NEF chairman sees continental opportunities

The National Empowerment Fund (NEF) could earn a Pan African element and several other ambitious development finance features if the vision of its new chairperson, Thando Mhlambiso, is anything to go by.

Mhlambiso, who took over as chair of the NEF board of trustees in November last year, said the NEF needed to look at opportunities arising from the economic revolution bubbling under across the African continent. He says the NEF has established a unique and compelling value proposition that could be exported across the continent.

Mhlambiso says the NEF has established a sound base to partner emerging African entrepreneurs in critical areas of the economy through a finance model that mixes debt and equity.  He emphasizes that the NEF has grown to master the equity injection which is arguably more patient and effective capital than debt for emerging entrepreneurs. This, equity emphasis, is what separates the NEF from many other service providers in the enterprise finance space where debt still rules. While there was still space for improvement, says Mhlambiso, the NEF has moved towards mastering the tricky science of providing equity to emerging black entrepreneurs in South Africa. The time is right for this to be exported into the continent.

“There is some opening in what we do to rope in other African countries and entrepreneurs. Opportunities could be pursued through ventures by locals into other African countries or vice versa,” says Mhlambiso.

His thoughts may be seen as hopping into the prevailing northwards scramble from the southern tip of the African continent. In the past few years South African capital has in earnest embarked on an aggressive move to the north of the Limpopo River. The latest Ernst & Young Africa investment survey showed South Africa taking a leading position in FDI terms across the continent. This says Ernst & Young forms part of a growing confidence and optimism among Africans themselves about the continent’s progress and future.

Mhlambiso’s talk is especially different, progressively altruistic if you like, as if to avoid the popular narrative that portrays a conquering march northwards.

Mhlambiso said South Africa owes much of its fortunes to the people of the African continent. “We did not get where we are solely on our own. Many Africans have contributed to the making of the post 1994 South Africa. I think, maybe, we have not created a window of opportunity to even say thank you and to allow them to contribute and benefit from South Africa’s post 1994 economic story”.

Yes; this may be political talk from a man who grew up within the antiapartheid movement, the congress tradition to be precise. Thando Mhlambiso is a son of ANC stalwart Thami Mhlambiso who was exiled in the 1960’s and went on to lead the antiapartheid movements abroad in London and then New York. Thami Mhlambiso tagged along his family in his exile ventures which exposed Mhlambiso, the junior, to Africa’s freedom struggles and to study overseas.

Mhlambiso’s political talk is however hosted within a tried and tested commercial mind.  The NEF chair is a highly accomplished investment professional, having plied his skills in the US and for global giants like JP Morgan and law firm Skadden, Arps, Slate, Meagher & Flom. Locally he has served at top level of leading of financial institutions like Kagiso Ventures Private Equity Fund, Absa Capital and Sanlam Private Equity. He holds post graduate degrees in natural sciences, law and commerce.

Mhlambiso is currently plying his skills for one of the largest investment houses within the African Continent. He is an executive director of Allan Gray, a South African based asset management firm and run’s the firm’s expansion into the rest of the African continent.

Mhlambiso has been described as the perfect candidate to assume the position of chairing the NEF board of trustees at this stage. This is a critical stage for the state owned development finance institution. The NEF needs to be recapitalized and perhaps corporatized in order to establish a sustainable rhythm. The call for recapitalization featured in the NEF’s 2011/12 annual report. The NEF was established in 1998 to focus on BEE funding. It has in the past 14 years disbursed about R4.4bn and reported net asset value of R5.3bn in the 2011/12 financial period.

Early this month the NEF declared a moratorium on funding new projects saying it needed to sort the recapitalization process with government. The minister of trade and industry Rob Davies has expressed commitment by his department to propel the NEF further. He was quoted in Business Day saying the NEF “has done good work … was well-run and had turned itself into an effective development finance institution with some very important projects”.

Added Davies “Now we have to have discussions with our colleagues in the Treasury. The fund will be able to continue. It’s not a question of (it being in trouble) but it can’t take on new business.”

The NEF finds itself in this precarious position largely because of its legal structure. It is styled as a schedule 3A entity under the Public Finance Management Act. This makes it wholly dependent on government for funding its operations. Mhlambiso seems to be bringing in a new energy to corporatize the NEF so it can also tap into other sources of funds outside government.

Mhlambiso contends that “What will be optimum is to enable the NEF to look for appropriate funding not only from other local institutions but also from overseas. It makes sense to expand funding sources because the national treasury is faced with many other pressing needs”.

“Our decision to cease new investments will enable the NEF to remain strong for a considerable period of time, and will provide the Government and the NEF sufficient space to find a suitable long-term funding arrangement for the NEF’s future activities. We are confident that a resolution will soon be found,” says Mhlambiso.

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