Industrial Development Corporation

Katinka SchumannCape Town

21 November 2012Funding for SMEsPresentation to Select Committee on Economic Development

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Background

o Established: 1940o Type of organisation: Development Finance Institution (DFI)o Ownership: State owned company, 100% owned by the SA governmento Total assets: R112 billion (31 March 2012 - group)o Total liabilities: R20 billion (31 March 2012 - group)o Funding status: Self financing, pays dividends and income taxo Credit rating: Baa1 (Moody’s) in line with sovereign ratingo Main business area: Providing funding for entrepreneurs and

projects that are contributing to industrialisation and job creationo Geographic activities: South Africa and the rest of Africao Products: Custom financial products to suit a project’s needs

including debt, equity, guarantees or a combination of theseo Stage of investment: Project identification and development,

feasibility, commercialisation, expansion, modernisationo Number of employees: 792 (August 2012)

o Established: 1940o Type of organisation: Development Finance Institution (DFI)o Ownership: State owned company, 100% owned by the SA governmento Total assets: R112 billion (31 March 2012 - group)o Total liabilities: R20 billion (31 March 2012 - group)o Funding status: Self financing, pays dividends and income taxo Credit rating: Baa1 (Moody’s) in line with sovereign ratingo Main business area: Providing funding for entrepreneurs and

projects that are contributing to industrialisation and job creationo Geographic activities: South Africa and the rest of Africao Products: Custom financial products to suit a project’s needs

including debt, equity, guarantees or a combination of theseo Stage of investment: Project identification and development,

feasibility, commercialisation, expansion, modernisationo Number of employees: 792 (August 2012)

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Vision, mission, objective and valuesVa

lues

Visi

on 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”

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”

Mis

sion

The IDC is 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.

The IDC is 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.

Obj

ectiv

e

Support industrial capacity developmentSupport industrial capacity development

PassionPassion ProfessionalismProfessionalism PartnershipPartnership

• Facilitate sustainable direct and indirect employment• Regional equity (including development of the rest of Africa)• Growing the entrepreneur and SME sector• Expansionary and/or broad-based black economic empowerment• Environmentally sustainable growth• Grow sectoral diversity and increase localisation

• Facilitate sustainable direct and indirect employment• Regional equity (including development of the rest of Africa)• Growing the entrepreneur and SME sector• Expansionary and/or broad-based black economic empowerment• Environmentally sustainable growth• Grow sectoral diversity and increase localisation

Out

com

es

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Approach to SME development

• IDC combines its funding with business support where applicable;IDC combines its funding with business support where applicable;• The Pre-Investment Business Centre (PIBC) at IDC’s head office in Gauteng along with regional offices provide support to The Pre-Investment Business Centre (PIBC) at IDC’s head office in Gauteng along with regional offices provide support to

entrepreneurs wishing to access funding from IDC;entrepreneurs wishing to access funding from IDC;• Several funding products are available to deliver a custom financial solution to the business;Several funding products are available to deliver a custom financial solution to the business;• Other business support services can be provided if there are specific functional skills that are lacking in the business.Other business support services can be provided if there are specific functional skills that are lacking in the business.

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• Funding can be structured utilising a wide array of instruments including:Funding can be structured utilising a wide array of instruments including:• Debt;Debt;• Equity;Equity;• Quasi-equity;Quasi-equity;• Guarantees;Guarantees;• Trade finance;Trade finance;• Bridging finance;Bridging finance;• Venture capital.Venture capital.

• The funding will be The funding will be structuredstructured in a way that will suit the business’ needs most appropriately. Structuring in a way that will suit the business’ needs most appropriately. Structuring options include:options include:

• TermTerm of the funding: Short, medium and long-term loans are available; of the funding: Short, medium and long-term loans are available;• Grace periods Grace periods for repayment : Repayments can be structured to suit cashflows and allow for periods for repayment : Repayments can be structured to suit cashflows and allow for periods

where no payments need to be made on either capital or interest;where no payments need to be made on either capital or interest;• Flexible Flexible securitysecurity requirements: In most instances, very little security is required for small business requirements: In most instances, very little security is required for small business

applicationsapplications• Special funding schemes are available that offer more attractive terms and targets cross sectoral issues Special funding schemes are available that offer more attractive terms and targets cross sectoral issues

such as job creation or development of specific sectors. Also include funds managed on behalf of other such as job creation or development of specific sectors. Also include funds managed on behalf of other organisations, largely the dti;organisations, largely the dti;

• IDC’s business support programme addresses non-financial support to entrepreneurs.IDC’s business support programme addresses non-financial support to entrepreneurs.

• Funding can be structured utilising a wide array of instruments including:Funding can be structured utilising a wide array of instruments including:• Debt;Debt;• Equity;Equity;• Quasi-equity;Quasi-equity;• Guarantees;Guarantees;• Trade finance;Trade finance;• Bridging finance;Bridging finance;• Venture capital.Venture capital.

• The funding will be The funding will be structuredstructured in a way that will suit the business’ needs most appropriately. Structuring in a way that will suit the business’ needs most appropriately. Structuring options include:options include:

• TermTerm of the funding: Short, medium and long-term loans are available; of the funding: Short, medium and long-term loans are available;• Grace periods Grace periods for repayment : Repayments can be structured to suit cashflows and allow for periods for repayment : Repayments can be structured to suit cashflows and allow for periods

where no payments need to be made on either capital or interest;where no payments need to be made on either capital or interest;• Flexible Flexible securitysecurity requirements: In most instances, very little security is required for small business requirements: In most instances, very little security is required for small business

applicationsapplications• Special funding schemes are available that offer more attractive terms and targets cross sectoral issues Special funding schemes are available that offer more attractive terms and targets cross sectoral issues

such as job creation or development of specific sectors. Also include funds managed on behalf of other such as job creation or development of specific sectors. Also include funds managed on behalf of other organisations, largely the dti;organisations, largely the dti;

• IDC’s business support programme addresses non-financial support to entrepreneurs.IDC’s business support programme addresses non-financial support to entrepreneurs.

IDC’s funding products

Funding of R1 million and more

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– Gro-E Scheme

– UIF Fund for job creation

– Distressed funding

– Transformation and Entrepreneurial Scheme (TES)

• Women Entrepreneurial Fund

• People with Disabilities Fund

• Development Fund

• Equity Contribution Fund

• Community Fund

– Risk Capital Facility (RCF)

– Isivande Women’s Fund

– Clothing and Textiles Competitiveness Programme (CTCP)

– Support Programme for Industrial Innovation (SPII)

– Manufacturing Competitiveness Enhancement Programme (MCEP)

– Clothing, Textiles, Footwear and Leather Competitiveness Scheme

– Green Energy Efficiency Fund

– Agro-processors Linkage Scheme

Special funding schemes

Cross sectoral schemes/funds

Managed on behalf of the dti

Sector specific schemes/funds

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Special funding schemes (continued)

Gro-E Scheme•Aimed at companies that are creating jobs efficiently;•Launched in March 2010;•Investment period of 5 years;•R10 billion fund;•Provides loan funding at an interest rate of Prime – 3%;•R2.5 billion committed to date in 95 transactions;•64% of these transactions were for SMEs.

UIF funding•R4 billion aimed at creating and saving jobs;•Provides funding at a 5% fixed interest rate;•R3.2 billion committed since May 2010;•Expected to create and save 37 000 jobs.

Apart from special funding schemes, IDC’s pricing in general is more favourable for SMEs.Apart from special funding schemes, IDC’s pricing in general is more favourable for SMEs.

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Increased Regional Presence to Improve Accessibility

• IDC has offices in all provinces;• Regional offices are fully fledged

operational offices that form part of the SBU value chain;

• Satellite offices do not have permanent staff and are manned at specific times by employees from the regional office. These offices are generally shared with other DFIs or agencies;

• Access to IDC also includes on-line applications and an on-line tool to assist businesses to develop business plans.

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Value of funding approvals (lhs)Number of approvals (rhs)

Overall value and number of funding approvals

Value of Funding Approvals• Apart from the two years following the economic

crisis, the value of funding approvals has been increasing steadily over the past decade;

• 2011/12 saw the highest overall level of funding approvals.

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Funding to SMEs

Trend in Funding Approvals to SMEs1

1 – Companies which complies with any two of the following criteria:< 200 jobs< R51 million turnover< R55 million assets

• Capital requirements for SMEs are lower than for large projects;

• Over the past 7 years, IDC approved R10.6 billion in 988 transactions for SMEs;

• The value of funding to SMEs fluctuated between 11% and 26% of overall funding over the past 7 years;

• The number of approvals is significantly higher, with 65% of approvals to SMEs over the same time period.

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Approvals to SMEs as a % of Total Approvals(2005/06 to 2011/12)

35% 65% 83%17%SMEs

% of Number % of Value

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Sectoral Funding

% of Funding Approvals (number) to SMEs by Sector (2009/10 to 2011/12)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Mining and Minerals Beneficiation

Green-Industries

Metal, Transport and Machinery Products

Clothing and Textiles

Agro-Industries

Forestry and Wood Products

Media and Motion Pictures

SHIP

Chemicals and Allied Industries

Healthcare

ICT

Tourism

Venture Capital

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Jobs Expected to be Created and Saved through Funding Approvals

Job creation

• IDC measures the number of jobs expected to be created by each transaction that gets approved;

• Jobs are reported on an annualised basis – e.g. temporary and seasonal jobs are not reported as full jobs;

• In the period up to 2007/08 there has been a large increase in the number of jobs that IDC expected to create through its funding activities;

• This trend turned around in 2008/09 with the advent of the economic recession;

• Over the past three years a larger impact has been made in terms of jobs saved, especially through the utilisation of funding for distressed companies;

• 17% of overall jobs over the last three years came from SMEs.

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Direct impact on 2nd economy jobsSavedExpected to be created

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South Africa, 80%

Rest of SADC, 12%

Rest of Africa, 6%

Export finance outside Africa,

1%

Eastern Cape, 10%Free State,

<1%

Gauteng, 26%

KwaZulu-Natal, 8%Limpopo, 9%Mpumalanga,

3%

North West, 9%

Northern Cape, 26%

Western Cape, 8%

Provincial exposure

Examples• Eastern Cape – Mariculture, wood fuel pellets, bio-ethanol, motor

vehicle components• Free State – Game lodge, apples, cherries• Gauteng – Motor vehicle components, telecommunications• KwaZulu-Natal – Motor vehicle components, textiles, wood products• Limpopo – Phosphate, platinum mining, hospital• Mpumalanga – Forestry, tourism, coal mining• North West – Ferrochrome, berries, bricks• Northern Cape – Iron ore, manganese, table grapes, oranges• Western Cape – Steel processing, tourism, boat building, film• Rest of Africa – Aluminium, mining, agriculture, financial services,

tourism

Portfolio as at 30 June 2012 (market value; excluding Sasol, BHP Billiton, Kumba, Arcelor Mittal)

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Funding Approvals in Rural Areas

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sefa as a tool for SME development

The establishment of sefa as a subsidiary of IDC holds significant benefits to increase the impact of development finance in South Africa:

•Improved market segmentation means products can be tailored to the needs of SMEs and larger companies;

•Custom processes for SME funding can result in quicker turnaround times for funding for small businesses;

•Less confusion in the market about which DFI would be able to assist with providing funding;

•Close cooperation between IDC and sefa can result in increased SME development around larger projects being established by IDC;

•Increased access to resources for sefa.

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Market segmentation

R5 million

MEDIUM SMALL MICRO SURVIVALIST

R50 000

LARGE

R1 million

In the medium-term, IDC will continue to provide funding to small and medium enterprises while sefa builds the required capacity.

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Prospects

Thank you

Industrial Development CorporationIndustrial Development Corporation19 Fredman Drive, Sandown19 Fredman Drive, SandownPO Box 784055, Sandton, 2146PO Box 784055, Sandton, 2146South AfricaSouth AfricaTelephone 011 269 3000Telephone 011 269 3000Facsimile 011 269 2116Facsimile 011 269 2116E-mail callcentre@idc.co.zaE-mail callcentre@idc.co.za