Industrial Development Corporation

1. Industrial Development Corporation February 2013 Funding for SMEs Presentation to Select Committee on Economic Development

2. Background • Established: 1940 • Type of organisation: Development Finance Institution (DFI) • Ownership: State owned company, 100% owned by the SA government • Total assets: R112 billion (31 March 2012 - group) • Total liabilities: R20 billion (31 March 2012 - group) • Funding status: Self financing, pays dividends and income tax • Credit rating: Baa1 (Moody’s) in line with sovereign rating • Main business area: Providing funding for entrepreneurs and projects that are contributing to industrialisation and job creation • Geographic activities: South Africa and the rest of Africa • Products: Custom financial products to suit a project’s needs including debt, equity, guarantees or a combination of these • Stage of investment: Project identification and development, feasibility, commercialisation, expansion, modernisation • Number of employees: 792 (August 2012)

3. Vision, mission, objective and values 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” Vision The IDC is 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. Mission Support industrial capacity development Objective • Facilitate sustainable direct and indirect employment • Regional equity (including development of the rest of Africa) • Growing the entrepreneur and SME sector • Expansionary and/or broad-based black economic empowerment • Environmentally sustainable growth • Grow sectoral diversity and increase localisation Outcomes Passion Professionalism Partnership Values

4. Approach to SME development • IDC combines its funding with business support where applicable; • The Pre-Investment Business Centre (PIBC) at IDC’s head office in Gauteng along with regional offices provide support to entrepreneurs wishing to access funding from IDC; • Several funding products are available to deliver a custom financial solution to the business; • Other business support services can be provided if there are specific functional skills that are lacking in the business.

5. IDC’s funding products • Funding can be structured utilising a wide array of instruments including: • Debt; • Equity; • Quasi-equity; • Guarantees; • Trade finance; • Bridging finance; • Venture capital. • The funding will be structured in a way that will suit the business’ needs most appropriately. Structuring options include: • Term of the funding: Short, medium and long-term loans are available; • Grace periods for repayment : Repayments can be structured to suit cashflows and allow for periods where no payments need to be made on either capital or interest; • Flexible security requirements: In most instances, very little security is required for small business applications • Special funding schemes are available that offer more attractive terms and targets cross sectoral issues such as job creation or development of specific sectors. Also include funds managed on behalf of other organisations, largely the dti; • IDC’s business support programme addresses non-financial support to entrepreneurs. Funding of R1 million and more

6. Special funding schemes – Cross sectoral schemes On-Balance Sheet Funds Funds Managed on Behalf of 3rd Parties

7. Special funding schemes – Industry specific and regional development schemes On-Balance Sheet Funds Funds Managed on Behalf of 3rd Parties

8. Special funding schemes (continued) Gro-E Scheme • Aimed at companies that are creating jobs efficiently; • Launched in March 2010; • Investment period of 5 years; • R10 billion fund; • Provides loan funding at an interest rate of Prime – 3%; • R2.5 billion committed to date in 95 transactions; • 64% of these transactions were for SMEs. UIF funding • R4 billion aimed at creating and saving jobs; • Provides funding at a 5% fixed interest rate; • R3.2 billion committed since May 2010; • Expected to create and save 37 000 jobs. Apart from special funding schemes, IDC’s pricing in general is more favourable for SMEs.

9. Increased Regional Presence to Improve Accessibility • IDC has offices in all provinces; • Regional offices are fully fledged operational offices that form part of the SBU value chain; • Satellite offices do not have permanent staff and are manned at specific times by employees from the regional office. These offices are generally shared with other DFIs or agencies; • Access to IDC also includes on-line applications and an on-line tool to assist businesses to develop business plans.

10. Overall value and number of funding approvals • Apart from the two years following the economic crisis, the value of funding approvals has been increasing steadily over the past decade; • 2011/12 saw the highest overall level of funding approvals. Value of Funding Approvals

11. Funding to SMEs Trend in Funding Approvals to SMEs1 Approvals to SMEs as a % of Total Approvals (2005/06 to 2011/12) % of Number % of Value SMEs • Capital requirements for SMEs are lower than for large projects; • Over the past 7 years, IDC approved R10.6 billion in 988 transactions for SMEs; • The value of funding to SMEs fluctuated between 11% and 26% of overall funding over the past 7 years; • The number of approvals is significantly higher, with 65% of approvals to SMEs over the same time period. 1 – Companies which complies with any two of the following criteria: < 200 jobs < R51 million turnover < R55 million assets

12. Sectoral Funding % of Funding Approvals (number) to SMEs by Sector (2009/10 to 2011/12)

13. Job creation • IDC measures the number of jobs expected to be created by each transaction that gets approved; • Jobs are reported on an annualised basis – e.g. temporary and seasonal jobs are not reported as full jobs; • In the period up to 2007/08 there has been a large increase in the number of jobs that IDC expected to create through its funding activities; • This trend turned around in 2008/09 with the advent of the economic recession; • Over the past three years a larger impact has been made in terms of jobs saved, especially through the utilisation of funding for distressed companies; • 17% of overall jobs over the last three years came from SMEs. Jobs Expected to be Created and Saved through Funding Approvals

14. Provincial exposure • Examples • Eastern Cape – Mariculture, wood fuel pellets, bio-ethanol, motor vehicle components • Free State – Game lodge, apples, cherries • Gauteng – Motor vehicle components, telecommunications • KwaZulu-Natal – Motor vehicle components, textiles, wood products • Limpopo – Phosphate, platinum mining, hospital • Mpumalanga – Forestry, tourism, coal mining • North West – Ferrochrome, berries, bricks • Northern Cape – Iron ore, manganese, table grapes, oranges • Western Cape – Steel processing, tourism, boat building, film • Rest of Africa – Aluminium, mining, agriculture, financial services, tourism Portfolio as at 30 June 2012 (market value; excluding Sasol, BHP Billiton, Kumba, Arcelor Mittal) Funding Approvals in Rural Areas

15. sefa as a tool for SME development The establishment of sefa as a subsidiary of IDC holds significant benefits to increase the impact of development finance in South Africa: • Improved market segmentation means products can be tailored to the needs of SMEs and larger companies; • Custom processes for SME funding can result in quicker turnaround times for funding for small businesses; • Less confusion in the market about which DFI would be able to assist with providing funding; • Close cooperation between IDC and sefa can result in increased SME development around larger projects being established by IDC; • Increased access to resources for sefa.

16. Market segmentation SURVIVALIST MEDIUM LARGE MICRO SMALL R1 million R5 million R50 000 In the medium-term, IDC will continue to provide funding to small and medium enterprises while sefa builds the required capacity.

17. 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 callcentre@idc.co.za