The IDC is a South African development finance institution that provides funding for infrastructure projects across Africa. It introduced itself and described its funding model, where it relies on returns from mature investments to cross-subsidize riskier developmental projects. The document discussed challenges in Africa's business environment but noted improvements in many countries. It argued that reducing broadband costs through infrastructure investment is important for technology adoption and economic growth. The IDC's role in funding broadband projects was outlined, as were lessons learned about project structuring and success factors for businesses operating in the rest of Africa.

1. Presented by:
Mr Ashley Petersen
Senior Business Development Manager
Africa Unit
IDC
IAD SUMMIT 2015
Funding Broadband infrastructure in the rest of
Africa – The IDC

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Introducing the IDC …
o Established: 1940
o Type of organisation: Development Finance Institution (DFI)
o Ownership: State owned company, 100% owned by the SA government
o Total assets: ±USD12 billion
o Total liabilities: ± USD2 billion
o Funding status: Self financing, pays dividends and income tax
o Main business area: Industry development through the provision of funding resulting in job creation
o Geographic activities: South Africa and the rest of Africa
o Products: Custom financial products to suit a project’s needs including debt, equity, guarantees or a
combination of these
o Stage of investment: Project identification and development, feasibility, commercialisation, expansion,
modernisation
o Number of employees: 834

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• Non-commercial focus
• Fiscal transfers and grants
• Development objectives (social)
Government / NGOs
• High commercial focus
• Private sector capital
• Financial objectives
• Known risks
Commercial Financiers
• Developmental and commercial
focus
• Sharing risk
• Internally generated funds,
government funds, loans
DFIs
Greater importance on financial objectives
Greater importance on social and developmental objectives
• Industrial Development Corporation (IDC)
• Development Bank of Southern Africa
(DBSA)
• National Empowerment Fund (NEF)
• Etc.
• ABSA
• Standard Bank
• First National Bank
• Nedbank
• Etc.
IDC does not directly compete with any of these institutions, but encourages cooperation with a variety of these
institutions to achieve its goals
IDC’s positioning in the financial industry

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Equity funding
Loan funding
Funding model
Capital growth
Interest repayments
IDC relies on borrowings, internal profitability, capital growth and exits from mature investments to
maintain and expand its funding ability
Capital repayments
Dividend payments
Exits of mature
investments
IDC Funds
• Borrowings
• Balance sheet
• Mature investments
• Retained earnings
The balance between the corporation’s developmental role and financial performance is maintained by
relying on proceeds from mature equity investments (both dividends and capital growth) to cross-subsidise
higher risk activities.

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What we do…
• Co-sponsors feasibility studies
• Identifies project opportunities
• Provides and arranges funding (e.g. export
and import finance, equity and loan funding)
• Identifies suitable international and local
DFIs, commercial and merchant banks and
companies and export credit agencies as
potential participants
• IDC acts as a financial adviser in partnership
with other financial institutions
• Shares project risk with the sponsors and
financial partners
• Identifies strong operating partners
• Off-take and supply agreements

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• Funding can be structured utilising a wide array of instruments including:
• Debt;
• Equity;
• Quasi-equity;
• Guarantees;
• Trade finance;
• Bridging finance;
• Venture capital.
• The funding will be structured in a way that will suit the business’ needs most appropriately.
Structuring options include:
• Term of the funding: Short, medium and long-term loans are available;
• Grace periods for repayment : Repayments can be structured to suit cash flows and allow for
periods where no payments need to be made on either capital or interest;
• Special funding schemes are available that offer more attractive terms and targets cross sectoral
issues such as job creation or development of specific sectors. Also include funds managed on
behalf of other organisations, largely the dti;
• IDC’s business support programme addresses non-financial support to entrepreneurs.
IDC’s funding products …

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• Financial assistance is provided for the
development of new businesses, expansions or
rehabilitation of existing businesses
• Business case must exhibit economic merit
(i.e. it must be profitable)
• IDC finances fixed assets and fixed portion of
growth in working capital requirements
• Reasonable contribution expected from
promoter/s
• Minimum of R1 million
• Security
• Environmental and Corporate Governance
compliance
Financing criteria …

8. Funding Broadband infrastructure in the rest of
Africa

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• dictatorial or undemocratic regimes
• political instability& wars
• absence of rule of law
• economic mismanagement and
corruption
• economic depression
• starvation
• deadly diseases
Africa is often associated with images of …
Africa’s unfavourable image
… but a different picture is emerging.

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What has changed…
• 54 countries, 42 democracies
• many countries have improved their business
environment:
• greater predictability & increased reliability of policy &
regulatory framework
• increased transparency and improved decision-making
• reduced corruption
• investment protection & promotion
• intra and inter-regional initiatives
• restored and maintained macro-economic stability

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Challenges remain…
• Political instability
• Investment environment
• Governance
• Infrastructure
• Skills shortages
• Cost of doing business
• Corruption
• Poor project preparation

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Why Broadband infrastructure in the RoA…
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• The telecoms industry in the sub-Sahara African
region is said to be growing at a faster pace than
other industries
• A World Bank report estimated that it will cost over
USD15.5 billion over the next 10 years to expand
basic GSM network coverage to Africa’s entire
population.
• Africa’s population is expected to double to 2.4
billion people by 2050.
• Access to broadband services is essential for the
adoption of technologies.
Reducing broadband costs is a key driver for the IDC

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Funding Broadband infrastructure in the RoA…
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Sources of funding
• only 40% of funding is for commercially viable
projects with the balance of 60% focusing on rural
network expansion (mainly led by governments)
• Over 50% of the debt financing for telecoms is
sourced from Europe and North America - 20% from
the Middle East and the remaining 20% is split
between local funding, China and India.
• Mainly, international banks, fund managers, export
credit facilities.
Policy makers are however beginning to realise the role private operators may play
in national broadband plans.

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Funding Broadband infrastructure in the RoA…
14
The role of DFIs
• DFIs are increasingly investing in broadband
infrastructure.
 The International Finance Corporation (IFC) loaned
USD400 million to MTN Nigeria.
 The IDC also contributed USD90 million to MTN
Nigeria.
• Other DFIs that have invested in the telecoms sector
include the Export-Import Bank of the United States
(ECA financing), the African Development Bank (AfDB),
and the Development Bank of Southern Africa (DBSA).
DFIs have the potential to facilitate public and private sector objectives and ensure
commercially viable broadband expansions on the continent

15. Concluding remarks

16. “Every morning in Africa, a springbok wakes up. It
knows it must run faster than the fastest lion or it will be
killed. Every morning a lion wakes up. It knows it must
outrun the slowest springbok or it will starve to death. It
doesn’t matter whether you are a lion or a springbok.
When the sun comes up, you better start running.”

17. Thank you!

18. Additional information:
Process and Product offering

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Deal origination, assessment and post-investment …
Applications from
existing/
prospective
businesses
Proactive
identification and
development of
projects
Pipeline Assessment and decision
Detailed due-diligence/feasibility
study assessing development
impact and sustainability of
opportunities:
• Development outcomes
• Market for products/services
• Technical viability and
competitiveness
• Financial viability
• Management
• Legal
• Environmental impact
• Etc.
Implementation and
monitoring
Structuring of funding
depending on client’s needs
Approval of viable transactions
at appropriate committee
Ongoing monitoring of client
performance after funding is
disbursed
Interventions in businesses
experiencing difficulties
• Business support
• Restructuring of facilities
• Etc.
Legal agreements
Meeting conditions
Disbursement
Screening
Basic assessment
Pre-feasibility

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Financial structuring and assistance…
Product offering
• IDC puts together the most appropriate financial package for the client, taking into account the IDC
guidelines and the client’s requirements by means of, among others:
• Capital and interest moratorium: IDC will allow start-up business or expansion of existing
businesses a grace period during which capital is not payable, generally one year, but can be up to
5 years e.g. pro-orchards scheme . In certain instances, even interest payments are capitalised for
an average period of 18 months
• Terms of loans : IDC matches the repayment term of the loan with the cash flow generated by the
asset acquired or expense incurred. Average term of loans is between 3 and 7 years, but can be up
to 15 years (e.g. pro-orchard scheme) or even 25 years (pro-forestry scheme)
• Equity investments: In certain instances, on mostly new projects IDC will share the responsibility
for a venture by taking up equity in the business to ensure that it is adequately financed.
IDC does not normally seek control in an undertaking but determines the level of participation on an
individual basis. It is the IDC's policy to provide the entrepreneur with a buy back option on a
mutually acceptable commercial basis.

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Cash flow:
• The IDC considers the cash flow of a company and the
financial forecasts to demonstrate economic viability and
profitability within a reasonable period and sufficient cash
flows to repay the investment over a reasonable period of
time
• The cash flows are often weak due to start-up nature of most
of the projects
Capital security (collateral):
• Is generally low in comparison with other financial
institutions
• Lack of security does not preclude approval
• Security by way of underlying assets and/or sureties may be
required with the exception of non-profit entities such as
workers’ trust
Financial structuring and assistance…

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Own unencumbered cash contribution:
• Is determined based on shareholding, capacity to invest,
size and assessed risk of the venture and it may be as a
low as 2.5% of the transaction value for the BBBEE
component of an acquisition transaction
• Is required from clients to demonstrate commitment to
project or venture
Pricing and fees:
• Pricing is based on risk and discounted for development
impact (i.e. the higher the developmental impact the lower
the price would be).
• The IDC’s fees are generally lower than those of other
financial institutions (commitment fee an drawing fee, no
fee charged for investigation)
Financial structuring and assistance…

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Special development oriented pricing schemes
• From time to time (as the need is identified), IDC develops
specific pricing schemes aimed at addressing market
failures and the achievement of strategic objectives such
as:
 SME development
 sector development
 exceptional impact on job creation
 Broad-base Black Economic Empowerment
(BBBEE)
 Industrial development zones
 Young entrepreneurs campaign
 Rural development.
• These pricing schemes have a pre-determined validity
period and budget
• Typically involve lower interest rates / required internal
rates of return (IRR) and different conditions such as
 lower collateral requirements
 longer-term financing
 lower contribution from promoters
 longer repayment holidays than other financing
Financial structuring and assistance…

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Business support to entrepreneurs: IDC Business Support
Programme was established to assist where appropriate:
• Potential clients in preparing a business plan
• Existing clients where e.g. shortcomings in the management
capacity has been identified, if a short-term intervention is
required, if it experiences financial difficulties
• The funding for the business support is born partly by IDC
TrainingFunding
Business
support
Entrepreneurial
Development
Approach to entrepreneurial development
Monitoring
developmental impact
and financial
performance
Business Support to assist…
Training
IDC offers and sponsors customized demand driven courses
to empower current and prospective clients
The courses are aimed at prospective and current clients.
Examples of courses offered:
• Basic Business Skills for SMEs
• Building Contractors workshop
• Transport owner driver seminar
• Distressed SMEs Training
Financial structuring and assistance…

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• The loan currency should be the same as the income currency of the project / company
• If the loan currently and the income currency differ, IDC should insist on forward cover and the
project should be able to carry the cost of the forward cover
• Budgets and forecasts should be in the loan currency
• Debit orders are not reliable and the contracts should make provision for specific collection
mechanisms
• Travelling in Africa is time consuming and expensive and should be allowed for in terms of
planning and loan size
• Bureaucratic processes tends to impair the free movement of goods and additional time should be
planed for the customs clearing of imported goods
• Supply chains are very weak and sufficient funding for working capital should be allowed for to
ensure the availability of critical spares
• Infrastructure is weak and care should be taken to ensure that goods and services can be delivered
to the construction site
Key lessons learnt for doing business in the RoA

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• Successful investors take advantage of local knowledge,
experience and expertise.
 This includes engaging experts with the requisite local
knowledge and setting up in-house research units to
constantly seek and gather relevant market information.
 Businesses are also attracting and retaining top local
talent.
 Partner with local businesses.
• Take a Long-term view.
• Consider taking PRI where appropriate.
• Understand currency transfer mechanisms and rules.
• Involve local and SA financial institutions
Critical Success factors for doing business in
the RoA…

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Section IV : The IDC’s rest of Africa portfolio
The IDC’s rest of Africa Portfolio as at December 2013

28. Thank you!