Over the past decade the Industrial Development Corporation (IDC) has spent more than R6,6bn on funding the export drive of SA companies to the rest of Africa. This has made the IDC's International Finance unit one of the largest funders of SA corporations on the continent since the country's return from isolation in the early 1990s.
At first the IDC was one of the few financiers to fund ventures north of the Limpopo, as it was considered too risky by most traditional banks. However, As the export and investment drive by SA companies picked up steam and credibility, commercial banks jumped on the bandwagon. Still, many banks prefer to co-fund ventures with the IDC as it provides them with some risk cover.
"We have a far bigger risk appetite than the banks," says Similo Sibisi, the IDC general counsel, who is responsible for international finance. "We operate in more countries and take larger risks than most commercial lenders."
Sibisi says the IDC is "open for business" in places such as the Democratic Republic of Congo and Sudan. There are certain no-go areas such as the civil-war racked Ivory Coast, while in Zimbabwe the IDC has not provided funding for five years "because we don't get approached", says Sibisi.
Providing export credit in Africa requires sophisticated, risk-adjusted financial packages which the IDC has developed over the past 10 years. It starts with a political assessment by a special risk unit. "For most countries in Africa, with one or two exceptions, we require that political risk cover is part of the funding package," says Sibisi.
The IDC works closely with the Export Credit Insurance Corporation (ECIC) in the department of trade & industry to facilitate the risk cover. Thereafter, the kind of funding varies from short-term working capital to long-term export funding of 2-10 years.
Funding is provided in the form of credit to the exporter or as a buyer's credit to the buyer of SA goods.
"This way the SA supplier has certainty that he will be paid and is also secured against currency fluctuations," Sibisi says.
The IDC often provides working capital to exporters waiting for their first payments . Funding is in rand terms, limited to 75% of the costs to produce the order , and priced about two percentage points above prime.
One of the key requirements of the long-term export finance scheme is that at least 50% of all the capital goods and services funded are sourced from SA. Finance minister Trevor Manuel lifted this requirement in his budget in February, but it has not yet been enacted.
Until recently most of the export credit funding made available by the IDC was dedicated to large projects and more established SA companies operating on the continent. Sibisi says this will continue to be a significant part of his unit's work though more recently, the IDC has encouraged support of BEE and small to medium-sized enterprises (SMEs) in the export arena.
"While most of our funding is awarded based solely on commercial principles, we adopt a more developmental approach in backing SMEs," Sibisi says. "For example, while banks insist on a strong balance sheet, we would fund exporters if they have a strong contract from a client in Africa."
Most of the funding is revolving credit, where the IDC is reimbursed as the exporter gets paid. Other products developed to support SMEs include:
- The extension of credit lines to regional development finance institutions for onlending to companies seeking to purchase capital goods and services from SA exporters. Sibisi says the IDC has approved and is finalising a $50m credit line to Togo's Ecowas Bank, which services West Africa, and a $20m facility to PTA Bank, based in Nairobi.
- The revival of export finance guarantee schemes and performance guarantees. Many companies, both locally and in the rest of Africa, require that smaller businesses, particularly black-owned firms with a limited track record, provide a guarantee that the work will be fulfilled in line with requirements. The IDC, with its greater appetite for risk, is starting to fill this need by providing suitably financed guarantees.
Over the past two financial years the IDC has experienced a scaleback of its export funding as a result of the stronger rand. In both financial 2004/2005 and 2005/2006 export funding has been at R650m, but Sibisi is confident that this will pick up again soon.
