MINISTER’S FOREWORD
Minister Ebrahim Patel
 
 
Industrial funding is a key instrument to reignite growth and to shift our economy onto a new inclusive growth path. The funding strategy has to adjust to both structural and cyclical trends in an economy.
 
 

Technological innovations, developments in the political economy (local and global) and demographic factors will reshape the South African economy over the next decades in profound ways:

  • The greater use of robotics, artificial intelligence and data-based networks in more economic and social applications will disrupt economies, markets and jobs.
  • Economic populism in developed country markets may result in changes to trade, investment and migration policies that affects the economic integration project
  • Pressures to address high levels of ownership concentration in the economy, inequality in the society and joblessness will require structural changes to the economy to ensure a fairer, more inclusive and broader-based growth model
  • Sharp levels of urbanisation and inward migration to South Africa and a large youth demographic that is not being tapped sufficiently with job and entrepreneurial opportunities, will place pressure on infrastructure, labour markets and social policies.

These developments come on top of contemporary or cyclical factors: changes in the commodity demand cycle, a domestic economy that has gone into recession, a sovereign ratings downgrade to sub-investment level by some agencies, serious concerns about governance within public enterprises and in procurement systems, slow global and continental growth.

They place greater value on smart governance to manage these new and older challenges - and sometimes contradictory forces and outcomes - to the benefit of South Africans as a whole and we should identify what we can do (for example skills retraining, R&D investments, job-rich industrialisation).

To achieve national economic goals require that we build on our advantages: location on a continent with huge potential; leveraging more from our position as Africa’s largest industrial base; a strong and sophisticated financial market, a technical and professional skills base that is expanding; valuable deposits of natural resources that can be a source of new industrialisation, pockets of industrial innovation; advanced infrastructure in many parts of the country, a youthful population that can be a source of energy and enterprise, growing cities and urban densities that can benefit the economy, among many strengths.

The Industrial Development Corporation presents its annual report and releases its financial statements in this context.

The report records a number of gains that the IDC has made: increasing its approval of new projects and the expected jobs impact and expanding transformation through higher levels of funding for black industrialists and youth and women-empowered companies. It also increased its net profit last year.

The report points to significant headwinds and challenges in the economic environment that impacted on the IDC, resulting in slower levels of disbursements as companies postpone investment decisions, weaker approval levels for manufacturing (including the labour-intensive agro-processing and clothing & textiles sectors) and limited progress to achieve the corporate investment targets set for the IDC.

A new “national deal” to get back to investment grade and to address the needs of our people requires a roadmap consisting of four crucial elements:

  • Developing a credible growth story that places emphasis on sectors and market-opportunities with high growth and jobcreation potential, attracts investment and ensures effective implementation of the State’s nine-point plan.
  • Transforming the economy to make it more inclusive, bringing black South Africans, young people, the rural poor and the urban unemployed into the economy with speeded-up actions against high levels of economic concentration, inequality, social exclusion and joblessness
  • Ensuring integrity in governance and decision-making, manage our fiscal policies responsibly and sustainably, to inspire confidence among our people
  • Deepening domestic economic partnerships, with greater efforts to pursue a social compact between government, business and labour that focusses on jobs, investment and transformation.

The IDC can play a key role, with other public agencies, to respond to this forward-looking agenda:

Growth story: through its funding for industrial development, the IDC is attracting investors to the economy and facilitating the creation of sustainable jobs. The R15.3 billion funding that IDC approved during 2017, the highest nominal level yet, is facilitating R47 billion of investment in the economy. The report provides a number of case-studies of partnerships with private sector investors and industrialists.

To assist priority sectors, government has set up a Steel Competitiveness Fund to be administered by the IDC. The R95 million that the Economic Development Department will be transferring from its budget over the next three years, will allow the IDC to make available R1.5 billion at lower interest rates to improve the ability of this industry to compete on the international stage. The Fund will be available to foundries, valve and pump manufacturers, steel fabricators and capital equipment manufacturers including black industrialists, to help the core of our manufacturing industry to survive difficult global economic conditions.

The corporate targets set for the IDC for the new financial year will require that it expands its approval and disbursement levels and focus on a greater economic growth impact to its work.

Transformation: in the past 12 months, IDC investment resulted in 20 881 jobs that will be created and saved. R10.1 billion of the funds approved were for to black-empowered companies (which refers to companies with at least 25% shareholding by black South Africans). Of this sum, R4.7 billion will benefit companies that are controlled by black industrialists. Funding to women-empowered and youth-empowered businesses also increased to R3.2 billion and R2.3 billion respectively. Transformation is both a social imperative and a source of growth as the economy is opened up to more black and youth entrepreneurs, the structure is shifted to greater local value-addition rather than export of raw materials only and more jobs are created for each billion investment committed.

Governance integrity: in executing its duties, the IDC is responsible for the approval of large sums of money and must always be subject to high levels of integrity in its decisions. The IDC has systems of corporate governance in place and to enhance transparency and accountability and has from June 2017, begun publishing details of all the investors to whom it provides industrial funding. The IDC and state-owned companies will need to further strengthen systems of governance to take account of legitimate public concerns about corruption. The IDC has focused on growing its portfolio and deepening its transformation impact whilst maintaining its financial sustainability.

The IDC’s status as a financially sound, administratively well-run institution is a result of dedicated people who focus on the task of industrial funding and good governance. I wish to thank Ms Busisiwe Mabuza and the Board of the IDC for their guidance and support to IDC’s management as well as the strong governance culture which they instil. I also thank Geoffrey Qhena, who continues to leads the Corporation through challenging times and the IDC management and staff who support him.