Creating and growing sustainable businesses is the only way to create the jobs our country needs so desperately. It’s also the way to help a critical foundation of the economy become more dynamic and resilient.
By Lenny Govender, CFO, Macsteel
Small, entrepreneurial businesses are recognised as the engines of economic growth and job creation worldwide. Our own National Development Plan aims to see such businesses provide 90% of the country’s jobs by 2030—but we are making scant progress towards achieving that goal. Globally, SMEs provide 50% of jobs, with formal SMEs contributing up to 40% of gross domestic product. [1] Here, however, they account for only 28% of jobs. [2]
All of this comes into sharp focus in the steel industry. Because its product is essential to all industries, an underperforming steel industry impacts the whole economy. One direct job in the steel industry creates 13 jobs across its supply chain. And because steel is used in so many other industries, it also indirectly supports job creation beyond the steel industry itself.
As a major player in the steel industry, Macsteel has long recognised the need to help new entrants from disadvantaged communities enter the industry successfully. The immediate need is to create jobs, of course, but it’s no secret that the industry, like the rest of the South African economy, is also facing severe challenges, chief among them stagnant demand and cutthroat competition from local suppliers. We need new ideas, new people in our industry to keep it competitive; we also need to nurture new customers to buy our product. In any industry, a company is only as strong as the ecosystem in which it operates.
In response, Macsteel initiated an empowerment programme to help a new generation of customers develop and grow their businesses. Called Usizo, or Help, it aims to provide solutions to common barriers that hold smaller companies back, among them access to credit. This programme is the brainchild of Kim Allan, head of CSR, who started the programme in 2015. One of the things we learned early on is that it was important to identify companies with the potential to grow - in a sense, who deserve help. To assist us to evaluate potential candidate companies we developed an audit sheet that covers a range of criteria that we believe demonstrate a company that is serious about growth and thus worth assisting. These criteria include whether the company has a bank account, undertakes audits, pays tax, has HR systems in place, follows health and safety procedures, offers training, has appropriate facilities and has basic marketing in place.
Companies that meet 75% or more of these criteria qualify to become Usizo partners.
In addition, we provide mentoring to high-potential companies to assist them with becoming more proficient at the business side of the company, particularly focusing on things like managing inventory and cash flow - the latter is one of the huge pitfalls for many businesses.
Our involvement goes deeper than that. When we identify a company with potential, we use our muscle to help it burst through to the next level.
Overall, our Usizo programme has helped create 180 new jobs and sustained 585 existing ones. In the process, credit of more than R100 million has been extended to SMEs in the steel sector.
An example will illustrate what all this means on the ground. Since 2018, Usizo has been working with Beake Engineering, an engineering services company based in the North-West, servicing the mining industry. They were the first Usizo client to score 100% on our audit, and we are working closely with them to assist them to develop their business.
As an Usizo company, Beake is assigned a dedicated senior sales manager who negotiates discounted prices and credit on steel purchases and expedites quotes. Quick turnaround is instrumental in allowing Beake to respond successfully to requests for quotations from its clients.
We are currently partnering with Beake to help it qualify to tender for a substantial project. One challenge is capacity, and Macsteel is providing assurances that it will provide support through, for example, cutting steel to size to reduce the strain on Beake’s workshops. In addition, we have provided guarantees that our payment terms for the steel needed will be aligned with the project’s payment cycle, thus reducing the financial risk.
At the most basic level, the Beake/Macsteel relationship is a spur to maintain the governance/compliance framework, and the assistance with quoting and credit also increases profitability.
Abrey Moagi, MD of Beake Engineering, says he recognises the impact Usizo is making on his business. If it is assisted to win a big tender, it will definitely take the business to a whole new level and allow it to compete for much bigger jobs in the future. In job terms, it would mean increasing its permanent staff complement to 85, a 70% increase. These permanent jobs would in turn support the creation of other jobs in companies that supply Beake.
One of the reasons this kind of approach works is that it delivers business benefits for both parties. Beake is getting favourable business terms that support growth, which it would not be able to access otherwise, and the opportunity to realise its wider ambitions to become a more substantial company. Its success creates a long-term customer for Macsteel.
That’s a recipe for a genuine and continuing relationship, one that will benefit not only our companies but ultimately contribute to a stronger, more resilient and more inclusive economy.