The State-owned Industrial Development Corporation (IDC), which reported a fall in loan approvals and disbursements in 2015, has retained its five-year target of injecting R100-billion of development finance into the South African economy by 2020, despite weak market conditions.

During 2015, the IDC’s loan disbursements fell to R10.9-billion from R11.2-billion in 2014, while its new approvals declined to R11.5-billion from R13.8-billion.

To achieve the “stretch target” the development financier would need to raise disbursements to over R20-billion a year for the remaining four years, with its best-ever disbursement level having been R16-billion during the 2013 financial year.

However, Economic Development Minister Ebrahim Patel, who is the IDC’s shareholder Minister, said he remained “bullish” on prospects for meeting the target, owing to changes made to the group’s operating strategy since April 1.

Under the new strategy, which was developed with the support of Bain & Company, CEO Geoffrey Qhena said a proactive “value-chain” approach would be pursued, in a bid to unlock investment prospect either “upstream or downstream” of specifically identified opportunities.

He said the strategy would require stronger partnerships with various sectors, including the State-owned companies, whose large-scale infrastructure programmes offered an opportunity for industrial investments to either displace imports, or produce inputs for the infrastructure projects.

He also indicated that it could take some time for the strategy to gain traction, revealing that the group would not reach disbursement levels of close to R20-billion during the 2016 financial year.

Through ‘Project Evolve’, Patel said the IDC would seek to identify market opportunities and begin to view its role “not simply as the provider of finance, but as bringing together entrepreneurial energies for which there is a market for industrial funding”.

“We are, therefore, confident that the R100-billion is achievable.”

He also noted that the decline in disbursements and approvals in 2015 was precipitated mainly by a sharp fall in renewable-energy funding during the year; partly the result of there only being one Renewable Energy Independent Power Producer Procurement Programme bid window during the period and partly due to a shift in strategy in the sector.

Qhena insisted that the IDC, which had already provided R14-billion in renewables funding over the past four years, remained interested in the sector, with a further R14-billion pipeline already identified. However, the IDC saw its participation being more strongly aligned to green-industry localisation efforts, as well as in supporting a larger participation by black investors.

Localisation would also form a key pillar in a range of other sectors, including transport and energy, as would support for domestic manufacturers seeking to either displace imports into the domestic infrastructure programme, or to take advantage of the trade opportunities opening up in the rest of the African continent.

“The public sector and State-owned companies are investing R1-billion every working day in infrastructure,” Patel highlighted, adding that the IDC would be backing efforts to raise local content levels in the roll-out of the programme.

But the IDC would also need to leverage it balance sheet further to meet the R100-billion target, with outgoing CFO Gert Gouws indicating that its debt-to-equity ratio was likely to weaken in the coming years.

The ratio had already climbed to 27% by the end of March and had risen even further in recent months as the group’s portfolio of listed investments, which was resources heavy, fell in sync with declining commodity prices and demand.

The value of listed investments fell to R45-billion from over R65-billion in 2014 and was the main contributor to the IDC reporting a total comprehensive loss of R17.1-billion for the year.

However, Gouws stressed that the movement in the listed assets represented an unrealised loss, with the realised profit for the year rising 1% to R1.65-billion.

“The IDC is very much committed to increasing its role in the South African economy in various sectors [and] we believe that we still have a very strong financial base, notwithstanding the headwinds,” Gouws said, noting that the IDC has a statutory debt-to-equity limit of 100% and an internal threshold of 50%.