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NEF eyes fuel sector: talks to expand black participation

The fuel sector has been identified as one offering promising prospects as it has continued to show growth despite the economic slowdown, the National Empowerment Fund’s (NEF’s) Moemise Motsepe said.

In an effort to boost the participation of black entrepreneurs in the liquid fuel industry, the NEF has already assisted in the acquisition of 77 petrol station franchises, many run by women.

The fund is engaged in negotiations with major oil companies, including Shell, Engen and Total, to expand their participation in the project to promote black entrepreneurs in the sector on the same basis of its agreement with BP.

The talks with the oil companies are also focused on expanding black participation in fuel storage, fuel wholesaling and supply, as well as in management.

Franchising is regarded by the fund as a suitable vehicle for black entrepreneurship as the franchisor normally offers a range of support such as training and entrepreneurial assistance.

The NEF has used R709-million to fund the purchase of 209 franchises in various sectors, with R408-million of this channelled towards the purchase of petrol station franchises. Of the 77 NEF-funded acquisitions, 37 are owned by women.

As there are more than 5000 petrol stations countrywide – about 73% of which are owned by whites – the scope for expanding black participation is considerable.

In terms of the NEF’s agreements with Engen, Total and Shell, the oil companies pre-approve potential candidates for franchises and the NEF assesses the viability and profitability of the identified service stations.

If they are well located, the NEF will advance a loan to the franchisee. It wants to expand this cooperation with the oil companies to unlock opportunities in other parts of the fuel sector as well.

The agreement with BP involves BP entrusting the NEF with the management of its entrepreneurial development fund of about R13-million to fund the purchase of franchises, as well as R25-million for supplier development.

The fund is used to advance 40% of the purchase price of a franchise as a soft loan with an interest rate of about 5%, with the NEF advancing the remaining 60% of the capital requirements as a normal loan with an interest rate linked to prime.

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