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Industrial Development Corporation 13 August 2013 Corporate Plan 2013/14 to 2017/18
Industrial Development Corporation
13 August 2013
Corporate Plan 2013/14 to 2017/18
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Structure of Presentation
• Background• Revisions to IDC’s Strategy• Leading Industrial Development by Driving Implementing the NGP and IPAP• Balancing increased impact with sustainability of investments• Targets• IDC portfolio
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Overview
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Overview
Activities CustomersBusiness lifecycle
Sectoral involvement
Funding products
Regional involvement
Provision of development finance
Project development
Research and policy inputs
Fund management
Non-financial forms of business support
Capacity building
BusinessGovernmentOther DFIs
ConceptualPre-feasibilityFeasibilityProduct commerciali-sation
EstablishmentExpansionMature
ManufacturingAgricultural
value-addMining and
mineral beneficiation
Green industries
Industrial infrastructure
Tourism, cultural industries and other productive services
General debtQuasi-equityEquityExport/import finance
Short-term trade finance
Bridging finance
GuaranteesVenture capital
Wholesale funding through intermediaries
South AfricaRest of AfricaGlobal imports
of South African capital equipment
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Revisions to IDC’s Strategy
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Changes to objective and outcomes to reflect changing priorities and expectationsVa
lues
Visi
on 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”
Mis
sion
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.
Obje
ctiv
e
Support industrial capacity development
Passion Professionalism Partnership
Primary: Facilitate sustainable direct and indirect employmentSecondary:• Improving regional equity, including the development
of South African rural areas, poorer provinces and industrialisation in the rest of Africa;
• Growing the entrepreneurial and SME sectors• Expansionary and/or broad-based black economic
empowerment• Environmentally sustainable growth• Growing sectoral diversity and increased localisation
of production
Outc
omes
Lead industrial capacity development
Primary: Facilitate sustainable direct and indirect employmentSecondary:• Improving regional equity, including the development
of South African rural areas, poorer provinces and industrialisation in the rest of Africa;
• Growing the entrepreneurial and SME sectors• Transformational impact on communities and growing
black industrialists• Environmentally sustainable growth• Growing sectoral diversity and increased localisation
of production
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•Plan investment return and risk profile to ensure sufficient growth to replace existing cash generators•Ensure that appropriate pricing and
fee structures are in place•Manage risk through appropriate
investments, pricing and management of the portfolio
Leadership in Industrial Development – 2013/14 onwards
Increasing Industrial Development Impact
•Strengthen sector development objectives and strategies•Align IDC with the sector objectives of
NGP and IPAP• Increased project development and
implementation•Provide industrial finance to further
achievement of sector development objectives• Increase regional industrial integration
through the development of value chains•Ensure effective and efficiently operating
sefa
•Human resources•Ensure appropriately skilled and capacitated
human resources•Stakeholders• Improve customer service•Build partnerships with other financiers to
leverage off different strengths and mandates• Increase engagement with sector players to
identify opportunities•Strengthen IDC expertise to shape and
influence policy•Build strong communities around projects
that IDC fund•Natural environment•Reduce IDC’s negative environmental impact•Reduce industry’s negative environmental
impact •Utilisation of resources• Improve efficiencies through improved
systems and processes
Ensuring Long-Term Sustainability
Financial Capital Human, Social, Natural and Manufactured Capital
Priorities have been revised and the strategy has been repackaged to emphasise the balance between increasing IDC’s impact and ensuring sustainability
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Leading Industrial Development by Driving Implementing the NGP and IPAP
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Context of IDC’s strategy
• IDC is one of the main drivers of the implementation of the New Growth Path (NGP) and Industrial Policy Action Plan (IPAP);
• Over the past two years, it has been aligning its operations to support the priority sectors identified by these policies.
Green and energy saving
industriesBio fuels
Agro-processing
TourismBusiness process
services
Craft and film
ICT
HealthcareMining related technologies
Biotechnology
Downstream mineral beneficiation
Mining
Industrial infrastructure
Logistics
Metals fabrication, capital and transport
equipment
Automotives, components, medium and heavy commercial
vehicles
Plastics and chemicalsClothing, textiles,
footwear, leather
Forestry, paper & pulp, furniture
Advanced manufacturing
Pharmaceuti-cals
Oil and gas
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Sectoral focus areas –Resources
Agro-Industries•Localisation•Land utilisation•Innovation
Mining and Minerals Beneficiation•Steel and steel related inputs•Early stage project development of mining linked to beneficiation•Rest of Africa•‘New age’ minerals
SHIP•Industrial infrastructure•High impact logistics•New sector development•Lines of credit and end-user finance
Green-Industries•Energy efficiency•Renewable energy•Fuel based green power•Emissions & pollution mitigation•Bio-fuels
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Sectoral focus areas –Manufacturing
Forestry and Wood Products•Forestry•Sawmilling•Pulp and paper•Value added products
Textiles•Conducive environment •Competitive local / regional value chain•Stabilise major IDC investments
Chemicals•Mineral Beneficiation•Agricultural inputs•Infrastructure Inputs•Oil and gas•Develop plastics value chain
Metals•SOE Capex program•Tooling, die and mould industry •Foundries •Automotive components •Medium and heavy commercial vehicles,
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Sectoral focus areas – Services
Tourism•Underdeveloped tourism nodes suitable and affordable to the domestic market•Rest of Africa
ICT•Broadband•ICT Green•Electronic sector
Media•Film production•Production infrastructure development•Audience development•Animation Hub•Pan African Television Broadcasters
Healthcare•Pharmaceuticals•Medical Devices•Hospital PPPs
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Sectoral allocation
0 5 10 15 20 25
Agro-Industries
Forestry and Wood Products
Mining and Minerals Beneficiation
Textiles
Chemical & Allied Industries
Metals and Machinery
Green-Industries
SHIP
Venture Capital
Tourism
ICT
Media & Motion Pictures
Healthcare
R'bn
Baseline
Targeted
0 10 20 30 40 50
Infrastructure
Agricultural Value Chain
Mining Value Chain
Green Industries
Manufacturing
Tourism & High Level Services
Knowledge Economy
NEC
R'bn
Baseline
Targeted
Capital Allocation – 2013/14 to 2017/18
By IDC Business Unit By NGP Jobs Driver
• In line with its focus on industrial development, the manufacturing industry, driven mainly by the metals and chemicals industries will receive the largest share of IDC’s allocation;
• The mining value chain, green industries and agricultural value chain are also expected to contribute significantly to funding over the next five years.
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Leading Industrial Capacity Development
The impact of IDC playing a leading role is illustrated in the following slides
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Case Study: Localising manufacturing of components for the renewable energy build programme
DCD Wind Tower FactoryAfter feasibility studies proved the viability, IDC is co-investing with DCD, a local company to set up a facility to build towers for wind turbines in the Coega IDZ.
This investment was made possible by the Renewable Energy Procurement Programme which allocated 1 850MW to onshore wind projects. The Eastern Cape is a well suited location for the project given that the bulk of the wind power generation projects that has preferred bidder status is located in this province.
The project will create 203 permanent jobs and increase localisation of components for renewable energy generation projects.
Localising production
Poorer province
New industry
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Case Study: Localising manufacturing of automotive components
MSSL Global RSA Module Engineering LimitedThe company manufactures plastic moulded components for local motor vehicle assemblers such as Toyota, Nissan and Ford. Given the drive to increase local production of motor vehicle components, the Indian based company will be setting up a factory in Durban to manufacture Interior and exterior plastic components.
The products that will be produced used to be imported previously. 450 additional people will be employed by the company as part of the expansion and the project will add to the downstream beneficiation of plastics.
Localising production
Import replacement
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Scaw MetalsScaw, a company operating in the steel industry, employs about 6 800 people in with four divisions manufacturing grinding media, wire rod products, cast products, and rolled products.
The grinding media division is the only large scale African manufacturer of grinding media used in mining industries, with the wire rod products division manufactures specialised rods and chains destined for the mining and construction sectors. The cast products division manufactures specialised products also targeting the mining, rail and power generation sectors and the products manufactured by the rolled products division are destined for the mining, infrastructure, construction and power generation sectors.
IDC acquired Scaw from Anglo-American PLC in 2012 in pursuit of its strategy to intervene in the South African steel industry to ensure competitively priced steel supplies to downstream industries and increase localisation.
Scaw is well positioned to capture growth in the mining, railway and power generation sectors. Scaw is the only producer of locomotive frames in Southern Africa and one of a few in the world.
Case Study: Ensuring competition in the supply of steel
Modernising industry
Downstream development
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Case Study: Establishment of new industries
BioethanolIDC is the sole shareholder in a R2 billion project to produce bioethanol in the Eastern Cape;
The project will construct a 100 million litres per annum bioethanol production plant utilising grain sorghum as feedstock;
This will be the first significant production facility for biofuels in the country and will create jobs for 3 200 people during the construction and operational phases in a rural area in a poor province;
The project is at a phase where it will start to source equipment needed for construction.
Rural development
Poorer province
New industry
Job creation
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Case Study: Establishment of new industries
Conduct TelecomsConduct Telecommunications builds, owns, manages and leases last mile dark optic fibre using an open access model. The company previously approached the IDC to fund pilot sites for their network.
These sites have been completed and is participating in funding the roll-out of additional sites. 109 jobs will be created during the installation of the cables. The company is increasing broadband penetration.
Increasing competitiveness
Job creation
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Balancing increased impact with sustainability of investments
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Sustainable development impact
Impact
Sustainability
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Balancing a greater impact with sustainability
• Increasing its industrial development impact should be done responsibly and the corporation needs to consider the following:– Increasing leverage of funding from other sources including private sector financiers and
other DFIs;– Ensuring that our projects and clients are sustainable:
• Maximising the direct impact on communities;• Development of small business to further increase the impact;• Monitoring and managing investments to identify potential problems at client businesses and
intervene timeously where required;• Identify opportunities for growth to increase clients’ development impact;• Minimising the negative impact that projects have on the environment;
– By ensuring client sustainability, job creation is guaranteed and IDC’s financial sustainability is strengthened.
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Sustainable communities and regional equity
• Several of the sectors that IDC support have a strong direct or indirect presence in rural areas.
• These include agro-processing, tourism and mining among others.
• IDC is strengthening its processes to ensure that projects deliver the maximum benefit to local communities.
• Part of this includes the development of SMEs that take advantage of the benefits that the project brings to the area. In this regard, sefa will play an important role in the future.
IDC Offices
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Case Study: Rural development through agro-processing
Russellstone Soy Crushing PlantThe project comprises the development of a green-fields soya crushing facility in the Bronkhorstspruit Industrial Area. The plant will have a capacity of c.a. 240 000 tons per annum and will convert soya beans into high quality soya oil cake, soya hulls, and crude soya oil for distribution into the animal feed and industrial sectors.
This will be the first dedicated oil cake focussed commercial-scale soya crushing facility in South Africa replacing c.a. 240 000 tons of imported soya cake per annum, creating 48 permanent job opportunities, and having a direct and beneficial impact on the local cultivation of soya beans.
The project will require the dry-land cultivation of ca. 104 000 ha soya, which would also promote disease management and improve soil nutrition if used as part of a rotational crop.
The indirect employment impact in the agricultural sector is conservatively estimated at 1 040 jobs.
Rural development
Import replacement
Job creation
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Case Study: Development of value chains benefiting rural areas
Coega CheeseIn 2011, IDC approved funding for the establishment of a dairy in the Coega IDZ. The project is operating and IDC was more recently approached to provide funding for the establishment of a cheese factory adjacent to the dairy.
The project is further beneficiating agricultural projects in addition to the value-add that the dairy already provided, with an additional 46 jobs being created.
Poorer province
Downstream development
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Case Study: Funding for renewable energy
Technology Number of projects
Value (R’m) MW
Solar Photo-Voltaic 7 1 048 138
Wind 7 2 011 452
Concentrated Solar 2 3 448 150
Hydro 1 188 10
Total 17 6 695 750
IDC Participation in Rounds 1 and 2 of the Renewable Energy Procurement Programme
IDC is one of the largest funders for projects qualifying under the first two rounds of the REIPP programme.
It will continue to participate, ensuring that localisation and community development around projects receive the highest priority.
Rural development
Poorer provinces
New industry
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Environmental impact
• DFIs across the world are playing a leading role to transform economies to be less energy intensive.
• South Africa has one of the least energy efficient economies in the world. • Recent and expected future electricity price increases are impacting the
competitiveness of local industry negatively. • In addition to energy and the resulting carbon emissions, several other
natural systems, including water is also being put under pressure. This is specifically important for a water-scarce country such as South Africa.
• Given IDC’s close association with industry and the fact that this is a fairly new market, it is in a prime position to assist in providing funding to businesses seeking to realise the benefits of improving processes and equipment to lessen their impact on the environment.
• To achieve this, the organisation has already launched the Green Energy Efficiency Scheme, but plans to further improve processes to entrench an approach that considers environmental impacts in all its approval and monitoring processes.
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Rural development through agro-processing
Environmental protection
SA Calcium CarbideSA Calcium Carbide, located in Newcastle, is the only producer of calcium carbide in Africa. IDC previously provided funding for the company to assist with the installation of a co-generation facility, utilising furnace off-gas currently being flared, to reduce the company’s reliance on the national grid for electricity.
The project has been successfully commissioned and the company more recently approached IDC to provide funding for an additional initiative aimed at removing and destroying cyanide from waste water.
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Increasing capacity in the recycling industry
Bon Accord Recycling FacilityOne of the country’s largest waste management services companies approached IDC to set up a semi-automated material recycling facility at a landfill site in Pretoria.
The transaction will create 33 jobs with the potential for 30 more if an additional shift is introduced. The company will be able to process 6 000 tons of waste per month and recover paper, plastics and glass in the process.
Reducing negative environmental impact
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Partnerships and collaboration• In order for IDC to achieve its goal, it needs to work with other organisations. To
this end, the corporation has been partnering with various role-players to fulfill its mandate and increase its impact.
• dti - Industrial development impact through the management of special schemes such as the Clothing and Textiles Competitiveness Programme (CTCP) and Manufacturing Competitiveness Enhancement Programme (MCEP);
• Whole school programme – IDC targeting 20 schools across the country in support of the Basic Education Accord. Depending on the individual needs of each school, the IDC’s intervention could include leadership training; building of science laboratories; teacher development in technology and extra lessons for maths and science;
• Various Provincial Governments – Increasing rural development by working with provincial govenments to roll-out the Nguni Cattle project;
• Association of African Development Finance Institutions (AADFI), SADC-Development Finance Resource Centre (SADC-DFRC); individual DFIs on the rest of the continent – Assisting with capacity building and providing lines of credit to assist DFIs in the rest of the continent to fund development;
• Business Community – Recently concluded the IDC BMF sefa Business Plan Competition in conjunction with the Soweto Branch of the Black Management Forum – competition to be rolled-out to the rest of the country;
• Land Bank – Working closely with Land Bank, including utilising them as an intermediary for IDC funding, to better reach rural areas and assist with the development of primary agriculture.
The Nguni Cattle Project
• The primary focus of the project was to empower previously disadvantaged emerging commercial farmers
• establish a viable supply of organic beef for the growing local and international market
• The project engages traditional farmers in the breeding and conservation of indigenous livestock
• Each community receives pregnant Nguni heifers and Nguni bulls
• All members of the communities are involved in the concept of “passing on the gift” where communities are required to return 10 heifers and 2 bulls from the offspring within 5 years.
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Financial sustainability
• By managing its clients better, IDC can improve their performance resulting in a more successful client base.
• This will result in more sustainable clients and a more sustainable development impact. If risks in businesses are identified early enough, interventions can be made earlier and turnarounds implemented in time to save the business.
• IDC currently subsidises certain debt funding costs with equity returns. As IDC plans to dispose of equity investments to commit capital to new ventures there is a need to find ways to replace existing mature investments with new investments that deliver suitable returns.
• To reduce the potential impact on IDC’s loan prices, IDC will increase its sourcing of lower-cost funding.
Equity funding
Loan funding
Capital growth
Interest repayments Capital repayments
Dividend payments Exits of mature investments
IDC Funds• Borrowings• Balance sheet• Mature investments• Retained earnings
IDC’s Funding Model
IDC relies on borrowings, internal profitability, capital growth and exits from mature investments to maintain and expand
its funding ability
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Targets
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Perspective Indicator Measurement 2013/14
Baseline TargetedIndustrial capacity development
Implementing projects % of pre-identified projects implemented 70% of projects 100% of projects
Contribution to investment in the economy
Value of funding approvals with agreements signed R14bn R21bn
Sub-minimum: disbursements R8bnProgress towards achieving priority industry development goals
Achievement of industry development milestones 80% achieved 90% achieved
Development impact Jobs expected to be created/saved in South Africa
Number of jobs expected to be created or saved, counted at the time of agreements being signed
32 000 50 000
Sub-minimum: jobs in rural areas 7 000Actual jobs created Actual number of jobs created/saved in South Africa 20 000 25 000
Financial sustainability and efficiency
Ratio of administration costs to interest and fee income
Administration cost, including grants and donations, excluding impairments as a % of net interest and fee income and dividends (excl. mature legacy investments)
Budget Budget - 10%
Growth in reserves 5-year average growth in reserves (excl. mature legacy investments)
CPI+2% CPI+4%
Growth in value of new equity investments
IRR for investments where IDC first took equity in the underlying business since 1 April 2010
1.7% 4.%
Level of impairments Impairments as a % of the portfolio (at cost) 18% 16%
IDC Targets for 2013/14
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Perspective Indicator Measurement 2013/14
Baseline TargetedHuman capital Staff turnover Staff turnover for high performance individuals and
successors on M level and above7% 5%
Stakeholder relations/ Customer satisfaction
Turnaround time on transactions Turnaround time on non-complex transactions: (from date of start of due diligence to date of agreement being sent to client)
17 working days 15 working days
Customer satisfaction index TR*M index value as determined through survey 85 95
IDC reputation Reptrak Pulse index value (measured every two years) Not measured
sefa Implementation of sefa sefa achievement of balanced scorecard sefa’s performance against targets for 2013/14
IDC Targets for 2013/14 (continued)
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IDC’s portfolio
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IDC’s Portfolio as at 28 February 2013
16%
8%
11%
12%
4%
7%
11%
26%
1%5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%Eastern Cape
Free State
Gauteng
KwaZulu Natal
Limpopo
Mpumalanga
North West
Northern Cape
Western Cape
Outside SA7%
8%
9%
5%1%3%
5%
11%
9%
2%
7%
4%
24%
6%Agriculture, forestry & fishing
Mining
Food and beverages
Clothing, textiles, leather and footwearWood, paper, printing and publishingPetroleum, chemicals, rubber plastics and non-metallic minerals
Basic metals
Fabricated metals, machinery and equipmentMotor vehicles and transport equipmentOther manufacturingElectricity and water supply
Construction, transport, catering and accommodationCommunication and business services
Medical and community services
By Region By Industry • IDC’s participation in the renewable energy procurement programme has made a large impact on its portfolio in especially the Northern Cape and Eastern Cape;
• Mining continues to play a major part in IDC’s development activities given the importance of the sector both locally as well as in the rest of the continent.
Thank you
Industrial Development CorporationIndustrial Development Corporation19 Fredman Drive, Sandown19 Fredman Drive, SandownPO Box 784055, Sandton, 2146PO Box 784055, Sandton, 2146South AfricaSouth AfricaTelephone 011 269 3000Telephone 011 269 3000Facsimile 011 269 2116Facsimile 011 269 2116E-mail [email protected] [email protected]
