DFI Positioning: IDC Case Study

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

2. The IDC: Corporate profile • Established in 1940; • Provides financing to entrepreneursengaged 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

3. 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

4. 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.

5. Core Capabilities Understanding of country’s needs Understanding of country’s priorities Appreciate of private sector priorities Strategic focus areas Understanding of private sector needs Understanding of economy and sectors Understanding of financial sector priorities Desired growth areas and capabilities Opportunity identification Implementation Product development Risk assessment Measurement Project implementation

6. 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?

7. 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 • 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 • Food processing; • Textiles • Petroleum • Fertilizers • Wood processing • Chemical beneficiation • Mining and minerals • Resource beneficiation • Micro-electronics

8. 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

9. 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.

10. 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

11. Differentiation: Other • Development of sectoralstrategies • 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.

12. 2005/06 Highlights • For the year ending 31 March 2006: • Anticipated creation of more than 26 200direct* 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

13. 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 • KENYA • Pharmaceuticals • Agro-processing • Telecoms • Mining • Financial services • GHANA • Mining • Tourism • Energy • TANZANIA • Energy • Mining • Manufactur • Pharmaceut. • Transp. Infra. • EQ. GUINEA • Infrastructure • GABON • Infrastructure • MOZAMBIQUE • Mining • Tourism • Manufacturing • Agro-processing • Wood processing • Energy • Ind. Infrastructure • Transport infrast. • ANGOLA • Infrastructure • ZAMBIA • Mining • Agric. • NAMIBIA • Agric. / agro-processing • Mining • Energy • Tourism • Storage infrastructure • MALAWI • Agriculture • Tourism • Retail infra. • SWAZILAND • Agro-processing • Mining • Manufacturing • Ind. infrastructure • MADAGASCAR • Mining • BOTSWANA • Infrastructure • Mining • Manufacturing • LESOTHO • Mining • Manufacturing • MAURITIUS • Air transport

14. 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.

15. Thank you