National Empowerment Fund; Industrial Development Corporation: briefing

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ECONOMICS AND FOREIGN AFFAIRS SELECT COMMITTEE

ECONOMICS AND FOREIGN AFFAIRS SELECT COMMITTEE
2 September 2003
NATIONAL EMPOWERMENT FUND; INDUSTRIAL DEVELOPMENT CORPORATION: BRIEFING

Chairperson:
Mr B Tolo (ANC)

Documents handed out

Presentation by the National Empowerment Fund
Presentation by the Industrial Development Corporation

SUMMARY
National Empowerment Fund and the Industrial Development Corporation spoke on their role in the financing of BEE companies as well as in the implementation of broad based black economic empowerment. The Committee stated that there was a real need for these institutions to establish structures that would forge links with micro-entities and people at grassroots level.

MINUTES
Briefing by the National Empowerment Fund (NEF)
The panel comprised of Mr Sydney Maree (Chief Executive Officer) and Mr Vijay Ramluckan (General Manager: Investment Services).

Mr Maree briefly spoke on the history of the NEF which was established through the NEF Act of 1996, as part of the DTI's National Development Finance Institutions (NDFIS). The NEF equity allocation of various state owned enterprises was outlined. Mr Maree noted the need to broaden the mandate of the NEF so as to have a much broader impact in the implementation of black economic empowerment. Hence the mandate of the NEF was still under review and thereafter capitalisation would be available upon the finalisation of its mandate.

NEF's goals and strategies were outlined with its main focus being the spread of ownership to Historically Disadvantaged Persons and their meaningful participation in the economy. The strategy objectives for NEF include: facilitating BEE savings, investments and finance and improve the accessibility of finance for BEE groups (see presentation for detail).


Discussion
The Chair asked what structures had been put in place to empower and help BEE companies.

Mr Raju (DA) noted that the presentation highlighted that NEF would be restructured and asked what problems had led to that new impetus.

Mr Nogumla (ANC) emphasised the importance of links between the NEF and the people it sought to serve, specifically those from previously disadvantaged backgrounds. He asked if there were structures in place to strengthen the link between the NEF and people at grassroots level.

Mr Maree (NEF) pointed out that chief amongst the problems the NEF was faced with, was the problem of proper capitalisation and funding which had not yet taken place. Secondly and most importantly, the designated equity that had been rightfully assigned to the NEF had not yet been formally transferred. However, the NEF was putting structures in place to facilitate the transfer of the designated equity so that it could go ahead to perform its duties.

He noted that one of the burning issues in the South African economy was the financing of the BEE companies. Hence an advisory service council has been established to gather information on all the SMEs that were in need of finance, more specifically rural based women.

Mr Ramluckan (NEF) added that discussions had already started with other institutions such as Ntsika and the Industrial Development Corporation to help to set up a financial institution that would offer financial assistance to the SMEs.

Mr Kolweni (ANC) was concerned that the presentation was silent on financing of micro-entities.

Mr Adams (NNP) asked why "the product offerings" outlined in the presentation were under review and whether there were other new products on the way. Would these product offerings be given to other groups irrespective of their colour and race?

Mr Maree (NEF) responding to these questions, pointed out that one of the challenges facing the NEF was the capacity to deliver at rural level. Hence the challenge was to get proper structures that would reach people at that level. However NEF was now prepared to take on the risk - which the financial institutions would not take on - because its focus was not only on returns and profits, but also to impact on the rural communities.

Mr Ramluckman (NEF) added that NEF intends to provide micro-financing to cooperatives, which would then make finance available to the micro-entities.

Briefing by the Industrial Development Corporation
The panel comprised of Mr Lumkile Mondi (Chief Economist), Ms Simangele Skgobela (Senior Economist: Policy Section) and Mr Lizo Ntloko (Regional Marketing Manger).

Mr Mondi outlined the IDC corporate profile, vision and its activities. As a company registered under the Companies Act, it had an independent board of directors and it was paying taxes.

The core strategies of the IDC include:

- providing risk capital to a wide range of industrial projects
- identifying and supporting opportunities not addressed by the market
- establishing local and global partnerships in projects benefiting South Africa or Africa
- building and investing in human capital; and
- maintaining financial independence

In its economic strategy IDC has approved R5.6 billion (accumulative figure) to BEE and increased BEE approvals from 3 entrepreneurs to 191 per annum. IDC fully supports the New Partnership for Africa's Development (NEPAD) and it intends to act as a catalyst and partner for investments in productive capacity throughout Africa.

Discussion

Mr Bhengu (IFP) was concerned that there were a number of BEE companies that had collapsed due to the lack of finance. Did the IDC have financing mechanisms in place that were different from those of traditional financial institutions.

Mr Mondi (IDC) explained that one of the key issues in the South African economy was that many companies and financial institutions were not prepared to take risks. IDC was there to intervene in those areas neglected by the private sector by providing finance to BEE companies.

Mr Bhengu asked if there were any awareness programmes for BEE companies about finance.

Mr Mondi (IDC) pointed out that there were financial literacy challenges with certain BEE companies. Hence the IDC would undertake to run such programmes so as to make people understand the deals into which they were entering.

The Chairperson thanked the delegation from IDC and adjourned the meeting.

 

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