Big business parastatal, the Industrial Development Corporation, is up for restructuring, says the government. The IDC thinks otherwise. Reg Rumney reports
DESPITE providing almost R400-million to support black economic empowerment, the parastatal Industrial Development Corporation is still up for restructuring.
The recently released White Paper on the reconstruction and development programme reiterates an earlier promise to restructure the IDC, the Small Business Development Corporation and other institutions “which have hitherto served sectional interests”.
The IDC has embraced black economic empowerment in the last few years. Its most recent, high-profile black empowerment venture was to provide bridging finance for a black buyout of the controversial Metropolitan Life deal which recently enabled Dr Ntatho Motlana to list his New African Investment group — and increase his paper wealth by nearly R40-million.
However, critics could charge that this does not have much to do with industrial development, and that the IDC has undertaken these projects for the sake of gaining credibility.
At a glance it hard to see what some of the projects the IDC has been involved in develop South African industry, rather than the financial sector. The IDC’s most notable black economic empowerment project was the rationalisation of the sorghum beer operations of the now disbanded Administration Boards and the sale of the shares in what became National Sorghum Breweries to blacks.
IDC managing director Carel van der Merwe says the IDC has already committed R400-million over the last three years, having financed a black stake in the MTN network and provided R20-million for the community bank.
The R140-million advanced for the Metpol deal is already back in the IDC’s coffers for reinvestment.
The IDC may soon become involved in a new black empowerment deal. A United States company is looking at a deal which could be worth R100-million to manufacture enamelware such as baths and sinks, Van der Merwe says.
The IDC would like to plough R200-million a year for the next five years into black businesses, within certain parameters because these are low- yielding investments.
The pressure is on the IDC to help more black businesses, but Van der Merwe believes the IDC is moving as fast as it can. Small business is being catered for by the SBDC, and a duplication of effort is not justified.
“Small business is a major employer worldwide. But you can’t create growth with small business alone. You need large business to make the economy grow.”
Export revenue from the four large projects the IDC is engaged in will garner more than all of South Africa’s manufactured products did last year.
He mentions Richards Bay, where the expensive terminal was long regarded as a white elephant of overspending on infrastructure during the gold-led boom of the apartheid years. Richards Bay in 1969 had 3 000 inhabitants. Then came aluminium producer Alusaf, among other big projects. They employed fewer than 10 000 people. After 25 years, the number of inhabitants has risen to 135 000, 100 000 of them black.
The spin-off of large projects is enormous, he adds. The IDC estimates that of the number of jobs ultimately created for every job the IDC creates, the multiplier, is seven. Hence Van der Merwe appears puzzled about the need to restructure his organisation. He feels it should be business as usual at the IDC.
Department of Trade and Industry special adviser Zav Rustomjee believes otherwise. He says in a carefully worded statement: “The RDP calls for a comprehensive review and restructuring of industrial policy formulating and implementing institutions. There should be no exceptions to this and it will certainly not be business as usual.”
Referring to objectives outlined in the RDP, Rustomjee lists a range of objectives, from extending the competitive edge of certain industries right through to raising productivity through human resource development, and support for small and medium-sized enterprises.
“I don’t know what they mean,” says Van der Merwe. We had quite a few sessions with the ANC’s economic planning department before the elections, with Ministers (Jay) Naidoo and (Alec) Erwin.” After the election he has talked to Trade and Industry Minister Trevor Manuel.
“We also replied to them in terms of the original RDP on our role.”
Since the election, however, there has been no contact with anyone in Naidoo’s department.
He believes the government feels the IDC is not doing enough for small business, but “that is not our main business”.
The IDC, says Van der Merwe, assists businesses with assets of R5-million to R100-million, which we regard as small business.
The IDC handed over its small business development arm to the SBDC, of which it owns 50 percent, when it was formed.
“We’re a small outfit of 500 people, handling assets of more than R10-billion. The SBDC handles R1-billion with double that staff. We serve companies that don’t need much aftercare.”
Despite a perception that the IDC toed the apartheid government line, and was an instrument of decentralisation policy aimed at putting industry next to the labour pools of the homelands, as well as being a home for Afrikaner males, Van der Merwe says the IDC is non-political.
“We’re a non-political organisation, and have been non-political since our formation in 1940. There are no politicians on the board.”
However, the government appoints the directors of the IDC.
The government has the rights of a shareholder: it is not allowed to interfere in the day-to-day running of the company but can intervene by changing the board and firing the management.
The threat of intervention may be enough, hence the high-profile black empowerment projects.
The IDC’s present board is white, Van der Merwe admits, but it has an active affirmative action programme. Rather than go in for tokenism in a rush to appoint a black board member, he says, the IDC has waited until after the election and the present board will be expanded in January with the appointment of four or five new members.
Senior management has no black representation yet. There are four or five black managers.
Of the 250 professional staff, 45 are black. On the administrative side the figure is 20 percent black, and this does not include blue collar workers such as cleaners and drivers.
He admits the IDC is under a lot of pressure to step up the number of black staff.
Care must be taken with affirmative action not to damage the IDC’s “core of competence”, he says. “We employ top guys here. The government relies on us for expertise. For example, we were asked to do a study for the government on the financial implications of the Olympic Games.”
Better paid than the public sector, IDC staff are not paid top-dollar.
Research shows IDC pay in the third quartile, in other words second from the bottom of private sector companies surveyed, if pay is divided into four groups.
“For a parastatal we probably should be paid less then the private sector.”
It is also a misperception that the IDC is sitting on a assets which could be sold off to fund the RDP.
The large projects the IDC is involved mean the IDC has to find R10-billion to create projects of R30- billion over five years. That has to come from the sale of IDC assets.
The IDC has sold around R4-billion of assets already to meet the commitments of among other the Alusaf project and most of the assets it has acquired over the years will have to be sold to finance large projects.
Many of the shares it holds are unquoted, and this makes them more difficult to sell because in many cases they have pre-emptive rights attached.
For the future the IDC sees three streams of investment.
One will go into social upliftment in meeting basic need, much of it stimulated by the government.
Another will be capital intensive investment to create badly needed foreign exchange, in large projects where the stress is on beneficiation, that is turning raw materials into something more valuable, like iron ore into steel coil.
The third is investment in labour-intensive large- scale agricultural programmes. The IDC is involved in tea plantations, coffee growing, edible nuts of various types, table grapes for export and orchard schemes.
Van der Merwe notes that the citrus industry can be expanded by about five percent to create another 20 000 jobs.
“If I was in government I would not interfere with something that is working well. I would, however, like to accommodate whatever makes sense, if they come up with ideas which make us more efficient in terms of job creation.”
The government has received over R2-billion in tax and dividends from the IDC over its existence against the R900-million it has put in.
Van der Merwe stresses the IDC doesn’t do social upliftment or infrastructure.
Working within the framework of policy set by the Department of Trade and Industry, the IDC has to get its money back plus profit.
Echoing comments frequently made by SBDC managing director Ben Vosloo he says the development corporations to the north of South Africa are bankrupt.
“Where they went wrong was by taking over existing businesses. Surely this is not envisaged for the IDC.
“I see the IDC hopefully carrying on under the new government the same way as it did in the past.”
BLACK ADVANCEMENT
Medical clinics R40-m
Sorghum Breweries R44-m
E/Cape Bottling plant R15-m
Metropolitan Life R140-m
Community Bank R40-m
Merchant Bank R8-m
Cellular phones R97m
SA Express R8-m
Total R392-m