IDC sets sights on shale gas

2014-04-18 13:27

Mining and chemical industries still hold a large portion of the Industrial Development Corporation’s (IDC) portfolio but there has been a conscious effort to shift to renewable energy sources, the service sector and quite possibly, shale gas.

CEO Geoffrey Qhena told City Press the IDC’s new strategy was to align its growth strategy with the government’s industrial policy plan, the new development plan and the new growth path, which all focus on African integration, job creation and the establishment of new industries.

“What is clear is that the growth is not just in South Africa but the rest of the African continent so we need to invest in Africa so we can explore those linkages,” said Qhena.

In addition, Qhena said the problem was that large parts of Africa were still seen merely as sources of raw material and that there was a need to change that mentality and start building industries that add value to the raw materials and produce consumer goods, he said.

There has also been a great effort by the IDC to invest in sectors that employ large numbers of workers: “Our balance sheet is different to 20 years ago. There is more on the services sector, we have [funded] more on tourism, ICT and health,” said Qhena.

The “shift” in investment is because South Africa has a large unskilled and low-skilled population and the service industry has proven itself to be an industry that absorbs low-skilled labour or labour that requires minimal training. The IDC has provided funding for new hotels and the expansion of new hotels since 1994 and has contributed R7.1 billion to the industry, impacting 13 000 jobs.

There has also been an increased focus on renewable energy. Over R13 billion was committed to the renewable energy programme over a three-year period, “but now we need components and those talks on the issue of increasing local manufacturing. We have to industrialise so we can increase local manufacturing,” said Qhena.

The IDC rolled out a five-year plan where R100 billion was committed to their current projects and from that, a big portion is expected to go to green manufacturing investment, which it has identified as a key factor.

“We know the investment in renewable energy will not translate directly into jobs rand for rand spent, so to make up for it, we need to increase the local manufacturing of green equipment,” Qhena said.

He added that the biggest challenge was the high costs of procuring renewable energy equipment and the “inherent element of subsidy [by taxpayers], which South Africans pay for through industry. We must reduce the subsidy otherwise government debt will get to a point where it is not manageable.”

In terms of future investments targeted by IDC, both Qhena and Shakeel Meer, divisional executive of corporate strategy and portfolio management, said the IDC could not ignore shale gas. “It is a reality and it will happen but we are still looking at government’s position in terms of policy.”

The IDC has “deliberately not been on the forefront” of shale gas because it wants government to firm up its position on it because it is expensive and requires a lot of expertise.

“You don’t want to pay your school fees twice. People have done it in the US and Canada; we would look for partners in those countries,” said Qhena.

Meer added that shale gas was something that is likely to change South Africa: “It is going to move business into an area that is underdeveloped. The bigger impact will be in it creating a gap in industry. It will provide cheaper energy, which is absolutely essential for manufacturing.”

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