Leading industrial capacity development in agro-industries

Rian Coetzee

Head: Agro-Industries

October 2013

2

IDC - Corporate profile

• Established:

• Corporate type

• Shareholding

• Reporting:

• Funding:

• Objective:

• Activities:

• Regional mandate:

• Financial base (FY’12):

• Funding

• Governance

• B-BBEE score

• Values

October 1940

Development finance institution, mandated by Act

Government of South Africa = 100% shareholder

SA Ministry of Economic Development

100% self-financing

Lead industrial capacity development

Provide risk capital (industrial finance or project finance)

South Africa & the rest of Africa (since 1998)

Total equity = ZAR 92 bn ( = USD 11bn);

profit = R3,3 bn (= USD 398m)

Debt/Equity ratio = 11%

R13,5bn (= USD 1,6 bn) funding to 293 companies / projects

Follows normal company policy and procedures

Level 2 B-BBEE contributor (score = 89,7)

Partnerships, Professionalism & Passion

3

IDC - Objectives and the outcomes that we aim to achieve

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

Support for industrial capacity development By focussing on...

We will contribute to...

3

The IDC is a catalyst in driving industrial development:

• We proactively identify and fund high-impact projects

• We lead the creation of viable new industries

• Using our diverse industry expertise to drive growth in priority sectors

• Taking up higher-risk funding in early-stage and high-impact projects

We differentiate

ourselves by...

Main business & funding activities

5

IDC Strategy: Sector allocations for the next 5 years

Green and

energy saving

industries

Bio fuels

Agro-

processing

Touris

m

Business process

services

Craft and film

ICT

Healthcare Mining related

technologies

Biotechnology

Downstream mineral

beneficiation

Mining

Industrial

infrastructur

e

Logistics

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

manufacturing

Pharmaceuti-

cals

Oil and gas

Grreen industry

components

Other funding areas :

Venture Capital: R500 million

Funding to distressed companies: R2.5 billion

R22.4 billion

R7.7 billion

R20.8 billion

R22.1 billion

R11.1 billion

R14.8 billion

6

IDC vis-à-vis commercial financiers

Risk assessment• Based on historical performance of the business

Structuring• Long-term funding generally not remaining

Pricing• Pricing based on risk

Security, sureties and owners’ contribution• Banks’ exposure covered multiple times

Risk assessment• Based on expectations for the future of the business –

i.e. business plan• In depth due-diligence to identify and mitigate risks

Structuring• Short, medium and long-term funding remaining•Moratoria on capital and interest repayments

Pricing•Development impact taken into account along with

cost of funding and risk when determining pricing • Subsidised schemes remaining to achieve specific

objectives

Security, sureties and owners’ contribution• Takes security where remaining• Sureties and owners’ contribution depending on the

ability of the entrepreneur – entrepreneur needs to show commitment to the business•Generally securities etc. does not cover IDC’s exposure

IDCCommercial financiers

7

IDC vis-à-vis commercial financiers (continue)

Post-investment• Focussed on ensuring maximum recovery of funds in

cases where the business experience difficulty

Industry involvement•Generally only becomes involved in established industries

Project development and funding• Seeks involvement from development banks or

government to fund large projects

Business support• Pre- and post-investment support remaining to entrepreneurs

Post-investment• Focussed on ensuring business sustainability in cases where

the business experience difficulty

Industry involvement• Support for new industries with growth potential

• Provides funding for unproven technology through venture capital funding

Project development and funding• Conceptualises projects and develops them to a

bankable stage• Invests in early stage projects• Shares risk with commercial financiers to leverage

private sector investment

IDC

Commercial financiers

TWO WAYS OF DOING BUSINESS WITH THE IDC

(1) PROJECT DEVELOPMENT

TWO WAYS OF DOING BUSINESS WITH THE IDC

(2) CREDIT APPLICATIONS

10

AGRO-PROCESSING – value chain

Sector map

Biotechnology

Intermediate inputs

Energy; Water

Irrigation equipment

Fertilizer; Implements

Packaging; Fencing

Structures; Tools

Pumps & generators;

Medicine

Maize

Wheat

Hay

Grain sorghum

Sugar cane

Ground nuts

Tobacco

Sunflower seed

Cotton

Viticulture

Citrus

Subtropical fruit

Vegetables

Deciduous fruit

Tea

Coffee

Flower

Game

Ostriches

Pigs

Goats

Sheep

Cattle

Poultry

Beans

Nuts

Field crops Horticulture Livestock

Agriculture

Evergreen

Fishing

Aquaculture

Fishing

Meat processing

Dairy products

Fruit & vegetable

products

Fish products

Oils & fats

Grain mill products

Bakery products

Sugar & related

Confectionary products

Other food

Animal feed

Agro -processing

Distilleries

Malt Beverages

Soft drinks

Beverages

Wineries

Other non - food

Essential oils

Fibres

Starch

Bio -fuels

Medicinal / Biotech

Household

Expenditure

Fragrance

Textiles

Fuel

Pharmaceutical

Feeding into other

value chains

Foodservices

(hotel;

restaurant;

caterers)

Wholesale

Retail

Logistics

Tourism

ExportsAgents

Logistics

Automotive

Government

Expenditure

Chemicals

Other …

PR

IMA

RY

SEC

TO

R

SEC

ON

DA

RY

SEC

TO

R

Sector map

Biotechnology

Intermediate inputs

Energy; Water

Irrigation equipment

Fertilizer; Implements

Packaging; Fencing

Structures; Tools

Pumps & generators;

Medicine

Maize

Wheat

Hay

Grain sorghum

Sugar cane

Ground nuts

Tobacco

Sunflower seed

Cotton

Viticulture

Citrus

Subtropical fruit

Vegetables

Deciduous fruit

Tea

Coffee

Flower

Game

Ostriches

Pigs

Goats

Sheep

Cattle

Poultry

Beans

Nuts

Field crops Horticulture Livestock

Agriculture

Evergreen

Fishing

Aquaculture

Fishing

Meat processing

Dairy products

Fruit & vegetable

products

Fish products

Oils & fats

Grain mill products

Bakery products

Sugar & related

Confectionary products

Other food

Animal feed

Agro -processing

Distilleries

Malt Beverages

Soft drinks

Beverages

Wineries

Other non - food

Essential oils

Fibres

Starch

Bio -fuels

Medicinal / Biotech

Household

Expenditure

Fragrance

Textiles

Fuel

Pharmaceutical

Feeding into other

value chains

Foodservices

(hotel;

restaurant;

caterers)

Wholesale

Retail

Logistics

Tourism

ExportsAgents

Logistics

Automotive

Government

Expenditure

Chemicals

Other …

PR

IMA

RY

SEC

TO

R

SEC

ON

DA

RY

SEC

TO

R

11

AGRO-PROCESSING – value chain

Agric Input

Agricultural production

Primary processing

Advanced processing

Wholesale & distribution

Retail Consum

er Basic

processing

• Sterilising

• Pulping

• Drying

• Canning

• Milling and

grinding

• Pressing

• Chilling

• Freezing

• Heating

• Fermentation

• Preservation in

oil/vinegar/brine

• Sugar-based

preservation

• Packaging and

labelling

• Extraction

• Mixing/combinin

g to recipe

• Flavouring

• Extrusion

• Baking and

cooking

• Preservation

• Packaging and

• labelling

• Sorting & grading

• Cutting & peeling

• Chilling

• Packaging &

labelling

Agro-processing

12

AGRO-PROCESSING – value chain composition

• Livestock = 47,5%

• Field crops = 28,2%

• Horticulture = 24,2%

• Meat = 28%

• Grain milling = 14%

• Dairy = 11%

• Bakery = 8%

• Fruit & = 8%

• Sugar = 6%

• Oils & fats = 6%

• Animal feed = 6%

• Fish = 3%

• Confectionary = 3%

• Commercial farmers =

40,000 (95% of output)

• Resource-poor

farmers = 450,000 (5%

of output)

• Around 4,000 food

production companies

• Top 10 responsible for

70% of turnover

• 95% of food

retail is

controlled by 4

retailers

• Sales to

households =

72%

Agric Input

Agricultural production

Primary processing

Advanced processing

Wholesale &

distribution Retail Consumer

Basic processing

• Large retailers

• Independent

retailers

• Informal sector

13

AGRO-PROCESSING – cyclical trends

0

50

100

150

200

1993 1996 1999 2002 2005 2008 2011

Inde

x 2

00

5 =

100

Employment

0

50

100

150

1993 1996 1999 2002 2005 2008 2011

Inde

x 2

00

5 =

100

Gross Domestic Product

0

50

100

150

1993 1996 1999 2002 2005 2008 2011

Inde

x 2

00

5 =

100

Gross Domestic Product

0

50

100

150

1993 1996 1999 2002 2005 2008 2011In

dex 2

005 =

100

Employment

1. Direct share of national GDP = equals 2.4%

2. Real GDP growth at 1.9% p.a., on average,

between ‘03 & ‘12.

1. Direct share of national GDP = equals 1.9%

(11.2% of manufacturing GDP)

2. Real GDP growth at 4.6% p.a., on average,

between ‘03 & ‘12. (manuf = 2.5%)

3. 13.7% of all jobs in manufacturing

14

AGRO-PROCESSING – trade flows

Trade balance

Trade Flow HS4 code: Product category

Value Rm

(sum of 5 year

average)

Exp

ort

s

H0805: Citrus fruit, fresh or dried 6393

H1005: Maize (corn) 3952

H0806: Grapes, fresh or dried 3520

H0808: Apples, pears and quinces, fresh 3251

H5101: Wool, not carded or combed 1587

H0802: Nuts except coconut, fresh/dried brazil &

cashew 779

H0809: Stone fruit, fresh (apricot, cherry, plum, etc) 666

H0804: Dates, figs, pineapple, avocado, etc, fresh/

dried 438

H1201: Soya beans 381

H0810: Fruits nes, fresh 303

Imp

ort

s

H1001: Wheat and meslin 3155

H4001: Natural rubber & gums, in primary form,

plates, etc 1332

H2401: Tobacco unmanufactured, tobacco refuse 1226

H0713: Vegetables, leguminous dried, shelled 634

H5201: Cotton, not carded or combed 497

H0901: Coffee, coffee husks & skins & coffee

substitutes 450

H1209: Seed, fruit and spores, for sowing 323

H0902: Tea 317

H1005: Maize (corn) 262

H0801: Coconuts, Brazil nuts & cashew nuts,

fresh/dried 195

Top traded agricultural products Top traded agro-food products

Trade Flow HS4 code: Product category

Value Rm

(sum of 5 year

average)

Exp

ort

s

H1701: Solid cane/ beet sugar & chemically pure sucrose 1897

H2009: Fruit and vegetable juices, not fermented/ spirited 1576

H2008: Fruit, edible plant parts nes, prepared/preserved 1474

H2106: Food preparations, nes 916

H1512: Safflower, sunflower & cotton-seed oil, fractions 650

H4102: Raw skins of sheep or lambs 454

H1103: Cereal grouts, meal and pellets 405

H2103: Sauce, condiments, mixed seasoning & mustard 389

H1507: Soya-bean oil, fractions, not chemically modified 365

H1806: Chocolate and other foods containing cocoa 358

Imp

ort

s

H1006: Rice 3979

H2304: Soya-bean oil-cake and other solid residues 2591

H1511: Palm oil and its fractions, not chemically modified 2584

H0207: Meat, edible offal of domestic poultry 2230

H1507: Soya-bean oil, fractions, not chemically modified 2039

H2106: Food preparations, nes 1184

H1512: Safflower, sunflower & cotton-seed oil, fractions 996

H2309: Animal feed preparations 691

H1701: Solid cane/ beet sugar & chemically pure sucrose 617

H2009: Fruit and vegetable juices, not fermented/ spirited 575

Trade balance

15

AGRO-PROCESSING – sub-sectors opportunities

Livestock Grain Sugar Beverage Oils and fats &

other

Fish

Horticulture

• Processing and

preserving of fish and

fish products

• Processing and

preserving of fruit and

vegetables

• Meat and meat products

• Dairy products

• Prepared animal feeds

• Grain mill products

• Starches and starch

products

• Macaroni, noodles,

couscous and similar

• Bakery products

• Sugar, including golden

syrup and castor sugar

• Cocoa, chocolate and

sugar confectionery

• Spirits & wine

• Beer and other malt

liquors and malt

• Soft drinks; Mineral

waters

• Vegetable and animal

oils and fats

• Other food products

n.e.c.

• Value addition to meat

products

• Livestock

massification

• Localise high value

dairy production –

butter, whey, etc.

• Dairy exports to Africa

• Higher value cheeses

• Animal feed

production close to

source

• Poultry in the rest of

Africa

• Increased competition

in value chain

• Exploit milling

potential, in areas with

logistical advantages

• Rice production in

Africa

• Increase animal feed &

integrated poultry

production

• Higher value starch

production

• Innovation in bakery

products , non-wheat

bread & pastas

• Non-wheat bread

• Co-generation &

biofuels

• Improved capacity

utilisation of existing

mills

• Support drive into

Africa

• Sweets - Brand

extension into Africa

• Localisation of foreign

brands - confectionary

• Rooibos & Honey

bush value addition

• Develop new wine

areas

• Consolidation of wine

labels

• Localise malt

production

• Local production of

foreign brands

• Localise soya related

products

• Higher value, healthier

oil products

• Expand marine

aquaculture

• Canning re-orientation

• Higher value products

– organics, salads, oil

extraction

• Import replacement –

juices

• Internationalisation

Value chain

• Sub-sectors

• Potential interventions

16

Agro-processor

Agriculture

• Access to Markets

• Access to Finance

• Access to Information

• Access to Skills

Operating partner(s) & IDC

Broad-based BEE farming

Government grants

NGO’s

Commodity organizations

Agri-businesses input supply

Water rights

Land tenure security

Social facilitation

Farmer aggregation

Infrastructure

Training

Extension support

Government alignment

Mechanization

Project management

Comm. & DFI funding

IT solutions

Agro-processing rural development model

RURAL DEVELOPMENT & agro-processing

Value chain integration

Community/industry/ Compact

Incubation Policy co-ordination

R&D + trials

17

Agro-Industries

Strategic Business Unit (SBU)

18

Our sectoral focus areas

1. Agro-processing (food and non-food)

• It can include on-farm, first-tier

processing (such as packing & sorting).

• It can also include backward integrated

agro-processing projects

2. Beverages (alcoholic and non-alcoholic)

3. Aquaculture

Processing and preserving of meat and meat products

Processing and preserving of fish and fish products

Processing and preserving of fruit and vegetables

Manufacture of vegetable and animal oils and fats

Manufacture of dairy products

Manufacture of grain mill products

Manufacture of starches and starch products

Manufacture of prepared animal feeds

Manufacture of bakery products

Manufacture of sugar

Manufacture of cocoa, chocolate and sugar confectionery

Manufacture of pasta products

Manufacture of other food products n.e.c.

Distilling, rectifying and blending of spirits; ethyl alcohol production

from fermented materials; manufacture of wine

Manufacture of beer and other malt liquors and malt

Manufacture of soft drinks; production of mineral waters

19

Refocus … we do not fund

• Pure primary agricultural projects/applications (will be referred

to the Landbank)

• Pure land-based transactions/acquisitions

• Hard liquor includes any drink with proportion of alcohol

exceeding 12 per cent vol

• Any tobacco and tobacco products

• Biofuels (to be dealt with by Green Industries SBU)

• Wholesale & retail activities

• Refinancing of existing activities

• Pure sale of shares for empowerment purposes (to be referred

to the NEF)

• Funding of less than R1m (refer to Khula)

• Pure overdraft facilities

20

Investment guidelines

In South Africa

• The project must facilitate the creation of new industrial capacity (create jobs)

• The funding request must be for at least R1-million (for debt) and R5million (for equity and/or

quasi-equity) (not more than R1bn)

• Risk-sharing from operating private-sector investment partners is non-negotiable.

• Equity-related funding:

• IDC will only provide an equity-related instrument if it views it of strategic importance

• IDC will never take up a majority stake in a business

• IDC not to fund more than 60% of the total funding requirement (for start-ups)

• We can fund a full expansion if the equity structure at peak is around 35%

• For start-up we prefer an equity structure of 50% at peak

Conditionalities – broad-based Black economic empowerment

• Pure acquisitions - If it is a pure acquisition, with a mere

sale of shares, then our funding is not directly linked to

new capacity and IDC cannot participate in a transaction.

The National Empowerment Fund provides funding for

pure BBBEE acquisition transactions

• Expansionary acquisitions - If the transaction is an issue

of shares and at least 50% of the IDC's funds are used

within the business for expansion purposes, then the

IDC can consider such funding

• Prior to funding

• all business partners are encouraged to do at least

an own BBBEE rating on the dti-website

• After funding

• all business partners needs to do an annual

BBBEE accreditation on an annual basis

• A BBBEE plan needs to be put in place if a BBBEE

rating is below 5

BALANCED SCORECARD APPROACH

GENERIC SCORECARD

• Direct Empowerment Ownership : 20% weighting

Management : 10%

• Human Resources Development Employment Equity : 15%

Skills Development : 15%

• Indirect Empowerment Preferential Procurement: 20%

Enterprise Development : 15%

Socio Economic Dev : 5%

Total 100%

Investment guidelines

In the rest of the African continent

• The project must be of direct benefit to South Africa

• Promoting South African capital goods exports

• Development and integration of value chains (inputs/raw materials from SA, intermediary

goods to be exported to SA,

• Promoting South African ownership (25% or more) on the Continent

(These conditionality is relaxed for neighboring countries)

• The size of the project (total funding requirement) must be at least:

• ZAR 5-million SACU investments

• USD 3-million for SADC investments

• USD10-million for countries outside SADC.

• IDC not to fund more than 50% of the total funding requirement (for expansions

not more than the existing asset base) – the funding amount will be a factor of

South African involvement

23

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 –

mainly strategic reasons

• Bridging finance against contract

• Wholesale finance

• Other products – guarantees, trade finance, etc.

Customised

structuring of

each transaction

24

Special IDC Schemes - generic

Gro-E Scheme

• R10 billion available for 5 years

• Loans @ Prime - 3% for the first 5

years

• Equity @ 5% RATIRR

• Capital and interest payment holidays

as per financial needs of the business

• Minimum = R1 million & Maximum of

R1 billion per project

• 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

• R2 billion unsecured 5-year listed

private placement bond

• Cost per job of up to 450,000 will be

eligible

• Pricing @ approximately 6.0% - 10.0%

fixed;

• Extent of discount is based on the risk

and developmental impact

• Maximum = R100m

• Only senior debt instruments

• Client is expected to drawdown within

7 months after approval

• Women Entrepreneurial Fund (R400

million)

• People with Disabilities Fund (R50

million)

• Development Fund (R250 million)

• Equity Contribution Fund (R150

million)

• Community Fund (R150 million)

UIF Job Creation

Fund

Transformation and

Entrepreneurial Scheme

(TES)

25

Special IDC Schemes – specific to agro-industries

Agro-Processing

LINKAGE Scheme

• Fund size = R100m Target = Agro-

processing entities that source or intend

sourcing raw materials from small-scale,

resource-poor farmers

• 50:50 risk sharing arrangement between

IDC and processor

• Debt pricing at prime minus 3

• Maximum amount = R20m

• Matching grants for extension support up

to R1m

• Funding to be used for expansions, new

capacity, improved capacity utilisation or

on-lending to contract farmers

Agro-Processing

COMPETITIVENESS

Scheme

• Fund size = R250m

• Objective = to facilitate increased

competition in the agro-processing

sector through the provision of finance

to non-dominant players

• Investment, business support &

research support components

• Maximum finance = R30m and

minimum R250,000.

• Funding provide at highly

concessionary terms

• Almost fully committed

AGRO-INDUSTRIES SBU – Current sectoral portfolio

- 100 200 300 400 500 600 700 800

Biotech

Farm services

Pasta products

Vegetable products

Mushrooms

Flowers

Sweets & honey

Wholesale finance

Other processing

Soya processing

Starch products

Various other fruit

Stone fruit

Fish farming & processing

Fibre products

Tea

Dairy products

Beverages

Fruit processing

Subtropical fruit

Berries

Meat processing

Disaster relief

Nuts & nut processing

Grapes

Citrus

Sugar products

• Total exposure & commitments =

R5,5bn

• 115 investments

• 50% of exposure value = equity

investments

• Rest of Africa (excl. SA) = 28% of

portfolio

27

Existing portfolio – South Africa

22%

32%

10%

9%

3%

7%

2%

8%

8%

• Wine

• Citrus

• Flowers (proteas)

• Persimmon

• Berries

• Stone fruit

• Fishing

• Processing – fish

• Grapes

• Aquaculture (abalone)

• Pastas

• Fruit packing

• Dried fruit products

• Ostrich processing

• Agribusiness

• Fruit – Grapes

• Fibre - cotton

• Fruit - Citrus

• Processing - Meat

• Processing – fruit

• Flood relief

• Nuts

• Fruit processing

• Citrus

• Berries

• Aquaculture (cob)

• Dairy products

• Honey

• Fruit – Stone

• Agribusiness

• Meat - poultry

• Walnuts

• Stone fruit

• Meat processing

• Apples

• Sweets

• Fibre

• Berries

• Dairy products

• Beverages

• Sugar products

• Nuts

• Fruit - Various

• Beverages

• Processing - vegetable

• Processing - Fruit

• Fruit - Subtropical

• Processing - Nuts

• Agribusiness - wholesale

• Fruit – Citrus

• Fruit - Various

• Disaster relief – not only Gauteng

• Beverages

• Biotech

• Dairy products

• Stone fruit & berries

• Sweets

• Pasta products

• Processing – confectionary

• Processing - Soya

• Mushroom products

• Dairy products

28

Existing portfolio – Africa, excl. South Africa

Africa, excl. RSA - 28% 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

29

An agricultural rural development model (start-up)

XYZ (Pty) Ltd Operating / investment

partner/s (experience &

financial capacity)

BEE (Commitment)

• High level

• Workers

• Community

IDC direct

SPV -

IDC,RCF,Dev.Fund

s

IDC & other banks

Equity (50%) – IDC max 49%

Debt (50%)

30

Example - Southern Oil (Pty) Ltd

Other

31%

68%

1%

Producer of value added

canola products, such

as canola oil & canola

oil cake in Swellendam,

WC

SSK

+/- 200 farms

supplying

canola

Facilitated the establishment of the canola industry in the Western Cape

Equity

Debt

• +/- 40 permanent

employees

• Value addition in

agriculture IDC has exited this transaction

31

Grain Field Chickens integrated rural development project

AGRO-INDUSTRIES SBU – successful example

32

AGRO-INDUSTRIES SBU – examples

33

AGRO-INDUSTRIES SBU – examples

Regional presence

• IDC has offices in all provinces;

• Regional offices are fully fledged

operational offices that form part of the

SBU value chain;

• Responsibilities include:

– Dealing with enquiries, applications, basic

assessments and business support in the

province

– Improving IDC stakeholder relations and

stakeholder perceptions and extending

IDC’s reach and footprint.

– Proactive sourcing of deals/projects

– Engaging with provincial development

plans

• 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.

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