All the above figures exclude performance by sefa - a wholly owned subsidiary of IDC - that supports mostly black owned companies
Inclusive growth and structural transformation are integral to realising South Africa’s full potential and safeguarding its social stability. Our contribution is to expand and diversify South Africa’s industrial base, in the process facilitating job creation, reducing inequality in our society and promoting environmental sustainability and economic growth. These objectives are germane to our financing and industrial business support interventions and drive our development scorecard outcomes to help achieve national priorities and widen the IDC’s impact, locally and in the region.
|Outcome||Priority indicators||Other indicators|
Create sustainable employment opportunities
Improve regional equity, including the development of SA rural areas and poorer provinces and to support industrialisation in the rest of Africa
Grow the entrepreneurial and SME segments
Transform and impact on communities and grow black industrialists
Promote environmentally sustainable growth
Grow sectoral diversity and increase localisation
sefa was established as a wholly-owned IDC subsidiary in 2012. This enhanced our socio-economic development impact significantly, specifically in helping small-, micro- and medium-sized enterprises (SMMEs) and cooperatives to access funding. Since inception, the substantial growth in sefa’s funding levels has increased gains in employment considerably, as well as the number of women – and youth-owned enterprises in recent years. sefa funding also supports black entrepreneurs and contributes to regional equity through enterprise growth in South Africa’s less industrialised provinces.
Contributing to employment creation and preserving jobs
Cyclical and structural challenges continue to impact on the ability of the South African economy to create sufficient employment for an expanding labour force. According to Statistics South Africa (Quarterly Labour Force Survey), employment in the formal non-agricultural sectors of the economy expanded by around 17 000 jobs over the twelvemonth period to March 2015. Financial services accounted for the largest employment gains, followed by construction activities. Formal employment levels in the trade sector contracted substantially, while manufacturing employment declined by approximately 23 000 jobs.
Given this reality, our top priorities as a development financier are to facilitate employment creation and preserve existing jobs. We set our targets annually and strongly encourage the financing of jobs-rich economic activities through attractive funding schemes.
The number of jobs facilitated and saved is affected by our level of approvals and the sectors in which we invest.
We expect our funding approvals in 2015 to create and save 14 537 and 5 851 jobs respectively, or a total of 20 388 jobs. Since our focus is on developing manufacturing capacity, 56% of the jobs we expect to create or save are in this sector. These include many new jobs in industries such as recycling, metal products and transport equipment (including automotive components) and agro-processing.
During the reporting period, our financial assistance to textiles and clothing operations, furniture producers and manufacturers of engineering products, such as locomotive body structures, saved a considerable number of jobs. In addition, the dti’s Clothing and Textiles Competitiveness Programme (CTCP) complemented by our Clothing, Textiles, Footwear and Leather Competitiveness Scheme, helped to upgrade and modernise plant and equipment in the industry. This resulted in greater competitiveness, increased stability, preserved employment and growth among beneficiary companies.
Our financing of mining and mineral beneficiation activities also yielded a large number of new employment opportunities and saved many jobs, particularly in copper mining. In the services sectors, we contributed to job creation in the information and communications technologies (ICT) and film industries.
We expect that sefa’s overall financial disbursements of approximately R1.3 billion in 2015 will have facilitated around 60 000 jobs. Apart from funding support to micro-enterprises and cooperatives through financial intermediaries, sefa’s SME funding created a total of 6 607 jobs.
Promoting regional equity
We promote the development of less industrialised provinces and rural areas in South Africa to improve regional equity. Our network of regional and satellite offices provides clients with access to our staff and services in those areas. Potential clients and less experienced small enterprises benefit from new business opportunities and our nurturing of key high-impact projects taken to commercialisation.
We engage provincial, district and municipal stakeholders in local economic development (LED) matters and network with regional DFIs and local development agencies. Our pricing mechanisms reflect the relative benefits of such regional development outcomes.
Growing economies in less industrialised provinces
The IDC invested R9.7 billion or 84% of total funding in financing South African operations in 2015. Gauteng and the Northern Cape received approximately R3 billion and R2.3 billion respectively.
South Africa’s less industrialised provinces (these exclude Gauteng, Western Cape and KwaZulu-Natal) collectively received 46% of IDC funding and accounted for 42% of the jobs we expected to create and/or save. This ratio exceeded their collective 36% share of national GDP (based on 2013 data) and attests to our efforts to raise economic activity in those provinces. Funding in the Northern Cape (23.5% of the total) went to manganese mining activities, as well as solar and wind energy projects.
Gauteng and Limpopo respectively accounted for approximately 35% and 20% of the 20 388 jobs we expected to create and/or save during 2015. Most of the employment opportunities created in Limpopo were in copper mining, while employment creation in the Free State, North West and Eastern Cape represented 6%, 11%, and 10% of the expected total respectively.
sefa funding in less industrialised provinces amounted to R636 million during 2015, of which R423 million went to SMEs.
Contributing to rural development
We appreciate the need to integrate rural areas into the economy and rural development perspectives into industrial development strategies. In this, our role is to identify opportunities that can improve livelihoods in rural communities proactively, but we avoid duplicating the activities and mandates of other role players, such as the Land and Agricultural Bank of South Africa.
We have focused our rural development activities primarily in the NGP- and IPAP-prioritised sectors, such as minerals beneficiation, high-value agriculture and agro-processing. A range of on-balance sheet development funds (such as the Agro-Processing Linkages Scheme, Pro-Forestry Scheme and Community Fund) and the funds we manage for third parties (including the Agro-Processing Competitiveness Fund on behalf of Economic Development Department (EDD)) support our efforts.
Refer to Section 5 online for details of special funding schemes. Our support for the establishment of local economic development agencies complemented the financing activities of our operational units with significant rural portfolios.
During the past five years, the IDC invested R28.8 billion in rural areas. In 2012 alone, investments of approximately R8.5 billion funded renewable energy operations in rural areas, which represented 47% of the total funding approved for these areas.
Rural transactions amounted to R4.3 billion or approximately 37% of the total funding approved in 2015. We expect this to create or save 8 223 jobs. Cumulatively, we facilitated the creation or saving of around 46 130 jobs in rural areas during the past five years.
Most of the funding in rural areas was distributed in the mining and renewable energy sectors. We expect funding approved for the agro-industries during the past financial year to create new jobs in rural areas.
Contributing to the development of other African economies
Positive, fundamental change in many African countries in recent years tells a good story and has stimulated interest among domestic and foreign investors. Sub-Saharan Africa has been among the world’s fastest-growing regions. Business environments have improved and macro-economic stability taken root in a number of countries.
We approved R1.8 billion in 2015 for operations in the following 10 African countries: Zambia, Uganda, Mali, Ivory Coast, Swaziland, Democratic Republic of Congo, Ghana, Namibia, Rwanda and Ethiopia. The funding pertains to a diverse set of business activities that contribute to economic development, such as energy generation, mining, manufacturing of wood and paper products, hotel services and funding facilities for other Development Finance Institutions (DFIs) to on-lend to business operations.
This widens our continental footprint outside South Africa to 23 African countries.
In addition to funding projects, we build capacity in other DFIs on the continent. During the reporting year, 107 employees from local and regional institutions attended IDC-funded training. This included 25 employees from 11 African DFIs who attended our training session in Dar es Salaam in Tanzania.
Small and medium enterprises
World wide, SMEs are recognised as engines for economic growth and job creation and acknowledged as a critical source of enterprise and innovation.
Government policies and public sector strategies have had a positive impact in expanding and sustaining South Africa’s SME sector. However, some enterprises still find it difficult to access finance, technology and information, or the skills to develop capacity and capabilities.
A large proportion of our funding over the years went to support thousands of SMEs, although transactions involving larger corporations generally dominated the overall value of the approved funding.
Establishing sefa in 2012 was an important milestone in coordinating SME development. As a result, we can focus on larger transactions to complement rather than duplicate sefa’s services. This avoids market confusion, stimulates economic activity and creates a demand for SME products and services.
During the 2015 financial year, IDC’s SME financing doubled to R2.0 billion (2014: R1.0 billion) and benefitted 111 small business enterprises.
In turn, sefa’s funding impact in the SME sector is increasing year on year. In 2015, sefa approved SME funding of R942.7 million (excluding cooperatives and micro-enterprises), while disbursements increased to R1.06 billion or 79% relative to the previous financial year. A total of 1 262 SMEs (2014: 817) benefitted from this financial support.
Stimulating entrepreneurship among South African women and empowering women entrepreneurs to establish and grow their businesses in the mainstream economy through access to finance are imperatives that we pursue with vigour.
*Companies with a female shareholding of at least 25%
During the past five years, the value of IDC approvals for female-owned companies with at least 25% shareholding rose significantly, from R71 million in 2011 to R756 million in 2015. Funding beneficiaries during the year under review ranged from companies involved in mining and chemicals manufacturing to renewable energy generation, including wind power.
The challenges, however, are in identifying and/or attracting new women entrants into the enterprise sector. At the end of the current reporting period, our Women Entrepreneurial Fund, launched in 2008 to provide women entrepreneurs with attractive financing packages to start or expand their businesses, had drawn only R92 million of the available R300 million. The fund limits transactions to R40 million each, allocated to companies with an asset base of R80 million or less. As such, the fund targets smaller enterprises where women have a shareholding of at least 25% (with the maximum benefits accessible if it exceeds 50%) and are involved operationally.
Our subsidiary, sefa, disbursed R259 million to 403 women-owned SMEs (excluding cooperatives and micro-enterprises) in 2015 (2014: R161.6 million to 276 women-owned enterprises).
In April 2013, we signed the Youth Accord and reallocated R1 billion from the existing R10 billion Gro-E Youth Scheme to the Gro-E Youth Scheme. The IDC and sefa partnered with the National Youth Development Agency (NYDA) to provide young entrepreneurs with access to development finance and NYDA grants.
The Gro-E Youth Scheme contributes to sustainable job creation by providing businesses that will create new jobs with loans at prime less 3%. Persons under the age of 35 with more than 50% shareholding in the business qualify for financing.
During the reporting period, we approved R159 million in total for 11 companies with youth shareholding of more than 25% including through the Gro-E Youth Scheme. To support activities that range from ICT to media, tourism, textiles and the manufacturing of food supplements an amount of R35.7 million has already been disbursed.
In turn, sefa disbursed R249.4 million to 252 youth-owned SMEs (excluding cooperatives and micro-enterprises) in 2015 (2014: R109.6 million to 152 enterprises).
In 2013, we approved a R10 million business support grant to the NYDA to fund its non-financial services voucher programme. The programme provides an array of non-financial products, such as business plan development, accounting and financial systems, business administration and marketing (branding and website development) support. An amount of R14 million was disbursed in December 2014 and we expect a further R6 million to be paid in the 2016 financial year in tranches of R3 million each.
Our commitment to providing young people in South Africa with a skills set that makes them marketable, remains robust. During the reporting period, we used platforms such as Graduate Internship Programmes and a Chartered Accountant Learnership to pursue this objective. We introduced a Learnership Programme for disabled people, with 30 learners from three provinces and partnered with Scaw Metals to launch an Apprenticeship Programme, in which, 30 apprentices from trades, such as electrical, boiler-making and fitting and turning, participated. In total, 116 young people benefited from these initiatives.
In partnership with Harambee, a non-governmental organisation (NGO) that assists young, first-time job seekers to gain skills and find jobs, the corporation has contributed significantly to easing the plight of unemployed youth. Since inception about 5 years ago, this initiative spearheaded by Harambee has helped to place 12 000 young people spread over 100 employers. With our support, Harambee selected, profiled and graduated 150 young people in the Northern Cape from an intense literacy and numeracy bridging programme.
Over the years, our support to black entrepreneurs to establish, grow and diversify their businesses broadened the scope of our BEE funding and other forms of business support in line with evolving national policies. Since 2008, we have adopted an ‘expansionary’ BEE approach by funding acquisitions only if a significant amount of capital remained in the business to fund its expansion.
We supported black managers to buy businesses from employers, assisted black entrepreneurs to establish new companies and funded existing black-owned businesses to expand their operations. We recently also reviewed our approach to BEE to further support black industrialists to participate in the South African economy.
During the past year, we approved 85 transactions valued at R5.9 billion for black-empowered companies with black individual shareholding of more than 25%. At 51% of the overall value of funding approvals, this was a significant improvement over the previous year and accounts for 10 974 of the 16 037 new jobs we expect to create.
Approximately R2.0 billion was approved for 41 black industrialists, which we expect will create around 2 970 new jobs, mainly in manufacturing operations. These black industrialists will be active in a variety of manufacturing industries, such as wood and wood products, metal products, machinery and equipment, transport equipment, plastic products, clothing, textiles and footwear, and food products. Some will be involved in the services industries, such as energy generation, ICT and media, while others will be active in the mining industry.
We continuously encourage our clients to introduce shareholding for workers and communities to empower and include them as active participants in the business sector. As such, an important funding requirement is for beneficiary companies to commit to transformation targets aligned with the B-BBEE Codes of Good Practice.
During the year under review, sefa disbursed R782 million to 1 063 black-owned SMEs. This represents 74% and 84% of the value of approvals and number of transactions respectively.
The already positive impact of our funding on economic activity and job creation in rural areas is further enhanced by the benefits that accrue to communities through trusts, spatial interventions and the financing of social enterprises.
Examples include funding approved in 2015 for three agri-business transactions to provide workers’ trusts with shareholding in horticulture, fruit processing and animal feed businesses and R4.9 million allocated to the Eastern Cape Disability Economic Empowerment Trust. The latter holds a 10% shareholding in Rhythm FM, a broad-based black economic empowerment entity established to create economic opportunities for people with disability in the Eastern Cape. Currently, 191 000 disabled people benefit from the Trust.
Capacitating workers’ trusts is an imperative. Our initiatives in the energy and agro-industry sectors during the past year ensured that previously excluded workers now have the acumen to understand business operations.
We support development agencies to escalate social and economic development within marginalised communities and leverage the developmental and job creation potential within those communities for their own benefit. We support the Municipal Agency Programme to create mutually beneficial partnerships between the public, private and civil society sectors through the Special/Spatial Intervention Initiative. We also used the Social Enterprise Fund to grow the social enterprise sector.
We approved R18 million in 2015 for six development agencies to move beyond the establishment phase. These agencies extend our footprint in remote areas as useful conduits for projects and business opportunities. The agency model has become integral to local economic development for municipalities.
Seventeen special/spatial interventions with commitments of nearly R60 million were funded during the year and have leveraged more than R40 million in co-funding from partner organisations to date. Many of these initiatives are based in some of the most marginalised communities, including remote rural areas and townships.
We also supported 10 social enterprises during the past year with awards of nearly R35 million. These businesses have a social and/or environmental mission to address challenges in marginalised communities by providing sustainable jobs for vulnerable groups.
The many opportunities that exist for collaboration with the private sector to address the developmental needs of marginalised and vulnerable people and communities spurred strategies and partnerships to identify, facilitate and finance business activities that provide disadvantaged and marginalised people with jobs as producers, suppliers, workers, distributors, consumers or innovators. During the period under review we initiated various such projects that will come to fruition in the new financial year.
Towards environmental sustainability
We remain committed to contributing to a greener (cleaner) economy in South Africa and the national goals of reducing carbon emissions by 34% from business-as-usual levels by 2020, and by 42% by 2025.
Growing the green economy
Our support for green economy projects in South Africa and other African countries are in renewable energy, energy efficiency, biofuels and fuel-based clean energy, as well as emission and pollution mitigation.
We successfully participated in the first four bidding rounds of the Department of Energy’s (DoE) Renewable Energy Independent Power Producers Procurement Programme (REIPPPP) through the Renewable Energy Cluster. Twenty-three solar (photovoltaic and concentrated), wind and hydro-power projects received preferred bidder status and a potential exposure of R13.1 billion. These projects will produce electricity with zero carbon dioxide (CO2) emissions during their expected 20-year lifetimes and avoid CO2 emissions as indicated in the related table.
A number of these projects were commercialised during the review period, while the Kakamas Hydro Electric Power Plant in the Orange River; KaXu concentrated solar plant near Pofadder, Northern Cape; photovoltaic power plants in the Northern Cape and North West; and a number of wind farms in the Eastern Cape and Western Cape, were officially opened.
We supported 12 bids of 60 MW in total under the Renewable Small Independent Power Producer Programme and developed a special funding package using the ‘green’ facility of the Agence Française de Développement (AFD) to offer long-term fixed interest loans at a competitive rate, as well as special renewable funding for BEE shareholders.
By the end of the financial year bid awards had not been made but the available AFD credit line was fully committed. This included approved funding for a further five small, own-use or willing buyer renewable energy projects in biogas (1), hydro (1) and biomass (3). The current pipeline of projects will absorb this funding even if bid awards are insufficient.
Subsidised ‘green’ funding to finance energy-efficient and renewable energy investments is also available from the R570 million KfW (German Development Bank) Green Energy Efficiency Fund (GEEF). During the past year, we approved R366 million for 12 projects. The increased uptake was due to escalating electricity prices, greater awareness of energy efficiency and the funding of larger entities. The investments include the mass rollout of energy-efficient lighting and showerheads, solar water heaters, rooftop photovoltaic (PV), cogeneration, biogas to energy, energy-efficient refrigeration and industrial energy efficiency.
A new project included the funding and commissioning of fuel cells at the Chamber of Mines. The technology uses platinum as the catalyst, with the potential to provide distributed clean energy and increase the demand for platinum, of which South Africa has almost 90% of the global resource. This is the first fuel cell project for a commercial building in Africa.
The GEEF investments will achieve 523 000 MWh in energy savings annually, with an associated reduction in greenhouse gas emissions of 480 000 tonnes CO2 –equivalent per year. Support for biogas projects and the Cogeneration Independent Power Producers (IPP) are still outstanding.
Providing South Africa’s transport sector with green energy can reduce greenhouse gas emissions significantly. We continued to play a leading role in the Cradock grain sorghum project to develop bio-ethanol as a petrol blend and cleaned and compressed biogas as fuel for fleets such as taxis and municipal buses. Regulatory certainty about incentives for green energy sources and their impact on job creation is required before we can invest further in this area.
During the past year, we approved finance for two projects at municipalities to reduce solid waste through recycling and converting non-recyclables to energy.
As an enabler of the Presidential Infrastructure Coordinating Commission’s Strategic Integrated Projects (SIPs), we have been coordinating SIP 8, which focuses on Green industries. We financed four green energy projects in other African countries, two that use biogas, and two biomass to generate power.
Assessing and monitoring clients from an environmental and social perspective
The Environmental and Social (E&S) framework at the IDC guides the creation of an amenable environmental and social environment. The framework describes our approach to categorising E&S risk at the due diligence stages of pre-investment and during post-investment monitoring.
We use a checklist to screen investments for E&S risks such as human rights (child labour), social impact (HIV), retrenchment practices and local community impact, as well as environmental issues like land-use, biodiversity, energy, water and air pollution. We also advise and guide clients in being environmentally and socially responsible, which includes avoiding or mitigating E&S impacts. In support of decent work objectives, IDC ensures its clients comply to relevant labour legislation.
We monitor E&S for existing clients annually, according to their risk category, shareholding and previous performance. Environmental and Social Risk Rating (ESRR) is used to rate performance on a scale of 1 to 4, where 1 is excellent and 4 unacceptable and a breach of the IDC/client agreement. During the review period, 60 clients were assessed and 54 received good ratings. We will reinforce E&S compliance with corrective measures at the six who rated poorly to improve their risk rating to acceptable levels.
Dedicated resources were allocated during the past financial year to provide continuous support and implement specific rehabilitation programmes at African Chrome, the Columbus Joint Venture, Scaw Metals and Foskor. Rehabilitation, care and maintenance at African Chrome and the Columbus Joint Venture waste dump cost the IDC R1.5 million and R14 million respectively.
Reducing water usage
The aim of our water strategy, which is applied through the Green Building Project, is to reduce water usage in all IDC and business partner offices, as well as to maintain our water infrastructure and monitor leakages.
Despite the implementation of a water usage monitoring programme at our head office, the overall use of water increased. However a notable achievement is that IDC is less reliant on tap water. This is being addressed going forward.
We partnered with selected businesses to collect water-use data. The 2014 data will serve as a baseline for subsidiaries to improve water-use management.
We have made good progress in achieving our water management goals. Forty business partners were assessed for water risk during 2015, compared to 32 during the previous year. Our Memorandum of Understanding with the National Cleaner Production Centre will assist our business partners in the agro-processing and textiles industries to conduct water efficiency audits at their processing and production facilities and improve water-use efficiency.
As the spotlight turns towards the Conference of Parties (COP21) and the development of a new global emission reduction framework to replace the Kyoto Protocol in Paris later this year, we ensured that our investment policy embraces a low-carbon economy within our operational boundaries.
The carbon tax bill, currently under discussion for possible implementation in 2016, could have a negative financial impact since we expect the total CO2 emissions of our subsidiaries to exceed the threshold of 0.1 Gt per year. We are using a scientific-based targets methodology developed by the World Resource Institute and United Nations Environment Programme Financing Initiative to develop an emission reduction strategy.
In addition to actively participating in and supporting the activities of the National Business Initiative by voluntarily disclosing our carbon profile to the Carbon Disclosure Project, we followed the G4 guidelines of the Global Reporting Initiative (GRI) to report our carbon emissions. Minor changes were observed in Scope 1 (direct emissions) of the emissions inventory.
Our greenhouse gas inventory
Source of Emission Factors: DEFRA, Carbon Trust, Eskom website, NOVA, IPCC and Carbon Trust.
Our energy consumption and intensity
Adding the emissions inventory (Scopes 1 and 2) of our business partners to our own emissions inventory, as depicted in the following graphs, will have a financial impact if carbon tax legislation is enacted. The energy intensity of these business partners suggests the need for an energy reduction strategy.
Changes in the IDC emissions due to inclusion of subsidiaries