The Committee was briefed by the Minister of Economic Development on the impact created by the Industrial Development Corporation’s (IDC’s) investment decisions on transformation and economic inclusion. The Department had set a five year target for the IDC to promote economic inclusion and had provided it with R32 billion funding for black industrialists, and women and youth-empowered enterprises. The IDC was projected to meet its target on the black industrialist sector and had already exceeded the targets for both the youth and women-empowered sectors. Based on the IDC’s projections, it had created 22 971 jobs while saving 4 568 for the designated groups. The presentation data had shown that when targets were well designed and implemented, they could considerably lift investment rates for the designated groups.
Members asked about the status of the Soweto Gold brewery, which had reportedly been sold to an international brewery. They wanted to know to which countries Kalagadi Managanese was exporting, and whether its marketing efforts were being assisted through South African diplomatic channels. They also asked why R95.8m of IDC funds had been invested in Russia, and suggested the IDC should focus more on manufacturing here in South Africa, which was the country’s weak link, instead of looking abroad.
Minister Patel said that the important policy issue now was how to scale up the IDC. It was required to make a profit from its portfolios, and to reinvest that in its development mandate. It meant that even though its asset base was large, the flow of funds that was available was comparatively modest. It had reached a stage that the next big development would be to augment the balance sheet.
In Brazil, their IDC equivalent receives a monthly capital injection through a payroll deduction from workers and employers, which was then paid to their IDC equivalent. This ensured that they had more resources and could do many things, such as bringing down the price of funding. As a result of the present balance sheet of the IDC, a new funding model would need to be implemented so that it could triple what it was currently doing, such as a partnership with commercial banks to increase the level of funding available to industry.
Minister of Economic Development on Transformation
The Chairperson reminded Members that this meeting came about as a result their previous engagement with the Department, when it requested them to provide the Committee with empowerment progress updates specifically on black industrialists. The Minister would speak on the specific information that was demanded, and any other he deems necessary.
Mr Ebrahim Patel, Minister of Economic Development, said the Committee had asked the Department to provide additional detail to help them understand the impact of the Industrial Development Corporation’s (IDC’s) investments on transformation and economic inclusion. It should be recalled that in May 2015, the Department had set a five-year mandate to the IDC to promote economic inclusion through providing funding as follows:
- R23 billion for black industrialists;
- R4.5 billion for women-empowered enterprises;
- R4.5 billion for youth-empowered enterprises.
This five-year mandate would end in March 2020 and the presentation would cover progress to date. From 1 April 2015 to 30 September 2018, the following strides had been made:
- R16.7 billion funding to black Industrialists -- 295 deals and 73% of target achieved;
- R7.1 billion funding for women -- 159 deals and 159% of target achieved;
- R4.6 billion funding to youth -- 137 deals and 101% of target achieved.
It was currently projected that the IDC would meet its target in each of the three areas. Based on the IDC projections, the following cumulative impacts have been achieved through industrial funding by the IDC for the designated groups:
- 27 539 jobs saved and created;
- R19.1 billion in IDC funding approved;
- R34.5 billion total investments facilitated.
What the data showed was that well designed targets could lift the rate of investment for designated groups significantly. While this applied to all three categories of targets set in 2015, the increase in youth-empowered funding was particularly large. This followed the signing of the Youth Employment Accord in 2013, and the work done with the IDC to tool up for the target that was set in 2015.
The IDC had put measures in place to check claims about ownership in order to address fronting challenges. Its due diligence process included interviews with the entrepreneurs and project promoters, and consisted of an assessment of the management team of the company being funded, a legal review, compliance checks, and a review of the shareholder’s personal balance sheets. Teams investigating transactions were thoroughly informed about fronting, and were aware that the IDC would not tolerate this practice. A fraud hotline was available for anyone to report fraud, including fronting.
Minister Patel provided details of the achievements in various sectors from 1 April 2015 to 30 September 2018. There were case studies for each sector.
Agro-processing and agriculture
- R315 million in IDC funding approved to designated groups;
- R595 million in total investment facilitated;
- R221 million funding for 16 black industrialist clients in 20 deals;
- R154 million funding for 10 women-empowered companies in 14 deals;
- R175 million funding for 12 youth-empowered companies in 15 deals;
- 1 336 jobs created and saved (992 jobs created; 344 jobs saved).
- R1.9 billion IDC funding approved to designated groups;
- R2.6 million in total investment facilitated;
- R1.7 billion funding for 14 black industrialist clients in 21 deals;
- R528 million funding for six women-empowered companies in one deal;
- R5 million funding for one youth-empowered company in one deal;
- 1 460 jobs created and saved (1 025 jobs created; 435 jobs saved).
- R648 million IDC funding approved in media, film and television to designated groups;
- R1.3 billion in total investments facilitated;
- R681 million funding for 17 black industrialist clients in 22 deals;
- R288 million funding for nine women-empowered companies in nine deals;
- R598 million funding for 15 youth empowered companies in 18 deals;
- 716 jobs created.
Mining, metals, machinery and equipment
- R8.2 billion IDC funding approved to designated groups;
- R11.1 billion in total investment facilitated;
- R8.1 billion funding for 61 black industrialist clients in 70 deals;
- R3.2 billion funding for 22 women-empowered companies in 27 deals;
- R598 million funding for 17 youth-empowered companies in 17 deals;
- 7 682 jobs created and saved (6 605 jobs create; 1 077 jobs saved).
- R443 million IDC funding approved in clothing and textiles to designated groups;
- R810 million in total investment facilitated;
- R352 million funding for 20 black industrialist clients in 31 deals;
- R169 million funding for 16 women-empowered companies in 26 deals;
- R109 million funding for eight youth-empowered companies in 10 deals;
- 2 853 jobs created and saved (920 jobs created; 1 933 jobs saved).
- R976 million IDC funding approved to designated groups;
- R1.3 billion in total investment facilitated;
- R921 million funding for 10 black industrialist clients in 10 deals;
- R545 million funding for six women-empowered companies in six deals;
- R514 million funding for six youth-empowered companies in six deals;
- 1 645 jobs created.
Chemicals and pharmaceuticals
- R975 million in IDC funding approved to designated groups;
- R1.4 billion in total investment facilitated;
- R965 million funding for black industrialist clients in 31 deals;
- R124 million funding for 11 women-empowered companies in 12 deals;
- R206 million funding for 11 youth-empowered companies in 13 deals;
- 1 624 jobs created and saved (1 547 jobs created; 77 jobs saved).
Energy, infrastructure and heavy manufacturing
- R3.8 billion IDC funding approved to designated groups;
- R12.5 billion total investment facilitated;
- R2.1 billion for 43 black industrialist clients in 52 deals;
- R1.5 billion funding for 28 women-empowered companies in 31 deals;
- R1.9 billion funding for 27 youth-empowered companies in 37 deals;
- 7 634 jobs created and saved (7 373 jobs created; 261 jobs saved).
New industries and information communication technology (ICT)
- R1.1 billion IDC funding approved to designated groups;
- R1.5 billion in total investment facilitated;
- R883 million funding for eight black industrialist clients in eight deals;
- R120 million funding for six women-empowered companies in six deals;
- R144 million funding for four youth-empowered companies in five deals;
- 623 jobs created.
The Chairperson thanked Minister Patel for the briefing, and said he hoped that the Department would continue with the style of reporting which was sector specific, as it made things easier to understand. This was the information demanded by Members, and it proved that in terms of sector penetration and creating new industries, the IDC was trying to correct the imbalances of the past etched in white male domination.
Mr P Atkinson (DA) thanked the Minister for a very comprehensive presentation, which had been very impressive. He said Members had paid two visits to Soweto Gold brewery and wanted to know if they were still there and what was happening there at the moment. There had been a report about IDC’s various projects funded in Africa, but what was puzzling was the R95.8m funding in Russia. What did that relate to, and what was the rationale behind an investment there? Africa was understandable -- but Russia?
Mr S Tleane (ANC) appreciated the presentation and the good work of the IDC. The Committee had recently visited Kalagadi Manganese, and it was good to see it prospering. It was reported that it had created 977 jobs and was exporting. Could the Committee get more information on where it exports to? Was the South African Embassy and the Department of International Relations and Cooperation (DIRCO) assisting this company to source more customers abroad? On slide 30 of the presentation, where Natalie Johannes and Tom du Toit were shown as partners in Q-Plas, had the IDC had the opportunity to double check on this company just to ensure that there was no fronting going on. The document also needed to be cleaned up of minor errors.
Mr I Pikinini (ANC) was happy that all information requested by the Committee had been covered in the presentation. The work the IDC was doing was a starting point. Even though the country was weak on manufacturing, there was the beginning of a new process of doing things in South Africa, instead of taking them abroad. The dream of this Fifth Parliament doing what had until now been a dream, was encouraging.
The Chairperson referred to a few small technical issues in the presentation that needed rectification.
Minister Patel said that the important policy issue now was how to scale up the IDC, because it was the biggest finance institution in South Africa. Even with this profile, it had not received any money from the government since 1994, if not from 1950s. How the IDC was run was that it was required to make a profit from its portfolios, and to reinvest that in its development mandate. It meant that even though its asset base was large, the flow of funds that was available was comparatively modest. In the last ten years, the advantage it had was that its balance sheet was much more actively used. It had reached a stage that the next big development would be to augment the balance sheet. In Brazil, which was the best case study, their IDC equivalent receives a monthly capital injection through a payroll deduction from workers and employers, which was then paid to their IDC equivalent. This ensured that they have more resources and could do many things such as bringing down the price of funding. This was a policy thought for the future.
As a result of the present balance sheet of the IDC, a new funding model would need to be implemented so that it could triple what it was currently doing. What needed to be done in future was to partner with commercial banks to think about how the combined weight of both entities could increase the level of funding available to industry. A new idea on partnerships was needed.
He said the few small typographical and technical issues in the presentation would be rectified.
The Soweto Gold brewery was a black-owned company, but he understood it had been sold to Heineken. The holding company had not been sold, but the Soweto Gold part was. Though the owners of businesses should have the freedom to do what they deem necessary, the challenge was what to do when there was a partnership that the state had supported. Should people cash in because they could make more money or battle with the business? Would it be better selling it than letting it go down? Could it be they were taking the capital and putting it into another venture that would be bigger and more profitable? One may never know, but that was the situation with the Soweto Gold brewery.
On the IDC Russian investment, it was export finance where IDC refunded the South African company to export a manufactured product to Russia. It was a classification issue. It was not known whether the money was paid to a Russian company to enable it to import from South Africa. The Americans used that kind of funding cleverly, where if South Africa wanted to import an American product they would help South Africa to fund that which would be eventually paid back to them. By so doing, they created a demand for that American product. The Chinese were also doing more of that now, but South Africa was not doing enough of it. If the IDC was getting into it, it was an interesting space to get into because it provided new markets for South African goods
He said that Kalagadi Manganese exported mainly to China and the US.
On the request to do more local processing, the IDC had an important role to play but would also need a few policy tools. An example was what was done on scrap metal, where there was a combination of measures where a steady supply was created to local operations. The IDC comes in to provide some capital and the foreign investor also brings additional capital, and all was added together to beneficiate the scrap metal. Sometimes it was this coordination between the state and the private sector that was needed, more than the money.
On the Natalie Johannes and Tom du Toit partnership in Q-Plas, currently she was the operations manager and owns 25% of the company. She started as a machine operator in 1994, the year SA’s democracy began. She was working while studying, and finished with a BCom degree. Based on her academic study and practical experience, she shifted from being a production worker to management. These were good examples of South Africans from humble beginnings, showing that opportunities could be created if one works hard.
The meeting was adjourned.