Entrepreneurs, small business crucial to driving economic growth

7th November 2019 By: Simone Liedtke - Writer

Entrepreneurs, small business crucial to driving economic growth

Investec banking and principal investments head Nick Riley

Entrepreneurs and the businesses they establish underpin any well-functioning country in today’s dynamic, fluid and ever-evolving world, says finance institution Investec banking and principal investments head Nick Riley.

He describes small businesses as “the lifeblood of an economy”.

In speaking to Engineering News Online ahead of the Southern African Venture Capital and Private Equity Association (Savca) awards on Thursday evening, he notes that, while policy and environmental enablement has long been the focus where inclusive economic growth is involved, the market “needs to acknowledge the crucial role that entrepreneurs and small businesses play in driving economic growth in South Africa”.

The Savca Industry Awards is a yearly initiative sponsored by Investec and supported by Sanlam Investments, which showcases the quality of local companies that received venture capital and private equity investment and their wide-reaching economic impact as a result of this investment.

Riley says “entrepreneurs and business are two critical elements to growth, which are fundamental to driving social and economic opportunity”.

The South African environment is not always conducive for these to thrive, he laments, adding that small businesses should be the biggest employers in the country, but with too much red-tape and bureaucracy, local entrepreneurs find it difficult to start new businesses.

This is coupled with the limited amount of incentives available in South Africa.

Considering that small businesses and entrepreneurship will not, in isolation, drive economic growth, Riley states that there needs to be an efficient State, business-friendly environment and policy certainty.

In effect, these will create an environment within which small businesses and entrepreneurship can thrive, effectively creating jobs and opportunities.

This will help to alleviate poverty and contribute to a sustainable environment, as well as improve education – which are all challenges that South Africa is currently finding difficult to mitigate.

Small businesses are also crucial to promoting innovation and capitalising on opportunities, and often have the ability to take advantage of dynamic changes in an economy, Riley comments, adding that, particularly in South Africa’s embattled environment, “small businesses play a critical role in bringing new products, services and ways of doing things to the market”.

In an environment where change is feared, he urges industry to accept change, even though it will mean a disruption to the status quo.

“To move forward, things have to change,” Riley tells Engineering News Online, emphasising that South Africa, as a whole, “cannot be stuck in an environment and in an economy which, to a large extent, is focussed on aspects going back to hard manufacturing, or to the Third Industrial Revolution-type industries”.

He comments that South Africa – and the world – is already experiencing and navigating the Fourth Industrial Revolution, and that it is crucial for small businesses to be equipped to take advantage thereof.

There are a lot of things that government can do but business has an important role to play. “It cannot do it on its own and we have to partner with government and there has to be trust.

“This is where venture capital and private equity can play a vital supporting role through providing a company with expansion capital, which is different to the terms and conditions of traditional financing methods,” Riley points out.

Venture capital, he explains, is both early-stage and enables fast-growing businesses to accelerate investment in the development capabilities necessary to realise the business’ vision, while benefitting from the networks and partnerships that investors offer.

Private equity, on the other hand, is an investment into a more mature business, and can be invested into a business to provide expansion and growth capital. Private equity often brings financial acumen and the ability to financially engineer and structure balance sheets correctly, Riley says, and can often be anything from corporate governance structures to effectively providing growth capital to businesses.

It is these two alternative sources of funding for business which the Savca Industry Awards aim to honour and create awareness around. The awards not only recognise founders and promising companies through promoting the asset-class, but also illustrates the talent and capabilities available in the market.

According to Riley, the Savca awards provide a platform through which to demonstrate the contribution private equity and venture capital financiers can make to businesses, among others, and the growing importance of this asset class within the economy.

“We need to get out there as an industry, [and] we need to show the good stuff [that is] happening out there, [while also making] it easier and more accessible for people to understand that there alternative sources of financing, compared to your traditional debt or equity funding,” he tells Engineering News Online.

In comparing the private and public markets, Riley notes that private equity, in particular, has seen an uptake over the last couple of years.