Financial services multinational JP Morgan has launched the very first Department of Trade, Industry and Commerce- (DTIC-) approved equity equivalent investment programme (EEIP), which forms part of government’s broad-based black economic empowerment framework.

The EEIP, funded by a R340-million commitment by JP Morgan, forms part of a programme under the DTIC where multinational corporations that are unable to sell equity stakes in their local operations to historically disadvantaged persons, can contribute positively to the economic transformation and development of South Africa.

Trade, Industry and Competition Minister Ebrahim Patel on August 17 said it was “an alternative that’s available under given circumstances”.

The Codes of Good Practice make provision for the recognition of contributions in lieu of a direct sale of equity, and to obtain the full benefit, the value of contributions are measured against either 25% of a multinational’s local operations, or against 4% of its revenue from local operations over the measurement period.

During the virtual launch event, he elaborated that JP Morgan was the first international investment bank to undertake an EEIP programme, alongside the DTIC. The EEIP is, according to JP Morgan, projected to potentially unlock and support up to R2-billion in capital for short-, medium- and long-term funding over an eight-year period.

“The boost to manufacturing in particular is timely, as one of the key lessons of the Covid pandemic has been the value of countries having domestic industrial capabilities,” Patel commented.

He added that the funding was intended to support small and medium-sized businesses in sectors of significant public importance and that it would range from transactions in the green economy to funding for firms with manufacturing operations.

“South Africa needs more jobs for young people and deeper levels of industrialisation. This transaction will therefore give a boost to the country’s localisation efforts, create employment and help to strengthen economic output.”

The EEIP’s funding will also facilitate an injection into the South African economy aimed at small, medium-sized and microenterprises (SMMEs) that face critical funding challenges, or who might not meet the traditional underwriting criteria of commercial banks.

The terms on which the funding will be extended is concessional and include limited security requirements and loan repayment holidays that “respond to the life stage of the enterprise that is being supported”.

“The objective is not just to meet liquidity needs for purchase orders, or to finance working capital advances, but rather to make our SMMEs bankable and growth-oriented firms that are able to access the supply chains of large corporations and the procurement opportunities within the public sector,” Patel elaborated.

He added that “it is about ensuring that these firms are ready to meet these supply needs while broadening our productive base and creating jobs”.

The potential support to more than 500 businesses is intended to generate more than 1 000 new jobs, the bulk of which will come from the green and industrial sectors of the South African economy.

JP Morgan CEO Kevin Latter, meanwhile, emphasised business’ critical role in partnering with government to build a “sustainable and a successful future” for South Africa to address its challenges such as poverty, inequality and unemployment.

The launch of the EEIP is considered a key milestone for JP Morgan after more than two years of constructive engagements with the DTIC.

“Through supporting SMMEs and by providing access to affordable financing, the programme will comprise of two elements: The Abadali Fund and The Abadali Grant,” Latter said.

Together, these make up the Abadali Equity Equivalent Investment Programme.

“The programme has been designed to provide opportunities for black enterprises to access funding and to access business support to ensure sustainable growth,” Latter said.