Investing in the economy

Summary of operational performance

Chemicals and Allied Industries SBU
Performance   2010   2011   2012   2013  
Total value of financing approved (Rm)  1 555   541   714   671*  
Total number of jobs expected to be created or saved   1 059   1 703   3 283   1 029  
Impairments as a % of outstanding book (at cost excluding undrawn commitments)  29%   14%   12%   8%  
*Approvals of R15 million utilising Manufacturing Competitiveness Enhancement Programme (MCEP) are included.  
Focus areas  
Establish clusters of production for local beneficiation  
Security of supply for key inputs into infrastructure, food and energy needs  
Development of plastics value chain  


Highlights  

2009   2010   2011   2012   2013  
  • Despite the struggles of utility (power, petrol, etc) shortages, the SBU was able to still invest within the chemicals industry to successful clients
  • Effect of economic recession dampened some investments, however, the SBU made use of the IDC distress funding to assist clients to turn around
  • SBU funded its first investment outside SA borders (Ohorongo Cement in Namibia)
  • Formation of a plastics focus group within the unit to align with IPAP Plastics initiatives
  • The downturn of the construction industry resulted in many building material clients being negatively affected, but the SBU was able to actively rescue some key players
  • A slight upturn in number of applications showed improvement of business environment post recession
  • Investments were made in various subsectors including polymer conversion, water, rubber, agri-products and infrastructure
  • The SBU participated in a water focus group within the IDC to proactively assist with water challenges
  • The formation of REDISA and the legislation of tyre recycling led to a number of applications in this field
  • Increase in number of projects conducted within Chemicals Portfolio
  • Government approved import duties on glass which bodes well for the glass industry in South Africa
  • Projects conducted will see positive outcomes for investment (LPG, Zircon, etc)
  • Progress on projects being focused at import replacement (eg: soda ash and mineral chemistry) in line with government effort of cutting down on imports
  • Plastics investments reach ca R300m over the past three years thereby growing the industry in line with IPAP focus

 

Recent performance  

The value of investments in the Chemicals and Allied Industries SBU portfolio grew by 27% year-on-year to R3.6 billion. Foskor continues to dominate the portfolio and is the SBU’s largest equity investment. Investments totalling R656 million were approved during the year, including investments worth R249 million in the rest of Africa. An estimated 1 029 jobs were facilitated.

Investments directly related to the South African government’s Industrial Policy Action Plan amount to:
  • Plastics: R107 million;
  • Infrastructure: R286 million;
  • Cosmetics: R22 million; and
  • Chemicals: R81 million.

The year’s notable investments include Habesha Cements Share Company of Ethiopia and CNG Holdings (Pty) Ltd. Habesha is a start-up cement producer in one of the fastest-growing economies in Africa, while CNG Holdings will supply compressed natural gas (CNG) to industrial customers and establish CNG filling stations for gas-fuelled buses and taxis.

The IDC’s investment in Marula Cosmetics Products (Pty) Ltd involves the installation of the world’s first mechanised marula pip cracking equipment. This innovation will improve productivity at the company’s plant in Phalaborwa, Limpopo Province, which supplies marula products to the cosmetics industry both in South Africa and internationally.

The IDC financed the project in conjunction with B-BBEE workers’ and community trusts. A total of 68 direct jobs will be created within the first three years of production, while a further 3 000 female outworkers in the community will gain a source of income from the collection, cracking and grinding of the marula pips.

Challenges  

The South African chemicals and allied industry is particularly energy-intensive and the greatest challenge it has faced over the past financial year is the increasing cost of electricity. This, together with uncertainty over the security of electricity supply, continues to be a deterrent to the implementation of large projects, as well as to foreign investors looking for attractive investment destinations.

Competition with cheaper imports, particularly in commodity markets such as plastics and glass, is another major challenge. With the implementation of import protection in some sectors and government’s localisation policy, this challenge is considered likely to ease.

Some sectors of the portfolio, notably those relating to the local building and construction industry, are still suffering from depressed market conditions, though total impairments for the SBU have declined, reflecting an improvement in economic conditions generally.

Overall, given recently-announced government initiatives designed to drive large projects in the country, improvement in the business environment is expected to continue.

Strategy and prospects  

The Chemicals SBU strategy over the past few years has been to align itself with IPAP and the government’s New Growth Path (NGP). Within the industry, sub-sectors targeted have been suppliers to the agriculture, infrastructure, mineral beneficiation, polymer and energy value chains.

In these sub-sectors, the objectives remain developing and investing in sustainable projects and identifying new projects for investment. To this end, the SBU will continue to engage with stakeholders such as industry associations and key players, government bodies and other state-owned enterprises, its existing and potential customers and foreign technology partners  

Studies in mineral beneficiation, energy and infrastructure projects under development have been completed and investment decisions are pending. Polymer conversion has been a particular area of growth for the SBU over the past two years and this is expected to continue. Feasibility studies for further mineral beneficiation and energy projects will progress with implementation anticipated within the next two to three years. The SBU expects import replacement to provide further investment opportunities.

Coega Dairy Holdings

The IDC has identified increased competition in the dairy value chain and import substitution in the cheese industry as key sector development goals. We also singled out the need for increased farmer (and specifically B-BBEE) participation in dairy value-adding initiatives.

Windtown Lagoon Resort 

The newly built Windtown Lagoon Resort and Spa reflects the IDC’s focus to funding community-based projects that have potential to create employment opportunities in far-flung regions.


APPROVALS
R13.1 billion
DISBURSEMENTS
R16.0 billion
JOBS FACILITATED
18 922
JOBS SAVED
3 950
© The IDC 2013. All rights not expressly allowed are reserved. P.O. Box 784055, Sandton, 2146, South Africa