Wall St. and Business Wednesdays: In South Africa, The Number of Family Businesses Soars Over the Million Mark by Simpiwe Piliso

The number of family-owned businesses in South Africa has soared above the million mark as empowerment starts to pay dividends.

At least 1.1 million of the 1.4 million active businesses in the country are family controlled. Government policies, and the resultant black economic empowerment obligations on large corporations, have seen the emergence of a new breed of family entrepreneurs -- following in the footsteps of the Ruperts, Ackermans, Motsepes and Kunenes.

Old Mutual and Nedbank are hosting an international conference for owners of family businesses in June. Old Mutual market development manager André Diederichs said family businesses form the backbone of most economies in the world and it is crucial that as many budding new black enterprises as possible seize the opportunities on offer in South Africa.

Research commissioned by Old Mutual found that family-owned businesses currently contribute about 60% to the country's GDP and employ around 75% of the workforce.

The country has also seen a rapid rise in the number of black family franchisees.

Franchise consultancy Franchise World's chief executive Lofty Lutge said there had been exceptionally high growth in black-owned franchises in the last five years. More than half of Chicken Licken's 220 franchised outlets are now black-owned.

Standard Bank group economist Goolam Ballim said government BEE procurement policy remains a key factor in the growth of small business.

"Government Incorporated is certainly the largest business in South Africa.

"In short, government accounts for a quarter of the country's economy and plays a meaningful role in shaping the direction of the economy and boosting business, particularly black-controlled enterprises."

Ballim said it was no surprise that small businesses are benefiting from the state's budget, given its commitment to promote small enterprises as a key transformation element.

Tony Twine, a director of Econometrix, said some of these businesses were established by families with an "entrepreneurial spirit" while others were set up by skilled employees who had been retrenched.

He said successful black family businesses now dominate many sectors and many are reaping the benefits of big companies' growing need for outsourcing.

Old Mutual's Diederichs said: "Corporates are downsizing on a rapid scale to stay globally competitive ... and many retrenched skilled individuals are opening up their own family businesses."

Outsourcing by DaimlerChrysler SA and General Motors SA has fuelled the growth of numbers of Eastern Cape family businesses in the province.

Spokesman Denise van Huyssteen said GMSA outsourced most of its non-core operations before 2004, mainly to black businesses.

Tony Balshaw, one of SA's leading experts on family businesses, said a third of the companies listed on the JSE are family controlled.

He added that 85% of all established small businesses started up with some form of family funding; while the others approached financial institutions for their initial capital.

Business Partners Limited, an investment company providing funding for small businesses, has provided finance for more than 1170 businesses in the last two years.

Chief operating officer Freddie Bruintjies said: "Considering the fact that most first-time entrepreneurs come from an employment background, new ventures are mostly funded through a combination of own savings and pension fund withdrawals."

He added that some family businesses funded by Business Partners Limited now generate annual turnovers of between R1-million and R100-million.

With 84% of its businesses family-controlled, SA is roughly on par with the US -- where 78% of businesses are family affairs, the UK (75%) and Italy (99%), according to international auditors and business advisers Grant Thornton.

With the majority of black family operations having sprung up since the early 1990s, a new challenge is looming for them -- the succession phase, or handing over to the next generation.

Currently, only 30% of family businesses make this transition successfully.

This article appears in The Sunday Times of South Africa

Simpiwe Piliso

Wednesday, April 26, 2006