With 26.7% (Stefanie Moya, 2018) (see Annexure 1) unemployment in SA and a huge part of the unemployed being that amongst the youth, it becomes imperative for the government to react and do so purposefully and timeously. Big corporates have had the bulk of the slice in the economy and has contributed very little with regards to alleviating unemployment amongst the youth as well as facilitating a steady growth of the economy. The economy has grown about 1,5% in the 2017 financial year, this is hardly sufficient to justify business confidence.
Speaking at The Directors Event, former finance minister Mcebisi Jonas said the South African economy has grown at an average of 1% since 1990. In contrast, China has grown 8.5% since 2000 while India has expanded by 7%. Albeit off a low base, Africa has grown by more than 4% on average. The latter countries, China and India had concentrated their effort in manufacturing where South Africa choose to depend on unreliable sources of foreign investment. Jonas sited this as one of the reasons South Africa was not growing like some other developing economies, despite its sophisticated infrastructure and business capability. (Inge Lamprecht,2017)
Goolam Ballim, Standard Bank’s Chief Economist, discusses the year ahead (2017) for the South African economy with Stephen Gunnion. Does the risk of a credit rating downgrade to speculative status still loom heavily? And, should it occur, what will its impact be?
What an interesting and positive outlook! Goolam believes, referring to the 2017 financial period, that the strong rand will pull us through even though SA is facing a credit rating downgrade. If by June of 2017 we are downgrade to junk status we will be in recessionary times by December of that year. But until then the economy could recover in time by stabilising the labour market and drive the growth generating agenda. (The Standard Bank Group. 2017)
Government responded with the establishment of the IDC Industrial development corporation
The Industrial Development Corporation (IDC) has been around since 1940 and is a national development finance institution belonging to the government and is designed to promote economic and industrial development.
Projects financed and facilitated include those that are high-impact and labour intensive, leading the creation and innovation of new industries, using diverse expertise to drive growth in priority sectors, and to take on higher-risk funding projects.
The IDC supports B-BBEEE and is actively involved in boosting and promoting black-owned and managed business and those with employment equity, by developing skills of black employees and business owners, by supporting government projects on local, regional, provincial and national levels, encouraging its stakeholders to comply with B-BBEEE policies, and encouraging the private sector to co-finance B-BBEEE transactions. (Entrepreneur, 2018)
IDC Contribution and how it plays a role
The IDC remains committed to promoting environmentally sustainable growth and increasing sectoral diversity to boost the local production of goods. The corporation also plays a critical role, directly and through its sefa subsidiary, in promoting entrepreneurial development and growing the SME sector.
Of its intended outcomes the primary being to facilitate sustainable employment and the secondary outcomes including:
• Improve regional equity, including the development of South Africa’s rural areas, poorer provinces and industrialisation in the rest of Africa.
• Promote entrepreneurial development and grow the small and medium enterprise (SME) sector.
• Advance environmentally sustainable growth.
• Grow sector diversity and increase localised production.
• Support the transformation of communities and development.
For this assignment we will examine critically IDC role in providing finance for entrepreneurs in SA. In other words, their ability to promote entrepreneurial development and grow the small and medium enterprise (SME) sector.
Enterprise Development and Transformation –SMME & BEE
Over the last 20 years, more than 70% of the number and 18% of the value of IDC funding approvals went to small and medium enterprises (SMEs).
The IDC is keen to ensure the participation of SMEs in critical sectors of the economy which have long been dominated by very large players.
Let’s look at one of the success stories….
Success Story: Cotton traders is one of the success stories of the IDC in the textile industry
Job creation being one of the mandates of the IDC, their involvement and support to the textile industry has led to many jobs being created as well as stimulating economic growth and driving localisation.
• IDC assisted with the acquiring of plant and equipment.
• Scale up production capacity.
• Provided working capital to increase company’s efficiency.
• More jobs were created- from 50 to 200 jobs.
• The company’s factory capacity was improved to 6300 cubic meters, a further boost to the local economy. (https://www.idc.co.za/in-the-media/idc-in-print.html, 2018)
The IDC assists black businesses in establishing, growing and/or diversifying their businesses. The IDC also ensures that it is at the forefront of policy developments such as the Revised B-BBEE Codes and the new Black Industrialist Framework to ensure that its funding activities are in line with evolving national policies.
Results: During the reporting period, we approved 76 transactions valued at R4.9 billion for black-empowered businesses with black shareholdings in excess of 25% (excluding funding to subsidiaries). This accounted for 35.7% of the total value of all funding approvals, in turn accounting for 7 010 jobs that are expected to be created and saved in the year under review.
Youth unemployment is one of the biggest challenges facing the country. The IDC recognises the extent of this challenge and has proactively been promoting initiatives that seek to encourage youth participation in job-creation initiatives and entrepreneurship.
Results: During the reporting period, R970 million was approved for 19 transactions with youth shareholdings of more than 25%. This is a marked increase from the previous year’s performance when R159 million was approved for 11 transactions. The Corporation is targeting R4.5 billion for the funding of youth-empowered businesses for the five years to 2020.
Efforts to provide support to female entrepreneurs have resulted in significant improvements.
The IDC has significantly increased levels of funding for women-empowered deals, indicating an increasing shift to women in larger businesses.
Results: During the year under review, the IDC introduced specific targets for the funding of women, aimed at increasing the funding support for women-empowered enterprises. This has had an immediate impact with approximately R1.2 billion being approved against a target of R600 million. This is a significant improvement compared to the R756 million approved in the previous year. (IDC Performance & impact, 2016 Integrated Report)
IDC and how they extend their funding
With the intention to build industrial capacity in South Africa, boosting the economic growth, with has been as slow as 1.5 %, and industrial development. Funding is extended to start-up and companies looking to add to existing operations. This is done up to a maximum of 1 billion and a consideration of debt of 1 million.
IDC have a variety of funding instruments
• Equity and quasi-equity
• Trade finance
• Venture capital
With minimum requirements ranging from initial security to emphasis on black economic empowerment and black industrialist. (https://www.idc.co.za/home/idc-products.html)
Annexure 2??Findings for the year 2017