the second point, Dhlomo has a track record. She has a network of smart business people around her – that alone won’t help her succeed but it may just give her a chance. How many of the other entrepreneurs applying for financing from the NEF can claim to have the same level of support from senior business people? Heck, the amount of PR coverage that Luminance has received in the last few weeks would be the envy of most other entrepreneurs. She wouldn’t have achieved this if she had no profile.
For those who say funding Dhlomo sends a poor message to other entrepreneurs who have been bulleted for funding by the NEF, I’d argue the complete opposite. We’ve been crying out for women entrepreneurs in South Africa to inspire the current generation. While it makes for fantastic photo opportunities, hardly anybody is inspired by reading about entrepreneurs who run soup kitchens or do little arts and crafts on the side of the road. They want to see real businesses and real success stories.
The conspiracy theorists see it as “corruption” that tax payer money is being used for these purposes. They are wrong – this is called business and it happens in places like Silicon Valley where entrepreneurs with big ideas, good networks and the ability to deliver a potential a return are backed.
The NEF, the Industrial Development Corporation (IDC) and all these other funding organisations are sitting with billions of Rands to back small businesses – ideally those conceptualised by big thinking, young black women. They want to provide ways for the South African economy to transform.
By jumping on the populist bandwagon and slating an entrepreneur, all we are doing is making those who approve loans even more cautious about loosening the purse strings…
…and that is just silly.