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Geoffrey Qhena – CEO, Industrial Development Corporation

Results for 2012/2013 financial year.

HILTON TARRANT: Geoffrey Qhena is chief executive of the Industrial Development Corporation, the IDC financial results for 2012/2013 financial year out today. Geoff, we’ve seen uncertainty, increased volatility in global markets, obviously the financial crisis a long way behind us, 2008, it’s five years on, are we through the crisis or is this the new normal?

GEOFFREY QHENA: I’m not sure there’s a new normal, what the reality is that we’re taking longer to come out of the crisis. I think if you look at some of the investments that we have their performance is reflecting that.

HILTON TARRANT: As far as your disbursements and your investments are concerned a record year for disbursements, R16bn in the past financial year, R13bn worth of approvals in the year that matched the previous financial year, is this the run rate that you’re going to be sustaining in the short to medium term?

GEOFFREY QHENA: In the medium term we’d like to see more, particularly on the approvals because those approvals lead to disbursements. The thing is why the numbers differ is some of the investments straggle over a number of periods. If you look at what this economy needs it needs a bit more stimulation than the numbers that we have and our shareholder has said to us please play your role as a development finance institution. So we’re setting ourselves higher targets but naturally the environment in which you operate also plays a role in terms of the extent to which we can approve and invest.

HILTON TARRANT: The Minister, Ebrahim Patel, calling it a stretched target, that target between 2012 and 2016, R102bn, are you on track?

GEOFFREY QHENA: Well, if the economy recovers, particularly for the markets in which our goods and services find themselves on the export side, if they recover I think we will be. For now it is indeed a stretch but if you look at our balance sheet it reflects that we have the ability to indeed increase our level of investments.

HILTON TARRANT: Geoff, what about the sources of funding, are you finding it more difficult to attract funding in order to invest?

GEOFFREY QHENA: No, no, so far we haven’t. In fact, for the first time in the IDC’s existence we’ll be going out on a bond market, a public bond market. So we will do that, we’re going on a roadshow in mid-September and probably in October we’ll do that. But for our traditional forms of financing we’ve been able to access those. There’s always pressure really that we can come and get money at much cheaper rates because we don’t take deposits, so we rely on sourcing cheaper so that we can pass that benefit. So the availability has not been a problem so far but the pressure has always been to try and get it as cheap as possible.

HILTON TARRANT: How much are you looking to raise in that bond programme?

GEOFFREY QHENA: In this bond this time around we’re looking at R1.5bn but if you look into the 18 months we can go as high as R10bn.

HILTON TARRANT: And I guess on the horizon in the medium term there’s the prospect of the Brics Bank as well that’s busy being set up and that would be an additional source for funding.

GEOFFREY QHENA: That would be interesting to have that as well because not only an additional source of funding we can also co-invest with it. I think it will always be good to get sources of funding from people with like-minded minds.

HILTON TARRANT: Speaking of those abilities to co-invest, you have done one or two of those in the period, Phalaborwa obviously on the horizon. As far as the steel industry is concerned you acquired Scaw Metals from Anglo American, why is it important for the IDC to be a player in the steel market?

GEOFFREY QHENA: Firstly, it’s to ensure that the availability of steel is there but also to make sure that the industry is competitive because it’s not only the investment in the companies themselves it’s the impact it has on the downstream. We invest in a number of other companies, which would benefit from that. So where we can play a role in ensuring that raw materials are accessed relatively cheaper and that it is available, particularly also if you look at the back of the infrastructure spend that people like Transnet are looking at, where steel is important, particularly the role of Scaw that could be so. All of those factors build a case for us really to be very active in the steel industry as the IDC.

HILTON TARRANT: What other sectors are you focusing on? What are the main sectors?

GEOFFREY QHENA: On the green industries this is one relatively new one, it’s about three years old in IDC’s books but it’s the one that’s been growing much faster, not only in the generation of power itself where we fund the solars, PMPV and also the wind but we’re also supporting on the manufacturing side because we have to try and localise that. I think that’s one growing one, the agro-processing one is also an opportunity, the impact it has in the rural areas because we know there are still levels of high unemployment. That’s one area as well where we are looking at, and manufacturing naturally I think it’s important that we continue to stimulate that.

HILTON TARRANT: Beyond just this country you are looking northwards increasingly onto the continent, are you making significant investments there?

GEOFFREY QHENA: We’re making investments but not to the same extent that we want, it’s not as easy as we thought it would be but it’s not stopping us. We invested in a cement plant in Ethiopia, in Zimbabwe we’re looking at as well, so ja but we will continue. If you’re talking regional integration we have to ensure that we invest.

HILTON TARRANT: You say not as easy as you thought it would be, is it a case of being a lot more competitive on the continent as far as finance is concerned?

GEOFFREY QHENA: I think access to finance is there, I think the issue is if you want to set up a project the infrastructure still plays a role, which is why we need to invest more, all of us, into the continent on infrastructure so that goods and services can move much easier.

HILTON TARRANT: Geoff, as far as jobs are concerned you created just shy of
19 000 in this period, you saved just under 4000 existing jobs. How do you go about saving jobs? Is this a case where companies get to a point where they desperately need financing and you are then able to co-invest or invest in a business and thereby secure those jobs?

GEOFFREY QHENA: Absolutely, when the economic crisis started we had set aside just over R6bn to ensure that companies that would find themselves in difficulties and they needed financing our assistance would play a role. That was our response as South Africans to what other countries did as a bailout and it’s still I think against that background what we’re trying to do is really assist those companies, ja.

HILTON TARRANT: As far as the clothing and textile industry is concerned, you do point out in today’s numbers that you’ve managed to help stabilise that industry in the country, how would you describe the clothing industry at the moment?

GEOFFREY QHENA: It’s very competitive, sometimes it just comes down to cost but what we’ve found as the IDC is that there are good niches where one can make a sustainable business but also we find that some of the companies need to be modernised, which is why together with the Department of Trade and Industry they’ve got an incentive 2:02 and our financing we help modernise those and make it easier for those companies to really indeed play their role.

HILTON TARRANT: Looking at the year ahead R16bn worth of disbursements this year, are you going to beat that?

GEOFFREY QHENA: Well, I wish we should, I wish we should but we will try, I think this economy of ours needs a lot of stimulation but the African continent is still a continent that can grow and I think if we also look at the commitments that we’ve made I think it’s capable. But I’m not going to be foolish and say it’s going to be easy. No, it’s not going to be. It’s challenging, we know where the exchange rate is, also the inflation where it is and Europe is not recovering as quickly as we all want it to be. Also if you see some of these emerging markets slowing down on their growth as well that also impacts, all of those factors make it not easy but I suppose if it was easy anybody could have done it.

HILTON TARRANT: Geoff, to close off with, I just want to touch on the First Strut (First Tech) collapse, you had made a loan of R123m to one of the group companies there, Cosira, that business has applied for liquidation, is there any update there?

GEOFFREY QHENA: Well, in fact, those numbers that R123m is not going to be on these numbers that we’re reporting because it has happened after. The update is there’s going to be a 417 enquiry mid this month I think that’s where hopefully most of the things we will know what happened, it’s a sad state of affairs where people misled many people and as a result some people have lost their jobs. But I’m not going to speak much, I think once we have the 417 I think all of it will come out.

HILTON TARRANT: Geoffrey Qhena is chief executive of the Industrial Development Corporation. 

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