Fostering industrial capacity development in South Africa

Transcription

1 Fostering industrial capacity development in South Africa Jorge Maia Head: Research and Information PEGNet Conference 2012: How to make African Economic Lions: Tapping Africa s Growth and Poverty Reduction Potentials Dakar, Senegal, 6 September 2012

2 South Africa s industrial policy The National Industrial Policy Framework (NIPF) has the following core objectives : Facilitate diversification beyond the economy s current reliance on traditional commodities and nontradable services Promotion of value-addition, characterised particularly by the movement into non-traditional tradable goods and services that compete in export and local markets Ensure long-term intensification of SA s industrialisation process, movement towards knowledge economy Promote a labour-absorbing industrialisation path, with increased participation of historically disadvantaged people and marginalised regions in the industrial economy Contribute towards industrial development in Africa, with a strong emphasis on building the continent s productive capacity and promoting regional economic integration Under the NIPF, successive iterations of the Industrial Policy Action Plan (IPAP) seek to scale-up interventions over a rolling 3-year period (latest: 2012/13 to 2014/15), with a 10-year outlook on desired outcomes. 2

3 % Share Sectoral composition of SA s economy 26 The contribution of Manufacturing to GDP Sectoral composition of the South African economy in 2011 General government 6.9% Community, social & personal services 16.3% Agriculture, forestry & fishing 2.4% Mining & quarrying 9.8% Manufacturing 13.4% Source : IDC, compiled from SARB & Stats SA data Finance, insurance, real estate & business services 21.2% Transport, storage & communication 8.2% Wholesale & retail trade, catering & accommodation 14.5% Electricity, gas & water 2.9% Construction 4.5% Source: IDC, compiled from Stats SA data Note: Sector share according to GDP at basic prices (current prices) 3

4 South Africa s industrial policy (cont.) Industrial Policy Action Plan (IPAP) Focus sectors of IPAP considering their potential to contribute to growth, employment & equity: Metal fabrication, capital and transport equipment: - SOE procurement opportunities - Export opport. re. infrastructure & mining turnkey projects - Strengthen beneficiation & extend value chains (downstream manuf.) - Metal components manufacturing linked to APDP Automotive products, components, medium and heavy commercial vehicles (MHCV): - Raise production to 1.2 million passenger vehicles p.a. by Develop MHCV segment - Improve competitiveness to drive further value chain development and localisation of manufacturing. Plastics and pharmaceuticals: - Polypropylene and polyvinylchloride beneficiation - Local production of ARV active ingredients - Production of vaccines Forestry, timber, paper & pulp, furniture: - Accelerate forestry development and improve productivity of sawmills - Improve competitiveness of domestic & office furniture sector - Packaging, paper recycling etc. 4

5 South Africa s industrial policy (cont.) Industrial Policy Action Plan (IPAP) Focus sectors of IPAP considering their potential to contribute to growth, employment & equity: Agro-processing: - Expansion of local agro-processing, incl. small scale milling, beverages, fruit & vegetable canning, organics - Exports of beneficiated rooibos & honeybush products - High value prods. for medicinal, aromatics & flavourants markets. - Expand aquaculture sector Clothing, textiles, footwear and leather: - Recapture larger share of local market by improving sector competitiveness - High value add industrial textiles, locally tanned leather for automotive, leather goods & footwear Green industries: - Development of local wind and solar industry via REPP procurement, incl. components manufacturing - Domestic production of solar water heaters. Advanced manufacturing: - Grow advanced materials industry, including titanium, advanced composites, nanotechnology, bioceramic applications - Commercialisation of natural fibre reinforced composites, production of light & heat resistant materials 5

6 South Africa s industrial policy (cont.) Other Industrial Policy Focus Sector and Initiatives Additional focus sectors: Upstream oil and gas services and equipment; Boatbuilding and associated services industry; Biofuels; Downstream minerals beneficiation; Aerospace and defence industry; Business process outsourcing; Creative industries (crafts and music); Electrical and telecommunications cable industry; Manufacturing of set-top boxes for pay-tv,; Software industry; Localisation of nuclear components. Activities benefiting from: Locating in Special Economic Zones (e.g. Coega IDZ, East London IDZ etc.) Investment incentives (EIP etc.), including for the promotion of small- to medium-sized enterprises) Offset programme 6

7 South Africa s industrial policy (cont.) Revival or resuscitation of previously viable industries: Forging and casting Boilers Tooling Several sub-components Railway lines Expansion and/or improved competitiveness: Locomotives (refurbishment/upgrading) Wagons & coaches Railway sleepers Alloys Transformers, pumps, valves, taps Cables, overhead transmission lines, conductors Procurement emanating from SOE capex programmes Partnerships with global suppliers so as to set-up local subsidiaries to: Produce components of turbines Assemble turbines Produce components of engines (electrical & diesel) Produce components of switchgears Produce locomotives 7

8 Sector focus of SA s New Growth Path New Growth Path SA s national strategy to enhance economic growth, development, employment creation and equity prioritises: Agriculture value chain development, including smallholder and commercial farming, aquaculture and Further exploitation of mineral reserves, more advanced downstream beneficiation (beyond refining and smelting) Expand tourism offer, including infrastructure and associated support industries and services Green economy: renewable energies, energy efficiency, cleaner energy, emissions control, natural resource Knowledgeintensive industries: ICT, mining related technologies, biotechnology, healthcare etc. Manufacturing sectors prioritised by the Industrial Policy Action Plan (IPAP), aimed at growing and diversifying SA s industrial base agro-processing management 8

9 Introducing the IDC o Established: 1940, by Act of Parliament o Type of organisation: Development finance institution (DFI) o Ownership: State-owned company, 100% owned by the SA government o Total assets: ZAR112 billion (USD13.3 billion) (31 March group) o Total liabilities: ZAR20 billion (USD2.4 billion) (31 March group) o Funding status: Self financing, pays dividends and income tax o Credit rating: A3 (Moody s) in line with sovereign rating o Main business area: Providing funding for entrepreneurs and projects that are contributing to industrialisation and job creation o Geographic activities: South Africa and the African continent o Products: Custom financial products to suit a project s needs including debt, equity, guarantees or a combination of these o Stage of investment: Project identification and development, feasibility, commercialisation, expansion, modernisation o Number of employees: 770 (31 March 2012) 9

10 Positioning of DFIs within the financial system Greater importance on social and developmental objectives Greater importance on financial objectives Government / NGOs Non-commercial focus Fiscal transfers and grants Development objectives (social) Commercial and development focus Sharing risk DFIs (e.g. IDC) Internally generated funds, government funds, loans Commercial Financiers High commercial focus Private sector capital Financial objectives Known risks DFIs should not compete with other institutions, but should instead encourage cooperation to achieve its goals 10

11 Values Outcomes Objective Mission Vision Introducing IDC Vision, mission, objective and values To be the primary driving force of commercially sustainable industrial development and innovation to the benefit of South Africa and the rest of the African continent The IDC is self-financing national development finance institution whose primary objectives are to contribute to the generation of balanced, sustainable economic growth in Africa and to the economic empowerment of the South African population, thereby promoting the economic prosperity of all citizens. The IDC achieves this by promoting entrepreneurship through the building of competitive industries and enterprises based on sound business principles. Support industrial capacity development Facilitate sustainable direct and indirect employment Regional equity (including development of the rest of Africa) Growing the entrepreneur and SME sector Expansionary and/or broad-based black economic empowerment Environmentally sustainable growth Grow sectoral diversity and increase localisation Passion Professionalism Partnership 11

12 Introducing IDC Historical perspective 1940s 1950s & 1960s 1970s & 1980s 1990s Early and mid 2000s Late 2000s & 2010s World War 2 Shortage of industrial goods South African economy largely based on agricultural production and gold mining South Africa facing threat of isolation from the rest of the world Decentralisation policy by government Increasing isolation Self sufficiency Balance of payments Change in government South Africa introduced to a globalising world Addressing the disparities created by apartheid Unemployment Diversification of economy Reducing inequalities Infrastructure constraints Recession New Growth Path and Industrial policy Mandate overlap of DFIs Growing financial sector liquidity Climate change IDC established to provide financing for industrial undertakings at this stage only in the manufacturing industry Food processing; Textiles Securing energy resources for South Africa a priority Increasing natural resource beneficiation Petroleum Fertilizers Wood processing Chemical beneficiation Mining and minerals Over its history, IDC has adapted to South Africa s changing priorities and expanded into new industries as the economy developed and policies evolved Import replacement More resource intensive industries established mainly to bolster export earnings in non-gold sectors Initiation of high-tech industries Agriculture explored as a foreign exchange earner Industrial real estate development Resource beneficiation Micro-electronics Moves to encourage regional integration Black economic empowerment Export promotion Services related industries Investments elsewhere in Africa Tourism ICT Job creation Developing rural areas and other previously underdeveloped regions Downstream industries Entrepreneurial development Sector strategies Film Franchising Healthcare Financial services Transport Construction Industrial infrastructure Focus on NGP and IPAP2 Phasing out funding to service industries not aligned to priorities Job creation through development of key sectors/value chains Expansionary and broad-based BEE Funding to distressed companies Green-industries Phasing out: Franchising Financial services Transport Construction 12

13 2010 to 2014 IDC s Leadership in Industrial Development strategy Increased role in industrial development (as encapsulated in the New Growth Path and IPAP2) in support of relevant government policies through a strategic, proactive approach to funding and supported by Leadership in Industrial Development regional integration. Utilising our industry knowledge to support the development of an enabling environment by providing policy development inputs, working with government to remove constraints and contributing towards a more effective DFI system. Leveraging our portfolio to maximise our development impact. Improve customer service and efficiencies Reduce the environmental impact of IDC and industry. 13

14 IDC s Leadership in Industrial Development strategy Industrial development - objectives Sector focus in line with New Growth Path and IPAP Align operational activities with priority sectors as identified in New Growth Path and its manufacturing driver IPAP Supporting the mining industry to ensure resources are developed and beneficiated and ultimately benefit downstream manufacturing industries; Support the development of industrial infrastructure where it is linked to a project being pursued by the corporation and where other agencies cannot provide the necessary infrastructure to make the project viable Sector development strategies: Set specific objectives for each industry on which IDC is focusing and develop and implement plans to achieve these objectives. 14

15 IDC s Leadership in Industrial Development strategy Industrial development - objectives Industrial financing Increase funding to entrepreneurs while ensuring that IDC focuses on those areas where there is a gap in the market for funding - i.e. provide finance for entrepreneurs, projects, and industries that usually would not attract funding from commercial banks Just over ZAR100 billion (USD12 billion) in funding made available over a 5-year period. Proactive role in shaping and influencing policy Utilise IDC s industrial and research skills to inform policy makers and improve enabling environment for industrial development and funding; Factors impeding industry development Utilise IDC s industrial and research skills to inform policy makers and improve enabling environment for industrial development and funding 15

16 IDC sector focus areas Green and energy saving industries Bio fuels Logistics Industrial infrastructure Agroprocessing Forestry, paper & pulp, furniture Business process services Mining related technologies Craft and film Tourism Healthcare ICT Biotechnology Clothing, textiles, footwear, leather Metals fabrication, capital and transport equipment Automotives, components, medium and heavy commercial vehicles Advanced manufacturing Plastics and chemicals Mining Downstream mineral beneficiation Pharmaceuticals Grreen industry components Oil and gas Other funding areas : Venture Capital Funding to distressed companies 16

17 IDC contribution and plans in support of IPAP Metal Fabrication, Capital and Transport Equipment ZAR2.6 bil. (USD310 mil.) funding committed in 61 transactions since launch of IPAP2 in Feb 2010; Include funding for suppliers to Eskom capital expenditure programme, yellow metal manufacturer and mini steel mills; Close cooperation with Eskom and Transnet to identify and realise opportunities for local manufacturing; Future priorities: Support for SOE capex programmes; tooling, die and mould industry and foundries. Automotive Products, Components, and Medium and Heavy Commercial Vehicles ZAR2.7 billion (USD321 mil.) committed for funding in 40 transactions; Supported an OEM, as well as a host of distressed component manufacturers, through the economic crisis; Priorities: Local manufacturing of busses, trucks and taxis as well as components. Clothing, Textiles, Leather and Footwear ZAR1.2 billion (USD142 mil.) committed for funding in 109 transactions; Largest part of funding approvals to assist in stabilising industry and improving competitiveness by complementing the dti s Clothing and Textiles Competitiveness Programme (CTCP) (managed by IDC); Assisting & cooperating with the dti and industry to find workable solutions for problems facing the industry; Future priorities: Integrating regional value chains, assisting with policy development 17

18 IDC contribution and plans in support of IPAP Green Industries and Energy Efficiency ZAR5.5 billion (USD 655 million) committed for funding in 31 transactions in FY 2011/12; Renewable Energy Procurement Programme (REPP): IDC supported 19 (approx. 940 MW) out of the 47 preferred bidders in the first 2 rounds of the REPP; Large equity participant in one of the largest concentrated solar power (CSP) projects in the world to be build in the Northern Cape; Major contributor to funding for community participation in the REPP programme; Launched Green Energy Efficiency Fund (ZAR500 mil or USD60 mil)) with KfW to assist businesses to adopt energy efficient practices; Contributing to strategies to ensure increased roll-out of solar water heaters across the country. Future priorities: Continue support for renewable electricity generation, upscale implementation of energy efficiency intervention, start implementing strategies for emission and pollution mitigation. Agro-Processing ZAR1.7 billion (USD 200 mil) committed for funding in 76 transactions (e.g. chicken abattoir, dairy plant, soya processing plant); Significant participation in strategy development for the soya, aquaculture and small-scale milling industries; Will continue to prioritise: Globalisation of South Africa brands and incorporation of SA companies into global supply chains, Horticultural and grain surplus value addition; Import replacement through development of the seed oils and oil cake industry as well as malt production; Emerging industries marine aquaculture; Rural/poor linkages and establishing one-stop, agri-business support. 18

19 IDC contribution and plans in support of IPAP Plastics, Pharmaceuticals and Chemicals ZAR2.1 billion (USD250 mil) committed for funding in 49 transactions; Projects supported include pharmaceutical production, vaccine production, various plastic converters, as well as fertilisers; IDC is one of the participants exploring the feasibility of manufacturing active ingredients for ARVs locally; Assisted with modelling the economic impact assessment of the development of an ARV industry in SA; Future priorities: Beneficiation of chemical feedstock, pharmaceuticals. Forestry, timber, paper and pulp, and furniture ZAR500 million (USD60 mil) committed for funding in 36 transactions; Extensive work done to develop community forest projects; with first funding approval obtained for a project in the Eastern Cape; Assisting the dti in developing a strategy for the furniture industry; Future priorities: Community forests, pulp manufacturing, furniture. Other IPAP priority industries R400 million(usd48 million) committed for funding in 26 transactions; Funding for companies operating in advanced manufacturing (e.g. TV manufacturing, X-ray machines), jewellery, and boat-building; Managing a fund to support a crafts initiative at provincial leve, on behalf of the dti; Assisted the dti in developing a strategy for the music industry. 19

20 Regional distribution of IPAP-related IDC funding approvals - Automotive components - Fabricated metals - Plastics, pharmaceuticals, and chemicals - Chemicals - Agro-processing 7% - Automotive components - Fabricated metals - Agro-processing 1% 24% - Fabricated metals - Forestry and wood processing 2% 2% - Green-industries - Agro-processing 26% - Agroprocessing - Clothing and textiles 11% - Fabricated metals and capital equipment - Clothing and textiles - Green industries - Agro-processing - Fabricated metals - Green industries - Agro-processing - Pharmaceuticals - Clothing and textiles 11% - Green industries - Advanced manufacturing electronics - Automotive components - Fabricated metals 14% February 2010 to March

21 Prospects Thank you Industrial Development Corporation 19 Fredman Drive, Sandown PO Box , Sandton, 2146 South Africa Telephone Facsimile

22 Full-time equivalent jobs (thousands) Value (R'bn) Highlights of FY 2011/12 Record levels of funding activity: 55% increase in the value of funding approved to ZAR13.5 billion (USD1.6 billion) in FY 2011/12. Reaching more businesses, with a 33% increase in the number of funding approvals to 293 funding approvals in FY 2011/12. Increasing impact on employment: jobs expected to be created and saved in South Africa compared to in 2010/11. 48% of these expected jobs will be in rural areas. Lowering the cost of funding for businesses: Sourcing of an additional R2 billion from the UIF for funding more labour intensive businesses. Financial sustainability underpinned by profits of ZAR3.3 billion (USD393 million) i.e. a 22% increase from previous financial year. Emerging as a leader in the development of green-industries: Participation in funding for 12 of the projects that received preferred bidder status during the first round of the Renewable Energy Procurement Programme (REPP). (IDC supported 19 out of the 47 preferred bidders in the first 2 rounds of REPP) Launched R500 million Green Energy Efficiency Fund to provide lowcost funding to businesses to implement energy saving technologies Value of Funding Approvals Value of funding approvals 05/06 06/07 07/08 08/09 09/10 10/11 11/12 Impact on Jobs Direct impact on 2nd economy jobs Saved Expected to be created 05/06 06/07 07/08 08/09 09/10 10/11 11/12 22

23 Highlights of FY 2011/12 (continued) Assisting to improve competitiveness in the clothing and textiles industry: R501 million approved, expecting to create and save jobs. Administering the CTCIP and PIP on behalf of government: CTCIP - 24 transactions benefiting 123 companies were approved since inception, with an average benefit of R1.2 million per company. PIP grants totalling R1.0 billion approved since inception. Localising components for SOE Capex and renewable energy. Local production of solar water heaters gathering pace with approvals for two local manufacturers. Developing key sectors including motor vehicle components and pharmaceuticals. Localisation of components for the motor vehicle industry continues with approval for funding for component manufacturers supplying plastic interior components, chassis frame assemblies, electrical wiring harnesses and body components. Rural development through agro-processing and developing community forestry projects. Funding was approval for two community forestry projects, one in the Eastern Cape, and one in KwaZulu-Natal Application of Funding Approved Start-up 60% New client 60% Businesses Receiving Funding Distressed businesses 7% Expansion 31% Existing client 40% Ownership changes etc. 2% 23

24 Supporting Government Priority Sectors The green-economy, mining value chain and manufacturing industries dominated funding activity. Green economy: Supporting government s renewable energy procurement programme; Mining value chain: Development of a new low-cost platinum mining project with potential to further develop downstream industry; Manufacturing: Manufacture of busses; Manufacture of cleaning chemicals; Manufacture of windscreens for the motor vehicle industry. Sectoral Distribution of Funding Approvals In FY 2011/12 Infrastructure (3%) Agriculture and Forestry Value Chains (8%) Mining and Beneficiation (28%) Green Economy (30%) Manufacturing (25%) Tourism & Media (4%) ICT and Other Services (1%) 24

25 IDC s funding products Funding can be structured utilising a wide array of instruments including: Debt; Equity; Quasi-equity; Guarantees; Trade finance; Bridging finance; Venture capital. The funding will be structured in a way that will suit the business needs most appropriately. Structuring options include: Term of the funding: Short, medium and long-term loans are available; Grace periods for repayment : Repayments can be structured to suit cashflows and allow for periods where no payments need to be made on either capital or interest; Special funding schemes are available that offer more attractive terms and targets cross sectoral issues such as job creation or development of specific sectors. Also include funds managed on behalf of other organisations, largely the dti IDC s business support programme addresses non-financial support to entrepreneurs. 25

26 IDC special funding schemes Gro-Ɛ Scheme UIF Fund for job creation Distressed funding Transformation and Entrepreneurial Scheme (TES) Women Entrepreneurial Fund People with Disabilities Fund Development Fund Equity Contribution Fund Community Fund Risk Capital Facility (RCF) Isivande Women s Fund Natural Disaster Relief Initiative Clothing and Textiles Competitiveness Programme (CTCP) Support Programme for Industrial Innovation (SPII) Clothing, Textiles, Footwear and Leather Competitiveness Scheme Energy Efficiency/Renewable Energy Fund Agro-processors Linkage Scheme Cross sectoral schemes/funds Managed on behalf of the dti Sector specific schemes/funds 26

27 IDC activity in the rest of Africa as at 31 March 2012 NIGERIA Hotel SENEGAL Airport Port infrastructure GHANA Hotels & Accommoda tion ICT TOGO Financial services Transport NAMIBIA Agric. / agro-processing Mining Cement BOTSWANA Hotel & Accommodation Sierra Leone Bio-Energy D.R. CONGO Mining Franchising (Food) MALAWI Food and Agriculture Franchising (Tool Hire) ANGOLA Energy ZAMBIA Storage and warehousing Healthcare LESOTHO Energy SUDAN Infrastructure (Water) ETHIOPIA Agro-processing ZIMBABWE Mining Hotels Telecommunications Financial services SWAZILAND Basic chemicals Agro-processing Financial services KENYA Energy Sugar UGANDA Hotels & Accommodation Infrastructure TANZANIA Sugar MAURITIUS Communications MOZAMBIQUE Mining Manufacturing (Textiles) Agro-processing Energy 27

28 Regional industrial development & integration Pursue regional integration to build more competitive value chains in the region, such as: Cotton-to-clothing Business hotels Forestry, wood and related products Rice production and milling Mining and resource beneficiation Conducive infrastructure and logistics 28

29 IDC s financial model Loan funding Interest repayments Capital repayments Subsidy IDC Funds Borrowings Balance sheet Mature investments Retained earnings Dividend payments Equity funding Capital growth Exits of mature investments IDC relies on borrowings, internal profitability, capital growth and exits from mature investments to maintain and expand its funding ability The balance between the corporation s developmental role and financial performance is maintained by relying on proceeds from mature equity investments (both dividends and capital growth) to cross-subsidise higher risk activities and the loan portfolio. 29