The IDC and its role in healthcare

The IDC was established in 1940, primarily to facilitate the industrial development of South Africa, but in July 2003, the healthcare SBU was established with the mission to enhance the provision of healthcare and, concomitant with that, jobs in the sector. The focus is on:
* Buy-ins or take-overs by BEE partners of the above existing businesses
* Clinics and related services
* Hospital services
* Human health services
* Management services of the above businesses
* Manufacturing of medical equipment
* Medical and dental practice activities
* Medical schemes administration and medical schemes management
The focus areas within the education sector are:
* Buy-ins or take-overs of the above existing businesses
* Management services of the above businesses
* Other educational services such as own tutoring, motor vehicle driving schools, dancing, music and sports schools, life skills, etc.
* Private Further Education and Training Colleges and private Teacher training colleges
* Private pre-primary education, after-care centres, primary and secondary education
* Special education and training of the mentally challenged
Currently the SBU has 27 clients of which 22 are operated by HDPs (historically disadvantaged persons); the total value of these projects is R330 million.

Strategies

The main strategies are to:
* Bring down healthcare costs
* Promote entrepreneurship
* Transfer ownership of enterprises to blacks
* Give preference to BEE
* Support projects in other parts of Africa.

As part of these strategies, the SA government is to spend R5 billion on antiretrovirals over the next five years.

‘When it comes the local manufacture of vaccines and so on, one has to achieve economies of scale and we put a lot of emphasis on ensuring that projects are economically viable and have economic merit,' says Madikizela.

Prospective clients must invest in their own projects so that they have a stake in its outcome and to ensure commitment and typically, she says, these investments are in the region of a million rands.

‘We also assist in project development by sponsoring feasibility studies, provide and arrange funding and also assess project risk, which is a critical consideration,' she adds.

Ensuring proper management

Madikizela also says that the IDC in some cases will take a place on the board to ensure the right decisions are made.

The IDC became involved in PPPs (public private partnerships) in 2003 in the area of vaccine research and development. PPP is a system in which a government service or private business venture is funded and operated through a partnership of government and one or more private sector companies.

The government views the production of pharmaceuticals as a strategic policy and to this end has funded a number of ventures in this field. An example of one is a PPP that was established in 2003. Thus far is has created 71 jobs. The IDC provided funding of R23.25 million, IDC equity worth R2.25 million and quasi-equity (funds, other than paid-up capital and retained earnings, employed in a business and which will remain in a business as permanent capital) to the tune of R21 million.

‘What we have learned from the process is that facilitation is a long-drawn-out process. We have also learned that it is essential to have strong technical experts on board,' says Madikizela.

In another project – a hospital and heart centre, the IDC committed R277.9 million with a direct IDC equity of R35.8 million (20%) and a debt facility of R182.5 million.

Other projects are far smaller, such a biotech company which the IDC and the project partners founded in 1997and in which the IDC was involved for about five years. In this case the corporation provided direct equity of R15 (25% of the total) and R350 000 for working capital. Currently, the corporation is negotiating an exit.

‘We don't like to be involved on an on-going basis,' says Madikizela. ‘We prefer to negotiate an exit strategy so that once the company is up and running we can move on,' she adds.

The IDC strives to enhance shareholder value and to that end, the first question is usually: does the business model make sense? If it does, then the IDC progresses to the next step.

The bottom line is: ‘Good corporate governance is non-negotiable, and strategic vision and operation management of the project must be aligned if it is to a success,' Madikizela concluded.