The Role and Functions of the Alternative Exchange ( AltX) and its Contribution to the Development of Small and Medium -Size Enterprises (SMEs) in South Africa By XOLISA MTIKI 09 FEBRUARY 2017

CONTRIBUTION OF SMEs SECTOR TO THE SOUTH AFRICAN ECONOMY Formal SME Sector Contribution in the Emerging Economies 45% of overall employment (World Bank, 2015) 33 % of National Income (GDP) (World Bank, 2015) Formal SME Sector Contribution in the South African Economy 2.3 million SMEs (formal & Informal) ( StatsSA, 2015) 57% of National Income (GDP) (StatsSA, 2015) 61% employment contribution (Bureau of Economic Research , 2015)

PROVINCIAL CONTRIBUTION by SMEs Table 3.5: SMEs by Province   SMEs (2015) Province  Total Formal Informal Other 2 251 821 667 433 1 497 860 86 528 Western Cape 230 324 110 107 110 188 10 030 Eastern Cape 197 366 50 670 141 739 4 957 Northern Cape 20 611 8 534 9 058 3 019 Free State 96 846 26 224 60 816 9 806 KwaZulu-Natal 373 434 74 976 283 165 15 293 North West 112 856 27 430 79 153 6 273 Gauteng 785 321 306 231 465 100 13 989 Mpumalanga 185 399 35 208 141 129 9 063 Limpopo 249 663 28 054 207 512 14 098 Source: Statistics South Africa and Bureau of Economic Research (2015)

SMEs CHALLENGES IN SOUTH AFRICA Source: The South Africa Institute of Chartered Accountants (SAICA)(2015)

WHAT IS THE JOHANNESBURG STOCK EXCHANGE (JSE) ? A market where shares bought and sold Place where primary capital raised by listed companies A company owned by its shareholders

JSE REGULATORY FRAMEWORK Financial Service Board: Non Banking Financial Services Sector Capital Markets Insurance Houses Retirement Funds Collective Investment Schemes Friendly Societies

FUNCTIONS OF THE EXCHANGE To raise capital. To assist businesses to establish or expand their businesses. Provision of an orderly market. To facilitate the secondary trade of listed securities between buyers and sellers, in terms of Rules and Regulations of the JSE, with due protection for all parties concerned .

LISTING CATEGORIES Main Board Development Boards: Development Capital Market (DCM) – 1984 Venture Capital Market (VCM) – 1989 Alternative Exchange (ALTX) 2003 Currently only 2 boards exists: 1. JSE Main Board 2. Alternative Exchange (AltX)

DCM, VCM, AltX and MAIN BOARD REQUIREMENTS Listing requirements  Main Board DCM VCM AltX Share capital R25 million R1 million R500 000 R2 million Profit history 3 years 2 years None Pre-tax profit R8 million N/A Number of shareholders 500 75 100 Sponsor/DA Sponsor JSE Sponsor Designated advisor Special requirements Appoint financial directors Education requirements All directors to attend Directors Induction Programme Source :Johannesburg Stock Exchange (2003)

THE ALTERNATIVE EXCHANGE (AltX) Establishes in 0ctober 2003 as Exchange for SMEs Partnership between Department of Trade and Industry (DTI) and JSE Role and Functions of AltX Act as an incubator for the Development of SMEs in South Africa Allows the SMEs to raise capital Provides an opportunity for investors to invest in small high growth companies Prepare the SMEs readiness for migration to JSE main board

THE ALTERNATIVE EXCHANGE (AltX) continue….. AltX improvements compared to DCM and VCM Designated advisor (Bridge Capital) Appoint financial directors All directors to attend Directors Induction Programme FTSE/AltX 15 Index Liquidity

THE ALTERNATIVE EXCHANGE (AltX) continue… Source: JSE (2015) In, 2015 AltX raised R33,9 billion (AltX 2015) 25% have migrated to JSE main board since establishment (Cheyne, 2015). 29 companies have delisted since its inception (Cheyne, 2015)

Has the AltX achieved its intended purpose successfully ? Based on its performance it has allowed SMEs listed on the AltX board to: raise their profiles; raise capital; secure better quality deals and employ more people ; Greater contribution to South African Economy However, government , private sectors and other stake holders need to do better in assisting SMEs in South Africa.

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