NEF in talks over R1bn capital injection to fund black entrepreneurs

The National Empowerment Fund (NEF) is in discussions with the Public Investment Corporation (PIC) and the Unemployment Insurance Fund (UIF) for a possible R1bn capital injection to fund its work financing black economic empowerment.

This is in addition to the R500m facility which has been approved by the Industrial Development Corporation (IDC). The NEF which has been lobbying for a recapitalisation for several years‚ is in the process of becoming an arms-length subsidiary of the IDC.

NEF chairman Rakesh Garach said in its annual report tabled in Parliament that the NEF "has been in discussions with the PIC to secure a R1bn facility from the funds that the PIC manages on behalf of the UIF."

The UIF is supportive of this initiative on the basis that the NEF's work contributes to job creation.

NEF CEO Philisiwe Mthethwa said in the report that the NEF required an annual allocation of R2.5bn over the next five years - a total of R12.5bn - "to be able to address the sizeable demand for funding among black entrepreneurs."

She noted that in order to receive funding from the IDC and the PIC‚ the NEF would have to be granted limited borrowing powers by Finance Minister Malusi Gigaba under the Public Finance Management Act. Its current classification under the act precludes it from any form of borrowing in the capital markets.

In the year to end March the NEF made a deficit of R328m on revenue of R362.5m. Impairments amounted to R213m and investment write-offs to R26.7m while the loss in terms of the fair value of investments totalled R269.4m. The fund has total assets of R5bn.

Despite the tough economic conditions there was a 46% (R205m) reduction year-on-year in impairment provisions and write-off charges. The impairment provision of 17.5% was 6.5% down on the 2016 figure.

"Based on our assessment of the portfolio we believe that 2016 was the peak of the impact of this tough environment unless economic conditions get worse than anticipated in the short to medium term‚" NEF chief financial officer Innocentia Pule said.

She noted that the return on investment at 7.8% was lower than the prior year‚ an indication of "the increased vulnerability to market factors faced by our investees".

A total of R1.1bn in funding was approved during the year bringing the total since inception to R8.6bn which was granted to 852 black enterpreneurs.

Another indication of the difficult economic environment‚ Mthethwa said‚ was the requests by investee companies for moratoriums on repayments‚ reduced instalments and loan extensions.