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IDC assures black industrialists of its support amid challenges

Industrial Development Corporation South Africa CEO Tshokolo Nchocho outlines some of the successes the organisation has achieved in funding for black businesses. Camerawork: Kutlwano Matlala; Editing: Nicholas Boyd.

17th January 2020

By: Tasneem Bulbulia

Senior Contributing Editor Online

     

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The Industrial Development Corporation (IDC) presented black industrialists with funding opportunities, CEO Tshokolo Nchocho assured attendees at the recent Black Business Council’s Access to Funding Series engagement with the IDC in Johannesburg.

He pointed out that there were a number of challenges it had to contend with and objectives it had to achieve, which could make it harder to fund black industrialists.

Nchocho noted that the IDC accounted for only a small portion of investment funding in the country, compared with the four major banks. Therefore, from a strategy perspective, businesses had to approach the IDC and other sources for funding.

Nchocho said that, contrary to the perception that it did not assist black businesses, the IDC had recorded a number of achievements in this regard over the past few years.

He stated that the IDC’s contribution to expanding, growing and making the domestic economy more inclusive had been considerable.

However, in the past financial year specifically, the persistent sluggish economic environment had resulted in some of its financing and development outcomes falling short of the successes achieved in the preceding years.

Last year, R6-billion in funding was approved for black industrialists, which constituted 46% of total funding for that period.

Moreover, in accordance with its mandate to target women-owned businesses, in the last financial year, about R3-billion in funding was approved, which Nchocho noted was a 37% increase year-on-year.

Moreover, the IDC was ahead of its five-year funding target for women-owned businesses.

Another target area for the IDC was youth-owned businesses. Nchocho indicated that, last year, about R823-million was approved in this regard and that, for the five-year period, the IDC invested about R5.2-billion cumulatively, ahead of its target of R4.5-billion.

Nchocho said that, as the IDC invested in these business, a secondary beneficial outcome was the creation and preservation of jobs.

While Nchocho said that these examples showcased the IDC’s good record with regard to funding black industrialists, he noted that its funding model did have limitations.

The IDC’s funding comes from three sources, mainly, internally generated cash from investments; dividend receipts; and capital markets.

The IDC does not receive funding from the fiscus; therefore, it has to manage its operations on a sustainable budget.

This funding formula therefore required the IDC to undertake its operations sustainably, he indicated, because, if it started losing money progressively, its funding capacity would be eroded.

The IDC also has to contend with difficulties presented by the global economy and trade tensions, as well as the South Africa economy, and must take this into consideration in its funding activities.

Nchocho said the IDC had experienced some common challenges related to its funding of black businesses over the years.

These included the issues of capital, of which some clients did not often have enough, resulting in the IDC having to provide expensive equity, reducing the possibility of a return for the entrepreneur.

Also, he noted that there was a lack of active participation in IDC-funded ventures by the business owners, owing to multiple interests, which increased the IDC risk.

Also, the new IFRS 9 accounting standard had amplified the risk of low security cover through higher impairments.

There is also the issue of market risk, with some projects or transactions relying heavily on one or a few contracts, which poses a sustainability risk should market dynamics change.

Another issue is management capacity, where a lack of expertise or technical partners tends to erode the competitiveness and viability of the business.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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