Implementing IPAP IDC’s Support for the Implementation of the Industrial Policy Action Plan

1. Implementing IPAPIDC’s Support for the Implementation of the Industrial Policy Action Plan Geoffrey Qhena CEO Presentation to the Portfolio Committee on Trade and Industry Cape Town 12 May 2010

2. IPAP • Takes the initiative to coordinate activities of different government departments, agencies and state owned enterprises towards the goal of industry development and ultimately job creation and poverty eradication; • Address pertinent issues such as public sector procurement as well as trade policies aligned to industrial development; • Sector priorities take into account South Africa’s diverse economy and create a balance between creating and growing new sectors and stabilising and rejuvenating the existing industrial base.

3. IPAP Focus Areas • Industrial Financing • Leveraging Procurement • Developmental Trade Policies • Competition Policy • Sectors: • Metals fabrication, capital and transport equipment • Green and energy saving industries • Agro-processing • Automotives, Components, Medium and Heavy Commercial Vehicles • Downstream Mineral Beneficiation • Plastics, Pharmaceuticals and Chemicals • Clothing, Textiles, Footwear, Leather • Biofuels • Forestry, Paper & Pulp, Furniture • Business Process Outsourcing • Advanced Manufacturing Areas of direct IDC impact

4. IDC Identified to Contribute to: • Sector Specific Plans • Metal Fabrication, Capital Equipment And Transport Equipment • "Green" and energy saving industries • Downstream Minerals Beneficiation • Plastics, pharmaceuticals and chemicals • Clothing, textiles, footwear and leather • Biofuels • Forestry, timber, paper & pulp and furniture • Cultural industries: crafts and film • Business process outsourcing • Advanced Manufacturing • Industrial Financing • Securing ongoing sources of concessional funding for disbursement by the IDC into priority productive sectors • Leveraging Procurement • Strengthening the role of DFIs in locking in domestic and regional procurement • Competition Policy • Ensuring competitive outcomes

5. IDC’s Approach to Implementing IPAP Internal project development Strategy development Project development Funding Implementation • Construction • Commissioning • Full production • Aftercare • Raise additional funding • Investment decision • Industry research • Identify opportunities • Develop an IDC approach • Consult with stakeholders • Scoping • Feasibility studies • Detailed design • Environmental impact assessment • Marketing studies • Financial modelling • Identify/attract partner (s) The project development approach allows IDC to play the role of an entrepreneur in cases where the market does not respond to potential opportunities

6. IDC’s Approach to Implementing IPAP (continued) Providing funding for applications Strategy development Product development and marketing Funding Implementation • Aftercare • Investment decision • Industry research • Identify opportunities • Develop an IDC approach • Consult with stakeholders • Review funding requirements of businesses in sector • Design new product(s) where required • Marketing • Assess applications Providing funding for applications is an appropriate tactic where entrepreneurs are entering the market, but cannot raise the required funding from commercial institutions

7. IDC’s Key Sector Development Interventions • Green Industries, Including Renewable and Energy Efficiency • Renewable energy generation • Bio-ethanol, biomass, solar, wind, hydro • Manufacturing of components and products • Resource/waste management • Energy management • Venture capital funding for cleaner technologies • Metal Fabrication, Capital and Transport Equipment • Basic metals • Creating capacity to supply to SOEs i.t.o. procurement programmes • Automotives, Components, Commercial Vehicles • Electric car • Potential for bus/commercial vehicle plant • New capacity at existing OEMs • Component manufacturers • Chemicals, Plastics and Pharmaceuticals • Liquid fuels • Beneficiation of chemical feedstock • Plastics • Local manufacture of ARVs and pharmaceutical ingredients

8. IDC’s Key Sector Development Interventions (continued) • Textiles, Clothing, Leather and Footwear • Interventions to stabilise IDC’s existing clients • Increasing competitiveness of SA’s industry • Management of Clothing and Textiles Competitiveness Programme (CTCP) • Agro-Industries • High value agriculture crops • Berries, pomegranates, citrus, orchards, vineyards • Grain and oil-seed value chain • Support to resource poor farmers • Horticultural value addition – fruit canning, pectin • Regional food security • Advanced Manufacturing • Advanced materials – titanium • Aerospace • Electronics – set-top boxes • Forestry, Pulp and Paper • Forestry expansion • Potential for additional player in pulp industry • Contributing to furniture strategy formulation and participation in furniture task team

9. IDC’s Key Sector Development Interventions (continued) • Cultural Industries and Tourism • Arts and crafts • Adventure and sport tourism • Medical tourism • Motion pictures – production and audience development • Business Process Outsourcing and Other Services • BPO park development • Shipping • Hospital development • Minerals Beneficiation • Manganese • Platinum • Polysilicon • Industrial Infrastructure • Electricity • Water • Transport

10. Example: Chemicals, Plastics and Pharmaceuticals To have a globally competitive chemical sector that produces high value-added products from available natural resources. The establishment of new/infant industries and the security of supply of pharmaceuticals. Industry Goals Establishment of 2 industrial plants by 2015 consuming at least 20% of raw materials – establish a downstream industry hub around 1 of these plants within 10 years thereafter Domestic beneficiation of an additional 40 000 tpa polypropylene Establish new liquid fuels capacity with the intention to benefit downstream industrial development Develop a 400 tpa active pharmaceutical ingredient plant by 2013 IDC Goals Beneficiation of Chemical Feedstock Plastics Liquid Fuels Pharmaceuticals • Broaden and deepen the petrochemicals value matrix by increasing value addition for plastics products • Target the potential establishment of the Coega Oil Refinery and Waterberg coal to liquids projects to leverage further downstream development and establish chemical complexes • Address current and anticipated shortage of active pharmaceutical ingredients and anti-retrovirals in South Africa by developing a local manufacturing industry • Target the primary production of mineral and upstream feedstock, where economically feasible such that raw material is made available at competitive terms in order to develop industrial capacity for localised beneficiation of value added products Key Strategies • EIA process not streamlined to reduce lead time for strategic projects • Issuing of water licenses and other permit processing not streamlined • PFMA related approvals for certain projects not streamlined • Government procurement for locally produced anti-retrovirals • Licenses for production of APIs not granted. Potential Constraints

11. Recent Funding Approvals Supporting IPAP Sectors • Solar electricity generation • R33 million approved to determine the feasibility of establishing up to 450MW of solar generating capacity in the Northern Cape. Includes both solar thermal and photo-voltaic projects. • Additional projects to manufacture components needed in the establishment of generation capacity also being investigated. Include poly-silicon and photo-voltaic cell manufacturing. • Bio-ethanol • Approval for additional R60 million disbursement of IDC funds to ensure continued implementation of bio-fuel project in the Eastern Cape. • Aquaculture • R34 million approved for the expansion of abalone farms in the Western Cape and to allow black entrepreneurs to acquire a stake in the business. • Metals and machinery • Approval of R45 million to allow a women-owned business upgrading Metrorail coaches to expand to KwaZulu-Natal. • R30 million loan to a company manufacturing ducting for the Medupi Power Station. • Advanced materials • Approval to study the feasibility of a plant to manufacture titanium and zircon metal from currently exported titanium slag and zircon sand. Potential to further beneficiate titanium metal into high-tech components such as aircraft parts in the future.

12. Additional Roles that IDC is Playing in Assisting with the Implementation of IPAP • Inputs into policy development • Research assistance to policy makers; • IDC is in a unique position as it closely interacts with both the private sector as well as government organisations; • Its interaction with the private sector through its client base provides it with insight into the way the real economy operates and allows it to understand the needs and challenges that industry faces; • These insights should be valuable inputs to policy makers in setting policy. • Capacitating other DFIs • Other government agencies essential for the implementation of IPAP; • Need to ensure that other DFIs have the appropriate capacity to ensure effective and efficient delivery of funding/support to markets not covered by IDC;

13. Additional Roles that IDC is Playing in Assisting with the Implementation of IPAP (continued) • Fund management • Strong track-record to manage funds on behalf of government departments ; • Can be used as a conduit for incentives; • Need to be aligned with corporate objectives and targeted market segments. • Support for SMEs • IDC ready to engage with relevant role players on future strategies including support structures for SME development

14. Areas Critical to the Success of IPAP • Urgency of implementation needed at impacted SOEs and departments; • Negotiation and collaboration with private sector and labour movement is essential; • Fiscal capacity of government should be considered; • External factors such as the performance of the world economy can have an impact on the implementation of plans; • Realistic pricing by SOEs needed; • Need for a strong project management approach to implementation; • Policy coordination and alignment (fiscal, monetary, industrial, trade, agrarian, educational etc.) is essential; • Strategies and opportunities must be clearly and continuously communicated to the private sector.

15. Areas Critical to the Success of IPAP • Public sector procurement is critical to create a demand for locally manufactured goods e.g.: • State owned enterprises (Eskom, Transnet) – Vital for development of metals, machinery and capital equipment sectors through the reduction of import leakage; • Explore opportunities in the procurement programmes of other large public sector spending areas; • Need to consider the long-term benefits of procuring locally vs. short-term gains; • Eliminate the occurrence of import fronting.

16. Areas Critical to the Success of IPAP (continued) • Conditionalities related to local procurement of goods and services should be attached to any form of government support: • Potential to foster stronger linkages between local business enterprises. • Continued identification of key sectors that hold the key to improving competitiveness of South African industry; • A regional approach to industrial development will strengthen the competitiveness of the region as a whole and allow for stronger South African industries.

17. Funding IPAP • Levels of funding will be driven by demand and the benefits that are evident; • Periodic review of appropriate financing mechanisms is necessary; • Concessionary funding can play a role in acting as an incentive for industries to be established locally; • In the quest for concessionary funding care must be taken: • Potential to create distortions in the market; • Availability of funding should be weighted against the cost of funding; • To ensure that the benefits of concessionary funding are fed through to customers. • Other factors impacting on industry’s competitiveness need to be taken into account.

18. Recapitalisation of DFIs • Need to strengthen the capacity of DFIs in South Africa to enhance their ability to deliver on their core mandates; • IDC: • IDC can advance R100 billion over the next 5 years; • To sustain these high levels of advances in later years would require a recapitalisation; • In the short-term, the focus is to continue to find cheaper sources of funding.

19. Summary • Overall, IPAP has bold goals and addresses areas critical for the development of South African industry; • IDC has aligned its industry development activities to IPAP and expects to increase its project development and funding activities to these sectors; • IDC will continue to provide inputs to policy makers based on its experience in the real economy; • Generating demand for South African goods will be the driving force behind the success of the expansion of the country’s industrial capacity; • Success will rely on coordination by all identified role-players; • In the short-term, IDC will continue to seek cheaper sources of funding.

20. DelegationGeoffrey QhenaChief Executive Officergeoffreyq@idc.co.zaJeanett ModiseDivisional Executive: Human Capitaljeanettm@idc.co.zaHilton LazarusSBU Head: Chemicals and Allied Industrieshiltonl@idc.co.zaChristo van ZylSenior Strategistchristov@idc.co.za 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