A landmark agreement between the Industrial Development Corporation (IDC), information systems group Thales and European financial services group Société Générale will pump $30 million into more affordable funding for small and medium enterprises (SME).
IDC CEO Geoffrey Qhena says the IDC has the appetite for funding higher-risk ventures and thus fulfilling a need to which the commercial banks do not cater.
"This facility furthers that objective by offering SME loans at more attractive interest rates, while providing the IDC with a more cost-effective source of valuable dollar-based funding. Among the challenges facing SMEs is a lack of support from commercial banks and high bank charges," he says.
The relationship between the IDC and Thales dates back to 2005 when the two parties had teamed up to arrange a $50-million soft financing to support IDC's strategy towards SME.
This first facility proved a huge success and was disbursed within 10 months, effectively supporting 49 SME businesses and creating more than 5 500 jobs via projects funded through that initiative. Benefits of attractively-priced funds were passed on to SME clients and the same principle will apply for the new facility.
As for the first tranche, this new $30-million facility is concluded under the auspices of the Department of Trade and Industry (DTI) National Industrial Participation Programme (NIPP), which leverages government procurement by requiring international contractors to develop and invest in projects providing long-term economic benefits to South Africa.
Thales has been involved in the South African NIPP since its inception in the late 1990's and has since then developed several projects in a variety of industries across the country.
This new loan facility further increases the IDC's commitment to SMEs in line with the DTI-facilitated programme. The organisation has substantially boosted its commitment to SME project funding, recognising the sector's capacity to accelerate job creation opportunities
The announcement is particularly relevant coming as the South African SME sector experienced another fall in business confidence, driven by rising interest rates and debt repayments.
In this vein 75% of the record R8,5 billion invested by IDC during 2007/2008 was dedicated to expansions and start-up businesses for the SME sector. This policy created or retained 33,200 jobs in South Africa, with 40% of the jobs created in rural areas.
The IDC anticipates investing more than R60-billion in total into the economy by 2013.
Qhena says the current liquidity crunch, which came as a result of the problems in the sub-prime market and the demand for funds from the domestic capital expenditure, has driven up the cost of funding to higher-than-normal levels.
"This competitively-priced facility will significantly reduce the IDC's overall cost of funds as it will be thrown into a basket of funds sourced by the IDC and cheaper loans be extended to SMEs," he says.