IDC: growing entrepreneurs to meet the country’s needs
Geoffrey Qhena, CEO of the Industrial Development Corporation, reflects on challenges facing South Africa
What does your role at the Industrial Development Corporation entail?
As the CEO of the IDC my role includes, among other responsibilities, providing guidance and directing the IDC’s business focus, particularly in terms of our mandate. What role do development financial institutions play in the development of South Africa’s entrepreneurs?
One of the most important functions that institutions such as the IDC, the Small Enterprise Finance Agency and the National Empowerment Fund fulfil is the provision of finance for entrepreneurs. Without this finance, some entrepreneurs simply do not have access to the capital required to start their businesses.
Another important role is the provision of business support. This is nonfinancial support provided to entrepreneurs.
What we have found is that some entrepreneurs may be highly skilled in some areas of running and growing their business, but might lack some skills or experience in other areas.
Through business support, we address some of these shortcomings to help the entrepreneur to run their business better. To date, how much has been approved and how may decent jobs have been created as result of IDC funding?
Over the past five years up to March 2015, the IDC approved R60.1-billion, facilitating the creation and saving of an estimated 140 000 jobs. How does mentorship help emerging entrepreneurs?
It allows entrepreneurs to build skills in areas where they might be lacking the required skills or experience to successfully establish and grow their business.
It also allows entrepreneurs to approach someone with skills in a particular area to discuss a specific problem. According to the 2015-16 edition of the World Economic Forum Global Competitive Survey, out of 140 countries, South Africa was ranked eighth for soundness of banks; sixth for availability of financial services; and first for financing through the local equity market. How does this uniquely position the country for further investment?
South Africa’s banking sector is indeed highly regarded for its high levels of sophistication, innovation and governance. Our stock exchange also ranks among the top 20 in the world. In addition, our main development finance institutions are often used as benchmarks in light of their financial sustainability, governance, reach and regional footprints.
These attributes, coupled with the very liquid nature of our capital and currency markets, are very important for the investor community, underscoring the substantial inflows of foreign capital over the years.
These have consisted of portfolio investments by non-residents and foreign direct investment in greenfield and brownfield projects, as well as in acquisitions.
South Africa has been the leading recipient of foreign direct investment in Africa for a number of years, bearing testimony to the country’s attractiveness as a preferred investment destination and often as a gateway to the continent. Ours is unquestionably one of the most sophisticated emerging markets in the world, offering ample investment opportunities across various sectors. Why is it important for developing countries to collaborate with other developing countries, such as in the formation of Brics?
Collaboration between developing countries opens up viable opportunities in their individual and collective pursuit of sustained economic growth and development. Such collaboration takes different and evolving forms, including the sharing of knowledge and experience, training, technology transfer, as well as trade, financial and investment co-operation.
It provides opportunities for greater access to capital and development finance (increased borrowing capacity) and the diversification of the sources of development finance; higher foreign direct investment inflows; increased trading activities; the chance to transform the structure of their economies; and a louder voice and stronger bargaining power in international bodies and global affairs (such as trade and climate change negotiations).
Over the past couple of decades, South Africa has fostered collaboration with and between developing countries through many initiatives. These have been driven by both the public and private sectors. Among the most notable from our perspective are the Southern African Development Community (and ongoing regional trade negotiations), the Brics and IndiaBrazil-South Africa arrangements.
Much collaboration is also taking place at the firm or company level. For example, many Chinese, Indian, Brazilian and South African entities and companies have invested in health, agriculture, mining, manufacturing, telecommunications, finance and physical infrastructure
in Africa.
With stronger and more effective interaction at the governmental level and greater private sector participation, trading and investment activity with other developing countries and regions could increase significantly. How do we improve economic sustainability in South Africa?
It is critical that we address the constraints that have been holding back the economy’s growth potential. These include addressing infrastructure-related bottlenecks, both in terms of the availability and the cost of services, in the areas of electricity, transport and logistics, and water supply.
It is also crucial that education and skills development are completely aligned with the current and future needs of our economy, so that we enhance the employability of South Africans.
In the currently difficult economic environment, business and investor confidence must be restored so as to raise fixed investment activity by the private sector.
Concerted efforts must be made to promote our manufactured products in the global marketplace, especially in faster-growing emerging and developing economies, so as to utilise current spare production capacity and lay the foundation for its future expansion,
creating much-needed employment opportunities in the process. The Department of Trade and Industry recently launched the Black Industrialists Programme. What is a black industrialist, and how does the IDC contribute to this programme?
A black industrialist is basically an entrepreneur who gets their hands dirty in the running of their business. These are not individuals whose only role in a business is to attend a board meeting once a quarter, but who provide real operational and strategic leadership to the business.
Obviously, these people must have a meaningful stake in the business, and we are typically looking at those entrepreneurs who are involved in productive sectors of the economy, like manufacturing.
The government is providing many opportunities for black industrialists by providing markets for manufactured goods through infrastructure development programmes and other government procurement. The IDC’s most prominent role in the development of these entrepreneurs is to provide funding for them to start to grow their businesses to take advantage of these opportunities. What would you say are the main economic development challenges of our time?
The imperative is to achieve faster, sustainable and inclusive economic growth that will expand employment, reduce inequality and eradicate poverty in South Africa.
We also need to transform our economy in terms of its structure, specifically by enhancing and diversifying the contributions from the goods-producing sectors, as well as in its ownership.
To attain this, we need high rates of private sector investment in globally competitive operations that are preferably jobs-rich, supported by public sector investment to ensure the provision of efficient and cost-competitive utility services to the economy.
We must expand our entrepreneurial base by assisting new participants in contributing to value addition and employment, as well as stimulating the emergence of new business ideas and solutions.
This is one of a series of monthly articles sponsored by Kagiso Trust in celebration of its 30th anniversary