GROWING AND PRESERVING JOBS
At 26.6%, unemployment in South Africa poses a challenge to the country and it has been exacerbated by the impact of the current slow growth cycle which has hampered the ability of the economy to create and retain employment opportunities for an expanding labour force. A priority for the IDC has therefore been to facilitate employment creation as well as to preserve existing jobs through its financing activities. Against this background, the number of jobs expected to be created and saved through IDC funding stood at 15 272 in the year under review. The Corporation is targeting the creation and saving of 20 000 jobs in the year ahead, with this figure set to rise to a possible 66 000 over the three-year period to 2019.
The promotion of regional equity is a key strategic objective of the Corporation and a number of interventions have been designed to facilitate development in less developed rural areas.
We have a network of regional and satellite offices across the country providing potential and existing clients with access to staff and services in those areas. Efforts at reaching out to remote communities are bolstered by an arrangement of sharing office spaces with our subsidiary, sefa, and other DFIs.
In line with economic activity, the bulk of gross transactions continues to emanate from the most industrialised provinces being, Gauteng (34%), Western Cape (23%) and KwaZulu-Natal (14%), with 29% of transactions being concluded in the other six provinces.
In respect of the distribution of gross value of funding, Limpopo accounted for a significant share at 32%, as a result of investments in the fertiliser and nitrogen compounds and mining sectors. Gauteng received 24% and KwaZulu-Natal 17%.
Rural development remains a critical challenge and we recognise the need to integrate the rural economy into the mainstream economy. Accordingly, we have been proactively identifying opportunities that have the potential to impact significantly on rural communities while avoiding duplicating the activities and mandates of other role players present in those communities.
IDC funding for activities in rural areas has totalled R31 billion for the past 20 years, with an estimated 104 000 cumulative jobs either saved or created. Despite significant IDC intervention in most rural areas, the severe drought experienced across the country in 2015 had a severe impact on rural enterprises and development.
SMALL AND MEDIUM ENTERPRISES
Over the last 20 years, more than 70% of the number and 18% of the value of IDC funding approvals went to small and medium enterprises (SMEs).
The IDC is keen to ensure the participation of SMEs in critical sectors of the economy which have long been dominated by very large players. In addition to the work of its subsidiary, sefa, and in line with this commitment, approvals in this area increased from R2.0 billion in 2015 to R2.2 billion in 2016 in 98 SME transactions.
BLACK ECONOMIC EMPOWERMENT
The IDC assists black businesses in establishing, growing and/or diversifying their businesses. The IDC also ensures that it is at the forefront of policy developments such as the Revised B-BBEE Codes and the new Black Industrialist Framework to ensure that its funding activities are in line with evolving national policies.
As the development finance institution with the largest BEE book nationally, we have, over the years, seen encouraging achievements on a number of transformation indicators including youth, women, black industrialists, B-BBEE, SMEs and jobs. During the reporting period, we approved 76 transactions valued at R4.9 billion for black-empowered businesses with black shareholdings in excess of 25% (excluding funding to subsidiaries). This accounted for 35.7% of the total value of all funding approvals, in turn accounting for 7 010 jobs that are expected to be created and saved in the year under review.
We have undertaken to lead by example through our implementation of the B-BBEE Codes, and the IDC is currently certified as a Level 2 contributor. In addition, we take a broad view on empowerment and encourage our business partners to embrace the objectives and spirit of the pillars of the Codes, insisting not only their compliance but also on a commitment towards developing and implementing a plan of action that will ultimately see them achieving at least a Level 4 under the Codes.
Manufacturing is critical to the country’s key developmental objectives of industrialisation, skills development, job creation, localisation and supplier development.
The Black Industrialists programme is intended to promote the participation of black entrepreneurs in key sectors of the economy. The IDC supports black industrialists by providing them with funding at favourable lending rates. We have adjusted our pricing model, making it easier for them to obtain a greater pricing benefit. Special pricing has been made available and includes a discount of 150 basis points (1.5%) based on the IDC’s risk pricing approach, and an additional discount of 200 basis points (2%) for meeting other developmental objectives such as jobs to be created. Other key developmental outcomes such as impact in under-developed regions also contribute towards discounted pricing.
In addition to financial support, we provide business support with several proactive initiatives aimed at either identifying new, or further developing already active, black industrialists. Accordingly, we have seen a significant increase in the number and value of businesses falling within this category. R2.9 billion (up from R2 billion) was approved for 56 black industrialists and supporting the creation of 2 263 new jobs.
The IDC is working towards a target value of R23 billion for transactions aimed at benefiting black industrialists over the five years to 2020.
Youth unemployment is one of the biggest challenges facing the country. The IDC recognises the extent of this challenge and has proactively been promoting initiatives that seek to encourage youth participation in job-creation initiatives and entrepreneurship.
Some of the challenges we face relating to youth funding include undeveloped balance sheets, limited skills and capacity, and inadequate access to information and opportunities. In recognising the imperative to help youth overcome these challenges and grow their businesses, we appointed “Youth Specialists” to drive and enhance our youth focus, during the year under review. This has resulted in changes to the Gro-E Youth Scheme, introduction of a Youth Pipeline Development Programme and a more robust Business Support Programme. In addition, adjustments were made to the IDC systems, processes and products that facilitate youth enterprise development.
During the reporting period, R970 million was approved for 19 transactions with youth shareholdings of more than 25%. This is a marked increase from the previous year’s performance when R159 million was approved for 11 transactions. The Corporation is targeting R4.5 billion for the funding of youth-empowered businesses for the five years to 2020.
The empowerment of women is important to the IDC. Efforts to provide support to female entrepreneurs have resulted in significant improvements.
The IDC has significantly increased levels of funding for women-empowered deals, indicating an increasing shift to women in larger businesses.
During the year under review, the IDC introduced specific targets for the funding of women, aimed at increasing the funding support for women-empowered enterprises. This has had an immediate impact with approximately R1.2 billion being approved against a target of R600 million. This is a significant improvement compared to the R756 million approved in the previous year.
It is anticipated that the IDC will have funded womenempowered businesses to the value of R4.5 billion over the five years to 2020.
COMMUNITY EMPOWERMENT AND SOCIO-ECONOMIC DEVELOPMENT
The Corporation remains actively involved in numerous regional development activities that include assisting local authorities and provincial governments in formulating their development strategies as well as participating directly in various spatial development initiatives. Over the years, through our grant funding for the establishment and running of development agencies, we crowded in nearly R2 billion across 32 agencies, mainly in rural areas and townships. Thus, on average, each rand provided to an agency by the IDC had a nine-fold leverage effect. The programme has since ended, with resources allocated to other spatial interventions, however, some commitments to these agencies still exist. In the past financial year, we approved three transactions amounting to R16 million.
Social enterprises are businesses with social missions which, through their lines of business, tackle social and environmental problems, and improve the lives of often the most vulnerable people and communities. Through our Social Enterprise Fund, we have supported various social enterprises across the country. The IDC has as its partner in this programme, the Government of Flanders, which has provided €4 million in funding over three years to facilitate the growth of this sector.
During this reporting period, four social enterprises – a youthowned waste collection and recycling business and three small farmer development enterprises – were funded to the value of R15 million. Also, one of the enterprises supported by the IDC, The Clothing Bank, recently won the 2016 Schwab Foundation’s International Social Entrepreneur of the Year award. The Schwab Foundation is part of the World Economic Forum.
Our Spatial Intervention Fund, which aims to address the socio-economic and developmental needs of targeted, largely marginalised, areas through public, private and community partnerships, has yielded many innovative and impactful initiatives. Four projects – a small farmer support programme, an inclusive business with supplier linkages into major retailers, an employee-ownership initiative and a township youth support programme – were funded to the value of approximately R18 million.
Regarding workers, and community trusts, the IDC has funded 22 local community trusts to an amount of R2.6 billion, and the communities are set to receive dividends of approximately R10.3 billion over a period of 20 years. We also provided expert advice and assisted with capacity-building for bidders under the Department of Energy’s renewable energy programme, specifically with regard to the inclusion of community participation in their business plans in line with bid requirements. The number of workers and community trusts registered has gradually increased as the programme has been rolled out.
CORPORATE SOCIAL INVESTMENT (CSI)
The Corporate Social Investment (CSI) programme of the IDC supports initiatives with the goal of contributing towards the improvement of the socio-economic conditions of people in disadvantaged communities, focusing on education and entrepreneurship.
During 2016 our initiatives were implemented according to focus areas as indicated in the image to the right.
Education and training are at the core of the IDC’s CSI programme. Support in this area is aligned to government’s priorities as outlined in Chapter 9 of the National Development Plan. Through these investments, the IDC affirms the government’s principle that education and training are critical for South Africa to meet its long-term socio-economic developmental goals.
In terms of sustainable livelihoods, our CSI programme also supports micro/survivalist enterprises that seek to alleviate poverty, create jobs and develop youth with appropriate skills to increase their chances of employment. This aligns well with, and complements, our developmental mandate.
A total of R39 million was spent in support of 26 initiatives. The distribution of funds is illustrated below.
Given that education is at the heart of the IDC’s CSI programme, it is allocated the largest proportion of the budget. About 85% of the education budget went to supporting interventions in the IDC’s 30 adopted schools, while 8% went towards the support for Technical Vocational Education and Training (TVET colleges). This sector is central to efforts to improve skills development for the economy. Government has identified TVET colleges as preferred training providers for scarce skills training programmes such as for artisans and in engineering sciences. Going forward, support for this sector will increase to at least 15% of the education portfolio going forward.
We continued supporting youth development through various programmes. The number of participants on our Graduate Development Programme increased to 40 (2015: 30) and the graduates were placed across all the IDC offices nationally. The main objective of this programme was to expose graduates to practical work experience and equip them with the required skills in preparing for the world of work.
Our Chartered Accountant Learnership programme remained stable with 12 trainees at different levels of the three-year programme. During the period under review, we also introduced a learnership programme for people with disabilities. A total of 30 young people with disabilities were enrolled on an NQF Level 3 Contact Centre and Business Process Outsourcing Learnership. The learners successfully concluded their learnerships and have been absorbed into various organisations.
Our partnership with Scaw Metals has seen us support 30 young people on an apprenticeship programme in various trades. This programme started in 2014 and will continue until 2018.
The IDC’s external bursary programme supports talented students from previously disadvantaged backgrounds who cannot afford tertiary education fees.
In the 2015 academic year, we supported 223 students. These beneficiaries’ fields of study are aligned with core IDC operation areas and also constitute those areas that have been identified as scarce and critical for the country. These include accounting and engineering, among others. At the end of the 2015 academic year, 57 bursars had successfully completed their studies. A total of 134 students passed and progressed to the next level of study and 72 new students are being supported.
The following graph is a representation by race and gender of the external bursary recipients.
The IDC has developed an Environmental and Social Framework which ensures consistent and systematic consideration of environmental and social components of all project investments. The IDC is, therefore, committed to supporting projects that are environmentally and socially sustainable.
We conduct environmental and social due diligences for new clients and monitor high-risk clients. The Environmental and Social Risk Rating (ESRR) is used as follows:
- ESRR 1: Excellent
- ESRR 2: Good
- ESRR 3: Poor
- ESRR 4: Unacceptable
Of the clients monitored during the year under review and through continuous engagement with them, we were able on average to improve their ESRR from “poor” to “good”. There were two clients who scored an ESRR that was, at 4, unacceptable and the IDC is currently working with the authorities to rectify their noncompliance.
Regarding material subsidiaries’ environmental impact, during this financial year a gap analysis was conducted on Foskor and Scaw’s carbon footprint data management and reporting systems and processes, to identify the extent to which these material subsidiaries are ready for independent assurance.
Foskor has subsequently developed an action plan to address non-compliance issues raised during the assessment carried out by the authorities. However, Foskor will not be able to meet the new emission standards which are proposed for compliance by 2020. For Foskor to meet the new emission standards, capital investment on new emission infrastructure would have to be considered.
The IDC strives to ensure that it always operates in an environmentally and socially acceptable manner, as a responsible organisation, when carrying out its business. Provisions for closure and rehabilitation are made at a Group level, according to the specific requirements of its subsidiaries. Consequently, for the period under review, costs for the treatment of the contaminated land at African Chrome and the waste dump rehabilitation at the Columbus Joint Venture were covered by IDC and amounted to approximately R78 million. We also committed R21 million to the waste management plan at the Middelburg contamination dump. The rehabilitation programme has now been completed and a final report will be submitted to the Department of Environmental Affairs. We also continue to monitor and implement recommendations by the Department of Environmental Affairs at Scaw Metals and have provided funding to install new equipment to enable the company to comply with environmental requirements regarding air pollution.
IDC management continues with the journey to enhance the adequacy and accuracy of environmental rehabilitation provisioning across the Group to ensure that environmental stewardship is upheld by entities over which it has influence.
The IDC values the health and safety of its employees, clients, contractors and subsidiary employees.
In compliance with Occupational Health and Safety Act, 1993 (as amended), and as a responsible organisation, the IDC continues to focus on the provision of a safe and riskfree business environment for its employees, contractors, subsidiaries, business partners and visitors.
Our commitment to health and safety is driven by our executive management, assisted by more than 40 members serving on various health and safety committees. These committees were established to strengthen and enforce compliance, conduct regular site inspections and assist in cases of emergency. The Health and Safety Committee meets on a quarterly basis and minutes of the proceedings are recorded and retained. In terms of reporting, in addition to incidents at the IDC itself, the IDC is mandated to report incidents at subsidiaries, although only where it has a shareholding of more than 50%. No reportable work-related fatalities or occupational diseases were recorded in the year under review, and during the same period, only one lost-time incident was noted at the IDC Head Office, when an employee slipped and fell on a wet floor.
We have reviewed the role and composition of our health and safety committees and have reduced the number of subcommittees of the Occupational Health and Safety Committee to one. The new subcommittee will incorporate the responsibilities of the Fire Marshal and First Aid sub-committees in addition to focusing on a management of emergency preparedness and response programme.
The IDC has voluntarily participated in the Carbon Disclosure Project (CDP) since 2013, measuring and reporting on its carbon emissions in line with the Greenhouse Gas Protocol guidelines, the ISO 14064 (parts 1 to 3) and the Inter-governmental Panel for Climate Change (IPCC) guidelines. We have based our organisational carbon footprint determination on the standard carbon management pillars: plan, communicate, measure, reduce and offset. The emission factors utilised in the calculation were obtained from published and credible data sources and referenced accordingly. The emission factor for electricity was obtained from the Eskom website.
The historical reporting and assurance of the IDC’s greenhouse gas (GHG) emissions performance have been based on the GHG emissions of the head office operations. Over the years, the IDC committed to widening the sustainability reporting and assurance boundaries for material subsidiaries. As such, energy and carbon footprint performance data have been disclosed for the material subsidiaries in the IDC’s Integrated Report.
It is the IDC’s commitment to deepen the carbon footprint assurance for material contributors across the Group in order to promote environmental sustainability. The emission intensities of subsidiaries are product-based and are reported separately at subsidiary level. During the period under review, the IDC’s Scope 1 emissions contributed only 7% to its total emissions, Scope 2, 52% and Scope 3, 41%. The addition of Scope 1 and 2 emissions from IDC’s subsidiaries to the IDC’s Scope 1 and 2 emissions count has a considerable impact with emission levels ballooning from 6 667tCO2e to 1 298 301tCO2e.
The IDC’s total energy consumption has increased by 24% relative to the base year. Such substantial changes in energy consumption are attributable to the frequent internal use of the jet (due to its added external travel use), and increased use in stationary fuel to power an onsite generator during load shedding. However, electricity consumption has decreased marginally by 6% relative to the base year (resultant: an increase in diesel generator fuel use is thought to have been offset by a decrease in electricity).
Reducing and offsetting
Our subsidiaries are investigating measures to introduce energyefficient or energy-saving measures that will positively impact the Group’s carbon footprint.
Carbon tax implications
The South African government is currently deliberating the Carbon Tax Bill which the IDC will be expected to comply with in its business dealings once it has been promulgated as an Act. The carbon tax starts at R120 per tonne of CO2e, increasing at 10% per year, limited to Scope 1 emissions and with basic free allowance for businesses across certain sectors to the amount of 60% of their annual Scope 1 emissions. An emission benchmark per unit of output will be defined for each sector. Though the IDC carbon footprint is insignificant relative to that of its major operational subsidiaries, the IDC will be eligible for carbon tax, through its subsidiaries, on its Scope 1 emissions.
The IDC is a member of, and an active participant in the The United Nations Environmental Programme for Financial Institutions (UNEPFI).
Water and drought
The IDC is also impacted by the drought affecting the country, with KwaZulu-Natal, Limpopo, North West, Free State and the Northern Cape the worst hit provinces.
50% of our investments are located in drought-stricken areas with half of those in areas declared as disaster zones. This affected primary activities that use significant amounts of water, such as agriculture and mining.
We are currently working on initiatives to assist clients that have been affected by drought, and have identified clients who would benefit from water-efficiency applications in their operations. We have signed a Memorandum of Understanding (MoU) with the National Cleaner Production Centre (NCPC) to undertake these assessments.
The NCPC will be conducting water-efficiency assessments on the IDC’s behalf in various sectors so as to reduce water consumption and provide implementation plans for more significant savings.