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Potential black industrialists will be given preferential interest rates by the Industrial Development Corporation (IDC), and those discounts will be doubled for projects that create jobs and localise the production of goods.
Industrialisation would be a key motivator for the IDC when it looked to fund South Africa’s emerging renewable power industry, said the IDC’s industrial infrastructure head, Lizeka Matshekga.
She said the goal for the next phase of the IDC’s participation in the programme was to support economic growth through industrialisation, especially through black empowerment.
Matshekga’s vision to develop black industrialists in the renewable sector is in line with Economic Development Minister Ebrahim Patel’s plan. In June, he announced that the corporation plans to invest R23 billion over five years to assist black industrialists. This represents about 22% of its overall budgeted investment over that period.
A special pricing regime has been developed for black industrialists, which consists of a reduction of 150 basis points on normal IDC pricing and an additional cut of 160 basis points for other priority development objectives such as job creation and localisation.
The corporation’s focus will be on supporting projects that offer greater black participation.
“Our role in the sector has contributed markedly to making it more competitive, attracting other investors and crowding in private sector participation,” she said.
Matshekga said the biggest challenge for the IDC in the green sector was to increase localisation and achieve meaningful transformation in the sector, including “blacks and women”.
The IDC had played a major role in establishing the South African renewable energy sector over the past three years, having supported 24 projects with financial commitments totalling R14 billion. This was done through early stage development funding, as well as loan and equity funding for the project implementation stages.
“We have played a central and critical role in creating a new sector,” she said.
“In the four years of the implementation of South Africa’s renewable programme, we have learnt valuable lessons, which will help us in future.
“Going forward, the IDC will be much more focused on creating significant localisation opportunities, as well as differentiated black participation.”
Regional integration, as well as creating new technologies, would be key.
Another challenge, according to her, was the lack of common objectives around localisation and the challenge of developing local companies that could compete in both local and global programmes.
“This requires more collaboration between the local development finance institutions to realise radical development of the sector,” she said.
Matshekga said the success of the renewables programme created a new set of skills through collaboration and experience sharing among local and international financiers, particularly regarding project finance.
“Support for increased black participation in a sector [that is technically risky] has created opportunities for local manufacturing of green-energy components, resulting in the creation of job opportunities, particularly in areas where economic activities were subdued,” she said.
One of the biggest benefits was that the corporation’s participation in the renewables programme had supported government to complement its energy mix by 2030.
“We realise the fundamental importance of infrastructure development to rural development and meaningful black participation in the sector,” said Matshekga.
“Our support has enabled inclusion of communities in the ownership of projects.”
Almost 28% of the funding of independent power producer projects in the renewables programme had come from foreign sources – mainly private equity – according to the department of energy. Domestic funding has come primarily from banks, private equity, development finance institutions and institutional investors.
Matshekga said that South African development finance institutions were generally less competitive than the international development financiers.
“Due to a range of economic factors, the global development finance institutions are able to raise capital at a much lower rate than domestic ones due to lower risk profiles. They also have much larger balance sheets, enabling them to support larger value projects,” she said.
But Matshekga explained it was important to understand that the IDC operated in completely different environments and dynamics: “Local development finance institutions have unique developmental objectives. For example, our key objectives are support for localisation and transformation of the sector – ensuring industrial development objectives are met and the South African industry is globally competitive.’’
Future plans for the IDC in the energy sector include exploring more opportunities in larger-scale hydro opportunities, as well as biomass projects.
“We also want to explore alternative green-energy projects outside the government’s renewables programme,” she said.
