IDC hopes for 20000 new jobs

The Industrial Development Corporation (IDC), the government's main vehicle to provide funding for job creation projects, expects to create 20000 jobs and save 11650 after approving record funding of R8.4-billion in the past financial year.

An additional 8100 jobs are expected to be created through direct linkages in the informal economy, the IDC said.

CEO Geoffrey Qhena admitted that it is a drop in the ocean, but said the IDC "would continue to find ways to work smartly" to create more jobs.

The government is targeting five million new jobs by 2020.

A R2-billion project with the Unemployment Insurance Fund (UIF), launched in May last year, has so far approved funding requests for R1.5-billion and helped save 17000 jobs.

"We need to do more of these projects where we can build partnerships and create and save more jobs for a minimal amount of money," said Qhena. Agro-processing was one area where "rand for rand, we might create more jobs".

The IDC will invest R102-billion over the next five years in sectors related to the New Growth Path, including the green industries, infrastructure, mining and beneficiation, agro-processing, manufacturing, tourism and the knowledge economy.

Of the R8.4-billion approved in the past financial year, 27% is for projects in the manufacturing sector, a major focus for the government.

As part of its strategy to help government create jobs, 97% of the funding approvals made in the past year were in line with the targeted sectors highlighted by the NGP. The IDC was also taking on additional risk when funding new projects, said financial director Gert Gouws.

In the past financial year, the IDC's impairment ratio, based on the total financing at cost, increased to 17.3%, up from 10.7% in 2007. This means that of every R100 the IDC loans out, it is writing off R17.30 as bad debt.

"The increase in the ratio indicates the stress that still exists in the economy. It also indicates the IDC's higher assumption of risk," said Gouws.

Business Times recently reported how high-profile businessmen and the IDC lost millions in an alleged scam by African Airlines, raising questions about the quality of due diligence.

"When we have investments that haven't worked out, we look at our processes. In this case, we are comfortable that the mistake was not made due to problems with our processes. Sometimes people are just too clever for us," said Qhena.

"But we are confident that our processes work. We don't want to take 10 to 18 months to get projects approved due to extensive due diligence procedures," he added.

Qhena said the IDC would not like the impairment ratio to exceed 20%, but added that it is increased by strict accounting rules. These require debts to be written off on projects at an early stage where no cash flows exist yet, but that may still be viable and from which the IDC could still benefit in future.

Investment in the mining value chain constituted 16% of its total funding approvals, "considerably lower" than in previous years, according to the summarised financial statements released this week. Most of the funding approvals focused on coal investments.

Qhena said the drop in mining funding was not attributable to investor uncertainty over nationalisation, but could be explained by the timing of new projects and the large investments approved last year for the Kgalagadi Manganese project. These include a manganese mine in Northern Cape and a smelter at Coega near Port Elizabeth.

Coal remains an attractive investment option, said Qhena, thanks mainly to the need to increase supplies to Eskom, which is increasing its coal-fired generation capacity, and export demand from China and India.

The untapped coal resources of the Waterberg is a big focus area, though a lack of infrastructure has been keeping investments at bay; large multinational mining companies such as Rio Tinto and Brazil's Vale have opted to invest in coal assets in Mozambique rather than SA.

"Everyone knows we need to ensure our infrastructure gets up to speed. We can't afford to delay (the roll-out of rail and port infrastructure)," said Qhena.

The private sector might be invited to become involved in these infrastructure projects due to Transnet's lack of resources, he said.