Roll-out of Incentives: Funds under Management of IDCPresentation to the Portfolio Committee of Trade and IndustryPresented by:Mrs Meryl MamathubaHead: Development Funds DepartmentIDC011 269 firstname.lastname@example.org Other members of delegation:Mr David JarvisHead: Corporate Strategy and Portfolio Management IDC011 269 email@example.com Mr Christo van Zyl Senior Strategist: Corporate Strategy and Portfolio Management IDC 011 269 3283 firstname.lastname@example.org 24 July 2013
Introduction • IDC has built capacity over a number of years that enables it to manage funds effectively; • This capacity is used not only to manage special purpose funds that IDC set aside but also for government departments such as the dtiand EDD; • IDC manages those funds which has a direct relation to its objective of industrial capacity development which ensures that qualifying clients have seamless access to incentives; • By IDC managing the funds, it allows the relevant department access to IDC’s clients and its capacity and experience to assess applicants. IDC Government Department Partnership Regular reporting on the effectiveness of funds Fund criteria can be set based on market needs Channel funds to businesses with appropriate needs Seamless access to incentives for businesses Business IDC’s position in government and the private sector puts it in a unique position to ensure funds are effectively channelled to target market segments
IDC’s sectoral focus areas has been aligned to the NGP and IPAP Logistics, infrastructure and cross-sector projects • Logistics The green economy • Industrial infrastructure • Green and energy saving industries • Bio fuels Tourism, creative industries and high-level services • Craft and film • Biotechnology • Business process services Agricultural value chain • Healthcare • Agro-processing • Tourism • Forestry, paper & pulp, furniture • Mining related technologies • ICT Manufacturing activities • Automotives, components, medium and heavy commercial vehicles • Metals fabrication, capital and transport equipment The mining value chain • Mining • Downstream mineral beneficiation • Plastics and chemicals • Clothing, textiles, footwear, leather • Advanced manufacturing • Pharmaceuti-cals • Oil and gas • Grreen industry components The funds that IDC manages (both internal and external) benefit the sectors which IDC is targeting. These are based on priorities in the NGP and IPAP
Special Funding Schemes On-Balance Sheet Funds R16.2 billion set aside by IDC from its own balance sheet to target specific sectors and other priorities
Special Funding Schemes (continued) Off-Balance Sheet Funds Funds Managed on Behalf of 3rd Parties More than R6 billion managed on behalf of government departments The presentation is focussing on those funds managed on behalf of the dti
SPII was established in 1993; Designed to promote the development of innovative technologies in South Africa; It provides funding for the development of prototypes of innovative projects; Development and subsequent production must take place within South Africa; Overarching criteria of the scheme is commercial viability of the projects funded. Support Programme for Industrial Innovation (SPII) Development of technology Commercialisation oftechnology Expansion of businesses The SPII initiative has the potential to develop technologies that IDC can assist to grow into viable businesses
Product Process Development (PPD) Targets small and micro enterprises; Maximum grant of R2m on a matching basis. Matching Scheme Targets medium to large enterprises; Maximum grant of R5m on a matching basis. Partnership Scheme Targets large projects and is available to all companies; Minimum grant of R10m on a 50% matching basis with a levy repayment calculated on a defined IRR over a fixed period. SPII – Schemes
SPII – Provincial Split Provincial Split – Value of Approvals Funding tends to be in those provinces with the largest share of economic activity
Funding of projects in poorer provinces and rural areas; Increased equity participation (BEE, people with disabilities, women); Commercialisation of SPII funded technologies; Increased collaboration with all stakeholders. SPII – areas of focus
Risk Capital Facility Fund (RCF) • RCF was established in 2002 and has a fund size of R850m; • Established to provide gap funding to South African black-owned SME’s; • Supports businesses that create HDP jobs efficiently; • It invests through two channels: • Direct Channel – directly into enterprise; • Niche Fund Channel – indirectly through private equity funds; • Other focus areas of RCF: • Women empowerment; • Development of poorer provinces; • Strongly encourage beneficiaries to access business support. In some instances the RCF Direct Channel funding allows IDC to fund projects which it might not have because of weak financial contributions from project partners
RCF – Concessionary terms • Capital and interest moratoriums are offered where necessary; • Pricing concessionary on a RBT IRR basis; • Business Support – grant and zero rated loans; • Repayments subject to availability of cash.
RCF – Provincial Split Provincial Split – Value of Approvals RCF has a good reach into poorer provinces
RCF – focus going forward • Allocation of the remaining c.a. R 150 million; • Explore the possibility of recapitalising the fund to ensure continued support of the target market.
RCF : Case Study (Successful Exit) • 100% BEE business • Based in an industrial area of Pretoria East • Manufacture of tins and lids for the paste polish industry • Turnover: R4 million (Total assets: R8.5 million) • RCF investment: R1.5 million • 18 jobs for HDP expected to be created • At Exit • Had successfully upgraded its manufacturing capacity • Had introduce a number of complimentary product lines namely, incl. paint can, metal closures, as well as the manufacture of aerosol can bodies. • Turnover: >R20 million (Total assets: >R11 million) • 53 actual jobs created for HDPs
The programme aims to grow South African-based clothing, textiles, leather and footwear manufacturers to be globally competitive. It consists of the following four schemes: The Capital and Technology Upgrading Programme; Part of the Enterprise Investment Programme (EIP) in support of the manufacturing sector and administered by the dti The Preferential Financing Scheme Provided directly by the IDC and managed by the Textile and Clothing Strategic Business Unit - Prime less 5%, Capex scheme. The Competitiveness Improvement Programme (CIP) Managed by the CTCP Desk at the IDC The Production Incentive Programme (PIP) Managed by the CTCP Desk at the IDC Clothing Textiles Competitiveness Programme (CTCP) IDC complemented funding from the dtiby creating its own on-balance sheet scheme aimed at improving competitiveness in the industry
The Competitiveness Improvement Programme (CIP) Cluster level intervention at regional and national level. 75:25 cost sharing grants: 75% from the CTCP grant and the rest from the cluster Project costs up to a maximum of R25 million over the five year period of the programme implementation The Production Incentive Programme (PIP) The PIP supports CAPEX, process improvement and skills development interventions targeted at: Clothing manufacturers; Textiles manufacturers; Cut, Make and Trim (CMT) operators; CTCP (continued)
Footwear manufacturers; Leather goods manufacturers (excluding leather goods for the automotive sector) and Leather processors (Specifically for Leather Goods and Footwear industries). The grant offered to each participant is equivalent to 7.5% of the applicant’s MVA (Manufacturing Value Add = Revenue less Raw Material Cost less value of Bought In Finished Goods less Cut Make and Trim Costs) CTCP (continued)
CTCP – Provincial Split Provincial Split – Value of Approvals CTCP has predominantly been utilised in those provinces with a large concentration of clothing and textiles companies
CTCP – focus going forward • Further enhance job sustainability and creation in the sector; • Technological improvements; • Global competitiveness.
CTCP – Case Study: Eddels Shoes • Eddels Shoes (Eddels) was established in 1904 and is a footwear manufacturer based in Pietermaritzburg, Kwa-Zulu Natal. In 2011 the company was bought by management, staff and workforce. • Eddels has to date received R 8 820 404 over the last three years from Production Incentive Programme (PIP) and has made extensive use of the provided incentives towards improving productivity and service to preserve employment and suppliers in the industry. • Eddels has invested in a new production line for the manufacture of fashion footwear made of synthetic (non-leather) materials and has developed a unique quick response manufacturing and merchandise replenishment systems, in order to foster greater Retail support for local production by reducing pipeline and value chain costs. • The results of these investments are best shown in pairage increases bearing in mind that there is a difference in Summer ( sandals) and Winter ( boots) • Winter 2011 showed a pairage increase of 15% on Winter 2010 and Summer 2011 pairs grew by 48% on Winter 2010 and 35% on Summer 2010. • This increased pairage thus generated by the “Synthetic Line” has seen 5 new permanent and 25 contract jobs created directly at Eddels, 25 contract and 74 down stream ( value chain) jobs. • Cost per job of R682,000.
Ntsha Technology Venture Capital (TVC) • Starting capital of ca R30 million provided by the dti. • Additional R100 million secured via RCF reflows. • Objective is to assist small enterprises who develop low/marginal innovation products. • Investment criteria and terms of the fund: • Projects to fall within the sectoral focus areas of IDC within South Africa; • Pricing -IRR; • Minimum funding amount of R1 million (exceptional R250k), Maximum R5 million; • Financing instruments: debt, equity, quasi equity, hybrid instruments; • Flexible facility terms based on cash flow profiles; • No fees; • Significant focus on coaching and mentoring of beneficiaries.
TVC Performance Of the 10 clients supported, two are at an advanced stage of implementation, with their products being sold at major retails stores and pharmacies
TVC – Provincial Split Provincial Split – Value of Approvals
TVC – focus going forward • Capacitate the programme financially to better support the needs of the target market; • Strengthen business /post investment support of businesses under the portfolio so as to ensure success.
TVC – Case Study: Toy Set • Client is a 100% black-owned SMME; 30% Women owned • Development of a Construction Toy Set, with the help of SPII, which not only renders hours of fun, but also assists in early childhood development • After the development phase, Client had attempted to commercialise with little success due to the lack of funding for this phase of his project • TVC funded the commercialisation phase – R 4,5m • Both asset finance and working capital was injected into the business including Business Support funding to assist with non-financial gaps that were apparent in the business • The construction toy set can use the used toilet paper cores in the building process • Client has partnered with a leading toilet paper manufacturer for a marketing campaign where the manufacturer has gone as far as colouring the cores of their toilet papers to render them more appealing in the use with client’s product and have run advertising campaigns including the product. • The project is at advanced stages of implementation with the product available in selected Pick n Pay stores already • This phase will create 2 new jobs within the client and at least 8 jobs within the company contracted to manufacture the Product • In addition toilet roll cores usually disposed of will be recycled in the use of the Toy Set
Manufacturing Competitiveness Enhancement Programme (MCEP) • Capital of R1 billion provided by the dti. • Three sub-programmes: • Working Capital Facility of R750m. • Niche Fund Programme of R265m • Business Support of R35m • Objectives: To assist companies in the manufacturing sector to access more affordable working capital facilities as well as to stimulate new or underdeveloped manufacturing sectors through funding targeted projects MCEP is being used to effectively co-finance with IDC to reduce the overall cost of funding to the manufacturing industry
Projects to fall within the sectoral focus areas of IDC within South Africa; Pricing - loans at a fixed interest rate of 4%, other instruments to be determined; Minimum funding amount of R1 million, maximum R50 million; Financing instruments: debt, equity, quasi equity, hybrid instruments; Flexible facility terms based on cash flow profiles; No fees. MCEP – Investment Criteria and Terms
MCEP Performance 40% of allocated funds committed in first 9 months
MCEP Performance Provincial Split – Value of Approvals
MCEP – focus going forward • Improve resourcing of the fund, including the under resourced Niche Fund to ensure continued support of the target market. • Accelerate the implementation of the Niche fund portion of the fund, in order to stimulate new and emerging sectors.
MCEP – Case Study: Unica Iron and Steel • Client: UNICA Iron & Steel (Pty) Ltd • Location: Babelegi, North West Province • Product: Light construction structures, including window and door frames • MCEP Facility: R5m Working Capital Term Loan over 48 months • BEE Status: 100% BEE-owned, Level 4 contributor • Jobs created: 218
Conclusion • Given its role as a funder to develop industrial capacity, its skills base as well as well developed systems and processes, IDC is in a good position to manage relevant incentives on behalf of government departments; • Most of the funds under IDC management has been having a good impact; • Priority areas continue to be ensuring a more equitable distribution of funds to ensure development of industry in poorer provinces as well as black economic empowerment.
Thank you Industrial Development Corporation 19 Fredman Drive, Sandown PO Box 784055, Sandton, 2146 South Africa Telephone (011) 269 3000 Facsimile (011) 269 2116 E-mail email@example.com