Essential business support

After President Cyril Ramaphosa’s announcement that there would be support for essential businesses during this unprecedented state of disaster to counter the spread of the Covid-19 coronavirus, one of the organisations that will be part of the effort to contain the economic fallout is the Industrial Development Corporation (IDC).

The IDC head TP Nchocho, told Gayle Edmunds how the corporation will assist essential businesses and production during the shutdown and beyond.

How much funding is the IDC making available immediately? Will it be enough, or is this just a short-term intervention?

The IDC has R3 billion of funding available for the next three months.

This is supplemented by R300 million we are managing on behalf of the trade and industry department under the Manufacturing Competitiveness Enhancement Programme (MCEP).

The IDC has a long-term perspective and will keep funding businesses to support industrial development.

However, our immediate priority is to focus on sectors and businesses critical to limit the spread and immediate effect of the virus, as well as to support businesses that are necessary to maintain the supply chain.

A specific initiative is to support manufacturers and importers of essential supplies [as per the National Treasury list] to rapidly gear up production and supply to meet the demand.

How quickly will funds be made available for those who qualify?

The funding is already available. We will endeavour to prioritise and fast-track applications with Covid-19 support measures. Specifically for short-term funding of the identified essential supplies, if all the plans are in place and the required information is provided, we will aim to process an application within a week.

Who will benefit from the funds?

We will make funding available to manufacturers, importers of essential supplies, hotels; any and all mentioned as being essential to the fight against the virus.

How will the funds be distributed to businesses?

We would require an application for finance. If it meets our criteria, we will conduct due diligence.

If successful, the funding will be provided either directly to the applicant or to its suppliers.

What criteria do you need to meet to qualify?

Our criteria are available on our website. (See sidebar)

For normal funding applications we require a business plan.

Our assessment is largely focused on the viability of the business and the business proposal.

For essential supplies short-term funding, the item needs to be on the National Treasury critical list, which includes items such as disinfectants, gloves, test kits, drugs.

To enable the fast response needed, we would – as a minimum – require the business to demonstrate a successful track record, orders or contracts and accreditations for the products as required.

How much in aid will each business be allocated?

The amount of funding depends on the business needs. For importers of essential supplies, the funding is limited to R100 million per applicant.

We would also encourage co-funding with other financiers.

Are these bridging loans? If they are, what will the interest rates be on the loans?

Given the nature of the disaster and the need for a quick response, the primary focus will be on short-term loans, revolving credit facilities or guarantees to banks so they can provide appropriate products.

However, medium- to long-term loans can be considered on a case-by-case basis.

Loans will be prime-rate related.

Specifically for the short-term funding of essential supplies, the interest rate will be prime +1% for the direct IDC funds and 2.5% for the MCEP funds. (See sidebar for essential supplies)

Unfortunately, due to the nature of the disaster, we cannot take walk-in clients. Our email for essential supplies is covid@idc.co.za and our general email is callcentre@idc.co.za

When do you see this crisis ending?

No one knows how long this will last. As Dr Anthony Fauci, director the US National Institute of Allergy and Infectious Diseases, stated: “You don’t make the timeline, the virus makes the timeline.”

The best the global community can do is to work collaboratively and effectively to contain its spread and eventually eradicate it.

As the IDC we are planning for any eventuality. So, we keep refining our response as the impact of the pandemic evolves.

What effect do you think it is going to have on South Africa’s economy in the short term and longer term, the next year or so?

The 21-day lockdown of the economy will have a considerable effect on production activity, from the primary sectors to all types of manufacturing and numerous services activities.

In so doing, domestic expenditure will be harshly curtailed as households, business enterprises and public sector entities are constrained in their spending activity.

It will affect investment plans by private business enterprises, which will be curtailed in some instances, postponed or cancelled in others, but potentially increased in some niche areas, for example, import replacement and penetration of export markets now experiencing supply gaps.

South Africa has an open economy and, therefore, developments globally are already having negative effects. South Africa’s export performance is being negatively affected as economies the world over are partially or fully shut down.

In addition, many domestic enterprises are likely to have experienced interruptions in the supply of imported inputs, be it intermediary products, raw materials or end-products.

Lockdowns around the globe, including in South Africa, are having far-reaching implications for production, investment and trade.

These adverse implications will prevail for quite some time, certainly during the second quarter of the year and possibly even the third quarter.

Since such lockdowns have been imposed at different times, with some being partially lifted, as in China; while others are being extended beyond their initial periods, as in a number of European countries; and some are quite recent, such as South Africa, India and a number of states in the US, the effects will be prolonged.

We must bear in mind that large parts of the southern hemisphere have yet to react in this manner, but will probably have little choice as the number of cases rises in individual countries.

Read: Covid-19 hits oil-producing countries hard

The damage to economies the world over, including South Africa, will last long after lockdowns are lifted.

Numerous enterprises, particularly small businesses, might struggle to survive in such difficult conditions.

Even larger enterprises, such as those involved in air transportation and hotel accommodation, are experiencing extraordinary revenue losses.

The effects on employment levels will be dire, harshly affecting livelihoods, particularly in the poorer segments of our society, their spending ability, domestic demand, production … and so the adverse cycle is exacerbated.

The South African economy, like many others, is likely to enter into an economic recession this year with GDP projected to contract considerably.

A recovery is anticipated from next year onwards, but much will depend on the degree of success in containing the virus, not only domestically but also worldwide.

Do you feel government’s economic response has been adequate?

The government, in collaboration with public sector entities, such as the Unemployment Insurance Fund and the Industrial Development Corporation, and private business groups, such as commercial banks, the Rembrandt group and Anglo American, have come to the fore with strong determination and, in light of the difficult economic environment and their own internal constraints, to the best of their ability.

A noteworthy example is the SA Reserve Bank, considering the extraordinary 100 basis points cut in the repo rate announced by its monetary policy committee, as well as the unprecedented adoption of quantitative easing as a monetary policy instrument.

The fiscus, unfortunately, finds itself in a difficult position because its space for action is quite constrained.

Overall, we applaud the government for putting in place measures that address the social wellbeing, health, safety and economic aspects of the country.

The government’s response has been quick and decisive. But this is not the government’s problem alone.

All social partners and individuals have a role to play and, if we all do that, we will emerge stronger.

Will the global economy survive this shock to its system?

I have no doubt that it will, but the global economy might emerge from this shock somewhat differently.

The crisis has exposed some of the inherent threats brought about by extensive and deep globalisation and the dominance of specific economies and corporations in global supply chains.

This has been reflected in the disruptions to supply chains resulting from the shutdown of major portions of China’s industrial base earlier in the year, which affected production activities the world over, for example, in the automotive industry and electronics industry, among others.

One can therefore expect corporations around the globe, from original equipment manufacturers in the automotive arena through to those involved in the production of electronic equipment, to alter their strategic approaches to the sourcing of inputs, such as components and materials, going forward.

They have now realised that, unless they diversify their sources of input supplies, as well as the markets for their own products, considerable threats to their sustainability might emerge.

This will surely bring about opportunities for South African and other African businesses to participate in global supply chains.

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