The IDC –A role for SMMEs in Africa presentation to CESA_6 April... · The IDC –A role for SMMEs in Africa CESA SMME Workshop, April 2011 Ashley Petersen ... E-mail [email protected].

The IDC – A role for SMMEs in Africa

CESA SMME Workshop, April 2011

Ashley Petersen

Senior Business Development Manager

Africa Unit

Development finance institutions: Supporting the recovery, enhancing growth and development

Challenges:

The global economy remains fragile, with the recovery

faltering in parts of the advanced world, while serious threats

to the stability of global financial system still abound. Africa

is highly vulnerable to potential adverse developments.

• Although regrettable, the global economic crisis presented

Africa: GDP growth performance and outlook

• Although regrettable, the global economic crisis presented

an unprecedented opportunity for the DFI community to

showcase its relevance, importance and effectiveness

within the global, regional and national financial systems.

• However, to ensure long-term financial sustainability, DFIs

that are playing strong counter-cyclical roles must:

– Take into account the serious financial risks involved;

– Determine upfront the acceptable intervention parameters;

– Adopt the necessary mitigating mechanisms (incl. capital allocation

thresholds).

• Collectively, DFIs can assist in effectively countering the

adverse effects of down-cycles, help unleash Africa’s

massive potential and strengthen the foundation for its

growth and development.

Introducing the IDC

� Established in 1940, the IDC is a self -financing, State-owned

development finance institution

� The vision of the IDC is 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

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� Provides financing to entrepreneurs engaged in competitive

industries and enterprises based on sound business principles

� Desired outcomes:

– Sustainable employment

– Regional equity (incl. development of the rest of Africa)

– Growing SME sector

– Broad-based black economic empowerment

– Environmentally sustainable growth

– New entrepreneurs entering the economy

– Increased localisation

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Credit strengths of IDC:

• Sound financials

• Fast-growing assets provide sizeable capital cushion

• Credit rating is A3 (on par with sovereign)

Introducing the IDC (cont.) IDC’s positioning …

• Non-commercial focus

Government / NGOs

• High commercial focus

Commercial Financiers

• Commercial and development focus

DFIs

Greater importance on financial objectives

Greater importance on social and developmental objectives

• Non-commercial focus

• Fiscal transfers and grants

• Development objectives (social)

• High commercial focus

• Private sector capital

• Financial objectives

• Known risks

• Commercial and development focus

• Sharing risk

• Internally generated funds, government funds, loans

• Industrial Development Corporation (IDC)

• Development Bank of Southern Africa (DBSA)

• African Development Bank

• etc.

• ABSA/Barclays

• Standard Bank

• etc.

IDC does not directly compete with any of these institutions, but encourages cooperation with a variety of these

institutions to achieve its goals

IDC : Industrial & entrepreneurial development approach …

• IDC addresses market failures by supporting investments, which may otherwise not

happen, in partnership with private sector companies

• Our business model strives towards maximising financial / development returns

while maintaining an acceptable risk profile

• This entails taking a higher risk profile than commercial financiers in order to

support the development of sectors and new entrepreneurs through:support the development of sectors and new entrepreneurs through:

� Diversifying the economy through supporting a range of sectors

� Encouraging the introduction and development of new industries and products

� Developing internationally competitive companies

� Supporting the establishment of green-fields developments

� Supporting expansions of existing businesses

� Facilitating the entry of new entrepreneurs and supporting their development

� Supporting the growth and development of small and medium businesses into

competitive players

� Encouraging regional development by supporting companies with regional comparative

advantages

� In support of the South African government initiatives, particularly

economic development, IDC’s involvement in Africa is aimed at:

– Leveraging private sector investment for economic development

throughout the continent

– Playing a major role in the development of industrial capacity

– Strengthening South Africa’s constructive role in regional economic

The IDC’s active support for business/industries in Africa and current focus

– Strengthening South Africa’s constructive role in regional economic

development

– Leveraging foreign direct investment by bringing in foreign partners

using international networks

– Transferring experience and expertise to African DFIs

– Promoting supply of goods & services from SA

– Establishing credit lines for financially sustainable regionally-oriented

financial intermediaries

– Supporting NEPAD and regional spatial development initiatives (SDIs)

� In addition, the IDC’s current focus, for the continent, is on developing

regionally integrated value chains.

Green and energy

saving industries

Bio fuels

ICT

Healthcare

Mining related

technologies

Biotechnology

Industrial

infrastructure

Logistics

IDC’s sectoral focus areas and alignment with NGP and IPAP2

Automotives,

components, medium

and heavy commercial

vehicles

Advanced

manufacturing

Pharmaceuti-

cals

Cultural industries:

Craft and film

Business process

services

New Growth

Path (NGP)

Industrial

Policy Action

Plan (IPAP2)

Legend:Areas not

specifically part

of NGP or IPAP2

Metals fabrication,

capital and

transport

equipmentPlastics and

chemicalsClothing, textiles,

footwear, leatherForestry, paper &

pulp, furniture

Agro-

processing

Downstream mineral

beneficiation

Tourism

Mining

IDC envisages a major role in funding these industries in Africa

Opportunities and the role of SMMEs in Africa

• Business opportunities are abundant, but there are

constraints and it’s a difficult environment.• Infrastructure

• Power generation

• Tourism, etc

• Our biggest challenge is “project packaging/development”

The IDC perspective:

• Our biggest challenge is “project packaging/development”

A new role for SMMEs????

• Its all about a robust project pipeline.

• Project preparation and development (Possible fund to

finance pre-feasibility studies, the dti capital projects

feasibility programme -CPFP)

• Project ideas and/or leads.

• Local partnerships!!!

Concluding remarks

• Targeting sectors that have strong growth and

development potential

The IDC will enhance its support to the private sector in

pursuit of our objectives by:

• Supporting collaborative initiatives between our

partners

• Collaboration with institutions /organisations

• Financing viable and sustainable projects

Your partner in development finance !

Thank you

The Industrial Development Corporation

19 Fredman Drive, Sandown

PO Box 784055, Sandton, 2146

South Africa

Telephone (011) 269 3000

Facsimile (011) 269 3116

E-mail [email protected]

Role in project development

• Co-sponsors feasibility studies

• Identifies project opportunities

• Provides and arranges funding (e.g. export and

import finance, equity and loan funding)

•• Identifies suitable international and local DFIs,

commercial and merchant banks and companies

and export credit agencies as potential

participants

• IDC acts as a financial adviser in partnership with

other financial institutions

• Shares project risk with the sponsors and financial

partners

• Identifies strong operating partners

• Off-take and supply agreements

• Assists with the early negotiations of project

agreements to improve and ensure their

bankability and shorten the funding schedule

• Structures appropriate limited recourse funding

Role in project development (cont.)

packages by allocating project risk to the

appropriate stakeholders

• Assists with implementation via steering

committee

• Serves on board of directors

• IDC does not seek shareholding control or

management participation