Are you missing the financing boat?

September 3rd, 2014, Published in Articles: Vector


Mark Botha

Mark Botha

Electrical contracting, engineering and lighting companies stand to benefit substantially through the Industrial Development Corporation’s (IDC’s) mandate to create sustainable jobs through industrial development and economic growth, but are they taking advantage of this opportunity?

Addressing the IESSA Johannesburg branch on 31 July 2014, IDC Business Unit account manager Khayelihle Sibiya said the corporation provides funding to projects with “high potential developmental impact” – projects and businesses which will, in time, grow the economy and create jobs.

The corporation’s Manufacturing Competitiveness Enhancement Programme (MCEP) could offer a private, 100% white-owned LED manufacturer in Western Cape Province with more than 40 employees and a BEE level rating of 3 facility approval of approximately R10,5-million.

Similarly, a private, 100% women-owned LED manufacturer in Gauteng with over 30 employees and a BEE level rating of 4 could receive IDC facility approval for an equipment loan and working capital facility totaling some R5,5-million.

The IDC has approved more than R20-billion in funding grants to new and existing businesses wishing to expand over the past twelve months. It is said to have created over 40 000 local jobs in doing so.

One of the corporation’s offerings pertinent to the electrical industry is its Gro-E scheme which will be investing R10-billion in economic growth and job creation over the next five years. This scheme offers financial support to start-up businesses including funding for buildings, equipment and working capital. It also funds companies wishing to expand and who will contribute to job creation.

The scheme funds businesses at prime less 3% for loans and the real after-tax internal rate of return of 5% for equity financing. A minimum of R1-million and a maximum of R1-billion are allowed per project. The funding is available over five years or until the scheme is exhausted. This reduced loan pricing is available for five years.

The IDC’s MCEP offers existing manufacturers a suite of incentives promoting competitiveness in the manufacturing arena and to ensure job retention. It consists of industrial financing loan facilities managed by the IDC and production incentive grants administered by the Department of Trade and Industry.

The programme is for working capital facilities only and offers a maximum approval of R50-million per applicant at an interest rate fixed at 4% for four years.

The IDC, which is owned by government and supervised by the economic development ministry, manages six funds aimed at seven industrial sectors: green industries; the agricultural and mining value chains; manufacturing; media and motion pictures, and what it terms the “knowledge economy” which includes health care, information and communications technology (ICT) and biotechnology.

It views LED manufacturing as an ICT strategic objective, meaning that companies which populate components onto printed circuit boards, either in-house or outsourced, are eligible to partner with the corporation. Its current committed portfolio for this sector amounts to over R4,7-billion.

Apart from providing business requirements such as working capital and equipment, the IDC also offers equity and quasi-equity; term loans; bridging finance or revolving credit, and guarantees.

The only other qualifying criteria are that the maximum cost per job created at these businesses for the duration of the funding period should not exceed R500 000; companies must produce broad-based black economic empowerment (BEE) certification, and must operate or expand in South Africa.

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