A sharp acceleration in the government’s black industrialist programme is planned for the coming fiscal year as expectations mount for more to be done to radically transform the structure of the economy.
The original target of 30 projects per year for the first two years starting March 2016 and 40 projects in the third year — bringing the three-year total to 100 — has been expanded to 100 projects by the end of 2017/18 alone. This will require a big increase in the allocation for the project in the budget to be announced on February 24 by Finance Minister Pravin Gordhan.
In his state of the nation address last week President Jacob Zuma emphasised that the black industrialists programme was "critical" to achieve the radical economic transformation required to deracialise the ownership structure and control of the economy.
Department of Trade and Industry director-general Lionel October said the black industrialists project would be expanded in the new financial year "because there is a lot of pressure and expectation on us to move much quicker towards the target of 100. We are hoping to achieve this in the next year. We are on track for this year but the expectations are very, very high." Reaching 100 projects by end-March 2018 would mean approving about 70 more grants.
To date the Department of Trade and Industry has approved R577m in grants for 27 black industrialist projects with additional forms of loan and equity financing being provided to the grant recipients by the Industrial Development Corporation (IDC), the National Empowerment Fund, the Public Investment Corporation and the Land Bank. All these institutions, as well as the Small Enterprise Finance Agency, are represented on the grants approval committee which facilitates a holistic approach to the financing of projects. Once the grant by the department is approved, the projects can be considered by the other institutions.
Including IDC financing, a total of 55 projects have been assisted through the programme although about 200 applications have been received. October said experience gained in working out the necessary systems and grant approval structures meant the pace of grant approval was likely to accelerate, although the due diligence probes required did take time.
He noted that without this programme, the black-owned companies would find it difficult to raise finance from commercial banks as they lacked the required track record. Also, industrial companies were generally not favoured by banks.
To date the Department of Trade and Industry has approved R577m in grants for 27 black industrialist projects with additional forms of loan and equity financing being provided to the grant recipients by the Industrial Development Corporation (IDC), the National Empowerment Fund, the Public Investment Corporation and the Land Bank
October was confident the target of 30 projects would be achieved by the end of the current financial year. The 27 projects approved so far had created 5,235 direct jobs and about 20,000 indirect jobs, he said. The grant recipients were active across several strategic industrial sectors including plastics, pharmaceuticals, metals, auto-components, agro-processing and the green sector.
This year a dedicated programme would be launched for agro-processing, which was one of the priorities in the department’s industrial policy action plan as it had strong multiplier effects in terms of job creation. "We are going to be focusing big time on agro industries," October said.
Under the black industrialist programme, the department grants up to a maximum of R50m for investment in productive capacity, which usually represents about 20% to 30% of the total investment. Stringent criteria are applied when assessing projects. First, the company making the investment has to be substantially black owned, managed and run. Second, the investment must be in productive capacity in the industrial or value-added service sectors. Real estate and construction projects, for example, will not qualify. The investment must also be either for an expansion or a greenfields project which must be financially viable.
Having only been in operation for about 11 months, the success rate of the companies supported was difficult to gauge, although October said those in the renewable energy sector exposed to Eskom and those exposed to Transnet’s rail programme were struggling because the pace of contracts had slowed considerably.
Stellenbosch University director of the Institute for Futures Research Morne Mostert is critical of the programme. "Black industrialists will not attract investment, except through the taxpayer who will be forced to invest in dying industries," he said.
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