IDC 2017/18 Annual Report; Competition Amendment Bill: adoption

Economic Development

16 October 2018
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The Committee passed the final version (B-list) of the Competition Amendment Bill as well as the Committee Report on the Bill.

The DA objected to both, highlighting that the Bill gave too much powers to the Minister. The party further complained that the process undertaken by the Committee was questionable and rushed mainly because its Members were not present when the Committee deliberated on the bill during the recess period.

The Industrial Development Corporation (IDC) briefed the Committee on its 2017/18 Annual report.

In terms of highlights, the Industrial Development Corporation listed the following:

  • 202 transactions were approved which increased by 9%
  • Total funding disbursed amounted to a total of R15.4 billion, and it increased by 40%
  • Jobs expected to be created or saved amounted to 29 885 (up by 43%)
  • R8 billion was approved for the manufacturing sector (up by 5%)
  • R9.7 billion was approved for Black empowered companies but this figure decreased by 4% in the current year
  • R7.9 billion was approved for black industrialists (up by 67%)
  • R2.2 billion approved for businesses with women ownership of more than 25% but the funding decreased by 32% in the current financial year
  • R1 billion was approved for businesses with youth ownership of more than 25%
  • The net profit after tax increased by 47% amounting to R3.2 billion; and
  • total assets increased by 5% amounting to R137 billion

The entity received a clean audit notwithstanding the impairments confronting the Corporation during the period under review. The impairments existed as a result of investing more money into start-up companies and granting them equity funding as opposed to loans; slow economic activity and payment holidays graced to start-ups to allow them to generate more cash flow before commencing payments.

Members asked questions about the reasons for failure to meet some of the targets; the lack of targets for businesses owned by people living with disabilities; the decline in funding for businesses owned by women; the implications of the losses incurred by Foskor; update on the Uranium loan; why impairments were high; examples and highlights on funded black industrialists; details on the R500 million amount for National Empowerment Fund and whether it was already part of the IDC; the criteria for black industrialists funded and quantum of funds approved;  whether there were any beneficiaries living with disabilities that were funded, and whether there were any plans in place to ensure that they benefited in the future; why the value of approvals increased but there was a decline in the number of businesses funded; how the dire conditions confronting the mining industry impacted the IDC funding on the industry going forward; progress made on the black commercial farmers; strategic plans to mitigate the challenges on the textile industry; reasons for not focusing much on the continent; breakdown of the R1billion funding approved to youth-owned businesses; the number of jobs created and saved in the textile industry during the period under review; the turnaround time for a complex and simple application lodged for funding at IDC, and how is the process conducted; jobs created in 2018 and what influenced the targets; on learnerships and internships – how many people were empowered in that space, and how ready was the IDC to empower young people through learnerships and internships; why the Corporation went beyond the impairment threshold ratio set by the Board; and more details on Scaw.  

Meeting report

Opening remarks by the Chairperson

The Chairperson welcomed everyone present and stated that the Competition Amendment Bill was introduced by the Minister and the formal process unfolded as per Parliament’s rules and relevant protocol was observed. The Minister responded to the matters submitted by the public as well as the A-List on 2 October 2018 and further deliberations on the A-List took place. Today was the final day of the Bill and the Committee would consider the report page by page to ensure that all the amendments effected corroborated between the A and B-Lists.

Consideration of the Committee Report on Competition Amendment Bill

The Chairperson took the Members through the Report page by page, and there were no amendments effected.

The report was adopted.  

Clause 3

Dr M Cardo (DA) said the DA did not agree with the provision and objected as such but it may well be the case that the Committee’s majority agreed on this. He then asked whether the DA should object formally in the meeting or this will be included in the minority report.

The Chairperson indicated that it should be done in the meeting but it will also be included in the minority report. The rules demand that the DA states the reason for the objection.  

Dr Cardo said the DA preferred the original formulation in terms of the guidelines.  

Clause 4

Dr Cardo said the DA objected with the same reasons as per the previous objection.

Clause 5

Dr Cardo indicated that the DA objected to (d)(i)(ii) for the same reasons stated above because the provision here gave the Minister too much powers.  

Ms C Ncube-Ndaba (ANC) asked what the DA would propose instead.

Dr Cardo stated that the DA proposed holding the clause by clause exercise with the entire Committee and not go through the process rushed. Secondly, just because the DA does not indicate whether it agreed or not with other clauses it did not mean that it gave consent to those clauses. The overall concern was that the Minister had too much scope, and preferred the guidelines to provide the guidance. It should be noted that the rushed process was held during recess which was not fair to other Members of the Committee who were not present.

The Chairperson indicated that the Committee applied for permission to sit during recess, and this was communicated to all Members in time in order to make arrangements.

Ms Ncube-Ndaba said that it would have been fair if the DA had attended the meetings during recess and raised these issues then, but now it was not fair for those Members who have already deliberated on the clauses to entertain such frivolous concerns.

Mr S Tleane (ANC) said that what the Committee has done in the past few weeks was engaging in the process that aimed at empowering the poor people in the country so that they can participate in the mainstream economy. Whether this was held during recess or not, Members convened to tackle these issues. Therefore, it was not proper for anyone to disguise this through the use of fancy language in an attempt to shun the process. He advised that the Chairperson should handle the matter as such.

Mr I Pikinini (ANC) said the process was underpinned by the majority of the citizens of this country, and it was not fair that this process was being undermined by some of the Members who were not present during the process.

Mr P Atkinson (DA) said that on a number of occasions it was mentioned that he could not attend the meetings during recess and had asked several times whether the meetings could be postponed until such a time where all Members were present, but that request was refused.  He had produced a doctor’s certificate because he was not well and asked for the postponement of the meetings.

Dr Cardo said that he was a regular and active contributor to the Committee and he would have liked to be present during the clause by clause exercise, but he did not appreciate that certain Members who have never been to the Committee before to lecture them on how the Committee should proceed with the Bill.

Dr Cardo said he had reason to believe that one of the Members (who is an alternate in the Committee) was specifically requested to attend the meeting in order to reach quorum to adopt the Bill and the Committee Report.

The Chairperson lamented that this was not fair because there were a number of meetings where she could not be present but the meetings proceeded as such. As long as the DA provided reasons for objections, then that would be fair.

Dr Cardo said that it was not up to the Chairperson to decide whether the DA’s reasons where fair or not.

The Chairperson indicated that it was unfortunately up to her because the Report was going to be signed by her and she is the leader of the Committee. The DA can debate the provisions in the House.

The DA also objected the New Clause 11 stating that it was in favor of the original provisions.

The rest of the clauses were agreed on by the ANC Members.

Minority view

Dr Cardo said DA objected to the process undertaken by the Committee and for allowing the clause by clause exercise to take place only over two days. It also rejected to the entire Bill because the process undertaken by the Committee was very questionable.

Adoption of the Committee Report

The Chairperson noted the objection, and she submitted for the adoption of the Report in light of the objections submitted by the DA.

Members moved for the adoption of the Report in light of the amendments that were discussed and effected to the Bill.

Consolidated amendment Bill adoption

The Chairperson submitted for the adoption of the B-list.

Members moved for the adoption of the B-list, and the DA objected to the B-list.

The meeting was suspended for a short recess in preparation for the Industrial Development Corporation briefing.

The meeting resumed, and the Chairperson welcomed the IDC and the Chief Executive Officer, Mr Geoffrey Qhena. She said that this was the last year of the CEO’s term and the Committee issued a statement to that effect which would be considered after the meeting. She then praised the IDC for the audit outcome and the fact that it changed its auditors based on the challenges that were faced by the previous auditors.

Opening remarks by the Chief Executive Officer  

Mr Qhena apologised on behalf of the Chairperson of the Board for her absence.

He indicated that the Corporation would go through the operational performance as well as the engagement with the Committee, thereafter.

At the end of August, the IDC presented its results in the Free State province to engage with the investors. This would increase the footprint and the level of activity in the province as it was previously inactive.

Briefing by the Industrial Development Corporation on its 2017/18 annual report

The CEO took the Members through the presentation and highlighted the performance highlights.

Performance Overview

  • 202 transactions were approved which increased by 9%
  • Total funding disbursed amounted to a total of R15.4 billion, and it increased by 40%
  • Jobs expected to be created or saved amounted to 29 885 (up by 43%)
  • R8 billion was approved for the manufacturing sector (up by 5%)
  • R9.7 billion was approved for Black empowered companies but this figure decreased by 4% in the current year
  • R7.9 billion was approved for black industrialists (up by 67%)
  • R2.2 billion approved for businesses with women ownership of more than 25% but the funding decreased by 32% in the current financial year
  • R1 billion was approved for businesses with youth ownership of more than 25%
  • The net profit after tax increased by 47% amounting to R3.2 billion; and
  • total assets increased by 5% amounting to R137 billion

Financial Performance

Ms Nonkululeko Dlamini, Chief Financial Officer, IDC, said the IDC continued to be a sustainable entity, and its auditors Ngubane & Company and SizweNtsalubaGobodo issued a clean audit.

The Corporation had 40 subsidiaries and 100 associates and a long list of other commitments. She indicated that the team found strategic partners to work with on Scaw, but Members need to note that Scaw was now disclosed differently in the financial statements due to the accounting reporting standards (a matter of disclosure); otherwise, it would have shown 3% growth. The Corporation was sustainable in the short and long term. [See report for further analysis]

Mr Phakamile Mainganya, Chief Risk Officer, IDC, gave the following reasons on impairment:

  • Slow economic activity – the funded companies took a knock especially start-ups because they have not built sufficient reserves at that stage;
  • Supporting start ups – IDC put more equity investments instead of debt investments into start-ups, so when they encounter difficulties it supports the businesses through and during that time it might entail putting in more money so that the businesses could survive. So at that stage when we put more money we are required to raise some impairment as per the accounting standards;
  • Our facilities tend to have payment holidays especially for start-ups – this allowed the start-ups to not pay immediately so that they can generate cash flows, so as expected we have seen an increase in the value of the impairment levels.  

Mr Qhena said times have been tough but the organisation has been able to perform but it needs to do more because the economy needs more stimulation. The IDC needs to think differently, and it is going to be looking at the stimulus package and the number of the initiatives that have been mentioned by the President.

On opportunities in the continent, the IDC has done a complete overhaul in that area because it is not doing enough so it is looking into changing leadership in that unit and bring some exuberant leadership.


Mr Pikinini welcomed the report and the clean audit received by the IDC; however the Corporation continues to set high targets and fails to meet them on performance, so what was the reason behind this? Secondly, why was there no target for businesses owned by people living with disabilities? Thirdly, why was there a decline in funding for businesses owned by women? Lastly, what are the implications for the IDC regarding the losses incurred by FOSKOR?

Mr Atkinson asked for an update on the Uranium loan. He noted that impairments are very high at the moment, hopefully the figure would come down, and otherwise it would bring the long term sustainability of the IDC into question. He asked whether the Corporation was maintaining the same high levels for loans in respect to impairments. Lastly, he asked for examples and highlights on black industrialists that were funded.

Dr Cardo asked for details on the R500 million allocated to the National Empowerment Fund and whether it was already part of the IDC. Secondly, he wanted know about the criteria of the black industrialists that were funded and the quantum of funds that were approved.  

Ms A Mfulo (ANC) asked whether there were any beneficiaries living with disabilities that were funded, and whether there were any plans in place to ensure that they benefited in the future. The value of approvals increased but there was a decline in the number of businesses funded, why was this the case?

Mr S Tleane (ANC) also asked for the number of successful black industrialists and whether the criteria applied was based on the provinces. Secondly, with regards to the mines particularly in the platinum industry confronted by dire conditions – how is this impacting on the investments of the IDC going forward because one of the biggest problems with the mines is that they have a life span?

How much progress has been made on the black commercial farmers? On the textile industry threats, what is the IDC doing strategically to try and mitigate the challenges? It was mentioned in the report that the IDC has not been focusing much on the continent, so what were the reasons that withheld the IDC from doing that?

Ms N Hlonyana (EFF) said under the performance overview the Corporation reported on the funding approved for women but that has decreased by 32%, so what is the IDC going to do about that to ensure that the cake was cut evenly across the board? Secondly, she would have appreciated a breakdown of the R1 billion funding that was approved for youth owned businesses according to the age, ethnicity, etc.

With regards to agro-processing and agriculture, she advised that more attention could be given to black agro-processing businesses to grow at a rapid rate and that more money could be invested on the start-ups on technology.

Lastly, on textile, are there any examples of success stories especially in particular for people who have lost their jobs due to the demise of the industry. In addition, with the funding provided, how many jobs have been created and saved for the period under review.

Ms C Matsimbi (ANC) wanted to know what was the turnaround time for a complex and simple application lodged for funding at the IDC, and how is the process conducted. Secondly, how many jobs were created in 2018 – is the number still the same or has it changed and what influenced the targets? On learnerships and internships – how many people were empowered in that space, and how ready is the IDC to empower young people through learnerships and internships?

The Chairperson commented on the impairments and said there was no clarity provided when it comes to projections, why would the Corporation go beyond the threshold set by the board. Was it because it is expecting more losses?

It appears that most targets were met but the worrying one was Scaw, she asked for more details on it with respect to the Corporations’ investment in the company.  

The Chairperson recalled that a few years ago Members of Parliament were invited to bring the women-led businesses based in rural areas in the agro-processing sector on board to the IDC, but it doesn’t look like that came to fruition. So how do we encourage people who have the land returned to them because most of them do not know how to work the land? She suggested that a partnership needed to be established with agricultural departments in provinces and the municipalities so that people who have land could begin to work the land. Lastly, on the video clip played by the team at the inception of the meeting, there is a plastic business that is a beneficiary, but she expressed some concerns about it and enquired whether it was environmentally friendly.


Mr Qhena responded that the Corporation provided R250 million for the uranium mine plant and when the facility that was provided earned interest from the equity loan when the amount was not being paid, so it was converted into equity.

The mine owed the Corporation R37.5 million in interest plus the R250 million return. The Corporation went to court because there was a manipulation of the shares. The company is currently under liquidation or business rescue and the IDC has perfected the security so that the shares are not sold by the mine without its permission. The case is not moving at the speed desired but there has been some progress made in favor of the Corporation.

As for the NEF, we have started a process of ensuring that the NEF is our subsidiary and we have shared the work done with the Minister and the Minister of Trade and Industry to share that information at cabinet level. There were a lot of questions asked at Cabinet and so they came back, and now the Corporation is busy formulating answers to be taken to cabinet. We are worried about the level of activity and we proposed a fund of R500 million for the NEF which the board has looked into and a proposal has been made but that still needs to be approved by the Ministers and Treasury. Therefore, the NEF is not yet a subsidiary of the IDC, and no money has been provided to the Fund yet until all protocols and approvals are observed.  

The team was now awaiting approval of the facility from the board, but this was just in the interim whilst the team was waiting for the Minister’s approval.  

Mr Mainganya responded to the impairments question and said if you go back 2014 and before that, the ratio was about 18% and from then it has been declining steadily. This year impairments went up due to material impairments raised by FOSKOR, this was around R1.8 billion. The Corporation would have lumpy investments at times where one material impairment would affect the overall ratio. We have not lowered our credit approval standards but we went into more risky sectors and new industries with cash flows at the beginnings. In 2016, we provided more facilities for distressed companies that were affected by the drought and last year 13% of the money went towards distressed companies.

Our projections indicate that impairments might increase up to 20%.  This was because next year all companies or juristic persons that employ accounting standards will be required to apply the new financial standard IFRS 9. The new standard would require a different accounting and application of impairments which would result to higher impairments. We have been quantifying the impact of the IFRS 9 to project the impairment ratio which led to the recreated overall ratio which has increased. In addition, under the new IFRS 9 standard, we have to estimate the losses and disclose them over the period of time, and this has significant implications on the first year.  

Mr Qhena said that last year it was Scaw that raised the level of impairments but this information would be furnished later.

Mr Mazwi Mntuzo, Head of Mining, IDC, responded to the mining question saying that mining in its nature is capital intensive compared to tourism and the job efficiencies are not very high, but most of the mining done recently due to the distressed platinum sector has been around the coal sector. The coal sector almost speaks to the 4th Industrial Revolution because it is automated, so it creates lesser jobs at the mine but there are more jobs downstream which are sustainable. Therefore, it was profitable to do both and tourism would provide more jobs during the construction phase rather than in the hospitality industry. Platinum prices have been down for some time and we anticipate a turnaround in four to five years but we have been finding ways in which we can increase the prices. Some of the projects we have are around fuel cells and static application in energy generation. We are talking to different stakeholders to ascertain whether we can provide electricity in rural areas where Eskom cannot reach. We are talking to Sibanye and Lonmin and looking into closing some of the shafts and keep those that are profitable and that would save about 5000 jobs. In the gold sector, there are also some mines that we are looking at resuscitating to save and create jobs.

Mr Qhena referred to the question o the plastic company. When a team gets an application the team looks at all variables and the reality is that plastic is still going to be around but we need to find a way to enforce the recycling of this product and IDC does fund a number of initiatives on recycling. We have not done well as a country on recycling. Even though government introduced a levy on plastic, it is still around and it needs to be recycled. So as we fund such businesses, we need to also fund recycling and education.

Ms Lizeka Matshekga, Chief Executive: Agro, Infrastructure and New Industries, IDC, said that we have a unit under the CRO which is the environmental health and safety, so when we assess a transaction we look at the manufacturing, the processing and the impact it has on the environment and we do recommend some improvement to ensure that the production is efficient. Manufacturing plastic contributes towards emissions which is why the right equipment and technology was important to look into, and provide funding thereof. These are some of the things we are considering when we grant funding, and the teams are mindful but we ensure that there is a fine balance to ensure that it is not at the expense of jobs.

On agro-processing and the agricultural sector; in light of fast tracking the participation of small scale farmers and potential farmers, we have done a lot of work where we strengthen the partnerships with companies such as AB InBev and Coca Cola to ensure that there are partnerships with small scale farmers brought into the mainstream economy. The process has been slow due to a lack of access to capital. We have introduced a pro-orchard scheme to ensure we encourage transformation which is used on the land restituted programmes. This is one sector where we can fast track women participation as well as youth owned businesses, but all these examples would be provided when the team comes back.

Ms Phiwe Morumo, Manager: Office of the CEO, IDC, said when we announced the results the team went to visit the factory and one of the things that were considered was a pilot project looking at using vegetable waste to produce the plastic and manufacturing the biodegradable plastic. These are some of the things the IDC is preoccupied with as the business grows.

One of the reasons for the underperformance on the continent was around the capacity and resource constraints, and we are looking at a complete overhaul of the current team and leadership to address that. We have also highlighted that the continent forms part of the key focus area and next year we should be in a position to advice on progress made in that respect. Part of our support is identifying opportunities for regional value chains. The continent is a net importer of rice and therefore there is opportunity to grow and develop it on a commercial scale. Malawi and Tanzania has the water capacity to grow rice into a commercial scale and we are looking at this as well as mining and textile industries. We are also looking at how we can support South African companies that can branch into the continent. South Africa is one of the biggest exporters of capital goods in the continent.

Mr Qhena said that the IDC is not creative enough but it will work with other partners on this. With the targets being very high, the organisation is growing but the environment is not necessarily ideal even though is is growing.

Ms Nontokozo Hadebe, Head of Strategy, IDC, said all PEPs have been disclosed on the website. In terms of identifying the black industrialist, this is not targeted per province but per sector. The teams would report on the lucrative sectors for transformation and so on but that is not on a provincial level. Working with DTI is also assisting the IDC in identifying the black industrialists and this was co-funded by both departments. A much more broken and accurate information would be provided but at the moment the funding has been more biased towards the Gauteng province due to their head offices being based in that province.

Mr Qhena said with respect to the decline on women approvals as well as youth; the IDC has met the five year targets already before the set time frame. The Corporation has now established a special unit designated only for youth businesses which will assist in ensuring that they received special and required attention for their businesses. The decline is not the sign that the trend would go away but IDC will try harder to ensure that support was continuously provided. The IDC has not done well in funding businesses that are owned by people living with disabilities and he committed himself to ensuring that a fund would be created with targets.

Ms Lucricia Khulima, Executive: Investments and Subsidiaries (Large Investments), IDC, responded to questions relating to FOSKOR, and said its production costs are high and the mining of the rock is quite expensive and the infrastructure is old. So the Board has made some decisions in an attempt to revive it and that has yielded some very positive results. Secondly, the commodity prices for sulphoric acid prices being as low as the exchange rate, that’s why we have not seen the benefit of the money that has been spent. However, with the Rand being weak and the price of the acid being strong, we have seen some benefits of the decisions that have been made.

Now to ensure long term sustainability, the board has decided to set up a post investment and significant investment division and it has put together a subcommittee of the board which will be focused on trying to find sustainable solutions for FOSKOR. The terms of reference of the subcommittee are much wider to ensure the research work is widened in trying to find sustainable solutions for FOSKOR in the long run and whilst ensuring that operations were ran correctly and does not make a big loss in the current financial year.

Mr Qhena said it would be difficult for FOSKOR again this but it is getting the required attention. It might improve but it might also continue generating the losses until everything has been stabilised.

Ms Hadebe responded to the question about jobs, and explained that the Corporation reported that it created 29 885 jobs which is jobs that are expected to be created or saved at the time of approval. When we conclude an agreement or approve a transaction we will calculate the jobs, but in 2018 we have created and saved almost 30 000 jobs.  Then once we have created we said the target has not been achieved which is based on the agreements that have been signed. The shareholder said that we should be creating more capacity in the economy which meant more job creation than saved; hence, the 80%. On monitoring the jobs created, we go back to the clients and monitor any movements at the beginning and the end of financial year and in this instance, page 22 of the integrated report, there was growth in the actual number of jobs (by 7 000 compared to the previous year).

Mr Qhena said that it can get confusing because some of the jobs are created over time when projects are being implemented, but the IDC tracks that to ensure that the entrepreneurs actually meet their end of the bargain. When they actually create jobs, they get some discounts in terms of the interest rate charged.

On the textile sector, there is a strengthened collaboration between various stakeholders in the sector and there has been significant improvement. The Dti has been providing some important support. The Corporation has partnered with some retailers to assist in ensuring that we continue giving the textile industry a chance.

Ms Muromu added that 2609 jobs were saved on the textile industry. With regards to the learnerships, in the past year we took on a total of 46 and 25 was absorbed by the Corporation and in the current year we have taken on about 31 and of that 11 were under the CA programme. Through partnerships the Corporation has provided support for learners living with disabilities and this programme started last year. In total the IDC has about 30 employees living with disabilities.

Mr Qhena said that the Corporation was trying to support more start-ups, and of the money provided about 39% of it went to start-up businesses.

Ms Matshekga said in terms of land parcels given back to beneficiaries, we are in partnership with Land Bank and DAFF and we have challenged the department to give us five parcels where we would partner and put the fallow land back into production. We partner with some farmers as technical partners and the majority share is in the hands of black people. There is a clear and definite plan on how the skills are transferred, also in opening up the markets because some of the farmers are operating on an international level. We also - in some of the projects - build young leaderships through bursaries to fund young people to study agriculture and they come back and plough in the skills.

Mr Lizo Mthoko, Regional Manager, IDC, responded to the applications questions. H explained that simple transactions are those that can be processed through a short space of time which are usually loans and the turnaround time is about 15 days. For complex applications, this requires a series of events before it is closed and involves equity instruments other than providing a loan and these usually take longer to process.

Mr Qhena said that FOSKOR was established in 1951 and the plant was commissioned in 1953, and before then it was just a mine and there was another plant established in 1973 but the IDC eventually became a sole owner; hence, the Richards Bay and Phalaborwa plant. Until it was clear that we needed a mining license we needed to put out a 26% BEE transaction after we brought in a partner from India. The BEE percentage was divided into three parts; one part was for the community in Phalaborwa and the community in Richards Bay, and the two communities plus the workers did not contribute so we did the vendor finance and the BBBEE contributed about 10% into that. Now due to the non-performance of FOSKOR that scheme went under water. We are now making a provision and created a loan and from the dividends from FOSKOR the loan would then be repaid.

Ms Khulima said that work has already started for a new scheme and that work will be considered by the subcommittee and something new will be proposed.

Mr Qhena heartily thanked the Committee for the support it has provided over the years.

The Chairperson thanked the CEO and his team.

The meeting was adjourned.

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