1. BRIEFING TO THE PORTFOLIO COMMITTEE ON TRADE AND INDUSTRY Presenters: Ms Philisiwe Buthelezi: CEO Mr Frencel Gillion: CIO Mr Victor Mabuza: Executive – Asset Management Mr Andrew Wright: COO Khetiwe Tshabalala: Senior Investment Associate 28 February 2007

2. TABLE OF CONTENTS 1.MISSION, MANDATE AND OBJECTIVES 2.CURRENT STRATEGIC PLAN AND STRUCTURE 3.ASSESSMENT OF THE BEE FUNDING ENVIRONMENT 4.FUND MANAGEMENT DIVISION 5.ASSET MANAGEMENT DIVISION 6.BUDGET 7.CONCLUSION 8.CASE STUDIES

3. TABLE OF CONTENTS 1.MISSION, MANDATE AND OBJECTIVES 2.CURRENT STRATEGIC PLAN AND STRUCTURE 3.ASSESSMENT OF THE BEE FUNDING ENVIRONMENT 4.FUND MANAGEMENT DIVISION 5.ASSET MANAGEMENT DIVISION 6.BUDGET 7.CONCLUSION 8.CASE STUDIES

4. ACCELERATED DELIVERY “The National Empowerment Fund (NEF) is the catalyst of broad-based Black Economic Empowerment in South Africa. We enable, develop, promote and implement innovative investment and transformation solutions to advance sustainable Black economic participation.” NEF Mission Statement

5. Main objective To be a catalyst in facilitating economic equality and transformation Development focus Maximise the empowerment dividend Driven by -Current market needs -Broad-based empowerment charter -Government policy and other sectoral charters -Addressing past failures of BEE structures -BB BEE Codes of Good Practice WHAT DOES NEF DO AND WHY?

6. TABLE OF CONTENTS 1.MISSION, MANDATE AND OBJECTIVES 2.CURRENT STRATEGIC PLAN AND STRUCTURE 3.ASSESSMENT OF THE BEE FUNDING ENVIRONMENT 4.FUND MANAGEMENT DIVISION 5.ASSET MANAGEMENT DIVISION 6.BUDGET 7.CONCLUSION 8.CASE STUDIES

7. NEF STRATEGIC FOCUS Broad Based Black Economic Empowerment The Codes of Good Practice Accelerated & Shared Growth Initiative for SA ASGI - SA 6% GDP Growth 10% Investment Growth 10% Export Growth 2014 Government Aims: 1. Access to Finance 2. Job creation 3. Geographic spread 4. Women empowerment 5. Integrated manufacturing economy 6. Efficient, fast & flexible economy 7. Diversity of enterprise 8. Skills transfer & development NEF Act: Objectives The dti Objectives Priority Sectors Arts & Culture, Tourism, Textiles, Agro Processing Automotive, Chemicals, ICT, Aerospace Film Industry, Exports

8. HISTORIC BUILD UP PERIODPLANNINGACHIEVEMENT Years ending 31 March 2003 Established under National Empowerment Fund Act 105 of 1998 Establishment of NEF Ventures Fund with IDC Year ending 31 March 2004 Transfer of MTN and Uthingo share set asides 30 May 2004 Strategic Plan approved by Minister and the dti prior to launch Launched current products R2 billion allocated by NT for capitalisation - 5 yrs to 2009 Year ending 31 March 2005 Strategic Plan approved by DG and DDG (dti) Business Plan approved by Acting DG (dti) First capital drawdown of cash of R150M First investments disbursed APPOINTMENT OF CURRENT NEW EXECUTIVE MANAGEMENT AND BOARD OF TRUSTEES Year ending March 2006 Draft Rolling Strategic PlanSecond capital drawdown of cash of R370M NEF disburses in excess of R200 million Approval of 1 st retail issue

9. HOW DOES THE NEF DO THIS? KEY OBJECTIVES OF THE NEF: Promote and support business ventures pioneered and run by black people; Promote the understanding of equity ownership among black people; Provide black people with direct and indirect opportunities to acquire share interests in State Owned and private business enterprises; Encourage and promote investments, savings and meaningful economic participation among black people.

10. THE REVISED STRATEGIC PLAN To create a prudently and effectively managed fund with a time horizon of at least 10 years; To ensure broad-based and sustainable empowerment; To act as a catalyst to stimulating BB BEE and hence economic growth; To avoid duplicating existing offerings by other operating DFIs; To work in partnership with both public and private sectors; To maximise the empowerment dividend in lieu of the financial dividend; To protect the capital base of the NEF and provide a real return.

11. NEF’S PERFORMANCE CRITERIA – “The Empowerment Dividend” Broad Based Black Economic Empowerment Ownership, management control, employment equity, skills etc Black Women Empowerment Job Creation Growth Sectors Geographic Spread Investment Return The assessment of impact is not driven only by financial returns but by measurement in terms of “The Empowerment Dividend” made up as follows:

12. TABLE OF CONTENTS 1.MISSION, MANDATE AND OBJECTIVES 2.CURRENT STRATEGIC PLAN AND STRUCTURE 3.ASSESSMENT OF THE BEE FUNDING ENVIRONMENT 4.FUND MANAGEMENT DIVISION 5.ASSET MANAGEMENT DIVISION 6.BUDGET 7.CONCLUSION 8.CASE STUDIES

13. BEE MARKET CHALLENGES  BEE market challenges include major funding gaps – R772 billion to R2 trillion lack of collateral by BEE groups limited specific industry knowledge / management experience Lack of bankable business plans limited or no equity contribution limited knowledge of financial market, financing structures and financial investments 2

14.  Banks faces similar challenges as NEF when financing BEE  Banks ringfence higher risk products  Cross subsidise product offerings  Major focus on large leveraged transactions  Financial Sector Charter (FSC) points THE BEE COMPETITIVE ENVIRONMENT 4

15. THE BEE COMPETITIVE ENVIRONMENT (Cont.) 5

16. 5 DFI’s Transaction sizes vary greatly Only IDC offers a Contract Finance Product Khula and UYF partners with BP and Banks to rollout its products BP offers most comprehensive post investment support products BP leaders in SME financing

17.  Private Equity Fund Comprise captive and independent Fund Managers BEE is a key driver of deal flow (R3 billion in 2005) Preference for later stage, buy-out funding Limited “subsidised” funding to BEE groups 6 THE BEE COMPETITIVE ENVIRONMENT (Cont.)

18. Launch of funding products Additional R151m capital allocation Appointment of CEO Appointment of new Board of Trustees

19. Launch of funding products Appointment of CEO Additional R151m capital allocation Appointment of new Board of Trustees

20. FUND MANAGEMENT PIPELINE 17

21. FUND MANAGEMENT STRATEGY – DIVISIONAL OVERVIEW  Strategy is aimed addressing the following issues: InternalExternal Clarify focus areas and broad investment criteria Enhance risk management, thereby driving down impairments Facilitate greater efficiency and turnaround times Facilitate the deepening of skills / product specialisation in the two funds Accelerate delivery on NEF mandate Address issues of access to finance Position NEF as the pre-eminent provider of BEE financing solutions Position NEF as a catalyst for leveraging commercial banks and other DFI funding for BEE 8

22. TABLE OF CONTENTS 1.MISSION, MANDATE AND OBJECTIVES 2.CURRENT STRATEGIC PLAN AND STRUCTURE 3.ASSESSMENT OF THE BEE FUNDING ENVIRONMENT 4.FUND MANAGEMENT DIVISION 5.ASSET MANAGEMENT DIVISION 6.BUDGET 7.CONCLUSION 8.CASE STUDIES

23. FUND MANAGEMENT DIVISION As a facilitator of the Codes of Good Practice of the Broad-Based Black Economic Empowerment Act (the Codes), to support the pillars of black enterprise by providing finance and financial solutions through the Fund Management Division across a range of sectors and stages of business;

24. PRODUCTS TO FACILITATE BUSINESS GROWTH Start-Up CC & (Pty) Ltd CC & (Pty) Ltd Acquire assets Acquire assets Working capital Working capital Bridging finance Bridging finance Debt and Equity Debt and Equity Black >75% Black >75% Max. 7years Max. 7yearsExpansion CC & (Pty) Ltd CC & (Pty) Ltd Debt & Equity Debt & Equity Black >51% Black >51% Max. 7years Max. 7years Transformer MBOs & Leveraged MBOs & Leveraged finance finance Management buy-ins Management buy-ins EST EST Unlisted entities Unlisted entities Debt & Equity Debt & Equity Black >26% Black >26% Max 7years Max 7years Liquidity & Warehousing Create sustainable BEE Create sustainable BEE ownership ownership Refinancing existing BEE Refinancing existing BEE structures structures Max. 3years Max. 3years Capital Markets Facilitate new Facilitate new entrants into JSE entrants into JSE & Alt x & Alt x Black >26% Black >26% Max. 2years Max. 2years Start-UpExpansionMaturity/Decline High Risk Low Risk Preferential Procurement PreferentialProcurement CC & (Pty) Ltd CC & (Pty) Ltd Acquire assets Acquire assets Working capital Working capital Bridging finance Bridging finance Debt Debt Black >75% Black >75% Max. 7years Max. 7years

25. NEF FUND MANAGEMENT STRUCTURED INTO FOCUSED FUNDS Chief Investment Officer iMBEWU FUND Entrepreneur support Rural & Community Proc. Contracts CORPORATE FUND Entrepreneur support Capital Markets Liquidity & Warehousing Legal Services Pre-Investment Management Post-Investment Management NEF iMBEWU FUND Entrepreneur support (<R3m) Rural & Community Proc. Contracts NEF CORPORATE FUND Entrepreneur support (>R3m) Capital Markets Liquidity & Warehousing

26. NEF STRUCTURED INTO FOCUSED FUNDS The NEF iMbewu Fund provides debt finance from R250 000 to R3 million (in exceptional cases up to R20 million for Procurement Contracts and Rural & Community Development) for start-up, expansion and equity transformation products The NEF Corporate Fund provides complex investment debt and equity solutions from R3m to R50m for all products

27. (R) Value % By Number % By ValueBy Number TransformerR 180m41.6%1012.7% Capital MarketR 74m17.0%45.1% Start-UpR 61m14.1%3949.4% Liquidity & WarehousingR 60m13.8%33.8% ExpansionR 38m8.8%1721.5% ContractsR 19m4.3%56.3% Rural & CommunityR 1m0.3%11.3% R 433m100%79100% INVESTED PORTFOLIO BY PRODUCT: 31 Dec 2006 11

28. INVESTED PORTFOLIO BY REGION: 31 Dec 2006 (R) Value % By Value By Number % By Number GautengR 222 m51.3%4658.2% Western CapeR95 m22.0%1417.7% Eastern CapeR78 m18.0%78.9% Kwa Zulu NatalR 34 m7.8%78.9% LimpopoR3 m0.7%33.8% MpumalangaR 0.4 m0.1%11.3% Free StateR 0.25 m0.1%11.3% Northern Cape00.0%0 North West00.0%0 R433 m100%79100%

29. INVESTED PORTFOLIO BY SECTOR: 31 Dec 2006 12

30. INVESTED PORTFOLIO BY SECTOR: 31 Dec 2006 SECTOR (R) Value % By Value By Number % By Number ConstructionR 85 m19.5%911.4% ICT & MediaR 74 m17.0%1012.7% Food & Agri ProcessingR 51 m11.9%1519.0% Tourism & EntertainmentR 47 m10.8%45.1% Mining ServicesR 45 m10.5%22.5% ManufacturingR 45 m10.4%67.6% Printing ServicesR 14 m3.3%56.3% Wood & Paper IndustryR 13 m2.9%45.1% Textile IndustryR 11 m2.6%33.8% Motor IndustryR 11 m2.5%33.8% EngineeringR 10 m2.2%45.1% Note: Only main invested sectors above 2% by value are reflected above

31. (R’m) Value% By ValueBy Number% By Number Associate Investment (Loan & Equity) 30971%2228% Loan11226%5468% Equity133%34% 433100%79100% INVESTED PORTFOLIO BY INVESTMENT STRUCTURE 13

32. Total Invested (R’m) Total Impairment (R’m) % Start-up613650% Expansion382361% Transformer1802.50% Contracts195.529 Rural & Community11100% Capital Market7410% Liquidity & Warehousing603050% 4339823% IMPAIRMENTS BY STAGE OF INVESTMENT:31 Dec 2006 16

33. Total FMD iMbewu Fund Corporate Fund R’m 2006/2007 Allocation459205254 Projected 2006/2007 performance35294258 Disbursed up to 31/12/200615626130 Projected disbursements (4 th Quarter)19668128 Undrawn Surplus107111(4) 2007/2008 Budget allocation450150300 Total available capital557261296 Less: Approved / potential transactions in current pipeline to be invested in 2007/2008 (214)(120)(94) Available for other deals in 2007/2008332136195 FUND MANAGEMENT RESERVES - 2007/2008 18

34. TABLE OF CONTENTS 1.MISSION, MANDATE AND OBJECTIVES 2.CURRENT STRATEGIC PLAN AND STRUCTURE 3.ASSESSMENT OF THE BEE FUNDING ENVIRONMENT 4.FUND MANAGEMENT DIVISION 5.ASSET MANAGEMENT DIVISION 6.BUDGET 7.CONCLUSION 8.CASE STUDIES

35. ASSET MANAGEMENT DIVISION By structuring accessible retail savings products for black people through the Asset Management Division, which is a custodian of certain equity allocations in State Allocated Investments (SAIs), the NEF aims to foster a culture of savings and investment amongst its beneficiaries.

36. The South African consumer challenges Intimidating locations Complex products Non conducive markets Environment Use of accessible channels and Media Access to retail brokers Timeous announcements Distribution and access Distrust formal institutions No financial planning Prefer holding cash e.g. storing money under the bed Culture Very little education and financial Intimidated by financial jargon Education Medical costs eats up disposable income Reduces pool of targeted investors Disillusioned and disgruntled Nation, that do not see a need to save, HIV/AIDS Affordability, Minimum subscription Diversity Costs

37. 2006 Survey of Financial usage 2005 & 2006 people with bank accounts increased by 1,5 m to 15.9m 2% invest in a savings or investment policies Savings & investment knowledge is limited 67% do not understand how interest rates work 38% Emergency 29% Funeral Costs 28% Food

38. 2006 Survey of Financial usage Overall people prefer having safe investment and Earning a low return On average, whites invest more and use formal investment structures Blacks are twice as likely to belong to a Stokvel than a retirement or annuity fund

39. Gaps Identified  Over subscription in the case studies demonstrates growing appetite for non-conventional retail financial products  Savings and investment diversification invites for more products targeted at the individual consumer  There is an increasing need for inflation beating products by all segments  Information irregularity between consumers & product providers, the underlying problem is financial illiteracy  Distribution of financial services and products is a key problem  The backlog and gaps in broad based empowerment dictates that more focused retail offers be made to Black people

40. Interventions to be explored Continuous Education - Providing focused higher quality information Accessible institutions and access to brokers, service providers - Monitor distribution channels more effectively at a high level - Distributors encouraged to take a closer look at the information they receive from product providers Customer focused solutions & less complex products - Designing products that are client focused Channeling increasing consumer expenditure towards savings and investment Acceleration of Broad Based Empowerment Designing innovative products Undertake better post-sale analysis of the performance of products

41. Designated State Allocated Investments Asset Shareholding % Status MTN Group 1.5received by NEF Telkom 5not yet received SAA 5not yet received ACSA 10not yet received Connex Travel 10not yet received Viamax 10not yet received Syncat 10not yet received Transwerk Perway 10not yet received Sentech 10not yet received Uthingo 5received by NEF SAFCOL 10not yet received

42. BEE RETAIL PRODUCTS Current BEE Retail Product Initiatives

43. TABLE OF CONTENTS 1.MISSION, MANDATE AND OBJECTIVES 2.CURRENT STRATEGIC PLAN AND STRUCTURE 3.ASSESSMENT OF THE BEE FUNDING ENVIRONMENT 4.FUND MANAGEMENT DIVISION 5.ASSET MANAGEMENT DIVISION 6.BUDGET 7.CONCLUSION 8.CASE STUDIES

44. ‘millionsFund ManagementOperationsTOTAL 2003/4R35R25R60 2004/5R150R15R165 2005/6R371R40R411 2006/7R495R66R561 TOTALR1 051R146R1 197 R1 035 INVESTED: COMMITTED: R635 R400 BUDGET: 2007/8R646R143R789 2008/9R965R107R1 072 2009/10R978R116R1 094 TOTAL MTEFR2 589R366R2 955 MTEF YTDR3 640R512R4 152 OVERVIEW OF CAPITALISATION R151 m R380 m

45. Budget v MTEF: Operating Costs

46. 2006/72007/8 2008/9 2009/10 Budget MTEF Budget MTEF Budget MTEF R'm Operating budget 66 125 102 134 109 145 117 Capex 1 18 6 - - - - Operating budget 67 143 108 134 109 145 117 Investment capital Imbewu Fund investment budget 200 150 244 250 355 350 368 Corporate Fund investment budget 247 300 357 365 430 475 430 Post Investment Support - 8 - 8 - 9 - Strategic Projects 36 73 120 250 150 211 150 BEE Retail 45 115 40 - 30 - Total Capital 528 646 761 873 965 1,045 978 TOTAL FUNDING REQUIREMENTS 595 789 869 1,007 1,074 1,190 1,094 Budget v MTEF: Operating Costs and Investment Capital

47. TABLE OF CONTENTS 1.MISSION, MANDATE AND OBJECTIVES 2.CURRENT STRATEGIC PLAN AND STRUCTURE 3.ASSESSMENT OF THE BEE FUNDING ENVIRONMENT 4.FUND MANAGEMENT DIVISION 5.ASSET MANAGEMENT DIVISION 6.BUDGET 7.CONCLUSION 8.CASE STUDIES

48. CONCLUSION The board of trustees and management are clear on and committed to the mandate of the NEF; The NEF has an important mandate which is to drive the transformation of the South African economy through the implementation and funding of government BB BEE policy; The new board of trustees and management team has successfully advanced the NEF to a positive position in terms of track record, delivery and obtaining overall stakeholder support from the dti, National Treasury and business in general; Having achieved all of this, management and the board of trustees continue to drive the NEF to become a most credible and strategic DFI in South Africa, an example and an authority in the effective implementation of transformation policy, beyond the Republic of South Africa.

49. TABLE OF CONTENTS 1.MISSION, MANDATE AND OBJECTIVES 2.CURRENT STRATEGIC PLAN AND STRUCTURE 3.ASSESSMENT OF THE BEE FUNDING ENVIRONMENT 4.FUND MANAGEMENT DIVISION 5.ASSET MANAGEMENT DIVISION 6.BUDGET 7.CONCLUSION 8.CASE STUDIES