National Empowerment Fund performance 2012; Merged Co-operatives Amendment Bill: briefing

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Trade and Industry

18 September 2012
Chairperson: Mr N Gcwabaza (ANC)
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Meeting Summary

The National Empowerment Fund (NEF) said it had reached maturity and could sustain itself if it were to be reclassified to allow it to raise funds on its own. The Fund had been prudent at its inception but it now boasted a robust balance sheet and good quality investments. To date, over R2bn of funding had been approved. It used a sector targeted approach aligned to the Department of Trade and Industry and to the macro economic objectives of Government.

Key objectives were providing investment funding to black businesses, promoting women’s equity stake in business and promoting community involvement in the investments it undertook to maximise the empowerment dividend. As a Black Economic Empowerment (BEE) funder it allowed for full recognition for enterprise development scores for contributing companies. In addition the Industrial Development Corporation (IDC) had exited the typical BEE financing market, creating a gap which had seen the NEF receive more applications, with the financial implication being that it needed to recapitalise or go to the market in anticipation of an increase in funding required.

It had created 12 800 new jobs, 2 367 of which were created in the last financial year. Since inception, an average of 21.5% of funding has gone to businesses owned and managed by black women. It had entered into a Memorandum of Understanding (MOU) with the United Kingdom’s Trade and Investment department where UK subsidiaries were targeted to develop black owned enterprises to become suppliers. It had spent R14.7m in mentorship support to investees. The NEF had established the ASONGE
Share Scheme valued at R1.3bn, the Strategic Projects Fund, which focused on early stage projects and the Rural and Community Development Fund which sought to unlock entrepreneurial potential in the rural areas. The NEF’s Small, Medium Enterprise policy sought to address market failures in respect of access to finance and access to markets, amongst others. The NEF had received an unqualified audit for the last seven years. It had a net asset value of R5.3bn with a cash balance currently of R2bn.

Members asked how the NEF identified where to get involved. How many co-operatives were recipients of NEF funds? How was the NEF linked to industrial parks such as that in Soweto? Members asked if there was a further race breakdown to the investment deals. Were there any investments in the coloured communities? How many of the businesses that had been assisted were still successful? Members asked if the NEF were available for educational presentations at constituency offices. Did the NEF have any plans to improve outreach to Parliament and to the Committee? What was the program of action for the following year? What co-operatives were they assisting and what were the challenges they faced? Were the NEF looking to sign any MOUs with other countries? Members asked why the NEF was considering reclassification when its financial situation was satisfactory. Members said that if one took into the account the electricity savings of 150MW, it was cheaper to export and purchase the refined product than to beneficiate.

Merging of Co-operatives Amendment Bill
The subcommittee had requested that Ms Kathy Idensohn join it, to increase its effectiveness in reaching a consensus before approaching the Committee. The Committee continued to be briefed on the new working documents marked “E1” containing the first 15 clauses of the merged Bill and “E2” which was a continuation of “E1” and contained clauses 16 - 30.

The dti’s law advisor continued the 12 September briefing on the merged
Co-operatives Bills.

Meeting report

National Empowerment Fund (NEF) briefing
Ms Philiswa Buthelezi, CEO of the National Empowerment Fund (NEF), briefed the Committee on the performance of the NEF up to August 2012. She said that the NEF had reached maturity and could sustain itself if it were to be reclassified to allow it to raise funds on its own. The Fund had been prudent at its inception but it now boasted a robust balance sheet and good quality investments. Historically, it had been established under the NEF Act in 1998 with an initial allocation of R2bn. In 2004 it had receive a 1.5% stake in MTN worth R3bn. By 2005 it had done only 11 transactions and the Government had questioned whether to close the Fund down. In 2006 a new Board was instituted and to date, over R2bn of funding had been approved. It used a sector targeted approach aligned to the Department of Trade and Industry and to the macro economic objectives of Government.

Key objectives were providing investment funding to black businesses, promoting women’s equity stake in business and promoting community involvement in the investments it undertook to maximise the empowerment dividend. This was a key factor in assessing deals. As a Black Economic Empowerment (BEE) funder, it allowed for full recognition for enterprise development scores for contributing companies. In addition, the Industrial Development Corporation (IDC) had exited the typical BEE financing market, creating a gap which had seen the NEF receive more applications, with the financial implication being that it needed to recapitalise or go to the market in anticipation of an increase in funding required.

To date it had approved deals worth R3.7bn, R1.1bn of which was approved in this financial year. It had created 12 800 new jobs, 2 367 of which were created in the last financial year. Since inception, an average of 21.5% of funding has gone to businesses owned and managed by black women. Currently it had six regional offices, in the Eastern and Western Cape, in KwaZulu Natal, Mpumalanga, Limpopo and the Free State. It had entered into a Memorandum of Understanding (MOU) with the United Kingdom’s Trade and Investment department where UK subsidiaries were targeted to develop black owned enterprises to become suppliers. Skills development had been promoted through a partnership with the French government which saw 100 junior managers in key sectors of the economy undergoing an internship program in France. It had spent R14.7m in mentorship support to investees. The NEF had established the ASONGE Fund valued at R1.3bn and totaling 86 000 investors, 49% of whom were women. The Strategic Projects Fund, which focused on early stage projects, was sector targeted. It had invested in the rare metals industry to beneficiate rare earth metals for which there was a strong demand growth in the aerospace, nuclear and chemical industries. It had invested in a broadband infrastructure company which deployed its technology via sewers and existing services.

Mr Setlakalane Molepo, executive in charge of Small and Medium Enterprises (SME) and rural development, said the NEF’s SME policy sought to address market failures in respect of access to finance and access to markets, amongst others. Funding was dependent on a minimum percentage of black ownership and black management and operational involvement in the business. It had provided ongoing mentorship and support from the time of application to an after deal service. The Rural and Community Development Fund sought to unlock entrepreneurial potential in the rural areas. An example of this was the four star hotel owned by the community in Jozini while in Amajuba a berry farm exported its products to Europe.

Mr Selvan Naicker, acting CFO, said the NEF had received an unqualified audit for the last seven years. It had a net asset value of R5.3bn with a cash balance currently of R2bn.

Discussion
Ms S Van der Merwe (ANC) asked how the NEF identified where to get involved.

Mr X Mabasa (ANC) asked how many co-operatives were recipients of NEF funds. How was the NEF linked to industrial parks such as that in Soweto?

Mr W James (DA) said that if one took into account the electricity savings of 150MW, it was cheaper to export and purchase the refined product than to beneficiate.

Adv A Alberts (FF+) asked if there was a further race breakdown to the investment deals. Were there any investments in the coloured communities?

Mr G Hill-Lewis (DA) asked how many of the businesses that had been assisted were still successful.

Mr G Selau (ANC) asked if the NEF were available for educational presentations at constituency offices. Did the NEF have any plans to improve outreach to Parliament and to the Committee? What was the program of action for the following year? What co-operatives were they assisting and what were the challenges they faced?

The Chairperson asked if the NEF was looking to sign any MOUs with other countries. He asked why the NEF was considering reclassification when its financial situation was satisfactory.

Ms Buthelezi replied that the NEF was seeking reclassification to be able to raise further funds on its own because the value of investments approved and committed to was R4.4bn. It was going back to the Medium Term Expenditure Framework (MTEF) to source funds and also seek funds from other potential funders. She said sourcing external funds was an opportunity that should be grabbed as it was a form of “crowding in” investments off Government spending.

She said the French internship program had arisen through the Director General of the Department of International Relations. The interns had been placed with French companies in the renewable energy and nuclear energy fields. She admitted that there had not been a follow up program.

The programme of the NEF in the following year would be exactly the same but just the numbers would change.

On visiting constituency offices, she said they did receive requests, but that she could not promise to attend all. She asked that meetings that were arranged include surrounding constituencies so that the attendance was 250 rather than 50.

She said the NEF did not question the rationale behind beneficiation but just attempted to implement it.

She said that if markets failed, bureaucrats had the right to intervene and that the country’s needs were not necessarily the needs of the private sector.

She said the NEF had never done an assessment of the multiplier effect of the NEF’s impact on the economy.

Mr Molepo said 91 projects had been done with co-operatives. In one instance, taxi owners had come together to purchase a petrol station. A specific amount was set aside for rural areas.


Mr Naicker said the average return on investment stood at 7%. There had been write offs due to the economic downturn but that of the 384 businesses assisted, 300 still operated. The Western Cape comprised 50% of the investment portfolio and most of these investments would involve coloured people.


Deliberations on the Co-operatives Amendment Bill
Mr Mabasa said the subcommittee had requested that Ms Kathy Idensohn join it, to increase its effectiveness in reaching a consensus before approaching the Committee.

Adv J Strydom, dti law advisor, said that the Committee would be considering two documents marked “E1” containing the first 15 clauses of the merged Bill and “E2” which was a continuation of “E1” and contained clauses 16 - 30. He said that in document “E1” p14, Section 3(a) of the Principal Act would be amended to make sure that co-operatives complied with the co-operatives’ principles.

In Section 3(b), each member of Category A and Category B co-operatives had one vote.

In Section 3(c), “provided that if… “ should read “provided that where… “

3(d)(4), referred to the voting rights of members of Category C, secondary and apex co-operatives, which had more than five members. Here Adv Charmaine Van Der Merwe, parliamentary legal advisor, said that the provision that a member not have more than 15% of the vote was still under consideration by the dti who would come back with a different figure.

Adv Strydom said 3(d)(7) dealt with the Ministerial power to gazette.

6(a)(1)(c) reflected the increase from the original requirement of a minimum of two operational secondary co-operatives to five to form an apex co-operative. The co-operatives had to be present in at least five of the nine provinces.
 
Mr Jeffrey Ndumo, chief director of co-operatives in the dti, said the increase was to enhance accountability and representivity. It was encouraged but not stipulated that there be one apex per industry sector as the dti did not want regional co-operatives calling itself apex co-operatives. He said the dti had received input for the introduction of a fourth tier of co-operatives. He said a fourth tier would address the issue of sector apex co-operatives. The dti was still engaging on this and would approach the Committee in due course.

The Chairperson said this clause would be sent back to the subcommittee for consideration.

Adv Strydom said 10(b) emphasised that the clause was not retrospective and referred to co-operatives registered after the commencement of the Co-operatives Amendment Act 2012.

Section 14(g) dealt with proxy votes.

In 15A(c)(3) definitions were given for the terms ‘projected annual revenue” and “annual revenue” which applied only to this section.


Turning to document “E2”, Adv Strydom said Section 21(c) referred to the requirement for co-operatives to retain financial records for five years.

Section 24(1) said that the co-operatives should stipulate the maximum period in which membership shares had to be repaid were it to be greater than two years.

He said 28(4)(b) indicated that the details of a proxy vote had to be clearly set out.
 
Section 28(4)(c) indicated that the proxy vote remained valid unless revoked in writing.
 

28(5) indicated the number of proxy votes that might be cast.

28(5)(a) dealt with the case where the co-operatives membership was 20 or more and

28(5)(b), dealt with the case where co-operatives membership was less than 20.

29(2)(a) and 29(2)(b) dealt with ministerial powers to appoint auditors and accounting officers.
 

29(2)(d) contained the definition of an “activity plan”.

32(a)(3) indicated where the Board was elected.
 

32(a)(4) provided for appointments to the Board in the case of vacancies arising.
 

32(a)(5) dealt with other issues related to the Board.
 

Ms Idensohn would be providing specific input on Section 44(b)(5)(a),(b) and (c), as the current definition was unsatisfactory. The clause would be reviewed by the subcommittee.

46(2) contained the term “indivisible reserve” which replaced the ambiguous “ reserve fund”.

Adv Strydom said that the usage of the term “surplus” on p11 of “E1” might impact on its use on p12 of “E2”. The issue was referred to the subcommittee.

In 47(c), Mr Ndumo said the definition of apex co-operatives would be affected.

Mr Hill-Lewis felt that a singular apex co-operative had not been discussed at the subcommittee meetings.

Mr Mabasa noted that Mr Hill Lewis had been absent from some meetings and that it had been discussed but that the matter could be revisited at the subcommittee meetings.

Adv Strydom said 50(d) noted that the Board had to notify the Registrar of the appointment of an auditor or independent reviewer.

50(g)(5) detailed when the auditor or independent reviewer ceased to hold office.


50(g)(7) noted that a vacancy in the post of auditor or independent reviewer had to be filled for the remainder of the relevant period.


50(g)(8) noted that an auditor or independent reviewer could be appointed at a general meeting.


The meeting was adjourned.

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