Against the backdrop of an economy impacted by lacklustre growth (1.9% in 2022E, forecast to decline to 1.4% in 2023E), a relatively high official unemployment rate…
Against the backdrop of an economy impacted by lacklustre growth (1.9% in 2022E, forecast to decline to 1.4% in 2023E), a relatively high official unemployment rate (33.9% Q22022) and persistent loadshedding – South Africa might find itself approaching an economic nadir if little action is taken.
An improvement of the economy lays partially on a sustainable supply of electricity, job creation, financial inclusion, and access to quality education. There are entrepreneurs and SMEs who are championing these causes but lack access to funding. With traditional banks positioned to finance large, well-established corporates, therein lies a gap in funding smaller, nascent, and lesser-known enterprises.
Mezzanine funding is that layer of financing between senior debt and equity. Mezzanine funding is better positioned than traditional banks in funding SMEs as SMEs tend to be higher up the risk curve. Mezzanine funding is advantageous to businesses as equity dilution is avoided due to the provision of debt funding. From the mezzanine funder’s perspective, there is merit in investing alongside a business-owner who has skin-in-the game to ensure alignment of interests.
Through their businesses, SMEs address aspects of the country’s poor economic performance per the medium-term budget policy statement (26 October 2022) (“MTBPS 2022”). Specifically, unreliable electricity supply and lack of job creation.
“Increasing the supply and reliability of energy is a key part of economic growth reforms, and new measures to achieve this include greater scope for private-sector generation of electricity.” MTBPS 2022
There are SMEs providing critical alternative energy solutions. Ongoing loadshedding, not only disrupts businesses, educational- and healthcare facilities but costs the economy up to R500 million per hour. By providing funding to SMEs in the energy space, mezzanine funding has a direct influence on economic growth.
“To sustain the gains from prudent fiscal policies and improve resilience to shocks, the economy needs rapid, job-creating growth.” MTBPS 2022
At the apex of the COVID-19 pandemic, 2.3 million people lost their jobs. During H12022, there were 858,000 fewer people employed relative to pre-pandemic levels. Funding SMEs has a direct positive impact on job creation, particularly through the provision of expansion and growth capital. Again, contributing to economic growth.
Tamela Capital Partners
Tamela Capital Partners is an independent fund manager and is one of the few credit-oriented alternative asset managers in Sub-Saharan Africa.
How can we help?
Tamela provides funding of between R50 million and R200 million to companies in South Africa, Namibia, Botswana, and Lesotho seeking capital for growth and expansion.
For more information contact: Thato Tsita | +27 10 443 4615 | thato@tamela.co.za