IDC – Parliamentary Briefing Geoffrey Qhena Chief Executive Officer Industrial Development Corporation of South Africa 24 February 2005

Contents IDC mandate BEE Funding SME Funding IDC in provinces Involvement in Government prioritised sectors Conclusion

The IDC mandate IDC Offices Creating employment opportunities Fostering entreprenuership Development of SME businesses Promoting broad based economic empowerment of HDPs Promoting industrial development in Africa Improving living standards of all South Africans in: Poor provinces Rural areas Townships Promoting women advancement in business

IDC funding instruments Equity Loans Bridging finance Wholesale finance Export / import finance Shareware housing Guarantees These apply for all IDC funding including BEE and SME in all provinces

IDC development basket Job creation Exports Financing SME Financing in poor provinces Financing BEE Financing projects in Africa Financing development nodes

IDC approved over applications valued at over R51 billion IDC’s investment approvals amounted to R4.8 billion involving 259 deals in 2003/04 IDC’s investments as a percentage of private sector investment activity amounted to 3% (2003/04) IDC’s Moody’s credit rating upgraded to Baa1 in Jan 2005 Overview of IDC’s approvals

Development impact of IDC’s approvals IDC approvals creating new job opportunities in last 10 years Export earning potential worth R41.2 billion

IDC on BEE Funding

IDC’s position on BEE As SA’s largest development finance institution, the IDC remains fundamental to the national agenda to realise BEE objectives namely skills and equity transfer To augment these BEE objectives and remain a significant player in BEE funding, BEE is an overarching factor in all IDC’s funding activities A more focussed BEE policy reflects IDC’s fundamental BEE funding practices and mandate Broad based BEE and advancement of women are central to the overall IDC’s BEE policy

The IDC’s participation in BEE funding is guided by the following imperatives : Creation of ownership of businesses for HDP’s Management capacity and entrepreneurship through transfer of skills Advancement of HDP employees through share and/or profit participation; and Adherence to the national BEE agenda, affirmative action and affirmative procurement policies Empowerment at IDC is across all IDC funding activities IDC policy on BEE

IDC’s BEE portfolio Since July 1995 the IDC has approved 870 BEE approvals worth over R9.8 billion In 2003/04 financial year alone, 64% of the of the R2.6 billion approvals were BEE deals

IDC’s BEE funding within sectors IDC BEE funding dominant in Chemicals sector in number terms (13%) BEE funding dominant in Clothing and textile sector in value terms (9.5%)

IDC on SME Funding

IDC approach to SME SMEs viewed as bridging the gap between first and second economy Deals to the value of over R1 million SME funding predominantly in South Africa Credit Committee (which includes external members) established to evaluate deals less than R10 million The IDC funding instruments mentioned earlier are applied

IDC’s SME funding portfolio SME transactions worth R12.2 billion were approved involving businesses since July 1995 SME transactions make up 24% of total IDC approvals

IDC’s SME funding within sectors SME transactions dominant within Agriculture sector in number terms (18.2%) SME transactions dominant in Chemicals sector in value terms (16.5%)

IDC in Provinces

IDC approach to provinces IDC looks for inappropriate distribution to exploit opportunities Comparative advantage in sectors Addressing market failures Capacity building for third tier Government through Development Agency IDC in discussion with Provincial Development Corporations to address: Risk management capacity building Training

IDC’s total funding in provinces Gauteng dominant in number of approvals (32% of total IDC approvals) Western Cape dominant in value terms (23% of total IDC approvals)

IDC BEE exposure remains high in Gauteng and Kwazulu-Natal IDC making inroads in poorer provinces ie Limpopo IDC is aiming at closing expectations gap from BEE companies and operating partners ie. through transfer of skills % of total value IDC’s BEE funding in provinces

IDC’s SME funding in provinces Most approvals dominant in Gauteng, Western Cape, and Kwazulu-Natal

Mostly Gauteng & Western Cape import raw materials from other provinces for processing in manufacturing and services, creating sustainable jobs and profitability All other provinces which net exporters of primary raw material to urban based provinces (Gauteng and Western Cape) and internationally, hence erratic job creation and profitability Provincial sector competitiveness

Steel plant Cold rolled steel Tourism Mineral sands Persimmons Biotechnology … Table grapes Pistachio nuts Diamonds … Carbon black Automotive catalysts Wood plantations Aluminium smelter Refrigerated containers … Ferrochrome … Chemicals Gold … Aluminium smelter Wood plantations Fertilisers Mineral sands – titanium oxide … Stainless steel Chemicals … Platinum Tea Wood plantations Phosphates … Paper mills Porcelain tiles X-Ray machines … IDC exploiting provincial competitiveness IDC funding strategy takes advantage of provincial sector competitiveness

IDC’s major projects in the pipeline

IDC’s Development Agencies in provinces Agency Development Department was established in 2002 Total funding value of R14 million through Agencies

IDC involvement in Government prioritised sectors

IDC is taking advantage of opportunities in: Agriculture Mining Tourism Maximizing the above sector potential for Job Creation, BEE, SME, Geographic spread and rural development Maximising priority sectors’ opportunities Examples of deals include: Keboes Fruit Farms (Agriculture) Rustenberg Minerals (Mining) Chuene Resort (Tourism)

Keboes Fruit Farms Technical Marketing 1200 jobs created Empowerment & training strategy in place Project Fact Sheet Sector: Table Grapes Town: Kakamas Province: Northern Cape IDC & RCF Exposure: R49 m Jobs created: 1200 Export oriented: Yes Karsten Boedery (Pty) Ltd Keboes Fruit Farms (Pty) Ltd Workers’ Trust BMFI (Pty) Ltd IDC warehouses shares (19.6%) Managerial involvement Overseeing empowerment & Training RCF warehouses shares 25% 50% 25%

Rustenberg Minerals Project Fact Sheet Sector: Mining Town: Pilanesberg Province: North-West IDC Exposure: R9.1 m Total transaction value: R26 m Jobs created: 132 Africa Mining Trust Rustenberg Minerals Development Corporation (Pty) Ltd Mampa Investment (Pty) Ltd IDC warehouses shares (19.6%) Managerial involvement Access to existing infrastructure Overseeing training and procurement for the benefit of local communities Development Impact 132 jobs created Broad based Empowerment Compliance with Mining Charter Provides technical expertise Marketing Transfer of skills 44% 56%

Chuene Resort 28 jobs created Broad Empowerment in place Project Fact Sheet Sector: Tourism Town: Polokwane Province: Limpopo IDC Exposure:R1.85m Jobs created: 28 Investment facilitated: R3m LIMDEV Chuene Resort Chuene Community Bally Chuene 45% 30% 25%

Conclusion

-monitoring developments in a dynamic environment (global & national fronts) -challenge: being flexible to quickly respond to change - achieving its goals of prosperity for all Focus on Government’s policy objectives (BEE, SME, Rural and Women Development) Apply a commercial approach based on sound business principles Provide a unique combination of resources (capital & knowledge) Gearing itself for the future by : In conclusion IDC will continue to ….

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