- January 20, 2015
- Posted by: admin
- Category: General
A complete reliance on banks to extend credit to the previously disadvantaged who are looking to start businesses surely cannot be the right approach. Even Postbank, which many think will play a key role in extending credit when it is corporatised, cannot be the panacea. A solution also does not completely lie with state-owned institutions like the Industrial Development Corporation, the National Empowerment Fund and so on
The state-owned financiers cannot cater for everyone. There must be some alternatives that could fund black businesses which have the potential of being big one day. The focus on banks and state-owned institutions has blinded people to other funding opportunities that could and should be leveraged.
Black-on-black empowerment is what we need, and not just a black-run government helping create black entrepreneurs, but also established black business people enabling the creation of sizeable black-owned companies. Let me explain.
This year I have had the privilege of engaging with a number of business people, established white business people in particular, on how they started their businesses. A good number of them told me of the challenges involved in acquiring credit from the banks, especially when their businesses were young. When the banks had tightened credit taps, they did not just look at state-owned financiers. They looked to other established business people to back their entrepreneurial dreams. Some of the newer white established companies exploited established white business networks to build businesses that are considered significant today.
Take Investec, now a Johannesburg and London-listed company. In its early years, Investec founders Ian Kantor, Errol Grolman and Larry Nestadt looked to Hosken Consolidated Investments (HCI) and its directors to get access to capital. Investec had started as Hosken Consolidated Leasing in 1974. When it was sold by HCI in 1976 to Grolman, Kantor and Nestadt, and ultimately changed to Investec, it needed capital to continue lending. So how did it get it?
Nestadt’s father, a shareholder at HCI, had to sign a number of bank guarantees. It is recorded that in 1976, Gerald Nestadt had to sign a R75,000 guarantee for Investec to get capital that it could use to lend. In 1977, when things were tough at Investec and some of its founders had to get a secondary income, Gerald Nestadt had to write a testimonial for Ian Kantor to teach at Wits University. The initial support from established business people allowed Investec to survive for many decades and ultimately the bank started funding people like Brian Joffe’s Bidvest and Aspen’s Stephen Saad and Gus Attridge, who now run big concerns.
Another example is Discovery, run by Adrian Gore. When starting up, it looked to Rand Merchant Bank’s founders. Laurie Dippenaar says: “In 1992, Adrian Gore (then at Liberty) came to my office and said, you guys have a dormant insurance licence and I want to buy it from you. Initially, I was not excited. He called a year later and said he had a new idea. The main idea was a medical savings account. I said I’d pay him for three months to work on a business plan.”
The idea worked and RMB invested R10m in it. Gore got a 10% stake in Discovery and his friend, Barry Swartzberg, got 5%. Discovery’s market value on the JSE is R65bn. You don’t need to do the maths to see how many billions Gore has now at Discovery.
Similarly with OUTsurance; its founders, Willem Roos and Howard Aron, went to the fathers of FirstRand with the idea of Outbonus, a cash bonus rewarding clients for not claiming. FirstRand liked the idea and put up R25m in capital. OUTsurance now delivers annual earnings of more than R1bn and has a net asset value of more than R25bn.
These are clear examples of how fledgling black entrepreneurs could look to established black business people to fund what could be dream companies. Making hundreds of millions, even billions of rand, cannot be the be all and end all for black business people and economic empowerment firms.
In the next few decades established black business people need to stand with pride and say the black billionaires have helped create a generation of black businessmen and women.
Source: Rand Daly Mail – Phakamisa Ndzamela