Is NEF living up to its name?

The National Empowerment Fund (NEF), one of the many state-owned entities in control of large amounts of money, sees itself at the epicentre of “a continuous and gradually widening coil which spirals into a galaxy of opportunities”.

It is a wholly-owned subsidiary of the Industrial Development Corporation (IDC), which is imbued with the “spirit of khawuleza” (‘responsiveness’) and aims to address the “structures in the economy which impede growth, economic inclusion and job creation”.

The NEF falls under the department of trade and industry (dti).

Minister of Trade and Industry Ebrahim Patel outlined the focus areas of the dti: to support improved industrial performance, dynamism and competitiveness of local companies, improve the levels of fixed investment in the economy and capability of the state, expand markets for SA products and facilitate entry to those markets, and promote economic inclusion and equitable spatial and industrial development.

The NEF was given a clean audit report by external auditors SizweNtsalubaGobodo Grant Thornton Inc.

The internal financial control systems were also given a clean bill of health, and there was no irregular expenditure.

The NEF has a negative cash flow trend, resulting in the reduction of “cash and cash equivalents” from R1.5 billion in 2015 to R1 billion in 2019.

The NEF has also been making losses for at least the last five years, reducing the surplus from R3.3 billion to R1.7 billion. Administration charges are above 50% of revenue.

Included in income is “enterprise funding” amounting to R123 million, which was received over three years from 2015 to 2017.

No explanation has been given for the “enterprise development funding” of R123 million. Who provided this funding?

It is to be noted:

► Net goodwill after impairment amounts to R26.3 million (2018: R32.2 million). Goodwill is being impaired at R5.9 million per annum.

► Dividends receivables of R32.9 million (2018: R45.5 million), which comprises 55.7 % (2018: 51.4%) of total dividends for the year.

► The deferred tax asset balance is R3.1 million (2018: R3.2 million), and rests on the assumption that it can be set off against future taxable income.

► The dti has given the NEF R2.2 billion – R1.7 billion was given to the NEF prior to 2008, R610 million in 2008, and R313 million in 2009.

Major expenses

Major expenses included trustees and senior management emoluments of R19.3 million (2018: R19.4 million), salaries and other benefits of R159.6 million (2018: R150.6 million), and professional fees of R21.5 million (2018: R22.2 million). The bulk of professional fees comprise legal fees of R15.3 million (2018: R16.4 million) and investment advice of R3.1 million (2018: R3.4 million).

The dti should rein in its expenses and concentrate on providing economic and financial support to start-up businesses that have a chance of making profits and creating employment.

A business model that includes funding “boutique hotels”, and purchasing failing businesses in order to save the loss of jobs will continue to erode the assets.

The NEF should note its increasing impairment charges and fair value losses.

It is not too big to fail.