IDC posts record funding approvals

IDC posts record funding approvals

Despite a challenging economic environment, the IDC approved more funding than ever before in 2013/14 and disbursed its second-highest amount of funding. Green industries, youth-owned business and small, medium and micro enterprises were leading beneficiaries.

CEO Geoffrey Qhena and Minister of Economic Development Ebrahim Patel take questions from the floorThe Industrial Development Corporation overcame a difficult operating environment both locally and internationally to grow its funding approvals by 6% to a record R13.8-billion in the 2013/14 financial year, beating the previous record of R13.5-billion achieved in 2011/12.

Credit rating upgrade from Fitch

Announcing the corporation’s annual results in Sandton, Johannesburg on Thursday, 18 September, Chief Executive Officer Mvuleni Geoffrey Qhena said the IDC had successfully delivered on its mandate to develop South Africa’s industrial capacity despite a host of adverse factors.

These included a further slowdown in the country’s economic growth rate, from an already modest 2.5% in 2012 to a mere 1.9% in 2013, substantial currency weakness, and weak commodity prices as a result of subdued demand in global markets.

Challenges notwithstanding, the IDC approved more funding than ever before, disbursed its second-highest amount of funding, increased its total revenue by 37% to R20-billion, and grew its operating profit, albeit marginally, from R2.4-billion in 2012/13 to R2.5-billion in 2013/14.

The strength of the corporation’s finances was confirmed on the same day by Fitch Ratings, which upgraded the IDC’s national long-term rating to “AA+” from “AA” and affirmed its national short-term rating at “F1+”, declaring its outlook to be “stable”.

The upgrade “reflects Fitch’s reassessment of the [IDC’s] dependence on the state, based on stronger confidence in the level of control, strategic importance, and integration”, news agency Reuters reported.

Establishing the renewable energy sector

South Africa’s burgeoning green industry was the biggest beneficiary of the increase in funding approvals in 2013/14, with approval levels expanding by 50% year-on-year to R5.7-billion. Over the last three years, Qhena said, the IDC had played a leading role in establishing the country’s renewable energy sector, both through early stage development funding and through loan and equity funding for implementation.

“As the first round of projects [from the government’s Renewable Energy Independent Power Producers Programme] is coming on stream, they are making much-needed electricity available through green generation. Private sector players are now playing an increasing role in funding such projects.”

Also benefiting in a big way was the chemicals and allied industries, for which IDC approvals grew from R656-million to R1.8-billion.

Among the IDC’s funding in the chemicals industry was a R390-million investment in the development, by a black-owned enterprise, of a state-of-the-art facility for manufacturing household and personal care products for the export market – a project which is expected to create 800 new jobs.

Financing approvals for black empowered companies (with black shareholding in excess of 25%) came in at R5.2-billion, or 38% of total approvals. While this was slightly lower than in previous years, Qhena said, the activities funded were “more closely related to the core of the economy, which provides a good base for blacks to be active in the industrialisation drive”.

The IDC also approved R2.3-billion in funding for projects in 16 other African countries. These included projects in infrastructure – among them an investment in the 880-ton-per-annum Cimentos da Beira cement plant in Mozambique – as well as in forestry, hospitality, health care and textiles.

Qhena noted that “a very challenging environment, especially due to continued weak demand for commodities”, had negatively affected the IDC’s funding of projects in mining and minerals beneficiation.

11% of all new jobs created in last five years

It was also, he said, against an economic backdrop of weak job creation, particularly in mining and manufacturing, that the number of direct jobs expected to be created as a result of IDC funding approvals had fallen marginally, from 18 922 in 2012/13 to 18 224 in 2013/14.

Qhena noted that while the corporation had invested more heavily in capital-intensive projects in the last two years, its job-creation impact, taken over the last five years, had been significantly higher than before.

Economic Development Minister Ebrahim Patel, who addressed the results briefing after Qhena, supported this assessment, saying that the IDC had created 156 000 jobs between 2009 and 2013. To put this in perspective, Patel noted that, between October 2010 and June 2014, the South African economy had created 1.4 million new jobs. The IDC, in other words, had been directly responsible for approximately 11% of all new jobs created in the country in the last five years.

IDC funding disbursements – the financial capital actually injected into the economy – amounted to R11.2-billion in 2013/14, the second-highest level achieved after the R16-billion recorded the previous year. “Our aim is to continue shortening the turnaround time between approvals and disbursements to ensure that investment funds flow swiftly through the economy,” Qhena said.

Increased focus on youth-owned enterprises

Meanwhile, in its second year of operation, IDC subsidiary the Small Enterprise Finance Agency (sefa) approved R1.1-billion in funding for the development of small, medium and micro enterprises (SMMEs), an increase of 142% over the R440-million approved the previous year. Disbursements of R822-million were made, providing support for more than 46 000 SMMEs, compared to 28 000 in 2012/13.

At the same time, the IDC launched a number of initiatives targeting youth-owned businesses. In April 2013, it was one of the signatories of the national Youth Accord, and pledged R1-billion of its existing Gro-E Scheme towards youth-owned business funding.

Further, during 2013/14 the IDC approved R60.8-million to seven enterprises with over 50% youth shareholding, and an additional R44.4-million for four companies with between 25% and 50% youth shareholding.

Looking to the future, Qhena stressed the importance of regional integration, saying he expected the level of IDC activities in the rest of Africa to grow substantially in the coming decade, in line with increasing opportunities driven by infrastructure development on the continent.

IDC to invest R100-billion in next five years

Over the next five years, he said, the IDC would be looking to invest up to R100-billion in the local and regional economy.

Minister Patel, in his speech following, noted that IDC investments in projects were invariably co-investments with private sector partners which added their own funding to that of the IDC, at an approximate ratio of 1:2. This meant that the IDC’s investment of R40-billion in the local and regional economy over the last three years translated into a combined investment impact of R120-billion.

It would also mean that the IDC’s planned R100-billion investment over the next five years would translate into a combined R300-billion investment in South Africa’s, and Africa’s, industrial development.

Qhena said the IDC anticipated a successful performance in the year ahead “by contributing to the expansion and diversification of South Africa’s industrial base and its transformation from an ownership perspective.

“We will continue to support government’s infrastructure programmes, especially by creating sustainable supplier industries on the back of public sector procurement. We will support projects that promote localisation, import replacement and ultimately export market development, in the process assisting emerging black industrialists and increasing youth participation in our economy.”