The Committee was briefed on the 2018/19 Strategic Plan and Annual Performance Plan (APP) of the National Empowerment Fund (NEF). The briefing covered the background of the NEF, milestones, deliverables and financial information. Members were provided with insight into the NEF’s investment process as well as detail on its investments in various sectors. Detail was also provided on the provincial dynamics of the NEF’s funding and also on the geographic spread of investments. A major challenge highlighted to the Committee was the finalisation of the Biofuel Regulatory Framework which caused the Mabele Fuels Project in the Free State to stall. The Committee was presented with targets set in terms of the NEF’s 2018/19 Strategic Plan and APP. Members were provided with detail of projects the NEF provided assistance on.
The Committee appreciated the work the NEF was doing. Matters discussed included possible integration of the NEF into the Industrial Development Corporation (IDC_ - it was said the NEF was performing the same function as the IDC and it was a waste of funds to have two entities. There was concern that there was often staff who worked at businesses like petrol stations and retail supermarkets – when black owners took over these businesses, these longstanding employees should be offered shareholding in the business. Members stressed the need for greater transparency on the work that the NEF did given that it dealt with huge sums of money. Members asked for a provincial breakdown of black entrepreneurs that applied for assistance from the NEF and which provinces benefitted the most.
The NEF was asked what the turnaround times for applications were. How long was the process to find out whether one’s application was approved or declined? Members asked the NEF how it recouped funds it provided to businesses. Members felt the NEF’s target of 40% of funding to women was on the low side. Members were concerned the R10 billion in recapitalisation funds the NEF was supposed to have received at inception had not materialised. The NEF was asked what role the Department of Trade and Industry was playing on following up on the issue.
The NEF was asked what happened when a person with a great idea applied for assistance but was rejected - what was to prevent the person’s great idea from being stolen? What recourse would such a person have? Members asked how the NEF assisted those businesses it had funded during difficult times. What type of assistance was offered to them? If there was assistance how many were provided with such? The Committee noted the NEF’s request for assistance over the Mabele Fuels Project and asked in what form the assistance should be. How could the Committee assist? The NEF was asked why there were no strategic projects funded in the Northern Cape province. NEF funding for the Northern Cape province was also at a low 2.1%. How could the biggest province in SA have such low figures? Members noted that things seemed to be happening in other provinces besides the Northern Cape. Members on the flip side did realise that provinces also needed to come to the table and do their part. The NEF was asked what its focus in small towns was. Did the NEF have plans to resuscitate the economies of small towns? Members also requested a provincial breakdown of the 68% figure on declined applications. Why were there only 72 applications approved? On the geographic spread of the NEF’s efforts, Members observed there seemed to be a bias towards urban over rural areas. If the intention in SA was to have an inclusive economy how could it be achieved if rural provinces were not taken on board. The NEF was asked to provide outstanding responses to questions of Members in writing to the Committee.
Briefing on the NEF Strategy and Annual Performance Plan 2018/19
Ms Philisiwe Mthethwa, NEF Chief Executive Officer (CEO), began the briefing by providing a background to the NEF – the Fund was an agency of the Department of Trade and Industry (DTI) and was the only Developmental Finance Institution (DFI) exclusively mandated to grow Broad–Based Black Economic Empowerment (B-BBE).
The Committee was provided with a snapshot of the NEF’s life to date milestones. With an R2.4 billion total recapitalisation since inception, the NEF had more than doubled its initial capital. Deliverables included over R9.3 billion in approvals of which R6.3 billion was injected into the economy. Over 95 000 job opportunities were supported. The NEF however felt that it was not properly capitalised as it would have been able to do more if there were more funds. The NEF at inception should have been recapitalised with R10 billion which for some reason had not materialised. The NEF had nevertheless managed to obtain clean audits for 12 consecutive years.
On the financials of the NEF, actual cash, as at 31 March 2018, stood at R1.1 billion. To meet its 2018/19 target, the Fund required a further R680 million. The NEF believed it was doing well and last received an operations grant from the DTI in 2009. Members were provided with insight into the NEF investment process as well as detail on its investments in various sectors. Detail was also provided on the provincial dynamics of the NEF’s funding - the NEF’s invested presence in the Gauteng province came down from above 60% of total disbursed funds in 2006 to 44% in March 2018. This was not due to a reduction in funding in the Gauteng province but rather a direct consequence of planned, targeted and increased funding in the other eight provinces. Specifics were provided on the geographic spread of investments.
A major challenge highlighted to the Committee was finalisation of the Biofuel Regulatory Framework which caused the Mabele Fuels Project in the Free State to stall. The Committee was asked to assist in expediting the approval process for the National Biofuel Pricing Regulatory Framework.
The Committee was then presented with targets set in terms of the 2018/19 Strategic Plan and Annual Performance Plan (APP) of the NEF:
- Advance Broad-Based Black Economic Empowerment: for 2018/19, the approval target was set at a total of R1.046 billion
- Maximise Empowerment Dividend: on the number of job opportunities supported, the target for 2018/19 was set at 5 630
- Fund a Woman, Fund a Nation: the target for 2018/19 was set at 40%
- Promote a Culture of Savings and Investment: the plan was to host 45 investor education seminars per annum in villages and townships on shares, dividends, bonds, property etc
- Creating Black Industrialists: the intention was to commercialise strategic projects geared to support 85 000 jobs
- Financial Efficiency and Sustainability: the idea was to have impairment provisions sitting at 18%, to have Return on Investment (ROI) between 9% - 10% and to have a collections ratio of 80%.
Members were provided with details of projects the NEF provided assistance on.
The Chairperson raised the matter of the NEF’s possible integration and transition into the Industrial Development Corporation (IDC) - DTI was asked whether it wished to comment on the matter. During oversight, the Committee noted concerns around two petrol station projects - the one was at Botshabelo. He felt that the construction industry was untransformed. The issue was about getting better housing for the people of SA.
Mr L Magwebu (DA, Eastern Cape) said that the NEF stated it funded 60 fuel stations. Previously disadvantaged persons with small businesses often moved onto bigger concerns and approached the NEF for funding. When these persons bought over a concern, for instance a petrol station where there were staff working as petrol attendants for many years. The same applied when a black person bought over a retail store like a Spar supermarket - there was often staff working at these types of businesses for close to 30 years. He felt that in both scenarios, the staff should be offered a shareholding in the business. There needed to be transparency on the work of the NEF as it worked with huge amounts of funds. He asked from which provinces the 1 473 black entrepreneurs who applied for assistance were from. 50% of those who applied were declined - the Committee needed a breakdown of figures for the provinces. The NEF had to be taken to the provinces. Which provinces were benefitting? The NEF was asked what the turnaround time for applications were. How long was the process to find out whether one’s application was approved or declined?
Ms Mthethwa responded that the aim of the NEF was to broaden black economic empowerment. The reality was that multinational companies like those in the petrol industry usually put applicants through a rigorous process. They did entrepreneurial assessments. A decision had to be made whether they wished to have their brand associated with a particular applicant. The NEF did not have a say when these companies selected or rejected an applicant. The NEF had no right to stipulate that ownership shares should be given to petrol attendants. The positive side of things was that jobs were being created. The fact of the matter was that not everyone could be owners. For bigger projects the Committee could say that things should be shared. The NEF would provide a breakdown of provinces that benefitted. The breakdown should speak to investments made in provinces.
Ms Hlengiwe Makhathini, NEF Divisional Executive, said that the turnaround times for the processing of applications were six to twelve weeks. She added that the NEF did handhold the companies it assisted.
Ms M Dikgale (ANC, Limpopo) appreciated the work that the NEF was doing. She however pointed out that none of the NEF’s projects were in the Limpopo province. She asked how the NEF recouped funds provided to businesses. Recouped funds could be invested in other provinces as well. She was pleased the NEF obtained a clean audit. On funding across the economic spectrum, why was the focus only to fund a minimum of 40% women? Why was the figure not 90%? She asked for the provincial breakdown of the R3.4 billion approved for the empowerment of black women.
Ms Mthethwa stated that the NEF had good investments in the Limpopo province. There was even a four-star hotel doing well. There was also an agro-processing plant. Funding provided was in the form of a loan and was not a donation. Loans had to be repaid. It usually took three to five years for the NEF to recoup its investment. All in all the NEF managed to recoup R2.8 billion. On the breakdown of figures across women, disabled persons etc she said the NEF encouraged female-owned businesses.
Mr M Rayi (ANC, Eastern Cape) too appreciated the briefing. He was concerned about the NEF not receiving the R10 billion allocation as it was supposed to. The R10 billion commitment was made by former President Mbeki. The commitment was for R10 billion to be allocated to the NEF over a five year period i.e. 2004 - 2009. What role was the DTI playing on following up on the matter? Perhaps the Committee needed to follow up on the matter. He felt that the issue should be pursued. If the allocations came through as it should have, the NEF could have made great strides on black economic empowerment. The NEF was asked what happened when a person with a great idea applied for assistance but was rejected. What was to prevent the person’s idea from being stolen? He asked what recourse the person would have. The NEF was asked how it assisted businesses that it funded who were going through difficult times. How had the bus strike affected the APM Bus Company that the NEF assisted? The NEF was asked what assistance it offered. He also asked if the NEF assisted applicants with negotiations with municipalities perhaps on obtaining a site for a petrol station. The NEF asked for Parliament’s assistance on the Mabele Fuels Project - in what form should the assistance be? How could the Committee assist? Clarity was needed. He pointed out that on the construction portfolio of the NEF in the Eastern Cape, there was a R15.1 million impairment due to a lack of cooperation from government employees in the province. The Committee needed specifics on the matter so that the Committee could do a follow up with the Member of the Executive Council (MEC) and with the Provincial Portfolio Committee.
Ms Mthethwa said it was best for the DTI to speak to the matter of the R10 billion allocation the NEF had not received. The NEF never stole ideas from people. The NEF did handhold investees. In the Eastern Cape, one of the challenges was for the provincial government to pay its service providers within 30 days. The NEF would be happy to sit down with the Eastern Cape Provincial Government.
Ms Makhathini stated that the NEF needed assistance on the Mabele Fuels Project on policy matters. The pricing mechanism regulations were not in place yet. She asked that the Committee nudge the right government department in the required direction. The NEF had 16 transactions, in a matter of speaking, in the Intensive Care Unit (ICU). Around 1 605 jobs were saved. There was one transaction in the Northern Cape province that required equity partners to be sourced and in the Eastern Cape province the NEF had to step in to prevent 200 job losses. The APM Company was given a moratorium of three months to recoup lost revenue due to the bus strikes. Companies were given breathing space.
Mr W Faber (DA, Northern Cape) also raised the matter of the NEF being integrated/absorbed into the IDC. On the commercialisation of 26 strategic projects to create 86 000 jobs, he asked how the NEF got to the 86 000 figure. He noted that on strategic projects funded, the figure for the Northern Cape was zero. He added that NEF funding for the Northern Cape province was only 2.1%.
He was concerned the largest province in SA had such low figures or, in the case of strategic projects, zero. He felt incorporation of the NEF into the IDC was long overdue. The IDC should be running the NEF. At present the NEF and the IDC was running under two different ministries. Amalgamation should have happened a long time ago. The IDC and the NEF was performing the same function and it was a waste of funds to have two entities. Why was the NEF office in the Northern Cape not doing its job? Things seemed to be happening in other provinces.
Ms Mthethwa on the matter of the NEF being incorporated into the IDC explained that ex-President Thabo Mbeki had been at the forefront at the establishment of the NEF. Just as the IDC was set up to assist Afrikaners during the Apartheid era so too was the NEF set up to assist blacks. The idea was to mirror the funding model of the IDC but in this instance for blacks. Many of the big companies that exist at present in SA had gotten assistance from the IDC. Blacks had in the past been afraid to approach the IDC for assistance. The NEF had instilled a sense of pride in black people. On how the figure of 85 000 jobs to be created was calculated she said that that jobs were created project by project. For example the Mabele Fuels Project could create 16000 jobs and the Rare Metals Industries (RMI) Project 10 000 jobs. Most of the jobs to be created were in the manufacturing sector. The NEF tried to enhance export opportunities for businesses in manufacturing. On the 0% figure for projects in the Northern Cape Province she explained that the ability to fund a project depended upon the economic activity in the area. If the provinces pushed things then it would be easier to invest in them.
Mr J Mthethwa (ANC, KwaZulu-Natal) felt that the NEF was doing a great job and should be supported. The NEF was asked what its focus was in smaller towns. Did the NEF have plans to resuscitate the economy of smaller towns? He was aware that the initiative should be coming from the towns themselves. The NEF was also asked whether it would focus on towns neglected during the Apartheid era. When businesses the NEF assisted found themselves in trouble, were they assisted? Was there a turnaround strategy for these types of businesses? How many of these types of businesses had the NEF assisted? More projects were needed to boost the tourism industry.
Ms Mthethwa said that small towns could be focused on if the NEF had the funds. It was doable.
Mr B Nthebe (ANC, North West) said the Committee needed a provincial breakdown of the 68% declined applications at screening on businesses that approached the NEF for assistance. Of the total of 1473, the NEF was asked why only 72 applications were approved. On due diligence the NEF did, he felt it should not be done purely for the sake of declining applications but rather should be used as a catalyst. On the geographic spread of the NEF’s efforts, there seemed to be a bias towards urban over rural areas. Urban areas were always placed above rural areas. The NEF had a responsibility to move away from the past. Why was it necessary for people to migrate to urban areas like Gauteng to get jobs? The NEF’s invested presence in Gauteng had come down from above 60% of total disbursed funds in 2006 to 44% by March 2018. 75% of the population in SA was in rural areas but yet most of the allocations were in urban areas. If the intention was to have an inclusive economy how would it be achieved if the rural provinces were not taken on board? More funds were still invested in urban areas. There was still an urban bias.
Ms Mthethwa responded that the 68% figure for declined applications and that only 72 applications were approved spoke to recapitalisation issues of the NEF. One could only do so much with the funds one had. If there were more funds then more could be done. More could be done if provincial and local governments came on board. She noted that reduction in the funding for the Gauteng province was a huge achievement.
Mr Rakesh Garach, NEF Board Chairman, pointed out that provinces outside of Gauteng had been emphasised by the Board for the past five years. These included the Limpopo, Northern Cape and Eastern Cape provinces. It was a Key Performance Indicator (KPI) in the performance agreement the NEF had with the DTI. He emphasised that recapitalisation was of strategic importance to the NEF. It was a key priority of the Board.
Ms Jodi Scholtz, DTI Group Chief Operations Officer (COO), stated that the NEF was the only institution to drive black economic empowerment in terms of legislation. Both the DTI and the Department of Economic Development (EDD) was looking at the issue of recapitalisation. The issue was discussed. The Cabinet memorandum was to be discussed.
The Chairperson said the issue of recapitalisation could be raised with the Executive but it had to be borne in mind that Parliament was in recess. The NEF was asked to provide outstanding responses to questions of Members in writing to the Committee. Some of the questions that needed responses were the provincial breakdown as requested by Mr Magwebu, the question by Mr Rayi around recourse where ideas were perhaps stolen and also the question by Mr Mthethwa on how many defaulters the NEF assisted. He concluded that the Committee appreciated the efforts of the NEF and shared the NEF’s anxiety on the prospects of economic transformation. He agreed that provinces had to come to the table. For instance on Lottery funding, the North West, Free State and Northern Cape provinces did not even apply for funding. The Limpopo province did apply. KwaZulu-Natal and the Western Cape provinces were vigorous on accessing Lottery funds.
Draft Committee Minutes dated 20 June 2018
Draft Committee minutes dated 20 June 2018 was adopted with amendments.
The meeting was adjourned.