Leading industrial capacity development in agro-industries Rian Coetzee Head: Agro-Industries October 2013
IDC - Corporate profile • Established: October 1940 • Corporate type Development finance institution, mandated by Act • Shareholding Government of South Africa = 100% shareholder • Reporting: SA Ministry of Economic Development • Funding: 100% self-financing • Objective: Lead industrial capacity development • Activities: Provide risk capital (industrial finance or project finance) • Regional mandate: South Africa & the rest of Africa (since 1998) • Financial base (FY’12): Total equity = ZAR 92 bn ( = USD 11bn); profit = R3,3 bn (= USD 398m) Debt/Equity ratio = 11% • Funding R13,5bn (= USD 1,6 bn) funding to 293 companies / projects • Governance Follows normal company policy and procedures • B-BBEE score Level 2 B-BBEE contributor (score = 89,7) • Values Partnerships, Professionalism & Passion 2
IDC - Objectives and the outcomes that we aim to achieve By focussing on... Support for industrial capacity development Facilitate sustainable direct and indirect employment Regional equity (including development of the rest of Africa) Growing the entrepreneur and SME sector We will contribute to... Expansionary and/or broad-based black economic empowerment Environmentally sustainable growth Grow sectoral diversity and increase localisation The IDC is a catalyst in driving industrial development: • We proactively identify and fund high-impact projects We differentiate • We lead the creation of viable new industries ourselves by... • Using our diverse industry expertise to drive growth in priority sectors • Taking up higher-risk funding in early-stage and high-impact projects 3 3
Main business & funding activities
IDC Strategy: Sector allocations for the next 5 years Industrial Logistics infrastructur R11.1 billion Green and e Bio fuels energy saving industries R22.4 billion Craft and film Biotechnology Business process R7.7 billion services Touris Agro- m processing Forestry, paper Mining related Healthcare & pulp, furniture technologies ICT R14.8 billion Automotives, components, Metals medium and heavy fabrication, commercial vehicles capital and Mining Downstream mineral transport beneficiation equipment Advanced Plastics and Clothing, manufacturing chemicals R22.1 billion textiles, footwear, leather Oil and gas Pharmaceuti- cals Other funding areas : Grreen industry R20.8 billion Venture Capital: R500 million components Funding to distressed companies: R2.5 billion 5
IDC vis-à-vis commercial financiers IDC Commercial financiers Risk assessment • Based on expectations for the future of the business – Risk assessment i.e. business plan • Based on historical performanceof the business • In depth due-diligence to identify and mitigate risks Structuring Structuring • Long-term funding generally not remaining • Short, medium and long-term funding remaining Pricing • Moratoria on capital and interest repayments • Pricing based on risk Pricing Security, sureties and owners’ contribution • Development impact taken into account along with • Banks’ exposure covered multiple times cost of funding and risk when determining pricing • Subsidised schemes remaining to achieve specific objectives Security, sureties and owners’ contribution • Takes security where remaining • Sureties and owners’ contribution depending on the ability of the entrepreneur – entrepreneur needs to show commitment to the business • Generally securities etc. does not cover IDC’s exposure 6
IDC vis-à-vis commercial financiers (continue) IDC Business support • Pre-and post-investment support remaining to entrepreneurs Commercial financiers Post-investment Post-investment • Focussed on ensuring business sustainability in cases where • Focussed on ensuring maximum recovery of funds in the business experience difficulty cases where the business experience difficulty Industry involvement Industry involvement • Support for new industries with growth potential • Generally only becomes involved in established industries • Provides funding for unproven technology through venture Project development and funding capital funding • Seeks involvement from development banks or Project development and funding government to fund large projects • Conceptualises projects and develops them to a bankable stage • Invests in early stage projects • Shares risk with commercial financiers to leverage private sector investment 7
TWO WAYS OF DOING BUSINESS WITH THE IDC (1) PROJECT DEVELOPMENT
TWO WAYS OF DOING BUSINESS WITH THE IDC (2) CREDIT APPLICATIONS
AGRO-PROCESSING – value chain Agents Agents Exports Exports Logistics Logistics Biotechnology Biotechnology Household Household Sector map Sector map Expenditure Expenditure Agro -processing Agro -processing Agriculture Agriculture Foodservices Foodservices (hotel; (hotel; Field crops Field crops Horticulture Horticulture Livestock Livestock Meat processing Meat processing restaurant; restaurant; caterers) caterers) Maize Maize Deciduous fruit Deciduous fruit Grain mill products Grain mill products Cattle Cattle Wheat Wheat Vegetables Vegetables Wholesale Wholesale Sheep Sheep Bakery products Bakery products SECONDARY SECTOR SECONDARY SECTOR Retail Retail Sugar cane Sugar cane Citrus Citrus Poultry Poultry Logistics Logistics Dairy products Dairy products PRIMARY SECTOR PRIMARY SECTOR Sunflower seed Sunflower seed Nuts Nuts Tourism Tourism Pigs Pigs Fruit & vegetable Fruit & vegetable Viticulture Viticulture Tobacco Tobacco products products Goats Goats Grain sorghum Grain sorghum Subtropical fruit Subtropical fruit Government Government Oils & fats Oils & fats Ostriches Ostriches Ground nuts Ground nuts Expenditure Expenditure Flower Flower Cotton Cotton Animal feed Animal feed Game Game Tea Tea Sugar & related Sugar & related Beans Beans Coffee Coffee Hay Hay Evergreen Evergreen Confectionary products Confectionary products Feeding into other Feeding into other Fish products Fish products Fishing Fishing value chains value chains Fishing Fishing Other food Other food Chemicals Chemicals Aquaculture Aquaculture Beverages Beverages Other non Other non -food -food Automotive Automotive Essential oils Essential oils Distilleries Distilleries Fragrance Fragrance Fibres Fibres Wineries Wineries Textiles Textiles Intermediate inputs Intermediate inputs Starch Starch Energy; Water Energy; Water Fuel Fuel Malt Beverages Malt Beverages Irrigation equipment Irrigation equipment Bio -fuels Bio -fuels Fertilizer; Implements Fertilizer; Implements Pharmaceutical Pharmaceutical Soft drinks Soft drinks Packaging; Fencing Packaging; Fencing Medicinal / Biotech Medicinal / Biotech Structures; Tools Structures; Tools Other Other … … Pumps & generators; Pumps & generators; Medicine Medicine 10
AGRO-PROCESSING – value chain Agro-processing Consum Agric Agricultural Primary Basic Advanced Wholesale & Retail distribution er Input production processing processing processing • Sorting & grading • Sterilising • Extraction • Cutting & peeling • Pulping • Mixing/combinin • Chilling • Drying g to recipe • Packaging & • Canning • Flavouring • Milling and labelling • Extrusion • Baking and grinding • Pressing cooking • Chilling • Preservation • Freezing • Packaging and • Heating • labelling • Fermentation • Preservation in oil/vinegar/brine • Sugar-based preservation • Packaging and labelling 11
AGRO-PROCESSING – value chain composition • Commercial farmers = • Around 4,000 food 40,000 (95% of output) • 95% of food • Sales to production companies retail is households = • Resource-poor • Top 10 responsible for controlled by 4 72% farmers = 450,000 (5% 70% of turnover retailers of output) Wholesale Agric Agricultural Primary Basic Advanced Consumer Retail & Input production processing processing processing distribution • Large retailers • Meat = 28% • Independent • Livestock = 47,5% • Grain milling = 14% retailers • Field crops = 28,2% • Dairy = 11% • Informal sector • Bakery = 8% • Horticulture = 24,2% • Fruit & = 8% • Sugar = 6% • Oils & fats = 6% • Animal feed = 6% • Fish = 3% • Confectionary = 3% 12
AGRO-PROCESSING – cyclical trends Gross Domestic Product Gross Domestic Product 150 150 Index 2005 = 100 Index 2005 = 100 100 100 50 50 0 0 1993 1996 1999 2002 2005 2008 2011 1993 1996 1999 2002 2005 2008 2011 Employment 200 Employment 150 Index 2005 = 100 150 Index 2005 = 100 100 100 50 50 0 0 1993 1996 1999 2002 2005 2008 2011 1993 1996 1999 2002 2005 2008 2011 1. Direct share of national GDP = equals 1.9% (11.2% of manufacturing GDP) 1. Direct share of national GDP = equals 2.4% 2. Real GDP growth at 4.6% p.a., on average, between ‘03 & ‘12. ( manuf = 2.5%) 2. Real GDP growth at 1.9% p.a., on average, between ‘03 & ‘12. 3. 13.7% of all jobs in manufacturing 13
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