The Provincial Government of the Western Cape has heard the cries of the small business community. For years, SMME operators have complained about a lack of access to finance and opportunities. On Monday, 22 November 2004, the Provincial Government launches an innovative R110-million-a-year package of support for SMME’s. Known as Real Enterprise Development or RED Door. The initiative will see the opening of a network of offices that offer top-range advice, information and finance to small business entrepreneurs.
The first two RED Door offices in the Western Cape opened their doors for business in Khayelitsha and Mitchell’s Plain, respectively, on 22 November 2004.
The Khayelitsha office is situated in the Makhaza Centre, C/o Lansdowne and Cekeka Street and the Mitchell’s Plain RED Door office is located at The Promenade, C/o AZ Berman and Morgenster Road.
The official opening of these two offices follows several initiatives, plans and actions taken by the Provincial government to create economic development in its quest to fight against poverty and unemployment.
The RED Door will consist of:
- A network of 35 one-stop-shop support hubs for SMMES, called The RED Door, spread across the Province with at least one in each municipality over the next 3 years.
- A fund to provide access to finance for small businesses, which normally fall outside of the net of banks and other financial institutions.
- A structured curriculum of training courses provided all year round in three languages and at two educational levels at the 35 RED Door offices.
- A holistic approach to ensure that all major needs of enterprises are addressed to dramatically increase the success rate of emerging SMMEs.
- Harnessing the partnership of National, government departments, parastatals, local authorities, banks, big business and NGOs to finance the RED Initiative at a level which is more than 20 times the level of funding that was available for these purposes before.
Entrepreneurship has been acknowledged worldwide as the engine of economic growth. Without small business development, the economy stagnates, employment declines and ultimately the general standard of living deteriorates. The SMME sector could generate between 50 000 and 60 000 jobs a year in the Western Cape.
It is envisaged that the 35 RED Door Centres will cost about R30 million to operate each year. The network of support services that will be utilised to empower SMME’s will annually cost the Provincial Government of the Western Cape about R17 million.
The Provincial Government also intends raising R50 million each year to capitalise a loans fund. And R13 million will be budgeted each year to ensure a fully integrated approach to the development of small businesses is employed. A variety of courses in areas that are critical to the success of small businesses will be offered.
All of this will total a R110 million basket of support offerings to the small business community of the Western Cape.
Lynne Brown, Western Cape Minister of Finance, Economic Development and Tourism said: “Historically, a vast proportion of the population was either excluded from participating effectively in the economy or was actively discouraged from establishing its own businesses. Poverty also acts as an enormous barrier to establishing businesses. The resource poor seldom are able to offer financial institutions any meaningful collateral to obtain loans. The RED Door will ensure that this doesn’t happen anymore”.
While Government initiatives to promote SMMEs in the past have been well-intended, the Western Cape Department of Economic Development and Tourism has concluded that two things need to happen: that we need to make a quantum leap in the level of support we are giving to promoting SMMEs and that we need to address the problems in a holistic and integrated manner.
Minister Brown added: “The hallmark of a RED Door office will be that an adviser will act as an anchor for the client through his/her search for information or the quest to obtain a solution to a business problem, irrespective of how long it takes”.
Information, advice and services will be provided in at least the following areas:
- business idea development
- business plan development
- financing, including: loans, incentives, grants and investment recruitment
- manufacturing advice
- tendering and procuring advice and opportunities
- productivity improvement
- operational and administrative advice
- management skills and Human Resource Development
- labour relations
- patenting and intellectual property
- tax assistance
- export and import processes
- marketing research and advice
- legal advice
- IT advice
- financial management advice
- Black Economic Empowerment (BEE) strategies and deal structuring
- client care
Minister Brown: “The officials rendering the services at our Red Door offices will not be merely office bound. We expect of them to serve their communities in the true sense of the word. They will have to get to know their clients and network with organisations within communities they serve”.
The Department of Economic Development and Tourism (DEDT) will also subsidise the provision of specialist services to selected enterprises where need exists and where the service could result in significant increases in employment.
The single most difficult-to-overcome problem experienced by small businesses is gaining access to finance. SMMEs often complain about the stringent and rigorous requirements of banks and other financial institutions. Entrepreneurs and potential entrepreneurs often have few resources and nothing to offer as collateral for a loan. These circumstances are a source of enormous frustration to entrepreneurs and a huge blockage to the development of effective SMMEs in the economy.
Minister Brown said: “In the short term we need to find finance for SMMEs, which fall outside of the net cast by the banks and traditional financial institutions. In the longer term we need to change the minds of the mainstream financial institutions”.
She added: “In this light, we have set ourselves the target of raising at least R30-million a year over the next three years to capitalize a loans fund, which we call RED Finance. RED Finance will provide finance to SMMEs who do not meet the standard criteria for loans from mainstream banks and financial institutions”.
A prerequisite for a loan from RED Finance will be that the beneficiaries participate in a comprehensive mentoring and skills development programme tailored for the needs of the enterprise and the entrepreneur. In this way the DEDT will ensure the sustainability of the enterprises and guarantee that the loans will be repaid for other enterprises to use.
The Provincial Government will also engage in a vigorous campaign to encourage financial institutions to change their standards to allow more SMMEs access to their conventional loans. To achieve the DEDT has set up a special unit to explore every possible source of funding which can be made available to SMMEs and to ensure that there is also funding for survivalist enterprises.
First National Bank (FNB) and Standard Bank have already confirmed their support for the initiative. Each of these institutions will be sponsoring a competition for writing business plans.
Standard Bank will be running a competition in Khayelitsha and First National Bank is taking the responsibility for a competition in Mitchell’s Plain. Each of these competitions will encourage small business owners and aspiring entrepreneurs to come up with the most innovative business plans. The competition will run over a four-month period and prize money to the value of R 20 000 each, sponsored by these financial institutions, is at stake.
Minister Brown said: “Information, advice, support, mentoring and access to finance will go a long way towards increasing the number and success rate of SMMEs. However, on their own, these elements will not necessarily result in a flood of new SMMEs unless new business opportunities are opened up for emerging entrepreneurs, entrepreneurship is encouraged and developed and SMMEs are given access to good sites from which to operate. The RED DOOR offers us this opportunity”.
For more information contact:
Dudley Adolph at 021 483 2628 or Olivia Dyers
Tel: 021 483 9118
Fax: 021 483 4892
ODyers@pgwc.gov.za
