SME Funding

Winston Smit24 November 2010

[Southern Africa/Forests]Slide 2

Key Strategic Drivers for SME in Forestry Sector

Forestry Sector BBBEE Transformation Charter

Land Reform Programme – Restitution and Redistribution

Industrial Policy Action Plan (IPAP)

Transfer of State forestry assets

[Southern Africa/Forests]Slide 3

Sappi – Key Facts

Sappi is a global pulp and paper company and has operations on 4 continents

Sappi subscribes to the BBBEE principles and has recently completed an empowerment deal worth R 842 million

Sappi is a Level 3 contributor

Sappi scored 14.96 out of 15 for Enterprise Development

Sappi has its own in-house SME development centre

[Southern Africa/Forests]Slide 4

Opportunities for SME in forestry sector

The Forestry industry is highly technical and has high barriers to entry, but opportunities exist for SME in the value chain

Plantation management

Planting and weed control

Fire fighting

Harvesting and transport

Pole manufacturing

Charcoal manufacturing

Saw milling

[Southern Africa/Forests]Slide 5

What makes an SME successful?

Passion – entrepreneur must have passion for his product

Funding – crucial in the different stages from pre-startup through to growth phase

Market – access to markets

Technical knowledge – of his product and industry

Business knowledge – how to run and manage a business

Business systems – financial, HR, risk management, etc

Mentorship – crucial to any business especially during pre-startup, startup and growth phases

[Southern Africa/Forests]Slide 6

Funding and funding challenges

There are many ways to fund SME’s e.g. preferential capital, private equityand bank loans

Challenges:

SME not always attractive for banks

SME not always aware of funding sources and if, how to access it

Lending criteria from financial institutions very onerous

Lack of credit worthiness and SME unable to provide security

Regulatory environment

[Southern Africa/Forests]Slide 7

Institutions currently involved in SME financing

Commercial banks

IDC – involved in the entire forestry value chain

Ithala Bank

Development Bank of South Africa

Forestry companies such as Sappi, Mondi and Hans Merensky

National Empowerment Fund

Government support programmes under DTI, DRDLR and DAFF

[Southern Africa/Forests]Slide 8

The way forward

The success of SME development will require a strong partnership with FIETA, the private sector and appropriate Government Departments

Development of business support centers in the rural areas which can provide much needed business support and advice

Institute securities and guarantee schemes

Institute dedicated grant incentive schemes

Develop mechanisms to reduce transaction costs associated with SME funding and support services

[Southern Africa/Forests]Slide 9

THANK YOU