IDC – Parliamentary BriefingIDC – Parliamentary Briefing

Geoffrey QhenaChief Executive Officer

Industrial Development Corporation of South Africa

24 February 2005

Contents

•IDC mandate

•BEE Funding

•SME Funding

•IDC in provinces

•Involvement in Government prioritised sectors

•Conclusion

The IDC mandate

IDC Offices

• Creating employment opportunities

• Fostering entreprenuership

• Development of SME businesses

• Promoting broad based economic empowerment of HDPs

• Promoting industrial development in Africa

• Improving living standards of all South Africans in:

• Poor provinces• Rural areas• Townships

• Promoting women advancement in business

IDC funding instruments

• Equity

• Loans

• Bridging finance

• Wholesale finance

• Export / import finance

• Shareware housing

• Guarantees

These apply for all IDC funding including BEE and SME in all provinces

IDC development basket

• Job creation

• Exports

• Financing SME

• Financing in poor provinces

• Financing BEE

• Financing projects in Africa

• Financing development nodes

• IDC approved over 3 500 applications valued at over R51

billion

• IDC’s investment approvals amounted to R4.8 billion

involving 259 deals in 2003/04

• IDC’s investments as a percentage of private sector

investment activity amounted to 3% (2003/04)

• IDC’s Moody’s credit rating upgraded to Baa1 in Jan 2005

Overview of IDC’s approvalsIDC approvals:July 1995 to June 2004

0

1000

2000

3000

4000

5000

6000

7000

8000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Year

R'million

0

100

200

300

400

500

600Total value of aprovals

Total number of approvals

Number

Jobs and exports generated by province: July 1995 to June 2004

0 5 10 15 20 25 30 35

Free State

North West

Mpumalanga

Northern Cape

Eastern Cape

Limpopo

Kwazulu-Natal

Western Cape

Gauteng

% of total

0 5 10 15 20 25 30 35

% of total jobs created

% of total exports generated

Development impact of IDC’s approvals

• IDC approvals creating 164 400 new job opportunities in last

10 years

• Export earning potential worth R41.2 billion

IDC on BEE Funding

IDC’s position on BEE

• As SA’s largest development finance institution, the IDC remains fundamental to the national agenda to realise BEE objectives namely skills and equity transfer

• To augment these BEE objectives and remain a significant player in BEE funding, BEE is an overarching factor in all IDC’s funding activities

• A more focussed BEE policy reflects IDC’s fundamental BEE funding practices and mandate

• Broad based BEE and advancement of women are central to the overall IDC’s BEE policy

The IDC’s participation in BEE funding is guided by the following imperatives :

• Creation of ownership of businesses for HDP’s

• Management capacity and entrepreneurship through transfer of skills

• Advancement of HDP employees through share and/or profit participation; and

• Adherence to the national BEE agenda, affirmative action and affirmative procurement policies

• Empowerment at IDC is across all IDC funding activities

IDC policy on BEE

IDC’s BEE portfolio

• Since July 1995 the IDC has approved 870 BEE approvals

worth over R9.8 billion

• In 2003/04 financial year alone, 64% of the of the R2.6 billion

approvals were BEE deals

IDC BEE approvals:July 1995 to June 2004

0

500

1000

1500

2000

2500

3000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Year

R'million

0

40

80

120

160

200

240

Total value Total number

Number

IDC’s BEE funding within sectors

BEE approvals by sectors: July 1995 to June 2004

0 3 6 9 12 15 18 21 24 27

Construction

Hotels & restaurants etc

Agriculture, hunting, forestry & fishing

Mining & quarrying

Financial, insurance and business services

Food, beverages & tobacco

Clothing, textiles & leather products

Chemicals & other mineral products

% of total

0 3 6 9 12 15 18 21 24 27

% of total number

% of total value

• IDC BEE funding dominant in Chemicals sector in number

terms (13%)

• BEE funding dominant in Clothing and textile sector in value

terms (9.5%)

IDC on SME Funding

IDC approach to SME

• SMEs viewed as bridging the

gap between first and second

economy

• Deals to the value of over R1

million

• SME funding predominantly in

South Africa

• Credit Committee (which

includes external members)

established to evaluate deals

less than R10 million

• The IDC funding instruments

mentioned earlier are applied

IDC’s SME funding portfolio

• SME transactions worth R12.2 billion were approved involving 2 900 businesses since July 1995

• SME transactions make up 24% of total IDC approvals

SME approvals: July 1995 to June 2004

0

20

40

60

80

100

120

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

% of total IDC number

0

100

200

300

400

500

600SME number as % of total IDC number

Number of SME approvals

Number

IDC’s SME funding within sectorsSME approvals by sectors: July 1995 to June 2004

0 2 4 6 8 10 12 14 16 18 20

Electricity, gas & water supply

Construction

Hotels & restaurants etc

Transport, storage & communication

Community, social & personal services

Electrical & electronic products

Financial, insurance and business services

Mining & quarrying

Wood, paper & printing

Other manufacturing

Wholesale & retail trade

Clothing, textiles & leather products

Machinery & metals products

Food, beverages & tobacco

Chemicals & other mineral products

Agriculture, hunting, forestry & fishing

% of total

0 2 4 6 8 10 12 14 16 18 20

% of total SME number

% of total SME value

• SME transactions dominant within Agriculture sector in number terms (18.2%)

• SME transactions dominant in Chemicals sector in value terms (16.5%)

IDC in Provinces

IDC approach to provinces

• IDC looks for inappropriate

distribution to exploit

opportunities

• Comparative advantage in

sectors

• Addressing market failures

• Capacity building for third tier

Government through

Development Agency

• IDC in discussion with

Provincial Development

Corporations to address:

•Risk management capacity

building

•Training

IDC’s total funding in provinces

IDC approvals by provinces: July 1995 to June 2004

0 5 10 15 20 25 30 35

Free State

North West

Limpopo

Mpumalanga

Eastern Cape

Northern Cape

Kwazulu-Natal

Western Cape

Gauteng

% of total

0 5 10 15 20 25 30 35

% of total number

% of total value

• Gauteng dominant in number of approvals (32% of total IDC approvals)

• Western Cape dominant in value terms (23% of total IDC approvals)

• IDC BEE exposure remains high in Gauteng and Kwazulu-Natal

• IDC making inroads in poorer provinces ie Limpopo

• IDC is aiming at closing expectations gap from BEE companies and operating partners ie. through transfer of skills

BEE approvals by provinces: July 1995 to June 2004

0 9 18 27 36 45

Northern Cape

Free State

Limpopo

North West

Mpumalanga

Eastern Cape

Western Cape

Kwazulu Natal

Gauteng

% of total

0 9 18 27 36 45

% of total number% of total value

IDC’s BEE funding in provinces

IDC’s SME funding in provincesSME Approvals by Province: July 1995 to June 2004

0 5 10 15 20 25 30 35

Free State

North West

Limpopo

Mpumalanga

Eastern Cape

Northern Cape

Kwazulu-Natal

Western Cape

Gauteng

% of total

0 5 10 15 20 25 30 35 40

% of total SME number

% of total SME value

• Most approvals dominant in Gauteng, Western Cape, and Kwazulu-Natal

• Mostly Gauteng & Western Cape import raw materials from other provinces for processing in manufacturing and services, creating sustainable jobs and profitability

• All other provinces which net exporters of primary raw material to urban based provinces (Gauteng and Western Cape) and internationally, hence erratic job creation and profitability

Provincial sector competitiveness

0% 20% 40% 60% 80% 100%

FREE STATE

NORTHERN CAPE

EASTERN CAPE

MPUMALANGA

LIMPOPO

WESTERN CAPE

NORTH WEST

AFRICA

KWAZULU NATAL

GAUTENG

Agriculture

Agroprocessing

Chemicals

Metals

Mining

Other

Services

Textiles

Wood

Steel plantCold rolled steelTourismMineral sandsPersimmonsBiotechnology…

Table grapesPistachio nutsDiamonds…

Carbon blackAutomotive catalystsWood plantations Aluminium smelterRefrigerated containers…

Ferrochrome…

ChemicalsGold…

Aluminium smelterWood plantationsFertilisersMineral sands – titanium oxide…

Stainless steelChemicals…

PlatinumTeaWood plantationsPhosphates…

Paper millsPorcelain tilesX-Ray machines…

IDC exploiting provincial competitiveness

• IDC funding strategy

takes advantage of

provincial sector

competitiveness

IDC’s major projects in the pipeline

IDC’s Development Agencies in provinces

• Agency Development Department was established in 2002

• Total funding value of R14 million through Agencies

IDC involvement in Government

prioritised sectors

•IDC is taking advantage of

opportunities in:

•Agriculture

•Mining

•Tourism

Maximizing the above sector

potential for Job Creation, BEE,

SME, Geographic spread and

rural development

Maximising priority sectors’ opportunities

Examples of deals include:

• Keboes Fruit Farms (Agriculture)

• Rustenberg Minerals (Mining)

• Chuene Resort (Tourism)

Keboes Fruit Farms

• Technical• Marketing

• 1200 jobs created• Empowerment & training strategy

in place

Project Fact SheetSector: Table Grapes

Town: KakamasProvince: Northern Cape

IDC & RCF Exposure: R49 mJobs created: 1200

Export oriented: Yes

Karsten Boedery(Pty) Ltd

Keboes FruitFarms (Pty) Ltd

Workers’ Trust

BMFI (Pty) Ltd

IDC warehouses shares(19.6%)

• Managerial involvement• Overseeing empowerment & Training

RCF warehouses shares

25%

50%

25%

Rustenberg Minerals

Project Fact SheetSector: Mining

Town: PilanesbergProvince: North-WestIDC Exposure: R9.1 m

Total transaction value: R26 m

Jobs created: 132

Africa Mining Trust

Rustenberg Minerals Development

Corporation (Pty) Ltd

Mampa Investment (Pty)

LtdIDC warehouses shares

(19.6%)

• Managerial involvement• Access to existing

infrastructure• Overseeing training and

procurement for the benefit of local communities

Development Impact

• 132 jobs created• Broad based Empowerment• Compliance with Mining Charter

• Provides technical expertise

• Marketing• Transfer of skills

44%

56%

Chuene Resort

• 28 jobs created• Broad Empowerment in place

Project Fact SheetSector: Tourism

Town: PolokwaneProvince: Limpopo

IDC Exposure:R1.85mJobs created: 28

Investment facilitated: R3m

LIMDEV

Chuene Resort

Chuene Community

Bally Chuene45%

30%

25%

Conclusion

- monitoring developments in a dynamic environment (global & national fronts)

- challenge: being flexible to quickly respond to change

- achieving its goals of prosperity for all

• Focus on Government’s policy

objectives (BEE, SME, Rural and

Women Development)

• Apply a commercial approach based

on sound business principles

• Provide a unique combination of

resources (capital & knowledge)

• Gearing itself for the future by :

In conclusionIDC will continue to ….

THANK YOU