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Industrial Development Corporation Zimbabwe Mining and Infrastructure Indaba 2013 Lumkile Mondi Chief Economist and Divisional Executive for Professional Services Thursday, 26 September 2013 Introducing IDC • IDC was established in 1940 with the aim of developing South African industry through the Industrial Development Corporation Act (No. 22 of 1940); • The vision of the IDC is to be the primary source of commercially sustainable industrial development and innovation to the benefit of South Africa and the rest of the African continent; • The IDC is a 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. • Pays income tax at corporate rates and dividends to the shareholder. IDC’s positioning in the financial industry Greater importance on social and developmental objectives Greater importance on financial objectives Government / NGOs • Non-commercial focus • Fiscal transfers and grants • Development objectives (social) DFIs Commercial Financiers • Developmental and commercial focus • Sharing risk • Internally generated funds, government funds, loans • • • • High commercial focus Private sector capital Financial objectives Known risks • Industrial Development Corporation (IDC) • Development Bank of Southern Africa (DBSA) • National Empowerment Fund (NEF) • Small Enterprise Finance Agency (SEFA) • Etc. • • • • • ABSA Standard Bank First National Bank Nedbank Etc. IDC does not directly compete with any of these institutions, but encourages cooperation with a variety of these institutions to achieve its goals Funding model Loan funding Interest repayments Capital repayments Dividend payments Capital growth X-Subsidization IDC Funds • • • • Borrowings Balance sheet Mature investments Retained earnings Exits of mature investments Equity funding IDC relies on borrowings, internal profitability, capital growth and exits from mature investments to maintain and expand its funding ability The balance between the corporation’s developmental role and financial performance is maintained by relying on proceeds from mature equity investments (both dividends and capital growth) to cross-subsidise higher risk activities. The IDC: Actively supporting Africa’s revival The SA Government is committed to support economic development throughout Africa to underpin the African Renaissance vision encapsulated in NEPAD. As such, IDC’s core strategies for the continent are to: Leverage private sector investment for economic development throughout the continent Play a major role in the development of industrial capacity Strengthen South Africa’s constructive role in regional economic development Leverage foreign direct investment by bringing in foreign partners using international networks Transfer experience and expertise to African DFIs (Capacity Building) Promote supply of goods & services from SA Establish credit lines for financially sustainable regionally-oriented financial intermediaries Support NEPAD and regional spatial development initiatives (SDIs) These are further underpinned by IDC’s quest to create and to maintain jobs for South Africans and other Africans IDC’s funding products • IDC offers a wide array of financial and nonfinancial instruments, including : Equity Quasi-equity Commercial debt Export finance Lines of credit Technical assistance (research, capacity building, training, etc.) • These may be provided singly or in combination The funding is structured to suit the business’ needs; e.g.: • Term of the funding: Short, medium and /or long-term loans; • Payment holidays: moratorium on capital or interest based on projected cash flows. Funding criteria • Funding is provided to projects (NOT para-statals or governments) • Finance is provided for the development of new businesses, expansions or rehabilitation of existing businesses • Business case must exhibit economic merit (i.e. it must be profitable) • IDC finances fixed assets and fixed portion of growth in working capital requirements • Credible operator/ technical partner • Reasonable contribution from promoter/s • Minimum project size (SACU, SADC, RoA) • Security • Environmental compliance •Profitability & sustainability in a reasonable time frame •Developmental impact •Fixed assets and the fixed portion of growth in working capital requirements •Reasonable financial contribution from owners •Security •Environmental standards Additional investment Criteria for Projects Outside SA SA benefit and regional industrial integration • The rest of Africa, and the sub-region in particular, present several opportunities for South Africa: – A market for South African goods and services; – A source of raw material and intermediary inputs for SA industry; – A source of .essential imports for the South African economy (oil, gas, water, agricultural goods and commodities, etc.); and – An opportunity to build on opportunities to enable the development of more competitive and integrated value chains. – An opportunity to create regionally integrated infrastructure. •Profitability & sustainability in a reasonable time frame •Developmental impact •Fixed assets and the fixed portion of growth in working capital requirements •Reasonable financial contribution from owners •Security •Environmental standards Funding process Pipeline Assessment and decision Monitoring Applications from existing/prospective businesses Detailed duediligence/feasibility study assessing development impact and sustainability of opportunities: Ongoing monitoring of client performance after funding is made remaining Proactive identification and development of projects More emphasis being placed on early stage involvement and development of projects • Development outcomes • Market for products/services • Technical viability and competitiveness • Financial viability • Management Structuring of funding depending on client’s needs Approval of viable transactions at appropriate committee Interventions in businesses experiencing difficulties • Business support • Restructuring of facilities • Etc. Sectoral focus Areas we would consider …. • • • • • • • • Mining and mineral beneficiation Agro-Processing Tourism (new hotel construction, expansions , and rehabilitations) Healthcare Industrial infrastructure (e.g. transport – road, rail , air, and sea/river; power; telecoms; etc.) ICT Forestry and wood products Manufacturing in General Areas we do NOT currently consider … • Property development per se (e.g. construction of shopping centers, office blocks, housing, etc..) • Tobacco and related sectors • Gambling and related sectors 10 Current footprint in the rest of Africa footprint • Rolling capital allocation of ca R14 billion over 5 years • Current market exposure of ca R20 billion in 21 countries • Over USD 3 billion approved since 1998 NIGERIA • Hotel SUDAN • Infrastructure (Water) SENEGAL • Airport • Port infrastructure GHANA • Hotels & Accommoda tion • ICT ETHIOPIA • Agro-processing UGANDA • Hotels & Accommodation TANZANIA • Infrastructure • Sugar Sierra Leone • Bio-Energy TOGO • Financial services •Transport ZIMBABWE • Mining • Hotels • Telecommunications • Financial services D.R. CONGO • Mining • Franchising (Food) NAMIBIA • Agric. / agro-processing • Mining • Cement BOTSWANA • Hotel & Accommodation KENYA • Energy • Sugar MOZAMBIQUE • Mining • Manufacturing (Textiles) • Agro-processing • Energy ANGOLA • Energy MALAWI • Food and Agriculture • Franchising (Tool Hire) ZAMBIA • Storage and warehousing • Healthcare MAURITIUS • Communications LESOTHO • Energy SWAZILAND • Basic chemicals • Agro-processing • Financial services Concluding remarks IDC’s successes are built on strong pillars … Economic merit of deals Duediligence processes (risk mngt.) Portfolio diversification Corporate governance Skills base Prospects 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 protected]