Transcript DFI Positioning: IDC Case Study Geoffrey Qhena CEO Industrial Development Corporation of South Africa 23 November 2006

DFI Positioning: IDC Case Study
Geoffrey Qhena
CEO
Industrial Development Corporation of South Africa
23 November 2006
The IDC: Corporate profile
• Established in 1940;
• Provides financing to entrepreneurs
engaged in competitive industries;
• Follows normal company policy and
procedures;
• Pays income tax and dividends;
• Independent Board of Directors;
IDC’s Head Office in Sandton (Johannesburg)
“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”
• Balanced, sustainable economic growth
• Economic empowerment of the population
• Promote entrepreneurship through the building of competitive industries
and enterprises based on sound business principles
Role of DFIs
Taking a developmental rather than financial
return maximisation approach
Identification, development and financing of
projects leading to national objectives being met
Encouraging private sector development
Providing financial products not readily available
eg. equity, longer-term finance, venture capital,
etc.
To provide finance when markets are tight
Taking and managing a higher risk profile
Playing a catalytic role
Providing additionality
DFI Positioning
DFIs should crowd in rather than crowd out commercial financiers
Commercial financial institutions are more efficient in delivering finance to
businesses with proven financial track records;
If an DFI directly competes with commercial institutions:
–
–
–
–
Inefficient;
Unrealistic and unsustainable pricing;
Risk of crowding out private sector;
No value added from the state
Role of DFIs in a market economy should be to address market failures,
provide additionality and encourage investments which move the
economy in the desired direction;
The DFI should play a catalytic role by encouraging private sector
investment ;
If the DFI is successful and proves a market, others will follow – crowding
in commercial financiers, and leaving the DFI having fulfilled its catalytic
role;
The DFI’s reason for existence and its ongoing success depend on its
ability to identify, and successfully address, new gaps in the market,
before its current market is taken over by other financial institutions.
Core Capabilities
Understanding
of country’s
needs
Understanding
of country’s
priorities
Appreciate of
private sector
priorities
Understanding
of private sector
needs
Understanding
of economy and
sectors
Strategic focus
areas
Understanding
of financial
sector priorities
Desired growth
areas and
capabilities
Opportunity
identification
Product
development
Implementation
Project
implementation
Measurement
Risk assessment
Assessing New Areas for Development
Once possible areas of intervention have been
identified, they need to be screened to decide
whether to make them focus areas. A series of
questions are used by IDC to guide in this:
Is it within our mandate?
Is there a market gap?
Is there a viable market?
– Is the market large enough to justify entering it or
developing custom approaches in addressing the
failures?
– Is the market potentially sustainable from
development and financial perspectives?
Are IDC’s competitive advantages applicable?
Is it aligned with IDC’s corporate objectives and
strategy?
Adapting to a Changing Environment
1940’s
1950’s and 60’s
1970’s and 80’s
• World War 2 – Shortage
of industrial goods
• South African economy
largely based on
agricultural production
and gold mining
• South Africa facing threat
of isolation from the rest
of the world
• Decentralisation policy by
government
• Increasing isolation
• Self sufficiency
• Balance of payments
• IDC established to
provide financing for
industrial undertakings –
at this stage only in the
manufacturing industry
• Securing energy
resources for
South Africa a priority
• Increasing natural
resource beneficiation
• Food processing;
• Textiles
• Petroleum
• Fertilizers
• Wood processing
• Chemical beneficiation
• Mining and minerals
• Import replacement
• More resource intensive
industries established –
mainly to bolster export
earnings in non-gold
sectors
• Initiation of high-tech
industries
• Agriculture explored as a
foreign exchange earner
• Industrial real estate
development
• Resource beneficiation
• Micro-electronics
Adapting to a Changing Environment
1990’s
2000’s
• Change in government
• South Africa introduced to a
globalising world
• Addressing the disparities created by
apartheid
• Unemployment
• Diversification of economy
• Reducing inequalities
• Industrial policy
• Growing financial sector liquidity
• Moves to encourage regional
integration
• Black economic empowerment
• Export promotion
• Services related industries
• Investments elsewhere in Africa
• Job creation
• Developing rural areas and other
previously underdeveloped regions
• Downstream industries
• Entrepreneurial development
• Sector strategies
• Tourism
• ICT
• Healthcare
• Education
• Financial services
• Transport
Extending the Role of the IDC
In delivering on its mandate, the IDC has had to
extend its role from being solely a provider of
finance:
– Project development;
– Sector development;
– Policy development support;
– Entrepreneurial development;
– Cooperatives and employee/worker group
development;
– Unlocking value in the public sector.
Differentiation: Finance
Consider an investment’s expected financial
sustainability rather than historical financial
sustainability;
Viability of investment studied in detail;
More flexibility in structuring products to suit client’s
needs;
Would restructure finance if a client is experiencing
difficulty
Differentiation: Other
Development of sectoral strategies
Allocating funds towards targeted sectors
Training of entrepreneurs
Business support to entrepreneurs
Expanding IDC’s reach into rural areas
Support for community groups
Encouraging investments to address certain goals
through incentives
Proactively identifying and co-developing high impact
investments
Strengthening relationships with key players – including
other development institutions, govt., industry
associations, banks, etc.
2005/06 Highlights
• For the year ending 31 March 2006:
— Anticipated creation of more than 26 200
direct* jobs;
— R370 million approved for investments in
enterprises in or around townships;
— 68% of number of funding approvals were for
black businesses;
— 69% of the total number of approvals were for
small and medium enterprises;
— 27 approvals for investment totaling
R777 million benefiting rural areas.
Focus on job creation starting to show results
* Estimated more than 80 000 including indirect jobs
IDC’s African Portfolio (outside SA)
NIGERIA
• Energy
• Telecoms
• Manufact.
• Tourism
ALGERIA
• Water
• Power
MALI
• Agro-processing
EGYPT
• Agriculture
D.R. CONGO
• Energy
• Mining
• Tourism
TOGO
• Fin. services
THE GAMBIA
• Infrastructure
• Tourism
UGANDA
• Energy
RWANDA
• Energy
BENIN
• Energy
• Manufacturing
GHANA
• Mining
• Tourism
• Energy
ANGOLA
• Infrastructure
NAMIBIA
• Agric. / agro-processing
• Mining
• Energy
• Tourism
• Storage infrastructure
BOTSWANA
• Infrastructure
• Mining
• Manufacturing
EQ. GUINEA
• Infrastructure
GABON
• Infrastructure
TANZANIA
• Energy
• Mining
• Manufactur
• Pharmaceut.
• Transp.
Infra.
ZAMBIA
• Mining
• Agric.
MALAWI
• Agriculture
• Tourism
• Retail infra.
LESOTHO
• Mining
• Manufacturing
SWAZILAND
• Agro-processing
• Mining
• Manufacturing
• Ind. infrastructure
KENYA
• Pharmaceuticals
• Agro-processing
• Telecoms
• Mining
• Financial services
MOZAMBIQUE
• Mining
• Tourism
• Manufacturing
• Agro-processing
• Wood processing
• Energy
• Ind. Infrastructure
• Transport infrast.
MADAGASCAR
• Mining
MAURITIUS
• Air transport
Concluding remarks
IDC, and other DFIs’, roles are critical for
supporting accelerated, balanced and
sustainable economic development
National priorities, the competitive environment
and client needs change over time
If DFIs want to avoid being “Victims of their
Success” they need to stay in the forefront and
regularly review strategies and re-position
themselves.
Thank you