The IDC:Financing For Development

UNIDO Rhythm/Working Group Meeting Presentation

Moroasereme Ntsoane

SBU Head

011 269 3174 (tel) / moroaseremen@idc.co.za

Contents

• IDC Corporate Profile

• Development Finance Approach

• Performance of automotive industries

• IDC Assistance

Introducing the IDC

• Established in 1940, the IDC is a self -financing,

State-owned development finance institution

• Provides financing to entrepreneurs engaged

in competitive industries and enterprises based

on sound business principles

• Pays income tax at corporate rates and

dividends to the shareholder

• The vision of the IDC is to be the primary

source of commercially sustainable industrial

development and innovation to the benefit of

South Africa and the rest of the African

continent

• Aims to maximise developmental and financial

returns within an acceptable risk profile

Growing sectoral diversity

Vis

ion

Mis

sio

nO

bje

ctiv

esO

utc

om

es

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.

Supporting industrial development capacity

Promoting entrepreneurship

Sustainable employment

Broad-based black economic empowerment

New entrepreneurs entering the economy

Growing SME sectorRegional equity

Industrialisation in the rest of Africa

Environmentally sustainable growth

Introducing the IDC (cont.)

Introducing the IDC: industry development

Food, Beverages and

Agriculture

Portfolio1:

USD 344 mil

Mining and Beneficiation

Portfolio: USD 2 675 mil

Forestry, Wood, Paper

Portfolio:

USD 344 mil

Clothing, Textiles Leather and Footwear

Portfolio:

USD 147 mil

Chemicals and Allied

Portfolio:

USD 1 374 mil

Fabricated Metals,

Machinery and Transport

Equipment

Portfolio:

USD 209 mil

Construction

Portfolio:

USD 123 mil

1 Exposure as at 31 March 2009 at market values, including commitments, excluding listed investments not managed in SBUs

5

Public, Private Partnerships

and Infrastructure

Portfolio:

USD 736 mil

Transport, Financial and

Other Services

Portfolio:

USD 380 mil

Tourism

Portfolio:

USD 405 mil

Franchising

Portfolio:

USD 123 mil

Media and Motion

Pictures

Portfolio:

USD 135 mil

Techno-Industries

Portfolio:

USD 233 mil

Venture Capital

Portfolio:

USD 74 mil

Healthcare and

Education

Portfolio:

USD 430 mil

6

Introducing the IDC: industry development (cont.)

The South African Government is committed to support economic

development in South Africa and in the rest of Africa. As such, IDC‟s core

strategies for the continent aim to:

Leverage private sector investment for economic development

throughout the continent;

Play a major role in the development of industrial capacity and

promoting entrepreneurial activity;

Strengthen South Africa‟s constructive role in regional economic

development;

Leverage foreign direct investment by bringing in foreign partners using

international networks;

Promote supply of goods & services from SA;

Establish credit lines for financially sustainable regionally-oriented

financial intermediaries;

Support NEPAD and regional spatial development initiatives (SDIs).

Actively supporting business/industries in Africa

Financial instruments

Flexible deal structuring

– Equity

– Quasi-equity

– Commercial debt

– Wholesale finance

– Venture capital

– Guarantees

– Export and import finance

– Credit lines to DFIs

• IDC offers a wide array of financial

instruments, including :

• These may be provided singly or in

combination

Financing criteria

• Greenfield projects, expansions & rehabilitations

• Minimum financing in South Africa R1 million

(USD125 000) and relatively sizeable projects

elsewhere in Africa.

• Profitability & sustainability within a reasonable time

frame

• Developmental impact (jobs, value addition, exports)

• Fixed assets and the fixed portion of growth in

working capital requirements

• Reasonable financial contribution from owners

• Security

• Environmental standards

Role in project development

• Co-sponsor feasibility studies

• Identify project opportunities

• Provide and arrange funding (e.g. export and import

finance, equity and loan funding)

• Identify suitable international and local DFIs, commercial

and merchant banks and companies and export credit

agencies as potential participants

• Financial adviser in partnership with other financial

institutions

• Share project risk with the sponsors and financial partners

• Identify strong operating partners

• Off-take and supply agreements

• Assist with the early negotiations of project

agreements to improve and ensure their bankability

and shorten the funding schedule

• Structure appropriate limited recourse funding

packages by allocating project risk to the appropriate

stakeholders

• Assist with implementation via steering committee

• Serve on board of directors

• IDC does not seek shareholding control or

management participation

Role in project development (cont.)

Examples of early-stage project development

Some of the projects under investigation include:

– Solar power generation: A renewable energy project, serving as a pilot

project and potential more roll-outs in future.

– Natural fibres: Development of a sisal plantation to the benefit of local

communities.

– Electric vehicle batteries: Investigating the viability of establishing a large

cell lithium-ion electric vehicle battery manufacturing facility in South Africa

– Wind power generation: A wind farm project to produce 500 MW of power.

– Bio-ethanol: Various bio-ethanol projects around the country.

– Kenaf: Project to investigate the utilisation of Kenaf (a natural fibre) in the

construction industry.

– Electricity generation: Integrated coal mine and power project in Botswana.

– Petrochemicals: Construction of a synfuels plant and associated

infrastructure.

– Platinum smelter and refinery: Early feasibility stage for establishing a PGM

smelter and refinery.

12

Assisting our business partners during the economic crisis

The economic crisis is impacting businesses on various levels

Financial

institutions

tightening credit

criteria, extending

less credit

Firm

Consumer

confidence lower,

spending less

Business

confidence lower,

cutting costs and

investing less

Unable to

source finance

from traditional

sources

Lower demand

for products and

services

The IDC is assisting in filling the gap in the market left by financial institutions extending less credit to businesses

and in so doing ensuring that jobs and capacity of viable businesses are being retained.

The IDC is budgeting R11.4 billion of funding for approvals in the current financial year, R2.9 billion specifically to

assist distressed businesses.

Creditors and

debtors under

financial pressure

Excess stock

build-up

Lower levels of

foreign demand

Internal cash

flow pressures

• The IDC‟s Public-Private Partnerships Strategic Business Unit (PPP

SBU) provides debt and/or equity funding for key infrastructure projects

in sectors such as:

– Power

– Water

– Telecommunications

– Information technology

– Transportation

• Some of the major projects currently in the portfolio include:

– Gautrain project (funding for Bombela consortium)

– Neotel (second network operator)

– Internet based control and communications equipment at all

entrance points in D.R. Congo

– Pebble Bed Modular Reactor (PBMR)

Financing of infrastructure projects

IDC‟s pipeline of infrastructure projects

Some of the major projects in Africa currently in the portfolio include:

Mozambique:

• Cahora Bassa hydro-electric power project

Tanzania:

• Ruhudji hydro-electric power project

• Mchuchuma coal project

Democratic Republic of Congo:

• Inga 2 hydro-electric power project

• Africa Union Financial Services (“AUFS”)

Uganda:

• Aswa Forest and Power Station

• Kalangala infrastructure (transport, telecoms, power)

Various countries:

• Telecom submarine cable system

• Satelite system for HDTV and telecom backhaul

• Zim/Zam/Nam/Bots/SA transmission network. Cahora Bassa Dam: Mozambique

New/emerging industries being financed by the IDC

In the 2000s and in the future:• Berries

• Cherries

• Persimmon

• Community pay-phones

• Motion pictures

• Diamond cutting & polishing

• Bio-fuels

• Composites

• Biomass

• New technologies

• Owner-driver schemes

• Boat-building

• Tele-medicine etc..

IDC also envisages a major role in funding:

• Suppliers to state owned enterprises

• Infrastructure/PPPs

• Energy, including renewable

• Resource beneficiation

• New industry development

• Expansionary black economic empowerment

• Implementation of NIPF and IPAP

Some of IDC‟s current projects in South Africa

Co-financing early stage project development

• Vaccine production• Hoodiaprocessing• Nuclear power generation• Satellite launch technology• Canola oil extraction• Fruit juice production• Cold rolled steel• Bio-reactor• Fish processing• Fruit & citrus (Blue berries,

persimmon, grapes)

• Renewable energy• Beta-carotene production• Abalone production• Lusernprotein production• Goat farming• Citrus• Abalone spat• Fruit & nuts (grapes & dates,

pistachios)• Cotton ginning

• Toll roads• Aquaculture• Fruit (figs & prickly pear,

pomegranate)• Leather tannery• Sugar beet• Aluminium smelter• Berries farming• High pressure aluminium

castings• Biomass – fuel pellets• Wood processing • Citrus farming• Fruit production

• Barley and groundnuts• Chrome chemicals• Cut flowers• Ferrochrome• Alluvial diamonds• Cotton ginning• Mandarines• Strawberries

• Biodiesel ??• Proxide production• Silicon metal ??• Apple farming• Walnuts• Cherries• Diamonds??

• Cellular communications

• IDZ infrastructure• Sugar production• Orchid production• Cassava production• Ethanol• Biofuels• Ceramic tile production• Power station• Citrus production• Ferrochrome• Biological pest control• Alcohol production• Coal mining• Aluminium beneficiation• Forestry• Berries farming• Non-woven textiles• Kenafcultivations & fibre production• Rasberries

• Biomass pellets• Soya oil• Coal mining• Stainless steel• Forestry &

sawmilling• Citrus

• Rail transport• Energy from coal• Coking coal briquettes• Pectin• Ethanol• Lime mine and kiln• Macadamia nuts• Platinum

• Rail transport infrastructure• Electro-activated water• X-ray machines• Probiotictechnology• Cut roses

Legend

Pre-feasibility

Feasibility

Pre-implementation

Implementation

• Vaccine production

• Satellite launch technology• Canola oil extraction• Fruit juice production• Cold rolled steel• Bio-reactor• Fish processing• Fruit & citrus (Blue berries,

persimmon, grapes)

• Renewable energy• Beta-carotene production• Abalone production• Lusernprotein production• Goat farming• Citrus• Abalone spat• Fruit & nuts (grapes & dates,

pistachios)• Cotton ginning

• Toll roads• Aquaculture• Fruit (figs & prickly pear,

pomegranate)• Leather tannery• Sugar beet• Aluminium smelter• Berries farming• High pressure aluminium

castings• Biomass – fuel pellets• Wood processing • Citrus farming• Fruit production

• Barley and groundnuts• Chrome chemicals• Cut flowers• Ferrochrome• Alluvial diamonds• Cotton ginning• Mandarines• Strawberries

Peroxide production•• Apple farming• Walnuts• Cherries

• Cellular communications

• IDZ infrastructure• Sugar production• Orchid production• Cassava production• Ethanol• Biofuels• Ceramic tile production• Power station• Citrus production• Ferrochrome• Biological pest control• Alcohol production• Coal mining• Aluminium beneficiation• Forestry• Berries farming• Non-woven textiles• Kenafcultivations & fibre production• Raspberries

• Biomass pellets• Soya oil• Coal mining• Stainless steel• Forestry &

sawmilling• Citrus

• Rail transport• Energy from coal• Coking coal briquettes• Pectin• Ethanol• Lime mine and kiln• Macadamia nuts• Platinum

• Rail transport infrastructure• Electro-activated water• X-ray machines• Probiotictechnology• Cut roses

Legend

Pre-feasibility

Feasibility

Pre-implementation

Implementation

IDC involvement in Africa (outside SA): project funding approvals

MOZAMBIQUE

• Mining

• Hospitality

• Manufacturing

• Agro-processing

• Wood processing

• Energy

• Ind. Infrastructure

• Transport infrastructure

• Storage & warehousing

NIGERIA

• Telecoms

CAPE VERDE

• Hospitality

GHANA

• Hospitality

• ICT

TOGO

• Financial services

GABON

• ICT

NAMIBIA

• Agric. / agro-

processing

• Mining

BOTSWANA

• Hospitality

• Restaurant

MALAWI

• Food and

Agriculture

• Retail

infrastructure.

• Franchising

SUDAN

• Infrastructure

(Water)

KENYA

• Agro-

processing

UGANDA

• Hospitality

TANZANIA

• Manufacturing

SEYCHELLES

• Hospitality

MAURITIUS

• Air transport

ZAMBIA

• Storage and

warehousing

• Mining

• Healthcare

• Financial

services

SWAZILAND

• Basic chemicals

• Agro-processing

• Financial services

D.R. CONGO

• Energy

• Mining

• ICT

• Infrastructure

EGYPT

• Agriculture/

Bio-fuels

CAMEROON

• Hospitality

LESOTHO

• Telecoms

• Infrastructure

CONGO

(Brazzaville)

• Transport

COMOROS

•Transport

ERITREA

• Mining

EQUATORIAL

GUINEA

• Transport

ANGOLA

• Energy

MALI

• “Wood” paneling

The IDC: Corporate profile

The IDC‟s Head Office in Sandton (Johannesburg)

• Established in 1940, the IDC is a self -financing,

State-owned development finance institution

• Provides financing to entrepreneurs engaged in

competitive industries and enterprises based on

sound business principles

• Pays income tax at corporate rates and dividends to

the shareholder

• The vision of the IDC is to be the primary source of

commercially sustainable industrial development and

innovation to the benefit of South Africa and the rest

of the African continent

• Aims to maximise developmental and financial

returns within an acceptable risk profile

Growing sectoral diversity

The IDC‟s vision, mission, objectives & outcomes

Vis

ion

Mis

sio

nO

bje

ctiv

esO

utc

om

es

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.

Supporting industrial development capacity

Promoting entrepreneurship

Sustainable employment

Broad-based black economic empowerment

New entrepreneurs entering the economy

Growing the SME sectorRegional equity

Industrialisation in the rest of Africa

Environmentally sustainable growth

Financial year 2008/09:

• Funding approvals amounted to R10.8 billion, up 27% on the

previous year

• Largest portion of funding (52%) for start-ups and

expansions in South Africa

• 39% increase in the number of approvals to 231

• 69% of the total number of funding approvals to SMEs

• Increased funding approvals to the rest of the African

continent by 38% to R2.9 billion

• The funding activities will facilitate in the creation of:

– more than 24 200 direct new jobs in SA

– around 5 000 in the rest of Africa

• Funding of R500 million approved for distressed companies

– 2 500 jobs expected to be saved

Achieving developmental objectives

Industrial development approach

• IDC addresses market failures / gaps by supporting investments, which

may otherwise not happen, in partnership with private sector companies

• IDC investments are for development purposes, with the ideal investment

being one that generates developmental as well as financial returns

• This entails taking a higher risk profile than commercial financiers in

order to support the development of sectors and new entrepreneurs

through …

Diversifying the economy through supporting a range of sectors

Encouraging the introduction and development of new industries and

products

Developing internationally competitive companies

Supporting the establishment of greenfield developments

Supporting expansions of existing businesses

Facilitating the entry of new entrepreneurs and supporting their development

Supporting the growth and development of small and medium businesses into

competitive players

Encouraging regional development by supporting companies with regional

comparative advantages

Agriculture and Agro-processing Mining and Beneficiation Manufacturing

• Metals• Chemicals• Textiles

Services• tourism• IT and telecoms• media and motion pictures• healthcare & education• Transport, storage and financial services• venture capital• franchising• Construction and 2010

Infrastructure

Sectoral involvement

Financial instruments

Flexible deal structuring

– Equity

– Quasi-equity

– Commercial debt

– Wholesale & bridging finance

– Share warehousing

– Export/import finance

– Short-term trade finance

– Venture capital

• IDC offers a wide array of financial instruments to

entrepreneurs, including :

• These may be provided singly or in combination

• Financial assistance is provided for the development of

new businesses, expansions or rehabilitation of existing

businesses

• Business case must exhibit economic merit (i.e. it must

be profitable)

• Reasonable contribution expected from promoter/s

• Minimum of R1 million

• Security

• Environmental compliance

Financing criteria

Non-financial forms of business support

• Training of entrepreneurs

• Business support to entrepreneurs: IDC Business Support

Programme was established to assist where appropriate:

– potential clients in preparing a business plan; and

– existing clients where e.g. shortcomings in the

management capacity has been identified, if a

short-term intervention is required, if it experiences

financial difficulties.

– The funding for the business support is borne

partly by IDC

• Support for community groups

• Encouraging investments to address certain goals through

incentives

Funding broad-based BEE

• IDC, as a major South African DFI, remains fundamental to the

national agenda to realise BBBEE objectives

• IDC has developed critical skills and experience in financing BBBEE

• To augment these BBBEE objectives and remain a significant player

in BBBEE funding, job creation and BBBEE remain the overarching

factors in all our funding activities:

facilitate ownership of businesses

ensure transfer of skills to enhance management capacity

and entrepreneurship

advancement of HDSA employees (share and/or profit

participation)

employment equity

procurement policies

women advancement in business

Approach to provincial & local development

• Unlocking investment potential to address inequitable

regional socio-economic development

• Exploiting comparative advantage in sectors

• Addressing market gaps

• IDC in discussion with provincial development

corporations to address capacity building

• Capacity building for third-tier government through

development agencies (24 approved to date), primarily

in rural areas

• Expanding IDC‟s reach through offices in all provinces

Applications received

and assessed

Applications received

and assessed

Approved agencies

Development agencies

Recent developments in the global & local automotive industries

• Worldwide automotive industry was caught in the eye of the global financial storm

• Governments in the US and Europe have intervened to help prop-up the industry

• In addition, a variety of incentives have been introduced to boost sales across the world

• The local market has seen a steep fall in motor vehicles sales since record sales of 2007

• A number of components and accessories manufacturers have closed down

• The number of dealerships has also reduced

• Job losses have continued unabated since late 2008

• In recent months, exports have slowed down considerably

• In the first half of 2009 vehicle sales slumped by one-third relative to same period in 2008

• Exports have fallen rapidly, with June figures showing a 52.5% decline on the same period last year

South African economy:Most distressed major sectors within manufacturing

Manufacturing sector

Volumes of Production Spare capacity changes Business confidence

Average monthly % change

(y-o-y) over 6-month period

ending:

% change

from most

recent high

Current spare

capacity levels

% point increase in

spare capacity since

Q3 „08

Index point decline

since most recent

highMar-08 Oct-08 Mar-09

Motor vehicles, parts and accessories

and other transport equipment0.4 -0.7 -35.3 -49.2 29.2% 13 77

Basic iron and steel, non-ferrous metal

products, metal products and machinery-0.5 -3.7 -23.5 -27.5

47.5% (iron & steel)

24.4% (metal

products)

29.3 (iron & steel)

5.8 (metal products

94 (fabricated metals)

77(basic metals)

77 (machinery)

Furniture and other manufacturing

division9.3 6.0 -14.9 -29.1

15.3% (other

manufacturing)

9.6(other

manufacturing) 77 (furniture)

Textiles, clothing, leather and footwear 6.5 -2.5 -11.7 -23.823.4% (textiles)

29.6% (leather)

4.2 (textiles)

7.4 (leather)

59 (textiles)

48 (clothing)

Glass and non-metallic mineral products 3.2 -2.0 -10.9 -20.5 19.8% (non metallic) 6.2 (non metallic) 86 (non-metallic)

Petroleum, chemical products, rubber

and plastic products7.6 9.8 -7.2 -15.4

17.5% (basic

chemicals)4.4 (basic chemicals)

72 (plastics)

64 (chemicals)

Wood and wood products, paper,

publishing and printing0.0 2.4 -7.0 -17.3

17.3% (wood &

wood products)

4.2 (wood & wood

products)

100 (wood)

82 (printing); 50 (paper)

Radio, television and communication

apparatus and professional equipment2.9 3.0 -5.2 -17.1 N/A N/A N/A

Food and beverages 3.0 4.0 2.7 -6.8 N/A N/A 81 (beverages); 78 (food)

Electrical machinery 11.3 11.6 4.7 -8.6 19.5% 1.2 83

Total manufacturing 3.3 2.3 -13.2 -21.6 21.4% 6.5 67

Source: IDC analysis

South African economy:Manufacturing sub-sectors reporting sharpest fall in production volumes

Sectors most impacted upon experienced a steep fall in production activity

Most distressed sectors in manufacturing (6 month to March '09 average y-o-y % change )

-50 -45 -40 -35 -30 -25 -20 -15 -10 -5 0

Publishing

Special purpose machinery

Basic chemicals

Non-metallic mineral

Structural metal

Other manufacturing

Sawmilling and planning of wood

Other textile

Bodies for motor vehicles

General purpose machinery

Leather and leather

Insulated wire and cables

Motor vehicles

Parts and accessories

Basic iron and steel

%Source: StatsSA

Manufacturing output growth by sub-sector in 2007

-2 0 2 4 6 8 10 12 14 16

Automotives & parts

Transport equip.

Machinery

Metal products

Furniture

Paper products

Plastic products

Other chemicals

Basic chemicals

Clothing

Textiles

Total Manufacturing

% ChangeSource: Stats SA

South African economy:Manufacturing - IPAP sector performance

2007 2008Manufacturing output growth by sub-sector in 2008

-10 -5 0 5 10 15 20 25

Automotives & parts

Transport equip.

Machinery

Metal products

Furniture

Paper products

Plastic products

Other chemicals

Basic chemicals

Clothing

Textiles

Total Manufacturing

% ChangeSource: Stats SA

South African economy:New vehicle sales plunging in 2009, but expected to recover

New Vehicle Sales and Domestic Production

0

100

200

300

400

500

600

700

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Un

its (

'000)

Domestic Production

Domestic sales of local production

CBU Imports

Exports

Forecast

Source: Naamsa

South African economy:New passenger car sales worst affected in 2009

Growth in new vehicles sales

-30%

-20%

-10%

0%

10%

20%

30%

40%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Passenger

Light Commercial

Medium and Heavy Commecial

Forecast

Source: Naamsa

South African economy:Imports sharply down, but expected to rise again in 2010

Passenger and light commercial vehicle imports

0

50

100

150

200

250

300

350

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Un

its

('0

00

)

Total imports

Passenger vehicle

Light commercial vehicle

Forecast

Source: Naamsa

Automotive Industry Executives‟ Perceptions of Future Changes in Market Share (KPMG / 2009)

8178

68 6762 60

4340

33 33 32

20 2017 15 13

10

12 16

22 2228

26

4345

39 37

51

4448 53

12

24

21

7 610 11 10

14 14 15

28 30

17

3632 30

73

6369

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Chi

nese

bra

nds

Indi

an b

rands

Toyota

Hyu

ndai

/Kia

Hon

da

Volksw

agen

Ren

ault/N

issa

n

BMW

Rus

sian

bra

nds

Fiat

Mer

cede

s

Mits

ubishi

Peugeo

t/Citr

oen

Subaru

/Fuj

i

Gen

eral

Mot

ors

Ford

Chr

ysle

r

Decrease

Remain the same

Increase

Assisting companies in distress

• R6.1 billion set aside to assist distressed companies over the next two years

• Approach to funding companies in distress:

– To ensure long term sustainability of enterprises: interventions will be on a firm by firm basis.

– Focus will be on companies that are experiencing difficulties/distress due to cyclical downturn

– Business must prove historical viability, and demonstrate structural improvements that will

enhance long term competitiveness.

– Businesses being assisted should demonstrate that the business case re-emerges within a

reasonable timeframe, once global/domestic conditions improve.

– Interventions should be to the benefit of the company being assisted and not relieve existing

shareholders or other financiers from their obligations.

Assisting companies in distress (continued)

– Developmental returns should be measured and monitored

– Distress Funds recipients should seek to save jobs, without sacrificing viability, and proper

consultative procedures must be observed where job losses are unavoidable.

– Risk sharing must be demonstrated between all stakeholders (viz. shareholders, creditors,

debtors, employees and management) – enable the IDC to leverage its balance sheet further

Funding within SOE Capex (2008/2009 Financial Year)

• Ca R81.2 million approved to four Transnet suppliers of locomotives, coaches, seats and other products

• Ca R71.6 million approved to three Eskom suppliers of electric motors, generators, transformers and ventilation systems

• A few others have been rejected due to lack of confirmed offtakes from SOE’s

IDC involvement in Africa (excl.SA): projects under consideration

MADAGASCAR

• Mining

ZIMBABWE

•Sawmilling

•Energy

•Infrastructure

LESOTHO

•Agro-processing

MALAWI

•Mining

•Food processing

MAURITIUS

•Telecoms

•Financial services

ZAMBIA

•Mining

•Energy

BOTSWANA

• Energy

•Rail

D.R. CONGO

•Telecoms

•Energy

•Mining

TANZANIA

•Energy

•Agro -processing

MOZAMBIQUE

•Refinery

•Forestry•Energy

•Agro-processing

NAMIBIA

•Mining

SENEGAL

• Transport

GUINEA

(Conakry)

• Mining

LIBERIA

• Mining

NIGER

• Meat

processing

RWANDA

• Energy

EGYPT

• Agriculture

• Bio-diesel

GHANA

• Energy

• Agro-processing

UGANDA

• Infrastructure

•Energy

•Mining

SUDAN

• Water supply

KENYA

• Infrastructure

• Energy

• Agro-processing

CONGO (Brazzaville)

• Mining

• Infrastructure

41

South African economy:Mixed performance at a sub-sector level

• Supply-side of the economy (agriculture,mining and manufacturing) has been hardesthit by the unfolding crisis as not onlydomestic demand came under pressure, butalso due to a sharp drop in export demand.

• The manufacturing sector suffered severelyas key sectors such as base metals (e.g. iron& steel, fabricated metal products andmachinery & equipment) and the transportequipment sector (incl. motor vehicles &parts) contracted sharply.

• The construction sector still managed toreport a sterling performance considering thecircumstances as this sector benefitted fromthe substantial public sector capexprogramme.

• Sharply weaker consumer spending took itstoll on the trade sector, particularly on themotor trade and retail trade segment.

• However, a recovery is visible in certainsegments of the economy, with month-on-month production increases being reported inthe mining and manufacturing sector in recentmonths.

42

South African economy: Manufacturing production in SA mirroring the global trend

Sectoral growth

• Solid growth performance of theSA economy continued throughout2007.

• Construction sector reported thestrongest growth, underpinned byincreased building constructionactivity and high levels of fixedinvestment across most economicsectors.

• The strong consumer boom wasreflected in high growth rates inthe trade and financial servicesectors.

• The brisk growth in themanufacturing sector was mainlydue to strong domestic demand asexporters faced a challengingglobal trading environment.

• Mining activity has been adverselyaffected by a continued decline ingold production, although partiallyoffset by the excellentperformance of the platinum sub-sector.

Recent developments in the global & local automotive industries

• Worldwide automotive industry was caught in the eye of the global financial storm

• Governments in the US and Europe intervened to help prop up the industry

• In addition, a variety of incentives have been introduced to boost sales across the world

• The local market has seen a steep fall in motor vehicles sales since record sales of 2007

• A number of components and accessories manufacturers have closed down

• The number of dealerships has also reduced markedly

• Job losses have continued unabated since late 2008 and is expected to stabilise

• In 2009 motor vehicle sales slumped by 30% relative to 2008

• Exports also declined 38.4 per cent to 174 947 in 2009

• Similarly passenger car imports declined by 20.7 per cent during the same period

• BMW and VW recently announced R2.2 billion and R3.5 billion investment plan respectively, which should help boost demand for inputs also assisting suppliers to survive the current tough environment

Vehicle sales, exports and production

• Very buoyant domestic market in the mid 2000s

• Exports have been the hallmark of the industry‟s performance over the last decade and a half

• Poor performance over the last two years

• Steep decline in 2009 but recovery is also forecast

• Expected recovery over the next two years

• Domestic production has been partially underpinned by exports

• Growth local in demand was to an extent satisfied by imports

• Domestic production in 2009 stood at 373 923 units, the lowest since 2001

Automotive industry remains under pressure

• Vehicle sales still under pressure but off

worst levels as consumers take strain

from a high debt burden, tighter credit

conditions, declining disposable income

and increased job losses.

• Exports have fallen sharply as global

conditions deteriorated. Consumer

demand under stress globally.

Employment in Automotive Components and parts industry

• Employment in the components and parts segment declined markedly since the 2008 peak

• Contract employees bore the brunt of the decline in demand

• A number of established components manufacturers closed down leaving thousands out of work

• NAACAM reported that between September 2008 and Q1 2009 some 17 000 jobs were lost in the components industry

• Metair alone fired 3 500 employees since the onset of the crisis

Concluding remarks

• South Africa and the rest of the African continent present

a myriad of business opportunities across numerous

sectors of economic activity.

• Investment activity expected to experience a slowdown

in 2009, largely due to the ramifications of the global

crisis, but outlook remains positive as recovery gathers

momentum

• FIFA World Cup in 2010 should provide a significant

stimulus.

• Certain challenges remain, but the South African

Government is strongly committed towards a continued

improvement in the investment environment going

forward.

• The IDC, as the state-owned development financier

focused on the expansion of the industrial capacity of

South Africa and the rest of the African continent, would

like to be your development finance partner !

Vision and Mission

Vision

To lead in the development of the complete manufacturing downstream value-chain of the ferrous and non-ferrous metals

Mission

To develop and support viable downstream developments and value-adding to ferrous and non-ferrous metals to improve competitiveness and increase the capacity of the metals industry in South Africa and the rest of Africa by working pro-actively, cost-

effectively and taking a more risk –tolerant approach.

SBU Focus – IPAP2 Lead Sectors

• Automotive Sector

• Fabricated Metals, Capital and Transport Equipment Sector

• Renewable Energy Components Sector

• Advanced Manufacturing Sector

Automotive Sector

Doubling of local content in components

• Finance new 1-tier component manufacturers in South Africa

• Secure investment by Asian OEM

• Finance capacity expansion at existing components manufacturers

• Increase local content of electronics, interior, body panel and engine components

Buses, Taxis, medium and heavy commercial vehicles

• Leverage public transport procurement to generate enough demand for a viable local assembly of buses

• Leverage the extensive procurement in the taxi industry to attract a taxi assembly plant locally

•Enhance existing capacity of local industry to assemble commercial vehicles and “yellow goods”

Production of the electric car (Joule)

• Establishment of a electric vehicle industry in South Africa

• Establishment of an energy/fuel plan to support electric car industry

Metal Fabrication, Capital and Transport Equipment Sector

Increase local content of SOE capex

•Leverage upon Transnet and Eskom strategic procurement to develop globally competitive local industry

•Utilise CSDP and Unido Program to attract OEMs to set up locally

•Identify and exploit CSDP opportunities from municipalities and other private sector

Innovative Financing Programme for OEMs and local suppliers by 2011

• Design a funding instrument/scheme to increase participation levels of local suppliers in the SOE capex

Resuscitate Foudries and Tool, Die and Mould (TDM) industries by 2020

•Roll-out of the National Foundry Technology Network Programmes

•Development of an internationally competitive tooling cluster in South Africa

•Scrap metal beneficiation to form either billets or coils, and thereby reduce exportation of local scrap metal.

Renewable Energy Components Sector

• Establishment of a local SWH manufacturing industry

• Concentrated Solar Power components manufacturing

• Wind energy components manufacturing

• Photovoltaic components manufacturing

Advanced Manufacturing Sector - What is it?

• Advanced manufacturing (AM) is a collection of high value adding manufacturing processes, management techniques, technologies and knowledge capital that occupy the top-tier in manufacturing industries and drive competitiveness in the local and global economies.

• A combination of the following concepts are typically associated with AM:

– Focused R&D & Innovation

– Intellectual Property

– Sophisticated computer controls,

– Concentrated bodies of expertise,

– Advanced processes,

– High value products,

– Processes, products and technologies that are not easily replicable,

– Industry leading /industry changing concepts.

Advanced manufacturing is also associated with mastering highly regulated safety and/or quality requirements, the exploitation of intellectual property in the form of world class

processes, products and services.

Sector Strategy

Nuclear Build Programme

•Fabrication and components supply into the nuclear build programme

•Localisation and technology transfer partnerships with multinationals

•Fuel Supply facility

•Development of non-energy nuclear applications

Aerospace

• Integration of local industry into the global value chain

•Development of tier-2 and tier-3 suppliers

•Consolidation of the Centurion Aviation Village cluster

Advanced Materials

•Development of advanced material value chain

Rea leboga – Questions?