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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
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.
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.
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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