Creating jobs through efficiency
The Gro-E Scheme is capitalised for an amount of R10-billion, of which R2.2-billion has been approved. The fund's success is measured on how efficiently it can create jobs. It was established in mid-2011 and is capitalised by the IDC.
The original benchmark was that, for each R500 000 invested, one job would be created, but the most recent analysis shows that projects the fund has invested in are creating one job for every R300 000 invested.
The fund runs for five years or until the monies are exhausted. It offers financial support to start-up businesses, including finance for buildings, equipment and working capital. The total fund is quite large, but its investments tend towards a larger number of smaller investments. This kind of investment typically has the greatest impact on job creation. The aim of the IDC is to stretch the available funds as far as possible and to have the greatest impact.
The fund does not only target new companies, but also finances companies looking to expand. The proviso is that they must show an ability to create jobs.
Businesses should also operate in sectors supported by the IDC. These include:
- green industries, including renewable energy, energy efficiency, pollution mitigation, waste management, recycling and biofuels;
- the agricultural value chain, including agro-processing;
- manufacturing, focusing on advanced manufacturing. This includes products such as automotive components, medium and heavy commercial vehicles, clothing, textiles, footwear and leather, forestry, paper, pulp, furniture, metals, capital and transport equipment, pharmaceuticals, plastics and chemicals
- the mining value chain, including downstream mineral beneficiation, mining and mining technologies;
- tourism and high-level services, which include business process services;
- media and motion pictures, which has to do with media pictures production, the media value chain of broadcasting (radio and television), media expansion including new media, music value chain, and film production and animation; and
- the knowledge economy, to do with health care, information and communications technology and biotechnology.
Criteria set out for financial assistance include:
- Applicants are start-up businesses, and funding includes finance for buildings, machinery and working capital;
- Existing businesses may apply for funding to expand their businesses;
- Businesses must demonstrate economic merit and have prospects of acceptable profitability to be able to service their obligation;
- For the duration of the funding period, the maximum cost per job does not exceed R500 000 relative to the total funding required;
- Broad-based black economic empowerment certification from an accredited verification agency is required, where applicable; and
- The business must be operating or expanding in South Africa.
The scheme works by funding businesses at prime less 3% for loans and at a real after tax internal rate of return of 5% for equity financing. A minimum of R1-million and a maximum of R1-billion per project is allowed.
The first draw must be within a year of approval for funding (if not, pricing reverts to normal IDC pricing). The reduced loan pricing is available for five years, after which normal IDC pricing applies. Finance required in excess of the scheme's limit can be accessed through normal IDC funding.