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Government’s Localization Campaign Is Good News For SME Sector

South Africa’s heavy reliance on imports has been exposed by the Covid-19 pandemic and has prompted the government to seek ways to drive localization in the economy.

Last week, during the announcement in Parliament of the government’s “buy local” campaign, Minister of trade, industry and competition Ebrahim Patel warned that the country’s heavy dependence on imports is stifling economic prosperity. (Patel was delivering his Budget Speech, on Tuesday 18 May 2021.)

Announcing the mobilization of at least R240-million from the private sector and government’s earmarking of R200-billion over a five-year period to support localization initiatives, Patel said, “SA’s import-to-GDP ratio is too high for an economy that desperately needs more jobs. We import [non-petroleum] goods worth 25% of our GDP – our propensity to import is out of line with peer countries and developed economies, and more can sensibly and sustainably be produced locally.”

With government support for a “buy local” campaign, SA manufacturers have a chance to develop, which in turn presents opportunities further down the value chain for small and medium-sized enterprises.

SME service provider Lulalend welcomes government’s move and believes that, while there is work to be done, this poses sustainable growth possibilities.  Co-founder and CEO Trevor Gosling says, “… for thriving SMEs this means that they can look forward to gearing up their businesses activities over the next five years.”

One of the most effective ways to improve a business and to stay ahead of the competition – local and international – is to invest in new technology and equipment to streamline production, save on electricity and other costs, lessen waste, maximize efficiency and manufacture better quality goods.

But that can be an expensive exercise at a time when many companies are holding onto their working capital.

In addition, for many manufacturers, the length of the business cycle, from purchasing raw materials to production and selling the goods can pose a particular challenge, as it could take months for a manufacturer to recover operational costs while overhead expenses such as rent, insurance, and utilities mount.

Laying the groundwork for success comes with the requirement to have access to additional funding support in the form of loans to buy equipment or inventory, or as bridging finance to cover unexpected expenses or bills. 

“Under the right conditions, boosting local manufacturing over the next five years is possible for a number of key sectors including paper, wood, motor vehicles, ceramic products, glass, basic iron and steel, and food and beverages.” says Gosling.

SMEs in South Africa are resilient and continually need to adapt to thrive. To do this, they need to work with a reliable funding partner that gives them secure access to the type of funding they require in a flexible and efficient manner.