27 Oct Economic Headwinds Impact IDC Performance but Corporation is Upbeat About Long-Term Prospects
26 October 2020 – A challenging global economic environment and slow growth in the local economy largely impacted the performance of the Industrial Development Corporation (IDC) for the year ended 31st March 2020.
In the year under review, South Africa’s total fixed investment activity levels were subdued, contracting by 1.7 % in real terms. Weak business confidence levels, recessionary conditions, and depressed consumer spending have characterised the local economy over the years with growth averaging a meagre 1.5% per year from 2011 to 2019.
Despite the tough operating environment, the IDC’s five-year performance trend ably demonstrates the Corporation’s countercyclical role over the longer – term. The Corporation approved R71.4 billion and leveraged an additional R110 billion from other funders to make funding available to entrepreneurs.
Accordingly, the value of funding approvals for the year to end 31st March 2020, funding approvals fell 10% to R11.8 billion while disbursements, which is the actual money invested into the economy, declined by 1% to R11.7 billion compared to the previous corresponding period.
“Against major headwinds facing our economy, our performance is largely reflective of the Corporation’s countercyclical role over the trading period. It’s important that our stakeholders take into account the developmental impact of our funding activities including supporting economic growth, creation of employment opportunities, preservation of jobs as well as halting the de-industrialisation of the economy,” said IDC CEO TP Nchocho.
Supporting Black Industrialists, Women and Youth Entrepreneurs
Of the approvals during the year, R3.1 billion went to Black Industrialists, while Women-empowered businesses accounted for R2.2 billion with approvals for youth-empowered businesses standing at R854 million.
Overall, the Corporation’s funding activities are expected to create and save a combined
12 271 jobs. The decline in job creation, as well as preservation, is reflective of the weak economic environment.
Nchocho said the Corporation augmented its funding support in the year under review to sustain and stimulate fixed investment activity in the economy, including the provision of financial support to distressed clients in some of the key productive sectors of the economy. These include mining and metals, agro-processing as well as the clothing, textiles, footwear and leather sectors.
While the Group generated revenue of R16,3 billion compared to R17,9 billion in 2019, its losses were R3,8 billion compared to profits of R720 million in 2019. The deterioration in the operating environment impacted negatively on expected credit losses driving the impairment percentage to 32% compared to 26% last year.
Said Nchocho: “While mainstream investors tend to hold back in times of economic adversity, the opposite is true of the IDC. As a DFI, this is when we are required to take an active role by injecting much needed stimulus into the economy. We also have to strike a delicate balance between achieving developmental impact and managing the financial risk of our balance sheet.”
Performance of IDC Subsidiaries
There has been a steady but marked improvement in the performance of the former Scaw divisions since we embarked on a strategy to corporatise these entities. Most these divisions now operate independently. While Foskor posted disappointing performance in the year under review, the turnaround plan, introduced by the new Board and management, is starting to show results. In addition, we have initiated the process to find a Strategic Equity Partner for Foskor.
Commenting on the IDC’s performance, Trade, Industry and Competition Minister, Mr Ebrahim Patel, said the results pointed to a need to improve the quality of the loan book through deepening the project pipeline and strengthen post-investment support to companies in the portfolio.
In light of the Covid-19 pandemic and the impact it has had on socio-economic conditions, Patel says, the IDC has an even more prominent role to play in South Africa’s economic recovery. “The road to recovery presents opportunities to leverage from a realignment of the local and global economy such as opportunities in specific sectors, as well those in import replacement, localisation and integration into regional and global value chain”, he added.
Reflecting on the results, IDC Board Chairperson Busi Mabuza commented that the IDC remains steadfast in pursuing the objectives of sustainable and inclusive growth by measurably contributing to sustaining and creating jobs.
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