Download Click here to add Information - Industrial Development Corporation

Geoffrey Qhena
Chief Executive Officer
16 April 2014
1
Introduction
• IDC was established in 1940 to spearhead the development of industrial capacity.
• As our environment changed over the decades IDC changed with it, and many times throughout
our history, we were instrumental in changing our environment though industrial development.
• IDC develops industries through financial support to entrepreneurs wanting to take advantage of
opportunities not readily supported by commercial funders and developing and funding projects
where the perceived risks are too high for the private sector to invest on its own.
• In many instances IDC’s support for an industry will lead the way, demonstrating the viability of a
sector and then commercial institutions will enter the market.
• IDC investments to develop industry are always made taking into account the ultimate impacts
that these investments will have on the people.
• This presentation highlights the impact that IDC has had over the past 20 years since
South Africa’s transformation to a democracy.
2
20 years of change
• Even as we celebrated the change in 1994, there were many challenges ahead.
• IDC positioned itself to address these and has responded to new challenges throughout the years.
Late 2000s & 2010s
SA Priorities
Early and mid 2000s
• Change in government
• South Africa admitted to a globalised
world
• Addressing the disparities created by
apartheid
• Unemployment
• Diversification of economy
• Reducing inequalities
• Infrastructure constraints
• Recession
• New Growth Path, Industrial policy and
National Development Plan
• Mandate overlap of DFIs
• Growing financial sector liquidity
• Climate change
IDC Response
1990s
• Black economic empowerment
• Moves to encourage regional
integration
• Improving competitiveness and export
promotion
• Services related industries
• Investments elsewhere in Africa
• Job creation
• Developing rural areas and other
previously underdeveloped regions
• Downstream industries
• Entrepreneurial development
• Sector strategies
• Focus on NDP, NGP and IPAP2
• Phasing out funding to service
industries not aligned to priorities
• Job creation through development of
key sectors/value chains
• Expansionary and broad-based BEE
• Funding to distressed companies
3
Overall achievements
4
Value of funding provided
• R128 billion (R204 billion in 2013 prices) of
funding approved over the past 20 years of which
R112 billion (R178 billion in 2013 prices) was for
South African projects.
Value of Funding Approved for South African Investment
Value of funding approved (current prices)
Value of funding approved (constant 2013 prices)
20
15
R'bn
10
• Sectors that received the highest portion of
funding were:
5
– Basic metals;
– Mining; and
– Upstream chemicals
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1994
-
1995
– This represents 3.1% of gross fixed capital formation
(investment) by the private sector in SA over the
period.
– Assuming that IDC provided one-third of funding for
projects on average, IDC leveraged 9.4% of total
private sector investment over the period.
25
IDC Financial Year
• High levels of funding largely driven by large
capital intensive nature of these industries.
Data adjusted for inflation and cancellations of funding approvals
5
Job creation
Direct Impact on Jobs in South Africa for IDC’s Funding Activities
• Job creation is the most important development
outcomes that IDC aims to achieve.
• Impact extends beyond projects funded directly,
e.g.:
Job creation
40 000
35 000
30 000
25 000
20 000
15 000
10 000
5 000
IDC Financial Year
• Indirect impact of projects supported by IDC
estimated at 960 000 jobs.
6
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
– Agriculture and agro-processing;
– Mining;
– Textiles and clothing.
1995
1994
• Encouraging the creation of decent jobs by insisting
on compliance with labour legislation and good
working conditions.
• Direct impact on job creation estimated at 360 000
over the period with 43 000 more saved. Industries
creating the most jobs included:
Jobs saved
45 000
Number
– Beneficiating minerals creates downstream
opportunities;
– Renewable energy projects create opportunities for
components and other inputs.
50 000
Black economic empowerment
IDC Funding to Black-Empowered Companies
• IDC’s approach to black-economic empowerment
changed over the years and has stressed different
facets:
Transfer of ownership;
Community and workers’ empowerment;
Expansionary BEE;
Black industrialists.
5.0
3.0
2.0
1.0
• More than R48 billion (R64 billion in 2013 prices)
approved for funding black empowered companies
over the period.
• Successes in assisting black industrialists in:
–
–
–
–
4.0
Consumer chemicals;
Transport equipment;
ICT;
Film.
7
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1994
1997
Redistribution of ownership in the economy;
Broadening the impact of empowerment;
Expansion of the economy;
Ensuring that all people are driving growth in the
economy.
6.0
1996
–
–
–
–
Value of funding approved (constant 2013 prices)
1995
• The approach was driven by several principles:
Value of funding approved (current prices)
7.0
R'bn
–
–
–
–
8.0
Regional development
• Regional development for IDC encompasses
development of poorer provinces, rural areas and
industrialisation in the rest of Africa.
• Successes in development of rural areas by
investing in:
100%
90%
80%
70%
Tourism;
Agriculture;
Mining;
Renewable energy.
% of Total
–
–
–
–
IDC Funding to Rural Projects
• The first decade of the last 20 years saw the
Western Cape receiving the bulk of funding:
60%
50%
40%
30%
20%
– Driven by projects such as Saldanha Steel, Duferco and
Atlantis Diesel Engines.
10%
• Funding over the last 10 years benefitted less
industrialised provinces such as the Northern Cape
with large mining and renewable energy investments.
Rural
Non Rural
0%
Number
8
Value
Jobs
Small and medium enterprise development
• Small and medium enterprises are important for the
development of an economy because they create
jobs more efficiently and are sources for innovation.
• A few large conglomerates dominate the South
African economy.
• Over the last 20 years, more than 70% of the
number and 18% of the value of funding approvals
that IDC made was for small and medium
enterprises.
• Wholesale funding and franchising played an
important role in IDC’s SME development in the first
half of the 2000s.
• IDC’s approach to SME development also includes
technical support to businesses.
• The establishment of sefa as a subsidiary of IDC will
see IDC focussing more on larger interventions in
the future.
IDC Funding to SMEs Projects
100%
90%
80%
% of Total
70%
60%
50%
40%
30%
20%
10%
SME
Not SME
0%
Number
9
Value
Jobs
Countercyclical funding
• The global economic crisis in 2008 and the
ensuing recession resulted in many
companies coming under pressure from a
number of fronts:
– Financial institutions were tightening credit
criteria, and extending less credit;
– Lower demand for products and services from
clients as confidence declined;
– Internal cash-flow pressures.
• IDC responded to the challenge by making
available R6.1 billion to distressed companies
while commercial funders were reducing credit
extension.
• To date, 90% of this funding had been
committed, impacting on 44 000 jobs.
Sectoral Distribution of IDC Funding to Distressed
Companies
Agriculture and agro-processing
Forestry, wood, pulp and paper
Mining
Textiles and clothing
Chemicals, rubber, plastics and non-metallic…
Basic metals
Fabricated metals
Machinery and equipment
Motor vehicles, parts and accessories
Tourism, trade and catering
Transport and logistics
Other
0%
10
5%
10%
15% 20%
% of Total
25%
30%
35%
Exports and assisting companies to globalise
• IDC has played an important role in diversifying and growing South Africa’s export basket.
– Industries that contributed to this included the mining industry, especially the platinum industry, basic metals, motor
vehicles, table grapes and other fruit.
• Over the years, IDC had made available several special schemes that aimed at bolstering exports:
– During the mid to late 1990s, these included the LIFE (Low Interest for Exports) scheme and the ORCHARDS scheme.
During the mid 2000s, another scheme at developing orchards, the Pro-Orchards Scheme was established.
• Apart from assisting local companies to enhance exports, IDC also provides an export finance product to
provide finance to companies in the rest of Africa for the purchase of South African goods and services.
• Africa provides a huge opportunity for South African companies to expand their market and production
capacity. Some examples of IDC investments include:
– Poultry in Namibia;
– Cement in Ethiopia;
– Management of the agricultural component of a bioethanol project in Sierra Leone.
11
Industry impact
12
Mining and mineral beneficiation
Contributions to SA mining
production
IDC achievements in the sector:
Diversification of the mining industry
• Establishing new iron ore, platinum, coal, chrome, phosphate,
manganese and diamond mining operations.
Beneficiation of minerals
• Expanding and establishing capacity in carbon steel, stainless steel,
ferrochrome, phosphate concentration, phosphoric acid, aluminium,
rolled aluminium products, cold-rolled and galvanised steel, and
direct reduced iron.
Restructuring the steel industry
• Unbundling of Iscor and at a later stage Kumba Iron Ore.
• Introducing strategic partners in carbon steel and stainless steel
producers.
• Establishing smaller steel mills.
• Establishing capacity for alternative sources of iron for the steel
making process.
Transformation of the mining industry
• Promoting BEE ownership and participation in gold, platinum, and
chrome mining.
13
1994
Other,
11.7%
Manganese
1.3%
Gold,
49.2%
Coal,
20.4%
Iron ore,
2.8%
Copper,
2.5%
PGMs,
11.4%
Chromite,
0.8%
2013
Other,
12.2%
Gold,
15.2%
Coal,
26.1%
PGMs,
22.0%
Iron ore,
16.2%
Manganese
3.7%
Copper,
1.6%
Chromite,
3.0%
Green economy
IDC achievements in the sector:
Reducing the carbon intensity of the economy
• Investing in renewable energy generation projects as part of
government’s Renewable Energy Independent Power
Producers (REIPP) Programme .
Improving competitiveness
• Funding companies to install equipment that allows them to be
more energy efficient.
Alleviating constraints to electricity supply
• Renewable energy investments have a shorter construction
time compared to base-load power stations.
• Interventions that reduce demand for electricity.
Environmental protection
• Recycling and waste management.
Establishing of new manufacturing industries
• Assembly of photo-voltaic panels.
• Manufacturing of wind towers.
• Production of solar water heaters.
14
Projects awarded and IDC participation in
rounds 1 to 3 of the REIPP programme
Total awarded
IDC participation
Number of Capacity Number of
projects
(MW)
projects
Solar PV
CSP
Wind
Biomass
Landfill Gas
Small Hydro
Total
Source: DoE, IDC
33
5
22
1
1
2
64
1 484
400
1 984
16
18
14
3 916
8
4
9
0
0
1
22
Capacity
(MW)
213
350
692
0
0
10
1 265
Forestry value chain
IDC achievements in the sector:
SA Wood Processing, Paper & Furniture:
real fixed investment trends
Productively utilising land not suitable for agriculture
• Establishing new forestry plantations.
Increasing international competitiveness
• Restructuring and consolidation in the forestry industry.
• Upgrading sawmills.
• Research and development by our clients.
Wood
200
Paper
Furniture
150
100
50
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Beneficiation of timber
• Establishing of pulp and paper mills and paper converters.
Index: 2005 = 100
250
Source: IDC, compiled from Quantec data
Ensuring inputs into mining and housing development
• Expanding sawmilling capacity.
15
Clothing, textiles, leather and footwear
IDC achievements in the sector:
16
350
Index: 2005 = 100
Clothing
300
Textiles
250
Footwear
200
Leather
150
100
50
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Stabilising the industry and increasing competitiveness
• Funding to distressed companies to allow them time to
restructure and improve efficiencies.
• Competitiveness enhancements through new equipment.
• Mergers between different players to gain economies of
scale.
• Close cooperation with policy-makers and participation in
design of incentives.
• Management of dti incentives and providing IDC special
funding.
• Supporting companies operating in competitive niches to
grow.
Strategic alignment between producers and retailers
• Supporting the development of stronger relationships
throughout the value chain.
• Introducing new business models for suppliers to take
advantage of close proximity to retailers.
SA Clothing, Textiles, Footwear, Leather:
Employment trends
Source: IDC, compiled from Quantec data
Motor vehicles and other transport equipment
Exports of Completely Built Up Cars, Light,
Medium and Heavy Commercial Vehicles
IDC achievements in the sector:
Building the other transport equipment industry
• Funding to companies involved in the railway equipment,
boatbuilding and aerospace industries.
250
200
150
100
50
-
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Supported the industry through the global economic downturn
• Funding to distressed companies throughout the economic
downturn when commercial financiers would not provide
funding.
300
Number (thousands)
Helping to create a competitive cluster of industries
• Funding to OEMs creating demand for locally produced
components drawing from various intermediate industries.
• Supporting first and second tier component manufacturers
as well as their suppliers.
• Funding for manufacturers of trucks and busses.
Source: NAACAM
• R9.7 billion in funding approved1
• Impacting on 19 000 jobs
1
17
2013 prices
Agro-industries
IDC achievements in the sector:
• Incorporating small-scale black farmers into the agroprocessing value chain.
• Value addition to agricultural products by supporting
processing industries.
Increasing food security
• Increasing local production of imported processed goods e.g.
processed soya and canola oil.
18
140
120
100
80
60
40
20
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
• The lower Orange River early table grape industry;
• Expanding the citrus industry, especially in black-spot free
areas;
• Growth and diversification of the berry industry;
• Establishment of macadamia, walnuts and pecan nut industries;
• Development of the marine aquaculture industry (cob and
abalone);
• Investment in businesses producing niche products
(persimmons, gluten free products, new fruit varieties,
peppadew)
SA Food Processing: real fixed investment trend
160
Index: 2005 = 100
Maximising the value created from agricultural land
• Development of new high-value agricultural industries such
as:
180
Source: IDC, compiled from Quantec data
• R13.2 billion in funding approved1
• Impacting on 84 000 jobs
1
2013 prices
Downstream chemicals and pharmaceuticals
IDC achievements in the sector:
180
Building a consumer chemicals industry
SA Chemicals (excl. petroleum related and
basic chemicals): real fixed investment trend
• Support for establishment and expansions for companies
manufacturing beauty products, household detergents and
paints.
Supporting security of supply in the pharmaceutical industry
Index: 2005 = 100
160
140
120
100
80
60
40
20
• Assisted with the expansion of manufacturing of generic
pharmaceuticals.
• Assisted contract manufacturers of pharmaceuticals to
upgrade facilities to be compliant with regulations.
Ensuring the manufacturing industry has access to intermediate
products
• Expanding industries such as packaging etc.
19
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
0
• Establishment of a project to supply vaccines.
Source: IDC, compiled from Quantec data
Film
IDC achievements in the sector:
Creating an infant industry in animation
• Funding for an animation studio to produce two full-length
animation films.
25
20
15
Number
Creating a critical mass to ensure continuity of the industry
• Steering away from support for international productions
only using South Africa for filming.
• Focussing on production of local films telling South African
stories to the world.
• Funding for low-cost productions.
• Developing the complete value chain.
Average number of locally produced films
released per year
10
5
0
1994-1997
Source: National Film and Video Foundation
20
2010-2013
Tourism
Number of International Inbound Tourists to South
Africa
Building base capacity for the tourism industry
• Funding for new hotels or expansions of existing hotels in
preparation for the FIFA 2010 World Cup.
Crowding in the private sector
• When IDC start out funding the industry, commercial banks
did not have an interest in funding the sector. Most banks now
have teams dedicated to the sector.
10
9
8
7
6
5
4
3
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Developing of an eco-tourism and sports tourism industry
• Establishment of several game lodges and funding to
SANParks to take advantage of South Africa’s natural beauty.
• Provided funding for the hosting of a mountain bike race, the
development of a windsurfing resort and the construction of a
velodrome.
Number (milions)
IDC achievements in the sector:
Source: World Bank, StatsSA, DoT
• R7.1 billion in funding approved1
• Impacting on 13 000 jobs
1
21
2013 prices
Telecommunications
IDC achievements in the sector:
Reducing telecommunication costs
• Approved funding for the first competition in the
telecommunications industry in the country when the first
two cellular operators were established.
• Continued to fund the third cellular operator and a second
fixed-line operator.
• Assisted with the establishment of a national long-distance
high-speed data network.
22
New technologies
IDC achievements in the sector:
Nurturing infant industries e.g. medical technology and bio-technology
• Several start-ups that are commercialising uniquely South African
technologies in these industries supported.
Creating a South African venture capital industry
• Initial funding to set up venture capital funds and later directly
providing early-stage venture capital led the way for the
establishment of the industry in South Africa.
“VC activity remained fairly stagnant
with the introduction of one or two new
funds between 2000 and 2003. The most
notable was the HBD Fund 1 linked to
South Africa’s own internet billionaire
Mark Shuttleworth as well as a number of
funds backed by the IDC as part of a
strategy to stimulate the local VC sector.
These include Horizon Private Equity,
Argil Venture
Capital and Bioventures.”
Southern African Venture Capital
Association, 2010 SAVCA Venture
Solutions VC Survey
Value of IDC approvals:
R627 million (2013 prices)
Associated employment: 7 500
23
Looking ahead
• IDC will continue to support government’s industrial policy and
development aspirations through on-the-ground implementation.
• IDC continues to explore new ways to lead industrial capacity
development to ensure delivery on its mandate.
• In the immediate future IDC is seeking to ramp up its impact with the
current resources at its disposal focusing on more effective deployment of
its assets to develop industries and create jobs.
24
Thank You
25