Industrial Development Corporation on its 2011 Strategic Plan

Economic Development

28 March 2011
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The Industrial Development Corporation mission was to be the driving force of commercially sustainable industrial development and innovation to the benefit of South Africa and the rest of the African continent. The IDC’s main objectives were to support industrial capacity development, facilitate sustainable employment, and to be the catalyst in driving industrial development. The key strategies to meeting the objectives included focusing on industrial development by aligning itself to the New Growth Path and the Industrial Policy Action Plan 2, which focused on infrastructure, the knowledge economy, cultural industries, tourism and high-level services, the mining value chain, manufacturing activities, the agricultural value chain, and the green economy. The IDC estimated that it would invest R66 billion over the next five years as opposed to the R39 billion that was invested over the last five years. The IDC’s balance sheet would remain strong despite the increased levels of funding. The IDC showed that 31% of its funding would go toward mining and beneficiation, 20% to the green industries, 12% for chemical and allied industries, 11% to machinery and transport equipment, 6% to strategic high impact projects and 6% for agro-industries. The rest would be allocated to media, ICTs, healthcare, forestry and wood impacts, tourism and venture capital.  

Members questions and concerns focused on whether the IDC was able to measure, quantitatively and qualitatively, the impact it made on growth and job creation to address the income inequality gap; the factors impeding industrial development; if IDC had met with business sector leaders to discuss plans for job creation and for expanding certain industries; the merger of the IDC, Khula and SAMAF would minimise bureaucratic processes but would the merger contribute to saved expenses; had IDC mentored the companies it financed; how many companies in distress had IDC assisted; was IDC satisfied with the number of jobs it had created, if the IDC could utilise the infrastructure in the former homelands to create jobs and train people for jobs; what IDC's relationship with the Small Enterprise Development Agency (SEDA) was like; what proportion of the IDC's overall funds reached recipients; how well were IDC programmes aligned with the development strategy of provinces; how strong were the IDC outreach programmes as people in the country needed to be made aware of the IDC, Khula and SAMAF. The Committee noted the IDC giving R250 million to the Land Bank for “on-lending” to producers in primary agriculture. The Land Bank did not have a good reputation, which meant it was a “higher risk, lower return” project. Members were unsure how the IDC had contributed to transformation of the tourism and media and motion picture industries. The IDC had the ability to speed up transformation in the sector, which would allow for job creation and the alleviation of poverty. The ICT sector was crucial for the country; however, one did not see the IDC making any inroads in the sector. The Committee emphasised that there had to be better resource coordination between the IDC and local government and the provinces to achieve better outcomes.

Meeting report

 

Opening Statement
The Chairperson said that she had received apologies from Members that could not attend the meeting. The Members included Mr E Nyekembe (ANC), Mr B Holomisa (UDM) and Mr S Ngonyama (COPE) who would be joining the Committee later. She wanted to put it on record that Mr Holomisa was always sending letters of apology and never attended meetings. 

Briefing by IDC on its Strategic Plan
Mr Geoffrey Qhena, Chief Executive Officer: Industrial Development Corporation (IDC), stated that the IDC’s mission was to be the driving force of commercially sustainable industrial development and innovation to the benefit of South Africa and the rest of the African continent. The IDC’s main objectives were to support industrial capacity development, to facilitate sustainable employment, and to be the catalyst in driving industrial development.

The key strategies to meeting the objectives included focusing on industrial development by aligning itself to the New Growth Path (NGP) and the Industrial Policy Action Plan 2 (IPAP2), which focused on infrastructure, the knowledge economy, cultural industries, tourism and high-level services, the mining value chain, manufacturing activities, the agricultural value chain, and the green economy. Other key strategies included contributing to an enabling environment by having a proactive role in shaping and influencing policy, leveraging the IDC’s portfolio for maximum impact, and focusing on customer service.

The industrial development strategy looked at project development and industrial finance. This meant:
▪ intervening where specific opportunities or bottlenecks had been identified for proactive project development to take place,
▪ focusing on entrepreneurs and existing businesses that had potential,
▪ providing loans and other forms of capital to entrepreneurs operating in targeted sectors such as the green industries, agro-industries, metal, transport and machinery products, chemicals and allied industries, forestry and wood products, textiles and clothing, mining and minerals beneficiation, tourism, media, Information and Communication Technologies (ICTs), and healthcare.
The industrial development strategy also focused on regional industrial integration, identifying and developing sectors where cross-border value chains could be established. This would ensure benefits to both South Africa and the rest of the region and it would contribute to building more competitive industries.

The key strategy for “contributing to an enabling environment” would assist with addressing impediments to industry development. For the NGP to achieve its goals, several factors needed to be in place:
▪ Policies in government had to be coordinated and practices had to be aligned with the aims of the NGP,
▪ constraints hindering the development of priority sectors had to be removed,
▪ entrepreneurs had to take advantage of the opportunities being provided,
▪ the economy had to grow at a pace where the initial impetus given by the government could be sustained,
▪ capital had to be available to fund fixed investment activity.
The IDC played a direct role in the provision of capital and was extending its role to assist the government to identify and help address other factors that were impeding industrial development. The IDC has been working closely with the National Empowerment Fund (NEF) and Khula, especially in the franchising and construction industries, to address issues concerning co-funding, skills transfer, portfolio management, IT systems and business support. The IDC was also participating in discussions led by the Economic Development Department (EDD) to investigate the merger of Khula, the South African Micro-Finance Apex Fund (SAMAF), and the IDC’s small business operations.

The strategy for leveraging the IDC’s portfolio focused on loan funding and equity funding. Loan funding consisted of interest repayments and capital repayments, and equity funding looked at dividend payments, capital growth and exits of mature investments. The IDC relied on borrowings, internal profitability, capital growth and exits from mature investments to maintain and expand its funding ability. Dividends from mature equity investments allowed the IDC to cross-subsidise its loan portfolio and design low priced schemes aimed at specific outcomes.

The last key strategy focused on customer service and the environmental impact. The IDC was in the process of addressing red-tape and bottlenecks in its processes to improve turnaround times in its application process. The IDC’s focus on the sectors related to the NGP allowed it to improve efficiencies by redeploying employees that used to be involved in non-priority sectors. Several initiatives were underway to improve clients’ experience and improve turnaround times such as on-line screening of applications, business plan requirements and finance criteria and business assessment checklists. The IDC also wanted to reduce its carbon footprint.

In terms of resource requirements, the IDC estimated that there would be R66 billion investment over the next five years as opposed to the R39 billion that was invested over the last five years. The IDC’s balance sheet would remain strong despite the increased levels of funding. The IDC was in discussions with the EDD on ways in which its funding could be increased through the removal of barriers to industrial development.


The IDC showed that 31% of its funding would go toward mining and beneficiation, 20% to the green industries, 12% for chemical and allied industries, 11% to machinery and transport equipment, 6% to strategic high impact projects and 6% for agro-industries. The rest would be allocated to media, ICTs, healthcare, forestry and wood impacts, tourism and venture capital.

Discussion
Mr S Marais (DA) noted that the IDC was the vehicle that had to drive the IPAP2 and the NGP. He asked if the IDC was able to measure, quantitatively and qualitatively, the impact it has made on the growth and job creation in order to address the income inequality gap in the country. He noted that the ANC wanted to develop a small business finance division and that Khula and SAMAF would become part of this initiative. He asked if the IDC had any contact with the NEF to discuss bringing together all these industrial finance institutions.

Mr Christo van Zyl, Senior Strategist: IDC, spoke on the IDC's contribution on job creation. He said that the IDC was involved in job creation; however, the impact was difficult to quantify. It was also difficult to measure the IDC's impact on economic growth. However, the IDC participated in and encouraged investment, which contributed to economic growth. He explained that the IDC did not track its impact on reducing the income inequality gap; however, it tracked the beneficiaries that received funding from the IDC such as Broad-Based Black Economic Empowerment (BBBEE) companies.

Mr Saul Levin,
EED Chief Director: Development, pointed out that the EDD was working with Khula, SAMAF and the IDC as well as the Department of Public Service and Administration (DPSA) and the National Treasury (NT) so that there could be a coherent approach to the merger. The EDD put together a task team from these entities to draw up a business plan that would be given to Parliament. The plan would give a clear indication of the timeframes, the objectives and what the organogram would look like. The business plan would also indicate any cost-saving strategies that would be put in place and where employees would be re-allocated. 

He said that the NEF reported to a different department so it was difficult to engage with them. The Committee had to keep in mind that there were key differences between the NEF's funding and the IDC's. The NEF looked at “empowerment” funding rather than Small, Medium and Micro Enterprise (SMME) funding. The type of funding that they gave was different, which meant that the NEF did not have the same function as DFIs that looked at productive sectors.

Mr N Gcwabaza (ANC) asked the IDC to expand on the factors impeding industrial development. What was the IDC doing to address these impediments? He wondered if the IDC had met with leaders of the business sectors to discuss with them their plans for job creation and for expanding certain industries. He noted that the presentation did not go into detail about the IDC’s plans for job creation.

Mr van Zyl answered that many of the IDC's projects in the agro-industry would have an impact on rural areas such as energy renewal, bio-fuel etc. The IDC would also be making an impact on other sectors such as tourism.

Mr Qhena explained that the IDC wanted to go to the various provinces to visit business leaders to discuss the matter of job creation. Once the IDC meet with them, they would be able to get a sense of what the entities were doing. The IDC would also look at the challenges the businesses faced with job creation. He said there was room to improve for all the DFIs; especially when it came to the matter of job creation.

Mr X Mabasa (ANC) noted that small industries were a small component of what SAMAF and Khula was going to work with. He was aware that the IDC was not quite succeeding at the strategic objectives that they wanted to achieve concerning SAMAF and Khula. He asked what was needed in order for the IDC to achieve overall success. He noted that there was a factory in Wynberg that was mainly populated with disabled persons. He asked how the IDC related to this company and what the chances were of having a company like this in every province. He wanted to know if the IDC mentored the companies that they financed. Did the IDC have plans to develop cooperatives?

Mr Levin from the EDD answered that he could not say that the DFIs had been successful given that so few small businesses had been assisted by Khula and SAMAF. The merger of the three DFIs would be looking at expanding as well as bringing in more capital and resources.

Mr Wesley Gabriels, Head of Regional Office: Western Cape (IDC), explained that the factory in Wynberg manufactured wheelchairs. It was a beautiful business that employed disabled persons.

Ms Katinka Schumann, Divisional Executive of the Services Sector (IDC), addressed the question on mentoring. She said that the IDC had quite an extensive mentoring programme in place. They tried to incorporate it into most of their schemes or funding mechanisms, but it required a partnership between the IDC and its clients. It helped the client to look at pre-investment as well as post-investment initiatives. This assisted the client with business plan preparation. There were consultants in every province that could assist the clients. The IDC felt that it needed to be more proactive as opposed to waiting until businesses were in the process of collapsing. 

Ms Schumann focused on the matter of co-operatives. She stated that co-operatives should have access to markets and better economies of scale in their agricultural endeavours. The IDC had a programme to help those in the agricultural sector pass on their skills to others.

Mr Z Ntuli (ANC) asked how many companies the IDC had assisted that were in distress. He noted that the merger of the IDC, Khula and SAMAF, the three Development Finance Institutions (DFIs), would minimise bureaucratic processes. He asked the IDC to estimate the amount by which expenses would be minimised.

Mr Saul Levin The EDD official said that Mr Ntuli's question was difficult to answer at this stage. They would have to look at the business plan once it was completed. However, he could guarantee that the three DFIs would not lose their staff.

Mr S Ngonyama (ANC) asked if the IDC was satisfied with the number of jobs they had created and if there were any challenges that impeded the creation of employment. There was a serious challenge of poverty in the country and it was important that the IDC had a positive impact on the country. He said there was infrastructure in the former homelands that was not being utilised. He asked if the IDC could utilise this infrastructure in the homelands to create jobs and train people for jobs in certain sectors.

The Chairperson stated that the Committee wanted the IDC to focus more of its attention on infrastructure development. Much of their attention was also on rural development, and it was important to focus on local economic development there. The IDC had not said much about their outreach programmes. This was what the Committee should focus on. Many people in the provinces did not know what the IDC was doing. She wondered how the IDC's programmes were integrated into or aligned with the provinces' development strategy.

Mr Gcwabaza noted that the IDC had given an additional R250 million to the Land Bank for “on-lending” to producers in primary agriculture. The project aimed at developing rural economies. He asked them to expand on this by focusing on the outcomes of the initiatives and what the impact had been on job creation. It was important that this kind of initiative addressed the issue of unemployed women and youth in rural areas. It was also important to look at the sustainability of the jobs that were created. He wondered if it was possible to reactivate industrial activity in former homelands.

Mr Qhena said that the R250 million given to the Land Bank was to address a “distress situation”. The money was given to the Land Bank for specific interventions. The IDC was also involved in other interventions, for example, they had an arrangement with the Women's Development Bank. The IDC gave the Women's Development Bank a R5 million facility that would help them to assist in rural areas. The IDC also wanted to partner with the Land Bank in other areas, but the R250 million was given to assist with their “distress situation”.

Mr Ngonyama stated that the IDC had to take seriously the level of poverty experienced in the country. It was important for an institution such as the IDC to focus its attention on rural development, as the production of food in the country has decreased. He noted that the IDC's sugar beets project in the Eastern Cape had dwindled. This happened after the IDC went to Germany to acquire more information on the project. It was unfortunate that the CEO had not answered the question concerning the former homelands. He had asked a question concerning the former homelands' industrial infrastructure. He wondered if the homelands could be used to create sustainable employment. There were factories in the homelands that could be utilised for various initiatives. He advised the IDC to “resuscitate” those areas. 

Mr Qhena replied that he would respond to the concerns raised by both Mr Ngonyama and Mr Gcwabaza about the former homelands. He said that the Strategic Plan attempted to address the matter by discussing the rural agricultural schemes that the IDC was involved in. The schemes focused on bringing small-scale farmers into the agro-industry so they could play a role in economic development in the country. Jobs were being created through this initiative; however, there was room for the IDC to improve, especially in terms of using the infrastructure in former homelands. 

Mr Qhena answered that the sugar beet project was something the IDC had been working on for quite some time. However, it appeared as though the project has lost some momentum. The intention of the project was to focus on bio fuel, but the project was not progressing at the speed that the IDC would have liked it to.

Mr Ntuli addressed the IDC's alignment with entities that were at the local and provincial level. The Committee found that provinces were “doing their own things with their own EDD”. He asked if the IDC had a strategy for implementing a uniform approach that provinces and the local government could follow. He wanted to see if the objectives of local and provincial entities as well as those of the IDC were aligned. When the Committee visited the KZN province, they found that the Small Enterprise Development Agency (SEDA) was not “coming to the party”. He asked what the IDC's relationship with SEDA was like.

Mr Qhena replied that the IDC made sure that it aligned itself with the national, provincial and local government. They gave their input where they could, but ultimately, it was the government's duty to ensure that the national, provincial and local governments were aligned and communicated properly.

Mr Qhena said that the IDC's experience with SEDA was varied. In terms of the relationship between the IDC and the SEDA, there was room for improvement. However, he thought SEDA could play a role in the functions of the IDC, Khula and SAMAF.

Mr Marais noted that the IDC had a good record of investments. It seemed that the IDC's new developmental mandate allowed them to look into higher risk fields with lower returns. He referred to the money that was made available to the Land Bank. The Lank Bank did not have a good reputation, which meant the IDC had invested in a high risk initiative. He asked what “risk aversion measures” had been taken and to what extent the government has stepped forward to protect the IDC. It seemed the IDC was involved in a “higher risk, lower return” project rather than the usual “higher risk, higher return” investments. He noted that a Gro-E Scheme had been launched and that R10 billion had been made available to it for five years or until the scheme was exhausted. One could see that BBBEE compliance was very important for the scheme. He asked if the IDC could clarify what “BBBEE compliance” meant, as there were certain levels of compliance. Did an entity have to be at a certain level of BBBEE compliance?

Mr Qhena noted the question concerning “higher risk, lower return”. He said that success was not measured only on financial returns, they were also measured on developmental returns such as job creation, SMME promotion, black empowerment etc. He said that the cost of doing business with the Land Bank could be recovered from other investments that the IDC had made.

Mr Qhena said that the R10 billion Grow-E Scheme was new money that was coming into the economy from IDC's resources. Being a BBBEE compliant company was important, but companies had to prove that they were BBBEE compliant. The IDC visited its clients so they knew whether they were BBBEE compliant or not. The IDC wanted to see that companies had employment equity plans that were in line with the law.

Mr Mabasa asked what proportion of the IDC's overall funds was able to reach its end destination. This amount would obviously exclude the parts of the funds used for administration purposes. He said it would be really sad if people in the country did not have the capacity to reach out to the IDC or enjoy the fruits of what the IDC could offer. It was the IDC and the Committee's duty to reach out to these people. People in the country needed to be made aware of the IDC, Khula and SAMAF.

Mr Qhena replied that it was the IDC's intention that all the money would be transferred to beneficiaries over time.

The Chairperson focused on the IDC's role in industrial development. She was unsure of how the IDC had contributed to transformation of the tourism industry and if they had identified blockages stemming from existing role players within the sector. There were many people that had finished tourism management courses or other qualifications related to tourism, but they were barred from entering the sector. The media and motion picture industry was another industry that seemed to lack transformation. She thought that institutions like the IDC had the ability to speed up transformation in the sector, which would allow for job creation and the alleviation of poverty. The ICT sector was also crucial for the country; however, she did not see the IDC making any in-roads in the sector. Was the IDC going to focus on its existing projects? What happened to rescuing distressed companies? When the Committee visited KZN they saw some companies that they thought were not worthy of being rescued - as they were not contributing to the country. The IDC had to look at the number of jobs they had saved and/or created. She noted that the IDC had a Natural Disaster Relief Fund, which was geared toward the agricultural sector. Local municipalities experienced challenges with their sewage systems, which came as a result of natural disasters. She asked if the IDC could look into this - given that they had a disaster relief fund. It was the role of the IDC to initiate projects like these. The Committee wanted to give the IDC these kinds of responsibilities because they had the capacity to do them. She wondered what could be done to ensure that the IDC “did not work at a loss” like they had done for the past three years. 

Mr Qhena explained that the IDC was looking at the reasons for why certain sectors and industries had not advanced in terms of transformation and black empowerment. When the IDC invested, it took this factor into consideration. There was room for improvement in the tourism industry as well as in the media and motion picture industry.

The Chairperson said that an assessment of these industries was needed so the IDC could measure its progress going forward. The Committee wanted to encourage the IDC to work more closely with industries in provinces. The IDC's “outreach” was very important.

Mr Qhena continued. He said that the National Disaster Fund was aimed at enterprises, for example, for initiatives set up by entrepreneurs. The IDC would look into the suggestion of using the funds to help municipalities to address the sewage system problems in provinces.

Ms Schumann said that the IDC was embarking on a more focused marketing approach to make people more aware of the IDC. It was the function of the regional IDC offices to engage closely and directly with stakeholders and entrepreneurs.

Mr Mabasa stated that there had to be resource coordination between the IDC and the different spheres of government for better outcomes. The question was whether the local government would be able to get on board. With more coordination, the chances of funds “getting lost” were less and businesses would have a better chance of succeeding. He understood that marketing was the duty of those businesses, but thought that the IDC should make a point of encouraging businesses to market themselves better.

Mr Qhena replied that the IDC would address the marketing matter.

The Chairperson noted that the Committee had not focused on the IDC's regional integration. Members would discuss this another time. She thought it was a good idea for Members to give the IDC a list of areas they thought could be better utilised or regions that needed more financial attention. The IDC also had to share with people the details and the criteria that would allow them to access the fund.

Mr Qhena answered that they would forward the Committee the details of the criteria the IDC used to decide whether they would fund companies.

The Chairperson thanked the IDC for their presentation and responses. It was important that the Committee check on the entity's five year plan. This way Members could tell where the IDC was lacking and where they could improve. The EDD budget vote was going to be debated on 12 April 2011 and this was where the IDC would hear how the Committee felt about its strategic plan. The IDC had to ensure that it kept on improving so that it could contribute to job creation and economic growth, and assist with decreasing the income inequality gap in the country.

Committee Programme
The Chairperson stated that the Committee had to discuss its work programme for the next three days. She proposed that the Committee incorporate the work that was scheduled for Friday, 1 April 2011, into the work schedule for Wednesday and Thursday, 30 and 31 March 2011. This way, the Committee could end earlier. However, this would put pressure on the Committee Researcher and Committee Secretary to complete the Committee Report on the EDD Strategic Plan and Budget Vote. She did not think that this would be possible given the short amount of time available to consolidate the report. She proposed that the Committee return on Wednesday, 6 April 2011, to discuss and adopt the report. This meant that the Committee would be free on Friday, 1 April 2011.

Mr Mabasa said that in light of the political work that parties had to do, he suggested that the Committee utilise Friday afternoon to adopt the report rather than Wednesday, 6 April 2011.

Mr P Rabie (DA) seconded the Chairperson's proposal for the Committee to return on 6 April 2011 to adopt the report.

Mr Ntuli also seconded the Chairperson's proposal.

Mr Mabasa stated that he wanted to withdraw his proposal in light of the Members' views.

The Chairperson clarified that the Committee would return to Parliament to adopt the report on Wednesday, 6 April 2011, and that Friday's work would be incorporated into Wednesday and Thursday's work programme. The meeting on 6 April 2011 would resume at 9am. 

The meeting was adjourned.

 

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