Industrial Development Corporation

Lumkile MondiChief Economist and DivisionalExecutive for Professional

Services

Thursday, 26 September 2013

Zimbabwe Mining and Infrastructure Indaba 2013

Introducing IDC

• IDC was established in 1940 with the aim of developing South African industry through the Industrial Development Corporation Act (No. 22 of 1940);

• The vision of the IDC is to be the primary source of commercially sustainable industrial development and innovation to the benefit of South Africa and the rest of the African continent;

• The IDC is a self-financing national development finance institution whose primary objectives are to contribute to the generation of balanced, sustainable economic growth in Africa and to the economic empowerment of the South African population, thereby promoting the economic prosperity of all citizens.

• The IDC achieves this by promoting entrepreneurship through the building of competitive industries and enterprises based on sound business principles.

• Pays income tax at corporate rates and dividends to the shareholder.

IDC’s positioning in the financial industry

• Non-commercial focus• Fiscal transfers and grants• Development objectives (social)

Government / NGOs• High commercial focus• Private sector capital• Financial objectives• Known risks

Commercial Financiers• Developmental and commercial

focus• Sharing risk• Internally generated funds,

government funds, loans

DFIs

Greater importance on financial objectives

Greater importance on social and developmental objectives

• Industrial Development Corporation (IDC)• Development Bank of Southern Africa

(DBSA)• National Empowerment Fund (NEF)• Small Enterprise Finance Agency (SEFA)• Etc.

• ABSA• Standard Bank• First National Bank• Nedbank• Etc.

IDC does not directly compete with any of these institutions, but encourages cooperation with a variety of these institutions to achieve its goals

Equity funding

Loan funding

Funding model

Capital growth

Interest repayments

IDC relies on borrowings, internal profitability, capital growth and exits from mature investments to maintain and expand its funding ability

Capital repayments

Dividend payments Exits of mature investments

IDC Funds• Borrowings• Balance sheet• Mature investments• Retained earnings

The balance between the corporation’s developmental role and financial performance is maintained by relying on proceeds from mature equity investments (both dividends and capital growth) to cross-subsidise

higher risk activities.

X-Subsidization

The IDC: Actively supporting Africa’s revival

The SA Government is committed to support economic development throughout Africa to underpin the African Renaissance vision encapsulated in NEPAD. As such, IDC’s core strategies for the continent are to:

Leverage private sector investment for economic development throughout the continent

Play a major role in the development of industrial capacity Strengthen South Africa’s constructive role in regional economic development Leverage foreign direct investment by bringing in foreign partners using

international networks Transfer experience and expertise to African DFIs (Capacity Building) Promote supply of goods & services from SA Establish credit lines for financially sustainable regionally-oriented financial

intermediaries Support NEPAD and regional spatial development initiatives (SDIs)

These are further underpinned by IDC’s quest to create and to maintain jobs for South Africans and other Africans

• IDC offers a wide array of financial and non-financial instruments, including :

Equity Quasi-equity Commercial debt Export finance Lines of credit Technical assistance (research, capacity

building, training, etc.)

• These may be provided singly or in combination

The funding is structured to suit the business’ needs; e.g.:• Term of the funding: Short, medium and /or long-term loans;• Payment holidays: moratorium on capital or interest based on

projected cash flows.

IDC’s funding products

• Funding is provided to projects (NOT para-statals or governments)

• Finance is provided for the development of new businesses, expansions or rehabilitation of existing businesses

• Business case must exhibit economic merit (i.e. it must be profitable)

• IDC finances fixed assets and fixed portion of growth in working capital requirements

• Credible operator/ technical partner

• Reasonable contribution from promoter/s

• Minimum project size (SACU, SADC, RoA)

• Security

• Environmental compliance

Funding criteria

•Profitability & sustainability in a reasonable time frame

•Developmental impact•Fixed assets and the fixed portion of growth in

working capital requirements•Reasonable financial contribution from owners•Security•Environmental standards

Additional investment Criteria for Projects Outside SA

•Profitability & sustainability in a reasonable time frame

•Developmental impact•Fixed assets and the fixed portion of growth in

working capital requirements•Reasonable financial contribution from owners•Security•Environmental standards

• The rest of Africa, and the sub-region in particular, present several opportunities for South Africa:

– A market for South African goods and services;– A source of raw material and intermediary inputs

for SA industry;– A source of .essential imports for the South

African economy (oil, gas, water, agricultural goods and commodities, etc.); and

– An opportunity to build on opportunities to enable the development of more competitive and integrated value chains.

– An opportunity to create regionally integrated infrastructure.

SA benefit and regional industrial integration

Funding process

Applications from existing/prospective businesses

Proactive identification and development of projects

Pipeline Assessment and decision

Detailed due-diligence/feasibility study assessing development impact

and sustainability of opportunities:

• Development outcomes• Market for products/services• Technical viability and

competitiveness• Financial viability• Management

Monitoring

Structuring of funding depending on client’s needs

Approval of viable transactions at appropriate committee

Ongoing monitoring of client performance after funding is

made remaining

Interventions in businesses experiencing difficulties

• Business support• Restructuring of facilities• Etc.

More emphasis being placed on early stage

involvement and development of projects

Sectoral focus

10

Areas we would consider ….• Mining and mineral beneficiation• Agro-Processing• Tourism (new hotel construction, expansions ,

and rehabilitations)• Healthcare • Industrial infrastructure (e.g. transport – road,

rail , air, and sea/river; power; telecoms; etc.)• ICT• Forestry and wood products• Manufacturing in General

Areas we do NOT currently consider …• Property development per se (e.g. construction

of shopping centers, office blocks, housing, etc..) • Tobacco and related sectors• Gambling and related sectors

Current footprint in the rest of Africa footprint

MOZAMBIQUE• Mining• Manufacturing (Textiles)• Agro-processing• Energy

NIGERIA• Hotel

GHANA• Hotels &

Accommodation

• ICT

TOGO• Financial services• Transport

NAMIBIA• Agric. / agro-processing• Mining• Cement

BOTSWANA• Hotel &

Accommodation

MALAWI• Food and

Agriculture• Franchising (Tool

Hire)

SUDAN• Infrastructure (Water)

KENYA• Energy• Sugar

UGANDA• Hotels &

Accommodation• InfrastructureTANZANIA

• Sugar

MAURITIUS• Communications

ZAMBIA• Storage and

warehousing• Healthcare

SWAZILAND• Basic chemicals• Agro-processing• Financial services

D.R. CONGO• Mining• Franchising (Food)

LESOTHO• Energy

ANGOLA• Energy

ETHIOPIA• Agro-processing

ZIMBABWE• Mining• Hotels• Telecommunications• Financial services

Sierra Leone• Bio-Energy

SENEGAL• Airport• Port infrastructure

• Current market exposure of ca R20 billion in 21 countries

• Over USD 3 billion approved since 1998

• Rolling capital allocation of ca R14 billion over 5 years

Economicmerit ofdeals

Due-diligence processes (risk mngt.)

Portfolio diversification

Corporate governance

Skills base

Concluding remarksIDC’s successes are built on strong pillars …

Prospects

Thank you

Industrial Development Corporation19 Fredman Drive, SandownPO Box 784055, Sandton, 2146South AfricaTelephone 011 269 3000Facsimile 011 269 2116E-mail callcentre@idc.co.za