Wealth of funds available for business
Although the IDC has a long history of funding large-scale projects and is a significant shareholder in a number of large companies such as Foskor, Hans Merensky, York Timbers and Hernic Ferrochrome, its services are not restricted only to large companies.
The IDC has provided assistance to organisations across the spectrum of South African industry, including financing films, providing assistance to companies in the medical technology arena and driving the beneficiation of the country's natural resources.
Meryl Mamathuba, Head of the Development Funds Department at the IDC, explains that the IDC is a self-financing organisation that aims to promote industrial capacity development within the African continent and entrepreneurship within South Africa. Creation of sustainable jobs, sector development and the development of small and medium enterprises (SMEs) are some of its critical outcomes. To achieve this, it actively promotes and tries to enable companies to exploit potential new opportunities.
However, as a self-financing organisation, all investments are made with the expectation that there will be a "profit" that can be allocated to future developments.
"We have also identified a need for funding highly developmental projects that fall outside the risk profile that we would traditionally have considered acceptable for IDC backing," she says. "To cater for this need, a series of ring-fenced funds were created, each targeting a specific sector or group of people."
"By setting aside a specific amount of money to target a specific gap in the market, it is possible to meet the demand while still managing the risks associated with the investments in a responsible manner," Mamathuba says.
At the moment the corporation oversees a number of specific funds; some are capitalised by the IDC and others are capitalised by government, but all are administered and managed by the IDC.
The way in which the corporation allocates its funding is informed by the IDC's mandate and objectives, which in turn are mostly informed by the development priorities identified by government. Ring-fenced funds are therefore directly targeted at meeting the needs of the IDC's and government's strategies that are not being addressed by other initiatives.
The drive to assist entrepreneurs is a key objective of the IDC and as such the smaller projects that are financed by the ring-fenced funds provide direct assistance to this group.
"We are not here to compete with other providers of finance, such as banks, but to complement them," Mamathuba says. "Where there is a gap in the market we try to provide finance to stimulate growth."
"If we do not assist entrepreneurs, we will not see innovation within the South African economy and our efforts will not translate to capacity growth in the country," she says.
Mamathuba adds that one of the key areas on which the organisation focuses is around issues of capacity building. Most of the funds managed by the IDC have a business support component which provides assistance to its clients for the completion of gaps in their business plans, and for their training and mentoring needs during the implementation phase.
The IDC ordinarily finances projects that have progressed beyond proof of concept in terms of their development. Even though the organisation does not provide funding for some parts of the project life-cycle, Mamathuba says there are other funds managed by the IDC that are focused on delivering support at those stages.
These include funds such as the Support Programme for Industrial Innovation and the Technology Venture Capital Fund, which seek to assist technologically innovative projects at research and development stage. These funds would not finance basic research but do fund qualifying transactions from prototype stage through to commercialisation stage. However, there are other funds within the government cluster which are managed by sister organisations, such as The Technology and Human Resources for Industry Programme, which focuses on funding for basic research.
Upon receipt of the client's application, which is in form of a business plan, the IDC team will perform a desktop assessment of the project, based on the written business plan provided by the client, in order to establish whether a project qualifies for funding or not.
"Should the project not qualify for funding, the IDC will provide feedback to the client outlining reasons for the rejection. This feedback can serve as a powerful tool to the client in terms of them improving on their weaknesses in respect of future applications," Mamathuba says.
To ensure easy access to the IDC's services, the corporation has over the past four years developed a footprint in all the provinces in South Africa. In addition, the corporation has a call centre which directs all applications to the relevant personnel. The corporation has also set up a walk-in centre at the IDC head office in Sandton, to assist clients who visit the IDC without having arranged an appointment with any of the IDC personnel. This ensures that walk-in clients are not turned away without being assisted.
The longest-running of the IDC's funds is the Support for Industrial Innovation Fund, which is capitalised by the government and receives an annual allocation from the Treasury to continue its mission. Last year the fund supported 46 projects to the value of R71-million. This indicates that most of the projects funded were fairly low in value, but Mamathuba says that they came from both smaller and larger organisations.
Other funds include the Transformation and Entrepreneurship Scheme, which includes specific allocations for women and disabled people; the Gro-E Fund, which aims to support high-impact job creation projects with R10-billion available over five years to support projects in specific sectors; and the Green Energy Efficiency Fund, which supports investments in driving a low-carbon economy for South Africa.
Another fund that has been designed to meet a specific purpose is the UIF Fund. This fund is managed by the IDC, but the capital has been sourced through two bonds issued by the Unemployment Insurance Fund (UIF). Mamathuba explains that the UIF is investing the money with the IDC and expects a return on its investment. It therefore has also set the criteria for loans being issued by the fund. These terms ensure that the fund works towards preventing job losses and creating new jobs. This ensures that the fund will not only generate returns but also reduce the number of people who require the assistance of the UIF.
With the government's new growth path aiming to stimulate economic growth in South Africa, the IDC looks set to maintain its position as one of the key providers of funding to companies that want to to increase capacity, provide employment and grow the economy.
For more information on the work of the IDC, please contact the call centre on 086 069 3888 or email: [email protected]