click to edit master subtitle style leadership in industrial development idc strategy - 2011/12 to...

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Leadership in Industrial DevelopmentIDC Strategy - 2011/12 to 2015/16

Geoffrey QhenaCEO

Cape Town29 March 2011

Vision and mission

To be the primary driving force of commercially sustainable industrial development and innovation to the benefit of South Africa and the rest of the African continent.

The IDC is a self-financing national development finance institution whose primary objectives are to contribute to the generation of balanced, sustainable economic growth in Africa and to the economic empowerment of the South African population, thereby promoting the economic prosperity of all citizens. The IDC achieves this by promoting entrepreneurship through the building of competitive industries and enterprises based on sound business principles.

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Objectives and the outcomes that we aim to achieve

Sustainable employmentRegional equity (including development of the rest of Africa)

Growing SME sectorBroad-based black economic empowerment

Environmentally sustainable growthNew entrepreneurs entering the economy

Increased localisation

Support for industrial capacity developmentBy focussing on

We will contribute to

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Key strategies for IDC to be able to achieve its objectives

Industrial Development Contributing to an Enabling Environment

Leveraging IDC’s Portfolio for Maximum Impact

The primary driving force of commercially sustainable industrial development and innovation to the benefit of South Africa and the rest of the African

continent

Customer Service and Environmental Impact

• Sector focus in line with NGP and IPAP2

• Project development• Industrial finance• Sector development

strategies• Regional industrial

integration

• Proactive role in shaping and influencing policy

• Factors impeding industry development

• Role clarification, partnership with and support for other DFIs

• Segmenting IDC’s portfolio

• Customised funding schemes as an enabler for development

• IDC’s funding model

• Improved customer service

• Improved efficiencies• Reducing IDC’s impact on

the environment• Reducing industries/IDC

client impact on environment

Resource Requirement:• Organisational Alignment• Operating CostsOther Implications:• Financial• Risk Appetite• Performance Indicators

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Key strategy: Industrial developmentSectoral focus aligned to the NGP and its manufacturing driver, IPAP2

Cultural industries: Craft

and film

Green and energy saving

industries

Bio fuels

The green economy

Metals fabrication, capital and transport

equipment

Automotives, components, medium and

heavy commercial

vehicles Plastics and

chemicals

Clothing, textiles,

footwear, leather

Forestry, paper &

pulp, furniture

Advanced manufacturi

ng

Manufacturing activities

Agro-proces

sing

Agricultural value chain

The mining value chain

Downstream mineral

beneficiation

Tourism

Business process services

Tourism and high-level services

New Growth

Path

IPAP

Legend:

The knowledge economy

Pharmaceuti-cals

ICT

Healthcare

Mining related

technologiesBiotechnol

ogy

Mining

Infrastructure

Industrial infrastruc

ture

Logistics

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Key strategy: Industrial developmentProject development and industrial finance

Sector Development

Project DevelopmentIndustrial Finance

• Intervening where specific opportunities/bottlenecks have been identified and proactive project development needs to take place:• Conduct feasibility studies;• Find suitable investment partners;• Provide funding;• Manage implementation of the project;

• Entrepreneurs/existing businesses approaching IDC with a project idea with the potential for a large impact:• IDC becomes involved at an early stage

(feasibility or earlier).

• Reactive approach by the corporation in providing loans and other forms of capital to entrepreneurs operating in the targeted sectors:• Ensure that investments that would not

necessarily take place, does happen and crowd-in other funders;

• Focussing on those areas where there is a gap in the market for funding and providing finance for entrepreneurs, projects, and industries that usually would not attract funding from commercial banks;

• IDC does not seek to crowd out commercial banks.

Key strategy: Industrial developmentSector development strategies

Industr

y

Green-Industries

Agro-Industries

Metal, Transport

and Machinery Products

Chemicals and Allied Industries

Forestry and Wood

Products

Textiles and Clothing

Mining and Minerals

Beneficiation

Focus Area

• Energy efficiency

• Non-fuel based renewable energy

• Fuel based green energy

• Emissions and pollution mitigation

• Bio-ethanol• Electric vehicle

• Canning• Indigenous

teas• Juice and fruit

extracts• Small-scale

milling• Seed oils and

oil cake• Malt• Marine

aquaculture• Small-farmer

linkage initiative

• Suppliers to SOE capex programmes

• Tooling, die and mould industry

• Foundry technology

• Automotive assembly

• Automotive components

• Commercial vehicles, buses and taxis

• Aerospace components

• Beneficiation in the titanium, zirconium, fluorspar, plastics and petro-chemicals value chains

• Glass• Alternative

building materials

• Forestry• Sawmilling• Pulp and

paper• Furniture

• Textiles and clothing

• Leather and footwear

• Steel production

• Platinum group metals, coal, manganese, chrome, iron ore

• Potash and potassium

• Rare earth elements

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Key strategy: Industrial developmentSector development strategies (continued)

Industry Tourism

Media and Motion Pictures

Information and Communication Technologies

Healthcare Venture CapitalStrategic High

Impact Projects

Focus Area

• Beach tourism• Adventure and

sports tourism• Theme park

• Film production• Production

infrastructure• Audience

development• Animation• Natural history

documentaries• Pan African

broadcasting• Community radio

and television stations

• Mining related technology

• Business process services

• Telecommunication

• Electronics• Software

development

• Anti-retroviral active pharmaceutical ingredients

• Codeine derivatives

• Malaria prevention

• Hospital services and healthcare public, private partnerships

• Development and commercialisa-tion of South African intellectual property by universities, research institutions and the private sector

• Multi-sector projects

• Bus/truck/taxi procurement

• Rolling stock• Maritime• Industrial

infrastructure

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Example: Energy Efficiency

Heat, Electricity & building efficiency

Cleaner productionEfficient lighting

Industrial processes & efficiency

Energy Servicing Companies

(ESCOs) Industrial Efficiency

Retrofitting of buildings

High efficiency engines

SWH & Heat pumps

Metering

Energy monitoring

IDC funding interventions

Impact

Facilitating Eskom’s energy

efficiency programmes

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Example: Renewable Energy – Non-fuel power

Energy generationWind

Concentrated solar

Solar Photo-Voltaic (PV)

Components for generation infrastructure

Raw materials for manufacture of components

Supporting projects across the value chain to maximise the local beneficiation and job creation

Solar grade silicon

• Components for wind turbines

• Solar panel manufacture and assembly


Example: Agro-Industries

Agro-industrialisation

Smallholder farmers / co-operatives

Demand-side

Supply-side

International demand

Local food demand

Other

Value addition

Improved competitiveness

Import replacement

• BRIC• Rest of Africa (RoA)• Global supply chains• International brands

• Support demographic food demand trends

• Niche products• New products

• Focus on surplus production

• Low value products

• Upgrading of technology and skills

• Replace imported raw materials

• Replace imported final product

• Source products from Africa instead of further abroad

• Revitalise pineapple industry• Lemon juice & oil extraction for international market• SA retailers in Africa – fresh produce• High value diary to RoA• Chocolates and sweets – SA brands in RoA• Rooibos and Honey Bush• Develop new wine areas• Marine aquaculture as alternative protein• Small scale milling potential• Increased poultry production• Speciality juice/concentrate production• Maize bread• Wheat-free pasta• Functional foods from soya• High Oleic Acid Sunflower oil• Printing inks and specialised lubricants from soya

• Value addition to abattoirs• Organic (or biological production of fruits and vegetables• Value addition to fruits and vegetables (salads etc.)• Grain/maize processing (esp. EC)• Value addition to low value starches• Higher value animal feeds

• Abattoir – increased capacity utilisation• Livestock massification• Increased capacity/utilisation of sugar mills• Canning industry• Upgrade of old soya equipment• Certain juices (apple & grape)• Soya products (oil, cake, flakes)• African rice production• Localised malt production• Dairy – butter whey, casein• Higher value niche cheeses• Produce global brands locally – sweets, beers

Strategy drivers Focus areas Examples

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Example: Motor vehicle industry

Automotive assembly

Leveraging investment in automotive assembly for local manufacture of components supporting the dti’s

Automotive Investment Scheme (AIS)

Supporting projects across the value chain to maximise the local beneficiation and job creation

Automotive components

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Key strategy: Industrial developmentRegional industrial integration

Identifying and developing sectors where cross-border value chains can be established – ensuring benefits to both South Africa and the rest of the region and building more competitive industries

Sector Initiative(s)Agriculture and agro-processing

Establishment of rice production industry in SADC with potential higher value addition in SA

Textiles, clothing, leather and footwear

Establish current and potential capacities and capabilities of textile production in the region and redirect efforts, activity and innovation to what value chain requires

Chemicals and petroleum products

Investigate the potential for a regional oil refineryDevelopment of natural gas resources in the regionProduction of fertilizersProduction of infrastructure inputs, including cementOkavango Upper Zambezi International Tourism (Ouzit) SDI covering Angola, Botswana, Namibia, Zambia and ZimbabweEstablishment and refurbishment of tourism facilities in MozambiqueIdentify beach tourism opportunities in NamibiaImprove capacity of East African game lodgesEnsuring sustainable timber supply through afforestation in the rest of AfricaIdentify and map ports development or expansions (sea and inland); with requisite storage facilities (for liquids, refrigerated and non-refrigerated warehousing, etc.); sea, land and air transport and maintenance services).

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Key strategy: Contributing to an enabling environmentAssisting with addressing impediments to industry development

For the NGP to achieve its goals, several factors will need to be in place:• Policies across government need to be coordinated and practices need to be aligned with the aims

of the NGP;• Specific constraints that are hindering the development of the priority sectors need to be removed;• Entrepreneurs need to take advantage of the opportunities being provided;• The economy needs to grow at a pace where the initial impetus given by the government

intervention is sustained;• Capital needs to be available to fund fixed investment activity.

IDC plays a direct role in the provision of capital and is extending its role to assist government to identify and help address other factors that is impeding industrial

development

Key strategy: Contributing to an enabling environmentRole clarification, partnership with, and support for other DFIs

Have been working closely with the NEF and Khula to transfer new business especially in the franchising and construction industries. Cooperating with them to address issues around:

Co-funding; Skills transfer; Portfolio management; IT Systems; and Business support

Participating in team set up by the Economic Development Department to investigate the merger of Khula, SAMAF and IDC’s small business operations.

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Key strategy: Leveraging IDC’s balance sheet Funding model

IDC relies on borrowings, internal profitability, capital growth and exits from mature investments to maintain and expand its funding ability

Dividends from mature equity investments allows IDC to cross-subsidise its loan portfolio and design low priced schemes aimed at specific outcomes

Equity funding

Loan funding

Capital growth

Interest repayments Capital repayments

Dividend paymentsExits of mature

investments

IDC Funds• Borrowings• Balance sheet• Mature investments• Retained earnings

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Key strategy: Leveraging IDC’s balance sheet Funding model

A greater emphasis on funding start-ups requires a strong balance sheet to withstand the impact of potential failures

Utilisation of New Funding Approved – April 2009 to February 2011

Distressed Business/

Rescue15%

Expansion45%

Start-up36%

Feasibility/ Project Dev costs

1%

Owner-ship

change3%

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Existing schemes Special purpose finance:

– Transformation and Entrepreneurial Scheme (TES) (R1 billion)– Risk Capital Facility (RCF) (€55 million)– Isivande Women’s Fund (R50 million) (managed on behalf of the dti)– Support Programme for Industrial Innovation (SPII) (R50

million/year) (managed on behalf of the dti)– Distressed company funding (R6.1 billion)– UIF funding (R2 billion)– Clothing, Textiles, Footwear and Leather Competitiveness Scheme

(R250 million)– Clothing and Textiles Competitiveness Improvement Programme

(CTCIP) (managed on behalf of the dti)– Pro-Forestry Scheme (R100 million)– Community Forestry Grant (R20 million)– Pro-Orchards Scheme (R200 million)– Township and Rural Hospital Scheme (R500 million)

Key strategy: Leveraging IDC’s balance sheet Customised funding schemes

Cross sectoral schemes/funds

Sector specific schemes/funds

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Key strategy: Leveraging IDC’s balance sheet Customised funding schemes (continued)

Recently launched schemes The Gro- SchemeƐ

R10 billion made available for 5 years or until the scheme is exhausted Loans available at prime - 3% for the first 5 years of the loan; Expected rate of return and share in upside on equity depends on the development impact of the transaction; Appropriate capital and interest payment holidays will be applied depending on the financial needs of the business; A minimum of R1 million with a maximum of R1 billion per project; Owners contribution will be determined by the financial capacity of the entrepreneur and the cash flow profile of the

business; Qualifying criteria

Business must have prospects of acceptable profitability to service its obligations; Cost per job created should not exceed R500 000; B-BBEE certification from an accredited verification agency is required;

Natural Disaster Relief Initiative R500 million made available to assist businesses involved in agro-processing and tourism that has been affected by

recent floods and droughts; Loan pricing at prime - 3%; Available until February 2012 Additional R250m to the Land Bank for on-lending to producers in primary agriculture

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Key strategy: Customer service and environmental impact

Addressing red-tape and bottlenecks in our processes to improve turnaround times in our application process:

IDC’s focus on those sectors related to the NGP allows it to improve efficiencies by redeploying employees that used to be involved in non-priority sectors.

Several initiatives are underway to improve processes to improve clients’ experience and improve turnaround times:

On-line screening of applications On-line business plan preparation tool Business support toolkit Business plan requirements and finance criteria Business assessment checklists

Reducing the environmental impact of IDC and its clients: Reducing IDC’s carbon footprint Reducing the environmental impact of IDC’s clients and the rest of industry (part of IDC’s green industry

initiatives)

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Key strategy: Customer service and environmental impact

• IDC has improved access by rolling out offices throughout the country:• Eastern Cape – East London (Mazwi Tunyiswa)

– Satellite office in Port Elizabeth• Free State – Bloemfontein (Stoffel Meyer)

• Gauteng – Sandton• KwaZulu-Natal – Durban; Pietermaritzburg (Manoj Seonath; Pat

Moodley)

• Limpopo – Polokwane (Loni Mamatela)

• Mpumalanga – Mbombela (Clara Ramushu)– Satellite offices in eMalahleni and Secunda

• North West – Rustenburg (David McGluwa) – Satellite offices in Klerksdorp, Mafikeng, Vryburg and Brits

• Northern Cape – Kimberley (Mehmood Ahmed)

• Western Cape – Cape Town (Lizo Ntloko)

• Pre-investment business centre being set up in Gauteng

Enabling easier access to IDC funding and support to entrepreneurs

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Resource requirements

Media and Motion Pictures

3%

ICT3% Strategic High

Impact Projects6%

Healthcare2%

Agro-Industries6%

Forestry and Wood Products

2%

Metals, Machinery

and Transport

Equipment11%

Clothing and Textiles

2%Chemicals and

Allied Industries12%

Tourism1%

Green-Industries20%

Venture Capital1%

Mining and Beneficiation

31%

Estimated R66 billion of investment over the next five years vs. R39 billion over previous five; IDC’s balance sheet will remain strong despite these increased levels of funding; In discussion with EDD on ways in which IDC’s funding can be increased through the removal of barriers

to industrial development.

Sectoral distribution of funding (2011/12 to 2015/16)

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Industrial Development Corporation19 Fredman Drive, SandownPO Box 784055, Sandton, 2146South AfricaTelephone (011) 269 3000Facsimile (011) 269 2116E-mail [email protected]

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