Geoffrey Qhena

The Industrial Development Corporation is a state-owned national finance institution that has helped to provide finance to a wide range of companies from empowerment projects to help small farming companies gain a foothold in export markets, to funding for SA’s parastatals, including investments into power plants at Eskom.

The company made headlines when it announced plans to increase its level of investment to R60bn over the next five years, and more recently launched a $30m fund to small and medium-sized enterprises (SMEs).

TradeInvest SA’s editor, Miles Donohoe spoke to Geoffrey Qhena, CEO of the IDC, about the organisation and its plans for the future.

What are the IDC’s main objectives?

Our main objectives are promoting entrepreneurs; we want to stimulate job creation, and help promising new SMEs.

Our investments in businesses generally start at about R1m, we don’t tend to go below that. But the percentage we spend on small businesses would be very small in terms of our total investment, as we invest in some very large projects. There is no upper end to our investments, as some of them can be in the billions of rands.

The IDC recently said it would target “competitive industries.” Which industries are these?

Going forward we are looking at chemicals, metals, and we are working with the national policy framework on issues like the power challenges that we are currently facing. We anticipate funding more energy projects such as biofuels and solar, and we are also looking at the nuclear market. There are also some very good opportunities in the tourism sector.

The IDC also said it would be taking more risks on its investments – in what ways?

If one looks at the IDC, historically we’ve invested in start-ups. I think we will see more investment in early-stage projects. We’ve also established a venture capital fund with R250m, and venture capital is a high-risk investment.

Is the hike in investment – to R60bn over the next 5 years – expected to be a continued strategy?

It is part of our continued strategy. On a rolling basis, we are looking at the concept “what is South Africa needing? What is Africa needing?” We are of course speeding up the level of our investment, but it is still a continuation of what we do. And I think we will maintain that level of spending going forward.

How would a company or organisation approach the IDC with regards to investment?

There are two types of investment that the IDC makes. The large ones we would start ourselves. For the smaller companies they can go to our website or call us. But they need to present a business plan. We have brochures with information, including the minimum investments that we make.

There are three things that we need to see from a company before we invest in it. They need to understand the technical aspects of the business, they need to have a good management team in place and understand about the marketing of the business. Those are the three areas: technical; management and marketing.

We want to know that they’ve done their research and that the business is sustainable without us being around. There’s a lot of work that needs to happen before we provide funding.

How does the IDC’s investment work?

The bulk of our investments are equity stakes but some are made as loans. Equity and debt are the two main avenues of our investment. We do also issue out guarantees on loans to companies that need them.

We finance investments through our own resources – sometimes we liquidate stakes in companies. We also obtain funding through loans; we already have agreements in place in the market. 

Is there an opportunity for companies to buy back the IDC’s stake before it is offered to the market?

We invest in listed and unlisted companies. With the listed investments we will go to the market and sell those stakes. With the unlisted companies, there is an understanding that we can offload our stakes – but we offer that stake to the existing shareholders. When we intend to exit a company then we negotiate with them.

Some of the investments, the listed ones, we would keep over a period of time and we can choose to leverage those investments. If an investment struggles we have a number of options, for instance some companies we’ve invested in have gone through a difficult period, and we’ve helped to find a partner and turn the company around.

The IDC also invests elsewhere in Africa. Are these investments largely Sub-Saharan or all over the continent?

In 2001 our mandate was changed to include the rest of the continent. We have an investment in Nigeria in a cement plant, and in Ghana we have a hotel that is almost complete. But most our investments would be in the SADC region. However, 75-80% of our investments are still made in South Africa.

What do you think are the key areas that the IDC should be investing in?

Industrials, infrastructure and energy are all very important. I think agriculture is also important given the current issues with food prices. It’s a challenge and hopefully we can come up with something. Tourism also has a number of opportunities. I believe South Africa is well-positioned to take advantage of the tourism sector.

Following this interview, the IDC launched a new $30m (R230m) fund, to be made available over three years to small and medium-sized enterprises (SMEs). To contact the IDC, click here to visit their website.