Setting up an Aquaculture Business can be an expensive exercise and is not for the faint hearted. You need to acknowledge that it represents a significant business decision that requires not only a serious commitment but also time. Just like any other business venture, it requires a detailed feasibility study before investment decisions are made. Anything less than that puts you in the category of hobby farming, which is an excellent lifestyle choice but may not earn an income.

The perception of Aquaculture, in the case of marine aquaculture, as an appealing lifestyle choice is a common belief and possibly fuelled by our preference for living near the coast. This has led on occasions to emotional rather than hard economic reasons driving what can be a ‘make or break’ financial decision. In retrospect, it appears that there are a number of conceptual hurdles at which the prospective aquaculturist may stumble.

In South Africa the hurdles are:

1. ignorance of the fact that aquaculture is a farming business enterprise that requires high quality Business Plans and planning
2. access to sites approved for aquaculture ventures
3. environmental impact assessments (EIA’s) necessary before starting an aquaculture venture
4. access to capital
5. time involved with the application/licensing process
6. failure to understand that the product is a living organism with special water quality and production system requirements
7. market intelligence
8. lack of knowledge of species listings in the Biodiversity Act/NEMBA
   

In order to avoid some of the above pitfalls, any intending farmer should consult a wide range of expert advice before making any hard and fast decisions.

• Excellent sources of information are AISA, AASA (Aquaculture Association of Southern Africa) and the particular industry species groups/associations/workgroups which run annual meetings (see the ‘Industry Bodies’ page)
• Aquaculture regulation and management is largely a government responsibility where information on licensing and permit requirements should be available (see the ‘Permits & Legislation’ page as well as the ‘Relevant Government departments’ page).
• Basic information on species biology, research and training possibilities are available at some of our Tertiary Education Institutions (see the ‘Training & Academia’ page)
  
  

The following checklist of questions is provided as a self-guiding primer for the would-be farmer.

Economic Questions:

• Do you have a realistic business plan containing all relevant information required by financial and government institutions for speedy approval?
• Can you secure sufficient capital at a reasonable interest rate?
• Does your management team have sufficient management and financial skills to help manage the farm?
• Have you made a realistic assessment of the timing and scale of expected returns on your investments?
• Do you have adequate cash reserves for unanticipated costs such as equipment and/or crop loss?
• Are you aware of the various government grants/schemes available?

Site selection:

• Is the proposed site in a region zoned as suitable for aquaculture?
• Does the site have a site-topography suitable for proposed design?
• Does the site have sufficient and acceptable water supply?
• Is there adequate room for intended use plus future expansion?
• Does the site have acceptable potential for effluent disposal?
• Does the site have a climate suitable for the intended species (which should be natural to the area)?
• Is the access to services, technical assistance and public infrastructure such as roads?

Species selection:

• Is the species suited to the local climate conditions/extremes
• Is it native to the area and have you consulted the authorities/Biodiversity Act?
• Do you understand the basic needs of the species in order to build it into management plans?
• Have you been in touch with an industry representative about information change?
• Is there a market for your species (local or international)?
• Have you explored the various production strategies available?
• Do you or your business partner have the necessary technical experience? If not, are you prepared to employ someone who does?
• Are you intending to spawn and grow? If not, are dependable sources of juveniles readily available locally?

Market intelligence:

• Have you identified your market and will you be able to supply at demand the required quality?
• Have you examined the existing situation with respect to market size and demand, along with the level of competition?
• Have you determined the form in which you will market your product and are you aware of the required standards?
• Can you supply product to your market on a regular basis throughout the year?
• Do you have the means to harvest, handle hold and transport the product?
  

Socio-legal considerations:

• Is the development of an aquaculture facility at your site acceptable to neighbours/community and other who may use the region?
• Have you discussed your plans with the relevant government authorities?
• Are you aware of the required permits to be obtained, can you obtain the permits for an extended period of time or do they have to be renewed frequently?
• Is the development of an aquaculture facility at your site acceptable to neighbours/community and other who may use the region?
• Have you discussed your plans with the relevant government authorities?
• Are you aware of the required permits to be obtained, can you obtain the permits for an extended period of time or do they have to be renewed frequently?

The Red Door Initiative of the Western Cape Department of Economice Development and Tourism provide assistance with the following:

• Write a business plan
• Identify and fix the weak points in your business
• Find access to finance
• Get affordable support from our network of business service providers
• Find accountants and lawyers
• Improve your business skills
• Learn how to apply for and win government tenders
• Find out about government incentives
• Find out about client relations, marketing and research
• Learn about how to import and export
  

• Internet access
• Small conference rooms
• Ongoing access to mentors
• Community entrepreneurship outreach programmes to the youth, women, emerging farmers and people with disabilities.
  

• For Financial assistance from the Department of Trade and Industry (DTI), go to www.thedti.gov.za under the section 'Offerings'.

• For Financial assistance form the Industrial Development Corporation (IDC), go to www.idc.co.za under the 'How the IDC can help/Financial Products'. There is also a section 'Competitive Financing for Development'.

Click here to find out how to apply for funding and what they require from your business plan

• For Financial assistance from the Small Enterprise Development Agency (SEDA), go to www.seda.org.za under the 'Financing' section

Financing for BEE start ups - A snippet taken from the Newsletter TradeInvestSA

Thabiso Mochiko looks at how the South African government uses a number of institutions to make funds available for the development of mainly back-owned businesses

Many black economic empowerment players (BEE) and entrepreneurs will tell you that finding start-up capital was one of the major hurdles they faced, as they have previously relied on retail banks, which often turned away their business plans.

But now, unlike 15 years ago, there are more funding options for black entrepreneurs to enter sectors that were previously dominated by white people, either through BEE or starting their own businesses. In most cases those entrepreneurs graduate to become BEE players.

The government’s plan to empower previously disadvantaged people has resulted in the formation of state-owned funding institutions such as the Industrial Development Corporation (IDC), the National Empowerment Fund (NEF), Umsobomvu Youth Fund (UYF), Khula Enterprise and the Business Partners as well as Ithala Development Finance Corporation.

The South African government has committed R1.7-billion in the financial year 2007/08 for these institutions, to ensure more funds are available for the development of mainly black-owned businesses.

Who are these state-owned funders?
UYF is a youth-focused investment fund whose mandate is to create a platform for skills development and job creation for young people between the ages of 18 and 35 years. It also offers seed capital to young entrepreneurs who want to pursue business opportunities in various sectors, including information technology, construction, as well as franchises.

It provides loans from R100 000 to R8-million through its small or medium enterprise financial programme and micro-finance programme loans of between R1 000 and R100 000. It also provides training and a online platform for the youth to seek employment and also register their businesses.

UYF has formed a youth franchise partnership programme with Business Partners to fund franchise opportunities for young people. Although UYF was initially established to empower black people, its chief executive Malose Kekana said recently that the organisation planned to set aside 5% of its budget for poor white youth.

The UYF has currently budgeted R180-million for small, medium and micro enterprises, and a further R80-million for business support programme. UYF does not fund BEE transactions.

Then there is Khula Enterprise, whose focus is for the development and financing of small businesses. Khula Enterprise does not finance directly to small medium enterprises (SMEs) but provides wholesale finance to the small business sector in three ways: It facilitates bank loans on behalf of SMEs that lack the required collateral; secondly, it lends money to small business finance organisations that lends to small businesses and lastly it has a lending fund that is run by Business Partners to help start-up business. But now, Khula plans to lend directly to SMEs.

On the other hand there is Business Partners, whose main mandate goes beyond funding and training for formal sector SMEs. It also provides consulting, mentorship and property management to its clients. Its average investment is between R500 000 and R7-million. Their investments are structured using equity shareholders, loan accounts, royalties and term loans or combination. It also funds BEE transactions from R1-million up to R4 -million. Business Partners approach on BEE financing differs from some of its counterparts because it only funds BEE transactions in which black investors are involved in the business full time, to ensure that empowerment is real and that value is being added to the business.

Although Khula, IDC, Umsovombu and its counterparts IDC and NEF’s mandate spreads around the country, KwaZulu-Natal decided to have its own finance institution, Ithala Development Finance Corporation, to focus on uplifting black entrepreneurs and unbanked people in KwaZulu-Natal province. It offers a range of financial and property services as well investment services such as insurance, savings, deposits and loans and funeral schemes. It focuses on industries such as manufacturing, commerce, tourism, agri-businesses, savings, housing and insurance. It also buys equity in mainly KwaZulu-Natal-based entities and lends money to empowerment players for BEE transactions.

The IDC and NEF facilitate BEE deals by providing funding capital. However, in some cases they buy equity on behalf of BEE players.

IDC’s start-up capital differs from sector to sector but can start from as little as R500 000, and rise up to more than R1-billion for major investments.

It focuses on sectors such as mining, steel, energy, construction, media and motion pictures, franchising, transport and financial services, food beverages and agri-business and also holds shares in some JSE-listed companies.

The IDC plans to reduce its holding in mining and steel to free up money to invest in healthcare, tourism and technology. It also plans a massive R15-billion investment to assist companies that seek to be part of the 2010 World Cup developments.

NEF funding capital starts from R250 000 and goes up to R50-million and funds BEE deals in major sectors, including information technology, pharmaceuticals and telecommunications. NEF has so far approved business deals worth R624-million. NEF plans to help black-owned SMEs form partnerships with international companies to take advantage of the World Cup opportunities. It will offer bridging finance, asset finance or term loans to those SMEs.

Repayment period
The repayment period of these funds vary according to investment structured between companies. The minimum repayment period that some of these institutions give is five years. Interest is linked to the prime lending rate. However, interest can be structured according to clients’ risk profiles and to the performance of the company’s share price.

NEF and IDC approach is either to buy the shares on behalf of the BEE shareholders for a minimum of three years until the companies are able to buy back those shares, or in some cases they warehouse those shares and sell them to other BEE entities.

For assistance with writing a Business Plan, visit:

1.  www.idc.co.za, read the section 'Guide to writing a Business Plan'

2.  www.businesspartners.co.za, go to 'Business info' and read the section 'Business Plan'