Leading industrial capacity development in agro-industries Rian - - PowerPoint PPT Presentation

SLIDE 1

Leading industrial capacity development in agro-industries

Rian Coetzee Head: Agro-Industries October 2013

SLIDE 2

2

IDC - Corporate profile

• Established:
• Corporate type
• Shareholding
• Reporting:
• Funding:
• Objective:
• Activities:
• Regional mandate:
• Financial base (FY’12):
• Funding
• Governance
• B-BBEE score
• Values

October 1940 Development finance institution, mandated by Act Government of South Africa = 100% shareholder SA Ministry of Economic Development 100% self-financing Lead industrial capacity development Provide risk capital (industrial finance or project finance) South Africa & the rest of Africa (since 1998) Total equity = ZAR 92 bn ( = USD 11bn); profit = R3,3 bn (= USD 398m) Debt/Equity ratio = 11% R13,5bn (= USD 1,6 bn) funding to 293 companies / projects Follows normal company policy and procedures Level 2 B-BBEE contributor (score = 89,7) Partnerships, Professionalism & Passion

SLIDE 3

3

IDC - Objectives and the outcomes that we aim to achieve

Facilitate sustainable direct and indirect employment Regional equity (including development of the rest of Africa) Growing the entrepreneur and SME sector Expansionary and/or broad-based black economic empowerment Environmentally sustainable growth Grow sectoral diversity and increase localisation Support for industrial capacity development By focussing on... We will contribute to...

3

The IDC is a catalyst in driving industrial development:

• We proactively identify and fund high-impact projects
• We lead the creation of viable new industries
• Using our diverse industry expertise to drive growth in priority sectors
• Taking up higher-risk funding in early-stage and high-impact projects

We differentiate

• urselves by...

SLIDE 4

Main business & funding activities

SLIDE 5

5

IDC Strategy: Sector allocations for the next 5 years

Green and energy saving industries Bio fuels Agro- processing Touris m Business process services Craft and film ICT Healthcare Mining related technologies Biotechnology Downstream mineral beneficiation Mining Industrial infrastructur e Logistics Metals fabrication, capital and transport equipment Automotives, components, medium and heavy commercial vehicles Plastics and chemicals Clothing, textiles, footwear, leather Forestry, paper & pulp, furniture Advanced manufacturing Pharmaceuti- cals Oil and gas Grreen industry components

Other funding areas : Venture Capital: R500 million Funding to distressed companies: R2.5 billion

R22.4 billion R7.7 billion R20.8 billion R22.1 billion R11.1 billion R14.8 billion

SLIDE 6

6

IDC vis-à-vis commercial financiers

Risk assessment

• Based on historical performanceof the business

Structuring

• Long-term funding generally not remaining

Pricing

• Pricing based on risk

Security, sureties and owners’ contribution

• Banks’ exposure covered multiple times

Risk assessment

• Based on expectations for the future of the business –

i.e. business plan

• In depth due-diligence to identify and mitigate risks

Structuring

• Short, medium and long-term funding remaining
• Moratoria on capital and interest repayments

Pricing

• Development impact taken into account along with

cost of funding and risk when determining pricing

• Subsidised schemes remaining to achieve specific
• bjectives

Security, sureties and owners’ contribution

• Takes security where remaining
• Sureties and owners’ contribution depending on the

ability of the entrepreneur – entrepreneur needs to show commitment to the business

• Generally securities etc. does not cover IDC’s exposure

IDC Commercial financiers

SLIDE 7

7

IDC vis-à-vis commercial financiers (continue)

Post-investment

• Focussed on ensuring maximum recovery of funds in

cases where the business experience difficulty

Industry involvement

• Generally only becomes involved in established industries

Project development and funding

• Seeks involvement from development banks or

government to fund large projects

Business support

• Pre-and post-investment support remaining to entrepreneurs

Post-investment

• Focussed on ensuring business sustainability in cases where

the business experience difficulty

Industry involvement

• Support for new industries with growth potential
• Provides funding for unproven technology through venture

capital funding

Project development and funding

• Conceptualises projects and develops them to a

bankable stage

• Invests in early stage projects
• Shares risk with commercial financiers to leverage

private sector investment

IDC Commercial financiers

SLIDE 8

TWO WAYS OF DOING BUSINESS WITH THE IDC

(1) PROJECT DEVELOPMENT

SLIDE 9

TWO WAYS OF DOING BUSINESS WITH THE IDC

(2) CREDIT APPLICATIONS

SLIDE 10

10

AGRO-PROCESSING – value chain

Sector map

Biotechnology Intermediate inputs Energy; Water Irrigation equipment Fertilizer; Implements Packaging; Fencing Structures; Tools Pumps & generators; Medicine Maize Wheat Hay Grain sorghum Sugar cane Ground nuts Tobacco Sunflower seed Cotton Viticulture Citrus Subtropical fruit Vegetables Deciduous fruit Tea Coffee Flower Game Ostriches Pigs Goats Sheep Cattle Poultry Beans Nuts Field crops Horticulture Livestock Agriculture Evergreen Fishing Aquaculture Fishing Meat processing Dairy products Fruit & vegetable products Fish products Oils & fats Grain mill products Bakery products Sugar & related Confectionary products Other food Animal feed Agro -processing Distilleries Malt Beverages Soft drinks Beverages Wineries Other non

• food

Essential oils Fibres Starch Bio -fuels Medicinal / Biotech Household Expenditure Fragrance Textiles Fuel Pharmaceutical Feeding into other value chains Foodservices (hotel; restaurant; caterers) Wholesale Retail Logistics Tourism Exports Agents Logistics Automotive Government Expenditure Chemicals Other …

PRIMARY SECTOR SECONDARY SECTOR

Sector map

Biotechnology Intermediate inputs Energy; Water Irrigation equipment Fertilizer; Implements Packaging; Fencing Structures; Tools Pumps & generators; Medicine Maize Wheat Hay Grain sorghum Sugar cane Ground nuts Tobacco Sunflower seed Cotton Viticulture Citrus Subtropical fruit Vegetables Deciduous fruit Tea Coffee Flower Game Ostriches Pigs Goats Sheep Cattle Poultry Beans Nuts Field crops Horticulture Livestock Agriculture Evergreen Fishing Aquaculture Fishing Meat processing Dairy products Fruit & vegetable products Fish products Oils & fats Grain mill products Bakery products Sugar & related Confectionary products Other food Animal feed Agro -processing Distilleries Malt Beverages Soft drinks Beverages Wineries Other non

• food

Essential oils Fibres Starch Bio -fuels Medicinal / Biotech Household Expenditure Fragrance Textiles Fuel Pharmaceutical Feeding into other value chains Foodservices (hotel; restaurant; caterers) Wholesale Retail Logistics Tourism Exports Agents Logistics Automotive Government Expenditure Chemicals Other …

PRIMARY SECTOR SECONDARY SECTOR

SLIDE 11

11

AGRO-PROCESSING – value chain

Agric Input Agricultural production Primary processing Advanced processing

Wholesale & distribution

Retail Consum er Basic processing

• Sterilising
• Pulping
• Drying
• Canning
• Milling and

grinding

• Pressing
• Chilling
• Freezing
• Heating
• Fermentation
• Preservation in
• il/vinegar/brine
• Sugar-based

preservation

• Packaging and

labelling

• Extraction
• Mixing/combinin

g to recipe

• Flavouring
• Extrusion
• Baking and

cooking

• Preservation
• Packaging and
• labelling
• Sorting & grading
• Cutting & peeling
• Chilling
• Packaging &

labelling

Agro-processing

SLIDE 12

12

AGRO-PROCESSING – value chain composition

• Livestock = 47,5%
• Field crops = 28,2%
• Horticulture = 24,2%
• Meat = 28%
• Grain milling = 14%
• Dairy = 11%
• Bakery = 8%
• Fruit & = 8%
• Sugar = 6%
• Oils & fats = 6%
• Animal feed = 6%
• Fish = 3%
• Confectionary = 3%
• Commercial farmers =

40,000 (95% of output)

• Resource-poor

farmers = 450,000 (5%

• f output)
• Around 4,000 food

production companies

• Top 10 responsible for

70% of turnover

• 95% of food

retail is controlled by 4 retailers

• Sales to

households = 72%

Agric Input Agricultural production Primary processing Advanced processing

Wholesale & distribution

Retail Consumer Basic processing

• Large retailers
• Independent

retailers

• Informal sector

SLIDE 13

13

AGRO-PROCESSING – cyclical trends

50 100 150 200 1993 1996 1999 2002 2005 2008 2011 Index 2005 = 100

Employment

50 100 150 1993 1996 1999 2002 2005 2008 2011 Index 2005 = 100

Gross Domestic Product

50 100 150 1993 1996 1999 2002 2005 2008 2011 Index 2005 = 100

Gross Domestic Product

50 100 150 1993 1996 1999 2002 2005 2008 2011 Index 2005 = 100

Employment

• 1. Direct share of national GDP = equals 2.4%
• 2. Real GDP growth at 1.9% p.a., on average,

between ‘03 & ‘12.

• 1. Direct share of national GDP = equals 1.9%

(11.2% of manufacturing GDP)

• 2. Real GDP growth at 4.6% p.a., on average,

between ‘03 & ‘12. (manuf = 2.5%)

• 3. 13.7% of all jobs in manufacturing

SLIDE 14

14

AGRO-PROCESSING – trade flows

Trade balance

Trade Flow HS4 code: Product category Value Rm (sum of 5 year average)

Exports

H0805: Citrus fruit, fresh or dried 6393 H1005: Maize (corn) 3952 H0806: Grapes, fresh or dried 3520 H0808: Apples, pears and quinces, fresh 3251 H5101: Wool, not carded or combed 1587 H0802: Nuts except coconut, fresh/dried brazil & cashew 779 H0809: Stone fruit, fresh (apricot, cherry, plum, etc) 666 H0804: Dates, figs, pineapple, avocado, etc, fresh/ dried 438 H1201: Soya beans 381 H0810: Fruits nes, fresh 303

Imports

H1001: Wheat and meslin 3155 H4001: Natural rubber & gums, in primary form, plates, etc 1332 H2401: Tobacco unmanufactured, tobacco refuse 1226 H0713: Vegetables, leguminous dried, shelled 634 H5201: Cotton, not carded or combed 497 H0901: Coffee, coffee husks & skins & coffee substitutes 450 H1209: Seed, fruit and spores, for sowing 323 H0902: Tea 317 H1005: Maize (corn) 262 H0801: Coconuts, Brazil nuts & cashew nuts, fresh/dried 195

Top traded agricultural products Top traded agro-food products

Trade Flow HS4 code: Product category Value Rm (sum of 5 year average)

Exports

H1701: Solid cane/ beet sugar & chemically pure sucrose 1897 H2009: Fruit and vegetable juices, not fermented/ spirited 1576 H2008: Fruit, edible plant parts nes, prepared/preserved 1474 H2106: Food preparations, nes 916 H1512: Safflower, sunflower & cotton-seed oil, fractions 650 H4102: Raw skins of sheep or lambs 454 H1103: Cereal grouts, meal and pellets 405 H2103: Sauce, condiments, mixed seasoning & mustard 389 H1507: Soya-bean oil, fractions, not chemically modified 365 H1806: Chocolate and other foods containing cocoa 358

Imports

H1006: Rice 3979 H2304: Soya-bean oil-cake and other solid residues 2591 H1511: Palm oil and its fractions, not chemically modified 2584 H0207: Meat, edible offal of domestic poultry 2230 H1507: Soya-bean oil, fractions, not chemically modified 2039 H2106: Food preparations, nes 1184 H1512: Safflower, sunflower & cotton-seed oil, fractions 996 H2309: Animal feed preparations 691 H1701: Solid cane/ beet sugar & chemically pure sucrose 617 H2009: Fruit and vegetable juices, not fermented/ spirited 575

Trade balance

SLIDE 15

15

AGRO-PROCESSING – sub-sectors opportunities

Livestock Grain Sugar Beverage Oils and fats &

• ther

Fish Horticulture

• Processing and

preserving of fish and fish products

• Processing and

preserving of fruit and vegetables

• Meat and meat products
• Dairy products
• Prepared animal feeds
• Grain mill products
• Starches and starch

products

• Macaroni, noodles,

couscous and similar

• Bakery products
• Sugar, including golden

syrup and castor sugar

• Cocoa, chocolate and

sugar confectionery

• Spirits & wine
• Beer and other malt

liquors and malt

• Soft drinks; Mineral

waters

• Vegetable and animal
• ils and fats
• Other food products

n.e.c.

• Value addition to meat

products

• Livestock

massification

• Localise high value

dairy production – butter, whey, etc.

• Dairy exports to Africa
• Higher value cheeses
• Animal feed

production close to source

• Poultry in the rest of

Africa

• Increased competition

in value chain

• Exploit milling

potential, in areas with logistical advantages

• Rice production in

Africa

• Increase animal feed &

integrated poultry production

• Higher value starch

production

• Innovation in bakery

products , non-wheat bread & pastas

• Non-wheat bread
• Co-generation &

biofuels

• Improved capacity

utilisation of existing mills

• Support drive into

Africa

• Sweets - Brand

extension into Africa

• Localisation of foreign

brands - confectionary

• Rooibos & Honey

bush value addition

• Develop new wine

areas

• Consolidation of wine

labels

• Localise malt

production

• Local production of

foreign brands

• Localise soya related

products

• Higher value, healthier
• il products
• Expand marine

aquaculture

• Canning re-orientation
• Higher value products

– organics, salads, oil extraction

• Import replacement –

juices

• Internationalisation

Value chain

• Sub-sectors
• Potential interventions

SLIDE 16

16

Agro-processor Agriculture

• Access to Markets
• Access to Finance
• Access to Information
• Access to Skills

Operating partner(s) & IDC Broad-based BEE farming

Government grants NGO’s Commodity organizations Agri-businesses input supply Water rights Land tenure security Social facilitation Farmer aggregation Infrastructure Training Extension support Government alignment Mechanization Project management

• Comm. & DFI funding

IT solutions

Agro-processing rural development model

RURAL DEVELOPMENT & agro-processing

Value chain integration

Community/industry/ Compact

Incubation Policy co-ordination R&D + trials

SLIDE 17

17

Agro-Industries Strategic Business Unit (SBU)

SLIDE 18

18

Our sectoral focus areas

1. Agro-processing (food and non-food)

• It can include on-farm, first-tier

processing (such as packing & sorting).

• It can also include backward integrated

agro-processing projects 2. Beverages (alcoholic and non-alcoholic) 3. Aquaculture

 Processing and preserving of meat and meat products  Processing and preserving of fish and fish products  Processing and preserving of fruit and vegetables  Manufacture of vegetable and animal oils and fats  Manufacture of dairy products  Manufacture of grain mill products  Manufacture of starches and starch products  Manufacture of prepared animal feeds  Manufacture of bakery products  Manufacture of sugar  Manufacture of cocoa, chocolate and sugar confectionery  Manufacture of pasta products  Manufacture of other food products n.e.c.  Distilling, rectifying and blending of spirits; ethyl alcohol production from fermented materials; manufacture of wine  Manufacture of beer and other malt liquors and malt  Manufacture of soft drinks; production of mineral waters

SLIDE 19

19

Refocus … we do not fund

• Pure primary agricultural projects/applications (will be referred

to the Landbank)

• Pure land-based transactions/acquisitions
• Hard liquor includes any drink with proportion of alcohol

exceeding 12 per cent vol

• Any tobacco and tobacco products
• Biofuels (to be dealt with by Green Industries SBU)
• Wholesale & retail activities
• Refinancing of existing activities
• Pure sale of shares for empowerment purposes (to be referred

to the NEF)

• Funding of less than R1m (refer to Khula)
• Pure overdraft facilities

SLIDE 20

20

Investment guidelines

In South Africa

• The project must facilitate the creation of new industrial capacity (create jobs)
• The funding request must be for at least R1-million (for debt) and R5million (for equity and/or

quasi-equity) (not more than R1bn)

• Risk-sharing from operating private-sector investment partners is non-negotiable.
• Equity-related funding:
• IDC will only provide an equity-related instrument if it views it of strategic importance
• IDC will never take up a majority stake in a business
• IDC not to fund more than 60% of the total funding requirement (for start-ups)
• We can fund a full expansion if the equity structure at peak is around 35%
• For start-up we prefer an equity structure of 50% at peak

SLIDE 21

Conditionalities – broad-based Black economic empowerment

• Pure acquisitions - If it is a pure acquisition, with a mere

sale of shares, then our funding is not directly linked to new capacity and IDC cannot participate in a transaction. The National Empowerment Fund provides funding for pure BBBEE acquisition transactions

• Expansionary acquisitions - If the transaction is an issue
• f shares and at least 50% of the IDC's funds are used

within the business for expansion purposes, then the IDC can consider such funding

• Prior to funding
• all business partners are encouraged to do at least

an own BBBEE rating on the dti-website

• After funding
• all business partners needs to do an annual

BBBEE accreditation on an annual basis

• A BBBEE plan needs to be put in place if a BBBEE

rating is below 5

BALANCED SCORECARD APPROACH GENERIC SCORECARD

• Direct Empowerment
• Ownership

: 20% weighting

• Management

: 10%

• Human Resources Development
• Employment Equity : 15%
• Skills Development : 15%
• Indirect Empowerment
• Preferential Procurement: 20%
• Enterprise Development : 15%
• Socio Economic Dev : 5%

Total

100%

SLIDE 22

Investment guidelines

In the rest of the African continent

• The project must be of direct benefit to South Africa
• Promoting South African capital goods exports
• Development and integration of value chains (inputs/raw materials from SA, intermediary

goods to be exported to SA,

• Promoting South African ownership (25% or more) on the Continent

(These conditionality is relaxed for neighboring countries)

• The size of the project (total funding requirement) must be at least:
• ZAR 5-million SACU investments
• USD 3-million for SADC investments
• USD10-million for countries outside SADC.
• IDC not to fund more than 50% of the total funding requirement (for expansions

not more than the existing asset base) – the funding amount will be a factor of South African involvement

SLIDE 23

23

Financial products

• Debt products
• Long-term, capital/interest moratoriums, sculpted

repayments

• Mezzanine funding
• Cash flow and not security linked
• Equity instruments
• For own account & share warehousing options –

mainly strategic reasons

• Bridging finance against contract
• Wholesale finance
• Other products – guarantees, trade finance, etc.

Customised structuring of each transaction

SLIDE 24

24

Special IDC Schemes - generic

Gro-E Scheme

• R10 billion available for 5 years
• Loans @ Prime - 3% for the first 5

years

• Equity @ 5% RATIRR
• Capital and interest payment holidays

as per financial needs of the business

• Minimum = R1 million & Maximum of

R1 billion per project

• Business must have prospects of

acceptable profitability to service its

• bligations
• Cost per job created should not

exceed R500 000

• B-BBEE certification from an

accredited verification agency is required

• R2 billion unsecured 5-year listed

private placement bond

• Cost per job of up to 450,000 will be

eligible

• Pricing @ approximately 6.0% - 10.0%

fixed;

• Extent of discount is based on the risk

and developmental impact

• Maximum = R100m
• Only senior debt instruments
• Client is expected to drawdown within

7 months after approval

• Women Entrepreneurial Fund (R400

million)

• People with Disabilities Fund (R50

million)

• Development Fund (R250 million)
• Equity Contribution Fund (R150

million)

• Community Fund (R150 million)

UIF Job Creation Fund Transformation and Entrepreneurial Scheme (TES)

SLIDE 25

25

Special IDC Schemes – specific to agro-industries

Agro-Processing LINKAGE Scheme

• Fund size = R100m Target = Agro-

processing entities that source or intend sourcing raw materials from small-scale, resource-poor farmers

• 50:50 risk sharing arrangement between

IDC and processor

• Debt pricing at prime minus 3
• Maximum amount = R20m
• Matching grants for extension support up

to R1m

• Funding to be used for expansions, new

capacity, improved capacity utilisation or

• n-lending to contract farmers

Agro-Processing COMPETITIVENESS Scheme

• Fund size = R250m
• Objective = to facilitate increased

competition in the agro-processing sector through the provision of finance to non-dominant players

• Investment, business support &

research support components

• Maximum finance = R30m and

minimum R250,000.

• Funding provide at highly

concessionary terms

• Almost fully committed

SLIDE 26

AGRO-INDUSTRIES SBU – Current sectoral portfolio

• 100

200 300 400 500 600 700 800

Biotech Farm services Pasta products Vegetable products Mushrooms Flowers Sweets & honey Wholesale finance Other processing Soya processing Starch products Various other fruit Stone fruit Fish farming & processing Fibre products Tea Dairy products Beverages Fruit processing Subtropical fruit Berries Meat processing Disaster relief Nuts & nut processing Grapes Citrus Sugar products

• Total exposure & commitments =

R5,5bn

• 115 investments
• 50% of exposure value = equity

investments

• Rest of Africa (excl. SA) = 28% of

portfolio

SLIDE 27

27

Existing portfolio – South Africa

22% 32% 10% 9% 3% 7% 2% 8% 8%

• Wine
• Citrus
• Flowers (proteas)
• Persimmon
• Berries
• Stone fruit
• Fishing
• Processing – fish
• Grapes
• Aquaculture (abalone)
• Pastas
• Fruit packing
• Dried fruit products
• Ostrich processing
• Agribusiness
• Fruit – Grapes
• Fibre - cotton
• Fruit - Citrus
• Processing - Meat
• Processing – fruit
• Flood relief
• Nuts
• Fruit processing
• Citrus
• Berries
• Aquaculture (cob)
• Dairy products
• Honey
• Fruit – Stone
• Agribusiness
• Meat - poultry
• Walnuts
• Stone fruit
• Meat processing
• Apples
• Sweets
• Fibre
• Berries
• Dairy products
• Beverages
• Sugar products
• Nuts
• Fruit - Various
• Beverages
• Processing - vegetable
• Processing - Fruit
• Fruit - Subtropical
• Processing - Nuts
• Agribusiness - wholesale
• Fruit – Citrus
• Fruit - Various
• Disaster relief – not only Gauteng
• Beverages
• Biotech
• Dairy products
• Stone fruit & berries
• Sweets
• Pasta products
• Processing – confectionary
• Processing - Soya
• Mushroom products
• Dairy products

SLIDE 28

28

Existing portfolio – Africa, excl. South Africa

Africa, excl. RSA - 28% of total exposure

Sugar - Mozambique Tea & Macadamia nuts - Malawi Table grapes - Namibia Sugar - Kenya Sugar - Tanzania Sub-tropical fruit - Mozambique Cassava starch - Swaziland Fruit juice – Ethiopia Poultry processing - Namibia

SLIDE 29

29

An agricultural rural development model (start-up)

XYZ (Pty) Ltd

Operating / investment partner/s (experience &

financial capacity)

BEE (Commitment)

• High level
• Workers
• Community

IDC direct

SPV - IDC,RCF,Dev.Fund s

IDC & other banks

Equity (50%) – IDC max 49% Debt (50%)

SLIDE 30

30

Example - Southern Oil (Pty) Ltd

Other

31% 68% 1%

Producer of value added canola products, such as canola oil & canola

• il cake in Swellendam,

WC SSK

+/- 200 farms supplying canola

Facilitated the establishment of the canola industry in the Western Cape Equity Debt

• +/- 40 permanent

employees

• Value addition in

agriculture

IDC has exited this transaction

SLIDE 31

31

Grain Field Chickens integrated rural development project

AGRO-INDUSTRIES SBU – successful example

SLIDE 32

32

AGRO-INDUSTRIES SBU – examples

SLIDE 33

33

AGRO-INDUSTRIES SBU – examples

SLIDE 34

Regional presence

• IDC has offices in all provinces;
• Regional offices are fully fledged
• perational offices that form part of the

SBU value chain;

• Responsibilities include:

– Dealing with enquiries, applications, basic assessments and business support in the province – Improving IDC stakeholder relations and stakeholder perceptions and extending IDC’s reach and footprint. – Proactive sourcing of deals/projects – Engaging with provincial development plans

• Satellite offices do not have permanent

staff and are manned at specific times by employees from the regional office. These

• ffices are generally shared with other

DFIs or agencies.

SLIDE 35

Industrial Development Corporation 19 Fredman Drive, Sandown PO Box 784055, Sandton, 2146 South Africa Telephone (011) 269 3000 Facsimile (011) 269 2116 E-mail callcentre@idc.co.za

Thank you