Trade and Industry Minister Ebrahim Patel is insisting that the Industrial Development Corporation (IDC) play a far more assertive countercyclical investment role in the flagging South African economy and has formally set a R110-billion, five-year disbursement target for the State-owned development finance institution (DFI).

Meeting the target would require the IDC to make average yearly disbursements of R22-billion from 2020 to 2024 – a significant increase from the past five-year period when a total of R60.4-billion was disbursed at an average yearly rate of about R12-billion.

During the financial year to March 31, 2019, the IDC disbursed only R11.8-billion, representing a 23% fall from record disbursements of R15.4-billion reported in 2018.

Engineering News understands that the IDC has set a base disbursement budget of R19.7-billion for 2020, but also has a stretch target of R21.7-billion for the current financial year.

Speaking at the IDC annual results presentation, in Johannesburg, Patel, who is the group’s shareholder Minister, acknowledged that the R110-billion figure was a “stretch target”, particularly in light of a weak economy, as well as an inadequate project and transaction pipeline. The South African economy is unlikely to grow by more than 1% in 2019.

Nevertheless, government wanted the IDC, which is Africa’s largest DFI, to upscale its contribution in support of President Cyril Ramaphosa’s goal, set in 2018, to attract R1.4-trillion in domestic and foreign direct investment over a five-year period.

During the inaugural South Africa Investment Conference, held in October last year, investment commitments worth R290-billion were announced, but have been slow to materialise. Patel revealed that the second South Africa Investment Conference would run from November 5 to 7 and would have a strong focus on increasing investment by domestic firms.

“These are stretch targets . . . but the IDC is a countercyclical entity and, like other countercyclical entities in the public sector, it’s got to lean into the wind in order to help the economy to grow. So, it has to do a little bit more, particularly when times are tough,” Patel asserted.

IDC CEO TP Nchocho said the organisation would seek to respond to the shareholder’s demands by becoming more proactive in developing the project and transaction pipelines and in leveraging partnerships with both private- and public-sector entities.

Nchocho added that the IDC would also be focusing on becoming more effective in implementing its strategy and in enhancing earnings from its portfolio of nonlisted investments.

The Minister’s call was made, however, against the backdrop of a poor financial and operational performance by the IDC during its 2019 financial year, during which the group’s approvals, disbursements and earnings fell.

The group’s profits fell to R720-million from R3.2-billion in 2018. However, CFO Nonkululeko Dlamini stressed that the results were heavily affected by changes to accounting standards. These changes prevented the IDC from recycling capital gains of R2.3-billion back to profits.

On a like-for-like basis, therefore, profits declined 14%, from R841-million to R720-million.