Cadiz Enterprise Development Investment · T + 27 8000 CADIZ (22349) | E [email protected] The Cadiz Enterprise Development Investment ... The Cadiz Enterprise Development

Cadiz Enterprise Development InvestmentImpact Report to December 2014

assist corporates with Preferential Procurement. We have then added a Supplier Development Fund in addition to our existing Enterprise Devlopment Fund. Enterprise & Supplier Development is a Priority Element in the Amended Codes and counts up to 40% of the Scorecard.

We are proud to update you on the progress of your enterprise development investment. From the report, compiled and verified by GreaterCapital, you will be able to see first-hand what an impact your investment is making on South Africa.

We believe that we are adding significant benefit to all parties. To you as our clients we deliver a professional solution with full transparency and compliance with all regulations. To our black investors we deliver a financial lifeline which would otherwise be denied to them. To South Africa we collectively deliver economic empowerment – exactly what the Codes of Good Practice intend.

Thank you for your ongoing support.

CENT – making sure every cent

counts

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For further information please contact your financial adviser or Investor Services T + 27 8000 CADIZ (22349) | E [email protected]

The Cadiz Enterprise Development Investment (“CENT”) (including the ICT Enterprise Development Investment) has, since its inception in November 2012, raised almost R100 million from over 250 corporate investors.

Investors into CENT have recognised that a specialist investment skill set, applied by informed and experienced professionals, can transform an annual Enterprise Development expense into a once-off asset on their balance sheet. This creates a valuable pool of capital from which Black-owned businesses can source much needed stable and affordable loan funding.

Recent EnhancementsNot only have we enhanced CENT for construction companies by adding an Enterprise Development Program, but we have also developed a solution to Enterprise and Supplier Development required in terms of the Amended Codes of Good Practice which also may

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Affordable housing units

446178People housed in these units

Our initiatives have created an additional

3,600* jobs& suppported the development of

2,439 SME’s

SME’s supported through finance or equipment leasing

The number of first time households with waste collection services

Number of people receiving computer training

998

Impact at a glance

As at 31 December 2014 CENT has delivered the following impact:

* Of these, 2,547 are a direct result of CENTs lending, while another 1,026 jobs have been created indirectly

99

99%

93%

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Impact at a glance

The Cadiz Enterprise Development Investment (“CENT”) invests into Black owned businesses that help to address some of South Africa’s most intractable social problems. These include a lack of decent housing and access to basic services, poor transport infrastructure and linkages to areas of economic opportunity, and high rates of unemployment.

Amongst others, entrepreneurs and SME owners supported by the Fund include property entrepreneurs in neglected inner city areas and informal traders who need access to capital to grow their businesses.

These investments have supported job opportunities for entrepreneurs in small and micro businesses as well as in the construction and waste management sector. In total, since inception CENT has created an additional 3,600 jobs. Of these, 2,574 are a direct result of CENT’s lending, while another 1026 jobs have been created indirectly.1

Affordable housing Working capital

for SMEs

ICT

Transport

12%

SME microfinance

22%

Waste management

3%24% 23% 13%

Investments by sector

1 Throughout this report, direct jobs refers to jobs created either in investee organisations or, where applicable, in organisations that they lend to directly. Indirect jobs are those that are created outside of these organisations, usually as external contractors or suppliers. This method of reporting is consistently used internationally, and is also specifically envisaged by the B-BBEE Codes of Good Practice which allow for the use of 3rd parties to execute your Enterprise Development initiatives.

Industrial

3%

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2 426 2 426 2 206 2 206SME microfinance

23 35 2 3Waste management

JOBS

SUPPORTED

ENTREPENEURS SUPPORTED

Current

Current

Since inception

Since inception

444

0

0444

0

0Affordable housing

9 9Working capital for SMEs

89 89 31 99Information and commumunication technology

3 589 3 600 2 370 2 439TOTAL

604 604 121 121Transport

SME microfinance has been a particularly effective way to support micro-entrepreneurs, particularly in rural areas where there is little opportunity to find formal employment.

CENT investees have a presence in all nine provinces of South Africa, delivering positive social impact in every corner of the country. The provinces with the highest populations (Gauteng and Western Cape) account for the biggest share of invested capital.

2 2 1 1Industrial

This report provides an overview of each of the high impact investment sectors and the change that is being realised through CENT.

8%

0%

5%

1%

14%

47%

11%

4%

10%

Spread of Enterprise Development Investments

Transport

Core indicatorsCURRENT

SINCE INCEPTION

Entrepreneurs supported:• of whom black• of whom women

12112121

12112121

Jobs created for taxi drivers and assistants

121 121

Indirect jobs created 483 483

Geographic spread of clients

The public transport sector is particularly challenging in South Africa as a result of the spatial development anomalies inherited from the apartheid policy of the previous government. Low income earners are forced to commute long distances (with longer travel times) for educational, social and economic purpose at a greater cost than what would have been usual in a more normal spatial development pattern. This places a severe burden on the work-force of the economy and acts as a significant constraint to the economic development of South Africa.

The majority of South Africans still rely on public transport and the taxi industry is the most widely-used mode of public transport. Approximately 69% of South Africans use mini-bus taxis for their daily commute; with use highest in the more rural provinces2.The public sector also presents a strong opportunity for employment creation and economic development. As it stands, the minibus taxi industry generates an estimated R3 billion in revenue per year and employs approximately 300,000 people3.

The taxi industry creates jobs both directly and indirectly. Taxi drivers and their assistants are directly employed, while an estimated 95 indirect jobs are created. These jobs include taxi marshals, taxi association employees, mechanics, car washers, mechanics, panel beaters and informal traders.

CENT funds taxis that are compliant with the government’s taxi recapitalisation project, which strongly emphasises vehicle safety.

8%

3%

7%

3%

9%

33%

10%

6%

22%

The taxi industry creates

jobs both directly and indirectly. Taxi drivers and their assistants are directly employed, while indirectly

taxi marshals, taxi association employees, mechanics, car washers, mechanics, panel

beaters and informal traders all rely on the for their

income.

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2 National Transport Survey 2013. Statistics South Africa. Figure 9.6. http://beta2.statssa.gov.za/publications/P0320/P03202013.pdf

3 http://www.moneyweb.co.za/moneyweb-economic-trends/sas-r398bn- taxi-industry.

SME Microfinance


SINCE INCEPTION

SME owners supported• of whom black• of whom women

2,2062,2062,184

2,2062,2062,184

Individuals employed by SMEs

2,426 2,426

Dependants of loan recipients

11,911 11,911


The Grameen Banking model, developed by Professor Muhammad Yunus, offers credit and group-savings schemes to people living in poverty. With the small loans they offer, and the support networks they create, microfinance providers have become a major global developmental force.

CENT’s SME microfinance investment targets the poor, and as the figure below shows, all first loan clients are consistently poorer than the general African/Black & Coloured population4.

These loans are invested into small businesses, which create a source of income for the client.

The vast majority of clients will take out a second loan once they have paid off their first loan. As clients take out bigger loans over time the value of their businesses and the amount that they are saving every month also increases with each loan cycle. As client’s businesses grow, their income increases. Many become a source of employment for other people in their community.

While this investee does not take deposits, it trains its clients on how to open a bank account and emphasizes the importance of accumulating a savings safety net. At the end of December 2014 this investee’s clients had accumulated a total of R 41 million in savings.

Percentage of microfinance clients vs African/Black population living in poverty

4 Statistics South Africa (2007a) estimates the food poverty line at R9.10/person/day based on the 2001 South Africa Income & Expenditure Survey and a per-person, per-day standard of 2261 kilocalories. The national poverty line of R13.89/person/day is defined as the food line plus essential non-food expenditure for non-food items.

60%

Below national poverty line

Below food poverty line

50%

40%

30%

20%

10%

0%

56%

42%

33%

25%

1st loan microfinance clientsAfrican/Black & Coloured population

23%

20%

46%

11%

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Waste management

The majority of South Africans (61%) have access to kerbside waste collection in their residential areas, but these services are most likely to be available to urban and wealthier communities. Therefore there is still a need for was management services in low-income communities both in urban and rural areas. South Africa’s National Waste Management Strategy was devised to guide the country’s response to this backlog5.

CENT’s investment in waste collection specifically targets areas that have not previously received waste collection services. This will have a dramatic impact in improving community health and hygiene.

The approach taken by this investment is to train waste collection truck drivers to become entrepreneurs. They are given accredited business management training, and are mentored through every aspect of running their own small waste collection business. For the duration of a private sector municipal tender (normally three years) these entrepreneurs earn a salary, while the rest of the profits earned by their business are kept in a trust account. At the end of the tender period, the entrepreneurs have the option of exiting the programme armed with a business management diploma, three years of experience in running a small business, and access to capital. In addition, the vehicle that they have been driving is now owned by them providing them with a fully paid up asset from which they can continue to generate an income.

6%88% 6%


SINCE INCEPTION

Entrepreneurs supported 2 3

Total direct jobs supported:• of whom black• of whom women

23231

35359

Households serviced by waste collection for the first time

16,736 24,402


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5 National Waste Management Strategy (2012). http://cer.org.za/wp-content/uploads/2012/06/National-Waste-Management-Strategy-as-implemented.pdf

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Affordable housing


SINCE INCEPTION

Housing units built 177 178

Individuals housed in these units 442 446

Jobs supported:• of which are permanent • of which are short term6

444 4

440

44415

459


6 Number of jobs are calculated taking into account employees of investee companies, enterprises that these companies service and any multipliers for the sector. For the housing sector this is 2.48 jobs per housing unit, based on International Housing Solutions 2012 Social Impact Report by Professor Francois Viruly (University of Cape Town). www.housingfinanceafrica.org/.../IHS-Viruly-Press_IHS-Comments.pptx. Note multipliers may vary according to the specific sub-sector of the affordable housing industry.

7 Investee 2014 Annual Report8 The gap market refers to households earning between R3500 and R18000 per

month. This group does not qualify for a governmental housing subsidy, but generally cannot afford the cheapest private sector houses or qualify for home loans.

9 See http://www.property24.com/articles/gap-housing-enhances-wealth-creation/17518

88%

12%

Affordable housing has always played a major part in CENT’s portfolio. This is hardly surprising: while over 3.5 million government-subsidized houses have been built since 1994, an estimated 2.3 million households still remain without basic housing7.

The provision of housing in the so-called “gap8” market has an impact far beyond the provision of shelter. Recent research shows that it is can also lead to improved welfare and social cohesion, and contributes to improved economic opportunities and wealth creation9.

CENT’s invests in affordable housing projects that are designed not only to make a dent in the country’s housing backlog, but to provide people with better access to jobs, schools, recreational facilities, public transport and hospitals.

CENT has invested in a number of industry-leading affordable housing providers, including the developer behind the development that was awarded the 2013 Social Housing Project of the Year Award at the Govan Mbeki awards.

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41%

58%

1%

Working capital for small business growth


SINCE INCEPTION

SME’s supported through finance:• of which are black-owned• of whom women-owned

9 10

9

11


Small businesses in South Africa often struggle to access sufficient working capital to sustain their growth. These businesses often do not meet the lending criteria of banks and other mainstream lenders.

The SME sector is often described as the engine of job creation in the economy. By facilitating growth in small businesses, this investment will make an important contribution to job creation.

CENT has invested in a company that seeks to fill this gap in access to finance for SMEs by advancing cash to majority black owned small businesses that are growing rapidly and need working capital in order to facilitate such growth. In effect, the small business sells their invoices to a third party, which advances them the necessary cash to keep their business going.

A lack of access to finance is frequently cited by entrepreneurs as the biggest constraint to business growth. Invoice discounting offers businesses quick access to working capital that eases pressure on cashflow.

CENT has invested in a company with a successful track record in working with SME’s, and many have grown exponentially since becoming clients. Without access to sufficient working capital, this growth would have been severely constrained.

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Access to technology for SMEs

The development of SME’s is a crucial step towards developing a stable economy within South Africa. Government, the private sector as well as the public sector are all in agreement that the capabilities within the SME environment need to be improved in order to ensure sustainability. The development of the “missing middle” will lead to higher levels of job creation as well as enhanced contribution to GDP.

The right technology has the power to accelerate business growth. However, a lack of working capital in small businesses often prevents them from investing in technology, and acts as a barrier to growth. Technology leasing offers a solution to businesses that cannot afford a large capital outlay, but still need access to technology in order for their businesses to grow and thrive.

Leasing also allows small businesses to manage their cash flow more effectively, with smaller, predictable amounts payable every month. The lessor is responsible for maintenance, repairs and insurance, which reduces cost and risk to the client.

The company that CENT has invested in offers their clients expert advice to ensure that they get the best combination of hardware and software to suit their business needs.


SINCE INCEPTION

SMEs supported through finance

6 34

SMEs supported through equipment leasing

25 65


19%

60%

21%

ICT: technology training


SINCE INCEPTION

Number of jobs created:• of whom are black• of whom are female

898947

898947

Number of people receiving computer training:• of whom black• of whom female

998

998499

998

998499

In 2013, 40.9% of South African households have at least one member who had access to the internet, however only 10% of these households used the internet at home. The previous year’s statistics told a similar story with 40.6% of households having at least one member who used the internet, but only 9.8% of these indicating they use the internet at home9. This implies that the majority of those with access to ICT primarily do so through other means: either through mobile devices (30%), at work (16%) and through internet cafes or educational facilities (9.6%).

This 100% black-owned IT company was one of the first internet cafes to open in a South African township. Since then, the company has grown into an IT training company, with 33 branches spread across two provinces.

The company operates in peri-urban townships and rural areas where unemployment rates are particularly high and many have given up searching for work altogether. It employs over 130 full time staff, over half of whom first encountered the company when they enrolled in their computer courses.

CENT’s funding of this entity will result in an expansion of their activities. We estimate that this expansion will lead to the creation of 44 new permanent full-time jobs.

This investment will contribute to bringing internet access to rural and township areas where internet penetration is generally lower than suburban or inner-city areas..

9 Statistics South Africa General Household Survey report 2013 and 2012.

45%

55%


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Chemicals industry


SINCE INCEPTION

Number of jobs created:• of whom are black• of whom are female

21

211

Number of SMEs in distribution chain

1 1


The $3 billion South African chemicals industry is a key sector of the economy. It accounts for about 25% of the nation’s manufacturing sales, approximately 5% of GDP, and is the most developed of its kind in Africa10.

CENT’s investment in this industry is a Level II BEE Black owned contributor that imports, stocks and distributes speciality chemicals into the South African market, particularly the lubricants, water treatment, agrochemicals, food and detergents sector. This company has integrated a few SMEs into its distribution chain, and produces a range of products that will eventually create further employment.

10 http://www.engineeringnews.co.za/article/south-african-chemicals-industry-has-growth-potential-2014-03-21

5%

80%

15%

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GreaterCapital NPC | t. 021 685 9780 | f. 021 685 9781 | e. [email protected] | twitter | news

GreaterCapital is a Non Profit Company providing socio-economic impact advisory services. Registration number: 2005/026508/08 | VAT number: 4080258181 | Level 4 BEE contributorDIRECTORS: B Thornton-Dibb, B Evans, L Khumalo, N Mvulana, A Marshall Smith, S Seedat

Enterprise Development Fund ReportBy Refilwe Mokoena

Submitted to: Cadiz Asset Management 26 March 2015

ConclusionCENT, with your support, continues to play a meaningful role in economically transforming our economy. The model we have successfully implemented allows you to provide funding to businesses we believe can sustain loan funding. In addition, it also allows us to deliver a professional service to you, and at the same time to fulfil a desperate and unfulfilled need for loan funding at affordable rates of interest.

CENT does not create dependence – it targets economic freedom. Our loan based solution provides vital funding and assists our counterparties to grow and enhance their economic right to exist. Over time these entities may well graduate to conventional bank funding – a graduation which we will celebrate with them.

We all thank you for your support.

Documents

Cadiz Enterprise Development Investment · T + 27 8000 CADIZ (22349) | E [email protected] The Cadiz Enterprise Development Investment ... The Cadiz Enterprise Development