PRESENTATION TO THE PORTFOLIO COMMITTEE ON TRADE AND

PRESENTATION TO THE PORTFOLIO COMMITTEE ON TRADE AND INDUSTRY NATIONAL EMPOWERMENT FUND Growing Economic Participation NATIONAL EMPOWERMENT FUND 4 MARCH 2005 Growing Economic Participation Nchakha Moloi Acting CEO

CONTENTS 1. 2. How does NEF do it? 4. What are the resource requirements? 5. How can performance be measured? 6. Challenges. 7. Growing Economic Participation What does NEF do and why? 3. NATIONAL EMPOWERMENT FUND Who is NEF? Questions.

WHO IS NEF? NATIONAL NEF TRUST EMPOWERMENT FUND § In terms of the NEF Act § Capitalisation from National Treasury and share-set-aside § Specific product offerings in terms of June 2004 product relaunch NATIONAL EMPOWERMENT FUND Growing Economic Participation (NEF) NEF VENTURES § Joint Fund between IDC and the NEF § Separate investment criteria and fund mandate § Transactions between R 3 m to R 10 m § Minimal overlap with NEF Trust Transformer product only § NEF screens and processes applications as Fund Manager § Capitalisation on a 50/50 basis between both organizations § Fund Size R 170 m, with initial expectations of an additional R 30 m to be earmarked for a smaller Fund § Management fees paid by IDC and NEF respectively

WHAT DIFFERENTIATES NEF? Ø Exclusive generalist funding for BEE Ø Not focused on personal credit worth/ security Ø Focused on the “Hurt Factor” (livelihood dependent) Ø Appetite for risk with a development focus NATIONAL EMPOWERMENT FUND Growing Economic Participation

CONTENTS 1. 2. How does NEF do it? 4. What are the resource requirements? 5. How can performance be measured? 6. Challenges. 7. Growing Economic Participation What does NEF do and why? 3. NATIONAL EMPOWERMENT FUND Who is NEF? Questions.

WHAT DOES NEF DO AND WHY? Main objective To be a catalyst in facilitating economic equality and transformation Driven by New focus NATIONAL EMPOWERMENT FUND Growing Economic Participation - Current market needs - Broad-based empowerment charter - Government policy and other sectoral charters - Addressing past failures of BEE structures Maximise the empowerment dividend

THE NEF IS A DFI OPERATING UNDER THE UMBRELLA OF THE dti The NEF’s product offerings address the NEF’s objectives and are aligned with government’s NEF’s objectives as per the NEF Act Government and dti’s objectives addressed Providing HDPs with the opportunity of…. acquiring shares or interests in state owned commercial enterprises that are being restructured or in private business enterprises; Encouraging and promoting savings, investments and meaningful economic participation by HDPs; promoting and supporting business ventures pioneered and run by HDPS; promoting the universal understanding of equity ownership among HDPs; encouraging the development of a competitive and effective equities markets inclusive of all persons in the Republic; contributing to the creation of employment opportunities Increasing the contribution of small enterprises to the economy Significantly advancing broad-based black economic empowerment Increasing the level of direct investment in the economy and in specific priority sectors Contributing towards providing accessible, transparent and efficient access to redress for economic citizens Partially fulfilling - Contributing towards building skills, technology and infrastructure platforms in the economy from which enterprises can benefit - Repositioning the economy in higher value-added value matrices in manufacturing and services Contributing towards building a single economy that benefits all and bridging the divide between first and second economies. NATIONAL EMPOWERMENT FUND Growing Economic Participation Building an efficient, effective and accessible organisation to achieve these outcomes in a sustainable and economical manner.

NEF POSITIONING IN ADDRESSING MARKET FAILURE • • • Identification of market failures particularly regarding participation of HDPs in economy Avoid duplication of other DFI offerings Positioning of NEF to complement other DFIs and financial institutions Examples of market failure NEF product Complementary to other DFIs / Banks Limited access to finance for HDSA entrepreneurs with no collateral Generator Accelerator Places new businesses in bankable positions Khula & IDC Enter buy-in / buy-out transactions from position of weakness Transformer / NEF Ventures Banks provide debt funding Lack of equity funding for rural & community infrastructure projects (longer term lower return) Rural & Community Support Leverages debt funding DBSA, IDC & CPPP Institutional Fund managers focus on large listed companies >R 1 bn market capitalisation Capital Markets Fund Assists with exits IDC Dilution of broad based BEE shareholdings through second round capital raising Liquidity & Warehousing Fund Limited market liquidity to enable Black entrepreneurs to sell some/all of their businesses Liquidity & Warehousing Fund Over-geared historic BEE funding structures, potentially unwind out of the money NATIONAL Lack of BEE funding for large strategic (greenfield & brownfield) EMPOWERMENT projects FUND Liquidity & Warehousing Fund Rescue & restructure Liquidity & Warehousing Fund Co-invest with IDC, DBSA Growing Economic Participation

CONTENTS 1. 2. How does NEF do it? 4. What are the resource requirements? 5. How can performance be measured? 6. Challenges. 7. Growing Economic Participation What does NEF do and why? 3. NATIONAL EMPOWERMENT FUND Who is NEF? Questions.

Entrepreneurs & Rural communities Government Departments & Sectoral Charters NATIONAL Established BEE companies EMPOWERMENT and Government departments F equity requiring. UND warehousing Growing Economic Participation for BEE

KEY QUALIFYING CRITERIA Rural & Community Support Market Making • Operational involvement at senior management level • Community involvement at all levels • Track record of operational involvement • Financial commitment (relative to the individual and not the size of the transaction) • Strong social upliftment benefits • Established businesses • Co-funding with other investors (NEF will not be the sole investor) • No dilution of management capacity • Compliance with laws and regulations (e. g. Income tax, Employment Equity) Entrepreneur Support • Demonstrate sustainability of the business • NEF investment into operating companies NATIONAL EMPOWERMENT FUND Growing Economic Participation • Compliance with laws and regulations(e. g. Income tax, Employment Equity) • Projects must be undertaken in conjunction with a recognised partner

DETAILED INVESTMENT CRITERIA – ENTREPRENEUR SUPPORT Generator • R 250 000 to R 1 m • R 1 m to R 3 m • R 3 m to R 10 m Principal goal • Create new HDP-owned and managed enterprises • Grow and develop existing HDP-owned and managed enterprises • Transformation of enterprises at the ownership, decisionmaking and control levels Types of organisations supported • Close corporations) and private (Pty) Ltd companies. • CCs and (Pty) Ltd companies • Unlisted limited companies Principal use of investment capital • Acquisition of equipment • Financing of working capital • Bridging finance • Acquisition of licenses/franchises • Rehabilitation, lease and performance bonds • Primarily to fund business expansion, either by acquisition or organically • Management buy-outs • Management buy-ins • Employee buy-ins, Employee share ownership plans Types of investment Growing Economic Participation Transformer Size of investment NATIONAL EMPOWERMENT FUND Accelerator • Debt (secured and unsecured) • Equity • • • >75% • >50% • >25% • 3 – 7 years HDP equity thresholds (including NEF stake) Term of investment Secured debt Convertible debt Preferred equity Equity

EVALUATION FRAMEWORK THE FRAMEWORK TRACKS THE DEAL FLOW PROCESS THROUGH THE FOLLOWING GENERIC STAGES: 1. Eligibility screening; 2. Assessment of commercial viability (including historic analysis) and sustainability of financial forecasts, incorporating review of the business plan; 3. Evaluation of management’s ability to implement the business plan; 4. Proposed investment structure and capacity of business to service/ bear the required cost of funding; 5. Identifying risks inherent in the business, formulating the due diligence investigation plan and setting due diligence materiality limits; 6. RECOMMENDATION TO EXCO (PRE DUE DILIGENCE); 7. Performance of due diligence and evaluation of results; 8. Final review of due diligence and comparison to investment structure; 9. FINAL RECOMMENDATION TO EXCO AND IC NATIONAL EMPOWERMENT FUND Growing Economic Participation

INVESTMENT PROCESS: TRANSACTIONS > R 5 m Application Form / Screening / Business Plan Preliminary Investment Report Investment Committee Due Diligence Final Investment Report PIDSA Receipt of Investment Application Form & Business Motivation Assessment of application for eligibility Investment Associate perform assessment for commercial viability, incorporating business plan Completeness of Business Plan Communication with applicant: decline application or proceed with evaluation Evaluate Financial forecasts Internal Team Approval Prepare Investment Report for pre-due diligence & proposed Term sheet Approval by EXCO Investment Committee (INCOM) PIDA Present Pre Due Diligence Report to EXCO INCOM Perform Due Diligence (DD) Final Investment Report EXCO INCOM Submission for Approval 1. Listco R 50, 000 (GP) 2. E & B Conservancy R 10, 000 (EC) 3. Solar Systems R 7, 000 (GP) 4. Vac Air Technology R 10, 000 (GP) Pending Applications Total Applications Received (01/06/04 – 21/02/05) 70 185 (Pre-Investment Business Support required to accelerate transactions) Interim Investment Committee for transactions above R 5 m approved 1. E & B Citrus R 10, 000 (EC) 2. EHD Components R 9, 940, 000 (GP) R 19, 940, 000 R 77, 000 NATIONAL EMPOWERMENT FUND Growing Economic Participation Total WIP: R 96, 7 mill Presentation to the NEF INCOM / Ventures IC for Final Approval (FICA)

INVESTMENT PROCESS: TRANSACTIONS UP TO R 5 m Application Form / Screening / Business Plan Preliminary Investment Report Investment Committee Final Investment Report Due Diligence Receipt of Investment Application Form & Business Motivation Assessment of application for eligibility Investment Associate perform assessment for commercial viability, incorporating business plan Completeness of Business Plan Evaluate Financial forecasts Communication with applicant: decline application or proceed with evaluation Internal Team Approval Prepare Investment Report for pre-due diligence & proposed Term sheet Approval by EXCO Investment Committee (INCOM) Present Pre Due Diligence Report to EXCO INCOM Perform Due Diligence (DD) PIDSA Final Investment Report PIDA EXCO INCOM Submission for Final Approval Invested Portfolio 1. Greisen Finance (Pty) Ltd. R 3, 990, 000 (GP) 1. Exotic Breads R 1, 700, 000 (KZN) 2. Total Applications Received (01/06/04 – 21/02/05) Isibane Safety R 1, 000 (WC) 3. Pending Applications Kuzuko R 5, 000 (EC) 553 1174 (Pre-Investment Business Support required to accelerate transactions) 1. Something Fishy R 390, 000 (GP) 4. Notae R 960. 000 (KZN) 2. Makarapa Headwear R 400, 000 (GP) 5. National Trans. & Ind. R 1, 500, 000 (WC) 6. Secretarial Unlimited R 450. 000 (KZN) 7. (01/06/04 – 21/02/05) Theme-U-Snack CC R 1, 000 (WC) R 790, 000 8. Tilt Tango CC R 820, 000 (WC) NATIONAL EMPOWERMENT FUND Growing Economic Participation R 12, 430, 000 2. Izazi Support Systems R 300, 000 (MP) 3 JC Backhoe Spares R 2, 000 (GP/PE/KZN) NEF VENTURES – 5 Transactions 4. Khanya Plastic R 1, 800, 000 (WC) 1. Amsterdam T/D ‘ 65 CC R 680, 000 (GP) 5. Ogwini Bakery R 1, 167, 367 (GP) (As per attached Report) 2. Semaku R 1, 345. 000 (GP) 6. Platinum Koi R 900, 000 (WC) 7. Quality Frozen Food R 2, 950, 000 (GP) 8. Speedy Umtata R 415, 000 (EC) R 2, 025, 000 NEF TRUST – GES & MARKET MAKING 6 Transactions 9. Steel Metal & Tools CC R 3, 374, 700 (GP) (As per attached Report) R 16, 897, 067 Total WIP: R 32, 1 mill

NEF TRANSACTION WIP SCHEDULE NATIONAL EMPOWERMENT FUND Growing Economic Participation

NEF TRANSACTION WIP SCHEDULE cont. NATIONAL EMPOWERMENT FUND Growing Economic Participation

INVESTMENT PRODUCT PRICING cont. The following calculations provide a sum-of-the-parts breakdown of the NEF’s required returns: Inflation rate Real return required Risk factors Operating costs Taxation (income tax & CGT) Subtotal Less: empowerment benefit concessions achieved Total return required NATIONAL EMPOWERMENT FUND Growing Economic Participation Rate p. a. 3% – 6% 3% - 4% 2% - 8% 2% - 3% 12% - 24% (0% - 5%) 12% - 19%

GEOGRAPHICAL ANALYSIS OF TOTAL ENQUIRIES RECEIVED (1 JUNE 2004 -28 FEBRUARY 2005) NATIONAL EMPOWERMENT FUND Growing Economic Participation Gauteng Western Cape Email 1 & Email 2 Kwa Zulu Natal Mpumalanga Incomplete Data Limpopo Northern Cape Eastern Cape Cellphone Enquires Free state North West Province International Totals 3878 866 1192 654 445 288 340 287 341 137 223 464 8 9123

GEOGRAPHICAL ANALYSIS OF TOTAL APPLICATIONS RECEIVED (1 JUNE 2004 -28 FEBRUARY 2005) NATIONAL EMPOWERMENT FUND Growing Economic Participation

CONTENTS 1. 2. How does NEF do it? 4. What are the resource requirements? 5. How can performance be measured? 6. Challenges. 7. Growing Economic Participation What does NEF do and why? 3. NATIONAL EMPOWERMENT FUND Who is NEF? Questions.

NEF ORGANISATIONAL STRUCTURE Minister NEF Board Human Capital & Remuneration Risk Management Committee Total number of employees: 42 Knowledge Management Legal Advisory Services Office Administration. Support Services Executive Information Technology Financial Accounting Process and Projects Coordination Strategic Projects BEE Facilitation Underwriting for IPO Transformer Accelerator Generator BEE Retail Equity Manager Rural & Community Support Growing Economic Participation PA Vacant Chief Financial Officer Executive - Market Making Vacant Executive Advisory Services Vacant NATIONAL EMPOWERMENT FUND Risk / Internal Auditor Vacant Marketing & Comms Chief Executive Officer Management Accounting Secretarial & Compliance Officer Human Resources Investment Committee Executive - Group Entrepreneurial Schemes Audit Committee

CONSOLIDATED BUDGET NATIONAL EMPOWERMENT FUND Growing Economic Participation

NEF CAPITAL DRAW-DOWN SCHEDULE FOR YEARS ENDING 31 MARCH 2009 NATIONAL EMPOWERMENT FUND Growing Economic Participation

DESIGNATED SOCE’s NATIONAL EMPOWERMENT FUND Growing Economic Participation

OPERATIONAL HIGHLIGHTS Ø Constitution of Board Sub-Committees including Investment Committee completed in October 2004. Ø Executive and management positions stabilised pending final appointments. Ø Disbursements on transactions approved, following launch of new products, commenced in November 2004. Ø Further disbursements in the IT, wine making and transport business sectors took place between November 2004 and January 2005. Ø Compliance and internal control procedures and processes fully implemented and transactions are closely scrutinised to ensure full compliance prior to disbursement. NATIONAL EMPOWERMENT FUND Growing Economic Participation

CAPITALISATION Investments Ø R 150 million has been earmarked for investment capital to the NEF for the current financial year which has partly been received following the successful signing of the Shareholder Performance Agreement. Ø The NEF has cash reserves at present (January 2005 – R 152 million) to funds its operations and investment activities and will be essentially fully invested through its current funding work in progress (R 129 million). Ø The first tranche of the R 2 billion allocation is expected in the first quarter of the next financial year and this is understood to be in the order of R 410 million based on the NEF business plan capitalisation draw downs and discussions with National Treasury. Ø The DG’s and the DPE are currently working on the transfers of the remaining allocation of SOCE equity investments. Significant impact on the balance sheet. NATIONAL EMPOWERMENT FUND Growing Economic Participation

CONTENTS 1. 2. How does NEF do it? 4. What are the resource requirements? 5. How can performance be measured? 6. Challenges. 7. Growing Economic Participation What does NEF do and why? 3. NATIONAL EMPOWERMENT FUND Who is NEF? Questions.

NEF TRUST – INVESTMENT PORTFOLIO NATIONAL EMPOWERMENT FUND Growing Economic Participation

TRANSACTION HIGHLIGHTS • MUKS Business Enterprise CC – 5 year Term loan for R 250 000 – Repayment per loan schedule (fixed IRR) – Structured finance product with Standard Bank Asset Finance Std Bank Trucks NATIONAL EMPOWERMENT FUND Growing Economic Participation MUKS R 250 K NEF

TRANSACTION HIGHLIGHTS • Kula Tissue Products CC – 5 year Term loan R 250 000 – Repayment per loan schedule (fixed IRR) – Secured by negative pledge over assets NATIONAL EMPOWERMENT FUND Growing Economic Participation

TRANSACTION HIGHLIGHTS • Banra Furniture Manufacturers CC – 5 year Term loan R 430 800 – Interest at prime + 2% – 1% royalty on turnover – Secured by personal surety NATIONAL EMPOWERMENT FUND Growing Economic Participation

TRANSACTION HIGHLIGHTS • Wax Works (Pty) Ltd – 5 year Term loan R 650 000 – Interest rate at prime + 2% – Secured by personal surety NATIONAL EMPOWERMENT FUND Growing Economic Participation

TRANSACTION HIGHLIGHTS • Platinum Koi – Term loan R 1 000 at 13% – Repayable over 5 years after 6 month “holiday” – Secured by cession of shares, trade accounts, bank balances and a General Notarial Bond over stock with personal surety NATIONAL EMPOWERMENT FUND Growing Economic Participation

NEF VENTURES – INVESTMENT PORTFOLIO NATIONAL EMPOWERMENT FUND Growing Economic Participation

TRANSACTION HIGHLIGHTS • Blink Magazine – 40% equity, senior secured shareholders loan and senior debt facility: R 3 500 000 over 3 -5 years – Interest on senior debt at prime + 2% – Put option on equity on loans settlement • Lindiwe Wines – KWV supported – 49% equity, term loan facility: R 3 075 000 exit in 5 years NATIONAL EMPOWERMENT FUND Growing Economic Participation

ENTERPRISE GOVERNANCE REQUIREMENT Statutory Compliance: DUE DATE Ø These are being dealt with and will be fully cleared by March 2005 Ø Ongoing PFMA / NTR compliance is being fully adhered to as described alongside. NATIONAL EMPOWERMENT FUND Growing Economic Participation • Budget 2006 15 Oct 04 extension (done) • Corporate Strategy/ Business Plan 15 Oct 04 extension (done) • Internal Audit 31 Jan 2005 – IA Manager 1 Jan 2005 – IA Co-source • Q 3 Report 31 Jan 2005 (done) • S 38 Certificate 31 March 2005 (in progress) • Materiality Framework 10 Feb 2005 (presented to AC) 31 Jan 2005 (done) • Risk Assessment in terms of PFMA / Treasury Regulations were raised in the March 2004 External Audit Report. 24 Sep 04 (done) • Dti Performance Agreement Ø Emphasis of matter • Annual Report 31 March 2005 (in progress)

CONTENTS 1. 2. How does NEF do it? 4. What are the resource requirements? 5. How can performance be measured? 6. Challenges. 7. Growing Economic Participation What does NEF do and why? 3. NATIONAL EMPOWERMENT FUND Who is NEF? Questions.

NATIONAL EMPOWERMENT FUND DELIVERING ON ITS MANDATE NATIONAL EMPOWERMENT FUND Growing Economic Participation

CONTENTS 1. 2. How does NEF do it? 4. What are the resource requirements? 5. How can performance be measured? 6. Challenges. 7. Growing Economic Participation What does NEF do and why? 3. NATIONAL EMPOWERMENT FUND Who is NEF? Questions.

NATIONAL EMPOWERMENT FUND Growing Economic Participation