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The IDC is looking for a new generation of black entrepreneurs to make stuff, people who are willing to roll up their sleeves and get their hands dirty
If Geoffrey Qhena, the CEO of the Industrial Development Corporation (IDC), was an entrepreneur with R5 million to spare, his investment decisions would surprise you.
He believes that South Africa and the rest of the continent present a world of opportunity, but only if you know where to look.
“If I was an entrepreneur, I would invest 50% in manufacturing. I would invest half of the remainder in tourism, and the other half in new industries: things that we see as tiny now, but which we will see getting bigger into the future,” he says.
Although spending the bulk of his fictitious entrepreneur’s budget on manufacturing may sound risky to some, to Qhena it makes perfect sense.
“We have resources here in South Africa, most of which, by and large, you can source for manufacturing. We are very close to the markets that are very underdeveloped, which is the rest of the African continent. So those two, for me, make sense,” he says.
“Let’s say I want to manufacture furniture. We have forestry here, and also on the rest of the continent – it depends on the type of wood you need. I look into the continent and it is developing housing, proper housing, and there is a demand for furniture, with the growth of the middle class, so that gives you that market.”
There are other unexploited opportunities in the sector, such as equipment manufacturing, which is only done in South Africa and, to some extent, Egypt. One can easily spot this by examining where the steel plants are. But to many, steel is now a dirty word.
“I know the steel story is probably not the best now because it goes through different cycles, but it’s because we have not focused on the infrastructure requirements on the continent,” he says.
Manufacturing also has, he says, a lot of legs, “but you can’t just do it naively”.
Qhena cites premium just-in-time manufacturing in the textile industry for targeted markets with low-volume, high-value outputs and tight deadlines, as one such example of how entrepreneurs involved in traditionally struggling sectors can make things work for them.
“So it is really where in the manufacturing sector you position yourself,” he says. “You have to be responsive, efficient and quick. You have to also be conscious of your cost structure. You have to find better, more innovative, ways of manufacturing. You have to look for niche markets. You have to be modern.”
Tourism makes a lot of short-term sense to Qhena because of the favourable rand/dollar exchange rate. And, provided you are not wanting to enter the hotel or accommodation business, it needn’t take that much capital.
“Look on the experiences side,” says Qhena. “The other day I was in Soweto and I saw this guy on a quad bike, and behind him were 15 tourists all on quad bikes, interacting with people on the street. It’s different, it’s niche,” he says.
There are also a significant number of new industries to choose from, including the energy storage industry, which involves bigger and better batteries such as those which Elon Musk’s company, Tesla, is manufacturing right now. These can solve a variety of problems, from increasing the distances electric cars are able to drive, to saving the energy power stations produce at night, which otherwise goes to waste.
“We have lots of platinum and we need to create a market, so we have fuel cells here that can use it, which we are looking at,” Qhena says.
There are also many opportunities in the pharmaceutical industry for those who are able to make cheaper medicines, which governments across the continent will better be able to afford.
New industries, Qhena says, are critical.
“If you don’t as a country constantly reinvent yourself, you are going to be left behind,” Qhena says. “I was at the World Economic Forum in January and they were speaking about the fourth industrial revolution, and that was innovation.”
So which sectors are hot for entrepreneurs at the moment, and which are not?
In his Hot column, Qhena places renewable energy, because the country still needs plenty of power despite the fact that two giant coal-fired stations are coming online soon.
“There are also opportunities on the continent, because some places have even better sun than we have, and plenty of water for hydroelectricity.”
Also on his Hot list is gas, which is cheaper and more environmentally friendly than coal and freely available in Mozambique, next door.
Positively scorching is agroprocessing, “because people will always eat, whether they can afford to or not”.
“If you look into the continent, you will find that very little processing is being done.
“There is lots of land for planting and, in many areas, lots of rain, unlike South Africa. But there is very little processing, and the input costs are not as high as heavy manufacturing.”
Tourism is also in the Hot column, as is manufacturing, provided it is “focused and targeted, and there is a solid niche market”.
Qhena is not that comfortable about a Not Hot column. He prefers Lukewarm.
There he places mining, where there is no clear beneficiation of the raw material. The days of shipping unprocessed minerals abroad and thinking that is a viable proposition are over. The exception, though, is coal, which is needed by Eskom. Steel is also under Lukewarm.
“These things go through cycles and you have to have deep pockets. All these major capex projects need long-term views. In the short term, steel is cold, but not in the long term. In terms of the infrastructure we need on the continent, even us in South Africa, at the back of that we need lots of steel.”
The IDC aims to fund entrepreneurs willing to get stuck into these and other industries to the tune of R100 billion in the next five years and, in so doing, it hopes to help create 100 000 jobs.
Of that, R600 million has been earmarked exclusively for young people and a further R600 million for women.
And to make it all happen, the IDC is looking for a new generation of black industrialists, but no chancers need apply.
“There are different types of people – there are people who want to be investors, that’s okay, but we want people to make stuff. If we have somebody who is going to sleep peacefully when the business is not working, while I as the funder have sleepless nights, then that is not a black industrialist.
“We need people who are willing to fold up their sleeves and get their hands dirty, and get involved in the business, and not sleep when the business is slow. People who are really committed to doing this thing. We need industrialists in the true sense of the word,” emphasises Qhena.
