ESD Funding 101

ESD Funding 101 285 325 Uzenzele Holdings

Like many developmental initiatives, ESD is complex for benefactors and beneficiaries alike. The right partner will simplify the process for either party.

So, for the purposes of this article, we are addressing the two parties which are most affected by enterprise and supplier development. These are 1) the measured entities which must comply with the legislation that obliges them to invest 1% of NPAT on ED and 2% on SD, and 2) the SMEs which would benefit from this investment (whether it be in the form of business development support, financial support, or a combination of both).

So, if either one of those descriptions can be applied to you, you’re in the right place. You’ll find that the article is structured to be easily navigable to the parts that are most relevant to you.

First things first – what is ESD, and why should it be on my radar?

For MEs

ESD stands for enterprise and supplier development. ESD is a component of Preferential Procurement, one of the three priority elements on the B-BBEE scorecard (the other two are Ownership and Skills Development). Preferential Procurement assesses the extent to which a company purchases goods and services from B-BBEE-compliant suppliers and designated groups – for instance, Black, Youth, Women, and People With Disabilities.

The intention here is to fortify and diversify corporate supply chains while stimulating economic transformation and job creation at the same time. From a compliance perspective, MEs must earn a sub-minimum score of at least 40% in Preferential Procurement or else risk losing one B-BBEE level as a penalty. In these instances, the ME in question is only obligated to adhere to these compliance requirements if their revenue is R50 million or more.

Developing an effective ESD programme is, therefore, a strategy for maintaining or achieving a higher B-BEE rating. This is distinctly advantageous for day-to-day dealings with the Government, state organs, and the private sector. It may also be a deciding factor in the successful application for state licenses, permits, and other authorisations.

ESD can be split up into two categories: enterprise development (ED) and supplier development (SD). ED is a strategy for fostering economic growth through skills transfer and business support. Generally, ED focuses on equipping entrepreneurs with business acumen. For this reason, many SMEs can qualify for ED initiatives from as early as the seed stages of the business. ED initiatives also do not obligate MEs to buy goods or services directly from the participating SME, though it is always mutually beneficial to consider bringing them in as future suppliers.

On the other hand, SD initiatives require that MEs support and develop SME suppliers from whom the ME is procuring goods and services. This support and development aims to foster economic growth through financial support, non-financial support, or a combination of both.

For SMEs

Early in February 2023, Engineering News published a review of the recent B-BBEE commission report on the efficacy of ESD programmes. This report confirmed that SMEs continue to make significant contributions to the country’s economy. The report also found that most SMEs are young businesses in the first three years of operation and that they are mostly owned by leaders who are operating their first business ever.

Considering how significant their economic potential is, it’s important that SMEs receive business guidance insights from more experienced players, as well as long-term financial support in the form of supplier relationships. A good ESD programme will offer both.

To sum up, SMEs can benefit from ESD programmes because they offer growth opportunities in the following ways:

  • Business development support (e.g. Mentorship, Specialised support relevant to your industry, Networking opportunities)
  • Financial support (e.g. Procurement of goods and services by MEs to set up sustainable revenue streams and supplier relationships, Access to capital which allows for further investment into the business)

Whether your SME needs market access, development support, or funding (or a combination of these), the right ESD programme will cater to your individual needs.

How Uzenzele Holdings unlocks the potential of ESD for MEs and SMEs alike

For MEs

Qualifying MEs are obligated to implement ESD measures. Plus, maintaining or improving your B-BBEE score is a beneficial strategy to invest in, no matter what kinds of entities you do your dealings with. Moreover, forging a developmental partnership with the right beneficiary will actually improve your supply chain and strengthen the company’s performance.

But, finding the right beneficiary and designing ESD measures which facilitate a mutually beneficial supplier relationship is far from easy. It’s much, much, more complex than simply checking a few boxes – if anything, that approach is a surefire way to set you (and the beneficiary) up for catastrophic failure.

The ESD responsibilities of the ME include:

  • Analysing your supply chain to work out which beneficiary would best slot into your company’s operations as an investment, rather than a burden
  • Consistent communication and collaboration with the beneficiary SME to align expectations
  • Timing your developmental interventions in a way which best benefits the SME, which essentially entails an analysis of their business plan and growth trajectory to create an appropriate developmental timeline
  • Preparing verified, supporting documentation (including contracts which govern your relationship to the SME) well in advance of the verification date – failure to keep up with this administrative task can produce unbelievable headaches further down the road.

Managing a Measured Entity while managing a R5-million plus ESD budget and numerous interventions is work enough. Supporting thousands of small black beneficiaries with limited resources is exhausting and an impossible task. Partnering with Uzenzele Holdings equips you with an experienced team of experts who can help you identify the strongest black industrialist candidates in your supply chain and prepare them with the right interventions for independence – including raising third party capital to finance quality local content supply to yourselves and others.

For a partnership which sets you up for ESD success, contact Uzenzele Holdings today.

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