Will the ‘buy local’ drive open credit lines for local entrepreneurs?
I have been watching with keen interest over the past 6 months the evolution of the local startup culture in Gaborone from seed capital competitions, startup meetups to various conferences held with the shared ethos of supporting local businesses and youth business owners. The buy-in from influential private companies and government agencies is indeed the missing ingredient to cement an entrepreneurship ecosystem that will create jobs and spur economic diversification. With youth unemployment above 30% it is befitting for the private and public sectors to join hands and collaborate to provide products and services that will enable a thriving friendly business environment, invariably creating thousands of jobs that leverage on this youth demographic.
Various players in the business ecosystem should be praised for facilitating the development of home-grown enterprises which will move us from a culture of consumerism to that of creators and innovators. There is however a bigger hurdle that remains unexplored which is access to affordable credit for the local startups to scale and grow their businesses onshore and offshore. According to the The Local Slice BW online survey, 51% of the participants cited lack of access to funding as the no 1 impediment to growing their business.
Traditional banks still perceive startups to be too risky and above their risk appetite forcing startups to seek alternative sources of funding which are either too expensive with cost of capital above 10% or lacking in the local financial services product offering. Local private equity firms tend to prefer mature companies with a proven track record leaving the many youth and women run businesses out in the cold to die a slow death due to lack of working capital.
Another avenue that is still in the infancy stage is venture capitalists with an investment strategy that targets youth and women run businesses with no track record, due to their high-risk appetite disposition. A few International organizations like the SanBio run annual competitions bringing together women from diverse economic business sectors and age groups. Last year’s competition highlighted the dire need for working capital solutions for products and services that were pitched at the local female business owner’s competition.
The products and services pitched were in agri-business, beauty and health care, food and beverage and renewable energy.Like many seed capital competitions, the winner of the competition receives a grant and brand exposure. However, since there can only be one winner that receives a grant and brand visibility, the impact is limited and not trickled down to those that came short from winning the grand prize.
A more catalytic solution is to open lines of credit through innovative products in the market, whether from traditional banks, private credit and private equity that are affordable and can revive local startup businesses.
Local startups with no track record can also access funding through capital markets. The Botswana Stock Exchange has announced the launch of an SME board named Tshipidi board which will cater for SMEs and offers less stringent listing rules due to lack of traction. SMEs will have access to a diverse pool of investors and will benefit from corporate governance compliance.
Cashflow is king and to guarantee a buy local culture it is imperative to enable access to funding for local businesses to scale and spread their wings.
Lindiwe Mafavuneh is the Founder & CEO of LCM Capital, an alternative investment company in Botswana with primary focus on Risk, Investment and Governance