Industrial Development Corporation (IDC) on its role in taking forward SA's response to international economic crisis

Economic Development

07 September 2009
Chairperson: Ms E Coleman (ANC)
Share this page:

Meeting Summary

The Industrial Development Corporation briefed the Committee on its role and implementation plan on taking forward the “Framework for SA’s response to the international economic crisis”. The IDC’s role was to support sustainable development by way of funding businesses showing economic merit. Its role in countering the impact of the economic crisis was in assisting to fill the gap in the market left by financial institutions extending less credit to businesses. It helped to ensure that jobs and capacity at viable businesses were retained. Detail was provided about distress funding approval criteria, pre-conditions and statistics. IDC also spoke about the impact of the poor economic climate on IDC itself.

Some members were concerned that the IDC’s strategy for rural development was lacking because there was a strong urban bias to its work activities. Questions were raised about the IDC’s specific plans and intentions in view of the economic crisis. The Committee was particularly concerned about the viability of the IDC and requested a further meeting about its sustainability in the future.

Meeting report

Mr Mvuleni Geoffrey Qhena, IDC CEO, accompanied by Mr Shakeel Meer, Divisional Executive: Industrial Sectors, and Ms Neo Sowazi, IDC Divisional Executive: Marketing and Corporate Affairs, gave the briefing. The Committee was given insight into the IDC’s vision, mission, objectives and outcomes. The IDC’s role was per se to support sustainable development by way of funding businesses showing economic merit, provided that it was in line with the IDC Act. Some businesses were unable to access funding from commercial financiers as a result of perceived high risks. Mr Qhena listed the 15 sectors that the IDC was involved in such as 1) food, beverages and agriculture, 2) mining and beneficiation, 3) clothing, textiles, leather and footwear and 4) construction. Members were given a breakdown of figures for financial involvement per sector, the approvals for 2008/09 and the number of jobs thus created or saved involvement. Distress funding approval amounts for the various sectors were also provided to the Committee.

Mr Qhena went on to explain the IDC’s role in countering the impact of the current economic crisis. Businesses in general were finding it difficult to access financing as financial institutions were tightening credit criteria. There was lower demand for products and services and hence businesses had internal cash flow problems. The IDC was assisting to fill the gap in the market left by financial institutions extending less credit. It was therefore helping to ensure that jobs and capacity at viable businesses were being retained. The IDC was budgeting to approve R11.4billion of funding in the current financial year, R2.9billion of which was specifically for distressed companies. The high volumes of applications received placed a strain on human resource capacity, the decreased income especially from dividends and the higher levels of impairments/write-offs associated with existing clients were some of the constraints faced by the IDC. Mr Qhena concluded that the IDC would continually be reviewing demand for funding and would allocate additional funds if required as long as the IDC’s long-term sustainability was not materially impacted. (Please refer to document for detail).

The Chairperson noted that the Committee wanted to see how the IDC was handling the economic crisis.

Mr S Ngonyama (COPE) said that the IDC contended that its activities were spread throughout SA. He asked where the IDC’s focus was concentrated. Was it Gauteng and the Western Cape? He asked whether rural areas and other provinces were excluded. What was their spread between small, medium and large businesses? Were logistics part of the IDC’s services? He further asked what the criteria for construction approvals were and what the timelines were.

Mr Qhena said that in terms of investments, generally if it was value-wise, it was towards big business. If it was in terms of numbers it was small SMEs. Value wise it was between 15-20 percent. He noted that the IDC looked at companies in distress that were in the logistics sector. Mr Meer added that SMEs account for 70% of transactions but in total value only made up 10%.

Mr Qhena pointed out that the IDC did try to spread its investments. In reality most were in Gauteng, Durban and Cape Town. Townships and rural areas accounted for 14% of total value of investments. These investments were considered high impact investments and created one third of the total of jobs created by the IDC.

The Chairperson noted that Mr Ngonyama’s question on provinces was covered on page 18 of the presentation.

Mr P Rabie (DA) asked whether it was correct that the IDC took into account the long-term viability of companies being assisted ie companies in financial distress. He pointed out that mining, construction and textiles were labour intensive industries. These industries and others were plagued by problems relating to labour broking. He asked if a company used labour brokers did it affect its eligibility for financing from the IDC. How did the IDC handle financing given without collateral? He requested a breakdown of rural development initiatives by the IDC in terms of race and gender.

Mr Qhena responded that labour brokers were not one of the IDC’s conditions in terms of providing or not providing finance. The IDC did assess jobs and if it was sustainable it would be considered. He added that R1.2bn had been invested in the textiles sector. The sector was going through a tough time. Mr Meer said that the IDC was assisting the sector. There was one application for financial assistance from one company in the sector. He noted that the IDC was trying to preserve jobs in the sector.

Mr Qhena said that if the IDC was happy with making an investment it would in certain instances do so without the provision of collateral. If collateral was available, it would be taken. He said that the IDC had a fund that focused on women and unique projects. He referred to race and gender and said that one of the IDC’s objectives was for an equitable distribution of investments. The IDC consciously tried to build new black entrepreneurs. He unfortunately did not have the percentage breakdown in figures between race and gender at hand. 

Mr S Huang (ANC) referred to a case where the IDC was taking a small textile business to court for non payment of interest amounting to R3m He asked what had made the IDC give the business a loan.

Mr Qhena stated that when companies who were in financial trouble were restructured, the IDC would often defer the payment of interest to a later time when the company could make payment on such interest. Plans were in place to ensure payment when the company was able to do so.

Mr Ngonyama referred to page 5 of the presentation which dealt with sectoral involvement. He asked why there were few approvals for tourism businesses when the 2010 World Cup was to be held soon. The same could be said about franchising.

Mr Qhena referred to the tourism approvals and said that most of the investments aimed at 2010 had already been made. The investments made amounted to R3.3bn. There were however new investments made by the IDC in four hotels. He said that in franchising, SMEs felt the pinch first, big companies were not too affected. The applications for franchising had decreased. He nevertheless felt that 70% of funds for franchises should go to previously disadvantaged groups.

Mr Ngonyama said that the IDC was a very strategic institution. Its role in terms of transformation was critical especially as it related to rural development. He felt that very little was being done by the IDC in rural areas. The consequence was that the disadvantaged in those areas were the hardest hit. The result was that people were moving from rural areas to the cities in search of employment. He appealed to the IDC to invest in rural areas. He suggested that the IDC send scouts to rural areas to search out industries that could be invested in. He was glad that approvals in construction were high.

Mr Rabie referred to turnaround plans and said that he assumed that the companies the IDC assisted were labour intensive. He asked if the companies assisted by the IDC used the services of labour brokers.

Mr Qhena stated that the issue of labour brokers would be looked into and that the information would be provided to the Committee.

The Chairperson commented that the IDC’s primary objective was Africa as a continent. South African economic development was next in line. She felt that a strategy for rural development was important given that it was lacking at present. There was a strong urban bias by the IDC. She asked for the IDC’s strategy on this. The Chair felt that the IDC responded more to the market than taking the initiative itself.

Ms Coleman referred to approvals by the IDC and was concerned that women were not given much support. Especially in the food and beverage and in the textile industry where women were most commonly found. She pointed out that women were also making inroads in the tourism and transport industry and asked how the IDC intended to assist women. She asked what the projected saving was on jobs by the IDC for the next two years. The Committee wanted to know what the IDC’s plans and intentions were in view of the economic crisis. She referred to the concluding remarks of the presentation which in essence said that the IDC would continually review demand for funding as long as the long-term sustainability of the IDC was not impacted upon. Did the IDC have the capacity to do its job or did it lack capacity? She referred to the social plans of banks and financial institutions and asked who checked whether financial institutions delivered on their promises. She asked about the Public Investment Corporation’s Isibaya Fund for social responsibility. The Chair thought it best that the funds from that Fund should be added to the R6bn allocated to the IDC. She asked if the IDC had discussed the issue with NEDLAC.

Mr Qhena said that Ms Sowazi would address the issue of rural development. Ms Neo Sowazi, IDC
Divisional Executive: Marketing and Corporate Affairs, explained that the IDC had a strategy for rural development. She pointed out that there were 23 rural development agencies. Seven new ones were being approved with the view of unearthing developmental activities. The IDC had opened up 8 provincial offices. It had been realized that Cape Town, Johannesburg and Durban alone could not sustain SA. She remarked that the Nelson Mandela Bay Developmental Agency was also an IDC brainchild. She made the point that 34% of the jobs created by the IDC were in rural areas. Gender and sector split figures were unfortunately not available but would be forwarded to the Committee.

Mr Qhena also apologized that figures on jobs saved and to be saved over the next two years were not available at present but would be provided to the Committee. The figures would depend on the uptake of the R6bn that had been allocated. The IDC did not have jurisdiction over banks. Hence the IDC could not comment on whether banks adhered to their commitments. The IDC could however check on commitments made by companies that were being assisted by the IDC.

Mr Qhena explained his concluding remarks. It was perceived that the economic crisis might still continue for another 18 months and the IDC’s concern was whether the R6bn allocation would be sufficient. The IDC needed to remain sustainable. The IDC intended to do more even though it had limited capabilities. It was not only the R6bn that would be invested in the SA economy but also the proceeds of existing investments. Capacity was an issue that needed to be constantly monitored. Increase in capacity might be needed or existing capacity could be reshuffled. Capacity could impact upon turnaround.

The Chairperson asked whether the Committee should be worried.

Mr Qhena responded that if the economic crisis were to last for three years then the Committee should be worried.

Ms Coleman asked whether the IDC wished to brief the Committee on the outstanding issues.

Mr Qhena said that the Committee should not be worried at this stage. Even though income would be reduced the sustainability of the IDC would not be affected. If the R6bn allocated was taken up, then there was no need for the Committee to be worried. If the IDC saw warning signs signalling trouble, it would duly inform the Minister.

The Chair said that if income was the issue, she was even more worried. She suggested that the IDC come back and brief the Committee on the issue to put the concerns of members to rest. The IDC needed to be sustainable as the Minister expected it to create jobs.

Mr Ngonyama agreed that an overall picture on the IDC was needed.

Mr Qhena agreed with Mr Ngonyama’s suggestion that an overall picture would put the Committee at rest.  He conceded that the current presentation was too narrow.

The Chairperson suggested that the IDC when briefing the Committee should be as objective and transparent as possible. If the IDC was in need of funds, it should inform the Committee. The Committee could perhaps provide assistance to the IDC.
Ms D Tsotetsi (ANC) referred to the 23 agencies in rural areas and asked for specifics on the projects such as contact numbers. She also referred to rejected applications and asked if the IDC considered what the weaknesses of those applications were and if it made recommendations to companies on how to improve on them.  

The meeting was adjourned.


  • We don't have attendance info for this committee meeting

Download as PDF

You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.

See detailed instructions for your browser here.

Share this page: