KwaZulu-Natal

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KZN IDC is all about value and development.

regions-kznmanagers topKwaZulu-Natal Regional Managers Pat Moodley and Manoj Seonath 

When looking to fund potential clients, one has to approach them with two principles in mind: value and development. This is according to the regional manager of the KwaZulu-Natal Industrial Development Corporation, Manoj Seonath, who is based in Pietermaritzburg.

Value, he says, is determined by funding and the subsequent output of the business. Development is determined by the location of the business, the jobs it creates for communities in surrounding areas, and how it has affected those communities. “Some of these employees have not had a job in a long time and are sole breadwinners in their households,” Seonath stresses.

It is this approach to business that has made the KZN IDC widely recognised in the province and one of the most successful regional offices in the country. It is the only province with two IDC regional offices and managers. Seonath runs the Pietermaritzburg office, which sees to clients in the KwaZulu-Natal Midlands and surrounding areas; Pat Moodley is based in Durban, which caters for businesses along the coastline. “Because of the volume of work, we have two regional managers but for formality it operates and reports as one region,” Moodley says.

The office mainly funds manufacturers within agro-processing, textiles, metals, chemicals and health care industries as these represent the bulk of the funding applications received. At the end of their financial year in March 2013, KZN IDC had approved just over R1-billion of funds to 38 companies. This led to the creation of 7 836 jobs. In the first quarter of 2013, the IDC had already approved more than R131-million to four businesses.

Strong relationships lead to success

The office’s success grows out of the relationships it had forged with the government, private businesses and clients since its inception. One of its more valuable acquaintances is Mr Price. Because of this partnership, a number of the IDC’s textile clients have become suppliers to the retail clothing giant.

The work the KZN IDC has put into its relationships has not gone unnoticed. On 9 July 2013, the office received the Partnerships Award at the FNB KZN Top Business Portfolio Awards. It won alongside major corporations such as Tongaat Hulett, Mr Price and Corobrik.

Challenges

One of KwaZulu-Natal’s biggest economic drivers is the Port of Durban, which is the largest in the southern hemisphere. According to the 2009 American Association of Port Authorities World Port Rankings report, Durban handled 2.5 million twenty-foot equivalent units (TEUs), putting it among the top 50 busiest ports in the world.

On a national scale, the province’s gross domestic product (GDP) levels are second only to Gauteng. This, says Moodley, is based on the stable relationship between the government and the private business sector. According to a provincial economic overview report by economist Clive Coetzee, KwaZulu-Natal’s seasonal adjusted year-on-year GDP and economic growth rate after the first quarter of 2013 increased by 1.79%. Though this has been reflected as positive growth, it was less of an improvement compared to the first quarter of 2012.

All these factors have put KwaZulu-Natal in a financially comfortable position. However, a healthy economy does not come without its problems. Moodley says one of the province’s challenges is that its entrepreneurs do not have enough equity contribution.

And in spite of talk about the Midlands being a hotbed for business, the area still needs a lot more development, adds Seonath. “Whenever you try to develop in undeveloped areas, you are going to face challenges.”

The Midlands is short of sufficient viable projects, often lacks sufficient seed capital for high impact rural projects fully-adhered to corporate governance, business knowledge and bankable business plans. “It is easy to go to a rural area and say you want to put up a project. But you need money and expertise to start a project, and you need a market for your product.”

However, the IDC is trying to overcome these challenges by increasing business support at pre-investment and post-investment stages. This not only means support from the IDC, but from the government and private sector as well.

Seonath suggests a possible model is if the government provides grant funding towards high impact community projects in the start-up years, which is non-repayable and alleviates capital pressure on the business in these initial years. This can be coupled with development funding in the form of loans (from development banks) and the private sector providing technical support and corporate governance training, as well as buying clients’ goods. “If we can structure projects like that, then we [will] have a winning formula.”

Potential in Midlands

One of the reasons for opening an office in the province’s capital, Pietermaritzburg, is because of the vast amount of opportunities the IDC identified in the Midlands. Since it opened in 2010, close to 40 transactions worth more than R1-billion have been approved. A large part of these funds have gone to large co-generation projects in the Newcastle area.

This region runs from Pietermaritzburg to Vryheid. Between these centres, some of the main towns are the towns of Howick, Estcourt, Ladysmith and Newcastle in the northwest, and Richmond, Ixopo and Kokstad in the southwest of the province. These towns form the main business hubs and are characterised mainly by four industries (excluding retail), namely textiles, metals and engineering, chemicals, and agro-processing. But it is between these hubs where business potential lies, says Seonath, particularly within the agro-processing sector. Dairy farming, vegetable packing, juice manufacturing and meat processing make up the bulk of the agro-processing industry in these areas.

As it deals with a more rural population, Seonath’s office focuses on approving high development impact deals.

Seonath intends to use the IDC’s Agro-Processing Linkage Scheme to develop agro-processing in the Midlands. The scheme channels funding through a big company (e.g. dairy or sugar mill) that then lends money to small, resource-poor farmers who are its raw material suppliers. Risk is shared between IDC and the big company. It gives the resource-poor farmers access to finance, and extra technical support they never had before.

Future

In the coming year, the KZN IDC will look to expand its footprint throughout the province by creating new relationships with potential clients and local government in un-tapped areas.

According to Moodley, a travel schedule had been drawn up that will take the IDC to all 11 municipalities in the province. This will help to enhance relations with the local economic development managers and help to identify projects that can be nurtured and funded. It will also help the IDC to identify opportunities for new clients. “This is to ascertain what the opportunities out there are so that we can get involved from a development point of view. We have to be out and about to fully expose the IDC.”

Seonath hopes the strengthening partnership between private business and the government will lead to bigger projects being established in outlying parts of KwaZulu-Natal. With this in mind, the office is looking to increase approvals in rural areas from 25% to 35%. It is also planning to increase assistance to youth entrepreneurs and facilitate youth ownership in business.

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