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Presentation to Parliamentary Committee on Economic Development

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Title: Presentation to Parliamentary Committee on Economic Development


1
Presentation to Parliamentary Committee on
Economic Development
  • Geoffrey Qhena
  • CEO
  • 13 October 2009

2
Contents
  • Section 1 IDCs capacity to fulfill its mandate
    as agreed to in the Framework for Governments
    response to the international economic crisis
  • Section 2 Analysis of IDCs funding

2
3
IDCs capacity to fulfill its mandate as agreed
to in the Framework for Governments response to
the international economic crisis
4
Summary of IDCs role in implementing the
framework
  • Investment in public infrastructure
  • IDC allocated R3.7 billion to infrastructure
    projects for the 2010 financial year (R2.6
    billion utilised in the previous financial year).
  • Used primarily to fund private participation in
    public, private partnerships.
  • Also used for funding infrastructure projects in
    the rest of Africa.
  • Working together with SOEs to ensure that the
    local benefits of their investment plans are
    maximised.
  • Industrial and trade policy measures
  • Participation in sector task teams considering
    the automotive and capital equipment industries,
    as well as ongoing participation in textiles task
    team set up ahead of the crisis.
  • Overall, R11.4 billion were budgeted to be
    approved for investment in 2010 (R10.8 billion
    utilised in 2009).
  • Subsequently increased to R12.6 billion, mainly
    as a result of additional demand for expansions.
  • R6.1 billion made available over two years
    specifically to assist companies in distress as a
    result of the economic crisis.
  • R 2.9 billion in 2010 and R3.2 billion in 2011.
  • Participating in development of scaled up
    Industrial Policy Action Plans.

4
5
Summary of IDCs role in implementing the
framework (continued)
  • Employment measures
  • Saving jobs is a prominent consideration in
    assessing distressed firms applications for
    funding.
  • Target for jobs created and saved increased to 38
    000 compared to the 26 700 achieved in 2008/09.
  • Social partnership in response to the crisis
  • Active participation in the Investment and
    Financing and Distressed Sectors Task Teams set
    up to facilitate coordination and implementation
    of the framework.

5
6
Update on IDC fundingDistress funding approvals
  • R485 million approved for 14 distressed companies
    in 2008/09 financial year.
  • From April to September 2009, R993 million have
    been approved for 15 companies (includes 1
    approval outside South Africa).
  • Approvals in current financial year expected to
    save c.a. 5 400 jobs.
  • 16 existing clients had funding restructured in
    the current financial year.
  • 13 funding applications (R305m) have been
    rejected largest portion as there were no
    indications that the company could be sustainable
    in the long-term.

Funding approvals to distressed companies
Province/Country Number of Companies Assisted
Western Cape 5
Gauteng 3
Eastern Cape 1
KwaZulu-Natal 3
North West 1
Mpumalanga 1
Mozambique 1
7
Update on IDC fundingDistress funding pipeline
Applications for funding from distressed
companies (end September 2009)
  • 33 applications to the value of R2.3 billion
    currently in the pipeline.
  • Stage of application
  • Basic assessment 24
  • Due-diligence 9
  • Large portion resides in a few large applications
    in the automotive industry.

Sector R'million
Forestry 5
Mining 559
Manufacturing of
Textiles and clothing 20
Chemical products 3
Non-metallic mineral products 50
Metal products 54
Automotive (OEMs and components) 1 482
Other manufacturing 15
Construction 1
Franchised outlets 14
Transport services 117
Telecommunication 20
2 340
8
Conditions attached to approvals
  • Some conditionalities attached to approvals for
    distressed funding (done on a case-by-case
    basis)
  • Management remuneration
  • Payment of dividends
  • Repayment of shareholders loans
  • Existing shareholders disposing of their
    shareholding
  • Payments to creditors
  • Capital repayment of bank loans
  • Job losses.

8
9
Progress in addressing constraints
  • Financial
  • IDCs ability to raise funding not as adversely
    impacted by lower liquidity as suspected at the
    start of the financial year.
  • Has been able to raise funding from traditional
    sources, albeit at a higher cost compared to
    previous years
  • Have been exploring avenues to raise funding from
    non-traditional sources.
  • Finalising first private bond placement
  • Preparing for domestic public bond issues.
  • Several other options are being explored.
  • Profits still expected to be severely impacted,
    largely as a result of impairments of
    investments.
  • Assessing different scenarios to determine the
    impact of increased IDC funding on its
    sustainability submitting to Board for
    discussion at the end of October
  • Human
  • Filling vacancies.
  • Temporarily redeploying people to units with
    higher demand when the need arises.
  • Investigating option of utilising contractors on
    a part-time basis if demand increases.

10
Analysis of IDCs funding
11
Analysis of Approvals
Total Value and Number of Approvals
  • R3.4 billion approved in the six months to
    September 2009, marginally higher than in the
    corresponding period in the previous year.
  • Despite tough economic conditions, 72
    transactions have been approved in the current
    financial year.

12
Regional activity (2008/09)
  • Examples of funding approvals
  • Eastern Cape
  • An additional eight emerging citrus and
    pomegranate farmers supported in the Kat River
    Valley, in rural Eastern Cape (R28 million).
  • Funding for a textiles companies specialising in
    speciality plastic coated textiles (R29 million).
  • Funding for the construction of a fully
    black-owned five star hotel in Port Elizabeth
    (R157 million).
  • Funding for the expansion of an East London based
    manufacturer of flat screen televisions. (R64
    million).
  • Kob (kabeljou) mariculture project in the East
    London Industrial Development Zone (IDZ).
    Pioneering the development of hatchery/spawning
    technology and land-based recirculation systems
    for the sustainable production of indigenous
    marine finfish (R20 million).

Split of value of IDC approvals by province
12
13
Regional activity (2008/09) (continued)
  • Examples of funding approvals (continued)
  • Free State
  • Wholesale funding benefiting emerging farmers (R3
    million).
  • Manufacturing of concrete products in Botshabelo
    (R1.3 million).
  • Additional funding for nut farms (R39 million).
  • Assisting a black entrepreneur to acquire a
    petrol station in Kroonstad (R2.4 million).
  • Gauteng
  • Assisting the expansion of a manufacturer of
    washing powder competing successfully with large
    multi-nationals across Africa (R167 million).
  • Funding for an emerging construction company
    assisting with stadium upgrades for the 2010
    World Cup (R20 million), several other
    construction companies fulfilling government
    contracts assisted.
  • Manufacturer of plastic products (R6.5 million).
  • Investment in an enterprise that produces zircon
    sand and beneficiates it into speciality
    chemicals with applications in high value added
    products (R40 million).
  • Joint venture with the CSIR in the development
    and commercialisation of a controlled-release
    technology for use in the pharmaceutical, sport
    nutrition, animal feed and food industries (R3
    million).
  • Development of the local aerospace cluster
    through additional funding and support of one of
    the lead partners in the industry (R20 million).

13
14
Regional activity (2008/09) (continued)
  • Examples of funding approvals (continued)
  • KwaZulu-Natal
  • Working capital provided to a large manufacturer
    and exporter of earth moving equipment impacted
    by the economic downturn in KwaZulu-Natal.
  • Funding for the manufacturing of bio-ethanol
    based cooking gel in Pinetown (R1.4 million).
  • Support for a manufacturer of date juice in
    Durban (R17 million).
  • Continuing support for a project in the rural
    area of Winterton to use Kenaf fibre in the
    construction industry (R15 million).
  • Further funding for a raspberry project close to
    Charlestown (R11 million).
  • Limpopo
  • Establishment of a private hospital catering for
    rural community in Lebowakgomo, Limpopo (R35
    million).
  • Funding black empowerment in an atchar processing
    business (R23 million).
  • Platinum mining near Lebowakgomo (R142 million).
  • Funding to a cultural tourism lodge in
    Modjadjiskloof (R3.5 million) and a guest house
    in Polokwane (R4 million).
  • Additional funding for the manufacturer of
    wood-plastic composite materials in the rural
    area near Nkowakowa (R1 million).

14
15
Regional activity (2008/09) (continued)
  • Examples of funding approvals (continued)
  • Mpumalanga
  • Brick manufacturing in Malelane (R3 million).
  • Construction company building housing (R2
    million).
  • Manufacturing of plastic products in Nelspruit
    (R11 million).
  • Funding for the processing of vegetable oil close
    to Delmas (R47 million).
  • Assisting black entrepreneurs to enter the
    macadamia and pecan nut industry (R3.3 million).
  • Continued support for a platinum mine (R136
    million)
  • Additional funding for the manufacture of wood
    pellets for electricity generation (R10 million).
  • North West
  • Additional funding for a berry project close to
    Hartebeespoort (R10 million).
  • Wholesale funding to support emerging farmers in
    the Brits area (R100 million).
  • Additional funding to a groundnut processing firm
    (R7 million).
  • Support for a manufacturer of steel bars (R5
    million).
  • Funding for a game lodge near Bakubung Dam (R33
    million)

15
16
Regional activity (2008/09) (continued)
  • Examples of funding approvals (continued)
  • Northern Cape
  • Co-funded exploration activities of two BEE
    parties establishing iron ore mines (R286
    million).
  • Funding of a project to mine and process export
    quality manganese ore in Hotazel (R260 million).
  • Western Cape
  • Additional support for a berry project close to
    George (R14 million).
  • Roll-out of franchised supermarkets in township
    areas (R104 million).
  • Funding approved to a manufacturer of household
    textiles, saving more than 500 jobs (R29
    million).
  • Ongoing funding to expand the domestic
    boat-building industry in Atlantis (R48 million).
  • Additional support for the fishing industry in
    Hawston (R3 million).
  • Manufacturer of veneer products in Brackenfel
    (R10 million)

16
17
More equitable regional economic activity
(continued)
Approvals to businesses in rural areas
  • Other areas of regional development (2009/10)
  • 44 approvals to the value of R1.1 billion in
    rural areas.
  • 27 approvals in townships
  • Includes franchised retailers, construction
    companies, concrete products.

17
18
Analysis of Approvals (continued)
Approvals to SMEs
  • Number of SMEs funded as a percentage of total at
    more or less 69, except for 2008.

19
Analysis of Approvals (continued)
Sectoral Distribution of Approvals
  • Sectors that have received the most funding in
    the previous financial year were
  • Mining
  • Infrastructure

20
Thank you
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