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Is the National Empowerment Fund living up to its name?

Has it successfully delivered into the hands of many?

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”.

Read: Growth in alternative funding models for smaller businesses

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.

Read: Development finance: Fragmented initiatives amount to a feeble effort

The NEF was given a clean audit report by external auditors SizweNtsalubaGobodo Grant Thornton Inc. The internal financial control systems were 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.

Cash flow statement

R’000

2019

2018

2017

2016

2015

Operating activities

-271 289

-343 185

3 506

-24 769

-195 535

Investing activities

156 478

136 799

-79 242

-23 911

182 950

Net cash flows – various

-345

 

1 776

 

 

Decrease in cash and cash equivalents

-115 156

-206 386

-73 960

-48 680

-12 585

Beginning of the year

1 139 117

1 345 503

1 418 767

1 467 447

1 480 032

Cash and cash equivalents year-end

1 023 961

1 139 117

1 344 807

1 418 767

1 467 447

Notes:

  • Restated previous years’ figures used
  • ‘Cash and cash equivalents’ comprises current bank accounts, short-term bank deposits and cash on hand

Financial performance

R’000

2019

2018

2017

2016

2015

Interest and dividend income

375 153

380 562

362 544

422 480

430 888

Gross profit on sales (no details)

66 639

57 494

     

Enterprise development funding*

   

29 302

93 317

442

Sundry income

47 580

18 994

29 770

65 241

2 227

Total revenue

489 372

457 050

421 616

581 038

433 557

Administration expenses

-334 235

-290 389

-240 482

-237 374

-206 471

Finance charges

-83

 

 

 

 

Net operating income

155 054

166 661

181 134

343 664

227 086

Impairment charge

-211 361

-153 676

-212 881

-370 139

-167 366

Investment write-offs

-11 217

-66 303

-26 670

-37 364

-28 312

 

-67 524

-53 318

-58 417

-63 839

31 408

Fair value gains/(losses)

-393 663

-7 358

-269 917

-649 303

-163 131

 

-461 187

-60 676

-328 334

-713 142

-131 723

Taxation

-145

2 585

-50

-514

3 511

Deficit for year

-461 332

-58 091

-328 384

-713 656

-128 212

Administration charges as a percentage of total revenue

-68.30%

-63.54%

-57.04%

-40.85%

-47.62%

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

Financial position

R’000

2019

2018

2017

2016

2015

Non-current assets

2 840 581

3 165 115

3 421 837

3 316 188

3 850 686

Current assets

1 626 991

1 800 843

1 754 703

2 027 251

2 071 503

 

4 467 572

4 965 958

5 176 540

5 343 439

5 922 189

Less liabilities

-245 039

-285 514

-383 311

-221 826

-77 671

 

4 222 533

4 680 444

4 793 229

5 121 613

5 844 518

Trust capital

2 468 431

2 468 431

2 468 431

2 468 431

2 468 431

Accumulated surplus

1 750 680

2 212 012

2 324 798

2 653 182

3 376 087

Fair value reserve

3 422

 

 

 

 

 

4 222 533

4 680 443

4 793 229

5 121 613

5 844 518

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.

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At best, government employees playing at “winkel-winkel” – pretending that they know something about entrepreneurship and business. At worst, just another useless creation of the communist zealots, staffed to the gunnels with deployed cadres receiving (as opposed to “earning”) seven-figure salaries.

‘winkel-winkel’ days are now over happily. We now call it spaza-spaza. Same mentality though.

The NEF is not measured properly at all and is failing to deliver socially impacting enterprises that are SUSTAINABLE.

aims to address the “structures in the economy which impede growth, economic inclusion and job creation”.

That would be Government ?

Only the CEO is ” empowered”, with a salary of R 6 million a year.

Having done business with the NEF once many years ago. An investment that was in deep trouble.

There was a turnaround plan that may have worked but the management took so long to make a decision and in the end they never did. That was a hundred million or so down the drain.

Strangely engineers are not allowed to be BRC. The BRC that was appointed took R500k per month for 18 months and also did nothing.

NEF should be closed and consolidated into IDC

How funding was applied for? How much was approved? How does this approval rate compare to the banks? How many sustainable jobs have been created or saved?

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