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National Empowerment National Empowerment FundFund

KZN REGIONAL OFFICEKZN REGIONAL OFFICE

Presenter

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Mr. Phakamile Madonsela

Regional Manager -

KwaZulu-Natal

History Established through the National Empowerment

Fund Act No 105 of 1998 Government Agency under the Department of Trade

and Industry Capitalised by government in 2005 with R2.4billion Is represented in 8 Provinces (Gauteng, KZN, EC,

MP, NW, LP, WC, FS) Largest SME Funder in South Africa with more than

R5.1 billion worth of assets under management as of 31 March 2013

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NEF Mandate…

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“…a driver and a thought-leader in promoting and facilitating Black economic

participation through the provision of financial and non-financial support to Black

empowered businesses, as well as by promoting a culture of savings and

investment among Black people

SME Market Failures

The NEF seeks to address the following market failures:Lack of access to financeLack of access to marketsLack of specific industry-knowledge and/or management experienceLimited or no equity contributionSMEs have low bargaining power with suppliers and customers (they are price-takers)SMEs compete with well-established businessesThey are often undercapitalized and have low asset baseSMEs are characterised by lack of accurate and reliable information, and lack of business-planning skillsLack of management depth – small and multifunctional, and often lack a range of business-management skills

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R250 000 – R75 million

Start-up

Expansion

Equity Acquisition

NEF Funding

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Suite of Products to Facilitate Business Growth

StartStart--UpUp

CC & (Pty) LtdCC & (Pty) Ltd Acquire assetsAcquire assets Working capitalWorking capital Bridging financeBridging finance Debt and EquityDebt and Equity Black >75%Black >75% Max. 7yearsMax. 7years

ExpansionExpansion

CC & (Pty) LtdCC & (Pty) Ltd Debt & EquityDebt & Equity Black >51%Black >51% Max. 7yearsMax. 7years

Acquisition Finance

MBOsMBOs& Leveraged& Leveragedfinancefinance

Management buyManagement buy--insins ESTEST Unlisted entitiesUnlisted entities Debt & EquityDebt & Equity Black >26%Black >26% Max 7yearsMax 7years

Liquidity & WarehousingLiquidity & Warehousing

Create sustainable BEE Create sustainable BEE ownershipownership

Refinancing existing BEERefinancing existing BEEstructuresstructures

Capital MarketsCapital Markets

Facilitate new Facilitate new entrants into JSEentrants into JSE& Alt& Altxx

Black >26%Black >26%

Max. 2years

Start-Up Expansion Maturity/Decline

High Risk Low Risk

Preferential Procurement

Preferential Preferential ProcurementProcurement

CC & (Pty) LtdCC & (Pty) Ltd Acquire assetsAcquire assets Working capitalWorking capital Bridging financeBridging finance Debt Debt Black >75%Black >75% Max. 7yearsMax. 7years

StartStart--UpUp

CC & (Pty) LtdCC & (Pty) Ltd Acquire assetsAcquire assets Working capitalWorking capital Bridging financeBridging finance Debt and EquityDebt and Equity Black >75%Black >75% Max. 7yearsMax. 7years

ExpansionExpansion

CC & (Pty) LtdCC & (Pty) Ltd Debt & EquityDebt & Equity Black >51%Black >51% Max. 7yearsMax. 7years

MBOsMBOs& Leveraged& Leveragedfinancefinance

Management buyManagement buy--insins ESTEST Unlisted entitiesUnlisted entities Debt & EquityDebt & Equity Black >26%Black >26% Max 7yearsMax 7years

Liquidity & WarehousingLiquidity & Warehousing

Create sustainable BEE Create sustainable BEE ownershipownership

Refinancing existing BEERefinancing existing BEEstructuresstructures

Capital MarketsCapital Markets

Facilitate new Facilitate new entrants into JSEentrants into JSE& Alt& Altxx

Black >26%Black >26%

Start-Up Expansion Maturity/Decline

High Risk Low Risk

Preferential Procurement

Preferential Preferential ProcurementProcurement

CC & (Pty) LtdCC & (Pty) Ltd Acquire assetsAcquire assets Working capitalWorking capital Bridging financeBridging finance Debt Debt Black >75%Black >75% Max. 7yearsMax. 7years

NEF Funding CriteriaEach application is assessed in terms of the following criteria:Commercial Viability of the businessBroad Based Black Economic Empowerment Black Women Empowerment, Black Managerial and Operational Involvement, Risk Sharing with EntrepreneurJob Creation, Geographic Location of the business (rural/urban/disadvantaged areas), Community Involvement, Compliance with all the relevant laws and regulations, Return on investment, andThe possibility of co-funding with another public or private sector institution.

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RCDF Product Offering

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Acquisition Finance New Venture Expansion Capital

Investment Threshold R1m to R50m R1m to R50m R1m to R50m

Trigger for RDCF participation

Co-operative, community groupings arranged as a Trust or any legal entity, and workers trust

Co-operative, community groupings arranged as a Trust or any legal entity, and workers trust

Co-operative, community groupings arranged as a Trust or any legal entity, and workers trust

Principal goal To cater for rural entrepreneurs or communities seeking to buy equity in existing rural & community enterprises.

To assist rural entrepreneur's and communities with equity contribution towards establishment of sustainable new ventures in agri-sector.

To facilitate involvement and ownership by communities in projects promoting social upliftment.

Types of companies/projects

Focus on small to large ventures where Partnerships between NEF, BEE party or community entity, and technical Partner is involved.

Medium sized new venture projects with total funding requirements of between R1m and R50m.

Rural and community projects using entities such as Coops and private companies.

Types of instruments Debt, Equity, quasi-equity and Preference Shares

Debt, equity, quasi-equity Debt, equity, quasi-equity and preference shares

Black equity thresholds

Minimum of 50.1%

Interest Rate Prime (+/-) Empowerment Dividend or Development impact influenced

Term of Investments / other terms

5 to 10 years Clear exit strategy

Up to 10 years Total project equity ≥ 40% NEF exposure ≤ 50% of project costs

Up to 10 years

RCDF Strategic Objectives

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MEASURESOBJECTIVES

Identification of new rural entrepreneurs presence in rural communities across the country

Fund projects with rural communities, workers, and co-operatives

Facilitate the partnership of communities into projects alongside strategic partners or technical partners.

Manage the expectations of beneficiaries & clearly outline objectives through stakeholders’ meeting & workshop that define the distribution of dividends

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Cash Crops

Field Crops

Horticulture

Food Crops

RCDF Sector Focus

Agro Processing

Manufacturing

Primary Agriculture

Secondary Agriculture

Alternate Agriculture

Hydroponics

Commercial Property

Leisure – Ecotourism

Animal Farming

Agro Forestry

Aqua culture fisheries

Inland Fishing

Fresh Water farm e

Marine Culture

Ultimate value creation – unlocked by the RCDF strategy

Aim is to unlock the potential economic

activity of rural economies

Sustainable Rural Ventures

New Rural Entrepreneur's

Value Add Industry - created

Food Security issues addressed

Export Potential unlocked

Sustainable Employment

Community Development

FX earner for the country

RURAL

FUND

IDENTIFIED

SECTORS

Influenced by the Government sector transformation initiatives

i.e. Charters, policies

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Producers(“Dairy farmers”)

Processing Facility(“Product Identification

dairy products”)

Identified Potential Markets

(“established retailers”)

Ultimately Consumers(“Product Distribution”)

Milk Supplier

Dairy ProductsValue Add

Food Security

VALUE CHAIN CREATION

RCDF Target InvestmentPrimary Investment

Ultimate outcome of RCDF InvestmentSustainable enterprises

RCDF InvestmentSecondary Investment

Primary SectorSecondary Sector Tertiary Sector

Challenges Challenges Intervention / Response

Poor Quality of Business Plans Establish concrete partnership with research institutions like ARC and academic institutions to assist with Business Plan preparations.

Lack of contribution (Fronting)

Ensure that strategic partners are willing to contribute to the project.

Appropriate Skills Allocate a mentor at the initiation of the project to identify gaps as the project progresses.

Lack of product diversification Encourage diversification of products value addition and agro processing.

Access to Markets Establish markets for projects to ensure sustainability with strategic partners (Woolworths, Pick’n Pay, Beefcor ,etc).

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RCDF Challenges…

Challenges Intervention / Response

No buy – in by communities Ensure that project awareness is created for all beneficiaries prior to implementation.

Lack of knowledge on investment products or processes

Address communities on the advantage of commercializing their land instead of selling /leaving unutilized.

Complexity of transactions, project locations and need for stakeholders support

Ensure that transactions are properly funded with a right mix of funding instruments i.e. debt and equity, grant funding.

Communities expect direct access to funding

Ensure that a clear social plan is in place prior to fund disbursement.

Inability to speedily disburse approved transactions

Continue engagement with all stakeholders to expedite closure.

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RCDF Agriculture Funded Projects

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A Sweet Deal!

60 HA raspberry farm in Amajuba district, KZN

Farm established on land secured through restitution process

Community beneficiaries with CCT governed by 11 trustees

Project taps into 482 000ha worldwide market

SA production only 100 ha currently

Project will be leading local supplier at full capacity

Supply local and export markets (70% of production)

Tap into growing popularity of raspberries

CR R14,8mR19,4m

CCT IDC NEF TECHNICALPARTNER

AMAJUBAR37m

Compliance with R&CD product criteriaBroad based community ownershipSustainable projects with strong social benefitsStrong technical partnersSkills transfer Poverty alleviation

Strong empowerment dividendBroad based economic ownership (1100 beneficiaries)Job creation (795 jobs including 91 permanent)Women empowerment ( 60% of workforce)Project location – rural KZN area

Local Economic benefitsContribution of R9.8 m pa in salaries to local economyElectrification of housesProvision of land for new houses

Partnership with IDCLeveraging IDC sector knowledge Contributing NEF know-how in financing rural communities

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Dihoai Feedmill Cooperative

• Dihoai Farming Cooperative, in the Free State, was formed in 2006 by five family members.

• They have been farming chickens and producing their own feed for over five years. The success of their operations has allowed one of the main members to purchase the 50ha farm.

• The cooperative has identified an opportunity to supply other neighbouringfarms, mainly small black emerging farmers that are struggling to secure

goodquality feed at reasonable prices. Feed represents about 75% of the input costto all farmers.

• Small emerging farmers struggle to secure feed or buy in bulk from the current big producers who refer them to local retailers that charge additional 20% mark-ups on the feed products.

• The NEF has invested R8.95million and 25 Jobs created jobs in this operation

Berlin Beef• NEF invested a total of R27 million towards the establishment of a feedlot

in Berlin, Eastern Cape with 21 Jobs created.

• The Feedlot will supply a high through-put abattoir in East London in terms of a 10 year off-take agreement, including upstream investment in the cattle supply region for improved breeding of cattle supplied to the Berlin Beef feedlot.

• The operation plans are for a beef operation with one-time standing capacity of 3 000 head on back grounding and 3 000 head on feedlot.

• The feedlot will produce approximately 58 tons of manure per day, which will be utilised for Biogas power generation

• The project will adopt and comply with requirements of ISO 14001

Greenhouse Agriculture

Cucumebr

Growing tomatoes in Mathonsi

1st grade tomato

Coloured PeppersColoured Peppers

LettuceLettuce

StrawberryStrawberry

RosesRoses

Fresh HerbsFresh Herbs

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Other RCDF Funded Projects

This is a R50 million project

The NEF invested R28,3 million

The Trust represents 22000 beneficiaries in the Jozini area (Northern Kwa-Zulu Natal)

Overlooks the third largest lake in South Africa

The hotel has 60 rooms

Accommodates 144 guests

The community owns this 4-Star hotel!Turning Villagers into Shareholders

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The communities of Umlazi and Lamontville townships in KZN, represented by Sizovuna Investments, acquired a 25% stake in Umlazi Mega City shopping centre with NEF funding of R52,8 million. This genuine BB-BEE deal is delivering substantial social returns to community beneficiaries at large, including job creation and skills development.

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R51.8 million for Umlazi Mega City

Turning Township Residents into Owners

Rural Communities owners of 4-Star Hotel in Hluhluwe Imfolozi Game Reserve

This is a R24 million project

The NEF invested R21million

The Trust represents 260 Household beneficiaries in the Mpembeni Community (Northern Kwa-Zulu Natal)

Big 5 Experience in the Oldest Game Reserve in SA

The hotel has 22 Villa Rooms, Magwanani Spa, Curio Shop and Conference Facilities

Accommodates 44guests and Conference will hold 90guests

The Nkumbuleni Community in Eston, Mkhambathini Municipality are land restitution Beneficiaries

The NEF invested R15.3million

The Trust represents 260 Household beneficiaries

The Lodge is within a Game Reserve and has 60 Rooms to accommodate 144 Guests

Other facilities include 4 Wedding and Conference Facilities, Magwanani Spa, Curio Shop and Game Drives

Big 5 Experience in the Oldest Game Reserve in SA

Empowering Land Restitution Claimants to Become Successful Business Owners

R75 million for Mavundla Square - Greytown

Tembe Masizwane / Royal Thonga Safari Lodge

Royal Thonga Safari Lodge

NEF BUSINESS SUPPORT

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Business Planning?

www.nefbusinessplanner.co.za

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Simple to use Free to the public Step by step question & answer

process Helps with financial projections Formats into a Word document Confidential (password-protected) Download and print Submit to any funder

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MentorshipOngoing mentorship support

across the country

Globally, 30% of start-ups fail in the first 2 years,

Less than 50% survive beyond 4 years Mentors across the country to help

businesses Expert advice on strategy and

operations Improve the chances of the business

succeeding Provided for free to NEF investees

NEF PERFORMANCE

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NEF Milestones

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Black SMEs

R5.1 billion

Job-creation

44 000 jobs

Fund A Woman

22%

NEF Investment by Sector

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NEF Investment By Region

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EC8%

FS1%

GP50%

KN22%

LP5%

MP3%

NC1%

NW1%

WC9%

NEF Invested Portfolio by province by value for since inception - 31 March

2013

Disbursed in KZN: - 2013: 10 worth R117.3 m (2012: 9 worth R167.6 m)

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Contact Details

Telephone: (031) 301 1960

Address: Smart X-change Building Ground Floor

5 Walnut RoadDurban

Email: kzn@nefcorp.co.za mazibukop@nefcorp.co.za hlelas@nefcorp.co.za

Web: www.nefcorp.co.za