Industrial Development Corporation 2012 Strategic Plan

NCOP Economic and Business Development

28 May 2012
Chairperson: Mr F Adams (ANC – Western Cape)
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Meeting Summary

The Industrial Development Corporation briefed the Committee on its strategic plan for 2012, with the focus on the green economy and a provincial breakdown of its project funding. The IDC had realigned its business to be proactive and provide leadership in industrial development through key interventions designed to unlock industrial sectors.

One new area for the IDC was regional industrial integration. The IDC’s strategy was focused on the implementation of industry-related issues of the National Growth Path and the Industrial Policy Action Plan, and its involvement in aligning sectors to these policies. The IDC’s projects had had a positive and increasing impact on job creation. Provincial involvement by the IDC was based on the competitive advantages offered by each province. The Free State was a particular challenge as it was agriculturally based, but the IDC would look at agro-processing projects.

The focus areas for 2012/13 would be green industries, which would get a very significant amount of 20% of the investment funds. Strategic High Impact Projects would get 17%. Metals and machinery accounted for 8%. Chemical and allied industries would get 7%. Mining and minerals beneficiation would get 17%. Media and motion pictures would get 3%. Other areas were agro industries at 7%, venture capital at less than 1%, forestry and wood products at 9%, textiles at 3%, tourism at 3%, health care at 3% and information and communication technology at 4%.

Within the green industries, the focus of the previous year had been on renewable energy. The IDC was working with Eskom and the Department of Trade and Industry on the manufacturing and roll out of the Solar Water Heater program. It was investigating the viability of alternative fuel sources for buses, while rural areas could benefit from fuel-based energy programs. The entity had a bio-ethanol project in Cradock and was looking at emission and pollution mitigation in all its projects. The IDC had been involved in 18 of the 47 renewable energy projects on offer, which were spread across the country.

The IDC’s funding model relied entirely on how cheaply it could borrow money. It received long-term funds from the China Development Bank, from a German development finance institute and managed funds on the government’s behalf. It cross-subsidised some funding through equity dividends, capital growth and exits from mature investments.

Within the agro-industries sector, it wanted to develop linkages to help import replacement and develop exports. It wanted to see increased local manufacture of components for Transnet and Eskom, and for truck, bus and taxi manufacture. In the forestry sector, it wanted to assist rural communities to develop forestry areas. The IDC was expanding its presence around the country and satellite offices were being established.

Members wanted a list of the areas in KwaZulu Natal where clothing and textile projects had occurred and wanted clarification on the Hospital- Private Public Partnership (PPP). They said the IDC should assist rural communities to own the forests, as most were in the hands of big companies like Mondi.  Tourism and the Square Kilometre Array had not been mentioned. The clean stove initiative was not sustainable and they were skeptical of foreign funding.

Members wanted more information on the provincial distribution of investment projects and wanted to know if officials in regional and satellite offices were monitored and why there were not offices in all areas. They asked the IDC to provide a list of projects the IDC was involved in in the Northern Cape and wanted it to play a bigger role in getting commercial banks to be involved through the provision of guarantees.

Members questioned why beneficiation of manganese occurred at the coast and not at the source.  For two years, disaster funds had not been paid out. How far was the IDC in implementing the Small Enterprise Finance Agency?  Would it not be better to recapitalise the IDC, instead of borrowing money? Members questioned whether the IDC was focusing on its core business as it had shares in mining ventures.
The IDC should focus more on the creation of sustainable jobs.

Meeting report

Industrial Development Corporation 2012 Strategic Plan
Mr Shakeel Meer, Head of Corporate Strategy at the Industrial Development Corporation (IDC), said the IDC had realigned its business to be proactive and provide leadership in industrial development through key interventions designed to unlock industrial sectors. One new area for the IDC was regional industrial integration, where it was working closely with the Economic Development Department. The IDC’s strategy was focused on the implementation of industry-related issues of the National Growth Path and the Industrial Policy Action Plan, and to be involved with aligning sectors to these policies.

For the period 2002 to 2012, the IDC had project investments totaling R7,9 bn in the North West province, R5,2 bn in Limpopo, R6,3 bn in the Western Cape, R 21,6 bn in Gauteng, R6,5 bn in KwaZulu-Natal, R8 bn in the Northern Cape, R3,9 bn in Mpumalanga, R7,7 bn in the Eastern Cape and R847 m in the Free State. The impact of the projects had seen a positive and increasing impact on job creation. Provincial involvement by the IDC was based on the competitive advantages offered by each province. The Free State was a particular challenge as it was agriculturally based. but the IDC would look at agro-processing.

The focus areas for 2012/13 would be green industries, which would get a very significant amount of  20% of the investment funds. Strategic High Impact Projects which would cut across sectors and look at the local manufacture of trucks, buses and taxis.  Manufacturing would get 17%. Metals and machinery which aimed to strengthen the manufacturing of components needed for infrastructure development accounted for 8%. Chemical and allied industries would get 7% to facilitate midstream investments. Mining and minerals beneficiation would get 17%, with the focus shifting from mining to mineral beneficiation. Media and motion pictures would get 3%, with the focus shifting from supporting the making of Hollywood movies to supporting the making of local productions. Other areas were agro industries at 7%, venture capital at less than 1%, forestry and wood products at 9%, textiles at 3%, tourism at 3%, health care at 3% and information and communication technology at 4%.

Within the green industries, the focus of the previous year had been on renewable energy. The IDC was working with Eskom and the Department of Trade and Industry on the manufacturing and roll out of the Solar Water Heater (SWH) program. It was investigating the viability of alternative fuel sources for busses while rural areas could benefit from fuel-based energy programs. It had a bio ethanol project in Cradock. It was looking at emission and pollution mitigation in all its projects.

It was important to look up and downstream in green industries to search for possibilities of manufacturing components locally and developing these into exports. The IDC had been involved in 18 of the 47 renewable energy projects which were spread across the country. The figure for permanent jobs created were relatively small but the construction phase also created jobs and it was supporting local communities to take a stake in projects.

The IDC’s funding model relied entirely on how cheaply it could borrow money. It received long-term funds from the China Development Bank, from a German development finance institute and managed funds on the government’s behalf. It cross-subsidised some funding through equity dividends, capital growth and exits from mature investments.

Within the agro-industries sector, it wanted to separate agriculture from subsistence farming and develop linkages to help import replacement and develop exports. It wanted to see increased local manufacture of components for Transnet and Eskom, and for truck, bus and taxi manufacture.

In the forestry sector it wanted to assist rural communities to develop forestry areas. In this instance, the IDC provided grant funding as an exception to its normal rule of not providing grant funding. In the clothing and textile sector, it was trying to assist in making them more competitive.

The IDC was expanding its presence around the country and satellite offices were being established.

Discussion
Mr D Gamede (ANC, KwaZulu-Natal) asked why there was still poverty if so much money had been injected. He wanted a list of the areas in KwaZulu-Natal where clothing and textile projects had occurred. He wanted clarification on the Hospital-Private Public Partnership (PPP). He said tourism had not been mentioned. He wanted to know where the SWH were manufactured locally. The clean stove initiative was not sustainable and he was skeptical of foreign funding.  The IDC should assist rural communities to own the forests as most were in the hands of big companies like Mondi.

Ms M Dikgale (ANC, Limpopo) wanted more information on the provincial distribution of investment projects. She asked if officials in regional and satellite offices were monitored and why there were not offices in all areas.

Mr K Sinclair (COPE, Northern Cape) said that statistics could be misleading and wanted the IDC to provide a list of projects the IDC was involved in in the Northern Cape. He wanted the IDC to play a bigger role in getting commercial banks to be involved through the provision of guarantees. How far was the IDC in implementing the Small Enterprise Finance Agency? He asked if it would not be better to recapitalise the IDC instead of borrowing money. What was the view of the IDC on Special Economic Zones (SEZ)? He questioned why beneficiation of manganese occurred at the coast and not at the source. He said that for two years, disaster funds had not been paid out.

Mr B Mnguni (ANC, Free State) questioned whether the IDC was focusing on its core business as it had shares in mining ventures. Could the IDC not provide a smelter for small miners to use to beneficiate their product?

Mr Meer replied that the IDC was investing money which made a difference but that the IDC was only a small piece of a puzzle. He said the IDC’s job-creation figures were defined very narrowly for jobs directly created from investments and that each job supported families and broader downstream and upstream business. In his written replies he would try to show the wider impact.

The IDC had to ensure that its industrial finance was targeted, and developed infrastructure. He would send the clothing and textile statistics for KwaZulu-Natal to the Committee.

On tourism, he said the IDC had repositioned itself from the construction of hotels to the creation of new destinations in undeveloped areas.

The IDC was working towards local manufacturing of SWH. The company it was involved with currently manufactured SWH with 70 to 80% local content.

The Hospital-PPP was a strategy aimed for the future as it saw opportunities with the introduction of the National Health Insurance (NHI). As there was a need for private sector involvement, the IDC believed it had a role to play because of its experience.

He admitted that there had been problems in the usage of the clean stove, but the IDC was approaching it from an industrialisation process point of view to see if it could develop the technology and it was currently testing a new one.

He said there were dangers in accepting donors and one had to be careful. In the past, regional integration had been of an ad hoc nature, but the IDC wanted to use the relative strengths of countries in a co-operative manner.

The graphs alluded to by Mr Sinclair were relative to the Provincial budgets.

The IDC needed to find ways to invest in the Free State and it was engaging with the Presidential Infrastructure Coordinating Council (PICC) and the province to make it a logistics hub and tourism destination.

He said that complaints about branch offices should be forwarded to them so that they could follow them up. They could not open offices all over because of costs, but that if there was no office they did visits the area or had a relationship with a local body.

Solar water heaters were installed through private companies and the plan was to roll out to all areas of the country. Commercial banks were approached to draw them in by offering portions of the debt for them to take up.

As from the beginning of April, the Small Enterprise Finance Agency had become a subsidiary of the IDC. Its business plan would be finalised by the following month. The last cash injection into the IDC had been in the 1950’s and there was no immediate need to recapitalise. He said infrastructure was not the magic bullet for success but that without it there would be no success.

Manganese beneficiation took place at source and at the coast. He said the IDC had become involved in mining sector because the commercial banks had no interest. Its role currently was not as important as in the past but it wanted to keep its involvement in the beneficiation of mining product.

Mr Riaan Coetzee, Head Agro Industries at the IDC, said that disaster funds of R118 m had been disbursed to 125 farms. Funding approval had also been given for ostrich farmers of the Southern Cape.

Mr Sinclair said the IDC should focus less on tourism and more on the creation of sustainable jobs. He added that no mention had been made of the Square Kilometre Array and its localisation in the Northern Cape.

Mr Duma Nkosi, an official of the Economic Development Department, said that the PICC had given attention to making provision for the Northern Cape.

The meeting was adjourned.

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