Implementing IPAP IDC

1
Implementing IPAPIDCs Support for the
Implementation of the Industrial Policy Action
Plan

• Geoffrey Qhena
• CEO
• Presentation to the Portfolio Committee on Trade
  and Industry
• Cape Town
• 12 May 2010

2
IPAP

• Takes the initiative to coordinate activities of
  different government departments, agencies and
  state owned enterprises towards the goal of
  industry development and ultimately job creation
  and poverty eradication
• Address pertinent issues such as public sector
  procurement as well as trade policies aligned to
  industrial development
• Sector priorities take into account South
  Africas diverse economy and create a balance
  between creating and growing new sectors and
  stabilising and rejuvenating the existing
  industrial base.

3
IPAP Focus Areas

• Industrial Financing
• Leveraging Procurement
• Developmental Trade Policies
• Competition Policy
• Sectors
• Metals fabrication, capital and transport
  equipment
• Green and energy saving industries
• Agro-processing
• Automotives, Components, Medium and Heavy
  Commercial Vehicles
• Downstream Mineral Beneficiation
• Plastics, Pharmaceuticals and Chemicals
• Clothing, Textiles, Footwear, Leather
• Biofuels
• Forestry, Paper Pulp, Furniture
• Business Process Outsourcing
• Advanced Manufacturing

Areas of direct IDC impact
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IDC Identified to Contribute to

• Sector Specific Plans
• Metal Fabrication, Capital Equipment And
  Transport Equipment
• "Green" and energy saving industries
• Downstream Minerals Beneficiation
• Plastics, pharmaceuticals and chemicals
• Clothing, textiles, footwear and leather
• Biofuels
• Forestry, timber, paper pulp and furniture
• Cultural industries crafts and film
• Business process outsourcing
• Advanced Manufacturing
• Industrial Financing
• Securing ongoing sources of concessional funding
  for disbursement by the IDC into priority
  productive sectors
• Leveraging Procurement
• Strengthening the role of DFIs in locking in
  domestic and regional procurement
• Competition Policy
• Ensuring competitive outcomes

5
IDCs Approach to Implementing IPAP
Internal project development
Strategy development
Project development
Funding
Implementation

• Construction
• Commissioning
• Full production
• Aftercare

• Raise additional funding
• Investment decision

• Industry research
• Identify opportunities
• Develop an IDC approach
• Consult with stakeholders

• Scoping
• Feasibility studies
• Detailed design
• Environmental impact assessment
• Marketing studies
• Financial modelling
• Identify/attract partner (s)

The project development approach allows IDC to
play the role of an entrepreneur in cases where
the market does not respond to potential
opportunities
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IDCs Approach to Implementing IPAP (continued)
Providing funding for applications
Strategy development
Product development and marketing
Funding
Implementation

• Aftercare

• Investment decision

• Industry research
• Identify opportunities
• Develop an IDC approach
• Consult with stakeholders

• Review funding requirements of businesses in
  sector
• Design new product(s) where required
• Marketing
• Assess applications

Providing funding for applications is an
appropriate tactic where entrepreneurs are
entering the market, but cannot raise the
required funding from commercial institutions
7
IDCs Key Sector Development Interventions

• Green Industries, Including Renewable and Energy
  Efficiency
• Renewable energy generation
• Bio-ethanol, biomass, solar, wind, hydro
• Manufacturing of components and products
• Resource/waste management
• Energy management
• Venture capital funding for cleaner technologies
• Metal Fabrication, Capital and Transport
  Equipment
• Basic metals
• Creating capacity to supply to SOEs i.t.o.
  procurement programmes
• Automotives, Components, Commercial Vehicles
• Electric car
• Potential for bus/commercial vehicle plant
• New capacity at existing OEMs
• Component manufacturers
• Chemicals, Plastics and Pharmaceuticals
• Liquid fuels
• Beneficiation of chemical feedstock
• Plastics

8
IDCs Key Sector Development Interventions
(continued)

• Textiles, Clothing, Leather and Footwear
• Interventions to stabilise IDCs existing clients
• Increasing competitiveness of SAs industry
• Management of Clothing and Textiles
  Competitiveness Programme (CTCP)
• Agro-Industries
• High value agriculture crops
• Berries, pomegranates, citrus, orchards,
  vineyards
• Grain and oil-seed value chain
• Support to resource poor farmers
• Horticultural value addition fruit canning,
  pectin
• Regional food security
• Advanced Manufacturing
• Advanced materials titanium
• Aerospace
• Electronics set-top boxes
• Forestry, Pulp and Paper
• Forestry expansion
• Potential for additional player in pulp industry
• Contributing to furniture strategy formulation
  and participation in furniture task team

9
IDCs Key Sector Development Interventions
(continued)

• Cultural Industries and Tourism
• Arts and crafts
• Adventure and sport tourism
• Medical tourism
• Motion pictures production and audience
  development
• Business Process Outsourcing and Other Services
• BPO park development
• Shipping
• Hospital development
• Minerals Beneficiation
• Manganese
• Platinum
• Polysilicon
• Industrial Infrastructure
• Electricity
• Water
• Transport

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Example Chemicals, Plastics and Pharmaceuticals
To have a globally competitive chemical sector
that produces high value-added products from
available natural resources. The establishment of
new/infant industries and the security of supply
of pharmaceuticals.
Industry Goals
Establishment of 2 industrial plants by 2015
consuming at least 20 of raw materials
establish a downstream industry hub around 1 of
these plants within 10 years thereafter
Domestic beneficiation of an additional 40 000
tpa polypropylene
Establish new liquid fuels capacity with the
intention to benefit downstream industrial
development
Develop a 400 tpa active pharmaceutical
ingredient plant by 2013
IDC Goals
Beneficiation of Chemical Feedstock
Plastics
Liquid Fuels
Pharmaceuticals

• Target the primary production of mineral and
  upstream feedstock, where economically feasible
  such that raw material is made available at
  competitive terms in order to develop industrial
  capacity for localised beneficiation of value
  added products

• Broaden and deepen the petrochemicals value
  matrix by increasing value addition for plastics
  products

• Target the potential establishment of the Coega
  Oil Refinery and Waterberg coal to liquids
  projects to leverage further downstream
  development and establish chemical complexes

• Address current and anticipated shortage of
  active pharmaceutical ingredients and
  anti-retrovirals in South Africa by developing a
  local manufacturing industry

Key Strategies

• EIA process not streamlined to reduce lead time
  for strategic projects
• Issuing of water licenses and other permit
  processing not streamlined
• PFMA related approvals for certain projects not
  streamlined
• Government procurement for locally produced
  anti-retrovirals
• Licenses for production of APIs not granted.

Potential Constraints
11
Recent Funding Approvals Supporting IPAP Sectors

• Solar electricity generation
• R33 million approved to determine the feasibility
  of establishing up to 450MW of solar generating
  capacity in the Northern Cape. Includes both
  solar thermal and photo-voltaic projects.
• Additional projects to manufacture components
  needed in the establishment of generation
  capacity also being investigated. Include
  poly-silicon and photo-voltaic cell
  manufacturing.
• Bio-ethanol
• Approval for additional R60 million disbursement
  of IDC funds to ensure continued implementation
  of bio-fuel project in the Eastern Cape.
• Aquaculture
• R34 million approved for the expansion of abalone
  farms in the Western Cape and to allow black
  entrepreneurs to acquire a stake in the business.
• Metals and machinery
• Approval of R45 million to allow a women-owned
  business upgrading Metrorail coaches to expand to
  KwaZulu-Natal.
• R30 million loan to a company manufacturing
  ducting for the Medupi Power Station.
• Advanced materials
• Approval to study the feasibility of a plant to
  manufacture titanium and zircon metal from
  currently exported titanium slag and zircon sand.
  Potential to further beneficiate titanium metal
  into high-tech components such as aircraft parts
  in the future.

12
Additional Roles that IDC is Playing in Assisting
with the Implementation of IPAP

• Inputs into policy development
• Research assistance to policy makers
• IDC is in a unique position as it closely
  interacts with both the private sector as well as
  government organisations
• Its interaction with the private sector through
  its client base provides it with insight into the
  way the real economy operates and allows it to
  understand the needs and challenges that industry
  faces
• These insights should be valuable inputs to
  policy makers in setting policy.
• Capacitating other DFIs
• Other government agencies essential for the
  implementation of IPAP
• Need to ensure that other DFIs have the
  appropriate capacity to ensure effective and
  efficient delivery of funding/support to markets
  not covered by IDC

13
Additional Roles that IDC is Playing in Assisting
with the Implementation of IPAP (continued)

• Fund management
• Strong track-record to manage funds on behalf of
  government departments
• Can be used as a conduit for incentives
• Need to be aligned with corporate objectives and
  targeted market segments.
• Support for SMEs
• IDC ready to engage with relevant role players on
  future strategies including support structures
  for SME development

14
Areas Critical to the Success of IPAP

• Urgency of implementation needed at impacted SOEs
  and departments
• Negotiation and collaboration with private sector
  and labour movement is essential
• Fiscal capacity of government should be
  considered
• External factors such as the performance of the
  world economy can have an impact on the
  implementation of plans
• Realistic pricing by SOEs needed
• Need for a strong project management approach to
  implementation
• Policy coordination and alignment (fiscal,
  monetary, industrial, trade, agrarian,
  educational etc.) is essential
• Strategies and opportunities must be clearly and
  continuously communicated to the private sector.

15
Areas Critical to the Success of IPAP

• Public sector procurement is critical to create a
  demand for locally manufactured goods e.g.
• State owned enterprises (Eskom, Transnet)
  Vital for development of metals, machinery and
  capital equipment sectors through the reduction
  of import leakage
• Explore opportunities in the procurement
  programmes of other large public sector spending
  areas
• Need to consider the long-term benefits of
  procuring locally vs. short-term gains
• Eliminate the occurrence of import fronting.

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Areas Critical to the Success of IPAP (continued)

• Conditionalities related to local procurement of
  goods and services should be attached to any form
  of government support
• Potential to foster stronger linkages between
  local business enterprises.
• Continued identification of key sectors that hold
  the key to improving competitiveness of South
  African industry
• A regional approach to industrial development
  will strengthen the competitiveness of the region
  as a whole and allow for stronger South African
  industries.

17
Funding IPAP

• Levels of funding will be driven by demand and
  the benefits that are evident
• Periodic review of appropriate financing
  mechanisms is necessary
• Concessionary funding can play a role in acting
  as an incentive for industries to be established
  locally
• In the quest for concessionary funding care must
  be taken
• Potential to create distortions in the market
• Availability of funding should be weighted
  against the cost of funding
• To ensure that the benefits of concessionary
  funding are fed through to customers.
• Other factors impacting on industrys
  competitiveness need to be taken into account.

18
Recapitalisation of DFIs

• Need to strengthen the capacity of DFIs in South
  Africa to enhance their ability to deliver on
  their core mandates
• IDC
• IDC can advance R100 billion over the next 5
  years
• To sustain these high levels of advances in later
  years would require a recapitalisation
• In the short-term, the focus is to continue to
  find cheaper sources of funding.

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Summary

• Overall, IPAP has bold goals and addresses areas
  critical for the development of South African
  industry
• IDC has aligned its industry development
  activities to IPAP and expects to increase its
  project development and funding activities to
  these sectors
• IDC will continue to provide inputs to policy
  makers based on its experience in the real
  economy
• Generating demand for South African goods will be
  the driving force behind the success of the
  expansion of the countrys industrial capacity
• Success will rely on coordination by all
  identified role-players
• In the short-term, IDC will continue to seek
  cheaper sources of funding.

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DelegationGeoffrey QhenaChief Executive
Officergeoffreyq_at_idc.co.zaJeanett
ModiseDivisional Executive Human
Capitaljeanettm_at_idc.co.zaHilton LazarusSBU
Head Chemicals and Allied Industrieshiltonl_at_idc.
co.zaChristo van ZylSenior
Strategistchristov_at_idc.co.za
Industrial Development Corporation 19 Fredman
Drive, Sandown PO Box 784055, Sandton, 2146 South
Africa Telephone [phone] Facsimile (011)
269 2116 E-mail callcentre_at_idc.co.za