The government is contemplating a new model of funding the Industrial Development Corporation, namely the possibility of “regular cash injections” from the fiscus, according to Economic Development Minister Ebrahim Patel.
He was briefing the media before the department’s budget vote in Parliament on Tuesday.
“Part of the longer-term thinking that the [IDC] board had begun to engage me on is a sustainable funding model that also looks at contributions from the state,” Patel said.
The corporation funds its investments on the strength of its balance sheet, which is boosted by its shareholdings in listed entities such as Sasol and Kumba Iron Ore.
It earned more than R2-billion in dividends from its listed financial assets last year, according to its annual report, and R72-million from unlisted assets.
No blank cheque
Patel said some conditions had to be met before the state handed over any money, however.
The first was that the full extent of the current balance sheet had to be utilised. Second, the corporation would have to prove a “significant cost benefit” given the competition of government departments for allocations from the fiscus.
Patel said the move would bring South Africa closer to the model in Brazil, where the corporation’s equivalent, the Brazilian Development Bank, was funded by a tax on companies.
In his budget vote speech, Patel said the corporation was a critical part of his department’s plans and had a major role to play in providing lending to boost the development of infrastructure, job creation and the growth of the green economy.
The corporation will issue a jobs bond to the value of R2-billion in addition to the R2-billion issued in 2010, which was taken up by the Unemployment Insurance Fund. It will also issue a R5-billion green bond with a 14-year tenure, which will be taken up by the Public Investment Corporation.
Patel said the aim was to earmark the money raised for green economy investments.
Meanwhile, small businesses have received a major boost with the announcement this week that the China Development Bank would lend the corporation $100-million. This comes on the heels of the unveiling of the Small Enterprise Funding Agency, formed by the amalgamation of the South Africa Microfinance Apex Fund, Khula finance and the corporation’s small business lending arm.
The loan will be over 10 years to assist the funding of a new agency, according to Patel.
He said in his speech the agency would offer loans of up to R3-million and would have R2-billion available over the next three years, along with a R921-million shareholder loan from the corporation. The merged entity would save the government more than R20-million in duplication of services and cost, he said.
To boost skills and expertise in small business, the department has signed an agreement with the South African Institute of Chartered Accountants to train 100 professionals.
These chartered accountants would be used to set up a business hub to provide technical support to small businesses, at a cost of R6-million, Patel said.