Small to medium-sized enterprises (SMEs) and large companies operating in South Africa’s digitising economy must understand that localisation is no longer just a fundamental necessity for scaling, but also a strategic pillar to funding.
As large companies seek to grow their Broad-Based Black Economic Empowerment (B-BBEE) scorecards, localising how funding and partnerships are done through their corporate and social investment (CSI) can help the development of rural-based SMEs.
On the other hand, SMEs seeking to grow in a digital economy must understand that building businesses that prioritise cultural nuance, local financial ecosystems, and compliance with regional policies are the ones best positioned to receive corporate and government funding.
What is Localisation and Why Does it Matter
Localisation is the process of adapting and customising a product or service to suit a specific region’s language, culture, expectations, regulatory standards, and technical norms. Developing a business model rooted in localisation means adapting the business to fit customer needs, address local needs or issues, and adhere to local regulations.
In South Africa, most SMEs operate in a traditional manner, heavily dominated by pre-digital practices, especially in the informal sector, so the idea of building from a localised perspective has always been more for tech startups. However, with the growth of enterprise technology such as artificial intelligence (AI), building for local is more important than ever.
In this article, we explore the localisation policy developed by the government and how localisation as a strategy can funding avenues.
Localisation Policy for SMEs
The Department of Small Business Development (DSBD) was assigned the responsibility of developing a localisation policy for SMEs in South Africa. The goals of the framework are:
- Build the manufacturing capacity of SMEs
- Provide a coordinated Import Replacement Plan for SMEs
- Establish a route to market framework for SME manufactured products
- Provide support and preparation of SMEs towards export market penetration
- Service localisation to allow development of skills
- Support SMEs to adopt technology, innovation and digitisation
- Establish a funding framework
Pillars of the Localisation Programme
To enhance localisation, the DSBD designed a focused manufacturing programme that is aimed at building and supporting SMME participation in the manufacturing value chain. The pillars of the programme are as follows.
Reduce Import Dependency
To ensure this is achieved, the department is working on:
- Developing industry sector projects
- Implementing the localisation policy on a three-phase route to full manufacturing capacity
- Financial assistance of up to R15 million through loans and blended funding
- Provide financial and non-financial support to SMEs in the manufacturing industry sub-sectors
- Provide business infrastructure to support small enterprises
- Facilitates route to market in the domestic public and private sectors and export markets
- Facilitates aggregate input costs for raw materials
- Offers technical skills, product certification, testing and quality assurance
Private Sector Support
Under this pillar, objectives for the private sector are:
- Contribute to the growth of manufacturing output by SMEs
- Link SME brands with the market through wholesaler and retail channels
- Promote the buying of locally produced products
- Save existing jobs and create new ones
Focus Areas of the Programme
These are the manufacturing sub-sectors the programme focuses on.
- Steel manufacturing
- Food and beverages industry, including agro-processing
- Furniture and general-use products
- Beauty and personal care products
- Components manufacturing for the automotive industry
- Pharmaceuticals and nutraceuticals
- Plastic and plastic products
- Clothing, leather and textile sector
- Construction equipment manufacturing
- Pulp and paper products
- Green and digital technologies
- Petroleum and chemical products
Category Focus of the Programme
Technical Skills
- Specialised business management training
- Certification of products via SABS and other Standards bodies
- Technical skills training in collaboration with CHIETA and other relevant SETAs
- SANAS, NRCS, SABS to provide access to lab testing for the accreditation and certification of chemical and related products
Business Infrastructure Support (Building and Machinery)
- Factory space in industrial parks for small enterprises
- Refurbish unused government buildings and fit them with machinery for small enterprises to rent
- Processing facilities for small-scale agro-processors
- Machinery and equipment
Route and Access to Market
- Facilitate government departments and state-owned enterprises’ procurement from the supported producers
- Enforce the Local Procurement Accord commitment on private sector procurement from the supported producers
- Steel/metal work enterprises to participate in the government infrastructure programme
- Facilitate access to retail shelves
- Facilitate access to export markets
- Promote the #BuyLocalBuyMadeInSAcampaign
Financial Support
- Funding to purchase machinery and equipment for the various manufacturing sub-sectors that will be supported
- Working capital for the various manufacturing sub-sectors that will be supported
- Funding for product accreditation, certification and testing
- Maximum of R15 million per small enterprise
- The term of the funding will be determined by the business’s cash flows up to a maximum of 84 months per small enterprise, with a maximum moratorium of 8 months
- Blended finance instrument will be utilised where up to 50% of the funding required could be a grant (soft loans), and the balance could be a loan
- The loan will be repayable at the prime lending rate
How to Qualify for the Programme
The following is the qualifying criteria for the programme.
- Be a registered legal entity in South Africa in terms of the Companies Act
- Be 100% owned by South African citizens
- Predominantly be black, women, youth or a person with disability owned and managed
- Have been in operation for at least two years prior
- Be registered and compliant with the South African Revenue Service (SARS)
- Must be registered on the National SMME Database
- 70% of small-scale manufacturing enterprises must be black-owned and managed – the percentage of black ownership is at least 51%, and the company management composition is at least 51% black
- 40% of small-scale manufacturing enterprises must be women-owned and managed – the percentage of women ownership is at least 51% and the company management composition is at least 51% women
- 30% of small-scale manufacturing enterprises must be youth-owned and managed – the percentage of youth ownership is at least 51%, and the company management composition is at least 51% youth
- 6% of small-scale manufacturing enterprises must be owned and managed by persons with disabilities – the percentage of persons with disability ownership is at least 51%, and the company management composition is at least 51% persons with disability
Funding Requirements
- Complete the online application form (For application forms, please send an e-mail to trep@sefa.org.za)
- Company statutory documents
- FICA documents
- Certified ID copies of Directors/Members
- Six (6) months bank statements
- Latest Annual Financial Statements or Management Accounts not older than three months
- Business profile
- Project execution plan
- 12-months cash flow projections
- Copy of Lease Agreement or Proof of Ownership
- Relevant Industry Certification
- Facility Statements of Other Funders
- Quotations for applied funding
Township, Rural Enterprises and Informal Businesses
One of the greater focuses of the DSBD in the programme is to scale up support for SMEs, co-operatives, rural and township economies. One such programme is the Township and Rural Enterprise Programme, which focuses on the following sectors:
- Spaza shops support programme
- Auto body and mechanics
- Bakeries and confectioneries
- Small-scale manufacturing
- Hairdressers and personal care
- Tshinyama and cooked food vendors
- Informal clothing and textiles
“Public sector remains the largest consumer of goods and services, therefore, the promotion of localisation through public procurement is paramount. Public Sector expenditure must be used to drive SMME and Co-operatives participation in the localisation programme,” states the Department.
According to an expert, South Africa’s future economic success will not be built solely by new technologies, but rather it will require concrete, steel, factories and freight, alongside the tech that enables them.
