The Role of the Private Sector in Stimulating Agribusiness - Public Private Partnerships

Rian Coetzee

Head: Agro-Industries

17 October 2011

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IDC - Corporate profile

• Established: October 1940

• Corporate type: Development finance institution, mandated by Act

• Shareholding: Government of South Africa = 100% shareholder

• Reporting: SA Ministry of Economic Development

• Funding: 100% self-financing

• Objective: Support industrial capacity development

• Activities: Provide risk capital (industrial finance or project finance)

• Regional mandate: South Africa & the rest of Africa (since 1998)

• Financial base: Total equity = ZAR 93 bn;

profit = R2,7bn

Debt/Equity ratio = 7%

• Funding: R8,4bn funding to SA companies

• Governance: Follows normal company policy and procedures

• Values: Partnerships, Professionalism & Passion

IDC Head Office, Sandton, SA

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• Agro-Industries

• Mining & Beneficiation

• Chemicals & Allied Industries

• Metals, Transport & Machinery Products

• Textiles & Clothing

• Wood, Paper & Other

• Tourism

• Media & Motion Pictures

• Techno Industries

• Healthcare

• Strategic High Impact Projects

• Venture Capital

• Equity

• Mezzanine debt

• Commercial debt

• Guarantees

• Trade finance

• Wholesale & bridging finance

• Share warehousing

• Special funding schemes

• Business support products

• Project feasibility funding

• Venture Capital

Sector specialization through

Strategic Business Units (SBUs) …

… flexible application of a large

variety of financial products

… utilising two

business channels…

• Industrial Finance

• Project development

2. An IDC perspective … operational model

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2. An IDC perspective … agricultural focus area

The SBU focuses on the following areas:

a) Agro-processing (food and non-food)

• Agro-processing can include on-farm, first-tier processing (such as

packing & sorting)

• It can also include backward integrated agro-processing projects

b) Beverages (alcoholic and non-alcoholic)

c) Aquaculture

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Importance of PPPs in AGRO-INDUSTRIALISATION

Farmers

Development of new and sustainable farmers & job creation

Market access

Skills

Finance

Raw material

Products for

distribution

into value

chain or retail

Agro-Industry

(processor)

Public sector

Private sector

Commercial sustainability & profit making

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Importance of PPPs in AGRO-INDUSTRIALISATION

Southern Oil Ltd +/- 200 farms

supplying

canola

Establishment of the canola industry in the Western Cape

Market access

Skills

Finance

Raw material Canola oil

products

Public sector

Private sector

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Requirements for successful DFI role …

• An IDC perspective …

• Element 1: The development of an industry-wide strategy

• Element 2: Non-financial support

• Element 3: Financial products

• Element 4: Front-end customer experience

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Element 1: The development of an industry-wide strategy

Demand-side

• International demand

• Local food demand

• Other niche areas

Supply-side

• Value addition

• Improved

competitiveness

• Import replacement

• Unique SA products

Agro-

Industrialisation

Drivers

Global expansion

Horticultural value

addition

Grain surplus value

addition

Malt production

Aquaculture

Seed oil & cake

IDC Focus areas

Farmer linkage

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Element 2: Non-financial support

• Pro-active & reactive policy advice/support

• Project bankability support –

• Local Economic Development Agency Support

• Support during project feasibility stages

• Business support (matching) grants

• Socio-economic advice to broad-based groupings

• External entrepreneurial training

• Support to & partnerships with other DFI’s

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Element 3: Financial products … Funding

• IDC standard sources of funding:

• Borrowings

• Internal profitability

• Exits from mature investments

• Portfolio approach (across sectors and asset classes)

• Innovative alternative funding sources:

• EU/EIB Risk Capital Facility

• Food sector Competition Tribunal penalties

• Unemployment Insurance Fund

• Segmenting IDC’s portfolio - customised funding

schemes as an enabler for development

Agriculture, forestry and

food4%

Mining29%

Chemicals and petroleum

25%

Metals and machinery

21%

Other manufacturing

3%

Trade, catering and

accommoda-tion3%

Transport, communica-

tion and utilities7%

Finance and insurance

2%

Other6%

IDC’s portfolio

as at 31 December 2010

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Element 3: Financial products

• Debt products

• Long-term, capital/interest moratoriums, sculpted

repayments

• Mezzanine funding

• Cash flow and not security linked

• Equity instruments

• For own account & share warehousing options

• Bridging finance against contract

• Wholesale finance

• Other products – guarantees, trade finance, etc.

Customised structuring of each transaction

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Element 3: Financial products … special schemes

• Agro-Processing Linkage (APL) Scheme

• Disaster Relief Scheme

• Pro-Orchards Scheme

• Transformation & Entrepreneurial Scheme (TES)

• Grow E (Employment scheme)

• UIF Scheme

• Distressed funding scheme

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Element 4: Front-end customer experience

• Importance of first-principle due diligence

• Value adding experience

• Improved customer service

• Decentralised support & basic assessments

• Pre-investment business centre

• Improved turnaround & communication

• Separation of deal-making & post-investment monitoring

• Improved efficiencies (EYHETU)

• Value driven approach (“I make it happen”)

• Innovation

• Knowledge management

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Agricultural portfolio, include South Africa

- 100 200 300 400 500 600 700 800

Fishing

Processing - Meat

Processing - confectionary

Beverages - alcoholic

Flowers

Biotech

Other

Fruit - Apples

Processing - vegetable

Beverages - juice

Fruit - Persimmon

Dairy products

Processing - fish

Processing - Nuts

Aquaculture

Processing - other

Fruit - Various

Beverage - Juice

Starch products

Fruit - Stone

Fruit - Berries

Fibre

Tea products

Fruit - Subtropical

Processing - Fruit

Agribusiness - wholesale

Fruit - Grapes

Meat - poultry

Nuts

Fruit - Citrus

Sugar products

Total exposure & commitments = R4,5bn

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Existing portfolio – South Africa

22%

37%

8%

9%

5%

8%

1%

7%

3%

• Wine

• Citrus

• Flowers (proteas)

• Persimmon

• Berries

• Stone fruit

• Fishing

• Processing – fish

• Grapes

• Aquaculture (abalone)

• Pastas

• Fruit packing

• Dried fruit products

• Ostrcih processing

• Fruit – Grapes

• Fibre - Cotton

• Fruit - Citrus

• Processing - Meat

• Processing -

raisons

• Fruit – Citrus

• Pecan nuts

• Malt processing

• Processing - Fruit

• Fruit – Citrus

• Fruit – Berries

• Aquaculture (cob)

• Dairy products

• Fruit - Stone

• Agribusiness -

wholesale

• Agri-services

• Meat processing -

poultry

• Groundnut processing

• Walnuts

• Fruit - Stone

• Meat - poultry

• Fruit - Apples

• Fibre - Kenaf

• Fruit – Berries

• Beverages - juice

• Nuts

• Fruit - Various

• Fruit - Citrus

• Beverage - Juice

• Processing - Peppers

• Processing – dried mango

• Fruit - Subtropical

• Processing - Macadamia

• Fruit – Various

• Processing – Achar

• Processing - Nuts

• Biotech

• Processing - confectionary

• Processing - diversified

• Dairy products

• Flowers

• Beverage - Juice

• Sweets

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Existing portfolio – Africa, excl. South Africa

Africa, excl. RSA - 32% of total exposure

Sugar - Mozambique

Tea & Macadamia nuts - Malawi

Table grapes - Namibia

Sugar - Kenya

Sugar - Tanzania

Sub-tropical fruit - Mozambique

Cassava starch - Swaziland

Fruit juice – Ethiopia

Poultry processing - Namibia

Case studies

Grain Field Chickens

Description –GFC will be a new sizable BBBEE

chicken abattoir in Reitz in the Free State. With a first

phase capacity of slaughtering 160 000 chickens per

day, it will be the fifth largest in the country;

IDC investment – R85m in debt and equity facilities

IDC role – Debt and equity through share warehousing

for workers trust

Development outcomes – employment at end of 1st

phase = 780 people directly; Through the project, c.a.

80 000 tons of maize will be beneficiated annually and

imports of frozen chickens will be replaced.

Workers’

Trust

Peppadew International

Description –Peppadew is a unique SA brand basedin

Tzaneen in Limpopo Province. Sales did not materialise

due to the financial crisis, which led to large stock write-

offs.

IDC investment – R25m

IDC role – funding to support the company badly

affected by the global financial downturn

Development outcomes – thousand of jos have been

protected, due to the contract farming arrangement of

the company

Industrial Development Corporation

19 Fredman Drive, Sandown

PO Box 784055, Sandton, 2146

South Africa

Telephone (011) 269 3000

Facsimile (011) 269 2116

E-mail callcentre@idc.co.za

Thank you