Why did J.P. Morgan and Dalberg found Catalyst for Growth?
Small and medium-sized enterprises (SMEs) have the potential to make significant contributions to job creation and economic development in Africa, but more support is necessary to ensure that these businesses grow and become attractive investment targets.
Increased foreign direct investment (FDI) in African markets, which topped $80 billion in 2012 (a tenfold increase from 2000), means that more capital is available on the continent than ever before. However, many investors have found that a large share of African SMEs lack key capacities and skills that are prerequisites to investment-readiness. Through a pilot programme run by the JPMorgan Chase Foundation and Dalberg Development Advisors, we’ve come to believe that effective business development support (BDS) can help to overcome these obstacles. In fact, SMEs in the pilot showed more than 40% growth in revenue in their first year and significant improvements in business systems and investment readiness.
The BDS market in Africa is fragmented and does not currently meet the needs of SMEs or investors.
Currently there is neither a methodological standard for what best practices drive successful BDS provision nor a data-driven method for fairly comparing performance across BDS providers. In the absence of such standards, markets run the risk of becoming distorted by low quality and ill-conceived programmes. Low rates of SME investment, even into SMEs emerging from BDS programmes, suggest that the South African BDS market is experiencing such a distortion.
South Africa is the ideal laboratory in which to build an evidence base around BDS provision, from which to launch new BDS interventions.
Unlike other markets across the globe, South Africa has millions of dollars funnelling into the BDS market each year. This is because Broad-Based Black Economic Empowerment (BBEEE) codes incentivize corporates to spend this money to earn points for enterprise development (ED). In South Africa, Catalyst for Growth has an opportunity to study a relatively well-developed BDS market and build a rich evidence base around BDS performance and SME outcomes. We believe that South Africa is the ideal place to begin learning how to increase the efficiency and optimize the cost of BDS provision.
In February 2012, JPMorgan Chase Foundation and Dalberg began a two-year pilot programme in South Africa. Catalyst for Growth began with a pilot project to measure what impact effective BDS can have on a small business’s ability to survive, grow, and become investment-ready. Aurik and Raizcorp, two best-in-class incubators, were chosen for the pilot. Catalyst for Growth funded two years of BDS provision for 20 SMEs. Throughout the pilot, monitoring and evaluation of the SMEs was conducted on a regular basis. The results we saw at the one-year mark (below) have led us to believe that:
High-quality BDS can help businesses to grow faster and create more jobs
It is possible to assess the quality of the BDS a business has received by measuring specific changes in the business
An analytics platform providing data about BDS providers is a next step that can bring transparency to the market, and therefore channel funding to high-quality BDS providers
Following these positive results, J.P. Morgan and Dalberg launched Catalyst for Growth as a new non-profit organisation.
The report launched at the inception of the pilot project is available here (PDF). For detailed profiles of the SMEs in the pilot programme and the results they experienced during the first half of the pilot, please see our Year 1 report (PDF)
The full results of the pilot programme, including a summary of “next steps” for Catalyst for Growth, are covered in the Final Report (PDF)
In 2015 C4G launched the beta test.
It was used as an opportunity to: assess and revise data collection methods; communicate with SMMEs and BDS providers; review modes of engaging corporate and investor partners; institute mechanisms for making results public regarding the current state of M&E in the BDS sectors. This has lead to the creation of a technology platform that is aimed at assisting BDS providers, buyers of BDS and investors. In addition, C4G has been growing its understanding of the SMME eco-system and the various interactive components through stakeholder engagement.
The C4G analytics platform was developed with these learnings in mind and will be launched in early 2017.
Already since the platform was developed there are 19 BDS providers and 5 investment partners on board.