The last financial year was a tough one for the South African fiscus and no business is unscathed by the ongoing difficulties of our sluggish economy. However, the Industrial Development Corporation (IDC), which announced its results this week, reported that it had approved 192 projects for the financial year ending on March 31 this year. This is only 10 projects fewer than it approved over the same period in the previous financial year.
It represented R13.2 billion in approvals, of which the IDC disbursed R11.8 billion in the economy. Of this, 29% was allocated to start-ups and 47% was invested into capacity expansion for existing businesses.
Tshokolo “TP” Nchocho has an impressive pedigree in development finance and almost three decades of experience that he brings to his new role as chief executive of the IDC. He worked at the Development Bank of Southern Africa (DBSA) for an extended period and most recently at the Land Bank. You could say that the combined experience of the two entities prepared him for his current role.
“So where the DBSA is mainly a big bulk corporate lender, the Land Bank had two areas – retail as well as corporate. Here at the IDC it is a combination of the two. We have multibillion-type transactions, but we also do small business finance. And we are in the process of reformulating our approach, we are moving towards possibly using our branches as well for the smaller public transactions increasingly.”
For Nchocho, the other big difference between his new role and his previous one is the value of the entities – the IDC has an asset base of R145 billion, while the Land Bank’s was R43 billion when he left last year.
“The IDC occupies a very special place both in society and also as a partner of the government. As part of my orientation into the organisation, I read a short piece written by one of the former executives here – tracking the progress of the organisation, how it was formed almost 80 years ago. The early investments it made in support of government include Iskor, Sasol and later on the formation of Foskor. The company that is having complications now is 50 years old and it was started by the IDC.
“Where I am going with this is that the IDC has always operated close to government in terms of providing the implementation of the policy framework. So government can come with interesting ideas around how to improve the textile sector, but it is actually institutions such as the IDC that ensure those ideas are executed.”
During the results presentation earlier this week, Minister of Trade, Industry and Competition Ebrahim Patel said: “The purpose of this administration is economic growth. To build long-term growth.”
He continued, saying that in tough times no good comes from the “wringing of hands” and “shouting at the problem”. Instead, he said, we had to take concrete steps.
“There is no quick fix to creating a high-growth, inclusive and transformed economy and industrial strategy at its heart is structural change. We need a new sense of purpose between government, labour and private sector.”
Patel went on to announce that overall there would be R110 billion available in industrial funding this year and that of last year’s inaugural SA Investment Conference total, the IDC was responsible for R46 billion.
While running through the ministry’s focus points, Patel said one of the main ones would be to improve the capability of the state.
“A capable state is one that is more responsive to entrepreneurs’ needs. The hope of South Africans lies in the growth government has announced.”
Nchocho is well aware of the IDC’s role in delivering on the state’s promises, saying: “We are all worried about high unemployment. When you look at the contribution to employment creation and employment preservation, if you look at it against the national 10 million or 12 million [people] who are reportedly jobless, it becomes depressing and it’s like a drop in the ocean. But the IDC is not the only player in the South African economy. We can only contribute to employment creation based on the levels of investment activity that we undertake.
“Jobs are a derivative of investment activities, so hopefully when we begin to lift our volumes of investment we can see an upward tick in employment creation and employment preservation, but still the big elephant in the room is the depressed state of the economy. The expectations are high and we are being stretched all the time to do more.
“So the point about the IDC being more than just a bank, it’s for real. We cannot afford to just sit and [wait for] a transaction to land in our laps, no. There’s a need for a very active approach to doing things. We have to cultivate opportunities, we have to actively cultivate the opportunity points, that’s how we will get development going.”
As for what he has on top of his to-do list, Nchocho said although the IDC was a well-oiled machine with highly skilled people, improving its response times for clients was a priority.
“We just need to get our service ethos right.
“There are things I believe we can do quickly – one thing we can do better is customer service. The IDC has, unfortunately, in recent times built a bad reputation for taking too long. Yes, we are very thorough in our due diligence protocol. Our clients often compliment us on our thoroughness, but in the process we sometimes take a little too long. I think we can do things differently in terms of collaborating with other banks and other institutions. So customer service is one thing that is preoccupying me big time.”
For would-be entrepreneurs reading this, Nchocho has the following advice.
“There are probably two things I would say. Look around and choose those niches, those market opportunities, that you are comfortable you can exploit and once you have made that choice, the second thing I would say would be share the risk.
“Perhaps if you need R100 million to start an enterprise, see if you can’t get R30 million from the IDC, another R20 million from somewhere else, and you only expose your own capital to the value of R30 million to R40 million.
“Let’s not stop enterprising, let’s find opportunity points and ventures in a way that is risk-sharing and that leverages on the expertise of others. And there are lots of opportunities there, I see companies starting off and they latch on to other companies and create joint ventures and partnerships.
“The third thing, I’d say, applies to large corporations. They could consider using their enterprise development funds as opportunity points.”
Nchocho said big companies that are big buyers of supplies should, instead of investing in their own manufacturing capacity, rather provide support for small- and medium-sized enterprises to sell back to them and so build an ever-expanding business ecosystem.
He reiterated that: “We should continue enterprising. It doesn’t matter how much things look gloomy from either a political angle or an economic angle, we don’t think South African is a failing state. The storms will pass and an upward trajectory will emerge.”