Teboho Bosiu, Farisai Chin’anga & Lauralyn Kaziboni

Participation by a greater number of firms and individuals in the South African economy is hindered by a range of barriers identified in recent CCRED studies, including access to finance. 1 This research indicates that firms attempting to enter a highly concentrated market will likely be denied funding by finance institutions partly due to a high probability of failure. It takes considerable time before a new entrant is able to breakeven, let alone earn profits. As a result, commercial banking and even development finance institutions (DFIs) do not adequately cater for new entrants particularly in those sectors where there are already large established incumbents.

The approach of DFIs tends to be similar to that of commercial banks which apply very stringent criteria to assess the risk of investments in new firms. Applications for finance are cumbersome and lengthy, and entrants are often assessed on historical performance rather than projections and poten-tial for growth over time. 2 Furthermore, assessments consider a shorter period of time as an investment hurdle rate than it generally takes for firms to breakeven and earn profits. As a result, firms that could become effective rivals over time are being excluded from the market, whereas funding that is ‘patient’ and more risk-taking in its approach could aid these firms substantially with long-term gains for the economy.

By: CCRED – https://www.competition.org.za/review/2016/11/22/funding-black-industrialists-in-south-africa