He said in an interview after briefing Parliament's trade and industry portfolio committee on Tuesday (30 July) that he wanted to determine whether the funding was in line with the NEF's mandate and whether or not there was a need to strengthen that mandate.
Questions were raised about the propriety of the NEF's decision to fund the store owned by Ndalo Luxury Ventures‚ co-owned by magazine publisher Khanyi Dhlomo‚ her mother and Judy Dlamini‚ the wife of FirstRand's chief executive Sizwe Nxasana.
The wisdom of the decision - taken in August last year - was also retrospectively questioned in the light of the decision by the NEF in May to place a moratorium on further funding commitments due to a lack of funds. Among other things the NEF is supposed to provide funding for black-owned enterprises which find it difficult to access bank finance.
Davies said the mandate of the NEF was to promote empowerment by making investments in the productive sector of the economy rather than in enterprises whose main activity was to import luxury goods from abroad.
The Luminance store stocks luxury brands such as Givenchy‚ Giorgio Armani‚ Tom Ford‚ and others. A clothing factory will manufacture Luminance brand products locally.
Davies said he had not taken a view on the transaction and awaited the outcome of the report but had noted that it had attracted a lot of criticism. He said the department wanted public funding of economic activity to be channelled into local‚ productive enterprises.
"We are not particularly interested in businesses which are going to be importing high-end‚ luxury goods‚" the minister said. "We are looking to see whether this transaction is in overall conformity with the directions of the NEF and whether there is any need to make any changes to the mandate of the NEF.
"At this point I cannot pronounce on the transaction as I have not received the report."
Davies stressed that NEF had done good work with an increasing part of its portfolio going towards small business and strategic investments. "It has become much more of a development finance institution. The overall direction that the NEF has been moving in is one which we have been happy with."
The NEF has defended the transaction as being legitimate and in line with its mandate on the grounds that it promotes the entry of black entrepreneurs into the largely white and foreign-owned retail sector. Furthermore‚ it promoted black women.
Moemise Motsepe‚ fund spokesman‚ said the retail sector was primarily white and foreign-owned even though most consumers were black. "With the Ndalo Luxury Ventures transaction the NEF is laying the building-blocks of black participation in this sector," he said. "While the NEF has funded other black women entrepreneurs before‚ the Ndalo transaction is the biggest by the NEF in respect of black women."
Since inception more than 70% of NEF funding of about R5bn‚ had gone to businesses owned and managed by black men.
Motsepe said the investment was in line with the fund's mandate and policies in that it supported a company owned and managed by black women in an untransformed sector. The money received from the fund was used by Ndalo to construct its store‚ buy stock and embark on local manufacturing of a clothing range under the Luminance brand.
More than 60% of the fund's beneficiaries have been small and medium-sized enterprises and it claims to have supported more than 40‚000 jobs. Motsepe said the Ndalo transaction was above reproach and had been evaluated on merit in accordance with approved policies.
He said the fund's investment committee approved it in August last year after "rigorous interrogation", adding that the deal met key criteria for funding such as direct operational involvement by investors in the day-to-day running of the business.
Black rural women own a 10% stake in Ndalo Luxury Ventures and staff and management hold the same percentage.
Another important factor in favour of granting the loan was that the company's shareholders collectively contributed more than R15m to the project.
"More than 58% of the total investment would remain in the country and the associated clothing factory was owned and managed by women‚" Motsepe added.
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