By ROUX VAN ZYL
Business Editor
ONE year after embarking on its long-awaited turnaround strategy, the embattled Eastern Cape Development Corporation (ECDC) is banking on a new interest rate offering and a new addition of top managers to bring the organisation back from the brink.
The foundations for the turnaround were laid last year by the corporation’s chairperson Professor Wiseman Nkuhlu and his chief executive, Mxolisi Matshamba, who have managed to ensure the parastatal receives its first clean audit report since 2001.
But despite the satisfactory audit, the road to recovery may be long and hard, because the ECDC has posted a massive R79 million operating loss in the 2006/07 financial year.
The loss is, however, a slight improvement on the R83.6m loss posted in the 2005/06 financial year.
Its net profit, however, stayed in positive territory, having ballooned from R2.8m to R13.7m.
Speaking at the launch of their 2006/07 annual results earlier this week, Nkuhlu said the profit posting was largely due to a rise in the fair value adjustments of the corporation’s vast property portfolio.
The financial statements also showed a R32.9m net cash outflow from the organisation, which is slightly better than the R43.3m posted the previous year.
One indication that the ECDC is not delivering on its developmental finance objectives is that its revenue was driven by interest on bank deposits received from the ECDC’s parent, the Eastern Cape Department of Economic Affairs and Tourism, as opposed to interest received from loans.
“There was a perception that we are overcharging our customers and that the high interest rate was used to hide inefficiencies,” said Nkuhlu. To overcome this problem, Matshamba said the ECDC had launched a more competitive interest rate – linked to the prime lending rate – to entice Eastern Cape businesses to turn to the parastatal for their capital needs.
“We have not managed to grow our loan book as we would liked to. The 17% ‘one size fits all’ interest rate was not competitive,” he said.
The new interest rate, which has already been implemented, is calculated on the debtor’s risk profile, ranging from prime plus 2% for high risk to prime minus 2% for low- risk businesses.
“We will also look at existing loans to avoid being unfair to our customers. We have to reward our good clients, otherwise they leave and we are stuck with all the bad clients,” Matshamba said.
The ECDC will also increasingly fund large investments in the province’s Industrial Development Zones (IDZ) to balance their high risk exposure to start-up ventures.
It is obvious that something went seriously wrong during 2005/06 at the parastatal, whose mandate is to “act as a catalyst in driving development in the Eastern Cape”.
Firstly, its operating loss ballooned to R83.6m from R60m and, secondly, its entire board, its former chief executive and chief finance officer were sacked in 2004.
Before Nkuhlu’s appointment in July last year, the parastatal had seen three chairpersons come and go in less than two years.
By March this year a new 10 person board was appointed, and by October the long-awaited internal restructuring plan was approved by the board.
“We now have to urgently populate the structure,” said Nkuhlu.
Advertisements have already appeared in the media for executive managers.
The ECDC chairperson hopes these new brooms, when employed, will sweep clean.
And together with the clean audit report, Nkuhlu said the ECDC was ready to build up trust with Eastern Cape businesses.