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Strong results posted by IDC

The Industrial Development Corporation (IDC) continues to play a vital role in the country’s economy, providing much-needed funds for start-up businesses and in this way creating employment in South Africa.

A record number of funds were approved for economic development projects during the 2011/12 financial year, despite the harsh economic conditions across the globe.

In the financial year to 31 March 2012, the IDC approved R13.5-billion worth of funding, an increase of R4.8-billion from the previous year. The number of funding approvals also increased to 293 in 2012 from 221 the previous year.

Announcing the IDC’s 2011/12 annual results on 3 September, the chief executive of the corporation, Geoffrey Qhena, said they represented the corporation’s highest ever level of investment in the local economy, thus making a huge contribution to the creation of jobs.

Qhena, who was accompanied by Minister of Economic Development Ebrahim Patel and IDC chairperson Monhla Hlahla, said the corporation’s objective was to grow the local economy through the development of industrial capacity, thus creating much-needed employment.

Established in 1940, the IDC is a government-owned national development finance institution set up to promote economic growth and industrial development. Its primary objectives are to contribute to the creation of sustainable economic growth in South Africa and on the rest of the continent.

Results show progress

Patel “welcomed” the IDC’s annual results, which he said had shown progress even under the tough economic conditions. The corporation played a central role in the South African economy. The implementation of the New Growth Path encouraged new economic opportunities that blended in well with the corporation’s long-term economic development approach, he added.

However, there was a need to improve the rate of South Africa’s gross domestic product (GDP). To this end, the IDC was focusing on expanding the fabricated metals, capital and transport equipment industries in line with the planned capital expenditure programmes of state-owned companies Transnet, Prasa and Eskom.

The government’s planned infrastructure development programme also presented the IDC with the opportunity to participate in a project that sought to promote beneficiation and localisation. “The IDC is at the heart of this planned infrastructure drive,” said Patel.

Increased funding activity has had a positive effect on the country’s employment landscape, with 45 900 jobs created and saved. Of these jobs, 48%, largely in the mining, renewal energy and agricultural sectors, are based in rural areas.

Promoting employment

The New Growth Path, a government instrument to promote employment and growth in the economy, sets a goal to create five million jobs by 2020. The plan projects that with the right policies, a large number of green jobs can be created.

With this in mind, the IDC, through its Green Industries Strategic Business Unit, has provided funds for 12 projects that received preferred bidder status during the first round of the Renewable Energy Procurement Programme. The corporation also launched its Green Energy Efficiency Fund to provide low-cost funding to businesses to come up with energy-saving technologies.

To demonstrate its commitment to the country’s transition to a greener growth path, the IDC has set aside R25-billion towards the development of green industries over the next five years. “The IDC is emerging as a leader in the development of green industries,” said Qhena.

In April 2012, it launched a new agency. The Small Enterprise Finance Agency came out of a merger between Khula, the South African Micro Finance Apex Fund, and the IDC’s small business funding. It focuses on financing survivalist, small, micro and medium sized companies.

The IDC’s balance sheet remained strong, said Qhena, with the group’s profitability rising by 22 percent to R3.3-billion, and total assets rising from R106.8-billion to R112.2-billion. Borrowings rose 49 percent to R9.9-billion.

Sources of cash

As a way to mitigate the high costs of funding for businesses, the IDC sourced R2-billion from the Unemployment Insurance Fund through an agreement with the Department of Labour. The money will be used to set up more labour-intensive businesses. Also, a German development bank, KfW, chipped in with R500-million in low-cost funding to promote investment in energy efficiency and renewable energy in the country.

A significantly larger business base was served in the last financial year, many of which were new clients. The IDC provided special schemes, catalytic financial support in the renewable energy segment, increased project development and continued to provide funding to companies in distress.

The large number of funding approvals has been complemented by high levels of customer service, with customers rating IDC’s services with a handsome score of 89 percent.

Despite all these successes, the corporation has a number of challenges it has to surmount. The slow global recovery from the economic crisis of the past few years has resulted in lower levels of business confidence, which was relatively weak through 2011, though it recovered in the first quarter of 2012. The IDC has also had problems attracting and retaining skills, with quite a number of applicants misleading the corporation.

The future, however, looks brighter. The government’s revised Industrial Policy Action Plan (IPAP) scales up interventions to retain, grow and diversify the country’s industrial base. A wide range of complementary and integrated measures, like further industry designations for local procurement; the Manufacturing Competitiveness Enhancement Programme, which will complement the IDC’s industrial financing packages; and a range of programmes that will help the corporation promote economic development in southern Africa, will help it fulfil its mandate.

The IDC is also working to forge stronger relationships with other Brics countries – a grouping of Brazil, Russia, India, China, and South Africa – on matters of financing, investment and technology.

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