Development financier the National Empowerment Fund (NEF) has moved to reopen funding for black-owned and -managed businesses requiring financial support for start-up, expansion and equity transformation purposes, using existing reserves and expected new capital.
NEF CE Philisiwe Mthethwa reported recently that the resolution by the NEF was reached following consultations with the Department of Trade and Industry (DTI) and the National Treasury.
“In May 2013, the NEF was compelled by declining resources and unrealised recapitalisation initiatives to declare a temporary moratorium on new applications, while deliberations with the DTI and the National Treasury were in motion.
“This, we believe, was a prudent decision because it was aimed at curtailing the erosion of available resources in light of uncertainty at the time regarding the prospects for recapitalisation. [However], now that we are confident and certain that new capital is on the horizon, the NEF is comfortable to reopen funding for new transactions to meet the huge demand for development finance by black business,” NEF acting chairperson Rakesh Garach explained.
Mthethwa stated that R950-million was immediately available to the NEF for new approvals, while Garach pointed out that recent commitments from government indicated that the NEF would soon be recapitalised.
The NEF had approved over R5.48-billion in transactions for 546 black companies and over the years R2-billion has been repaid and reinvested, she noted, highlighting that the NEF’s cash position, as at March, was R1.48-billion, R529-million of which related to undrawn commitments.
“The NEF is a patient-capital lender with funding horizons of up to seven years for some products and up to ten years in the case of both rural and industrial development transactions. What this means is that the NEF’s loan portfolio is still in the economy and will eventually be repaid for reinvestment purposes,” Mthethwa explained.
She said, since recapitalisation talks with government began in 2009, the NEF had presented various funding scenarios, “which have not yet materialised because the global economic contagion that began in 2008 confronted the country with a range of competing priorities on the social front. As South Africa emerges from a crisis . . . the country can once again direct resources [to meet] the challenges of propelling inclusive growth”.
The funding scenarios explored by the NEF with government involved financial recapitalisation through the annual medium-term expenditure framework, with an application to the value of R2.3-billion submitted to the National Treasury through the DTI, and a loan facility from the development finance institutions (DFI) sector for R1-billion, which was now imminent following discussions with the DTI, the National Treasury and the Department of Economic Development.
Further funding scenarios included the possibility of equity allocations of government’s shareholding in nonstrategic entities and an application to the National Treasury for the reclassification of the NEF from a Schedule 3A to Schedule 2 entity under the Public Finance Management Act (PFMA).
The NEF’s current classification under the PFMA imposes restrictions on the NEF to raise additional capital outside the fiscus. The classification is meant for entities that are substantially funded by the National Revenue Fund, which the NEF has not been since the last capital injection in 2010.
In the long-term, an intergovernmental process was under way to explore structural DFI integration.