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Johannesburg - The Industrial Development Corporation (IDC) has been told to boost its financing capacity through aggressive fund-raising on the capital markets, Economic Development Minister Ebrahim Patel said on Tuesday.
"We have looked at the IDC's balance sheet and it's clear that the IDC has considerable scope to leverage more money off its balance sheet," Patel told parliament's portfolio committee on economic development on a review of how South Africa's development finance institutions operate.
"Put simply, the IDC is able to enter capital markets to get loans using its balance sheet as a guarantee and in the work we have done with the IDC we have asked them to use that capacity more aggressively."
Patel said the IDC had also been told to relook its holdings, and consider liquidating some and using the proceeds to finance development projects.
He also hinted that a recapitalisation of the IDC might be on the drawing board given the country's dire poverty and unemployment levels, and the fact that the corporation's last cash injection happened more than half a century ago.
"Its last fresh funding injection was only in the 1950s, so does it have the capacity to fully address the challenges of today?"
SA should use Brazilian model
Patel told MPs the legal transfer of the IDC, Khula Enterprise and the South African Micro-Finance Apex Fund (Samaf) from the department of trade and industry to his department had been completed and his review of the agencies was well advanced.
At issue was bringing their functioning in line with the government's strategic plans, in particular the Industrial Policy Action Plan and the growth plan.
He confirmed that South Africa was looking at emulating the success of the Brazilian development bank, BNDES, in financing enterprises and boosting manufacturing. The bank last year issued about $70bn in loans, compared to the IDC's R10.8m.
"Poverty, unemployment and inequality is so large that we need to significantly change the way we work and one way is to ensure that development finance institutions are more effective," Patel said.
"We would be able to do a lot more with the agencies if we had more resources."
He said the IDC's re-entry into debt capital markets had to be done prudently, but pointed out that at the moment its debt-equity ratio was "extremely low by almost any standard".
"So the IDC will be entering capital markets more actively in future to try to raise more money for its development mandate."
All the development finance institutions transferred to his new ministry would be asked to cut operational costs and become more efficient so that more of its funds reached enterprises and faster, he said.
One step in this direction would be putting their provincial offices under one roof to cut overheads.
Patel said his department saw a key role for the development finance institutions in curbing the youth unemployment crisis.
For example, the IDC would work with large enterprises it financed to find ways to bring young people into sustainable employment, he said.
Focus should be on youth
Towards the same end, its pre-1994 support for artisanal programmes would be revived.
"Close to three-quarters of unemployed people are young people. If you look at it differently, if you look at all young people then half of all young people of working age are unemployed. So we need extraordinary measures to meet the challenge of youth employment."
Khula Enterprises would also be called upon to make a pointed effort to foster youth entrepreneurship.
Patel said he planned to bring the development finance institutions' revised strategic plans to Parliament in the second half of the year, with job creation firmly written into their mandates.
"We have to ask what is the impact on jobs and industrialisation. Are the jobs sustainable and how many jobs are we creating per R1m of support? We need to improve the job impact per unit of support and assistance that is rendered."
He denied claims by the Democratic Alliance that he was blocking the implementation of the wage youth subsidy that he had announced in February as "without foundation and highly regrettable".
"The youth subsidy is one element of a concerted strategy to reduce youth unemployment," he said.
- Sapa
"We have looked at the IDC's balance sheet and it's clear that the IDC has considerable scope to leverage more money off its balance sheet," Patel told parliament's portfolio committee on economic development on a review of how South Africa's development finance institutions operate.
"Put simply, the IDC is able to enter capital markets to get loans using its balance sheet as a guarantee and in the work we have done with the IDC we have asked them to use that capacity more aggressively."
Patel said the IDC had also been told to relook its holdings, and consider liquidating some and using the proceeds to finance development projects.
He also hinted that a recapitalisation of the IDC might be on the drawing board given the country's dire poverty and unemployment levels, and the fact that the corporation's last cash injection happened more than half a century ago.
"Its last fresh funding injection was only in the 1950s, so does it have the capacity to fully address the challenges of today?"
SA should use Brazilian model
Patel told MPs the legal transfer of the IDC, Khula Enterprise and the South African Micro-Finance Apex Fund (Samaf) from the department of trade and industry to his department had been completed and his review of the agencies was well advanced.
At issue was bringing their functioning in line with the government's strategic plans, in particular the Industrial Policy Action Plan and the growth plan.
He confirmed that South Africa was looking at emulating the success of the Brazilian development bank, BNDES, in financing enterprises and boosting manufacturing. The bank last year issued about $70bn in loans, compared to the IDC's R10.8m.
"Poverty, unemployment and inequality is so large that we need to significantly change the way we work and one way is to ensure that development finance institutions are more effective," Patel said.
"We would be able to do a lot more with the agencies if we had more resources."
He said the IDC's re-entry into debt capital markets had to be done prudently, but pointed out that at the moment its debt-equity ratio was "extremely low by almost any standard".
"So the IDC will be entering capital markets more actively in future to try to raise more money for its development mandate."
All the development finance institutions transferred to his new ministry would be asked to cut operational costs and become more efficient so that more of its funds reached enterprises and faster, he said.
One step in this direction would be putting their provincial offices under one roof to cut overheads.
Patel said his department saw a key role for the development finance institutions in curbing the youth unemployment crisis.
For example, the IDC would work with large enterprises it financed to find ways to bring young people into sustainable employment, he said.
Focus should be on youth
Towards the same end, its pre-1994 support for artisanal programmes would be revived.
"Close to three-quarters of unemployed people are young people. If you look at it differently, if you look at all young people then half of all young people of working age are unemployed. So we need extraordinary measures to meet the challenge of youth employment."
Khula Enterprises would also be called upon to make a pointed effort to foster youth entrepreneurship.
Patel said he planned to bring the development finance institutions' revised strategic plans to Parliament in the second half of the year, with job creation firmly written into their mandates.
"We have to ask what is the impact on jobs and industrialisation. Are the jobs sustainable and how many jobs are we creating per R1m of support? We need to improve the job impact per unit of support and assistance that is rendered."
He denied claims by the Democratic Alliance that he was blocking the implementation of the wage youth subsidy that he had announced in February as "without foundation and highly regrettable".
"The youth subsidy is one element of a concerted strategy to reduce youth unemployment," he said.
- Sapa
