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 approved by the Industrial Development Corporation (IDC).
The NEF, which has been lobbying for recapitalisation for several years, is in the process of becoming an arm’s length subsidiary of the IDC.
NEF chairperson Rakesh Garach said in the NEF’s annual report, tabled in Parliament, that "has been in discussions with the PIC to secure a R1bn facility from the funds the PIC manages on behalf of the UIF".
The UIF is supportive of the initiative because the NEF’s work contributes to job creation.
NEF CEO Philisiwe Mthethwa said in the report that it 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". However, she noted that 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 precludes it from any form of borrowing in the capital markets.
In the year to end-March, the NEF had a deficit of R328m on revenue of R362.5m. Impairments amounted to R213m and investment write-offs 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, adding 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 entrepreneurs.
Another indication of the difficult economic environment, Mthethwa, said was the requests by investee companies for moratoriums on repayments, reduced instalments and loan extensions.
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