Commercialisation and breakthrough growth solutions
Research shows that the skill level in an economy dictates the growth of capital formation. Further research by The Task Group of the Policy Board for Financial Services and Regulation found that the same relationship exists in organisations of all sizes, particularly in SMEs.
In some economies it is possible for capital formation to grow concurrently with skill. However, where the gap between required capital and skill is particularly large it becomes necessary to grow skill first in order to acquire capital. A study conducted by the Global Entrepreneurship Monitor (UCT) found the following obstacles (ff impediments) to entrepreneurial activity in South Africa:
This study shows that shortage of capital combined with a deficit in key skills are major hindrances to business activity in South Africa. Therefore, innovative methods to systematically assist new businesses and SMEs in various stages of development by providing them with essential skills would vastly increase their rate of success.
A 2008 Deloitte’s study on global trends in venture capital showed that the South African Private Equity sector has a tendency toward later stage investment. South Africa’s early stage investment at 6% of total unrealised portfolio at cost by 31 December 2008 is lower than North America’s (11%) and Europe’s (9%). Clearly if South Africa is to build a strong economy with new companies entering the market with new and innovative solutions, more early stage investment is needed. Fundamentally there needs to be more early stage investment in high growth potential enterprises, but this cannot happen if the risk is significantly increased, a method to manage and limit risk is important.
The diagram below first developed by The Task Group of the Policy Board for Financial Services and Regulation illustrates the impact of LGC Capital intervention in organisations:
Business Rescue Solutions
There are significant driving forces behind the development of an organised and systemic approach toward dealing with failing businesses. Chapter 6 of the 2008 Companies Act was developed based on the following driving forces:
Driving force |
Rationale |
Political |
Given the strong representation of organised labour in the South African government, government has sought to transformation the liquidation industry along more socially responsible lines. Fundamentally, national interest through job preservation and business rescue has become centrepieces of government policy. This point has become even more pronounced in light of the current economic downturn as well as the new ministry of Economic Development. |
Economic |
The South African economy contracted by 1,8% in 4th quarter 2008, and by 6,4% in 1st quarter 2009. Similarly, the economy contracted by 2.1% compared in 2008 compared to 2009. If more businesses that have potential to be rescued are left to fail the contraction of the economy could be even more severe |
Social |
The unemployment rate in South Africa is approximately 25%. The Gini co-efficient at 0.58 is amongst the highest in the world. A systematic approach needs to be developed to reverse the trend, job preservation is one strategy to do this. |
Legislative |
The concepts expressed in this table will shortly be promulgated in Chapter 6 of (Business Rescue) the Companies Act No. 71 of 2008 that is designed to save companies and jobs |