Reaping the potential of entrepreneurship for a climate-smart inclusive green economy in South Africa

By Rest Kanju (Director, Indalo Inclusive South Africa) and Christine Meyer (Head of Programmes at SEED Global hosted by adelphi research

Take a moment for a thought experiment. Imagine South Africa in summer 2030. Climate change is an increasing reality. Extreme heat is challenging South Africa’s population; imagine the thermometer hardly falls below 35°C. It is hot and dusty. Severe thunderstorms hit the country every now and then; floods cause soil runoffs and degradation. Both water quality and availability is a challenge for communities, agriculture, the tourism and manufacturing sectors, and many more. This results in crop losses, water restrictions, and threatens food security and human health. The impacts of climate change on food production, agricultural and subsistence livelihoods will be of high concern.

Droughts exacerbate electricity shortages, disproportionately affecting the rural and urban poor (or other vulnerable population?) and widening inequalities.

This scenario demonstrates that solutions to mitigate and adapt to the impacts of climate change are desperately needed.

The good news is that South Africa’s entrepreneurs have already developed solutions for climate change mitigation and adaptation at the grassroots level. These market-based solutions effectively build the resilience of South African communities and showcase the enormous potential of small and medium enterprises to contribute to a climate-smart, inclusive green South African economy.

BN Aqua is an eco-inclusive enterprise that has developed a technological system for acid mine drainage treatment. The term “eco-inclusive enterprises” refers to enterprises with business models that are from the outset ecological and inclusive. Ecological action often refers to business activities that implement sustainable production methods, contribute to efficient use of resources and waste reduction, conserve biodiversity, or support climate change adaptation and mitigation efforts. Inclusive action includes the creation of local jobs, in particular for often-marginalised populations like youth, women and low-income households and through integrating these communities into local and global value chains of their enterprises by engaging them as suppliers, distributors or customers.[1]

BN Aqua’s product prototype uses a metallurgical waste product to treat acidic water to potable stage for human consumption. The treated acid mine water is then sold to mines to save on drinking water costs and reduces dependency on water resources from the municipalities. This innovative process will lead to pollution remediation of the waste material and recover saleable minerals while increasing South Africa’s drinking water capacity and contributing to climate change adaptation. By encouraging the treatment of waste water at mines and reducing mine dependency on municipal water services, BN Aqua’s solution reduces the vulnerability of the sector to climate change, and builds resilience in surrounding communities through increased drinking water capacity. BN Aqua is a 2019 SEED South Africa Climate Adaptation Award Winner.

Given issues accessing electricity, the high reliance on coal as an energy source, and the potential for solar energy in South Africa, innovative solutions are needed to offer access to renewable, clean energy to communities that are currently not connected to the grid.

Solar Turtle is an example of an eco-inclusive enterprise that is effectively addressing this gap by developing small mobile solar charging kiosks for use in communities that do not have access to electricity, and specifically aiming at equipping youth and women with entrepreneurship skills. Using a franchise model, the SEED 2016 Award Winner trains youth to use the solar kiosks, replaces the primary use of paraffin and kerosene in the communities with a source of clean energy, in turn promoting health, enhancing security, and providing electricity to schools.

Small and medium-sized enterprises (SMEs) like BN Aqua and Solar Turtle are well suited to sustainably tackle future challenges. They develop market-based solutions, are innovative, versatile, agile and demand-driven. More specifically, eco-inclusive enterprises have the potential to play a significant role in achieving South African national agendas on climate change and the green economy, such as the 2011 Green Economy Accord, the National Climate Change Bill and the National Adaptation Plan. Yet, small and growing enterprises do not feature strongly – if at all – in these agendas.

On average, an SME in South Africa employs two to five employees. With over 2 million such enterprises on the market as of 2018, these enterprises bear an enormous potential, both in terms of providing employment, and creating significant green impacts, like the reduction of greenhouse gas emission, water savings and the reduction of waste. [1] Small and growing enterprises are well placed to drive growth in the green economy from within traditionally large-business sectors. However, they face major challenges to build and scale their solutions. These challenges range from a lack of access to adequate and appropriate financing for their business, difficulty accessing markets, and regulatory and administrative burdens that impose additional costs on the enterprise. SMEs must also build technical and entrepreneurial skills, and take on significant risks to access the human resources needed to scale their enterprise. These challenges are cross-cutting, and affect small and growing businesses in different ways, depending on the sector, geography and scale of the enterprise.

 

The vision of an inclusive green economy that mitigates climate change and is adapted and resilient to climate risks depends not only on SMEs, but on an ecosystem that supports them to grow. Inclusivity and or community inclusion in sustainable business practices requires collaborative efforts by and among ecosystem players to create an enabling environment in which these enterprises can thrive, and to grow a sustainable social and green economy in South Africa.

 

Through over fifteen years of supporting eco-inclusive SMEs across the world, SEED has drawn insights on the advisory, financial and policy framework conditions that enable eco-inclusive enterprises to start and scale their solutions. The recommendations shared below draw on learnings and conversations from a SEED Practitioner Labs for Policy Prototyping process in South Africa in 2019, where SEED collaborated with the Department of Environment, Forestry and Fisheries (DEFF), Trade & Industrial Policy Strategies (TIPS) and the South African Renewable Energy Business Incubator (SAREBI) to develop innovative policy solutions to strengthen the potential of eco-inclusive enterprises in South Africa’s transition to a green and inclusive economy.

A Call to Action to Support Eco-Inclusive Enterprises in South Africa’s Transition to a Green and Inclusive Economy 

Recommendation 1: Increase (accessibility of) information on market demand

Increased enterprise activity in adaptation to climate change, including exploiting opportunities that arise from adapting to new environmental conditions will result in new markets. Information on the current and expected market size and demand can support enterprises to understand their potential target market and opportunities to scale their product. The provision and dissemination of this information should be facilitated by governments to effectively stimulate and support entrepreneurship.

Access to information on market demand and size reduces the costs of undertaking a feasibility study in a nascent market and mitigates risks in scaling. It also helps the enterprise to identify gaps in supply to meet the demand, leading to business model and product/service innovations.

 

Recommendation 2: Create and reinforce linkages between public and private support programmes

Existing public and private market access programmes for SMEs, supported by corporate incubators, government and intermediaries, can be leveraged to support enterprises to scale. Often, a lack of coordination between these support programmes lead to a valley of death, in which businesses experience a gap in support between the pilot and scaling stage of their enterprise. Equipped with an oversight of the sector and support programmes, policy makers can build pipelines between public and private support programmes, and fill gaps where support is needed.

Different stages of business growth require different support needs – varying types and amounts of funding, mentors, and different markets. At an early pilot stage, businesses need to test their product or service with a core target market to gather feedback and develop a viable product. When scaling, enterprises need to tap into larger distribution channels, supply chains (B2B), and consumer markets (B2C). They might want to diversify their offerings, segment their markets to cross-subsidise or meet a variety of needs through extending their product line. Various support programmes can therefore be pieced together to support an enterprise along its path and ensure transition between programmes.

 

Recommendation 3: Leverage intermediaries as contributors to the implementation and evaluation of policies and adaptation strategies

The integration of enterprise voices into policy design and implementation helps to ensure that programmes and policies are targeted and accessible to their target group. Regular communication with multiple enterprises, however, is difficult for policy makers who often have limited time and resources. Instead, policy makers might leverage the experience and expertise of incubators, accelerators, enterprise support organisations and networks, who can provide insight into enterprise challenges in accessing markets in adaptation-related sectors, and can help to connect enterprises to the appropriate support.

Intermediaries can leverage the expertise of working with multiple businesses and a familiarity with the kinds of challenges they face when accessing markets, and share that information with policy makers. Intermediaries can also facilitate timely feedback from relevant enterprises through their networks. Furthermore, intermediaries can bridge the gap between the policy environment and small business environment by linking the activities of small businesses to the transition to a green and inclusive economy in South Africa.

Think again about the 2030 scenario. In fact, some climate change related impacts have already taken place and adversely affected communities. Month-long droughts affecting most of southern Africa have led to serious food shortages for millions of people. In 2019, farmers in South Africa were experiencing the worst drought in 40 years.

Aqua Green and Projects developed an integrated and streamlined farming technology to grow catfish and crops through a self-designed water pond that can withstand floods and harsh weather conditions. The idea came from an unexpected loss of crops from their farm following a heavy storm that ravaged a small community in the Limpopo province. This eco-inclusive enterprise now helps to improve the livelihoods of the community it operates in through catfish farming and production. It focuses on catfish as it can grow in high densities and is less expensive to farm. The fish is marketed and sold to the local community including middle class and migrant customers. Among other economic, social and environmental impacts, the enterprise is conserving water through the use of aquaculture production systems which re-use water and reduce its loss. Using fish waste fertiliser for its vegetable growing aquaponics system, it helps prevent the use of chemical fertiliser. Aqua Green and Projects is a 2019 SEED South Africa Award Finalist.

Eco-inclusive enterprises are at the centre of global sustainable development initiatives through their resource-efficient and socially inclusive value chains and low-carbon products and services, which help communities to adapt to and mitigate the impacts of climate change. In coordination, ecosystem builders – key stakeholders from the private, public, and social sectors – possess tremendous potential to ensure that eco-inclusive enterprises receive the necessary support to realise their social, economic and environmental objectives and drive the global transition to an inclusive, green economy.

SEED is a global partnership for action on sustainable development and the green economy, based on the understanding that the promotion of social and environmental entrepreneurship is pivotal for environmentally friendly and socially inclusive development and poverty reduction.

We work directly with growing enterprises and aspiring entrepreneurs in our Enterprise Support programmes to strategise, optimise and award achievements in eco-inclusive entrepreneurship. All our participating enterprises receive a comprehensive SEED Support Package of tailored business and capacity-building support, networking, and profiling at the national and international level.

Complimentary to our direct Enterprise Support programmes, we offer programmes to build an ecosystem of supporters and advocators necessary to the success of growing enterprises. Our Ecosystem Building activities fortify a global network of local business development services providers and offer platforms for coordination between key local, national and international stakeholders. Our facilitation of multi-stakeholder engagement through SEED programmes generates policy, financing and collaboration instruments that multiply the social, environmental and economic impacts of entrepreneurship. SEED at the moment works in nine countries around the globe and is hosted by adelphi research. SEED’s programmes in South Africa are founded by the Government of Flanders and the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety.

Indalo Inclusive is a South African non-profit company aiming at strengthening a more environmentally friendly and socially inclusive economy in the country through capacity building, dialogue and policy consulting. Indalo stands for “creation”, “nature” and “ecology” in isiZulu. The Government of Flanders, in partnership with the Department of Environmental Affairs, supports Indalo Inclusive South Africa towards their “Reaping the Potential of Entrepreneurship for a Climate-Smart Inclusive Green Economy in South Africa” project. Indalo partners with the Climate Innovation Center SA and adelphi research on this project which aims to enhance climate resilience in rural communities.

Indalo Inclusive and SEED hosted by adelphi have implemented various programmes to directly support eco-inclusive enterprises and create an enabling environment in South Africa in the last years.