Development Finance Institutions and innovation

The case of DBSA and IDC Firms innovation appetite/capability is driven by national policies, environment, internal appetite for innovation and enabling environment including finance

What are DFI’s

• Financial Institutions provide development finance aiming at market and institutional failure • Not enough domestic savings to facilitate investment • • • • Market dictates undesirable investment for long term broad based growth Perceived risk are higher than actual Period of borrowing beyond short term lending Developmental externalities.

Their role

• • • • • • Financing lumpy, long term investments Crowding in the private sector Leveraging other resources, originating and packaging projects holistically appraising projects to truly reflect costs and benefits building capacity including sharing of knowledge/experiences, Alleviating instability by giving loans even during economic downturns

Challenges for DFI’s in Africa and NEED for innovation

• • • • • Weak institutions e.g none existence capital markets, limited financial infrastructure, high levels of poverty Very low appetite for risk coupled with Africa/emerging market syndrome Interfering governments Weak governance/rule of law etc Removal of financial support from government

Challenges for South African DFIs

• Mantaining relevance, Implementing developmental mandate (eradicating backlogs, poverty, etc.) whilst remaining financial sustainability amidst: • • • • Shareholder calling for interventions in the poorest municipalies/areas “change the georaphy of apartheid” Populace impatient for delivery Capacity constraints Shrinking space • Positive government budget • Financial charter

Innovate or perish

• • Introduce, creating, something new, finding opportunity/generate ideas/ • • Internally (deliver products and services better, more effectively) Externally (enable clients and partners to meet their own objectives) Always accompanied by taking risks

DFIs in RSA and financing innovation: DBSA and IDC

• Why?

• Most successful DFIs in RSA and in Africa • • Relatively easy to compare • same fundamentals, both wholly by the RSA government, both self financing, mandates dictated to by government, both highly successful Different type of financing innovation (internally focused vs. externally focused

Innovative development finance

• Step by step to an “innovative Organisation” • Strategist thrust • • • • • • • Innovation strategy, policy and framework Situation analyses using corporate entrepreneurship assessment tool Institutionalising: • a corporate venture process • Corporate BSC (R500 mln for identification and venture development e.g prefeasibility studies.; and numbers of new ventures as KPI Forming partnerships with research institutions and universities and some government institutions Training of leadership first and then staff Selection and nurturing of new venture Review/Evaluate/learn

The DBSA’s Corporate Venture Process

• • • • • New venture identified • New activity to the organisation, initiated internally, risky, uncertain, will create greater development impact and add value to bottom line Assess viability Validate new venture Approve new venture Develop and nurture new venture mainly in strategic initiatives unit (however this may vary depending on nature of venture)

Examples of “innovations”

• • Already in implementation • Sustainable communities • • • Siyenza Manje Local Investment Agency Knowledge Management Africa Being reviewed • Rural rental housing for health professionals at feasibility stage • The DBSA environmental fund

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IDC, The support programme for Industrial Innovation

• • • • Retrospective payments for production, development up to prototype and patenting for innovative products and processes that are: • competitive Financially viable Job creating Export oriented Initiated by owners who can demonstrate managerial and financial abilities

The SPII programme cont.

• • • The Product Process Development Scheme grants 65% to 85% up to R500,000 IP, development and production must be South African • Unique and advanced • Increase efficiency and lower costs The Matching Scheme, 50% grant up to R1.5 mln • Technologically advanced • Markatable and competitive • Complies with international standard The Partnership Scheme; large scale, 50% of development costs, minimum of R1.5mln, grant payable as sales tax • Funding criteria same as above

Examples of Successful innovation

• • • • R100 mln generated R800 mln worth of sales, 3000 jobs Handheld applience activated by liferafts and ships in distress. Unique distress patterns show up in radar screens of ships etc. Gadget now compulsory according to International Maritime Organisation Random Carton Sealer that adjusts automatically to cartoon size in production line with products inside (bottom and up) Flightman Phase II system enables pilots to see whether conditions of flying and the flying criteria on the intended route is safe by combining meteorological and NOTAM information

Challenges

• • • Both organisations highly beaurocratic, e.g. IDC support relatively established clients, ot from conceptualisation, DBSA continues to give more reward for getting on with the job, leaving innovation only to brave few ½ of complete (internal or external) No talk of lessons learnt/knowledge management

Conclusion and way forward

• • • Need for both organisations to have both types of innovation drive Need to innovate around inclusivity and access and impetus for pro poor growth Need to continue and share research on gaps on innovation