The Department of Trade and Industry (DTI,) which last year committed to the initial creation of more than 100 black industrialists within three years, has developed a draft policy framework to guide the introduction of financial and nonfinancial support mechanisms to boost the industrial asset share of black business.
The policy framework, which was compiled by an advisory panel comprising experts from various sectors, proposed the provision of working capital support – in the form of concessional loans – to black-owned firms, Trade and Industry Deputy Minister Mzwandile Masina said during his Budget Vote speech on Thursday.
The proposed policy, dubbed the Black Industrialists Programme, further outlined the provision of investment grants for up to 80% of the cost of required capital equipment for companies with over 51% black ownership. It also called for joint venture support through investment packages and grants in companies in strategic sectors in which black industrialists had equity and management control, as well as the provision of export support through export insurance concessional funding. In support of the programme, the National Empowerment Fund had ring-fenced R1.5bn, the Small Enterprise Finance Agency R100m, the development Bank of South Africa R2bnand the Industrial Development Corporation R23bn, with additional funds to be allocated following the adoption of the policy by Cabinet. Masina reported that the DTI had prepared a policy implementation plan, which it intended to table before Cabinet.
“Our policy objectives are designed to help the economy overcome the vitality of the market in resolving structural and social inequalities historically embedded in Apartheid State policy. This includes overcoming spatial inequalities amongst provinces in terms of industrialisation.
“In this regard…the concept of black industrialists refers to black people directly involved in the origination, creation, management and operation of industrial enterprises that have a minimum 51% black ownership and derive value from the production of goods and services at a large scale; acting to unlock the productive potential of our country’s productive assets for massive employment locally,” Masina asserted.
Drawing from this definition of black industrialists, the DTI and the black economic-empowerment advisory council had generated criteria for qualifying enterprises and had already received interest from 40 “applicants.”
“[These] applicants volunteered as soon as we announced the idea of the programme. They have not undergone any adjudication process but will be processed alongside all other applicants when the implementation starts,” said the Deputy Minister, adding that the DTI aimed to have 50 beneficiaries processed and accredited under the scheme by end of the year.
This would, he averred, increase to 100 by the end of the 2016 after which the implementation mechanisms of the policy would, in 2017, be reviewed. According to Masina, various private financial institutions, including Standard Bank, First National Bank and Bidvest, meanwhile, had expressed a willingness to partner with government on the programme and he invited other interested financial institutions to participate. Moreover, government had committed its public procurement spend as “an instrument to be [used]” in advancing this inclusive objective of the Black Industrialists Programme.
This would be implemented through the set-asides for targeted procurement from small, medium-sized and microenterprises, as well as black-owned companies. The current government threshold on set-asides was 30%; however, the objective was to institutionalise a 70% procurement target from emerging businesses. In this regard, the DTI this week signed a memorandum of understanding with national carrier South African Airways, which would see the airline setting aside R10bn from its public procurement for black entrepreneurs and industrialists.
“We have also been engaging [State-owned firms] Eskom, Transnet, the Passenger Rail Agency of South Africa and Denel in pursuit of a similar arrangement. We are satisfied with the progress so far,” he commented.
Masina told MPs that the need for a black industrialist development policy had been premised on his department’s observation that black entrepreneurs and industrialists could not emerge and play a more meaningful role in the economy without special support measures dedicated exclusively to them. Feedback from development finance institutions, he added, had suggested that black-owned manufacturing entities had “substantially” less equity investment; less access to start-up loans; limited capacity to finance their industrial ambitions; limited access to private credit; and were more likely to pay higher interest rates on loans than their peers.
“This is in addition to the likelihood of being denied loans by funding institutions. It is in this context that we intend on using this black industrialists scheme to provide various support mechanisms to transcend these barriers to entry and growth,” he concluded.