IDC, CSIR, Khula, Ntsika: progress reports

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Trade and Industry

06 March 2001
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Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE; ECONOMIC AFFAIRS SELECT

COMMITTEE: JOINT MEETING
7 March 2001
IDC, CSIR, KHULA AND NTSIKA: PROGRESS REPORTS

Chairpersons: Dr R Davies and Mr M Moosa

Documents handed out:
 

Council for Scientific and Industrial Research (CSIR) Report
Industrial Development Corporation (IDC) Report
Khula Report
Ntsika Report
[These are all PowerPoint presentations; email info@pmg.org.za for text versions}

SUMMARY
The CSIR noted that it was breaking into new areas of innovation such as venture capital and the SADC region. It was also developing strategic alliances with tertiary institutions, provincial governments and the motor industry. With a staff of 2593, and a client base of 7000, its major activity lay in telecommunications and IT, and research and development.

The IDC informed the Committees that the company was positioning itself to help SMEs and empowerment groups while also stepping up its presence in the SADC region.

Khula told the Committees that it is reconsidering its strategies after incurring loses through its retail outlets due to lack of repayments from the clients of these outlets.

Ntsika is also reconsidering its strategies from capacity building to delivery leading to economic growth, human resource development and institutional sustainability.

MINUTES
Council for Scientific and Industrial Research (CSIR)

The CSIR’s Executive Vice-President and Chief Information Officer, Dr Adi Paterson, noted that in the past two years CSIR has incorporated the concept of venture capital into its mission statement in line with global trends yet its core mission of "providing solutions that work in the market place" has not changed.

The latest development at CSIR has been the "thrust" into the African continent particularly the SADC region. This has been backed by the Department of Trade and Industry, its major financial backer, though it also receives some of its major funding from the Department of Arts, Culture, Science and Technology.

Strategic alliances have been initiated with the University of Pretoria in the area of research, with the Gauteng government in the area of telecommunications and information technology where a replica of a Silicon Valley is being considered as well as developing an automobile-manufacturing centre. The CSIR has also engaged in discussion with the motor industry in the Eastern Cape. Other strategic alliances have looked at urban renewal and HIV/AIDS.

Its 2,539 staff members are mainly intellectually orientated with most of them having tertiary qualifications. They are looking forward to working with the Department of Education especially after the Minister’s speech on restructuring higher education. The CSIR’s client base of 7000 is mainly drawn from the private sector.

The bulk of the organisation’s spending is on Research and Development (R&D) and though most of its client base is from the private sector, there was concern from the CSIR’s view that that sector was not giving them enough support and it would be happy to see greater interaction.

The CSIR is accountable to the Government and meets frequently with the DTI. It claims to be the leading telecommunication and IT research centre in the country and is involved in bioscience and biotechnological research. Its objective is to add value to science and technology, and in so doing is being assisted by its nine strategic business units.

Industrial Development Corporation (IDC)
Mr Andile Reve, Executive Vice-President, said that IDC’s vision, developed two years ago, aims to focus on the SADC region. Its core strategy is to provide risk capital. It wants to maintain its financial independence. Since restructuring eighteen months ago it has been imparting business skills to its staff to give the organisation a competitive edge.

The IDC has thirteen strategic business units that are sector focused. It concentrates on:
- Bringing emerging entrepreneurs into the mainstream economy
- Supporting the manufacturing sector, tourism development, agro-industries and small-scale mining
- New initiatives: telecommunication and IT, retail and service sectors, government tenders and venture capital

IDC’s area of focus is SADC – it is involved in 30 projects in the SADC region. For example, aluminium smelting, sugar, coal mining and tourism (Mozambique), diamond mining (Lesotho), distillery (Swaziland), pharmaceutical production (Tanzania), and tea estates (Malawi).

Some of the company’s highlights for this year is the increased investment assistance to the private sector, growing by almost R1 billion from R3.3 billion last year to R4.2 billion this year. Its venture capital stands at R300 million and the company is in a process of establishing an export/import bank to be known as Exim Finance. It has also introduced a flood relief scheme totaling R300 million.

The company’s assets stand at R17.4 billion and its financial statement showed a healthy income balance. Its business units cover:
- Mining, minerals and energy
- Large beneficiation such as Saldanha Steel and Mozal Aluminium
- Agric projects
- International finance
- Textiles, clothing and leather
- Tourism
- Wood, paper and other
- Chemicals, rubber and plastics
- Metal-based products
- New business development, and
- Agro industries

Last year the company contributed 5.9 percent of its total investments to the manufacturing sector that created 17 600 jobs, maintained 1 233 permanent jobs, assisted 415 industrialists and generated R4 billion in export earnings.

Approvals of empowerment financing have been growing from 6 percent in 1996 to 27 percent in 2000. On Small and Medium Enterprise financing the trend has been more-or-less the same, growing from 11 percent in 1996 to 42.3 percent in 2000.

On regional basis, assisatance has been biased towards Gauteng, KwaZulu-Natal, and the Western Cape. The company announced it would step up its activities in the Northern Province, Northern Cape and the SADC region (for which purpose, a SADC unit has been established within the company).

Finally, the company touched on the Saldanha Steel project and said that it was an important activity although it was operating at only 60 percent capacity. Mr Reve said that IDC was engaging international consultants to help turn Saldanha Steel around and together with Iscor were discussing ways to finance the plant to ensure it pays its foreign loans.

KHULA
Mr Sizwe Tati, Managing Director, explained that Khula is a wholesale finance agency whose mission is to enhance access to finance for Small Medium and Micro Enterprises (SMMEs). According to him, the priorities of Khula are to:
- Raise capital of R1.2 billion from the State over the next three years
- To strengthen alliances with the IDC, Ntsika, and the Development Bank of Southern Africa (DBSA)
- To make inroads in tourism and franchising
- To create an acceptable market perception in relation to clients, and
- To strengthen relations with donor agencies

Some of the issues that need to be reviewed are:
- Research and Development (R&D) in order to better cater for the needs of the market
- For Khula to be exempted from paying taxes
- To sharpen the human resources of the company
- To embark on a process of consolidation to be ready for the future
- To increase dialogue with banks through the Banking Council to cater for emerging entrepreneurs
- To fast track the implementation of governance structures within Khula

Mr Tati then ran through Khula’s budget in detail showing the company’s Consolidated Income Statement, breaking it down to Core Income and Core Expenses, Operating Expenses and Donor Funds Application.

In discussing the Consolidated Income Statement, Mr Tati noted that Khula had not performed up to expectations and had scaled down of some of its operations. On projected expenses, he "expected an increase in staff levels" and also an increase in marketing "from where growth would come". He said he expected Khula to disburse R96 million to business institutions in the next financial year and he anticipated a growth fund increase. On balance Mr Tati "anticipated growth in all levels which will be mostly donor driven."

Mr Tati displayed projections for Job Creation beginning 2002 to 2004 and said through Khula’s outreach, jobs expected to be created by 2002 will be in the region of 198 912. In 2003 the figure will increase to 223 795, and by 2004 will reach 254 483 and the total number of job created over this period will be 677 190.

Ntsika
Mr Molefe Mokoena, Acting CEO, explained that Ntsika, with a staff complement of 80 people, was involved in market development, business linkages, supplier developmen, and programme design and research information. Besides this area of involvement it focused on woman, youth and disabled people. He mentioned that his organisation’s mandate had been broad and they were narrowing it down to focus on core functions this year

The re-focusing strategy will involve delivery instead of capacity building. On strategic goals, Ntsika will:
- Identify market opportunities
- Facilitate business linkages
- Coordinate research and development, and
- Promote Ntsika products.

Ntsika’s five programme areas are:
- Business linkages – aimed at assisting entrepreneurs access appropriate buyers and markets
- Supplier development – aimed at developing potential entrepreneurs start new ventures and enhance their capacity to service market opportunities
- Market development – aimed at identifying relevant business opportunities for entrepreneurs
- Policy Design Research and Information – aimed at coordinating research regarding SMME development, and
- Business Generation – aimed at the promotion of the products and services of Ntsika.

Ntsika’s implementation strategy is to cover specific sectors and relevant locations. These sectors are divided into primary and secondary sectors:
· Primary sectors include: Automotive; Construction; Tourism; Information and communication technology (ICT); Agro-processing; Clothing and textile.
· Secondary sectors include: Small-scale farming; Small-scale mining; Transport; Services.

On intervention Ntsika will focus on information provision, training and advisory services. The delivery mechanism for intervention will be information and referral services, training and advisory services.

Approximately 80.6% or R50 million of Ntsika’s budget comes from Government or DTI and the remaining 19.4% or R12.0 million is donor funded. By 2002 Ntsika expects to begin to generate its own income starting in the region of R2.4 million.

The expected impact is economic growth, human resource development and institutional sustainability. In conclusion, Ntsika expects to be a "leading and dynamic national agency for the SMME sector".

Discussion
Mr Durr (ACDP) asked Khula to be more specific about job creation. He asked which sector will create those jobs and how much will each job cost?

Mr Tati (Khula) said that people who were unemployed and therefore resort to survivalist activities would create those jobs. The important thing is to go beyond the survivalist level. For him the challenge was capacity building and skills development leading to sustainability.

Dr Davies (ANC) referred to Khula’s need of R1.2 billion from Government over the next three years and asked how much capital will the organisation receive from the IDC and DBSA? On R&D he referred to the CSIR’s mention of finding it difficult to work with the private sector and wondered how Khula was going to overcome that?

Mr Tati replied that discussions with IDC were at their initial stages. On research he said his company was branching out to rural areas and research was needed for that purpose.

An ANC member made the following observations:
- Ntsika has been "singing" the same strategic goals for years and wondered whether their activities have made any impact. She asked what mechanisms where in place to ensure the institution does not fail in delivering?
- It has become clear to the people that Khula is not assisting them properly. She asked whether Khula still sees itself as helping disadvantaged business?
- She has not seen the IDC helping people especially farmers in the former Homelands and yet it is active in the SADC region. She asked what does "empowering of people in Southern Africa" in the company’s mission statement mean?

Ntsika replied that the message is to change and be more focused in the area of operation. Ntsika has been concentrating on capacity building and accreditation and had spent a lot of resources on those areas. Now they are concentrating on the ground where spin-offs would filter to the SMMEs.

Mr Tati said Khula has a broad portfolio of start-up businesses and they were in constant dialogue with the banks to provide access to finance and planned to do road shows to all the banks in nine provinces "for better understanding leaving no room for people to say we do not know Khula."

Mr Reve of the IDC replied that 80 percent of its funding goes to agriculture, half of it to wine farmers in the Western Cape to gain market competitiveness in world exports. He said his company has also funded several co-operatives including a co-op for lemon farmers and another in the sugar industry based in Mpumalanga. He said IDC was ready to do things like that.

Mr Rasmeni (ANC) asked the IDC what products are produced through beneficiations and in which sectors of agro-business is the company involved? He asked Khula what strategic alliance it had with the IDC? He asked the CSIR what kind of interaction it had with the Department of Education?

Mr Reve (IDC) said South Africa was endowed with vast mineral resources which were exported unprocessed but now value was being added to them. IDC’s role was to promote such activities hence the Mozal plant, which was a beneficiation project. On agro-processing he said IDC was in constant discussion with DTI on what role IDC can play in that sector. He pointed out that IDC is financing small-scale farming and mining. He gave an example of how R200 million was given to a small-scale mining group to acquire shares from a big mining company.

Mr Tati replied that strategic alliances with IDC where at their initial stages.

The CSIR said they have dealings with the Department of Education, facilitating trends and management of science and technology.

Ms Thabethe (ANC) asked the CSIR to unpack its 7000-client base per sector. Addressing Khula, she referred to the statement made by Mr Tati about "increased interface" and asked with whom? On scaling down on some of its activities she asked, "What are the causes for scaling down [retail outlets]?" Referring to Ntsika, she noted they spoke of "identifying of opportunities" and observed that Ntsika has been repeating the same thing all the time. She asked when are they going to go for implementation?

The CSIR’s response was that its clientele of 7000 could be more, as some of their clients are overseas based. However, the majority are SMMEs in the mining sector.

Mr Tati replied that he meant increased interface with the banks so that the SMMEs can be able to gain access to finance through them since Khula provided guarantees for them through banks.

On scaling down Mr Tati said this was due to failure by NGOs that provide retail outlets to SMMEs to operate efficiently. Most of their clients have been unable to repay their loans causing these NGOs to operate at a loss. Another problem has been managing their database, "which caused their activities to suffer greatly."

Ntsika said they have created mechanisms to monitor institutions designed to deliver services. They also have programmes that are opportunity driven to help SMMEs with procurement opportunities that present themselves to SMMEs.

Prof Ripinga (ANC) asked IDC to provide examples of strategies for turning the Saldanha Steel plant around.

Mr Reve replied that there was no running away from fixing this problem. He felt that the problem was manageable and that it was important to make the plant viable through exports.

An ANC member asked the CSIR to elaborate on its role in high schools and tertiary institutions. He asked about IDC’s role in tourism and black economic empowerment.

The CSIR said four years ago it had conducted a survey in schools to find out the level of science and technology. Fom these findings, it had initiated a project aiming to encourage students to be innovative.

Mr Reve (IDC) said that the IDC had been pleased with the President’s recent comments on tourism and black economic empowerment as the IDC was thinking along the same lines. IDC thus believes it has political support to pursue the subject further.

Mr Zita (ANC) observed that innovations produced by CSIR where capital intensive and wondered what labour intensive projects were they involved in alleviating unemployment in the country. Referring to the IDC, he asked what spin-offs accrued to South Africa for investing in the SADC region?

The CSIR said they were increasing their partnership with IDC to maximize SMME start-ups and the number of clients from that sector was constantly growing especially in KwaZulu-Natal and the Eastern Cape.

Mr Reve said SADC presented South African companies with many opportunities to do business in that region. He mentioned Mozal and said 60 percent of that plant’s input comes from South Africa. Another reason for promoting economic activities in the SADC region is to try to contain the flood of illegal immigrants pouring into the country.

Ms September (ANC) observed that in the past IDC-financed projects were capital intensive and wondered whether the company was still going the same way?

Mr Reve said it was unfortunate that this was the perception of IDC. He conceded that in the past IDC had financed huge projects but now the company was moving away from that paradigm to financing SMEs and empowerment projects.

An ANC member asked what strategies the IDC was taking to promote black economic empowerment. He asked the CSIR what it was doing to prevent indigenous technology and intellectual property from being usurped by overseas companies.

Mr Reve replied that approvals of empowerment financing have been growing from 6 percent in 1996 to 27 percent in 2000 and expects this percentage figure to increase even further in the future.

The CSIR said it was trying to manage and protect indigenous technology and intellectual property but what was important was the involvement of the community so that awareness can be created that ownership of intellectual property does not rest with an individual but with the community. The community gives rise to innovation and as such should claim that ownership. With that mindset indigenous technology can be safeguarded.

Ms Shope (ANC) asked IDC what amount was set aside to finance women projects.

The IDC said there was no funding specifically set aside for women but a few months ago the company had approved "a few million rands" that was given to the Women’s Development Bank to finance rural women.

 

The meeting was adjourned.

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