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Performance Report: 3rd Quarter 2015/16 Presented to Portfolio Committee on Trade & Industry Parliament of the Republic of South Africa Tuesday, 01 March 2016

Presenters 1. Ms Philisiwe Mthethwa

Chief Executive Officer

2. Ms Innocentia Pule Chief Financial Officer

3. Mr Setlakalane Molepo Divisional Executive: SME & Rural Development

2 2

Contents

3

Section Slide

1 About the NEF 4

2 Life to date Performance Update: 22 February 2016 9

4 NEF Performance : 3rd Quarter 2015 10

5 Growing Black Industrialists 16

6 Rural and Community Development Projects 30

8 Market Failures & NEF Investment Funds 39

9 Challenges impeding inclusive growth 42

10 Recapitalisation: Funding the Funder 47

11 A sample of NEF Investees 56

About the NEF

4

NEF Mandate…

5

Established by the National Empowerment Fund Act No. 105

of 1998, the NEF is a driver and a thought-leader in promoting and

facilitating black economic participation through the provision of financial and

non-financial support to black empowered businesses, as well as by promoting a culture of savings and investment

among black people.

The NEF is an agency of the dti and is the only DFI exclusively mandated to grow

B-BBEE

6

Direct black equity control over the JSE‟s average market capitalisation of R14.4 trillion as at 19 February 2016 (for Listed Companies), stood at 3% (R431 billion) for shares directly held by black South Africans.

To reach 25% of black control it requires an additional 22% worth R3.2 trillion at current estimated market capitalisation of the JSE.

This is a gap that still needs to be addressed and funded in order to achieve transformation of up to 25% of JSE market capitalisation.

Strategic Need for B-BBEE

Source: Who Owns Whom & JSE market data, 19 February 2016

Broad Based Black Economic Empowerment The Codes of Good Practice

7 7

Strategic Planning Framework… N

EF A

ct:

Obj

ectiv

es

The

dti

O

bjec

tives

Government Priorities:

1) Acceleration of economic growth and transformation, creating decent work and sustainable livelihoods;

2) Infrastructure development to achieve social and economic goals and rural development;

3) Skills and human resource development; 4) Build a developmental state and improve public

service.

Sectors NEF • Tourism; Biofuels; Construction; Agro-processing; Transport; ICT & Media; Mining services; Franchising Industrial Policy Action Plan: • Automotives, components,

medium and heavy commercial vehicles

• Plastics, pharmaceuticals and chemicals

• Biofuels • Strengthening linkages between

cultural industries and tourism • Business process servicing

NEF Sectors in line with national industrial objectives

8

“The Empowerment Dividend”

• Broad Based Black Economic Empowerment Ownership, Management Control, Enterprise & Supplier Development etc.

• Black Women Empowerment

• Job Creation

• Growth Sectors

• Geographic Spread

• Investment Return

The assessment of impact is not driven only by financial returns but by measurement in terms of “The Empowerment Dividend”

made up as follows:

NEF’s Performance and Investment Criteria…

Life to Date Performance Milestones

9

Output Achievements 1 Approvals Benefited black entrepreneurs through approval of 730 transactions worth more

than R7.1 billion across the country.

2 Disbursement Approximately R4.9 billion has been disbursed to these companies since inception.

3 Integrity Secured unqualified external audit opinions for 10 years running.

4 Supporting jobs To date the NEF has supported in excess of 84 000 jobs.

5 Industrialisation 26 strategic and industrial projects worth R27 billion, with the potential to support over 80 000 jobs.

6 A culture of savings & investment

In a transaction worth over R1 billion the NEF Asonge Share Scheme made available more than 12 million MTN shares to over 87 000 investors comprising black individuals and groups. 49% of investors were women.

7 Investor education Reached over 30 000 people in villages and townships through 120 community seminars on how to save and invest, personal financial discipline, shares, dividends, bonds, the property and money markets.

8 Entrepreneurship training / incubation

Business skills training provided to over 3000 potential entrepreneurs who attended 118 seminars from 2012 to date.

9 National footprint The presence of regional offices in all provinces will continue to maximise the NEF‟s reach countrywide. As a result, total portfolio exposure in Gauteng has reduced from above 60% to 43% currently.

10 Collections Over R1.6 billion has been repaid by investees.

NEF Performance: 3rd Quarter ending 31 December 2015

10

11 11

The NEF’s strategic objectives Strategic Pillars

Detailed objectives

1. Advancing BEE &

Growing Black Industrialists

To provide finance to business ventures established and managed by black people.

2. Maximising the empowerment

dividend

Invest in black empowered businesses that have high employment creating opportunities

Support the participation of black women in the economy

3. Optimising

non-financial support

Facilitate investment across all provinces in South Africa

Encourage and promote savings, investment and meaningful economic participation by black people

Advance black economic empowerment through commercially sustainable enterprises

Establish the NEF in the South African economy as a credible and meaningful DFI

4. Financial efficiency &

sustainability Establish the NEF as a sustainable DFI.

Advancing B-BBEE Strategic Objective 1: To provide finance to business ventures established & managed by black people

Output

Performance

Measure or

Indicator

Annual

Target

3rd Quarter

Milestones

(Cumulative)

3rd Quarter

Results

Achievemen

t

At 31 Dec

2015

YTD

Achievement

(22 Feb 2016)

Reason for variance

and corrective

Action

Provide finance to black

empowerment business by

investing in the form of loans,

quasi-equity and equity finance through funds and funding products,

targeting black rural enterprise, SMEs, corporate

finance and venture capital.

Value of

deals approved by the NEF (R

million)

R880 m

R608 m

R256 m

R592 m

R703 m

While still below target, progress in

the 3rd Quarter has been great in

comparison to performance in the

first half of the year. YTD

achievement represents 97% of

Q3 milestones

Value of new commitments

(R million) R770 m R457 m R300 m R449 m R540 m

Progress has been made to increase

the commitment of deals in the

pipeline.

Value of new Disbursements (R million)

R691 m R478 m R214 m R479 m R542 m N/A

12

Maximising the Empowerment Dividend Strategic Objective 2: Invest in black empowered businesses that have high employment creating opportunities.

13

Output

Performance

Measure or

Indicator

Annual Target

3rd Quarter

Milestones

(Cumulative)

3rd Quarter Reported

Results

Achievement

As 31 Dec 2015

YTD Achievement

(22 Feb 2016)

Invest in black empowered

businesses that have high employment

creating opportunities.

Number of jobs expected to be supported or

created

Support 5415 new or existing job

opportunities

Support 2 203 new or existing job

opportunities

1 039 (of which 583 are new)

2 099 (of which 1 304 are new)

2 213 (of which 1 345 are new)

Support the participation of black

women in the economy

Percentage of portfolio

disbursement owned by women

40% 40% 42% 54% 46%

Percentage of committed deals partially/ totally

owned by women

45% 45% 40% 42% 38%

Facilitate investment across all provinces

in South Africa

Percentage of disbursements to be invested in EC, NC, NW, MP, FS

and LP

25% of

disbursements to be invested in

EC, NC, NW, MP, FS and LP

25% of disbursements to be invested

in EC, NC, NW, MP, FS

and LP

15 deals worth R118 m are invested as

follows: NC: 0

FS: 3 worth R15 m LP: 2 worth R36 m MP: 5 worth R23 m NW: 3 worth R40 m EC: 2 worth R4 m

This represents 55% of the YTD disbursements

43 deals worth R245 m are invested as

follows: NC: 2 worth R9 m FS: 7 worth R28 m LP: 8 worth R82 m MP: 11 worth R31 m NW: 8 worth R72 m EC: 7 worth R23 m

This represents 51% of the

YTD disbursements

58 deals worth R274 m are invested

as follows: NC: 2 worth R9 m FS: 7 worth R28 m LP: 9 worth R86 m MP: 15 worth R49 m NW: 10 worth R79 EC : 7 worth R23 m

This represents 51%

of the YTD disbursements

Optimising Non-Financial Support Strategic Objective 3: Black Economic Empowerment is advanced through commercially sustainable enterprise

Output

Performance

Measure or

Indicator

Annual Target

3rd Quarter

Milestones

(Cumulative)

3rd Quarter

Reported Results

Achievement

As at 31 Dec 2015

YTD Achievement

(22 Feb 2016)

The provision of non-financial

support and training for black-owned businesses and entrepreneurs

Number of Business Today

Training sessions provided

18 training sessions per year, with an average

score of 60% required in the post-training assessment

15 training sessions per year, with an average

score of 60% required in the post-training assessment

14 training sessions

have been conducted, with an average score of

69%

A total of 19 training sessions have been conducted, with an average score of

79%

A total of 19 training sessions

have been conducted, with an average score of

79%

Number of entrepreneurs

who successfully complete business

incubation

10 entrepreneurs

in the final incubation stage

7 entrepreneurs in the final incubation

stage

3 entrepreneurs have made it to the

final incubation stage


final incubation stage;

82 referrals have been made to

various incubation centres


final incubation stage;

82 referrals have been made to

various incubation centres

Number of Social Facilitation

Sessions for NEF investees

18 Social Facilitation Sessions

15 Social Facilitation Sessions

9 Social Facilitation

sessions

30 Social Facilitation

sessions

30 Social

Facilitation sessions

Conduct investor education seminars in provincial towns

and increase understanding by

participants

Number of seminars held

across the country

32 Investor education

seminars per year

24 Investor education seminars

12 Sessions

completed, as well as 2 Industrial

Theatres

33 Sessions completed, as well

as 4 Industrial Theatres

34 Sessions completed, as well

as 5 Industrial Theatres

14

Strategic Objective 4: Financial Efficiency and sustainability

15

Optimising Non-Financial Support

Output

Performance

Measure or

Indicator

Annual Targets

3rd Quarter

Milestones

(Cumulative)

3rd Quarter

Reported

Results

Achievement

As at 31st Dec

2015

YTD

Achievement

(22 Feb 2016)

Establish the NEF as

a sustainable

DFI.

Percentage of portfolio impaired

18% 19% 25% 25% 25%

Target ROI before

impairments (to be reviewed

annually)

9-10% 9-10% 9% 9% 9%

Collections ratios

80% 80% 91% 91% 91%

Manage portfolio risk

High risk clients:

<35%

High risk clients: <35%


High risk clients:

<30%


16

Growing Black Industrialists

Constraints in Providing Industrial Financing

17

Few Angel Investors, Venture Capitalist and/or Private Equity in SA;

High risk aversion regarding investment in early stage and high risk projects e.g. mining exploration;

Expectation gap of returns (IRR) between providers of capital and borrowers;

Investors and funders have difficulty in valuing projects and/or agreeing on project valuations;

“First-mover dilemma” of entering novel markets to pioneer new project developments or business ideas in a market lacking investment appetite;

Project promoters unable to raise own equity i.e. lack of required equity and/or collateral;

Industrial projects have a long-term investment horizon (typically 10 to 30 years);

Projects face high financial risks due to implementation delays and cost overruns;

Low risk appetite of third party investors and/or funders restricted by prudential limits and investment mandates.

SPF Mandate

18

Strategic Projects Fund (SPF) A unit of the NEF established with a mandate to increase

the participation of black people in early-stage projects

Aligned to national Government policy.

Seeks competitive opportunity for the South African

economy and the inclusion of black participation in

opportunities at the outset of projects, as opposed to doing

so during equity closure

Development and Economic Impact

• Creation of new manufacturing and industrial capacity

• Creation of new jobs as opposed replacement capital finance

• Investment of new fixed capital into economically depressed areas or poverty nodes

• Creation of an inclusive economy by increasing South African participation

• Increase RSA export earning potential and reduce import dependency

• Increase co-investment and linkage with foreign direct investment

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Creating Black Industrialists

Strategic Industrial Sectors

RENEWABLE ENERGY

MINERAL BENEFICIATION

AGRO- PROCESSING

INFORMATION & COMMUNICATIONS

TECHNOLOGY INFRASTRUCTURE TOURISM

Biofuels Biomass Biogas Solar Wind Hydro

Mining & Mineral

Beneficiation

Chemicals Agriculture

Telecoms Broadcasting

Roads Dams and Bridges

Sewer and Bulk Services

B&Bs Hotels Guest

Houses (Women-owned)

Real Estate

Together with local & international partners the NEF has developed 26 strategic and industrial projects worth R27bn, with the potential to support over 80 000 jobs.

The NEF’s future equity rights will total R4.7bn at financial close.

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Beneficiation Project Life Cycle

21

SPF Portfolio – NEF Equity Rights

22

Project Current NEF

Equity Total Approved Total Project Size NEF Future

Equity Rights Province Sector

RMI 30% 13 500 000 15 000 000 000 2 250 000 000 Western Cape Mineral Beneficiation

SA Metals 29% 40 000 000 1 950 000 000 282 750 000 Mpumalanga Mineral Beneficiation

Coking Coal 85% 10 000 000 500 000 000 212 500 000 Limpopo Mineral Beneficiation

Silica 50% 9 100 000 1 500 000 000 375 000 000 Gauteng Mineral Beneficiation

Coconut Water 49% 5 000 000 50 000 000 12 250 000 Gauteng Agro-processing

Busamed Hospitals 49% 260 000 000 1 600 000 000 392 000 000 Healthcare

Milk for Life 49% 2 000 000 50 000 000 12 250 000 Limpopo Agro-processing

Link Africa 30% 100 000 000 1 000 000 000 150 000 000 KwaZulu Natal Infrastructure

Mkhondo Biorefinery 49% 10 000 000 800 000 000 196 000 000 Mpumalanga Renewable Energy

Tyre Energy Extraction 68% 57 000 000 50 000 000 17 000 000 Eastern Cape Renewable Energy

KC Energy 40% 70 600 000 150 000 000 30 000 000 KwaZulu Natal Renewable Energy

Tyre Manufacturing Research 100% 11 590 000 335 000 000 167 500 000 KwaZulu Natal Manufacturing

MIBT 49% 28 600 000 30 000 000 7 350 000 Gauteng Manufacturing

Kenako Medical 85% 74 956 600 200 000 000 85 000 000 Eastern Cape Manufacturing

Mabele Fuels 20% 71 750 000 2 155 000 000 216 577 500 Free State Renewable Energy

Inkomati Mineral Resources 31% 40 481 000 100 000 000 15 450 000 North West Mineral Beneficiation

Jalo (Pty) Ltd 49% 1 500 000 250 000 000 61 250 000 Gauteng Manufacturing

Kraalbos 0% 1 000 000 - Western Cape Manufacturing

Textile Industry Research 100% 450 000 - National Manufacturing

SA Luxury Emporium Group 49% 2 000 000 50 000 000 12 250 000 Western Cape Manufacturing

Jozini School 45% 15 000 000 25 000 000 5 625 000 KwaZulu Natal Infrastructure

Cape Point Film Studios 22% 3 500 000 715 000 000 80 080 000 Western Cape Infrastructure

iVac Bio 74% 5 300 000 55 000 000 20 350 000 Gauteng Manufacturing

TeleTechData 50% 15 000 000 330 000 000 82 500 000 Eastern Cape Infrastructure

Salamax 40% 7 000 000 161 000 000 32 200 000 North West Renewable Energy

Nkomazi Cotton Development Project 49% 7 400 000 150 000 000 36 750 000 Mpumalanga Manufacturing

Totals 862 727 600 27 206 000 000 4 752 632 500 - -

SPF Achievements Since Inception

23

High risk investments - NEF only DFI with fully Venture Capital (VC) capability and offering focused on participation of black people in project development;

Equity investments - typically with 7-10 years investment horizon;

Over R860mn approved to date which has leveraged R4bn in external funding;

78% of projects at financial close, construction or operational stage

3, 600 actual jobs created and 80,000 direct and downstream jobs to be created by the SPF

Portfolio

24

Healthcare & Manufacturing KENAKO MEDICAL

Location Coega IDZ, Eastern Cape

Project Development Stage Financial Close

NEF Investment to date R75 million

NEF Equity 70%

Project Promoter Kenako Medical Pty Ltd

Projected Financial Close Requirement R200 million

Jobs 108

Kenako intends to develop the sole manufacturing plant of normal and safety syringes in the

SADC region. The plant will initially produce a total of 250 million syringes and 200 million

hypodermic needles per annum. The NEF commenced with a R7.2 million feasibility study funding

in 2013 and gave a hands on approach in assisting the Black Industrialist in bringing the project to

bankability. In 2015, the NEF made a further commitment towards the construction of the plant

bringing the NEF‟s total investment to R75 million.

25

KENAKO MEDICAL Cont.

Project Support Required • Securing a 24 month moratorium on the payment of rent to COEGA IDZ

in order to give the project sufficient time to acquire relevant industry

regulations (FDA, CE, SAHPRA etc.) prior to making sales;

• Expedite SAHPRA Regulation for medical devices, in particular, syringes

so as to lower influx of poor quality imports;

• Assistance in obtaining grant funding for international product certifications

i.e. FDA, CE etc.

• Access to Black Industrialist funding from the dti.

26

Renewable Energy Projects KC ENERGY

Location Newcastle, KZN

Project Development Stage Construction

NEF Investment to date R70.6 million

NEF Equity 40%

Project Promoter KC Energy

Total Project Cost R260 million

Jobs 250

The cogeneration project has developed a Combined Heat and Power (CHP) plant

producing steam (60 tph) and electrical power (7MWp) for process plant usage and

is based in Newcastle, Kwa-Zulu Natal province. The plant is currently being partially

commissioned, with some sub-components thereof, still under the final stages of

construction.

KC ENERGY (Cont.)

27

Project Support Required • Securing a reliable supply of the appropriate quality and quantity of

discarded coal at commercially viable prices as feedstock for the CHP

plant;

• Intervention is required to secure a direct Power Purchase Agreement

(PPA) with the designated off-taker (Eskom or local municipality) under the

DoE‟s Cogeneration Programme;

• Establishing a viable market and product distribution channels for the brick

plant;

• Securing expansion capital for the potential ramp-up of the CHP plant.

Infrastructure & Manufacturing BusaMed is the first black-owned private hospital group to compete with the big three. The group’s vision is to be a consolidator of the fragmented health care market. This will be kick-started with the commercialisation of 4 hospital licenses with 630 hospital beds, spread over three provinces, Gauteng, Cape Town and the Free State. The aim is to develop centres of excellence, which will provide world-class services. The first hospital, a cardiology centre in the Western Cape (Strand) has been operational since May 2015. Ground has been broken for the second hospital in Gauteng, a sports science centre, and financial close should be reached soon on the last two in Harrismith and Bloemfontein.

28

BUSA MED

Location National

Project Development Stage Operational & Construction


NEF Equity 49%

Project Promoter Goldenwood Pty Ltd

Projected Financial Close Requirement R1.6 billion

NEF Return Expected (December 2015) R196 million (IRR = 15%)

The business is positioned to deploy Last Mile Fibre Optic cables across the country. It employs patented technology which can be deployed four times faster at less than half the cost of normal fibre. The fibre is laid out inside existing sewer and other currently existing infrastructure as opposed to the normal method of digging up trenches to lay fibre optic cables. An initial capital investment of R300 million has led to the establishment of a well positioned South African Last Mile Fibre Optic Infrastructure Company, Link Africa.

29

LINK AFRICA

Location National

Project Development Stage Operational


NEF Equity 30%

Project Promoter Link Africa Pty Ltd

Projected Financial Close Requirement

R1.1 billion

NEF Return to Date

R50 million (IRR = 7%) R9 million (Expected 12/2015)

Infrastructure & Manufacturing

30

Rural and Community Development Projects

The RCDF - Overview

31

Aim of the Fund

The aim of the RCDF is

provide funding to aspiring

rural entrepreneurs, and to

facilitate skills transfer &

operational involvement by

community groups thereby

promoting social &

economic upliftment, in

pursuit of NEF Mandate

Target Market

The RCDF targets

transactions that are rural

based and have an element

of community participation.

The target market is Black

people (as defined by the

BEE Act) who do not have

access to funding via

normal banking channels.

Rural & Community Development Fund Portfolio Investment Impact

32

Note:

a Total project investment unlocked through investment by the Rural and Community Development Department

b Total Investment undertaken by the Rural and Community Development Department

c Total beneficiaries from the approved and invested portfolio undertaken by Rural and Community Development Department

d Portfolio average effective shareholding held in projects is 75.75% B-BBEE owned

e Investment has empowered these beneficiaries arranged in various legal entities, i.e. Trusts, Co-operatives, etc.

f Effective Historical women beneficiaries in a community structure through an investment undertaken by the NEF is 60%.

Project Value Amount Invested Area Population Effective Shareholdingin % Male Female

1 366 561 583 973 2 460 982 75.75% 1 006 937 1 454 045

a b c d e f

R'000

RCDF Portfolio Investment ImpactGender Breakdown

33

RCDF Portfolio: Performance Since Inception

• 31 transactions approved

• Total Disbursed Amount : R501 million

• Total Project Value : R1.3 billion

• Receipts Received : R100 million

19% as percentage of the disbursement

10.8% of NEF invested portfolio

RCDF disbursed funds have leveraged

R799 million worth of investment from

the Private Sector

Investee Stories Pyratrade is a 100% black-owned castor oil processing plant located in Hammarsdale, KZN. The castor oil processing plant is designed to handle 60 tons per day. Products from the plant are: Castor Oil and Cake Meal (Fertilizer). WS Lloyds Limited is the 100% off-taker for the castor oil. The business is a start-up and will create 40 permanent jobs. The Department of Agriculture in KZN is in full support of the project and will assist with the identification of Land Reform Farms in order to plant castor beans for the project.

34

Building the Economy, Sharing the Wealth

Pyratrade (Pty) Ltd – R15m

Investee Stories

Umlazi MegaCity is neighbourhood shopping centre that is 25% owned by the Umlazi community due to funding commited by the NEF a few years ago. The NEF committed about R51.8 million at development stage of the centre seven years ago. This investment was used to warehouse 37% stake in the shopping centre for the community. The centre has over the years proved to be a sustainable business. It is anchored by Super Spar, Woolworths, Jet and Mr Price. The centre has excellent accessibility and enjoys good visibility from the M30 Mangosuthu Highway immediately opposite what was the Durban International Airport. It currently comprises 34,770m2 of gross lettable area, 783 parking bays and 60 taxi bays.

35

Umlazi MegaCity - (R51.8m)


Investee Stories Rhino Ridge is a newly constructed lodge of contemporary design with overtones of organic forms utilizing natural finishes and materials. Rhino Ridge is part-owned by the local Mpembeni Community. The lodge offers 22 rooms nestled in natural bush high up on the ridge with commanding views of the landscape. The Lodge is situated on the western boundary in the first private concession within South Africa‟s oldest proclaimed Game Reserve Hluhluwe uMfolozi Park, Northern KwaZulu Natal. Set in a 96 000 hectare park the Lodge enables guests to enjoy 4 star luxury at a private lodge for the first time within the park, offering spectacular scenery and excellent safari opportunities within the heart of Big 5 territory.

36

Rhino Ridge Safari Lodge (R20.5 million)


Investee Stories

Golden Dice Foods is based in Nigel in the Gauteng Province and has been operating for the past 25 years. The NEF recently funded the acquisition Golden Dice Foods for a 100% Black-owned company.

The business manufactures, packages and distributes dry farm products. The products are distributed to various wholesalers such as Cambridge, Makro, other independent wholesalers and retailers.

37


Subrofusion (Pty) Ltd T/A Golden Dice Foods – R14.1m

The NEF‟s Socio-Economic Development Unit (SEDU) is mandated to maximise

the prospects for transformation and economic empowerment for designated groups in

NEF-funded transactions and thereby unleash the entrepreneurial spirit among rural,

peri-urban and township communities.

For example:

in NEF-funded projects shares are allocated to identified Cooperatives and Community Trusts.

These Cooperatives or Communities are afforded procurement opportunities to supply their products and services to funded projects, eag anchor stores and other tenants in the shopping centres.

Jobs are available to local communities during implementation as well as after completion.

Stimulating economic activity within the rural towns by bringing anchor retail stores closer to the communities.

Direct Impact for social growth

38

Market Failures & NEF Investment Funds

39

Challenges / Market Failures

• Limited own capital; • Limited management skills, including financial,

marketing and technical expertise; • Lack of accurate and reliable financial information; • Poor quality of business plans; • Lower bargaining power and strong competition

from established businesses with entrenched market dominance;

• Inadequate access to affordable capital; and • Lack of access to local and international markets.

40

The NEF has a comprehensive

solution for each of the

market failures outlined above.

41

Funding Across the Economic Spectrum Fund Focus Threshold

1 iMbewu Fund (SMEs)

SME Fund providing Entrepreneurship, Procurement & Franchise Finance

R250 000 – R10 million

2 Women

Empowerment Fund (WEF)

Achieve minimum 40% of enterprises owned and managed by black women

R250 000 – R75 million

3

Rural & Community

Development Fund

Supporting rural economic development through New Ventures, Acquisition, Expansion & Greenfields Finance

R1 million – R50 million

4 uMnotho Fund

Funding of New Ventures, Acquisition, Project Finance, Expansion, Capital Markets, Liquidity & Warehousing

R2 million – R75 million

5 Strategic Projects Fund

Early-stage investment in industrial / manufacturing transactions

Up to R75 million

5 specialist

funds

Challenges impeding inclusive growth

42

B-BBEE faces daylight robbery – Equity Calls Equity Calls appear designed and calculated to deliver bloodless coup d‟états

against transformation. Known as Rights Issue, Equity Calls occur when an enterprise demands

additional capital from its shareholders. The practice poses a major challenge for BEE as it tends to default into diluted

BEE ownership. This effectively legitimises BEE fronting. A black company is awarded a license on the understanding that the operation is

controlled by black entrepreneurs or investors. In rolling out the operation, the business requires additional capital. An Equity Call is activated which demands that all shareholders follow or lose their

rights. Lack of capital then forces black partners to lose their shares. Black companies awarded licences are unable to commercialise them due to

funding restrictions on DFIs in the health sector, In order to attract commercial loans, due to lack of owners‟ equity, Black investors

end up selling part or all license rights to non-BEE controlled entities, thus undermining government‟s strategic objective in issuing licenses to Black people.

The conditionality of issued licenses needs to be followed through in order to ensure that black companies and their intended level of shareholding are protected.

43

44

Fronting retards transformation • Fronting has shifted from a simple practice of staging a gardener as a BEE

partner.

• Evolved to a complicated practice assisted by accounting and legal

professionals through complex structures.

• A significant portion of what is claimed as black ownership and women

empowerment in B-BBEE certificates does not reflect reality.

• Many JSE listed companies report black ownership as high as 40%.

• Exaggerated figures are a factor of the current B-BBEE rules.

• Key challenge is the role of mandated investments in the calculation of black

ownership.

• Mandated investments are subject to abuse in the calculation of black

ownership.

• NEF advocates for direct black ownership with operational involvement

as a true measure of economic transformation.

45

• A common form of fronting we have encountered comes through management contract fees.

• The NEF conducts thorough due diligence prior to committing funds.

• It transpires in the acquisition of B-BBEE stakes. • For example, black partners acquire 49% equity in

white owned enterprise that needs good BEE credentials to remain in business.

• After selling the 49% the white owners create a holding company that retains 51% of the business.

• The holding company then offers services to the business through a lucrative management contract.

• This enables the white partners to divert money as management contract fees that, under normal circumstances, should have been declared as dividend to shareholders

This denies the BEE partners a dividend flow

Fronting retards transformation

Franchising: The Good and the Bad

46

• From 2005 to date, NEF funded 209 franchises valued at R709 million.

• This is another area presenting opportunities for women entrepreneurs.

• The leading causes for failure: • Poor location of franchises, • Lack of operational involvement by the

entrepreneur, • Buying into a weak, unproven franchise brand.

• However, the NEF has uncovered unethical behaviour by franchisors.

• The most serious of these is the use of black franchisees to “test markets” and once success is proven, the black franchisees are replaced by whites through unfair application of penalty clauses.

• Franchisors using unfair pricing practices that lock in franchisees to exclusive contracts.

47

Recapitalisation & NEF’s Financial Position

48

"Fellow South Africans, we have to work more intensively to develop emerging or black industrialists. Many of the aspirant black industrialists complain about the difficulties they experience in obtaining industrial finance, supplier and retail markets, and technical production support. The National Empowerment Fund, the Industrial Development Corporation and the Small Enterprise Finance Agency will continue to provide finance to viable black-owned businesses to promote industrialisation. In addition, we encourage established businesses to support the development of black industrial businesses."

Presidential Injunction In the State of the Nation Address (SONA) on 13 February

2014, H.E. President Jacob Zuma stated as follows:

Dangers of not recapitalising the NEF:

1. Weakens public trust in Government‟s commitment to B-BBEE.

2. Will result in a funding crisis for black entrepreneurs.

3. Has led to staff attrition and institutional memory leakage.

4. Threatens the potential collapse and closure of a high-performing organisation.

5. Undermines the historical obligation and importance of transforming the economy.

6. Emboldens private sector‟s disregard for the transformation imperative.

7. Constitutes a political risk for the State.

1. In 2004 Government

promised to fund the NEF to the tune of R10bn “over the next five years”.

7. Efforts to obtain support from the Jobs

Fund in 2013.

8. Project Kopano initiated in June 2014: “business combination”

talks with IDC.

9. Current efforts: MTEF, IDC, UIF, PIC

& MTN Asonge Futhi.

2. Trust capital of R2,47bn awarded between 2004 & 2010, and R1bn raised from equity in

MTN through Asonge Share Scheme in 2007.

6. Temporary Moratorium from 1

May 2013 to 29 April 2014.

3. Operating expenses supported through the dti

transfers of R322mn over a 5 year period up to 2010.

4. Applications for recapitalisation

through the MTEF in 2012, 2013, 2014 &

2015.

5. Applications for reclassification & Limited Borrowing Rights in 2012 &

2013.

Journey of NEF Recapitalisation

49

50 50

NEF Capital Requirements

In order to meet the growing demand for business funding from black entrepreneurs

countrywide, the NEF requires an annual allocation of R2

billion over the next 5 years.

51

Project Kopano • The NEF and IDC (supported by the dti and EDD) have been

engaged in a process to find sustainable and long-term recapitalisation for the NEF.

• This project is referred to as “Project Kopano” and commenced in July 2014.

• The process assessed various structural options to coordinate and strengthen the investment programmes of the two DFIs including: Continue as is Arms length subsidiary Closely managed subsidiary NEF as a division of the IDC Complete merger into the IDC

• The NEF and the dti recommended the implementation of an Arms

Length subsidiary where NEF assets and business are transferred to a company that is a subsidiary of the IDC.

Project Kopano • The process of exploring an optimum business combination

structure has been finalised and endorsed by the dti.

• The next phase would be to roll out the implementation of making the NEF an Arm‟s Length subsidiary of the IDC and to obtain a bridging finance from the IDC to fund 2016/17 activities. In this option the NEF remains focussed on B-BBEE and has

an opportunity of increasing developmental impact as a result of recapitalisation from IDC.

The board provides guidance to NEF on direction and IDC focusses on its mandate of industrial development.

the dti as custodian of B-BBEE legislation and policy in the country continues to maintain oversight over NEF as implementation agent of such policies

The mandate of the NEF would continue as is, undiluted.

52 52

Projected Unencumbered Cash Position

53

Notes: • Actual cash to date

at R1.37 billion • R515 million

uncommitted cash at hand

• NEF projected to

fully fund 2015/16 activities

• To discharge 2016/17 strategy, at least R500 million would be required as cash injection

NEF Capital

54

Cash Funds received from the Dti R 2 297 431 472

Investment in listed shares at cost R 171 000 000Total Trust Capital R 2 468 431 472

Accumulated Surplus (as at 31 Mar 2015) R 3 382 715 622

Net Asset Value R 5 851 147 094

55

Thank you Contact Details

www.nefcorp.co.za

WHERE TELEPHONE

1 Head Office, Johannesburg

011 305 8000 or 0861843 633 / 0861 THE NEF

2 Eastern Cape 0861 633 327 / 0861 NEF ECP

3 Free State 0861 633 377 / 0861 NEF FSP

4 KwaZulu Natal 0861 633 596 / 0861 NEF KZN

5 Limpopo 0861 633 546 / 0861 NEF LIM

6 Mpumalanga 0861 633 678 / 0861 NEF MPU

7 Western Cape 0861 633 927 / 0861 NEF WCP

8 North West 0861 633 697 / 0861 NEF NWP

9 Northern Cape 0861 633 627 / 0861 NEF NCP

56

A Sample of NEF Investees

57

Infrastructure & Manufacturing CAPE POINT FILM STUDIOS

Location Cape Town, Western Cape

Project Development Stage PFS


NEF Equity (projected) 22.4%

Project Promoter Cape Point Film Studios (Pty) Ltd


R715 million

Jobs 50 direct and 4500 indirect

Cape Point Film Studios aims to develop the first purpose built four precincts Sea &

Underwater Sound Stage in the southern hemisphere. There has been growing

demand for production facilities of an international standard in South Africa by

Hollywood producers and therefore Cape Town Film Studios aims to address this

shortfall by offering unique and niche water stage facilities that are currently not

available in the country in addition to existing sound stages. The project has great job

creation potential and will assist to revive an economically depressed area in Atlantis,

Cape Town.

58

Pharmaceutical Manufacturing IVAC BIO (PTY) LTD

Location Gauteng

Project Development Stage BFS Phase I


NEF Equity 74%

Project Promoter iVac Bio (Pty) Ltd


R57 million

Jobs 90 direct and 450 indirect

iVac Bio (Pty) Ltd aims to establish a biotech Advanced Pharmaceutical Ingredient

(API) and vaccine manufacturing facility using a plant production system, instead of the

conventional (animal) production methodology, which results in lower capital

expenditure and production costs. In the short term iVac Bio will be a bulk antigen

manufacturing company involved in the production of vaccine excipient used to

manufacture zoonotic animal and human health vaccines and in the long-term the

company will become a vaccine production facility.

59

Renewable Energy Projects MABELE FUELS

Location Bothaville, Free State

Project Development Stage Financial Close


NEF Equity 11.76%

Project Promoter Mabele Fuels Pty Ltd

Projected Financial Close Requirement R2.5 billion

Jobs 16 700

The project intends to develop a circa 154 million litre per annum fuel grade bioethanol plant in the Free State Province. The plant feedstock is grain sorghum and the production methodology involves a process utilising grain milling through starch conversion to sucrose as well as fermentation, and drying that ultimately culminates in the production of saleable bioethanol.

Development impact of Project • A high job opportunities creator with a relatively low estimated cost per job of

R149 700;

• Use of agricultural outputs in the project creates opportunities for community

ownership through community trusts and/or employee ownership schemes;

• Opportunity for rural socio-economic development;

• A green environmentally friendly alternative to the conventional use of fossil

fuels;

• Provides for greater fuel security in countries such as South Africa with no oil

reserves;

60

MABELE FUELS Cont.

Investee Stories • Stylco Empowerment (Pty) Ltd is an 8 year old

electronics manufacturer, and supplies Pick „n Pay with its branded electronics products, including AIM TV sets.

• Due to the lack of scale locally, electronic components are imported primarily from China.

• On 3 October 2015, the NEF approved funding to the tune of R29m (which is 75% of the funding requirement of R34m), to fund Stylco Empowerment.

• The NEF funding will be utilised in the form of a Guarantee for the Letter of Credit (R29m from NEF and R5.75m from Stylco) while working capital requirements will be funded by Stylco (Pty) Ltd.

• Through this investment, the NEF will assist in maintaining 84 jobs.

61


Stylco Empowerment (Pty) Ltd – R29m

Investee Stories The NEF has funded acquisition of Smith Capital Equipment (SCE) for R41million. The company manufactures aerial platforms and drill rigs, and complies fully with SABS & ISO 9001 standards. Through this transaction empowerment dividends include: • Business is now 95% black owned &

managed, it has 52% black female shareholding and a black female CEO;

• 75 jobs were retained, • 20 new jobs to be created; • Black industrialists to consolidate

participation in manufacturing because the black shareholders already own Kholeka, a company that manufactures truck bodies and trailers.

62


Smith Capital Equipment (Pty) Ltd – R41mil

Investee Stories The NEF has funded APM to the tune of R45mil for expansion of their existing bus coach fleet and for working capital requirements. APM started operations with four rented/leased buses from Intercape. The company‟s milestones include:

• Sales offices in Pretoria, Johannesburg and Durban, • Concluded commercial agreements with Computicket

(Checkers), • 32 operating licenses for all the routes envisaged in the

business plan, and • Transported more than 14 000 passengers in the first 6

months.

Empowerment dividends of the transaction included but not limited to:

• Black ownership is 74% (effective post Tranche 2), including a group comprising black women and youth;

• 63 Jobs (to date 30 to be sustained & 33 new jobs to be created);

• Start-up risks eliminated by access to established systems, infrastructure, operational efficiencies and know-how of the business owners.

• Localisation: All NEF-funded buses will be assembled in RSA;

• Local content of body value is 31%, chassis is 19%. Average of 25%.

63


Africa People Mover (Pty) Ltd– R45mil

Investee Stories The NEF invested a total of R27 million towards the establishment of a feedlot in Berlin Beef (Eastern Cape) for the supply of a high through-put abattoir in East London in terms of a 10-year off-take agreement, including upstream investment in the cattle supply region for improved breeding of cattle supplied to the Berlin Beef feedlot.

The feedlot will have a standing capacity of 6000 heads of cattle and this capacity has more than doubled in the first year of operation.

The project has adopted and complies with requirements of ISO 14001, a globally recognised standard specification that structures the implementation of an effective environmental management.

64


Berlin Beef (R27 million)

Investee Stories Itera Trading is based in Phuthaditjhaba in the Free State Province and has been operating since 2008. Itera Trading is a 100% black-owned, controlled and managed manufacturing entity operating in the Textile Industry. The clothing factory was established to service blue-chip retailers such as Ackermans and Mr. Price by providing denim related products for kids as well as adults.

Through NEF funding Itera Trading will embark on an expansion programme to cater for the rise in demand for locally-produced products.

The expansion will result in the retention of 119 jobs and create additional 67 jobs.

65


Itera Trading (R5 million)

Investee Stories

Bakwena Ba Mogopa Mineral Resources is a community owned operation located in the Bethanie area of North West on a 700 ha farm surrounded by gabbronorite reserves. The operation is involved in the quarrying of gabbronorite dimension stone blocks that are used mainly for their aesthetic appeal in construction, home decoration and monumental markets.

66

Bakwena Ba Mogopa Mineral Resources (Pty) Ltd (R35 million)


Investee Stories • Divalicious Boutique (Pty) Ltd is a newly established

shuttle service business, and is 100% black-woman and youth owned.

• The business targets retailers requiring bulk transportation of staff.

• The business is based in Durban KZN • The business has created 5 permanent jobs for

previously unemployed drivers. • The business owns five mini buses through NEF‟s

Funding. • NEF assisted the client to acquire 5 vehicles

required in terms of the contract with Edcon Group.

67


Divalicious Boutique (Pty) Ltd – R1.8 million

Investee Stories • Qinisa Construction Gauteng (Pty) Ltd is a 100% black woman

owned entity.

• The company‟s primary activities are in construction including

building and civil engineering. The company is registered with CIDB

and their current grading is 9GB and 9CE.

• Qinisa Construction‟s head office and operations is based in

Gauteng with satellite offices in 4 other provinces, namely KZN,

Limpopo, Mpumalanga and the Eastern Cape.

• The company has successfully completed projects for the

Department of Human Settlements, MTN, Rand Water and various

municipalities.

• The company currently employs 22 people on a permanent basis

and generally employs additional people when the need arises. The

staff is made up of civil engineers, site agents, and a team of

professional administration staff.

• NEF has invested R10 million to be used for working capital in order

required to execute a contract awarded by DBSA for the

construction of Bhekizulu SSS School in Libode, Eastern Cape.

68


Qinisa Construction Gauteng (Pty) Ltd R10 million

69 69 69

Investee Stories Some of the Franchises Funded to date

Investee Stories Skhomo Technologies is a 100% black owned ICT consulting company with a vast experience in the Information and Communication Technology (ICT) sector. The company was founded in 2012 by Mr Vuyani Mawetu Matoti, an experienced entrepreneur who started Skhomo Technologies with own funds in 2012. Today, the company has a staff complement of 17 employees, and has successfully executed a number of ICT projects.

Skhomo Technologies was appointed to supply, install and maintain thin client solution in community libraries, in Ekurhuleni, as and when required from 01 June 2015 until June 2017. In order to execute the awarded contract Skhomo Technologies approached the NEF for funding of R1 500 000 to purchase thin clients and install the system at various Ekurhuleni libraries.

70


ICT infrastructure (R1.5 million)

70

Investee Stories Infancare Personal Products (Pty) Ltd is a 100% black owned and managed entity established by Mr Tebogo Shounyane. The primary nature of the company’s business is that of medical waste management. The business has its offices in Parow, Western Cape and targets hospitals, nursing homes, Laboratories, Funeral Homes, Tattoo Shops and municipalities for business.

Infacare was awarded a contract by the City of Cape Town to install and manage 3140 sanitary units around the municipal area. The contract is for the supply and servicing of Sanitary Disposal Units in the facilities of the City of Cape Town (CCT), The contract was valued at R3 570 000 over a three-year period commencing on 1 July 2015. The NEF provided funding of R830 000 for the purchase of bins and working capital requirements of the business.

71


Sanitary Waste Management (R830 000)

Investee Stories Vuka Business Consultants CC (VBC) is a 60% black-woman-owned business established in 2008. The business is 60% owned by Sesethu Loyilane and 40% owned by Raka Hope. VBC offers comprehensive construction design services which include construction of new homes, renovations, forensic assessment of homes, design and project costing.

VBC was awarded a three year contract by the NHBRC to conduct forensic engineering services. The contract is a service contract for forensic engineering assessment of subsidy housing structures, beneficiary occupancy verification and geotechnical assessment sampling and analysis of soil integrity on which the houses were built. In order to successfully complete work under the contract, VBC approached the NEF for funding of R2.3 million.

72


Geotech assessment and forensic engineering (R2.3million)

Investee Stories

Park Inn Polokwane is a development of the hotel that required R175.4million funding sought from the NEF, IDC and own contribution. 108 direct permanent jobs during the hotel operations and about 400 indirect jobs during construction will be created. Black equity ownership is 83%,and effective black woman shareholding is 30%.

The hotel is a 3 star graded hotel with 161 rooms, centrally located in Polokwane. It is targeted at local, international business and leisure travellers. It will offer all amenities including restaurant, conference facility, spa and other related facilities typical of a 4* up-scaling hotel experience. The hotel will be managed by the owners together with Hotel Manager (Rezidor) through a management contract.

73


Amazin Hotels (R45.8 million)

Investee Stories Africa Best 350 Limited (AB350) is based in the Eastern Cape with its core business being public transport services. The business transports over 5.7m of people per annum with a total of 112 routes spread across eastern part of the Eastern Cape. Currently, AB350 has 128 buses and employs 420 permanent individuals. AB350 is 100% black owned with 29% equity being held by black women.

The NEF was requested to provide a R12.3 million funding facility in order to commission a new Bus Repair Centre (BRC) in Mthatha. The set up costs are in the order of R23.6 million.

The investment rationale in BRC was based on the fact that: there’s no BRC in Mthatha, the closest being 430km away; 100% black owned and managed; Creation of 40 permanent jobs (direct) and 8 jobs (indirect); The BRC will partner with local FET & Technical colleges and be used as the host for students to gain experience.

74

AB350 (R12.3million)


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