IDC’s role in the South African economy, particularly in supporting key Government initiatives
Chairperson of the Board, Ms Monhla Hlahla and CEO Mr Geoffrey Qhena
The Board of Directors and Executive team
Members of the media
Ladies and gentlemen
Development finance institutions such as the Industrial Development Corporation (IDC) play a central role in the economy. I am pleased that the IDC is releasing its results today, which will show progress on both commercial and developmental fronts.
Given that growth prospects in Europe remain fragile, and the possible impact this could have on our domestic economy, it remains critical to ensure that development finance institutions (DFIs) continue to play a counter-cyclical role in the economy.
The implementation of the New Growth Path will in part rely on the support of the DFIs in crowding in private investment, and encouraging new economic activities, thus supporting the creation of new jobs. This requires that by its very nature the IDC should have a longer-term, developmental approach, as opposed to a focus on short term returns.
Last year I announced that the IDC will make available R102 billion over the next five years, to drive investment in economic priorities identified in the New Growth Path. It requires the IDC to improve the rate of investment and refocus to areas such as the green economy, labour-absorbing sectors of the economy and rebuilding and strengthening manufacturing capability.
This is already yielding results and contributing to sustainable employment, the development of South Africa’s rural areas and increased localisation.
The IDC has achieved an unprecedented level of approvals during the past year. The Chief Executive will go into the detail, but the high level figures show that they approved R13.5 billion last year, compared to R8.7 billion the previous year. We expect the IDC to continue ramping up its performance, so that by 2016, it achieves the stretch targets we announced last year.
As part of the contribution of the IDC to industrial development, we have begun to measure the speed with which it considers and decides on applications. It is making steady progress to improve turnaround times.
I have asked the IDC to consider the cost of its facilities to ensure that it is affordable and provides real support to manufacturers. The IDC has introduced new financing arrangements, including a facility aimed at projects with a high employment impact, at a price significantly below market rates. Indeed, it now provides, through one of its financing windows, finance at prime less 3 percent.
GDP growth remains positive but we need to increase the rate of growth and critically, the performance of manufacturing.
IDC schemes such as the IDC’s GroE and the distressed fund remain important for the sector.
A significant part of the IDC’s approvals over the past year has been in the green and renewable energy sector. Our transition to a low carbon-intensive economy was recognised as critical in the New Growth Path, and the IDC has emerged as a leader in the development of Green industries. It participated in funding for 12 of the projects that received preferred bidder status during the first round of the Renewable Energy Procurement Program (REPP). In addition, it launched the Green Jobs report, as well as the Green Energy Efficiency Fund (GEEF) to provide-low cost funding to businesses to implement energy-saving technologies. It has launched a Green Bond to raise finance for renewable sector investments.
The IDC has now been given responsibility for improved small business finance through the Small Enterprise Finance Agency (sefa). From the beginning of the current financial year sefa is a subsidiary of the IDC. The benefits of this association will contribute to the creation of linkages between large and small firms, which will benefit from being part of supply chains.
Realising that the cost of seed or expansion capital remains a challenge to businesses, the IDC continues to seek more innovative ways of sourcing affordable funding to businesses. In a partnership with the Department of Labour, in the year under review, the IDC sourced an additional R2bn from the Unemployment Insurance Fund (UIF) through the issue of a Jobs Bond, to use for funding for more labour-intensive businesses. This follows successful uptake of the initial R2 billion which was advanced by the UIF in 2010.
Last year we concluded a major accord on local procurement. Government has now designated a number of products which requires public entities to procure such products from local manufacturers.
To ensure that we have production capacity and crucially, competition in the domestic market, the IDC will be key to encouraging and partnering investment in these sectors, so that we expand their size and dynamism.
Investment in infrastructure has been identified as a key pillar of our economic policy. The Presidential Infrastructure Co-coordinating Commission (PICC) was established to develop an Infrastructure Plan that is intended to transform the economic landscape of South Africa, create a significant number of new jobs, strengthen delivery of basic services and support the integration of African economies.
The IDC is one of the state-owned entities at the heart of this planned infrastructure drive. It is envisaged that strengthening the logistics infrastructure between South Africa’s industrial hubs to export corridors will also help to unlock significant investments and create job opportunities across the SADC region. The IDC will help identify new investment opportunities in the supply of infrastructure components and supplies in the domestic economy and co-invest in viable projects.
The success of the journey ahead is also clearly dependent on the level of innovation that takes place within the IDC, and in its partnerships with others. South Africa is currently working to strengthen relationships with the BRICS countries and other dynamic emerging economies, with a view to unlocking economic opportunities. To this end, the IDC has also been engaging constructively with key stakeholders within the BRICS countries, with the aim of building strong partnerships on the financing and investment fronts. It recently secured a $100 million loan at concessional rates from the China Development Bank which will be used to support small business development.
To conclude, the IDC results will show significant progress in discharge of its public mandate, even under tough economic conditions.
It remains a key driver of government's economic vision as set out in the New Growth Path.
I thank you.