ENTREPRENEURSHIP
INCENTIVISING REAL ECONOMIC GROWTH
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THIS DEVELOPMENT FINANCE INJECTION RESULTED IN THE FACILITATION OF 1,849 JOBS.
DEVELOPMENT FINANCE: AN INSTRUMENT FOR BUSINESS SUPPORT AND REAL ECONOMIC GROWTH The review period presented ECDC with an opportunity to assemble the buildings blocks and to perform the necessary preparatory work to realise its goal of becoming a high-performing and astute development financier. It was also a moment for the corporation to breathe life into its business activities. As a result, ECDC took the necessary steps to ensure that its operations responded directly to the needs of the Eastern Cape and its small businesses. ECDC’s business is based on the need to mould an organisation that uses its development finance muscle as an instrument for real economic growth and development of the provincial economy. That growth and development should drive job creation and vibrant economic activity. This is the essence of why the corporation exists. In this regard, the organisation decided to take meaningful steps to realise its stated vision. Guided by this goal, the organisation focussed its energies on investing its resources in the vital sectors of the economy which should give effect to a high-performing development finance institution (DFI). These interventions have produced tangible and significant returns during the period under review. They are the building blocks for enhanced economic activity and robust operational efficiencies. As a result, the performance of ECDC’s loan portfolio lays the preparatory work towards the attainment of an energised DFI status. In the 2012/13 financial year, ECDC approved R145 million for disbursement to enterprises up from the previous year’s R139 million. Of this amount, R130 million was disbursed to 496 enterprises compared to the previous year’s disbursement amount of R75.1 million to 330 businesses. This development finance injection resulted in the facilitation of 1,849 jobs. The corporation is pleased that its interventions have further resulted in the reduction of loan impairments of R16.8 million compared to the previous year’s R31.7 million. This is attributable to improved monitoring of loans as well as vigilant due diligence processes at origination. The corporation is equally delighted that a sizeable number of loans (129 loands worth R24 million), were disbursed to youth and R21 million (113 loans) went to women. ECDC intends to grow its development 1
finance contribution to youth and women to redress past imbalances as well as to ensure that young people are presented with economic and wealth creation opportunities that equitably distribute the development impact. The corporation has also been entrusted by the shareholder, the Department of Economic Development, Environmental Affairs and Tourism (DEDEAT) to manage some of its special funds such as the Imvaba Co-operative Fund and the Eastern Cape Jobs Stimulus Fund. While the Imvaba Co-operative Fund assists in the establishment of co-operatives as business vehicles to mainly stimulate the rural economy, the Jobs Stimulus Fund assists in project de-risking particularly in distressed businesses or in established businesses relocating to the Eastern Cape. A total of R18.7 million (in both loans and incentive grants) was disbursed to 21 co-operatives. For the Jobs Stimulus Fund, a total of 198 applications were received of which 101 were approved. The expected number of jobs created/retained and/or saved is a total of 6,989. The Jobs Stimulus Fund disbursed a total of R15.6 million during the review period, creating 1,560 jobs. The jobs target is directly related to disbursements since each job attracts a disbursement of R10,000. Looking forward, ECDC will continue to sharpen its financial and non-financial instruments to ensure greater economic returns for the Eastern Cape as well as small businesses. The organisation will strengthen its business support tools in order to build globally competitive and sustainable businesses.
Sitembele Mase Chief Executive Officer
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QUALITY LOANS, QUALITY BUSINESSES ARE GLOBALLY COMPETITIVE AND CREATE JOBS In the year under review, the corporation continued to use development finance and its non-financial support to drive real economic growth and development of the provincial economy. ECDC’s SMME support programmes are designed for maximum development impact underpinned by the realisation that it is small business that holds the key to improved economic growth and development prospects. In this regard, the corporation’s interventions are geared towards providing real support, resources, investment, capital and opportunities for small businesses particularly to those in the marginalised and depressed areas of the province. These SMME interventions are founded on an ethos that seeks to improve their global competitiveness and to ensure their long-term sustainability and growth. With its high-performing development finance aspirations in sight, the corporation committed itself to increase funding to enterprises during the period under review. As such, ECDC approved R145 million for disbursement to enterprises, up by 4% from the previous year’s R139 million. Of this amount, R130 million was disbursed to 496 enterprises compared to the previous year’s disbursement amount of R75.1 million to 330 businesses. This development finance injection resulted in the facilitation of 1,849 jobs. Furthermore, the corporation sought to improve the quality and quantity of its loan book to reflect a true and energised development corporation as well as maximising investment returns. The spin-offs of increased funding to entrepreneurs are a superior development impact characterised by rising job creation, business sustainability and competitiveness.
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SMMEs FUNDED
R145 MILLION approved funding
496 SMMEs funded
1,849 JOBS
created through funding
R129 MILLION
disbursed
R24 MILLION
disbursed to 129 youth-owned businesses
R21 MILLION
disbursed to 113 women-owned businesses
1.5%
THIRD-PARTY FUNDING R77 million secured from third-party funders for development projects
SECTOR DIVERSIFICATION LOANS SPREAD
R59.9 MILLION Construction
R37.1 MILLION Services
R13.5 MILLION Agro-processing
R5.6 MILLION Manufacturing
R2.4 MILLION Tourism 4
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2.5%
4% 33.5% 9.6%
44%
LOANS BY GEOGRAPHIC SPREAD • • • • • • •
14%
Amathole OR Tambo Nelson Mandela Bay Chris Hani Joe Gqabi Alfred Nzo Cacadu
44% 33.5% 14% 9.6% 4% 2.5% 1.5%
NON-FINANCIAL SUPPORT
204 SMMEs
R2 MILLION
1,167 BUSINESSES
R6.6 MILLION
14 WORKSHOPS
6,089 NEW BUSINESSES
supported in priority sectors
trained in business skills
conferences, seminars, trade fairs and/or exhibitions held
allocated for non-financial support
generated by creative and ICT industries
registered
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IMPROVED SUPPORT TO BUSINESSES WITH A LONG-TERM VIEW During the year, ECDC dedicated much of its energy on preparing the building blocks towards achieving the status of a high-performing DFI. This means ECDC has continued to strengthen its financial and non-financial support to those businesses which have a long-term development view. As a result, the corporation has continued to ensure that long-term loans which have a higher socio-economic dividend get the larger share of loan disbursements. In addition, considerable focus was placed on aftercare and other business support to improve the competitiveness of small businesses. The significant long-term loans have gone to key strategic sectors as outlined in the ECDC strategy. This is evident in the sector spread of the corporation’s loan disbursements. About R59.9 million went to businesses in the construction sector, R37.1 million to services, R13.5 million to agro-processing, R5.6 million to manufacturing and R2.4 million to tourism enterprises. The largest portion of the disbursements went to the Amathole District which received 44% of the total loan amount of R130 million. This is where the majority of manufacturing, aquaculture, renewable energy, granite mining and services operations take place. However, this region also includes rural areas such as Butterworth, Centane, Willowvale and Stutterheim which have benefitted from loan funding. This was followed by the OR Tambo District receiving 33.5%. ECDC is confident that this loan facility would have made a significant contribution to the facilitation of jobs in that area, which has been classified as a poverty node with a high unemployment rate. The majority of the loan funding went to construction businesses because of the school building programme, the Accelerated Schools Integrated Development Initiative, which is linked to the National Infrastructure Development Programme.
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FINANCIAL SUPPORT In relation to agro-processing, the corporation is proud that it has also played a significant role in reviving the ailing pineapple industry in the Eastern Cape. ECDC has disbursed R27 million in development loans and R954,000 in equity to Ndlambe Natural Industrial Products (NNIP (Pty) Ltd, a pineapple beneficiation company. This transaction singlehandedly saved the Eastern Cape pineapple industry. The company is currently processing pineapple juice and has recently diversified into dietary fibre. The agro-processing plant is located in East London and the farming operation is in Bathurst. This funding has created and/or saved a total of 1,200 jobs.
SAVING EASTERN CAPE’S PINEAPPLE INDUSTRY
ECDC has disbursed R3.9 million and took 30% equity in Bio-Coal Manufacturers and Distributors (Pty) Ltd. The project involves the conversion of organic waste into bio-coal, which will be used as a direct replacement for A grade steam coal in the local industry and public institutions. Bio-coal is made by compressing any plant material. This is a new technology in South Africa but is well established in other countries. The project will use biomass such as sawdust, off-cuts, forest and agricultural waste. The project area, Stutterheim, is a large forestry area, with seven existing timber mills from which the offcuts and waste will be sourced. The project has created 40 direct and 100 indirect jobs.
NEW TECHNOLOGY FOR RENEWABLE ENERGY INDUSTRY IN STUTTERHEIM
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The corporation has disbursed R10 million to Oceanwise, a marine kob fish operation based at the East London Industrial Development Zone (IDZ). Oceanwise is the industry leader in South Africa with facilities comparable to those found in the established markets of the European Union and the United States. It is the only farm of its size in the country, boasting a facility rivalling the best with a production capacity of 720 tons of fish a year. Currently it harvests about 10 tons of fish a month which is expected to increase to about 50 tons by the first quarter of 2014. It farms 700,000 fish in 220 tanks re-circulating in 4.5 million litres of water.
BREATHING LIFE INTO AN INFANT INDUSTRY
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NON-FINANCIAL SUPPORT HARNESSING THE COMPETITIVENESS OF SMALL BUSINESS While financial support is a crucial element of SMME support, non-financial support is a central tool in building the competitiveness of small businesses. It ensures that the enterprise is well-managed and poised for long-term growth. Non-financial support further assists the business to become market-ready. ECDC’s non-financial support mainly includes business development services which are aimed at building competitive enterprises, improving performance and facilitating access to markets. These services can be either strategic or operational in an enterprise. They improve the operations of an enterprise and impact positively on the profitability or assist in establishing a viable enterprise. Some of the business support services offered by the corporation include business advisory support services, due diligence and feasibility studies, business planning, marketing support, mentorship and coaching, quality management support and intellectual property management.
ECDC continued to support an ICT incubation programme with 20 enterprises being incubated at the Eastern Cape Information Technology Initiative (ECITI). ECDC invested R2.4 million in the operations of the incubator for the year under review. The incubated enterprises have generated income that exceeds R6 million, and the incubation programme created a total of 62 jobs, including 34 permanent jobs. Enterprises received training, coaching and mentorship including facilitation of access to markets. The training courses included financial management, taxation and exposure to relevant platforms such as the ICT Indaba and film festivals. A partnership has been established with Dimension Data for specialised training of enterprises as part of Dimension Data’s skills development programme.
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ECDC CONTINUES SUPPORT TO ICT INCUBATOR
ECDC signed a partnership agreement with the Tourism Enterprise Partnership in terms of which ECDC contributed R200,000 towards business management training and mentorship. The purpose of the partnership was to collaborate on the programme to support SMMEs in the tourism sector with capacity building. As a result of this partnership, more than 500 enterprises benefitted from the training programme. The training was done throughout the province and it included East London, Hankey, Mthatha, Port St John’s, Graaff Reinet, Somerset East. The training included tourism awareness, service excellence, marketing, communication in tourism, quality assurance and business management. As part of the partnership, 20 enterprises were mentored for a year. The enterprises generated an income of more than R11 million with a total of 146 employees.
ECDC also continued with the publication of its SMME informative insert in the regional newspapers, Daily Dispatch and The Herald, which provided useful information on topical issues affecting small businesses. The publication, called Khula Nathi, addresses topics that relate to the regulatory environment, business tips and general developments within the SMME sector. This publication was complemented by business seminars held throughout the province. The purpose of these initiatives is to facilitate access to information that assists entrepreneurs in making and taking informed decisions.
PULLING RESOURCES FOR THE SUPPORT OF TOURISM ENTERPRISES
Celebrate World Tourism Day with ECDC on 27 September – Page 3
ECDC funded projects in Port Elizabeth O Page 5
Talented Mdantsane crafter makes his mark O Page 6
Eastern Cape Information Technology Initiative moves to ELIDZ O Page 7
C M Y K
KHULA NATHI
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WOMEN-OWNED BUSINESSES IN THE CREATIVE INDUSTRY GET LARGER SHARE OF SUPPORT
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There has been continued support to enterprises within the creative industry. More than 100 enterprises throughout the province have benefitted from the programme, which mainly focuses on facilitating access to markets. This programme has supported enterprises to participate in exhibitions, expos and festivals, which include the National Arts Festival in Grahamstown, East London Home Expo, Decorex Johannesburg and Cape Town, and international exhibitions in Italy and India. The majority of enterprises that participate and benefit from these programmes are owned by women.
RISK CAPITAL FOR NEW ECONOMIC SECTORS ECDC is also creating alternatives through risk capital that supports new sectors of the economy. These sectors create new high-return businesses for the corporation. Development financiers in general have realised that they cannot survive on interest income through their loan business only. The margins are not enough to keep them afloat. Development financiers that work are those that invest in high-risk projects with a potential for high returns which can be used to finance their core business. In this regard, ECDC’s approach has been to provide loan funding and equity in these high-risk, high-return projects depending on the nature of the business. Subsequently, a total of R9.6 million was allocated to risk capital. A total of 17 projects were identified to benefit from the risk capital programme. Five new projects were also established during the review period.
Lubala Poultry is situated in Lubala Village in Mthatha. The project farms broiler chickens for the market. It has two broiler units which take about 10,000 birds. Its operations began in September 2012. ECDC is implementing and project managing the venture with funding of R500,000 from DEDEAT. ECDC also added additional funding of R65,000 for the project. This business was assigned to ECDC as part of the presidential projects identified by the president. The women-run project has an available market where chicken is the main source of protein. A total of 15 permanent and 10 temporary jobs have been created.
LUBALA POULTRY
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In the review period, ECDC also successfully established a new pilot on pineapple fibre, MCC Bromelain, which will be used mainly in pharmaceutical products. Trials, which began in Bathurst in September 2012, are funded by ECDC and NNIP. A sum of R1.9 million was made available for the equipment used in testing. Fibre is a necessary agent to help digestion in human beings.
NEW PINEAPPLE FIBRE PILOT FOR PHARMACEUTICAL PRODUCTS
Risk capital was further utilised to assist the Nkanya Block-making Co-operative in Elliotdale. The co-operative is being established to produce bricks for the Nkanya Lodge and for customers in the area. Nkanya Lodge will be South Africa’s first totally green hotel. ECDC has invested R1.3 million into the Nkanya Lodge’s site development plan and environmental impact assessment (EIA). The lodge will create 55 jobs during construction and 134 when it is operational. The co-operative was funded by DEDEAT with a sum of R500,000 for equipment and working capital. The co-operative has 10 members but it will appoint a further 14 permanent and four casual community members to work on the project once training is completed. The Small Enterprise Development Agency (Seda) has committed to provide funding for training and the branding of the co-operative.
SA’s FIRST TOTALLY GREEN HOTEL
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ECDC is project-managing the establishment of Buyambo Milling Enterprise in Lady Frere. Buyambo is a black-owned milling company that is being started at a time when most milling enterprises have closed in the Eastern Cape. It mills all types of grain, including wheat, maize and sorghum. The mill produces its own cereal brand. ECDC received R1.5 million from DEDEAT for the construction of the milling plant.
BUYAMBO MILLING ENTERPRISE
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PURE HERBAL MEDICINE IN UITENHAGE
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ECDC is involved in the company, Pure Herbal Medicine, in Uitenhage. The corporation assisted the owner of the company to formalise his herbal medicinal business, which mainly uses the herb, Gunnera Perpensa, mainly found along the rivers of the Eastern and Western Cape provinces and KwaZulu-Natal. Subsequently, the corporation has helped Pure Herbal Medicine establish the first one hectare plantation of wild Gunnera Perpensa; in Kareedouw at Langkloof in the Cacadu district. ECDC also helped formalise a factory in Uitenhage to respond to new market demand. The corporation provided R1 million for the plantation and equipment in the factory. DEDEAT also provided R500,000 in funding. A total of 28 permanent jobs have been created.
SPECIAL PROJECTS ECDC has also been entrusted by its shareholder, the Department of Economic Development, Environmental Affairs and Tourism (DEDEAT) to manage some of its special funds such as the Imvaba Co-operative Fund and the Eastern Cape Jobs Stimulus Fund. While the Imvaba Fund assist in the establishment of co-operatives as business vehicles to mainly drive the rural economy, the Jobs Stimulus Fund assists in job creation, saving and retention, particularly in distressed businesses and established businesses relocating to the Eastern Cape.
Poplar Grove is fertile ground in which the young people of Whittlesea are realising their dreams. The Nonkqubela Youth Agri Co-operative, established in July 2012, consists of nine young people who saw a business opportunity in farming. The community has allowed these young people to use its land for their business. The community is trying to instil a culture of self-reliance through this project. Having heard of the Imvaba Co-operative Fund through workshops and partnering with the National Youth Development Agency, funding of R498,000 was approved for the co-operative. With the funding, it plans to install electricity and a reliable irrigation system that will address the water challenges faced by this rural community.
FERTILE GROUND FOR WHITTLESEA’S POPLAR GROVE YOUTH
From the moment it took its first call in July 2011, the Discovery Call Centre knew it had struck the right chord when it made the decision to make the Eastern Cape one of its four service centres in South Africa. Starting with a modest complement of 30 staff, it has since grown to 360 people in under two years. The call centre provides services to members on the Discovery medical scheme. It handles general and admin telephonic inbound queries. Of the 360 employees, 231 are in new jobs made possible with the support of a R2.3 million from the fund. All the people in these jobs were sourced from the Port Elizabeth area: about 99% are youth with the average age of 24 years.
DISCOVERY STRIKES THE RIGHT CHORD WITH ECDC 17
LIFE IS SWEETER AT NKONDWANE VILLAGE
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Nkondwane village was once silent and villagers jobless. Now, they are busy bees. Thanks to the Imvaba Cooperative Fund, life here is getting sweeter and sweeter. Ubusi Bemveli (nature’s honey) was officially registered in July 2011, although it had been operational for a few years. The co-operative began with only three boxes of bees, and has since expanded to 34 boxes. It consists of 10 members, who are now benefitting from muchneeded skills development, as well as providing cash flow for their families. The Imvaba Co-operative Fund approved R493,000 for Ubusi Bemveli, empowering its members to expand the business and improve operations. It has expanded their number of boxes, bought harvesting equipment, and hopes to train its members in bee-keeping.
MAKING MOVES IN THE PROTECTIVE CLOTHING INDUSTRY
Adalwa Trading has been able to remain competitive in the protective clothing industry with the help of the Jobs Stimulus Fund. The small company received a R100,000 incentive from the fund to create 10 new jobs. This has gone a long way towards generating capacity for Adalwa to service bigger clients. Currently, nurses at renowned medical institutions such as Tygerberg, Groote Schuur and Red Cross hospitals are wearing Adalwa-made uniforms. The company is now diversifying into bridal wear.
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REAL SUPPORT ELIGIBILITY FOR FINANCE Finance applications that facilitate job creation and/or retention, economic empowerment, value addition to the economy, rural/township development, and increased export income are the most suited to ECDC’s business finance products. Any project that is a new Greenfield initiative, where expansion and rehabilitation will be the resultant benefit, will also be eligible for application for ECDC finance. In addition, an applicant can only be considered for loan finance if: • They have a clean credit record, or provide ECDC with written proof of arrangements made • They are actively involved in the business ECDC requires that clients display some expertise in the area of the proposed business idea, either on a technical or business level. However, should you not have the required skill level to drive the proposal forward, you can be referred to ECDC’s Business Support Unit to undergo the necessary training courses to improve your skill level, or given access to an appropriate mentor within ECDC operations to gain expertise in the designated disciplines.
TURNAROUND ON LOAN APPLICATIONS As ECDC has a policy and lending approach that differs from commercial banks, turnaround times depend on the availability of the information that ECDC requires to make the appropriate decisions. Approvals on loans may vary, but ECDC makes every effort to wrap up applications within 90 days for long-term loans, which require comprehensive due diligence efforts, and within 20 days for invoicebased and construction loans. This may, however, vary with each application.
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Unique aftercare philosophy ECDC offers an aftercare philosophy that aims to provide efficient client service for the duration of the contract term. This involves monthly account management and quarterly report-back visits to ascertain the health of your business. In the event that the account manager raises concern about the viability of your business and your ability to sustain repayments on your loan, we will provide business support to assist as far as possible to turn your operation around favourably.
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MOUNT AYLIFF SEDA Buidling Nolangeni Street, Mount Ayliff, 4735 Tel: +27 (0) 39 254 6501 Fax: +27 (0) 39 254 0599 ALIWAL NORTH 97 Somerset Street PO Box 198, Aliwal North, 9750 Tel: +27 (0) 51 633 3007