National Empowerment Fund briefing
NCOP Economic and Business Development
21 November 2007
Meeting Summary
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Meeting report
ECONOMIC AND FOREIGN AFFAIRS SELECT COMMITTEE
21 November 2007
NATIONAL EMPOWERMENT FUND BRIEFING.
Chairperson: Ms N
Ntwanambi (ANC, Western Cape)
Documents handed out:
Presentation on
Support of Black Economic Participation, Wealth Creation and Economic Growth by
means of access to capital
Audio
recording of meeting
SUMMARY
The delegation from the National Empowerment Fund briefed the Committee on
the support for black economic empowerment. The Fund was a catalyst of
broad-based black economic empowerment in South Africa. It was driven by current
market needs, broad-based black economic empowerment charters, government
policy and sectoral charters. The organisational structure was outlined, and
the funds and their purposes were described. The Asonge share holding scheme
was launched in June 2007. Promotion of equity ownership was undertaken through
one-on-one training. There was collaboration with stokvel associations, and
state allocated investments were housed under the Fund’s custody. The share
allocations were set out.
The Asonge Share Scheme was oversubscribed by 13%, and over 85 000 black
investors now owned shares in a blue-chip company. Examples were given of
beneficiaries, and regions.
Members asked questions on awareness campaigns, how many beneficiaries were
women, the target markets, the interaction with local government, the methods
of education, the reasons and time frames for acceptance or rejection, how the
Fund tested the viability of projects, the benefits of the Asonge scheme, why
there was so little disbursed for rural and community development, and the role
of the pre-investment department. Further questions addressed
, people with disability, the fact that beneficiaries had to have bank
accounts, the reasons for low disbursement in the Northern Cape, any checks as
to which companies were applying for funding, regional distribution, and the
challenges facing the Fund. Further issues would be interrogated at a future
meeting.
The Committee adopted the minutes of the previous meetings.
MINUTES
Support of Black Economic Participation, Wealth Creation and Economic Growth by
means of access to capital: Briefing by the National Empowerment Fund (NEF).
Ms Philisiwe Buthelezi, CEO, National Empowerment Fund, stated that the
National Empowerment Fund (NEF) was a catalyst of broad-based black economic
empowerment in South Africa. NEF enabled, developed, promoted and implemented
innovative investment and transformation solutions to advance sustainable black
economic participation. She noted that the mandate was driven by current market
needs, broad-based black economic empowerment (BBBEE) charters, government
policy and sectoral charters. These charters addressed past failures of BEE
structures and BBBEE codes of Good Practice.
Ms Buthelezi took the Committee through the organisational structure of the
NEF. A core division was run by the Chief Investment Officer: Fund Management.
This included the iMbewu Fund, the Corporate Fund and the Executive Asset
management. The iMbewu Fund was mainly used to finance start up capital for new
business, and the Corporate Fund was used to finance the needs of existing
companies. She stated that two significant milestones had been achieved in that
the Fund Management Division had approvals exceeding R500 million and the Asset
management fund was able to obtain overall approval for the NEF’s first BEE
retail product, Asonge, which was launched on 25 June 2007.
Ms Buthelezi stated that to promote the understanding of equity ownership among
black people the NEF had educated 64 mobilisers around the country, who had
reached 10 000 groups and 150 000 individuals by one-on-one education efforts.
NEF had collaborated with Stokvel associations, there was ongoing monitoring of
education processes and further education around investing and financial
markets done through TV and radio features. She confirmed that in 2000 the
government provided for state allocated investments to be housed under the
custody of NEF. As a result NEF held 1.5% of the MTN group’s shareholding.
Under the NEF Asonge share scheme 50% was offered to black individuals (of whom
half had to be women) and the other 50% to black savings and investment groups.
Ms Buthelezi gave a breakdown of the subscriptions received, and the share
allocation. The allocations per provinces were based on population statistics.
She highlighted exceptions considered by the NEF, for instance, certain
applications were not valid or were rejected, and noted that there were many
duplicate applications. She stated that there would be further analysis on
merit and decisions made on whether to include or exclude them from the offer.
Ms Buthelezi highlighted the successes of the Asonge Share Scheme. A 13%
over-subscription was indicative of the existing public demand and this set a
historic landmark for future share offers. Over 85 000 black investors now
owned shares in a blue-chip company, and this had contributed to a growing
culture of savings and investment amongst black people.
Mr Andrew Wright, Chief Operating Officer, NEF, briefed the Committee on the Fund Management
Division. He gave an outline of applications made by the end of the financial
year. Out of the 4 780 applications 86
applications had received disbursements worth R496 million. Under the iMbewu
Fund 58 applicants had received disbursements worth R97 million. Under the
Corporate Fund 28 applicants had received disbursements worth R399 million. He
gave some examples of beneficiaries, and noted that the fund targeted all
sectoral industries in government, the largest being the construction industry.
Mr Andrew Wright then gave a breakdown of the NEF investment portfolio by
region (see attached presentation). NEF had launched Provincial roundtable in
October, with the objective of optimising regional invested portfolios through
intensive local interaction and communication. He briefed the Committee on the
consolidated statement of the financial position of NEF. He highlighted the
moneys from investments available for sale and the Fair Value Reserves.
Mr Nhlanhla Nyembe, Fund Manager, NEF, gave an example of a project in the
Eastern Cape that was implemented through the Rural and Community development
initiative. The project involved diary farming by fifty families in the region,
with an agreement by Clover that it would buy milk products at commercial prices.
NEF had invested R10 million as equities, so that farmers would not be burdened
with the loan repayment conditions. 30% of the benefits would go to the
communities, 40% to the NEF and the final 30% to technical partners.
Discussion
The Chairperson asked whether the NEF had held conferences on creating
awareness on the Asonge scheme. She had not heard of this in the Western Cape.
Ms Buthelezi noted that the NEF was working closely with provincial
departments, and had asked
province officials to assist them realise their objectives.
Members of Parliament would also assist by carrying out promotion drives in the
various regions in the country. She stated that some provinces responded while
others did not.
The Chairperson asked if the NEF was able to categorise the 49% of the women
subscribed to the Asonge Scheme, to identify which women were in business. She
felt that the minimum subscription fee of the Asonge Scheme was too high for
rural women, at R2000.
Ms Buthelezi noted that the objective of NEF was not necessarily to target the
poor. She noted that the equity markets were complex in nature and that they
required people who had savings and reserves to enable them to invest for a
long term. She stated that the target was entry level women and professional
women. She noted that a small subscription fee would have brought about a large
number of applications that would have overwhelmed NEF.
The Chairperson asked how NEF managed to win over women who were members of the
stokvel associations.
Ms Buthelezi noted that the key objective was to target long term savers. She
noted that the NEF carried out awareness campaigns on equity markets, giving
women the pros and cons of these markets.
The Chairperson asked whether the NEF was able to identify the breakdown of
women shareholders per province, pointing out that Committee Members
represented provinces and were therefore interested in those figures.
Ms Buthelezi stated that the presentation gave a breakdown of benefits
regionally and that the NEF would provide detailed reports if requested by the
Committee.
The Chairperson asked whether there was any interaction between NEF and local
government.
Ms Buthelezi noted that the NEF was engaging with officials in the provincial
and local government through the roundtable discussions.
The Chairperson asked who was responsible for decision making in NEF. She noted
that there was a board of trustees and a chairman and was interested to know
what their role was.
Ms Buthelezi noted that the NEF would, in future meetings, give a breakdown of
the decision making process.
Ms M Themba (ANC, Mpumalanga) asked what mechanisms the NEF used under the
rollout of education and mobilisation.
Ms Buthelezi noted that the education was done in form of road shows, workshops
in the various provinces and programmes on radio and television.
Ms Themba asked whether NEF worked with the provinces to find out the
statistics on the status of women in society.
Ms Themba asked what was the turn around period after an
application had been made.
Mr Nyembe noted that a rejection or acceptance took two weeks from the time the
application was first lodged. The next process would depend on the size of the
transaction, ranging from six weeks to up to six months (for an acquisition).
Ms Themba asked whether NEF tested the viability of projects in the market when
an application was put forward.
Mr Nathan Nadasan, Post Investment Manager, NEF, stated that the NEF normally
conducted feasibility studies to test the viability of projects. NEF would
appoint experts in the industry to assist applicants to develop sound business
plans.
Mr D Gamede (ANC, KwaZulu-Natal) noted that the presentation highlighted that
the Asonge scheme gave rise to 69% appreciation on investments for subscribers.
He asked what the actual benefit was to investors.
Ms Buthelezi noted that the 69% translated to beneficiation. She stated that
the share scheme created 700 million investment, that
was in the hands of both black women and men.
Mr Gamede asked whether, with respect to subscriptions from groups, there was
any mechanism to identify the composition of women and men.
Ms Buthelezi noted that the analysis undertaken by the NEF had a bias towards
categorising women and men individually with respect to groups. She stated that
the focus was the number of applications received at an individual level.
Mr Gamede asked how the NEF reconciled the subscriptions with its objectives.
Mr Gamede noted that only 86 of the 4 800 applicants had received
disbursements. He sought an explanation for the limited number.
Mr Nyembe stated that some of the applicants had business plans that were not
viable. He noted that the NEF required a number of conditions to be met. These
included the quality of the business plan and the kind of concepts put forward.
He stated that some plans were not market viable, were not sustainable, and the
people did not have the technical expertise. He stated that the NEF had
qualified officials to assist applicants to come up with sound business plans.
Mr Gamede was alarmed that the money disbursed for rural and community
development was R1 million, given that the majority of citizens of South Africa
lived in the rural areas.
Ms Buthelezi confirmed, as earlier highlighted, that the problem was that few
applications came from these areas. The product was targeted for communities in
the rural areas, to address the transfer of skills and emphasis on ownership.
Mr Gamede noted that a number of businesses owned by previously disadvantaged
groups were not exposed to the expertise required to survive in the market and
the owners were not in a position to come up with sound business plans. He
asked what the NEF was doing to address this imbalance.
Mr Nathan noted that the NEF had a strong management that had empowered itself
with a basket of offers for applicants. He noted that the NEF had a skilled
pre-investment department with qualified staff to assist previously
disadvantaged individuals. He stated that the NEF would carry out road shows to
train small groups on business plan development, amongst other things.
Mr Gamede asked how the NEF addressed the issue of people with disability.
Ms Buthelezi stated that through the various acts of parliament all government
policies required institutions such as NEF to address the issue of
transformation, inclusion of people with disabilities and the previously
disadvantaged.
Mr Gamede noted that it was the expectation of South Africans that after 1994
they would achieve economic freedom. He asked whether the NEF had addressed
this issue.
Ms Buthelezi confirmed that the NEF had specific plans aimed at advocating for
ownership in the mining sector and ICT among other sectors.
Ms P Hollander (ANC, Northern Cape) noted that one of the requirements for the
eligibility was that a person had to have a bank account. She was concerned
with the fact that some members of the community did not have bank accounts.
Mr Andrew Wright noted that this requirement was a requirement of the JSE. One
of the reasons behind it was that refunds were normally deposited in the
shareholders account.
Ms Hollander asked what was the reason behind the low
disbursement of funds in the Northern Cape.
Ms Buthelezi stated that the micro-economic level was determined by the share
of the provinces in the Gross Domestic Product (GDP). She stated that the
distribution of wealth with respect to provinces was not equitable at present.
She noted the NEF did everything it could to create awareness. She stated that
these were early days and that the numbers would be determined by the
relationships forged with the provincial officers.
A Member asked whether there was a limitation as to the number of times
companies could apply for funding. He was of the view that it was essential to
ensure that it was not the same companies benefiting time and again from the
fund.
Mr Nyembe stated that there were checks and balances in place to ensure that
the same companies were not the only ones applying for the funds. He stated
that the fund was aimed at redressing imbalances in South Africa. The NEF would
require a company to show cause why it should receive
funding, as opposed to acquiring loans from commercial banks. In addition the
company would be required to show what benefits it would bring in terms of an
empowerment dividend. He stated that NEF determined the percentage shareholding
in projects it funded.
The Member noted that some residents of his constituency had informed him that
they had applied for funding from NEF but their application was rejected. They were
not informed of the reasons for rejection. He asked whether NEF had a system of
feedback for applicants whose applications had failed.
Mr Nathan noted that NEF was in the advanced stage of implementing a business
plan tool that would have information on reasons why a business would succeed.
In addition he reaffirmed that the pre-investment division had qualified
associates who interacted with applicants on their applications.
Ms S Mabe (ANC, Free State) noted that the time frame given for the Asonge scheme
share offer was only three weeks. She asked whether there were any advocacy
campaigns on it before the opening of the offer.
Ms Buthelezi noted that NEF held education campaigns a month before the offer
was open.
Ms Mabe requested NEF to identify common reasons for rejections under the
Asonge exceptions.
Mr Nyembe outlined some of the reasons. These included applications that did
not meet the criteria and duplicate applications. He stated that these
exceptions would be reconsidered to identify whether to accept the application
or reject it.
Ms Mabe asked whether through the Fund Management division the NEF ensured that
funds were distributed in accordance to regional distribution.
Mr Andrew Wright noted that funds were allocated based on where the business
was economically active. The Asonge scheme was determined based on where the
subscription was made.
Ms Mabe noted that there was no mention of the youth and people living with
disabilities.
Ms Buthelezi noted that the Asonge Scheme was very specific on targeted groups,
such as women, the youth and people living with disabilities.
Ms Mabe noted that the presentation did not clearly highlight the challenges
that the NEF was facing.
Ms Buthelezi noted that the presentation had identified as one of the biggest
challenges the geographical spread with respect to the results of the Asonge
Scheme.
Ms Mabe asked whether the NEF had conducted any round-table discussions. She
noted that the presenters had mentioned parliamentarians as stakeholders. She asked
whether NEF communicated the dates to parliament.
Ms Buthelezi stated that invitation letters were sent to members of parliament
whenever the NEF planned for round-table discussions. She had met the Premier
of the Northern Cape and had arranged for round-table discussions to be held.
The Chairperson stated that there were some issues that were not interrogated
and that these would be dealt with in the next meeting.
Other Committee business
The Committee adopted the minutes of the previous meetings.
The meeting was adjourned.
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