Presentation to Parliamentary Committee on Economic Development

Geoffrey Qhena

CEO13 October 2009

Contents

• Section 1: IDC’s capacity to fulfill its mandate as agreed to in the “Framework for Government’s response to the international economic crisis”

• Section 2: Analysis of IDC’s funding

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IDC’s capacity to fulfill its mandate as agreed to in the “Framework for Government’s response to the international economic crisis”

Summary of IDC’s role in implementing the framework

• Investment in public infrastructure– IDC allocated R3.7 billion to infrastructure projects for the 2010 financial year (R2.6 billion utilised in the previous

financial year). Used primarily to fund private participation in public, private partnerships.

Also used for funding infrastructure projects in the rest of Africa.

– Working together with SOEs to ensure that the local benefits of their investment plans are maximised.

• Industrial and trade policy measures– Participation in sector task teams considering the automotive and capital equipment industries, as well as ongoing

participation in textiles task team set up ahead of the crisis.

– Overall, R11.4 billion were budgeted to be approved for investment in 2010 (R10.8 billion utilised in 2009). Subsequently increased to R12.6 billion, mainly as a result of additional demand for expansions.

– R6.1 billion made available over two years specifically to assist companies in distress as a result of the economic crisis.

R 2.9 billion in 2010 and R3.2 billion in 2011.

– Participating in development of scaled up Industrial Policy Action Plans.

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Summary of IDC’s role in implementing the framework (continued)

• Employment measures

– Saving jobs is a prominent consideration in assessing distressed firms’ applications for funding.

– Target for jobs created and saved increased to 38 000 compared to the 26 700 achieved in 2008/09.

• Social partnership in response to the crisis

– Active participation in the Investment and Financing and Distressed Sectors Task Teams set up to facilitate coordination and implementation of the framework.

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0 200 400 600 800

Food, beverages and agro-industries

Mining and beneficiation

Wood, paper and other

Textiles and clothing

Chemicals and allied industries

Metal, transport and machinery

Transport, financial and other

Tourism

R' million

Before April 2009

April to September 2009

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Update on IDC funding:Distress funding approvals

Funding approvals to distressed companies • R485 million approved for 14 distressed companies in 2008/09 financial year.

• From April to September 2009, R993 million have been approved for 15 companies (includes 1 approval outside South Africa).

• Approvals in current financial year expected to save c.a. 5 400 jobs.

• 16 existing clients had funding restructured in the current financial year.

• 13 funding applications (R305m) have been rejected – largest portion as there were no indications that the company could be sustainable in the long-term.

Update on IDC funding:Distress funding pipeline

• 33 applications to the value of R2.3 billion currently in the pipeline.

• Stage of application:• Basic assessment: 24• Due-diligence: 9

• Large portion resides in a few large applications in the automotive industry.

Applications for funding from distressed companies (end September 2009)

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Conditions attached to approvals

• Some conditionalities attached to approvals for distressed funding (done on a case-by-case basis):

– Management remuneration;– Payment of dividends;– Repayment of shareholders loans;– Existing shareholders disposing of their shareholding;– Payments to creditors;– Capital repayment of bank loans;– Job losses.

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Progress in addressing constraints

• Financial– IDC’s ability to raise funding not as adversely impacted by lower liquidity as suspected at the start of the

financial year. Has been able to raise funding from traditional sources, albeit at a higher cost compared to previous years

– Have been exploring avenues to raise funding from non-traditional sources. Finalising first private bond placement Preparing for domestic public bond issues. Several other options are being explored.

– Profits still expected to be severely impacted, largely as a result of impairments of investments.– Assessing different scenarios to determine the impact of increased IDC funding on its sustainability –

submitting to Board for discussion at the end of October

• Human– Filling vacancies.– Temporarily redeploying people to units with higher demand when the need arises.– Investigating option of utilising contractors on a part-time basis if demand increases.

Analysis of IDC’s funding

Analysis of Approvals

Total Value and Number of Approvals • R3.4 billion approved in the six months to September 2009, marginally higher than in the corresponding period in the previous year.

• Despite tough economic conditions, 72 transactions have been approved in the current financial year.

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Value of Approvals (R'm)Number of Approvals

Regional activity (2008/09)

Examples of funding approvalsEastern Cape– An additional eight emerging citrus and

pomegranate farmers supported in the Kat River Valley, in rural Eastern Cape (R28 million).

– Funding for a textiles companies specialising in speciality plastic coated textiles (R29 million).

– Funding for the construction of a fully black-owned five star hotel in Port Elizabeth (R157 million).

– Funding for the expansion of an East London based manufacturer of flat screen televisions. (R64 million).

– Kob (kabeljou) mariculture project in the East London Industrial Development Zone (IDZ). Pioneering the development of hatchery/spawning technology and land-based recirculation systems for the sustainable production of indigenous marine finfish (R20 million).

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Split of value of IDC approvals by province

0% 10% 20% 30% 40% 50% 60%

Eastern Cape

Free State

Gauteng

KwaZulu-Natal

Limpopo

Mpumalanga

North West

Northern Cape

Western Cape

Share of total value

2008 2009

Regional activity (2008/09) (continued)

Examples of funding approvals (continued)

Free State– Wholesale funding benefiting emerging farmers (R3 million).– Manufacturing of concrete products in Botshabelo (R1.3 million).– Additional funding for nut farms (R39 million).– Assisting a black entrepreneur to acquire a petrol station in Kroonstad (R2.4 million).

Gauteng– Assisting the expansion of a manufacturer of washing powder competing successfully with large multi-nationals

across Africa (R167 million).– Funding for an emerging construction company assisting with stadium upgrades for the 2010 World Cup (R20

million), several other construction companies fulfilling government contracts assisted.– Manufacturer of plastic products (R6.5 million).– Investment in an enterprise that produces zircon sand and beneficiates it into speciality chemicals with

applications in high value added products (R40 million).– Joint venture with the CSIR in the development and commercialisation of a controlled-release technology for

use in the pharmaceutical, sport nutrition, animal feed and food industries (R3 million).– Development of the local aerospace cluster through additional funding and support of one of the lead partners

in the industry (R20 million).13

Regional activity (2008/09) (continued)

Examples of funding approvals (continued)

KwaZulu-Natal

– Working capital provided to a large manufacturer and exporter of earth moving equipment impacted by the economic downturn in KwaZulu-Natal.

– Funding for the manufacturing of bio-ethanol based cooking gel in Pinetown (R1.4 million).– Support for a manufacturer of date juice in Durban (R17 million).– Continuing support for a project in the rural area of Winterton to use Kenaf fibre in the construction industry

(R15 million).– Further funding for a raspberry project close to Charlestown (R11 million).

Limpopo

– Establishment of a private hospital catering for rural community in Lebowakgomo, Limpopo (R35 million).– Funding black empowerment in an atchar processing business (R23 million).– Platinum mining near Lebowakgomo (R142 million).– Funding to a cultural tourism lodge in Modjadjiskloof (R3.5 million) and a guest house in Polokwane

(R4 million).– Additional funding for the manufacturer of wood-plastic composite materials in the rural area near Nkowakowa

(R1 million).14

Regional activity (2008/09) (continued)

Examples of funding approvals (continued)

Mpumalanga

– Brick manufacturing in Malelane (R3 million).– Construction company building housing (R2 million).– Manufacturing of plastic products in Nelspruit (R11 million).– Funding for the processing of vegetable oil close to Delmas (R47 million).– Assisting black entrepreneurs to enter the macadamia and pecan nut industry (R3.3 million).– Continued support for a platinum mine (R136 million)– Additional funding for the manufacture of wood pellets for electricity generation (R10 million).

North West

– Additional funding for a berry project close to Hartebeespoort (R10 million).– Wholesale funding to support emerging farmers in the Brits area (R100 million).– Additional funding to a groundnut processing firm (R7 million).– Support for a manufacturer of steel bars (R5 million).– Funding for a game lodge near Bakubung Dam (R33 million)

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Regional activity (2008/09) (continued)

Examples of funding approvals (continued)

Northern Cape

– Co-funded exploration activities of two BEE parties establishing iron ore mines (R286 million).– Funding of a project to mine and process export quality manganese ore in Hotazel (R260 million).

Western Cape

– Additional support for a berry project close to George (R14 million).– Roll-out of franchised supermarkets in township areas (R104 million).– Funding approved to a manufacturer of household textiles, saving more than 500 jobs (R29 million).– Ongoing funding to expand the domestic boat-building industry in Atlantis (R48 million).– Additional support for the fishing industry in Hawston (R3 million).– Manufacturer of veneer products in Brackenfel (R10 million)

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More equitable regional economic activity (continued)

Other areas of regional development (2009/10)– 44 approvals to the value of R1.1 billion in rural

areas.– 27 approvals in townships

Includes franchised retailers, construction companies, concrete products.

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Approvals to businesses in rural areas

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Analysis of Approvals (continued)

Approvals to SMEs

• Number of SMEs funded as a percentage of total at more or less 69%, except for 2008.

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NumberSME approvals as % of total number

Analysis of Approvals (continued)

Sectoral Distribution of Approvals • Sectors that have received the most funding in the previous financial year were:• Mining• Infrastructure

0% 5% 10% 15% 20% 25% 30%

Food, beverages and agriculture

Mining and beneficiation

Forestry, wood and paper

Clothing, textiles, leather and footwear

Chemicals and allied

Fabricated metals, machinery and transport …

Construction

Public, private partnerships and infrastructure

Transport, financial and other services

Tourism

Franchising

Media and motion pictures

Techno-industries

Venture capital

Healthcare and education

% of total value of approvals

2008/09

Thank you