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Building a fit for purpose ECDC

Updated: Dec 13, 2021

“Sixth unqualified audit opinion for the Eastern Cape Development Corporation (ECDC), amidst renewal of the corporation.” The ECDC welcomes the Auditor General South Africa’s unqualified audit opinion for the year ended March 2021.

07 December 2021

BUILDING A FIT FOR PURPOSE FINANCIAL SERVICE OPERATION - “Sixth unqualified audit opinion for the Eastern Cape Development Corporation (ECDC), amidst renewal of the corporation.” The ECDC welcomes the Auditor-General South Africa’s unqualified audit opinion for the year ended March 2021. This achievement is testament to good governance which is an important aspect of building trust between the ECDC and its capital partners. It is also a solid step in the right direction as the ECDC embarks on a major renewal to building a responsive and fit-for-purpose financial services operation in the Eastern Cape. The 2020/21 financial year provided a stern challenge to the Corporation as it sought to navigate the socioeconomic challenges presented by the COVID-19 pandemic.

The devastating effects of the pandemic on the global economy threatened to derail the Corporation’s work in removing inhibitors to improved and robust economic growth. The ECDC operates in an environment characterised by structural socio-economic challenges in the Eastern Cape economy. These challenges require the strengthening and maintenance of viable and sustainable state institutions such as the ECDC in order to attain the requisite development returns.

The ECDC performed well in delivering on its set targets. This is despite the development finance function being adversely impacted by the organisation’s liquidity limitations. The liquidity challenges resulted in the Corporation shifting its focus to the disbursement of invoice-based loans in the 2020/21 financial year. As a result, in 2020/21, the ECDC disbursed R24,05 million to 86 SMMEs. At R14,9 million, the supply and delivery component of the services sector accounted for the bulk of the disbursements. Of the 86 businesses, 54 were youth-owned. Youth-owned businesses accounted for R9,2 million of the disbursements. The disbursement figure facilitated the creation of 302 jobs. Of this number, 148 were youth jobs. It was encouraging to see youth participate in job creating through running innovative businesses. We look forward to see more participation of the youth in reviving the provincial economy.

Declining revenues and the resultant job losses as part of the fallout from the COVID-19 pandemic led to a marked reduction in loan repayments. The increased defaults resulted in increased impairments. Impairments increased by 17% from 57% in 2019/20 to 74% in 2020/21. Total loan repayments were R37 million in the 2020/21 financial year. During the year under review, the ECDC provided non-financial support to 256 businesses versus 249 in 2019/20. Of this figure, 139 were women-owned businesses and 101 were youth-owned. The ECDC also facilitated training for 914 businesses. A total of 1,012 people were trained, of which 444 were women, 410 were youth and two were people living with disabilities. In 2020/21, the ECDC extended financial support to chemical industry incubator, CHEMIN, which saw a total of 61 incubated enterprises being supported. The ECDC provided R2,8 million in financial support to CHEMIN in the period under review. Further to this amount, in-kind support was also provided. The ECDC’s investment in the incubator resulted in the incubated enterprises employing a total of 45 individuals. Total revenue generated by enterprises at CHEMIN was R9,8 million in the 2020/21 financial year. Revenue generated by SMMEs incubated at CHEMIN is evidence of what the incubation programme is able to achieve. Informed by the challenges presented by the COVID-19 pandemic, the Department of Economic Development, Environmental Affairs and Tourism (DEDEAT) revised the terms of the Job Stimulus Fund to reflect business needs.

A review of the Jobs Stimulus Fund included the adjustment of the requirement to save a minimum of 10 jobs in order to qualify for the incentive to five. A working capital component was also added to the Jobs Stimulus Fund, which is disbursed over a three-month period for business resuscitation and recovery. During 2020/21, 60 businesses were approved for the Jobs Stimulus Fund incentive. A total of R41,2 million was committed to disbursements for saving jobs and for working capital. Of the committed R41,2 million, R21,5 million was approved for disbursement to 60 companies in order to save 2,156 jobs. A total of R11,130 million was disbursed, saving 1,113 jobs. Fourteen of the beneficiary businesses are in manufacturing, five in agro-processing, eight in business process and outsourcing, eight in tourism, one in retail, one in pharmaceutical, one in petroleum and one in services. A total of R20,1 million was approved for disbursement to 38 companies as working capital. Of this amount, a total of R7,5 million in working capital was disbursed during the period under review.

The ECDC administered Imvaba Co-operative Fund which provides grant funding through an incentive and institutional-building support to co-operatives of the Eastern Cape approved R12,3 million for disbursement to 26 co-operatives. Of this amount, R7,565 million was disbursed during the period under review. The 26 cooperatives are made up of 141 members of which 73 are women and 45 are youth. The co-operatives operate in the agriculture, apiculture, manufacturing, retail and services sectors.

The Corporation facilitated investments valued at R140 million into the province. The rand value of investments generated was significantly affected by the pandemic because of uncertainty in the environment. This comprised a R61 million investment in the film sector through the Survivor production. Six development projects were also supported during the period under review.

The property business is still under stress although there are improvements in key areas. Rental income increased from R83,016 million in 2019/20 to R93,783 million in 2020/21. Total expenses decreased from R124 million in 2019/20 to R103,272 million in 2020/21. The net loss posted decreased from R33 million in 2019/20 to R9,489 million in 2020/21. Debtors increased from R311 million in 2019/20 to R364,277 million in 2020/21. ECDC Chief Executive Officer Mr. Ayanda Wakaba alluded to the ECDC property modernisation and development strategy, saying it was at an advanced stage as at 31 March 2021. “This strategy is premised on the ECDC releasing non-core and non-strategic assets defined as standalone residential units and vacant residential land under 2,000 square metres.

Resources generated from these disposals are to be used to improve the state of the commercial and industrial sites whenever the ECDC plans to secure commercial joint ventures for high potential commercial property.” Further adding that the Expression of Interest on eight of the ECDC properties and the first phase of the auction sale proves that [we] are on the right path to realising a self-sustaining property portfolio.”

“This sixth successive unqualified audit forms part of the action plan by the Corporation as we journey towards a reformed ECDC. As part of our renewal, we will build capacity to drive the reindustrialisation strategy of the province with a special focus on the automotive sector as well as on small scale manufacturing. We will build a capable ECDC that is fit to co-ordinate economic development in the Eastern Cape,” concluded Wakaba.

To view the full 2020/21 Annual Report, click here


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