Background

In pursuit of transformational impact on communities, where possible, IDC structures deals to have community and workers equity ownership in IDC-funded transactions. This also leads to the achievement of national government’s Broad-based Black Economic Empowerment (B-BBEE) objectives. IDC uses trust as preferred legal entity that communities and workers establish to acquire equity. Community trust beneficiaries are always communities that live in close proximity to where IDC investments are located. Workers trust beneficiaries are mostly low level black employees.

IDC’s Socio-Economic Development (SED) unit, located in Head Office and Regions Department facilitates the proper establishment of community and workers trusts by business partners, including the following: registration of trusts; alignment of trust deeds with IDC trust policies and relevant government legislations; correct election process to appoint trustees; training of trustees, beneficiaries and management of the companies that the trusts are linked to. The IDC Academy Unit provides the required training interventions. On completion of the interventions, the management of the companies linked to the trusts are expected to ensure that trusts operations are sustained.

SED expertise is also extended to advise IDC account managers and prospective clients to unlock land under the administration of the State, traditional councils and land restituted and redistributed to communities under the Communal Property Associations and Trusts. The unlocking of land has potential to promote sustainable investments in rural areas.

Projects

2015 approved transactions with community and workers trusts

In the reporting period IDC approved 8 transactions, all 8 companies approved are with Workers Trust as an equity shareholder. There’s no transaction that was approved with community shareholding.

The approved transactions are spread among the following strategic business units: agro-processing; green industry; healthcare, chemicals, tourism; and metals, transport and machinery products. These transactions are geographically spread as follows: Limpopo, Mpumalanga, Western Cape, and Gauteng Provinces.

Community and workers trusts registrations 

In FY 2013, 7 workers trusts and 5 community trusts were registered; in FY 2014 3 community and 4 workers trusts were registered; and in FY 2015 0 community and 5 workers trusts were registered.

The registered trusts in the current year are spread around the agro processing, chemicals and allied, and metals, transport and machinery products. The geographic spread of the Trusts in the country is as follows: Limpopo, KwaZulu-Natal, Western Cape, Mpumalanga and Gauteng Province.

Of the R200 931 spent on trust registration IDC provided 50% as grant and clients provided the balance. The IDC Academy Unit assisted the trusts by providing training to trustees and beneficiaries. The training is intended to make both trustees and beneficiaries ready to execute their fiduciary duties. It further intended to make both trustees and beneficiaries understand how trusts operate, their respective roles and responsibilities and how trustees should manage successful trusts. A total of R348 879 was spent on training.

Achievements
  • One of the major challenges with community and workers trusts is that it takes long for tangible benefits to accrue to trust beneficiaries. A pilot programme is currently being conducted to try and achieve earlier realisation of benefits. The innovation is about encouraging investee companies to outsource certain service to trust so that they can realise profits for distribution in the short term.
  • IDC led to the establishment of a forum amongst Development Finance Institutions such as DBSA and PIC to look on challenges faced by Community Trust. The main objective for the forum was also to standardise the Trust Deed. The draft Trust Deed was later presented and adopted by the Department of Energy.
  • In March 2015, EXCO approved guidelines to guide the Community Trust Board of Trustees as well as Project Company to develop Community Development Plans (CDP). The CDP will list all the projects to be carried out by the Community Trusts to improve the socio-economic livelihoods of the trust beneficiaries.
  • The good news is that the Round 1 of Renewable Energy is starting to declare dividends to the Community Trusts. These trusts will begin implementing some community development projects.
Challenges

The major challenge with trusts still remains that dividends declared are first used to service IDC loans. It would take ca. 7 years or more for IDC loans to be fully repaid before the surplus returns can be used for distribution to beneficiaries. The lack of material benefit flow to the trusts makes it difficult to sustain beneficiary motivation and commitment to projects. As a result the companies in which they have invested do not realise the expected benefits of employee ownership, such as lower absenteeism, significant increase in productivity and revenue.

The general low levels of education/literacy of trust beneficiaries coupled with lack of business acumen, business management, experience and corporate governance remains impediments to effective and efficient trust management. Therefore, extensive and basic education training is required to bring most of the beneficiaries to a level adequate to manage effective trusts. Further, there is a need to train management of investee companies on how they can support trusts to be sustainable.

Many of them regard B-BBEE as a compliance matter rather than a strategy to develop their enterprises. Some of them also use trusts (B-BBEE) as means to access “cheap” funding from DFIs.

Future plans
  • Assist 17 Community Trusts in renewable energy funded by IDC to develop Community Development Plans (CDP). This will assist Board of Trustees (BoT) to ensure that the plans are in line with the objectives of the trust deed, which include how to invest/distribute dividends received.
  • Ensure that dividends to be realised by the Community Trusts in renewable energy are properly spend to improve the socio-economic livelihoods of the community beneficiaries.
  • Create a stakeholder forum for all beneficiary communities to deal with the challenges identified on the ground, such as beneficiary overlaps.
  • Facilitate the establishment of Community Ownership Association of South Africa (COASA) to champion research, influence policy formulation, drive community development, capacity building, advisory, and monitoring.
  • Facilitate the establishment of Employee Ownership Association of South Africa (EOASA) to champion research (lesson learnt and best practices), influence policy formulation, advisory, guidelines on the distribution of benefits, capacity building, advocacy and monitoring.
Performance measurement

Currently the SED intervention impact is measured by means of an annual survey that is conducted among the companies that have registered trusts with IDC investments.

Workers trusts funded financial years 2013 to 2015 

cet t1

Performance in all three consecutive financial years is declining. The first two reporting financial years only seven, and four trusts were registered. The financial year 2014/2015 the number went up by one, and five trusts were registered.

Community trust funded financial years 2013 to 2015 

cet t2

The Community Trusts registered in 2014 decreased by two due to the fact of postponement of the bids for renewable energy. In 2015 financial year there were no trusts registered.