Business Development

Transforming South Africa’s economy

TP Nchocho

By TP Nchocho

DFIs including IDC will continue to play a critical role

A key attribute of the Industrial Development Corporation (IDC) is its dexterity – the agility with which it has been able to respond to the pressing needs of the country at any given time. Since its establishment, the Corporation has been instrumental in spearheading and implementing South Africa’s industrial development trajectory helping to create industries that have since become cornerstones of the country’s economy.

It was the foresight to future-proof the country’s economy that prompted the IDC to play a critical role in establishing the petrol-chemicals, mining and mineral beneficiation industries, fabricated metals, agro-industries, clothing and textiles and renewable energy infrastructure, among others. While the country’s economic challenges have evolved over the years, the IDC has remained resolute in its mandate to address these challenges.

Post the democratic dispensation, unemployment, poverty, and inequality have stubbornly remained South Africa’s biggest challenges. And while tremendous progress had been achieved in addressing these, the global financial crisis and subsequent economic recession post-2009 and most recently, the Covid-19 pandemic disrupted this momentum. These twin calamities wiped out years of progress in poverty reduction – more so in the most vulnerable of our communities.

In both these moments, IDC stepped in and ably demonstrated its countercyclical role – by ramping up its investment in the economy. It replicated a similar response to the July riots, where it stepped in to help prevent deindustrialisation in affected areas and save jobs.

It is within this context but with a much broader obligation that the Corporation has embraced the government’s directive to play a critical role in the transformation of our economy. This among others has required the Corporation to adopt a proactive funding role, enabling black-owned enterprises to upscale into critical sectors of the economy with a key focus on manufacturing.

Agreed, the unemployment crisis will not be resolved in the medium term. While this remains a discomforting reality that poses a lingering challenge, the limited participation of black entrepreneurs in the mainstream economy has constrained our national prospects. Effective participation of black professionals and entrepreneurs is a key ingredient if we are to achieve our national development ambitions. The talent and skills locked up in South Africa’s people need to be released for our country to reach its development potential.

The Black Industrialists Programme is purposeful and focused on removing barriers to entry through the provision of capital to deserving black-owned businesses that have the potential to upscale into productive economic value chains.

While the initial focus of the Black Economic Empowerment (BEE) programme focused on black-owned companies buying equity in established companies, the objective of the Black Industrialists Programme extends beyond this approach – to enable the majority of our people to own and manage businesses operating in key sectors of the economy. This approach is important to the IDC, not least because Development Finance Institutions (DFIs) play a critical role in clearing and affirming a path for the private sector to invest in black excellence – and support black-owned entities with the potential to become global businesses.

 

This dynamic response is what South Africa needs to accelerate the pace of the Black Industrialist Programme. It is precisely the reason why CEOs of some of South Africa’s largest DFIs have set themselves the challenge of responding to the Black Industrialist programme collectively so that the total of our interventions is greater than individual efforts. In this regard, we are appreciative of complementary efforts and progress by the DTIC, the National Empowerment Fund (NEF), the Export Credit Insurance Corporation of South Africa (ECIC) and other state institutions to advance the objectives of the Black Industrialist Programme.

 

Over the last five years, the IDC alone approved R25 billion to support transactions for 328 black industrialists. Key considerations relevant to approving these transactions hinged on providing support to entrepreneurial leadership, controlling or majority-equity shareholding or financial interest, significant influence on strategic direction and executive participation or managerial control over operational activities of these entities.

 

Beyond supporting the Black Industrialists Programme, IDC’s mandate extends to maximising our developmental impact through job-rich industrialisation, while contributing to an inclusive economy by, among others, funding black-owned and-empowered companies, women and youth-owned and -empowered enterprises. As a development finance institution, the IDC ensures its long-term sustainability through prudent management of its investments as well as financial resources and we believe investing in dynamic black entrepreneurs fulfils this objective.

As we gather at the inaugural Black Industrialists and Exporters Conference (BIEC) it is a time to reflect on the successes of this programme, acknowledge the shortcomings where they exist and engage on how we may improve the programme going forward. Most important, we are confident that the Black Industrialist programme is an evolutionary step toward achieving an inclusive, transformative, and dynamic country that is reflective of our aspirations as South Africans.

TP Nchocho is CEO of the Industrial Development Corporation

About the author

Byron Adonis Mutingwende