Bridging the “missing middle” for green small and growing businesses in South Africa: The case of the Green Outcomes Fund

Dobson, Blaise

Bridging the “missing middle” for green small and growing businesses in South Africa: The case of the Green Outcomes Fund

Master Thesis

2019

Abstract

Climate change poses numerous challenges for emerging economies whilst, if framed as such, also holding promise for economic opportunity. South Africa’s economic history has benefitted from abundant fossil fuel resources, with the result that it has grown into Africa’s leading greenhouse gas (GHG) emitter and one of the continent’s largest economies. Meanwhile, the Intergovernmental Panel on Climate Change (IPCC) Special Report on Global Warming of 1.5°C (IPCC, 2018a) argues that the world needs to transition towards a net zero GHG emission scenario by 2050 in order to remain within safe climatic bounds. Transitioning the South African economy towards a net zero emissions orientation is a significant challenge given the country’s historical reliance on fossil fuel sources, vested economic interests in the minerals-industrial complex, and socio-economic considerations for South African workers. Realigning capital allocations to achieve this transition is necessary to grow new businesses that can assist in creating net zero emission jobs and production, and to replace existing businesses that are unable to adapt to the net zero emission constraint. To this end, this study elucidates the barriers faced by South African green “small and growing businesses” (SGBs) in accessing capital to expand. It analyses the typical business lifecycle, financiers’ roles within the chain of finance - the J-curve - and the investment gaps that exist which could impede green SGBs from growing into mature, private or publicly listed companies. Through an analysis of primary documentation and key informant interviews, the study outlines the challenges faced by early-stage financiers investing in South African green SGBs using the Green Outcomes Fund as an instrumental case study. The research highlights a gap for early venture capital investments into green SGBs in South Africa between approximately ZAR 5‒22 million (USD 360 000‒USD 1.584 million) and makes a contribution towards the theory as to how this gap may be closed. South African policy makers can take on board the challenges faced by green SGBs and their financiers to tailor specific funding offerings supported by the public and private sector (e.g. the South African SME Fund). Moreover, failure to nurture and scale green SGBs will impede South Africa’s transition to a net zero emissions economy.

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