The Industrial Development Corporation (IDC) believes its R14-billion green-economy project pipeline could provide the platform for a strong recovery in investment funding, following a sharp drop over the past two years.

The State-owned development finance institution disbursed only R7.2-billion during its 2022 financial year, during which funding approvals rose to R16-billion.

Although up on the R6.3-billion disbursed in the prior year, which coincided with the economic collapse associated with Covid, disbursements remain well below pre-pandemic levels and fell short last year of what is required to support South Africa’s economic recovery and reindustrialisation.

In the five years prior to Covid, the IDC disbursed at a yearly rate of about R12-billion and had an official target to lift yearly disbursements to R20-billion.

Speaking during the group’s results presentation, shareholder Minister Ebrahim Patel said disbursements remained below levels where they could make a “meaningful impact on the economy” and play a countercyclical role.

“It's precisely at the time when traction decreases in the economy that we need to see the impact of an institution like the IDC,” he said.

The pullback, Patel acknowledged, had been necessary to shore up the IDC balance sheet in a context where government’s weak fiscal position had made any recapitalisation of the organisation all but impossible.

Nevertheless, the Minister reported that a target had been set for the group to increase its direct disbursements to R20-billion during the 2023 financial year on the basis of a stronger project pipeline, as well as the tailwinds provided by strong commodity prices and regulatory reform in the electricity sector.

CEO TP Nchocho described the disbursement goal as a “stretch target” but told Engineering News that the IDC was indeed ready to ramp up its financing activities following a period of recovery and consolidation, during which it strengthened its financial position and re-established the “firepower” needed to increase its developmental impact.

The group’s capital base had increased to R109.7-billion, a 32.5% year-on-year rise, and the IDC ended the year with cash reserves of R14.8-billion and a lower gearing of 34.5% (51.4%).

In addition, its Foskor subsidiary, for which the IDC is still seeking a strategic industrial partner, narrowed its loss to R477-million during the year from R2.2-billion.

Nchocho noted that while disbursements remained depressed, approvals of R16-billion represented a 146% rise from the R6.5-billion approved in the previous year and created the basis for higher future disbursements, given that many approvals were disbursed over a multiyear timeframe.

“The transaction volumes that are coming through include some particularly large investments in infrastructure, energy, mining, in the chemicals and pharmaceuticals sector.

“So, the pipeline is there.”

BIG GREEN PUSH

The IDC was particularly bullish on prospects for green-economy investments, including in renewable energy, battery storage, new energy vehicles, green hydrogen and renewables and battery component manufacturing.

The overall project pipeline involved about 40 projects, about one-third of which were in so-called green economy projects.

The IDC already had renewable-energy generation assets worth R14-billion, mostly developed under government’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

It would continue to participate in REIPPPP projects but was also experiencing strong deal flow as a result of recent reforms allowing distributed generation projects below 1 00 MW to proceed without a licence. Government is in the process of lifting that cap entirely.

The IDC’s export-oriented mining and industrial clients were pursuing these generation projects partly to bolster security of supply in a context of intensifying load-shedding by Eskom, but also to improve their green credentials as several economies prepared to introduce carbon taxes on imports.

Nchocho indicated that renewable generation projects were likely to dominate its near-term financing activities, but he said that over a 24-month horizon green hydrogen, green steel, battery storage, battery metals and renewable component transactions were likely to come to the fore.

In the mining sector, too, the IDC was prioritising those metals and minerals that would be required for the energy transition and Nchocho reported that the group was not limiting its investment horizons to South Africa and was also pursuing opportunities in the Democratic Republic of Congo, Zambia and Zimbabwe.

These prospects are not included in the R14-billion green-economy pipeline.

The IDC was also active in helping to shape the Just Energy Transition Partnership, or JETP, through which $8.5-billion of climate finance could be unlocked from France, Germany, the US, the UK and the European Union.

Besides participating in the Climate Finance Task Team that is currently finalising the JETP investment plan, the IDC is optimistic that some of the funding could be released in support of the projects in its pipeline.

There were also discussions under way regarding whether the National Treasury would be the single conduit for channelling the funds, or whether other institutional mechanisms, including those available at the IDC, could also be used.

“So, we are participating in processes to define the institutional architecture and, of course, we are sharing ideas with Daniel Mminele, who is heading the Presidential Climate Finance Task Team, regarding additional sources of funding beyond those commitments which were made by developed economy countries.”

It is anticipated that the JETP investment plan will be in place ahead of the upcoming COP27 gathering in Egypt in November.