1. Introduction Partners/Joint Ventures Public/Private Partnerships 7. South African Venture Capital Funds as per SAVCA 17

Transcription

1

2 Table of Contents 1. Introduction 3 2. Short-term and medium-term sources of finance Bank overdraft Shippers finance Medium-term loans 3 3. Equity Private Equity Venture capital Development capital Buy-out funding 6 4. Microfinancing and Microlending Small Enterprise Foundation (SEF) Khula Micro Credit Outlets Finmark Trust 7 5. Partners/Joint Ventures Public/Private Partnerships 7 6. Government Small Enterprise Development Agency (SEDA) Khula Enterprise Finance Limited National Empowerment (NEF) The Industrial Development Corporation (IDC) The Development Bank of Southern Africa (DBSA) The Land Bank of South Africa African Development Bank Mercantile Banking Multilateral Guarantee Agency Incentives Tax Incentives R&D Incentives Industrial Finance 15 South African Venture Capital s as per SAVCA 17 Useful contacts 26 Sources 27 1

3 Wesgro About Wesgro Wesgro is the official and Trade Promotion Agency for the Western Cape, located in Cape Town, South Africa. We are the first point of contact for foreign importers, local exporters and investors wishing to take advantage of the unlimited business opportunities in the Western Cape. Our mandate is to: To attract and facilitate foreign and domestic direct investment into the Western Cape To grow exports of products and services of the Western Cape through development of export capability, demand and market access To market the Western Cape globally as a competitive and sustainable business destination Promotion, Facilitation & Recruitment Our services to investors include: Recruitment / Promotion Business Facilitation including: - Information on incentives - Site location - Accessing finance - Accessing incentives - Professional referral service Aftercare Advocacy International Trade Our services to local exporters and international buyers include: Export readiness assessment, training, mentoring programmes, experiential market visits outward selling missions as well as inward foreign buying missions One-on-one foreign buyer and local producer meetings set-up Africa to Africa trade focus Access to international non-traditional markets (particular to Western Cape exports) Assisting exporters with the Dti Export Marketing & Assistance scheme (EMIA) For further information and other research publications such as country briefs, sector briefs, trade and investment trends, trade factsheets or how to become a member of Wesgro, please visit the Wesgro website at 2

4 1. Introduction When financing your business it is important to understand the funding requirements, identifying the various sources of finance available for your type of business, and determine the type of finance that would be most suitable to your business. An important consideration is also whether short-term or long-term financing is required and an understanding of what these entail. South Africa provides different sources of finance for various types of businesses, which can be tailored to different needs of businesses. Finance is available from various banks, government, and private and public enterprises. Over 30 registered banks in South Africa make accessing finance available, particularly for startup and expansion capital. Each financing source has its own set of rules, processes and procedures when applying for and accessing capital. Various government schemes exist to assist enterprises on various levels, whether it be for venture or development capital or for expansion needs. State incentives in important sectors can also act as sources of finance. 2. Short-term and medium-term sources of finance 2.1 Bank overdraft A bank overdraft allows a business the flexibility to alter financing requirements on a day to day basis according to the required cash flow. Interest rates on bank overdrafts are calculated on the daily outstanding balance, which means that no interest is paid when the facility is not utilised. The facility is generally used for financing increases in working capital, however it is also useful when bridging finance is required where a gap exists between a long-term debt and the long-term source of finance becoming available. 2.2 Shippers finance A shipper is a financial institution which provides finance and other financial services to its clients. The functions of confirming houses include providing working capital to clients, which involves providing facilities to clients to create additional working capital and to enable the client to finance their stock and receivables. Shippers attend to the physical handling of goods and documentation relative thereto, and provide specialised services in order to expedite receipt and reduce the cost of imports into South Africa. They also provide backing, assistance and financial expertise which can increase the profitability and growth of businesses. 2.3 Medium-term loans Medium-term loans are used to provide finance for up to five years and are used to finance both current assets and fixed assets. These loans are used to meet the particular cash flow requirements of a business. Medium-term loans are subject to certain restrictions such as maximum permissible equity to debt and working capital ratios, and limitations on the sale or pledge of assets and payment of dividends. 3. Equity Equity capital is funds generated by the invested capital of a firm. The best source of startup funds is equity, which can be sourced personally, from partners, co-members in a close corporation, or co-shareholders in a private company. 3

5 3.1 Private Equity Private equity provides equity capital to businesses that are generally not listed on a public stock exchange in return for part-ownership of the business as well as a share of the profits. Private equity is normally used to research and develop new products and technologies, to expand working capital and to make new acquisitions for the business. The investor would not normally want permanent ownership of the business but would rather exit the business, usually after five to seven years, once they have sold off their shares with a good return on their initial investment. The shares are usually sold back to the business. The benefits of private equity are that there are no interest payments as would be the case with a loan. The investor provides capital on the basis of profit generation which would earn a return on investment. When providing private equity an investor typically seeks a higher return on investment. Most private equity fund managers will consider businesses in their early development stages (startup propositions) or they might focus on a specific industry. Other private equity funds would rather fund the expansion of already rapidly growing businesses or management buy-outs. Private equity is usually attracted by businesses demonstrating the prospect of rapid growth usually through some kind of product innovation. An equity investor is a true business partner in the sense that they share both risks and rewards. For most small to medium-sized businesses using private equity as a source of funding, requires the business to become a separate legal entity from its owners if people other than partners are to invest in it. To issue shares, a business needs to be registered as a limited company. In South Africa, private equity fund managers are very conservative, and the investors are usually banks or funds owned by families or individual entrepreneurs. Private equity is increasingly being used to fund BBBEE deals. The advantages and disadvantages of private equity are: Advantages: No need to pay any interest, as with a loan Private equity partners may bring new networks, useful contacts and management assistance The involvement of the private equity in a business usually makes it easier to get other forms of finance, should it be required Private equity focuses on a business s objectives and ensures structure, discipline and a stable base for strategic decision-making The capital injected strengthens the balance sheet and reduces the gearing (the proportion of debt relative to equity) Disadvantages: Expectations of substantial profit generation to earn good dividends for investors Detailed information on the performance and prospects will have to be furnished regularly The cost of complying with financial regulations can be high Requires a business-owner to give up a share of the business, and to share decision-making and profits Private equity investments normally take the form of mergers and acquisitions or management buy-outs. Private equity can broadly be classified into three sub-classes, namely venture capital, development capital and buy-out funding. 4

6 3.1.1 Venture capital Venture capital is a form of private equity that focuses on relatively high-risk businesses in expectation that the profits will be above average, i.e. high-risk, high-return investments. Venture capital is most attractive for new companies with limited operating history that are too small to raise capital in the public markets and are not in a position to secure a bank loan or complete debt offering. A typical venture capital investment usually requires a sale of between 25% and 55% of the company to the investor. Venture capitalists usually invest capital in exchange for equity of the company and may or may not be involved in the operational running of the business. This type of investment is best suited for fast growing businesses that require a substantial amount of capital or start-up companies with a strong business plan. While pure venture capitalists are prepared to provide finance for the initial research and development, other private investors would wait for the success of the initial stages and then only invest in the establishment of the business. At the same time, there are investors that prefer to invest in a business once it has reached a certain level of profitability and then will provide capital for further growth and expansion of the business. South African Venture Capital Association (SAVCA) The key objective of SAVCA is to promote the venture capital and private equity market within South Africa and by doing so develop and stimulate professional and transactional venture capital and private equity investments. SAVCA represents the profession at both a national and international level and contributes to the management development of investors and invested companies. SAVCA is involved in providing the relevant authorities with proposals for improvement in the corporate, fiscal and legal environment for private equity and venture capital in Southern Africa. The main objectives of the Association are to: Promote the venture capital and private equity profession in Southern Africa Represent the profession at the national and international level Develop and stimulate professional and transactional venture capital and private equity investments throughout Southern Africa Stimulate the expansion of venture capital and private equity throughout Southern Africa Collect information from markets and from members Circulate information to members and the outside world Stimulate and maintain contacts within the membership Contribute to the management development of investors Provide the relevant authorities with proposals for improvement in the corporate, fiscal and legal environment for venture capital and private equity in Southern Africa Maintain ethical and professional standards Development capital Development and growth capital refers to equity investments, most often minority investments, in relatively mature companies that are looking for capital to expand or restructure operations, enter new markets or finance a major acquisition without a change of control of the business. Companies that seek growth capital will often do so in order to finance a transformational event in their lifecycle. These companies are likely to be more mature than venture capital funded companies, able to generate revenue and operating profits but unable to generate sufficient cash to fund major expansions, acquisitions or other investments. Growth capital can also be used to affect a restructuring of a company s balance sheet, particularly to reduce the amount of leverage (or debt) the company has on its balance sheet. 5

7 3.1.3 Buy-out funding A buyout occurs when a financial sponsor acquires a controlling interest in a company s equity and where a significant percentage of the purchase price is financed through leverage (borrowing). The assets of the acquired company are used as collateral for the borrowed capital, sometimes with assets of the acquiring company. The features which make potential target firms more attractive for leverage buyout includes: Low existing debt loads; A multi-year history of stable and recurring cash flows; Hard assets (property, plant and equipment, inventory, receivables) that may be used as collateral for lower cost secured debt; The potential for new management to make operational or other improvements to the firm to boost cash flows; Market conditions and perceptions that depress the valuation or stock price. Investors who seek to participate in buyouts are looking to provide only a fraction of the capital for the acquisition of the business and seek enhanced return on investments. 4. Microfinancing and Microlending Many small businesses often struggle to find the capital they need to start up as they often do not fulfil the criteria to obtain the required amount of debt finance for longer-term growth. Thus, many entrepreneurs look to microfinance institutions that cater specifically for small loans. There are a number of commercial microfinance businesses, which normally charge very high interest rates, as well as a number of not-for-profit organisations that provide such services to entrepreneurs. The Micro Financing Regulatory Council (MFRC) was established as the official and only regulator of all money lending transactions. Its purpose is to foster good practices within the industry and offers some degree of protection against financial exploitation. The MFRC is a government regulator of microfinance businesses providing finance to small businesses. The following are micro finance groups which may provide microfinance to small to medium-sized businesses: 4.1 Small Enterprise Foundation (SEF) The microfinance body has the Microcredit Programme (MCP) and the Tshomisano Credit Programme (TCP). The body is aimed at working towards poverty eradication by supporting sustainable income generation, job creation and social empowerment. Both of the programmes are designed for the very poor and are aimed at assisting these individuals to start or continue a revenue generating enterprise. The TCP is geared towards motivating the women of poor households to start or resume an income generating enterprise. The MCP requires that the individual must have been operating a business for at least six months and microcredit is used to change a business from being very fragile to being secure and to attain growth which can dramatically improve household income. 4.2 Khula Micro Credit Outlets Micro Credit Outlets (MCOs) are established in rural and peri-urban areas where there is a need for micro credit to assist the poor (women in particular) to start or expand their own small businesses. Through the MCOs, the very small entrepreneurs can raise loans between R350 and R3500 in groups. 6

8 4.3 Finmark Trust The objective of the Finmark Trust is to make financial markets work for the poor. It aims to promote and support policy and institutional development towards the objective of increasing access to financial services by the un- and under-banked of Southern Africa. 5. Partners/Joint Ventures In return for investing money into a business, a partner would be entitled to a share in the profits and would also acquire a stake in the business. To this end, a partner will be equally and jointly liable for the obligations and liabilities of the business. A joint venture partnership is the most preferred partnership option for franchisors. In terms of this type of partnership, the franchisor will be the co-owner of the franchise outlet together with the franchisee. A joint venture relationship is favourable to the franchisee as it secures commitment from the franchisor that would make a proportionate contribution to the establishment and costs of the business. 5.1 Public/private partnership A public/private partnership (PPP) is defined as a contract between a public sector institution or municipality and a private party. A distinction is also made between private parties performing an institutional/municipal function and private parties acquiring the use of state/municipal property for its own commercial purposes. A PPP may also be a hybrid of these two types. Payment involves the institution or municipality paying the private party for the delivery of the service, or collecting fees or charges from users of the service, or a combination of these. A public private partnership entails the private party undertaking a substantial risk for financing project capital and operating costs, designing and building of facilities and managing operations to specified standards, over a long period of time. PPP s provide an opportune instrument to grow black equity and black management over time, because of its long-term nature. Risk is reduced due a steady revenue stream. Significant subcontracting opportunities exist for black enterprises in such partnerships, through the subcontracting and procurement mechanisms a full spectrum of large, medium and small enterprises can be involved, furthering tangible local economic development benefits to targeted groups of people. PPP s also develop skills and jobs on a large-scale Government The South African government makes various grants and incentives available to stimulate business growth and development. 6.1 Small Enterprise Development Agency (SEDA) The Small Enterprise Development Agency operates under the Department of Trade and Industry (the dti) and was established with the purpose of supporting the development of small business in South Africa. SEDA incorporates previously existing small business support institutions such as Ntsika Enterprise Promotion Agency and the Namac Trust. SEDA is more accessible and has representation at all levels of government. SEDA s service offering includes assistance with business plans, marketing and technical advice as well as providing information on incentives available, tenders and export support. 6.2 Khula Enterprise Finance Limited Khula is a limited liability company and an agency of the Department of Trade and Industry (the dti) established to facilitate access to finance for SMME s. Khula s objective is to promote sustainable access to loans and 7

9 equity by SMME s through various delivery channels such as commercial banks, retail financial intermediaries, and micro credit outlets. Khula s offerings include credit guarantee schemes, loans, joint-venture funds as well as a mentorship programme for entrepreneurs in various aspects of their business. Although Khula does not give loans to small businesses directly, many of the Khula products can be used through banks and loan providers acting as Retail Finance Intermediaries (RFIs). The Khula programme is primarily concerned with the under-banked sector providing loans from R1 000 to R and are aimed at the enterprises needing finance for startup or expansion without full surety. Businesses applying to make use of this programme still need to be profitable even though they require less security. The loans are at a higher interest rate than available from banks and the payment periods are much shorter. Khula provides finance and assistance through the Khula Equity (which provides risk capital for SMEs), the Thuso Mentorship Programme (which assists in the preparing of business plans and post-loan support), and the Khula Credit Guarantee (which helps businesses with no recourse to bank financing due to lack of collateral). Khula can guarantee up to 80% of the bank s loan to you, and should you fail to repay the loan, the bank can recover the money from Khula. To qualify for a Khula supported loan you need to contribute 10% of the amount you borrow, which can take the form of either cash or equipment that will be used for the intended business. The Khula Land Reform Empowerment Facility (LREF) is also available to aspiring black investors in the primary agriculture and agro-processing sectors. The aim of the facility is to broaden the control, management and ownership by Black South African citizens in land-based high-value income generating assets in the agricultural sector. Via the Khula Mentorship Scheme, a training grant is also available to these investors to assist with training and skills development. 6.3 National Empowerment (NEF) The National Empowerment, which is administered by the Department of Trade and Industry, was established as a catalyst for broad-based Black Economic Empowerment (BEE) in South Africa to promote and facilitate economic equality and transformation. The NEF monitors BEE progress, issues status reports, facilitates BEE transactions through its various funding programmes as well as accrediting and benchmarking companies for BEE purposes. The NEF s key objective is to redress economic inequalities in SA by providing historically disadvantaged individuals with opportunities to acquire shares in private business enterprises or restructured state assets. The NEF also supports sustainable empowerment and transformation by supporting business ventures which are initiated and managed by historically disadvantaged individuals. Applications are evaluated on commercial viability, black managerial and operational involvement, black ownership, return on investment, job creation, geographic location, black women and community empowerment and co-funding possibilities. Imbewu Entrepreneurship Finance provides risk capital to new and early-stage businesses that are owned and managed by black people. Industry experience in consortium and a sustainable business model and capital structure are points of evaluation. Preferential procurement opportunities are available in debt products aimed at financing working capital requirements. These provide mechanisms aimed at mitigating NEF investment risk. Franchise Finance also enables black people to leverage available infrastructure within the franchise industry, allowing greater access to economic opportunities while reducing investment risk. The NEF had preference to fund top 40 rated franchises, even providing funding to bridge shortfalls in equity. 8

10 6.4 The Industrial Development Corporation (IDC) The state-owned Industrial Development Corporation of South Africa promotes industrial development by offering a range of financing facilities to help private sector entrepreneurs set up manufacturing concerns in South Africa and the Southern African region. The IDC does not seek any form of shareholding control or management participation. The IDC provides development capital to new and existing undertakings, usually in the form of low-interest, medium- to long-term loans for acquiring fixed assets. Other financial participation includes financial instruments such as equity, wholesale finance; share warehousing, guarantees, export/import finance and short-term trade finance. Finance is only made available after comprehensive risk management assessments. Target groups for financing include: Historically disadvantaged communities/individuals Technology-based organisations Large-scale beneficiation projects: increasing viability of mid and downstream activities projects in spatial development initiatives and industrial development zones SA exporters and importers of capital goods and services The Development Bank of Southern Africa (DBSA) The DBSA is a leading Development Finance Institution DFI) in Africa, playing the roles of Financier, Advisor, and Partner. The DBSA has a mandate to accelerate sustainable socio-economic development in the region by funding investment in physical, social and economic infrastructure. The DBSA, therefore, endorses and promotes human resource development and institutional capacity-building. The DBSA finances and sponsors programmes and projects designed to address the social, economic and environmental needs of the people of southern Africa as well as to improve their quality of life. The DBSA adheres to the principles of sustainable development. ing criteria includes consistency with the DBSA s sectoral and geographic mandate i.e. infrastructure development within South Africa and SADC and must deliver a definite impact on the lives of communities and areas they will serve. Projects must be economically and financially viable, socially responsible, environmentally sustainable, technologically appropriate and legally and contractually sound. As a financier, the DBSA provides a range of financial instruments and other lending services to public and private clients, structured to fit the needs of the client and focused on infrastructure and commercially viable projects. Furthermore, the Bank plays a role in leveraging private sector investment for infrastructure through equity and private funding. The Bank also arranges finance for clients by partnering with international development and finance institutions The Land Bank of South Africa The Land Bank is the leading agricultural financier in South Africa and offers tailor made services to emerging and established commercial farmers, cooperatives and other agriculture-related businesses. As a government owned institution, its mandate is to provide agricultural financial services to the commercial farming sector and agri-business and to contribute to rural development and stability, social upliftment and job creation. The institution does not receive any funding from the government but receives funding from various other sources including the private banking sector. Lending terms include long-term mortgage loans which are fixed installment loans for capital expenditure; Medium-term loans which are in the form of cash credit accounts; and Short-term loans which meet seasonal finance requirements. Financing products include commercial wholesale credit to various financial intermediaries who undertake short-term retail lending to farmers. Commercial retail credit in the form of long-term finance for land purchase, medium-term loans for the purchase of equipment and livestock and short-term loans for perennial crops is 9

11 available. Concessionary loans for establishing farmers include bond finance for historically disadvantaged farmers, investment finance and micro-loans for smallholders without collateral. 6.7 African Development Bank The African Development Bank (ADB) is the premier financial development institution of Africa dedicated to combating poverty and improving the lives of people on the African continent. This multinational bank is supported by 77 nations (member countries) from Africa, Europe, Asia, and North and South America. The ADB is involved in mobilising resources for the economic and social progress of its regional members. The bank s mission is to promote economic and social development through loans, equity investment and technical assistance. The ADB will finance projects and investments in member states with a focus on regional products, and which will have the strongest poverty reduction impact in these countries. These projects must be in conformity with agreed development policies and strategies of the ADB and host countries. The ADB s coffer of funds is financed by the subscribed shares of the authorized capital, funds received in repayment of ADB loans, funds raised through ADB borrowings on international capital markets, income derived from ADB loans and income the Bank receives from other investments. 6.8 Mercantile Banking South Africa offers sophisticated corporate banking exclusively for businesses which includes investment banking and specialised finance. Services offered by mercantile banks ranges from debt-raising, management buyouts, trade and commodity finance, international trade services, asset management and financial advisory services for private and public partnerships. 6.9 Multilateral Guarantee Agency This Agency, under the auspices of the World Bank Group, offers guarantees to protect cross-border investment against non-commercial risks and can help investors obtain access to funding sources with improved terms and conditions. MIGA also assists in deterring harmful actions by stakeholders and resolving disputes by shareholder governments. Country knowledge, environmental and social expertise, lowered borrowing costs and increased tenors of loans are available to new cross-border investing in any MIGA member country. A corporation is eligible for coverage if it is either incorporated and has its principal place of business in a member country, or if it is majority-owned by nationals of member countries. New investment contributions associated with the expansion, modernization, or financial restructuring of existing projects are eligible. Types of foreign investments that can be covered include equity, shareholder loans, and shareholder loan guaranties, provided the loans have a minimum maturity of three years. Loans to unrelated borrowers can be insured, provided a shareholder investment in the project is insured concurrently or has already been insured. Other forms of investment, such as technical assistance and management contracts, and franchising and licensing agreements, may also be eligible for coverage. In keeping with MIGA s objective of promoting economic growth and development, investment projects must be financially and economically viable, environmentally sound, and consistent with the labor standards and other development objectives of the country hosting the investment Incentives Tax incentives Several tax incentives are available for small businesses and companies looking to expand, under the amended Income Tax Act of These include: South Africa has entered into double taxation avoidance agreements with many countries to assist in avoiding full taxation of incomes of certain persons, enterprises and property under the laws of two countries: Sea and air transport agreements have also been entered into by South Africa with Belgium, Brazil, Republic of China (Taiwan), Denmark, Finland, France, Greece, Ireland, Italy, Japan, Norway, Portugal and Spain. 10

12 Depreciation may be claimed in respect of various articles used for the purpose of trade. Such articles include the cost of plant and machinery, implements, and utensils. The allowance consists of the amount by which the value of the asset has diminished by reason of wear and tear or depreciation during the year and is calculated according to the declining balance method. A capital allowance write-off in respect of machinery and equipment used for the first time in manufacturing processes is offered over 5 years at 20% p.a. A wear- and tear allowance is available annually for machinery and equipment that do not qualify for the 20% capital allowance. In respect of non-manufacturing plant and machinery, office equipment, furniture and motor vehicles the following rates are normally granted: office equipment (10%), office furniture (10%) and motor vehicles 20%). A 5% depreciation allowance is allowed annually on cost of buildings (and improvements) where the building is used in a manufacturing or similar process and the building or improvement is commenced after 1 January Initial and annual depreciation allowances on ships and aircraft. Special depreciation allowances on hotel buildings and equipment. Patents, copyright, trademarks, designs and other intellectual property acquiring and developing costs incurred before October may be written off over the expected life of such assets or 25 years, whichever is the shorter or if incurred after October the allowance per year shall amount to 5% of the amount of the expenditure connected with the use of an invention, patent trade mark, or copyright or 10% of the amount of the expenditure connected to the use of any design. CSIR (Council for Scientific and Industrial Research) approved capital investment on buildings and equipment used exclusively for scientific research, may be written off, on a straight line basis, at the rate of 25% per year. Employee housing may result in special deductions and allowances being available for the cost of erecting same. Lease premiums paid for the use of land or buildings, plant and machinery, film recordings or advertising matter connected therewith, patent, design, copyright or similar property and any know-how connected with all of the above may be written off over periods for which the right of use has been granted or 25 years, whichever is shorter. General venture capital investments (non-mining) would qualify for a 30% up-front deduction, with annual deductions to be capped at R for individuals, R for corporations and R7.5 million for venture capital funds. Several sector-specific tax incentives are also available for companies operating in South Africa. These include: Preferential Corporate Tax Rate for Small Business Research and Development Tax incentives Employee Housing Allowance Depreciation Urban Development Allowances Infrastructural Development Public Private Partnerships Rolling Stock Depreciation Environmental Expenditure Deductions Commercial Buildings Depreciation Carbon-reducing changes Energy expenditure allowances Oil and gas income tax incentives Underwater telecommunication cable allowances Film rebate subsidies REFIT (Renewable energy Feed-in Tariff Scheme) 11

13 incentives R&D incentives Support Programme for Industrial Innovation (SPII) The SPII is designed to promote and assist technology development in South African industry through the provision of financial assistance for projects that develop innovative products and/ or processes. The programme aims to target innovative, technologically advanced and economically viable products from private sector enterprises. The SPII is focused specifically on the phase that begins at the conclusion of basic research (at the stage of proof of concept) and ends at the point where a pre-production prototype has been produced. The programme is managed by Industrial Development Corporation of South Africa Limited (IDC), on behalf of the Department of Trade and Industry (the dti). The SPII currently consists of three schemes: the Product Process Development, Matching and Partnership Schemes: 1. The Product Process Development Scheme Small, very small and micro enterprises (employees <50; turnover <R13 million; assets <R5 million) are able to access finance in the form of a grant of between 50% and 85% of the qualifying cost incurred during the technical development stage. These grants differ based on the degree of black, women or disabled persons ownership. 2. The Matching Scheme Under the Matching Scheme, assistance is provided to SMEs (employees <200; turnover <R51 million; assets <R19 million) in the form of a grant of up to between 50% to 75% of the qualifying cost incurred during the technical development stage. 3. The Partnership Scheme Financial assistance under the Partnership Scheme is provided in the form of a conditionally repayable grant of 50% of the qualifying cost incurred during development activity with a minimum grant amount of one and a half million Rand (R ) per project, repayable on successful commercialization of the project. Innovation The Innovation provides funding through its technology advancement programme. The aim is to promote technological innovation within the research community and cross-sectoral collaboration and to support protection of and commercialization of innovations from South African enterprises. The maximum grant is limited to R15 million over a three year period, and is directed towards companies who undertake research and development in all economic sectors. Critical Infrastructure Programme (CIP) The aim of the programme is to support the competitiveness of South African industries by lowering business costs and risks and to provide targeted financial support for physical infrastructure that will leverage strategic investment with a positive impact on the economy. Projects are deemed critical if the investment could not take place without the CIP funding contribution, if it can be proven that it would be of a smaller scale or lower quality or it would be established at a later stage than the period than when it was intended. This programme is directed towards new or expanding enterprises investing in physical infrastructure like roads, railways lines, electricity transmission, water pipelines, telecommunications system, sewage systems, etc. ing through the CIP is available to municipalities, public sector enterprises and private enterprises, and comprises of a cash grant incentive that covers between 10% and 30% of planned infrastructure development costs. 12

14 Public Transport Infrastructure and Systems Grant (PTIF) A specific purpose grant with sustained funds for four years is available to projects that meet the dual objective of long-term mobility and support for 2010 FIFA World Cup, that prioritize public over private transport and reinforce public transport policies. The objective of the grant is to provide for the accelerated planning, establishment, construction and improvement of new and existing public transport, priority transport and non-motorised transport infrastructure and systems. Capital Projects Feasibility Programme (CPFP) This incentive is a cost-sharing programme providing a contribution to the cost of feasibility studies that are likely to lead to projects outside South Africa that will stimulate the market for South African capital goods and services, and increase local exports. The programme aims to attract higher levels of domestic and foreign investment, strengthen the international competitiveness of South African businesses and the promotion of the linkages and development of small, medium and micro enterprises and black economic empowerment business. Studies must be undertaken by South African companies, and aimed at 50% local content for the feasibility study and project in terms of goods and professional services. The programme offers a cost-sharing grant up to a maximum of 50% of study costs for feasibility studies outside Africa and 55% in Africa. The grant falls within the range of R and R5 million. Projects can be situated anywhere in the world, but projects in Africa will be encouraged. The project must also have an adequate chance of being declared a success. Cooperatives Incentive Scheme (CIS) This scheme is a 90:10 matching cash grant for registered co-operatives in the emerging economy to acquire competitive business development services. By lowering the cost of doing business, the viability of co-operatives can be improved and they would be assisted in reaching their start-up requirements. An initial asset base for emerging co-operatives will enable them to leverage other support. The scheme offers business profile development and services, feasibility studies and market research, production efficiency, technological improvement projects, plants and machinery, start-up requirements and working capital requirements Sector incentives Business Process Outsourcing and Offshoring (BPO&O) Incentive Local and foreign investors in new and expanding projects that aim to serve offshore clients (offshore revenue >90%) are able to access an investment grant ranging between R and R per seat. This is dependent on the level of qualifying investment costs and employment creation. The grant is disbursed in four stages of equal weighting, in accordance with performance requirements. Business Process Outsourcing and Offshoring (BPO&O) Training and Skills Support Grant Approved BPO&O investment projects are able to access financial assistance for training, costs of in-house trainer development, costs for the development of learning materials, costs of training equipment installation and costs for trainer secondment. Financial assistance may cover 50% of qualifying training and skills development expenditure, limitied to a maximum of R per agent. Manufacturing Programme (MIP) To encourage local and foreign capital investment in productive qualifying assets, the MIP was introduced to stimulate investment growth in line with South Africa s National Industrial Policy Framework. Aimed at enterprises investing capital in new or expanding projects, a tax exempt cash grant of between 10% and 30% of the qualifying investment cost up to a maximum grant of R30 million is available. Qualifying investment costs would comprise machinery, equipment, land and buildings and commercial buildings. Small enterprises as well as local and foreign owned enterprises are offered an investment grant of up to 30% of the value of 13

15 qualifying investment costs in machinery, equipment, commercial vehicles, land and buildings, requirements for building a new production facility, expanding an existing production facility or upgrading production capability in an existing clothing and textile production facility. projects of R5 million and below may qualify for an investment grant of 30% of their total qualifying investment cost, payable over a three-year period. Similarly an investment project exceeding R5 million may qualify for an investment grant of between 15% and 30% of their qualifying investment costs, payable over a two year period. An additional grant is also available for transport costs of equipment and machinery to South Africa. This grant covers registered legal entities and projects must be classified as manufacturing (SIC code 3). Foreign Grant (FIG) In order to encourage foreign businesses to invest in manufacturing companies, The FIG is offered as assistance in the cost of transporting productive qualifying assets to South Africa. The FIG is conditional on the approval of a project under the MIP and it applies to qualifying costs associated with transporting new plant and machinery (excluding vehicles) from abroad, limited to R10 million. Tourism Support Grant To bolster efforts to stimulate growth in the tourism industry, the Tourism Support Grant offers a tax exempt cash grant of between 10% and 30% of the qualifying investment cost up to a maximum grant of R30 million, to be spent on the establishment of existing tourism facilities. Industrial Policy Projects This tax incentive is intended to promote local and foreign direct investment in large industrial policy projects in South Africa and is regulated in terms of section 121 of the Income Tax Act. Qualifying projects may access a deduction which covers plants or machinery that will be brought into use for the first time by the taxpayer and will be used in a process of manufacture and the cost for the construction or refurbishment of buildings if certain conditions are met. Projects are assessed on a points system based on innovation of processes, new and energy-efficient technologies, procurement of goods and services from small, medium and micro enterprises, creation of direct employment and the provision of skills development and locality in an IDZ. An additional tax allowance of 55% of the cost of any manufacturing asset is also available. Staple Food Fortification Incentive Scheme Private sector enterprises in the grain milling industry are able to access grants of between 50% and 100% up to a maximum of R per fortification unit purchase and installation. The aim of this incentive scheme is to assist with the compliance needed for staple food fortification of the food fortification regulations Location Film and Television Production Rebate The aim of the rebate is to encourage and attract large budget films and television productions that will contribute towards South Africa s economic development through a prestigious international profile and increased foreign direct investment. A rebate of 15% of the QSAPE (Qualifying South African Production Expenditure), with a capped benefit of R10 million, is offered to foreign-owned qualifying productions with QSAPE of R12 million and above. South African Film and Television Production and Co-Production Scheme To further support the local film industry and to contribute towards employment opportunities in South Africa, local productions and official treaty co-productions with a total production budget of R2,5 million and above, can participate in this scheme. The benefit offered is a rebate of 35% for the first R6 million and 25% for the remainder of the qualifying production expenditure, capped at a maximum rebate of R10 million. 14

16 6.11 Industrial Finance Agro Industries Finance Medium-term finance is available for entrepreneurs in the agricultural, food, beverage and marine sectors wanting to expand or develop their business. Loans, suspensive sales, equity and quasi-equity are available for businesses to promote the establishment of permanent infrastructure in the agricultural and aquaculture sectors and to establish and expand existing undertakings in the food and beverages sector. A minimum financing requirement is R1 million. Chemicals, Textiles and Allied Industries Finance In order to stimulate sustainable development and global competitiveness, various types of finance are available in the following focus areas: ceramics, concrete, stone and glass products, leather and footwear, fabric conversion, primary and secondary chemical manufacturing, plastic and rubber conversion, waste purification and water recycling. Minimum investment requirements are a minimum loan of R for textiles, leather and footwear; minimum loan of R1 million for chemicals and allied industries and the minimum equity amount is R5 million. Mining and Jewellery Finance Small and medium-sized mining and beneficiation activities and jewellery manufacturers, with a minimum financing requirement of R1million, can benefit from lower, competitive risk-related interest rates. This is particularly advantageous for established or expanding junior mining houses, acquisition of mining assets by HDI s, undertaking mining-related activities such as contract mining, established or expanding jewellery manufacturing activities. Forest Products Finance The focus areas of this financing scheme are projects in the forestry, pulp, paper, furniture and wood-related and renewable energy industries. Through competitive, risk-related interest rates, an internationally competitive and integrated forest products sector can be generated, promoting the Southern African region to become a key player. Franchising (Wholesale) Finance Franchised businesses in the fast food, bakery, cellular, sit-down restaurants, real estate, specialty stores, travel, retail, petroleum, waste management depots and corporate distribution centres are eligible for franchising finance. Applicants are required to submit a good record of business development, strong financial position and an established franchise network with a proven franchised concept and at least ten franchised projects to promote. Healthcare and Education Finance The aim of this finance scheme is to support businesses in the healthcare and education sectors in South Africa and the broader African continent. The scheme covers the financing of greenfield projects, expansions and acquisitions and combinations thereof. Projects which have a significant development impact, and which are profitable and sustainable can benefit from competitive, risk-related interest rates. The minimum financing requirements are R1 million. Metal Industry Finance Projects in ceramic, concrete and stone products, basic iron, steel and non-ferrous fabricated metal products, plant machinery and equipment, motor vehicles, components and accessories are eligible for financial assistance in order to develop and support viable downstream metal producers with a focus on the automotive, transport, structural, fabricated metal and machinery sectors. Requirements include a minimum financing requirement of R1 million. Business should also comply with international environmental standards. 15

17 Technology Industry Finance The aim of this finance scheme is to develop and sustain the expansion of technology-intensive businesses in information technology (IT), telecommunication, electronic and electrical industries. New technology ventures with strong local or foreign technology partners and proven technology, with a minimum financing requirement of R1million and an economically viable business plan, can apply for finance in the form of equity, equity-related and loan finance. Tourism Finance Medium-term finance in the form of loans, suspensive sale agreements, equity and quasi-equity are available for the creation of new, or the upgrading and renovation of existing tourism facilities including hotels, guest lodges, lodges, cultural villages and conference and convention centers. The aim of this assistance program is to develop and expand the tourism industry by providing finance for commercial projects in the medium to large sectors of the tourism industry. The minimum financing requirement is R1 million, and competitive risk-related interest rates are based on the prime bank overdraft rate. The Tourism Enterprise Support Programme (TEP) In response to increasing and broadening demand for income-generating tourism activity, this support programme is aimed at facilitating the growth of tourism enterprises. It applies to all business transactions in which one of the partners is a tourism enterprise which derives at least 50% of its revenue from tourism, with a primary emphasis on historically disadvantaged entrepreneurs and enterprises. The programme also incorporates the matching of buyers and suppliers of goods and services and assisting SMME s to obtain necessary professional services and certifications, as well as business planning and finance skills as well as aftercare provision. Transportation and Financial Services Finance Competitive risk-related interest rates, based on the prime bank overdraft rate, are available for sustainable service-related projects and investments in South Africa and the rest of the continent. Focus areas include transport services (road, freight, logistics, maritime, aviation and bus sector), financial services (retail banking, acquisitions and commercial microfinance) and other services including security services, listed retail acquisitions and catering services). Special ing / Risk Capital This programme aims to develop entrepreneurial skills in small and medium-sized BEE-owned businesses, with a minimum ownership of 25,1% by historically disadvantaged individuals (HDI) in the SME sector, as well as investments that show high developmental impact, e.g. job creation, regional reach and rural development. The program provides clients with business support to solve short-term problems and clients are also provided with long-term assistance. The programme is administered in part by the IDC, who pays for part of the cost of business support and structures a loan facility for clients to pay the balance of the costs when they are in a financially sound position. 16

18 South African Venture Capital s as per SAVCA Full Members ABSA Capital Private Equity ACTIS Name Core Portfolio (open ended) Actis Africa 1 Actis Africa 2 and Canada for Africa Actis Africa 3 Size or funds invested to date Min. Max. Startups R5.9bn R5m R1.5bn No US$343m US$566m US$851m US$50m US$200m/ 250m No Excluded Industries Primary agriculture, property, armaments, tobacco and mining Military and gambling Actis Africa Empowerment US$50m across Africa Adlevo Capital Adlevo Capital US$100m US$3m US$30m Yes None Africap Microfinance Company Alpha Capital (Pty) Ltd AMB Private Equity Partners Limited Argil Venture Capital (Pty) Ltd Africap Microfinance Company Alpha Capital (open ended) AMB Southern Africa Investors 1 (fully invested) AMB Southern Africa Investors II (fully invested and fully realised) AMB Private Equity III Argil IDC Venture Capital US$50m US$ R5m Yes +R350m R5m N/A No None R400m R415m R750m R25m R200m No R70m R3m R15m Yes Non-financial services Mining, property, agriculture and construction All except technology 17

19 South African Venture Capital s as per SAVCA cont. Full Members Aureos South African Advisers Biotech Venture (Pty) Ltd Brait Private Equity Business Partners Limited Capricorn Capital Partners (Pty) Ltd Name Aureos Southern Africa US$50m/2008 US$400m General Private Equity Bioventures Biotechnology and Life sciences venture capital Brait I (fully invested and fully resized) Brait II (fully invested and fully resized) Brait III (fully invested) Braitec (fully invested) Proprietary Investing (open ended) Size or funds invested to date US$303m Min. US$1m - 10% of fund size (US$25m) Max. US$1m - 10% of fund size (US$25m) Startups Yes R80m R2m R12m Yes R228m - - R690m - - US$409m - - R227m - - Over R10bn R5m R1bn Brait IV US$880m R100m R1bn Egoli s R500m R R15m Ethekweni s R500m R R15m Ikapa s R500m R R15m The Business Partners/Khula Start-up Property Equity Capricorn Capital Partners R150m R R3m R350m R R15m No Yes Excluded Industries Business engaged in gambling, alcohol (excl. beer & wine), tobacco, armaments All except biotechnology and life sciences None Agriculture and on-lending R600m R10m R150m No None 18

20 South African Venture Capital s as per SAVCA cont. Full Members Capitalworks Partners (Pty) Ltd Name Capitalworks Private Equity I Size or funds invested to date About R2bn (fundraising) Min. Max. Startups R75m R660m No Coast2Coast Coast2Coast R100m R20m R150m No Collins Private Equity Holdings Coronation Peotona Private Equity (Pty) Ltd Decorum Capital Partners (Pty) Ltd Development Bank of Southern Africa Enablis Financial Corporation South Africa (Pty) Ltd Endeavour Management Ethos Private Equity Limited Glenhove Managers (Pty) Ltd Collins Private Equity Coronation Peotona New Africa Mining R150m - R150m No None R500m - R1bn (Currently fund raising) R30m R200m No R563.7m R5m R85m Yes On balance sheet R2bn R25m R700m Yes Enablis Khula Loan Khula Enablis SME Accelaration R50m R R100m R R2.5m Yes Excluded Industries Oil and gas exploration Mining, agriculture, finance Uranium and Mining Uranium Mining Arms, gambling, liquor Endeavour R200m R5m R30m Yes None Tech I IV (full invested) V (significantly invested) Tech 1 (fully invested and partially realised) Women Private Equity 1 (WPEF1) R3.25bn R5.5bn R50m R1bn No - R270m R128m R5m Not more than 15% of capital in one investment No Product and IP Development Mining, real estate & gambling 19