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Pearls of Wisdom: CEO of the IDC, Mr. Geoffrey Qhena

1. What does your role entail at the Industrial Development Corporation?
I am the chief executive officer of the IDC. My role includes – among other responsibilities – providing guidance and directing IDC’s business focus, particularly in terms of our mandate.

2. What role do Development Financial Institutions play in the development of South Africa’s entrepreneurs?
One of the most important functions that DFIs such as IDC, SEFA and the NEF fulfills is the provision of finance, or capital, for entrepreneurs. Without this finance, some entrepreneurs simply do not have access to capital required to start their businesses. Another important role is the provision of business support. This is non-financial support provided to entrepreneurs. What we have found is that some entrepreneurs may be highly skilled in some areas of running and growing their business, but might lack some skills or experience in other areas. Through business support, we address some of these shortcomings to help the entrepreneur to run his or her business better.

3. To date how much has been approved and how may decent jobs have been created as a result of IDC funding?
Over the past five years up to March 2015, IDC approved R60.1 billion, with more than 140,000 jobs expected to be created by this.

4. What effect does mentorship have for emerging entrepreneurs?
It allows the entrepreneurs to build skills in areas where they might be lacking the required skills or experience to successfully establish and grow their business. It also allows entrepreneurs to approach someone with skills in a particular area to discuss a specific problem.

5. According to the 2015/16 edition World Economic Forum Global Competitive Survey shows that out of 140 countries, for one or more of the following rankings achieved by South Africa: 8th for soundness of banks; 6th for availability of financial services; 1st for financing through local equity market. How does this uniquely position the country for further investment?
South Africa’s banking sector is indeed highly regarded for its high levels of sophistication, innovation and governance. Our stock exchange also ranks among the top 20 in the world. In addition, our main development finance institutions are often used as benchmarks in light of their financial sustainability, governance, reach and regional footprints. These attributes, coupled with the very liquid nature of our capital and currency markets, are very important for the investor community, underscoring the substantial inflows of foreign capital over the years. These have consisted of portfolio investments by non-residents and foreign direct investment (FDI) in Greenfield and brownfield projects, as well as in acquisitions. South Africa has been the leading recipient of FDI in Africa for a number of years, bearing testimony of its attractiveness as a preferred investment destination and often as a gateway to the continent. Ours is unquestionably of the most sophisticated emerging markets in the world, offering ample investment opportunities across various sectors of the economy.

6. Why is it important for developing countries to collaborate with other developing countries such as BRICS?
Collaboration between developing countries, often referred to as South-South cooperation, opens up viable opportunities in their individual and collective pursuit of sustained economic growth and development. Such collaboration takes different and evolving forms, including the sharing of knowledge and experience, training, technology transfer, as well as trade, financial and investment co-operation. It provides opportunities for greater access to capital and development finance (increased borrowing capacity) and the diversification of the sources of development finance; higher FDI inflows; increased trading activities; the chance to transform the structure of their economies; and a louder voice and stronger bargaining power in international bodies and global affairs (such as trade and climate change negotiations).

Over the past couple of decades, South Africa has fostered collaboration with and between developing countries through many initiatives. These have been both public- and/or private sector-driven. Among the most notable from our perspective are the SADC (and ongoing negotiations towards the establishment of the SADC-COMESA-EAC Free Trade Area), the BRICS and IBSA arrangements. Much collaboration is also taking place at the firm or company level. For example, many Chinese, Indian, Brazilian and South African entities and/or companies having invested in various sectors throughout Africa (such as health, agriculture, mining, manufacturing, telecommunications, finance, physical infrastructure). With stronger and more effective interaction at the governmental level and greater private sector participation, trading and investment activity with other developing countries and regions could increase significantly and result in considerable economic gains.

7. How do we improve economic sustainability in South Africa’s growing economy?
It is critical that we address the constraints that have been holding back the economy’s growth potential. These include addressing infrastructure-related bottlenecks, both in terms of the availability and the cost of services, in the areas of electricity, transport and logistics, and water supply, among others. It is also crucial that education and skills development are completely aligned with the current and future needs of our economy, so that we enhance the employability of South Africans in a constantly changing environment, in line with global trends. In the currently difficult economic environment, business and investor confidence must be restored so as to raise fixed investment activity by the private sector. Concerted efforts must be made to promote our manufactured products in the global marketplace, especially in faster growing emerging and developing economies, so as to utilise presently spare production capacity and lay the demand-led foundation for its future expansion, creating much-needed employment opportunities in the process.

8. The Department of Trade and Industry recently launched the Black Industrialists Programme, what is a Black Industrialist and how does the Industrial Development Corporation contribute towards this programme?
A black industrialist is basically an entrepreneur that gets his or her hands dirty in the running of their business. These are not individuals whose only role in a business is to attend a Board meeting once a quarter but provide real operational and strategic leadership to the business. Obviously these people must have a meaningful stake in the business and we are typically looking at those entrepreneurs that are involved in productive sectors of the economy like manufacturing.

Government is providing many opportunities for black industrialists by providing markets for manufactured goods through infrastructure development programmes and other government procurement. IDC’s most prominent role in the development of these entrepreneurs is to provide funding for these entrepreneurs to start of grow their businesses to take advantage of these opportunities.

9. What would you say are the main economic development challenges of our time?
The imperative is to achieve faster, sustainable and inclusive economic growth that will expand employment, reduce inequality and eradicate poverty in South Africa. We also need to transform our economy in terms of its structure, specifically by enhancing and diversifying the contributions from the goods-producing sectors, as well as in its ownership. To attain this, we need high rates of private sector investment in globally competitive operations that are preferably jobs-rich, supported by the necessary public sector investment to ensure the provision of efficient and cost-competitive utility services to the economy at large. We must expand our country’s entrepreneurial base by assisting new participants in contributing to value addition and employment, as well as stimulating the emergence of new business ideas and solutions.

10. With the recent increase in rising interest the REPO rate went up by 50 basis points, how does this impact entrepreneurs who need to repay their business loans?
With most emerging economies such as South Africa’s facing highly volatile financial and currency markets in the current global environment, their monetary authorities have been forced to act. Large outflows of investment capital and trade imbalances due to deteriorating terms of trade have resulted in sharp currency depreciations and rising inflationary pressures. Hence, despite weak economic growth and the unemployment challenge, South Africa’s monetary policy has had to be further tightened in pursuit of price stability. This imposes an additional burden on business enterprises already challenged on the supply-side by rising operational costs. Moreover, higher interest rates will aggravate presently subdued demand-side conditions by affecting consumption spending by households and firms.

 

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