IDC eroding capital base

INCREASING: FUNDING COMMITMENTS

In 2010, the Industrial Development Corporation (IDC) was a self-financing national development finance institution whose primary objectives were to contribute to sustainable economic growth and the economic empowerment of all citizens.

Now, the IDC’s mandate has expanded to “provide funding for the development of industry”.

The IDC also has its eye on the $100 billion investment target to be pumped into South Africa over the next five years, and Ebrahim Patel, minister of economic development, is of the view that the IDC “will need to play a critical role in sourcing and co-funding a significant part of this investment in line with its role to develop the nation’s industrial capacity”.

An amount of R23 billion has been committed to funding black industrialists over the five-year period to March 2020, and 67% has already been approved. The total funding approved in 2018 amounted to R16.7 billion, an increase of 9% on 2017, and disbursements came to R15.4 billion.

Paying out these large amounts has resulted in an escalation of financial liabilities to R33 billion, of which R8.6 billion consists of foreign loans. Cash and cash equivalents are R6 billion, but this buffer is slowly dissipating. Loans worth R9 billion are payable within a year, and R15 billion within five years.

At first blush, the 2018 annual report presents a picture of a financially stable group. However, the profitability of the group has been slowly decreasing over the years, particularly when capital gains are excluded – a sign that good investments are being sold to finance the IDC’s growing financial commitments.

Nevertheless, the unabated granting of capital is placing a strain on cash flow, and is slowly eroding the cash surplus. The cash status has been propped up by the sale of investments.

There is no transparency in the loans and advances, and no mention was made of the loan that has been well covered in the press, namely the loan to Oakbay.