Economic Development Minister Ebrahim Patel on Monday downplayed the role of labour unrest and the cost of electricity in South Africa as being responsible for the large losses attributable to Industrial Development Corporation (IDC) associates and joint ventures.
The state-owned development finance institution, which answers to Mr Patel’s department, says the R466m loss from these investments in the year to March, from a R2m loss last year, comes from stakes in, and loans to, platinum, aluminium, ferrochrome and stainless-steel businesses. All these are critical focus areas of government economic policy.
Profit for the year dropped 40% from R3.30bn to R1.98bn from revenue of R14.58bn, compared with R10.99bn last year. But balance sheet revaluations and “reclassifications” in the year pushed the total comprehensive income up to R4.89bn from a loss of R852m last year.
Dividends from listed and unlisted companies and interest payments were major sources of income. Sasol, Kumba Iron Ore, BHP Billiton, Life Healthcare and ArcelorMittal SA were top listed shareholdings.
Mr Patel on Monday blamed the “global commodity cycle, downward pricing pressure” and slowing Chinese economic growth for the loss from joint ventures and associates. In addition, South Africa’s dwindling platinum exports to the European Union vehicles industry were “key” to the loss.
His comments come as thousands of strikers in South Africa’s car industry make their way back to work this week amid renewed mining sector unrest.
Mr Patel said the results had highlighted the need for the government’s drive for greater minerals beneficiation, which would reduce South Africa’s exposure to commodity exports and the effects of currency volatility. “In platinum, at the very least, if you look at the trend line, exports began to drop before the industrial relations challenges .”
The IDC holds a significant stake in Lonmin, the world’s third-largest platinum miner. The miner was at the centre of the killing by police of dozens of mineworkers at Marikana last year.
Lonmin is yet to release it results for the year to September. In July it reported an overall slide in production and sales for the June quarter.
The miner said at the time it was “alert to the risks to production associated with … the uncertain labour relations landscape”.
IDC CEO Geoffrey Qhena acknowledged on Monday the institution’s investments could not always be fruitful. But he also emphasised the developmental role of the IDC, compared with the lending practices of commercial banks.
The IDC intended to “sweat the balance sheet” by doubling debt levels to up to 45% of equity over the next five years, Mr Qhena said.
Overall, 36% of the IDC’s funding in the year went into South Africa’s mining and minerals value chain. Another 10% went into metals, transport and machinery products.
IDC chief financial officer Gert Gouws said commodity shares had negatively affected performance. “Those four industries (platinum, aluminium, ferrochrome and stainless steel) contributed more than 90% of losses from associates.”
He agreed with Mr Patel that the main reason for the plunge in associates and joint venture income was the drop in the price of platinum. But he acknowledged Eskom’s “electricity prices did play a role”.
Despite “economic challenges”, the IDC said it supported the development of “key industries”. It disbursed a record R16bn in pursuit of “sustainable and inclusive industrial development” in the year.
Funding approvals remained at about the R13bn recorded for the previous year. Over the past five years, the IDC said its interventions facilitated the creation of an expected 114,000 direct and 8,000 indirect jobs, and saved a further 37,600.
The fair value of its assets rose from R79bn in 2009 to R126bn in the year under review. It signed off R45bn in project finance.
Over the past four years the IDC has made R10bn in profit.
Mr Patel said that co-generation of South Africa’s electricity was of “recognised value” in the government’s policy framework and that manganese from the Northern Cape would soon be beneficiated in a R4.2bn smelter at the Coega industrial development zone near Port Elizabeth.
The Coega Development Corporation last month said a proposed Chinese-funded manganese smelter project was in the pipeline for 2016. But an environmental impact assessment process was still in progress and financial closure had not been concluded.
In the year, the IDC acquired 74% of Scaw Metals from Anglo American for R3.4bn on a debt and cash-free basis. The group had also bought an equity stake in Palabora Mining Corporation.
In partnership with the private sector and the government, it had also made strategic interventions in various sectors, supporting the government’s renewable energy and content localisation opportunities.
The IDC was also focused on growing industries including fabricated metals, and capital and transport equipment. These were largely in respect of infrastructure build programmes of state -owned companies, mainly Transnet, the Passenger Rail Agency of South Africa, and Eskom. The IDC had also secured lines of credit to further enhance its capacity to support industrialisation. It launched a R5bn Green Bond with the Public Investment Corporation and R4bn of jobs bonds with the Unemployment Insurance Fund.
It intended to launch a bond of R1.5bn next month and R10bn to R12bn worth of bonds in the period to March 2015.
Article source: http://business.iafrica.com/articles/878916.html