Scaling Policy and Financial Instruments for Eco-Inclusive SME Support | SEED South Africa Symposium 2020
6 May 2020 | South Africa (Digital Symposium)
“In South Africa we are at the cusp of a transition to a green and inclusive economy… [However,] we can only do this with the support and participation of micro, small and medium enterprises… Hurdles are even more significant for climate-smart enterprises that are operating in the new markets… [MSMEs] will need a whole ecosystem of stakeholders to help them.” – Tlou Ramaru, Chief Director: Climate Change Adaptation, Department of Forestry, Fisheries, and the Environment (DFFtE)
On 6th May, Mr Tlou Ramaru, Chief Director of Climate Change Adaptation in the Department of Environment, Forestry and Fisheries (DEFF), welcomed enterprises, financial institutions, policy-makers, donors, and business development service providers to a Pitching Session during the online SEED South Africa Symposium 2020. This Pitching Session brought together stakeholders who have been actively designing policy and financial instruments to support the start-up and scale-up of climate-smart and socially inclusive enterprises in South Africa.
The Pitching Session culminated the 2019 South African cycle of SEED Practitioner Labs for Policy Prototyping and Climate Finance, and showcased solutions developed over the collaborative, multi-step labs process. The 2019 Practitioner Labs for Policy Prototyping and Practitioner Labs for Climate Finance brought together 145 practitioners from across South Africa to discuss finance and policy challenges facing eco-inclusive enterprises. Through intensive collaboration, participants co-developed 7 targeted instruments to address these challenges.
The solutions pitched during the session at the SEED South Africa Symposium 2020 included:
- Online biomass platform and policy navigator: Incentivising activity in the biomass sector, hosted by the Department of Forestry, Fisheries, and the Environment (DFFtE) with South South North and Ekasi Energy
- Cross-sector thought group: Facilitating labour absorption in SMEs, hosted by South African Renewable Energy Business Incubator (Sarebi)
- Platform for climate-resilient SME financing: Institutionalising access to climate finance, hosted by OneWorld Sustainable Investments (OneWorld) with Impact Amplifier, Trade & Industrial Policies Strategies (TIPS) and GreenCape
For further details of all 7 policy and finance solutions developed in South Africa in 2019, please visit this link.
Following each solution pitch, experts commented on and explored opportunities for implementation of the prototypes to drive the transition to a green and inclusive economy. Participating experts included Simbotwe Mwiya (United Nations Development Programme (UNDP)) Kerryn Krige (International Labour Organization (ILO)), Michael Sudarkasa (Africa Business Group (ABG)), and Tlou Ramaru (Department of Forestry, Fisheries and the Environment (DFFtE)). Session participants were encouraged to provide their insights and ideas for scaling these solutions throughout. Below, we share some of the highlights from each pitch:
Online biomass platform and policy navigator: Incentivising activity in the biomass sector
Hosted by the Department of Forestry, Fisheries and the Environment (DFFtE) with South South North and Ekasi Energy
“What if you turned your tap on at home and nothing came out? …Invasive alien trees across the country consume approximately 7.5 million bathtubs worth of water per year. But, there are small and micro businesses working hard to clear our landscape of invasive alien trees. They need attractive carrots to hasten the step.” – Garth Barnes, Department of Forestry, Fisheries and the Environment (DFFtE)
Alongside government investment through the Working for Water (WfW) programme, private landowners and other aligned private and public sector parties have invested in clearing waterways to ensure security of water supply. There are an increasing number of SMMEs who are directly involved in invasive plant eradication and beneficiation in a variety of value chains, yet largely fail to scale for a number of reasons. Eco-inclusive enterprises often face difficulties to start and scale a business in this sector. There are a number of factors that can hinder business growth, including policy and legislative barriers. Regulatory hurdles and poor information flow on market opportunities, feedstock availability and the business ecosystem linkages, are contributing factors that hinder business success.
The solution offered for an online biomass platform and policy navigator – available for enterprises to use and update to share best practices – incentivizes activity in the biomass sector by:
- Combining information about policy regulations and incentives to help enterprises navigate the biomass sector and make sector opportunities clearer for enterprises
- Contributing towards building a base of case studies and information about value chain opportunities that enterprises and policy makers can access
- Paving the way towards development of an industry body for the biomass sector
Solution Visual – Online biomass platform and policy navigator
How can YOU contribute to this solution?
To implement this solution, further support is needed from stakeholders (including you and others in your networks) to form this knowledge platform and spur activity in biomass economy. As a starting point, Mr. Barnes called on stakeholders to support the development of a case study of the biomass energy value chain through offering financing, expertise and funding to develop an online tool to incorporate this case study and more.
Cross-sector thought group: Facilitating labour absorption in SMEs
Hosted by the South African Renewable Energy Incubator (Sarebi)
“There is a notion that SMEs are going to create 60% of all jobs in South Africa by 2030…The fact is that SMEs are not really absorbing labour. SMEs offer only about 24% of all jobs in South Africa currently… [In addressing this challenge of labour absorption by SMEs,] there is a deep inconsistency in the data used for job creation policy development.” – Helmut Hertzog, Sarebi
Despite the importance accorded to SMEs as job creators, SMEs still struggle to grow their businesses, both in terms of annual turnover, as well as number of employees. In order to better understand the current status of labour absorption by SMEs and develop targeted policy to address gaps in support, clearer definitions of SDG8: Decent Work and Economic Growth are needed. Generally speaking, policy-makers and practitioners tend to assume that SMEs have similar labour absorption and job creation capacities. This overlooks many of the risks that SMEs are taking on while hiring new staff.
The cross-sector thought group solution targets the strengthening of an enabling environment to promote SME growth and related labour absorption. The solution will facilitate SMEs to turn into job creators by:
- Increasing dialogue between policy makers and intermediaries to better understand, and then support, high potential SMEs to create jobs
- Establishing a thought group and developing a position paper to align stakeholders and bring enterprise voices into policy making
- Disaggregating the notion of job creation by SMEs to understand which SMEs are creating the jobs, what kinds of jobs they are creating, and how these jobs can be future-oriented in terms of the green transition
Solution Visual – Cross-sector thought group
How can YOU contribute to this solution?
In order to achieve these objectives, Mr. Hertzog called on all potentially interested working group members, including stakeholders from government, industry, academia and the social sector – especially around enterprise development – to come together. Relevant stakeholders are welcome to join in furthering this cross-sector thought group to gather and disseminate granular, multi-stakeholder data on the state and health of SMEs, and where job creation is coming from within the SME sector.
Platform for climate-resilient SME financing: Institutionalising access to climate finance
Hosted by OneWorld Sustainable Investments with GreenCape, Impact Amplifier and TIPS
“Climate change resilience remains underinvested in South Africa, and a lack of access to finance remains a significant constraint for early-stage entrepreneurship as well as an impediment for the long-term sustainability of existing businesses, with more than a quarter of entrepreneurs exiting their businesses due to a lack of funding” – Sarah Wewege, OneWorld Sustainable Investments
Over 25% of entrepreneurs stop their businesses due to a lack of funding opportunities, as customised financing instruments are either not available or are not accessible to start-up enterprises. Eco-inclusive (or climate-smart and socially inclusive) enterprises offering services and goods that builds climate resilience are even less attractive to traditional banks or investors due to a lack of familiarity with their business models and expected returns. Furthermore, despite available climate finance (e.g. Community Adaptation Small Grants Facility), there are low levels of climate finance awarded to eco-inclusive SMMEs in South Africa due to a mismatch between financier requirements or fund metrics and SMME expectations, available financial information and proposal writing capacities. As a result, early stage enterprises fall into the ‘valley of death’ and become the missing middle, lacking the necessary financing to expand their activities and climate adaptation impacts.
As developed during the labs process and in line with OneWorld’s current project work with the African Development Bank (AfDB), this platform for climate-resilient SME financing solution will mainstream climate finance into everyday operations of financial institutions, while providing SMEs with tools to understand and access this finance through three sequential components:
- Climate Resilience Market: Advocating for and formalising the growth of SMME-led climate resilience innovation and activities through a “starter pack” aimed at awareness raising for SMMEs and funders alike.
- Investment Readiness: Providing investment readiness services for SMMEs through a customised ‘capacity building journey’, depending on the stage of enterprise development of the SMMEs and the needs of potential investors.
- Online Deal Room: Establishing an online deal room for realising matchmaking opportunities and facilitating deal closure/co-investment opportunities between SMMEs and financers.
Solution Visual – Platform for climate-resilient SME financing
How can YOU contribute to this solution?
In order to achieve this vision and further implement this solution, additional expertise and support from financers, SME intermediaries (accelerator, incubators) and others as partners will help to develop this platform and effectively strengthen the SMME landscape in line with climate-smart and socially inclusive development objectives in South Africa.