ecdc annual report

EASTERN CAPE DEVELOPMENT CORPORATION Annual Review2008/09

Published by:Eastern Cape Development CorporationOcean Terrace Park, Moore StreetQuigney, East London

PO Box 11197Southernwood5213

SOuTh AfRICA

© Eastern Cape Development Corporation, 2009

Enquiries:Marketing DepartmentEastern Cape Development Corporation

Telephone: +27 (0) 43 704 5600fax: +27 (0) 43 704 [email protected]

www.ecdc.co.za

Johnathon Philander is the hatchery Manager at Espadon Marine in East London where fish is farmed for consumption in top-end restaurants in Gauteng and Cape Town. As the business grows with the assistance of the Eastern Cape Development Corporation, clients will include restaurant chains and supermarket suppliers, with 30% of production earmarked for export.

ECDC is to be positioned in the minds of its shareholders, stakeholders, and markets alike as a visionary steward of development assets within the Eastern Cape. As such, ECDC is the entity that is able to bring ideas to life, to assist in developing “an ocean of opportunities” and to do so across a broad range of sectors, disciplines, and areas within the province.

ContentsForeword by the Chairperson of the board6 |

Introduction and highlights by the Chief Executive Officer10 |

Executive management14 |

Share their thoughts on development in 2008/09

Investing resources:18 |

Creating platforms:26 |

Channels of development:34 |

Board of directors52 |

Financial reports and Annual Financial Statements57 |

A review of the Development Investment unit

A review of the Development Properties unit

A review of the Development Services unit

Background and previous experience

Auditor-General’s report

Audit Committee’s report

Directors’ report

Consolidated Annual financial Statements

Balance sheet

Income statement

Statement of changes in equity

Cash flow statement

Accounting policies

Notes to the consolidated Annual financial Statements

Supplementary information

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EASTERN CAPE DEVELOPMENT CORPORATION | ANNuAL REVIEW

1

Eastern Cape Development Corporation is the

visionary steward of development assets in the

Eastern Cape. Our mandate is to identify and

implement sustainable economic opportunities that

will transform the currently underdeveloped economic

landscape of the province by reducing unemployment,

poverty and historic inequalities. This we achieve by

providing value-adding services to developmental

initiatives facilitated by local or foreign investments

in the private sector.


ECDC lends a helping handOver the last year, ECDC has assisted various projects in the Eastern Cape, with business

planning and set-up, loans, or simply by sharing our solid advice and expertise.

In this Annual Review 2008/09 we feature a photographic selection of a small number of these

projects to demonstrate the difference ECDC is making in our province, the

Eastern Cape:

• aquacultureprogrammessuchasAmalindaFishFarm,whereKoifishare

beinggrownfor

the local and international ornamental fish wholesale market, and Espadon Marine, where

marine fish for consumption are being commercialised, are breaking new ground in South

African fish-farming practices (see pages 9 and 32)

• MitrockCommunityoutsideQueenstownareworkinginpartnershiptoprodu

cehazelnutsfor

ItalianinternationalchocolatecompanyFerrero(seepage38)

• theset-upofMathomoProtectiveClothingmanufacturerwithastaffof700inDimbaza

(see page 24)

• NozuluCivils,aconstructioncompany,growingitsbusinessnationwide(s

eepage51)

• thegrowthofNiquaJuice,ajuice-bottlingfactory(seepage17)

• thephenomenonoftheturnaroundofthepineappleindustryoutsidePortA

lfred,including

thegrowthofSummerpridepineappleproductsbusiness(seepage55).

The map opposite indicates the extent to which Eastern Cape Development Corporation is

lending a hand in the Eastern Cape: the table alongside details disbursed ECDC loans throughout

theprovincein2008/09.PeoplearecomingtogetherintheEasternCapeto

formpartofalarger

and exciting momentum that is providing skills, creating projects and businesses and benefiting

the local economy. We are proud to be part of this.

2

The Difference ECDC

EASt London

nELSon MAndELA BAyPort Elizabeth

Jeffreys Bay

Humansdorp

UitenhagePort Alfred

Grahamstown

Port St Johns

Aliwal North

Lusikisiki

Queenstown

Cradock

Graaff-Reinet

Middelburg

Aberdeen

Willowmore

BhISho

Butterworth

Mthatha

Mount Frere

King Williams Town

nAMIBIA

BotSwAnA

zIMBABwE

MozAMBIquE

South AFRICA

EAStERn CAPE

Cape Town Port Elizabeth

East London

Durban

Bhisho

Bloemfontein

Johannesburg

EAStERn CAPE


3

Disbursed loans Total disbursed amount 2008/09

Imbewu Micro loans 294 R 11,000,000

Nexus Trade loans 341 R 73,000,000

Termcap loans 65 R 77,000,000

Workflow contractor loans 105 R 141,000,000

839 R 312,000,000

“My teacher says that the grass is not greener on the other side.

Well, my Dad reckons that’s not true.

He says there’s a secret world not far away with beautiful mountains and forests and rivers that shine...

There are people there who work hard everyday to build this magical home.

And there are giants and castles and kings, where the sunrise is like a promise.

My Dad says he’ll take us there because it is greener on the other side!”

Make it yours.the Eastern Cape

A young boy’s narrative of a secret, magical home is the backdrop of the television commercial that flighted

onvariousDSTVandSABCchannelsfromApriltoJune09.

Combiningtheprovince’suniquenatural

landscapes, family life and business, the commercial tells a story of an area with diverse and matchless

offerings.

The advert was designed to contrast the busy city life, a key characteristic of metropolitan areas in South

Africa,withtheserenityoftheEasternCape.ShotsofHole-in

-the-Wall,MagwaFalls(bothontheWild

Coast)andwhalesinNelsonMandelaBaymakethedistinctim

pressionthat‘thegrassisgreeneronthe

otherside’.ECDCcommissionedtheadvertonbehalfoftheE

asternCapeOfficeofthePremierto‘develop

a new, bold TV advert aimed at creating national awareness of the Eastern Cape as a lifestyle destination’.

The advert captivated some of the Eastern Cape’s most influential organisations including AsgiSA EC

(provincial government’s special purpose vehicle for rural development) and Eastern Cape Tourism Board

(the provincial tourism authority). As a pledge of support for the advert, both institutions provided funding

for broadcast and print support of the advert.

5

The Difference

ECDC

EC “Make it Yours” commercial

captures the heart of provincePeter Gird and Jason Xenopoulos, Producers, Media 2.0 & SMG Africa

Confronted by the reality of an economic downturn and its effect on the economy of South Africa and the Eastern

Cape, the Eastern Cape Development Corporation emerges from the review period poised for a long-term growth phase as it delivers its mandate to develop the economic landscape of the province. This it will achieve by exercising its core competencies of development finance, the development and management of properties, and development services which involve the disciplines of investment and trade promotion, enterprise development, and spatial and rural project development.

The Corporation is not unfamiliar with turbulence, and is increasingly adept at holding its ground in uncertain political or adverse economic circumstances. The year 2008/09 has presented both, and once again the Corporation remains resolute and determined to continue its course to develop the province in line with the Provincial Growth and Development Plan’s core goals of eradicating poverty, developing rural economies and improving food security, and diversifying manufacturing activity in the province.

The previous review period saw the rigorous restructuring and establishment of sound governance principles within the organisation to focus resources and co-ordinate efforts for the provision of a more synergistic developmental value-add to the various initiatives in the province. The 2008/09 year brought the continuation of the Corporation’s turnaround as its base of strategic trajectory built purposefully on the foundation laid in 2007/08 by refining the internal processes within each of its three core units, namely Development finance, Development Properties and Development Services. These refined efficiencies have resulted in an organisation that is well positioned for growth and expansion in the coming year and beyond.

The newly appointed Board is now in place and is working diligently to prepare the canvas for a new and fresh expression of ECDC. To begin with, it gives us great satisfaction to announce that once again the Corporation received a clean financial audit, which bears testimony to the integrity employed in the management of the organisation’s resources. Due to the economic downturn and commercial lenders closing shop, ECDC provided a catalytic role of supporting businesses especially those that were vulnerable. Most of these were concentrated in the former homelands. The impact of that work cannot be totally quantified now, but it will be felt through jobs that were created and by families that were indirectly supported.

The R312 million disbursed to business initiatives during the year constituted a 112% outperformance on the budgeted target of R147 million. The

Corporation’s 630% growth in its contract finance portfolio not only supported critical short term poverty alleviation projects such as the Department of Education’s school nutrition scheme and the Department of health’s food parcel distribution to those in abject poverty, but strategically enabled economic growth in line with the Provincial Growth and Development Plan’s objectives to develop the province. These projects saw the ECDC facilitating the building of new roads, completion of government construction projects, development of infrastructure and the development of new enterprises.

R312 million

112%

630%

253%

Forewordby the Chairperson

of the board

6


Government’s increased spending on infrastructure development saw the WORkflow construction contractor’s loan exceeding its targets by 253%. Development Properties embarked on a drive to redeem years of mismanagement of ECDC properties, which resulted in the tracking of debtors and the efficient collection of outstanding rentals owed to ECDC. The end result was the recovery of R18 million in old debt and an updated database of tenants who are servicing their lease agreements.

Loans disbursed to business initiatives

Outperformance on the budgeted target of R147 million

The Corporation’s growth in its contract finance portfolio

Percentage exceeded by Workflow Construction Contractor’s Loan

Patrick Ncita, Production Supervisor at Summerpride Foods in East London – one of many growing businesses assisted by ECDC and part of the pineapple industry turnaround in the Eastern Cape.

Summerpride Foods is owned by its growers, staff and agents and has a consistent supply of 115,000 tons of fruit supplied by its own 38 EUREPGAP (Good Agricultural Production) accredited growers.

7

Development Services demonstrated the heart and mind of the Corporation when they reached out to the pineapple industry in Port Alfred, Peddie, and Bathurst, and initiated a truly sustainable, innovative and developmental overhaul of the industry that has been suffering annual losses for nearly a decade. We anticipate the preservation of existing jobs, and the creation of new ones, which will alleviate the poverty that has been experienced in the Ndlambe area as a result of the sector’s stagnation in recent years.

Achievements such as this, which the reader will no doubt learn of in this Review, inspire hope and courage as we venture out into the unknown waters of another year. The Board remains optimistic about the Corporation’s future and we are committed to seeing the economic landscape of the province change for the better of all who call this magnificent province “home”.

In closing, I wish to thank the honorable Mcebisi Jonas, MEC for Economic Development, Mxolisi Matshamba, CEO of the Corporation, the ECDC Board, and indeed the executive managers and their team for their continued faith and support, and look forward to the feats, challenges and expansion that await the organisation as it sets out on a mission to further enhance its presence and developmental value-add in the province of the Eastern Cape.

Mr Bhekokuhle SibiyaChairpersonEastern Cape Development Corporation

EASTERN CAPE DEVELOPMENT CORPORATION | ANNuAL REVIEWSTATEMENT BY THE CHAIRPERSON OF THE BOARD

AsHatcheryManageratEspadonMarine,Philanderandhiscolleaguesfarmmarinefish,withCob(Kabeljou)beingthespeciesthey have commercialised. Cape Salmon (Geelbek), Spotted Grunter and Yellowtail are still at the pilot commercial and research and development stages. Espadon Marine supplies top-end restaurants in Gauteng and Cape Town and, as production grows, they are focusing on new clients such as larger restaurant chains and supermarkets – and 30% of production hasbeenearmarkedforexporttotheEuropeanUnion(FranceandSpain)andtheUnitedKingdom.

ECDC was instrumental in assisting Espadon Marine in relocating from the Western to the Eastern Cape. “The climate in the Eastern Cape is just about perfect for the farming of marine fish,” says PhilanderandGuyMasson,ManagingDirector,“andECDCassistedus directly with permitting and other authority approvals necessary.”

9 The Difference

ECDC

Fishing where the fish areJohnathan Philander, Hatchery Manager, Espadon Marine

Introduction and highlightsby the Chief Executive

Officer

The strategic intent mapped out by executive management for the year 2008/09 was two-

fold. first, to improve our delivery on the mandated mission of the Corporation, which is to plan, finance, co-ordinate, market, promote and implement the development of the Eastern Cape and its people in the fields of industry, commerce, agriculture, transport and finance. This we have pursued in line with the core strategic goals of the Provincial Growth and Development Plan and broader national and local policy interventions designed to deliver economic growth, creation of employment, and poverty eradication.

In channelling our energies and resources into the accomplishment of this mission, we have also purposed to refine our internal processes and efficiencies to eliminate those elements of our operations that were encumbering our sustainable success as an organisation. hence we summarise the period as one of internal efficiency for sustainable external delivery, and we are pleased to report on a year that will position us accordingly for expansive growth in the next five years, starting 2009.

Begining in July 2007 with the loss of confidence by investors in the value of securitised mortgages in the United States, the global economic crisis resulted in a liquidity emergency that prompted a substantial injection of capital into financial markets by the United States Federal Reserve, Bank of England and the European Central Bank. The TED (T-bill and Eurodollar) spread, an indicator of perceived credit risk in the general economy, spiked up in July 2007, remained volatile for a year, then spiked even higher in September 2008, reaching a record 4.65% on October 10, 2008. In September 2008, the crisis deepened, as stock markets worldwide crashed and entered a period of high volatility, and a considerable number of banks, mortgage lenders and insurance companies failed in the following weeks.

10


Economic landscape

The global economic crisis has had a notable impact on the economic wellbeing of South Africa, and indeed the province. As a result, growth estimates for South African gross domestic product have been revised down to 3.5% per annum, which falls short of the PGDP target to maintain growth of 5-8%. While the province’s growth rate has been marginally higher than the national average in recent years, it is unlikely to fall within this range. Particular pressure has been placed on our automotive and manufacturing sectors as companies have been forced to slash overhead costs in order to survive. The other contributors to this trend have been inflated fuel prices, volatile interest rates, the electricity crisis, and reduced customer orders. ultimately, the disposable income of households, particularly the 4.3 million poorer households in the province, has decreased while food prices have increased dramatically in the same time period. The medium-term trickledown effect of this trend

is likely to manifest in the fiscus as depleted financial resources impact negatively on the government funding required by the Corporation to deliver on its developmental mandate.

The emphasis of PGDP, being value addition and beneficiation to existing sectors of the economy, is strategically relevant when one considers the negative impact of the economic downturn on household income. food security refers to the availability of food even in the midst of financial poverty. for this reason the agricultural production and agro-processing industries have received specific emphasis in the review period (as evidenced in the Ndlambe pineapple industry turnaround and the berry corridor project). Another important focus is the renewable energy sector, converting agro-processing waste into energy.

ECDC faces the task of creating sustainable jobs and alleviating poverty in the province, regardless of the global economic situation. The sectors most likely to deliver these returns, and hence those that will receive our most urgent attention and investment, are the agriculture and agro-processing, automotive, tourism and general manufacturing sectors. Bringing more rural people into the formal economy remains an imperative, and we also remain determined to facilitate foreign Direct Investment (fDI) into the province. There are, however, tremendous prospects in emerging sectors such as Business Process Outsourcing and Off-shoring (BPO&O) and ICT, which the ECDC, together with its strategic partners will aggressively pursue. Our experience in the period under review has been that it pays well to look after existing companies as the potential for expansion abounds.

While the Corporation has been, and will be, presented with formidable challenges to its ongoing efforts to ensure the economic upliftment of Eastern Cape communities, our steadfast response to these circumstances has been to consistently employ a fine balance of courage and financial prudence as we persist in our objective to develop the province and to complete the Corporation’s three year turnaround process. Despite glaring internal challenges surrounding the changes at Board level, as well as those external challenges we have discussed, we are pleased to present another impressive set of financial results this year despite the economic crisis, and stand by our rationale as we advance into the next financial year.

EASTERN CAPE DEVELOPMENT CORPORATION | ANNuAL REVIEWSTATEMENT BY THE CHIEF ExECUTIvE OFFICER

11

Refined internal efficiency

In the previous review period, time was spent in the benchmarking and analysis of the Corporation and its performance against its mandate. The findings of that analysis were that we had not reached the critical mass required to secure sustainable operations through the disbursement of development investments, the provision of development properties, and the provision of development support services. We then embarked on a structural revision that saw a solid executive management force being restored to these three areas.

The focus of the 2008/09 review period was to improve operational effectiveness, enhance record keeping and reporting processes, and to maintain a more rigid control of what was happening at the coalface of the Corporation’s engagement with its clients, and operate our portfolio of services profitably by 2010.

The marketing and communication campaign for ECDC business finance products, together with the operational efficiency and follow through employed by the Development Investment unit, saw overall outperformance with respect to its stated performance plan for the review period. The unit offers short- and long-term business finance solutions to enterprises within the

province that present developmental value.During the year of review, the targeted R66 million in term loan disbursements was outperformed by 17% as it disbursed R77 million, while the short-term finance disbursement goal of R62.5 million (comprised of R10 million in trade finance monies, R40 million in construction loans, and R12.5 million in micro-finance) was exceeded by 630% in the case of trade finance disbursements, 253% with regard to construction loans, and underperformance in the case of micro-finance of -12%.

The extensive drive to eliminate bottlenecks and inefficiencies within the unit, particularly in the case of short-term finance, resulted in the efficient delivery of finance to small, medium and micro enterprises requiring finance to deliver food parcels to school learners in marginalised areas, as well as the poverty stricken in the poorest regions of our province.

The vigorous efforts of the Development Property unit to recover old outstanding rentals, and to re-order its database of tenants with accurate information resulted in the recovery of R12 million, and the collection of R42.3 million which constituted a 23% escalation from the previous year.

The refined efficiencies of the various units brought about a greater level of co-ordination amongst them. The Development Services unit led the initiative to turn around the pineapple industry in the Ndlambe area. The project, led by the team from Project Development (a component of our Development Services unit), reflected the synergistic value-add of the Corporation as we facilitated loan financing deals as well as providing the initiative with development and support services.

The intervention of the organisation in the industry has literally breathed hope into a situation weighed down by years of economic and social losses.

+17%

12


+23%

term loan disbursements 2008/09

Target R66 million

Disbursements R77 millionachieved

Short-term finance disbursements 2008/09

Target:Trade finance R10 millionConstruction loans R40 millionMicro-finance R12,5 million

Achieved:Trade finance R73 million Exceeded by 630%

Construction loans R141 million Exceeded by 253%

Micro-finance R11 million underperformed by -12%

development Properties’ rental collection

2008/09 R42,3 million

Escalation of 23% from previous year

Johnathan Philander, Hatchery Manager, tends to the tanks at Espadon Marine in the East London Industrial Development Zone – where marine fish are being farmed for local and international consumption.

not without our stakeholders

The nature of our accomplishments that have been achieved during the review period are such that we would not be able to review the various milestones and project highlights without the continued value-add of our external partnerships and relationships. Constructive engagements with clients and chambers were established and improved during the period to determine areas of common interest and to formulate strategies to overcome challenges faced by these players. Close working relationships were maintained with the Companies and Intellectual Property Registration Office (CIPRO), the two Industrial Development Zones in the province, the Development Bank of South Africa, the Industrial Development Corporation, the municipalities and government departments in the province.

Mr Mxolisi D MatshambaChief Executive OfficerEastern Cape Development Corporation

The recent review of the Provincial Growth and Development Plan’s (PGDP) core strategic goals re-iterates the role of the Corporation in the implementation of the reformative strategies formulated by government. The strengthening of the implementation of PGDP can only be delivered as developmental entities rally together behind its objectives. ECDC is resolute that it will continue to champion these objectives within the province by stewarding developmental resources for maximised developmental results.

The Corporation engaged deliberately in the fulfilment of the stated PGDP objectives during the year of review. In this regard, the projects featured in the year 2008/09 were as follows:

• DepartmentofEducation’sschoolnutritionscheme:ECDC’scriticalrole,

• DepartmentofHealth’sfoodparceldistributions:BridgingfinancetoSMMEs,

• IntegratedEmergingContractorsDevelopmentModel:Developmentalimpactandimprovedgovernmentdelivery,

• ECDC/CIPROregistrationsynergy:EasternCapeoutperformstherest,

• ProjectscopinginLusikisikiarea:Industrialdiversificationforsustainablegrowth,

• IndependentStandardsOrganisation:TotalqualitymanagementforSMMEs,

• EasternCapefromAbove:PhotographicexhibitionoftheprovincedisplayedinEurope,

• PineappleturnaroundintheNdlambearea:Fromprimaryproductiontobeneficiation,

• TheSMMEConferenceandBusinessExpo:AligningeffortstodevelopSMMEsintheprovince,

• PureOceanAquacultureandEspadonfin-fishfarms:Pioneeringout-of-seaproductionintheprovince,

• AmalindaFishFarm:Projectadministrationanddevelopment,

• Skillsdevelopmentwithintheprovince’screativeindustries:World-classcraftforworldmarkets,

• InternalalignmentandimprovedefficiencyoftheDevelopmentInvestment,DevelopmentProperties and Development Services units: Preparing for growth and expansion.


13

Executive managementshare their thoughts

on development in 2008/09

Luyanda tsipa DEVELOPMENT PROPERTIES

With 10 years’ experience in immovable asset management, Tsipa is a B Juris graduate of the university of Transkei, whose experience includes working in the Land Claims Commission and the National Department of Public Works. her roles at this former employer include deputy director of asset management and leaseholds, director of prestige property management and chief director at the Johannesburg regional office.

Msulwa daca ChIEf fINANCIAL OffICER

A chartered accountant by profession, Daca brings a wealth of experience after successful years at leading professional services firm kPMG and the South African Revenue Services. Before joining ECDC, he was chief director of accounting support services at National Treasury in Pretoria.

“Development Properties focuses on the conversion of non-income-generating properties into a strategically aligned property portfolio that supports and promotes the mandate of ECDC. I was born and bred in the Eastern Cape and its economic development means the upliftment of a people who shaped me.”

“ECDC’s core business is to assist businesses to develop and grow, from start-ups to larger businesses seeking export opportunities. We provide an appropriate governance platform to allow ECDC to efficiently and economically deliver on its mandate.”

dEvELoPMEnt InvEStMEntS • StatedtermloandisbursementstargetofR66million–outperformedby17%• Short-termfinancedisbursementgoalofR62.5million–tradefinancedisbursementsexceededby630%

construction loans exceeded by 253%

dEvELoPMEnt PRoPERtIES • R515millionpropertyportfolio• R13millioninrentaldebtrecovered

dEvELoPMEnt SERvICES • TurnaroundofthepineappleindustryintheNdlambearea(PortAlfred,BathurstandPeddie)• ThreenewaquacultureinvestmentsintheEasternCape• Trainingofnearly186enterprisesinISO22000/HACCP(HazardAnalysisandCriticalControlPoints),quality

management systems (ISO 9001), or OHSAS (Occupational Health and Safety Advisory Services), as well as training of 133 crafters and 62 construction contractors

• HostingofthefourdaySMMESummit,whichexploredsolutionstoempowertheprovincethroughenterprise

14

• “EasternCapeFromAbove”exhibitionandtheEasternCape“Make it yours” television commercial


Chris Bierman DEVELOPMENT INVESTMENTS

Raised in Johannesburg, Bierman is a chartered accountant who has worked with the IDC, as well as lectured in Management Accounting at the university of the Witwatersrand. As a former business owner, he has extensive experience in large enterprises across various sectors in South Africa and Australia. In his role as corporate finance dealmaker, Chris has been instrumental in facilitating and structuring a large number of black economic empowerment (BEE) deals. he has also authored a book on BEE on the raising of finance for small to medium size businesses.

noludwe ncokazi DEVELOPMENT SERVICES

Ncokazi graduated with a Bachelor of Commerce from the university of Western Cape in 1994. Since then, she has completed her honours degree in economics and is currently working on her Masters degree. her roles have spanned four of South Africa’s provinces as educator, financial manager, chief executive officer, executive consultant and general manager in the public and private sectors. She joined ECDC after four years with the Buffalo City Municipality as its general manager for economic development, tourism and rural development.

“Development Services accelerates the development impact of projects, unlocks the latent development potential in previously disadvantaged areas and actively promotes entrepreneurship, and so strengthens the position of the Eastern Cape as a premier investment destination. ECDC is the critical link between government and the private sector.”

“Development Finance is about the promotion of entrepreneurship through the funding of technically sound and financially sustainable businesses and projects. It targets businesses and projects in high-poverty nodes where multiple socio-economic objectives can be achieved. It also provides low-income individuals and communities with investment opportunities in private sector partnerships that address their needs, like job creation, affordable housing and the launching of sustainable businesses.”

EASTERN CAPE DEVELOPMENT CORPORATION | ANNuAL REVIEWExECUTIvE MANAGEMENT

15

NiquaJuiceinJeffrey’sBaybottlesfruitjuicesandotherbeveragesforclientssuchassupermarketretailgiantsPick‘nPay,Shoprite/Checkers,SparandOKFoods,aswellaspetrolstationforecourtstoresandcornergrocerystores.PreviousproductionfocuswasontheEasternCapealone,butbeingunabletoproduceenoughjuicestockforexpansionheldNiquaJuiceback.FinancingmachineryisjustonewaythatECDCwasabletoassistthebusinessto grow into other provinces, with export possibilities in the near future now also within range. “With ECDC’s involvement, it will enable us to focus on more products, expansion to other regions as well as bettering our service,” says Hein van Rensburg, Director.

17The Difference

ECDC

Juice the juiceEunice Mahote, Labelling and Staff Supervisor, Niqua Juice, Jeffrey’s Bay

Investing resources:A review of the

Development Investment unit

Successes in the realm of development investments

As the mandated steward of provincial development capital, ECDC endeavours to identify projects that will have, or stimulate, maximum socio-economic impact within the Eastern Cape. The unit that specifically manages the applications, processing, risk and disbursement of these monies (in the form of loan capital) is the Development Investment unit, headed by Chris Bierman, CA (SA), who is proud to report on the successes of the Corporation in the realm of development investments within the review period.

the statistical breakdown of loaned monies indicates that:

• 85%wasdisbursedtocompaniesturningoverless than R500,000 per annum.

• 60%wasinvestedintoruralprojects,indicative of the Corporation’s renewed focus on rural development initiatives.

• 45%ofdisbursedmonieswenttofemaleapplicants.

• 22%ofloanswenttoprojectsinitiatedbyyouth.

• ContractorsreceivedR141millionandR73million was disbursed via the ECDC Nexus trade product to supply short term finance to chain contractors.

• Themicro-financesegmentsawan R11 million loan amount, granted via the

ECDC IMBEWu and POWERPlus loans.

• TheCorporationmaintainsabalancedportfolioofshort-and long-term development investments.

• Thelaunchofthenew“ECDCBusinessFinance”productswas successful after a marketing and advertising burst campaign was implemented to boost sales and increase our markets’ awareness of the ECDC short- and long-term development investments offering.

• WedisbursedR312milliontodevelopmentalinitiatives,of which 25% constituted long-term, and 75% short-term loans.

R312 million development initiatives

25% long-term

75% short-term loans

• Impairment(debtatriskofnon-repayment)oftotaldisbursements during the period under review amounted to R5 million, which constitutes a mere 1.6%. This can be celebrated as a major feat when held in contrast to the fact that during the period between 2001 and 2007, impairment estimates were in the region of 66%.

• Anincreasedfocusonstructuredfinancehasresultedin good quality equity investments on the part of the organisation.

• ThecompletionoftheCorporation’sDevelopmentInvestment Policy has meant that the Corporation now employs a standard guideline with respect to risk management and the awarding of loans.

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Refined efficiencies in the development Investment unit

Emerging contractors Emerging finance excellence

The Integrated Emerging Contractors Development Model, an initiative to improve the skills of emerging construction contractors contracted to both the public and private sectors, was conceptualised and implemented during the 2008/09 year in a collaborative partnership between ECDC, the Council for Scientific and Industrial Research, and The university of the Witwatersrand.

The programme, stewarded by our Development Services unit, created value for the Corporation’s management of loaned monies by training contractors in cost-management and technical operation issues. By capacitating contractors to manage their contracts appropriately, the Corporation experienced an improved loan repayment rate, and decreased default on loaned monies as a result. Because of this, the volume of loans granted increased, and a greater developmental effect was leveraged using ECDC resources.

In addition to this, the Enterprise Development Services team, a component of Development Services, assisted the Development Investment unit with the initial development and implementation of its aftercare facility, which formed a central focus of the unit during the review period.

In reflecting on the above cases, ECDC takes great delight in demonstrating its increased ability to create synergy and cross pollination between its various units.

Drastically reduced turnaround times

One of the challenges faced by ECDC in the review period was the perception of the Corporation in the mind of its target markets, which was typically one of ‘delayed turnarounds and inefficiency’.

having identified this challenge, the Corporation initiated a flagship-status project, ‘Address Turnaround Times’, to address the inefficiencies that had become incumbent to its development finance offering.

The project targeted the improvement of our customer feedback process, the elimination of internal red tape and inefficiencies related to loan authorisations, to see ECDC as an organisation made up of units that depended on each other for proper functioning.

One of the outcomes of the project was the need for a fully automated loan application and approval process, which we will endeavour to implement during the year following review.

Negative feedback converted to positive results

having completed the project, the Development Investments team drastically reduced the turnaround time for an application for contractor finance (the NExuS trade and WORkflow products) to less than 48 hours from the client’s application. This increased efficiency has led to the Corporation’s loan book reflecting short term disbursements of more than R50 million at any given point in time.

The majority of complaints received from clients in the past related most strongly to short-term, micro-finance applications (loans less than R500,000). As a result, the Corporation never managed to gain a firm foothold in what the Development Investment unit refers to as “the magic gap” of the R250,000 to R300,000 loan range, and hence was not able to have the developmental impact it desired. This began to change during the year as satisfied clients gave ‘word-of-mouth’ referrals to their colleagues and friends, who were impressed with our efficient turnaround times and our new approach to aftercare and support, which provided entrepreneurs in this category a swift and well defined solution to their developmental ideas.

ECDC reviewed and revised its portfolio of finance products

• Adaptedcommercialdesigns/layoutsforshort-term products with specifications.

• Long-termproductswithspecifications.

• Disclaimerthatquotedratesandexpensespertain to the review period only.

EASTERN CAPE DEVELOPMENT CORPORATION | ANNuAL REVIEWDEvELOPMENT INvESTMENT

19

Flexing its muscles of synergy, ECDC was able to offer Bargain Tents an investment solution that packaged a lease agreement for it to operate from one of ECDC’s prime industrial facilities in Dimbaza, an established industrial area near King William’s Town.

Some new investments into the Eastern Cape

The Eastern Cape expands its tents

The Eastern Cape has attracted the investment of Bargain Tents, a national manufacturer of marquee tents and plastic chairs and tables recognised as the largest of its kind in South Africa. We as a Corporation are pleased to report our central role in the facilitation of the investment process, which led ultimately to this operation becoming a new economic contributor in the province.

ECDC offered the investor an ECDC TERMcap loan of R18 million for new equipment to expand its manufacturing capacity and to cover the cost of its relocation from kwaZulu-Natal. Its investment into the area brings a new source of employment and a wider platform for economic activity in the province. The relocation of the manufacturer into the Eastern Cape was imminent at the time of writing.

NNIP (Pty) Ltd constitutes a rural partnership between the following entities:

• ECDCholdsa33.5%stake;

• thePineappleGrowersAssociation(representedbyCayennePineappleGrowers(Pty)Ltd,whichholds40.5%);and

• theEasternCapePineappleIndustryWorkers’Trust,whichholdsa 26% share in the company, rendering the project one of true developmental value.

To achieve this, the Development Investment unit ensured that:

• theinternalinvestmentreportingprocesswasstreamlinedandconsolidatedforamorediverseaudience;

• thefinancialmodelreflectedastandardisedapproachtoapplicationsacrossthevariousloancategories;

• theapplicationdocumentationwasreworkedsuchthattheapplicant’ssignatureonthedocumentconstitutesalegallybinding agreement in the event that their application is successful. This has eliminated the need for the ECDC agents to ventureintoremoteareasoftheprovincetosourcethesignatureofruralapplicantswhoseapplicationswereapproved;

• humancapacitywasbolsteredtodealwithmicro-financeapplicationsefficiently;sixnewinternswerehiredduringthereview period (sourced from the Sectoral Education and Training Authority), which has capacitated the unit to reduce complaints and increase client satisfaction.

In addressing the issues and challenges we faced, the Corporation has begun to build a foundation for further growth in the realm of Development Investments. The improved performance of small loans in the Corporation has resulted in an internal shift in the perceptions of micro-finance. Once viewed by some as a ‘mickey mouse’ development finance area, these same ECDC members entertain a healthy respect for this loan category as a tool with which significant developmental impact can be made in the province.

Pioneering a new purpose for pineapples

The Corporation demonstrated its synergistic offering during the review period when its Development Investment and Development Services teams descended on the ailing pineapple industry in Port Alfred to initiate its turnaround after the demand for the fruit dipped, causing an economic slump.

having conducted the relevant project-scoping exercises to ascertain the viability of various pineapple-based products, ECDC closed a broad-based black economic empowerment deal to grant a R28 million TERMcap facility to Ndlambe Natural Industries Products (NNIP) (Pty) Ltd. The loan, made on the strength of the research findings, provided NNIP with the financial muscle to purchase a controlling stake in Summerpride foods, an established fruit processing plant in East London which will soon be relocated to Bathurst in an effort to consolidate agricultural and industrial processes in the sector. This is a critical success factor of the project.

20


Trellising has been completed on Cob Creek Estate’s 32 hectares, with around 22 000 poles and 500km of wire in place. Additional game fencing has been added to keep the antelope from helping themselves! Jonny Witbooi and Jaco Schoeman (above) check the nursery vines for viruses.

The first Cob Creek wines will be available in November 2010, under a second label, as the volume will not warrant the full construction of the winery at this time. A restaurant and tasting room will open in November 2009 to create awareness of the farm and increase wine appreciation in the area.

The Cob Creek Wine EstateA blend of shiraz red, chardonnay white

and golfing greens

ECDC client, Cob Creek Wine Estate Pty (Ltd), is on track to launch what will be the first wine estate in the Eastern Cape, having confirmed its vine-growing viability through scientific testing and research.

Situated on a 254ha farm straddling the kabeljouws River on the outskirts of Jeffrey’s Bay, the estate enjoys breathtaking views of the bay and the kabeljouws Lagoon. Boasting a three-star, seven-bedroom guest house, a studio with capacity to accommodate 100 people, and staff and management housing, the owners envisage that the land will become the premises for a five-star hotel, wine cellar and golfing estate.

The planting of trellised vineyards on the Cob Creek Estate took place in 2008, when it was awarded an ECDC TERMcap loan of R3.2 million. The developmental aim of the project is to establish a second wine route in South Africa which will stimulate an exponential increase in the demand for wine by tourists seeking a unique Eastern Cape wine-tasting experience. To this end the owners of Cob Creek are encouraging other local farmers to plant vines so as to create the critical mass of wine production that would sustain such an initiative.

ECDC envisages that this initiative (a combination of wine estate, tourist accommodation, golfing estate and conferencing) will have a notable developmental impact on the Jeffrey’s Bay area, creating 70 direct jobs, of which 30 will be permanent and 40 seasonal.

Export Eastern Cape through organic growth

The 2008/09 year saw Mzondo Technologies, an organic juicer in Port Alfred being granted financial assistance through the ECDC NExuS trade contractor’s loan.

The Corporation’s Development Investment team, together with the Trade Promotion team, provided an integrated financial assistance and trade-promotion solution to the juicer, which enabled them to expand operations to become the largest organic juice exporter in the Eastern Cape, and one of the largest in South Africa.


21

development Investments yielding fruitful returns

Sparring with the best of them Young entrepreneurs in Lusikisiki

In 2005, the Corporation granted the owners of Lusikisiki Spar a financial loan to fund the growth and expansion of their business.

Three years later, Lusikisiki Spar has developed a solid customer base and has experienced rapid expansion. Both partners in the business are young entrepreneurs who have won awards from Spar, and are esteemed by their community as up-and-coming leaders.

Demonstrative of the Corporation’s commitment to stimulating and sustaining business initiatives in the rural Eastern Cape, this story provides evidence that young minds in the rural areas can play a significant role in changing the face of the Eastern Cape through enterprise and perseverance.

Giving credit where it is dueTabile Trade’s example

Since its inception in 2003, Tabile Trade has continued to grow its business while reducing its loan debt – which is exemplary. The fruit and vegetable retailer in Mthatha does business with hawking groups, large businesses and walk in customers from the bustling Mthatha centre, as well as the nearby small towns. ECDC is proud to acknowledge Tabile Trade as a client that has flourished through tough times, and one that has responsibly managed its debt as an asset to fuel the growth of its business.

Dlatu CZPaid in full

The Corporation esteems players such as the company Dlatu CZ, who can be described as one of its ‘strong horses’: it continues to build a sustainable business, having already settled two ECDC loans in full. The company’s clean, neat and well-stocked bottle store in Bizana offers a full spectrum of well-known brands, and the customer base encompasses a broad range of people, excluding children under 18 years of age. This venture is aligned with the Corporation’s mandate to continue its efforts to stimulate economic activity and growth in rural towns like Bizana in the province. To achieve this, the Corporation aims to offer the communities in these areas an increasingly strategic blend of financial resources and skills impartation.

The Corporation has developed valuable partnerships with its various government stakeholders to facilitate a more efficient delivery of projects and services in the public sector. In most cases, other valued partners in these projects include the likes of the South African Social Security Agency (SASSA), the Independent Development Trust (IDT), and AsgiSA-EC (the provincial champion of the Accelerated Shared Growth Initiative of South Africa also known as AsgiSA).

Spanning across the departments of Health, Education, Water and Environmental Affairs, Agriculture, and Transport, the wide humanitarian impact of these partnerships has seen countless disempowered small, medium and micro enterprises with no capital and little hope rising up to take their place as productive entrepreneurs in the province.

ECDC takes over school nutrition programme

One of the developmental initiatives that benefited immediately as a result of the increased efficiencies of the Development Investment offering was the Department of Education’s project to distribute daily food parcels to schools in marginalised areas.

The project, aiming to feed in excess of 1.3 million learners in marginalised areas, nearly came to an abrupt end when its numerous cash-strapped SMME suppliers (represented by the National African federated Chamber of Commerce, NAfCOC) were unable to deliver on their obligations, and were forced to cede their contracts with the Department to their key suppliers. The programme would have failed at that point were it not for ECDC’s R40 million injection of short-term loan finance into these emerging SMME operations.

The efficiently disbursed bridging finance allowed the numerous contracted SMMEs to deliver the right goods at the right time, at the right locations, thereby redeeming the scheme and rendering it a successful initiative after all. Where problems arose between SMMEs and the Department (relating to the payment of service providers by the Department), ECDC was able to ensure that these were resolved efficiently and fairly.

The current superintendent-general of the department, Professor harry Nengwenkhulu, has endorsed this partnership between ECDC and the School Nutrition Suppliers, and has given his undertaking to support the programme to the maximum.

22


The R203 million feeding scheme programme has fed 296,621 schoolchildren to date, and provided 162 new jobs in the province.

Healthy teamwork to nourish the poor

The Corporation’s Development Investment team, together with NAfCOC and SASSA, partnered with the Department of health to distribute food parcels to the poorest of the poor as part of their nutrition programme in the province.

Again ECDC provided the bridging finance to fund SMME orders that had been received by the Department of health. Although the time deadlines and regional diversity of the project presented challenges, ECDC was able to facilitate the transfer of funds efficiently, and delivery took place as the Department had intended.

The nutrition programme will continue into the year following review and the Corporation is privileged to participate in a programme that not only facilitates SMME development, but indirectly provides sustenance to the marginalised and disadvantaged.

The Development Investments Unit and CoegaAn operational synergy

In addition to the direct relationships with government, ECDC has also played a significant role in facilitating increased efficiencies and synergies within the two IDZs in the province. While the East London IDZ and the Corporation have collaborated synergistically to introduce two pioneering aquaculture investments (see pages 43 and 44), its Coega counterpart has leveraged exemplary provincial capacity utilisation with various government departments and our Development Investment unit.

An example of this is found in the Department of Education’s building of schools in the Eastern Cape during the year. Experiencing a shortage of project management capacity at the time, the department tapped into the temporarily underutilised capacity of the Coega IDZ, which acted as the appointed implementation agent for the department. having conducted the various scoping, research and Request for Proposals (RfP) processes, Coega sourced the various contractors who would build the schools and, where necessary, would refer those requiring short-term cash-flow assistance to our Development Investment unit to apply for the ECDC Workflow Contractor’s Loan.

We believe that this, albeit a simple concept, indicates the extent to which government departments and other developmental parastatals are integrating with the Corporation to maximise delivery in the province.

Internal resources for external impact

While the Development Investment unit is excited and enthusiastic about the many successes and achievements of the review period, it would be an incomplete picture were the reader to miss the various internal shifts that made the year as successful as it was.

• ExecutiveManagerofDevelopmentInvestments,Chris Bierman, expresses a true satisfaction with the performances and attitudes of his team members, indicating that their willingness to cultivate an ethic of diligence and effectiveness has been evident in their morale and sense of unity.

• Membersoftheunitareexperiencingamoreopenchannel of communication between each other, resulting in a clear understanding as to what is required of them, and what they can expect from each other.

• TherecruitmentofSiviweMakasi,aconstructionspecialist, has improved the capacity of the Corporation to assess the viability of applicants’ construction projects, and to provide ongoing monitoring regarding the progress of each project.

• TheDevelopmentInvestmentUnitrecentlyappointed a new credit and risk manager, Nelisia van Dyk, to manage the risk profile of the unit. The forthcoming review will detail the full benefit of this added capacity to the unit.


23

One is not prepared for the scope, activity and enthusiasm one encounters at the Mathomo

ProtectiveClothingmanufacturersinDimbazaoutsideKingWilliam’sTown.With700

staff,thefactoryiswell-equippedtosupplyprotectiveclothingforbothlo

calandexport

markets.

KoliweMda,asupervisoratthefactory,specifiesthey“dealexclusivelywiththe

wholesaledistributionchannel.”KevinSchroeder,Director,wasimpressed

withECDC’s

speed and efficiency in helping set Mathomo up: “The ECDC was absolutely fantastic in

that from the day I met the (then) CEO of ECDC on an aeroplane flight with the (then)

PremieroftheEasternCape,wewereoperatingtwoweekslater–itwasbr

eathtaking.”

24

The DifferenceECDC

Quality breeds successKoliwe Mda, Supervisor, Mathomo Protective Clothing

Creating platforms:A review of the

Development Properties unit

ECDC’s Development Properties team is pleased to look back on a year to be remembered in the unit as one that brought with it true internal alignment that made internal efficiency and synergy a reality.

The year under review saw the Development Properties Unit giving priority to the refinement of its internal processes and systems in order to more efficiently manage its portfolio of properties. The key objective in doing so was to commence with a long-term drive to align the portfolio to the strategic goals of the organisation’s economic development mandate.

In order to achieve this alignment, the unit identified four key areas upon which to focus for the foreseeable future. These are discussed in the sections that follow.

Improving rental collections

One of the fundamental efficiencies required in managing a portfolio of properties is that of rental collections and the management of lease agreements. The Corporation had its work cut out for it in this regard as it addressed the historic mismanagement of some of its properties where rental collections were poor, as well as a lack of accountability that had allowed the problem to continue unabated. The problem was two-fold: outdated information and poor tenant management.

Data integrityRefreshing the database

To remedy the problem of outdated information that resulted from a long season of poor tenant account management, the organisation’s newly formed team of property managers commenced with an intensive data verification exercise that would leave nothing to chance. Employing whatever means necessary to ensure a properly updated database of tenants, the team went to the point of conducting door-to-door physical checks of our properties where other means of verification had failed to generate convincing tenant identities and contact details.

Quality tenancyThe way forward

As profiled in the section, “Investing resources into the Eastern Cape” (page 18), the Development Properties unit worked with Development Investments to facilitate the investment of the largest manufacturer of marquee tents and plastic chairs and tables into the province. The manufacturer, who has entered into a lease agreement with the Corporation to operate its business from one of our industrial facilities in Dimbaza, will bring a qualitative (tenant profile) and quantitative (rental revenue) benefit to the Corporation and the province, and constitutes the calibre of tenants sought by the Development Properties unit.

ECDC played an integral role in ensuring the success of the R1.3 billion Steinhoff/PG Bision chipboard plant investment in Ugie.

Investment value: R1,3 billion

Milestones: •PressedfirstboardonThursday,13December 2007

•35000m2 per day melamine-faced board press

Employment: 3 000 (est)

Salary bill: R88 million

Production: 1 000 m3 per day

Size: 36 ha

Expenditure: R56 million

26


Rental received 2008/09

Target: 43.5 million

Achieved: 42.3 million

Ex-tenant identification and tracking

having conducted the data integrity and verification process, the Corporation was better positioned to pursue outstanding rentals from existing tenants. We faced another challenge, however: accessing ex-tenants of the Corporation’s properties who owed us a substantial amount in outstanding rentals. Many of these individuals could not be traced using available means, which resulted in the unit’s partnership with ECDC’s finance and support team and a contracted debt multi-manager to formulate an identification and tracking process that would trace defaulters and call them to account.

The debt multi-manager provided us with a debtor-coding system that risk profiled our attempts to trace each identified debtor. The debtors coded as high-risk cases were those who were probably untraceable or unable to settle their debt, and those coded as low-risk or medium-risk cases presented a higher likelihood of being traced and being in a position to settle their debt. Lower risk cases were given priority, which improved our chances of success before venturing out to locate our debtors.

The initial target for the year of review was to recover 20% of arrears owed to the organisation. In applying the data verification process and the ex-tenant identification and tracking process, we managed to recover 19% during the year.

Eliminating the arrears status of the ECdC property portfolio

Co-ordination between units for maximised debt recovery

The Corporation’s increased emphasis on integration between units translated to greater co-ordination between the Property Development unit and the Development Investment unit as they conceptualised and implemented a cross-unit checking process to ascertain the standing of loan applicants with respect to ECDC properties. Where the applicant for a financial loan was found to be a tenant of an ECDC-owned property, and was in arrears with their rental payments, their loan application was declined until the outstanding amount had been settled in full.

The process was a fruitful one facilitating the recovery of a substantial portion of old rental debt. This bears testimony to the critical importance of co-operation between the three units of the Corporation (Development Investments, Development Properties and Development Services), which is an ongoing focus under current leadership.

Debt recovery with a developmental spirit and a shrewd mind

While ECDC is committed to the fulfilment of its mandate of economic development, it also needed to communicate a strong message to defaulting tenants and ex-tenants: we are not a charity, but we are resolute in our efforts to sustain the Corporation as a development finance institution for the development of theEastern Cape.

It is a requirement that the managers of the Development Property Unitthinklikeentrepreneurswithadevelopmentalspirit;thiswillbring to an assertive close the sense of entitlement that has become endemic in large portions of our tenancy base. The Corporation’s developmental mandate means it will deal with its debtors in a manner that facilitates the highest degree of sustainability in the province and ensure the wellbeing of the organisation. The elimination of the various abuses sustained by ECDC resources and properties has included the exclusion of tenants and ex-tenants who are in arrears.

EASTERN CAPE DEVELOPMENT CORPORATION | ANNuAL REVIEWDEvELOPMENT PROPERTIES

27

-3%

Aligning the property portfolio to developmental mandate

Residential property disposals

The mandate of the Eastern Cape Development Corporation, in a nutshell, is to stimulate economic development that will help achieve the vision of a sustainable Eastern Cape. The property managers among us are in the process of ensuring alignment with that directive. As a development entity, it is of little importance for us to hold a multi-million rand residential property portfolio. hence the year of 2008/09 saw the commencement of a process to shed residential properties under management in order to generate resources for industrial and commercial investment opportunities.

The unit is pleased to report that during the year, it signed off 40 residential deeds of sale, which generated R16 million in cash reserves for injection into projects that stimulate sustainable economic activity.

40 residential deeds of sale signed

Generated R16 million

An example of this approach is found in the partnership that was created with a developer to build 200 residential property units on one of our sites in Southernwood, Mthatha, where no residential development has taken place for nearly two decades. The deal is signed and the developers are poised to convert the site into a modern townhouse development as soon as some land tenure issues are resolved.

Mthatha’s suburb of hillcrest is the home of the next site that awaits this type of development and disposal. feasibility studies are currently underway to investigate the viability of a project that is likely to take place within the framework of the king Sabata Dalindyebo (kSD) Municipality’s Integrated Development Plan.ECDC views this type of disposal as a developmental one that allows us to invest capital into the province while adhering to our own mandate to strategically develop industrial and commercial activity in the province.

Disposal of non-income generating properties

The disposal of residential facilities formed only one arm of the drive to align the portfolio to reflect a more strategic developmental focus. The year of review also saw the Corporation identifying vacant sites within its portfolio that, while presenting limited commercial or industrial potential, showed promise as sites for residential development.

ECDC has begun to seek partnerships with property developers who require land for residential development. In this case, the Corporation would ensure the correct residential zoning of the sites and contribute the land to the development projects. The partner/developer would then move in with materials and labour to develop the residential units for sale to buyers in the market. The proceeds of these sales would then be apportioned to the Corporation and the developer accordingly.

28


In aligning our portfolio strategically, ECDC has identified opportunities to redevelop existing facilities that require repurposing, renovation and refurbishment in order to offer a viable commercial or industrial platform for development.

An inherited portfolio

Many of the properties within ECDC’s R515 million portfolio were not purchased or developed by the Corporation, but absorbed into the portfolio when the Ciskei Small Business Development Corporation and the Transkei Development Corporation were merged, with others, to form ECDC. Many of these inherited properties are in fact undesirable to many would-be tenants in the commercial and industrial realms, either because of an unsuitable location, or an irrelevant purpose that renders the unit unviable.

In most cases, the properties in question require redevelopment to render them attractive and viable developmental platforms once more. The disposal of residential properties and those not generating an income will provide capital to commence with these projects. In the interim, however, the Corporation pays rates and taxes on the facilities while they stand vacant.

An example of this redevelopment methodology is found in the redevelopment of hillcombe, one of ECDC’s townhouse complexes in Mthatha. The facility currently stands vacant, vandalised and in disrepair, and is an eyesore to its community. While the facility is not well positioned for residential occupation, it is a prime location for the development of commercial facilities. The preferred alternative to disposing of such a property would be to redevelop the site into a complex of commercial suites to stimulate economic activity and improve the state of development of the area.

During the year of review, the Corporation advertised a request for development and construction proposals in local media. having received a weak response to these appeals, we made a decision to cast the net wider to invite national players to the table.

The final evaluation of proposals and selections are to be made soon and we are eagerly anticipating the opportunity to report on a successful redevelopment project in our forthcoming 2009/10 review. The project will form a developmental investment into the kSD central business district, and will uplift and revitalising its immediate surrounds.


29

AgRICuLtuRAL InduStRy thRIvIng In PAtEnSIE

Patensie derives its name from the Khoisan word for ‘resting place of the cattle’. It serves an extensive agricultural producing region often known as the pantry of the Eastern Cape and is an hour’s drive from Port Elizabeth. Situated in a flood plain, agricultural industry thrives here and Patensie is surrounded by a mosaic of cultivated lands and orange groves.

ECDC assists investors in identifying and accessing business opportunities within key sectors of the provincial economy, one of them being the agricultural industry. Highly qualified and knowledgeable sector specialists at ECDC assist investors leverage excellent returns on their investments through identifying business opportunities, facilitating joint ventures, accessing local business service networks and lobbying provincial and national government for relevant interventions, amongst others.

new synergies within the properties unit

Internal synergies leveraged

Complementary to the intensive initiative to refine the unit’s efficiencies is the increased human capacity that has been brought on board during the year. New appointments made have already lifted our game significantly.

In this regard, we welcome Mandy Tyikwe as Manager of Property Administration (she now manages rental collections, leases and property disposals within the unit) and Alex Noholoza as Manager of Property Development (he handles the management of our facilities and the development and redevelopment of ECDC properties).

These appointments have brought about an increased efficiency and streamlining within the unit, as well as a greater clarity with respect to roles and responsibilities in an environment of accountability and transparency.

An improved all-round health within the unit has emerged, and has catalysed a new culture that embraces a unique combination of business objectives and economic development goals.

Synergy with external stakeholders

The 2008/09 year saw the Development Properties unit sparking discussions with other developmental institutions in the province to set in motion a project that will involve the investment of ECDC-owned land into social housing developments. We eagerly anticipate what the forthcoming year of review will bring in this regard.

Along the same line, we have begun discussions with our rural developmental partner, AsgiSA-EC, champion of the national Accelerated Shared Growth Initiative of South Africa (AsgiSA) in the rural Eastern Cape, to contribute ECDC-owned land and facilities earmarked for disposal into various rural developmental initiatives scheduled to take effect over the next few years. These investments would include the development of sawmills, shops, wholesalers, and crop storage and distribution facilities. This will further enhance our developmental imperative in disposing of non-income generating properties.

30


The Development Projects’ Spatial and Rural programmes at ECDC aim to assist in the implementation of integrated spatial planning that focuses on strategic economic development clusters in the Eastern Cape. Target sectors include tourism, agriculture, agro-processing, property development and renewable energy. ECDC provides advice on how to go about establishing projects and consider funding from various business-related studies in the form of business plans, feasibility studies, crop trials and environmental impact assessments. Generally, most projects are of a greenfield nature and include primary production.

Mngazana (right) is a coastal hamlet on the Transkei coast. The Mngazana Estuary is regarded as the most important estuary in the Eastern Cape as it forms part of a 140 hectare stand of mangroves, the third largest in South Africa. Mangrove conservation and community tourism initiatives at Mngazana have experienced promising success. Mangrove timber has a number of benefits over other timber, but the importance of preserving the delicate ecological balance is a value communities are slowly appreciating.

greatest challenges facing the unit in the coming year

The Corporation’s Development Properties unit operates in a politically sensitive realm, where housing and residential development are some of the key deliverables of the current regime. Disposing of our residential portfolio in such a manner that tenants are in a better position at the end of the day is a both a primary objective and a challenge to our operation.

In realigning our portfolio of properties to reflect the strategic economic development essence of the Corporation, a number of challenges are posed to our operation:

A culture of default

No culture is quickly formed, and none is easily changed. The culture of default amongst some ECDC tenants, who feel they are entitled to free accommodation at the expense of the Corporation, is a primary challenge within the property management function of our organisation. To simply move in and evict defaulters, as would

happen in the private sector, would often amount to a non-developmental move on the part of ECDC. In the midst of our intentions to become a strategic, dynamic and creative property manager, we require a continuous humanitarian mindset that remains sensitive to the economic need that exists in the province and how we can alleviate that need rather than exacerbate it.

Arrears settlements and residential property disposal

When ECDC determines to sell a given residential unit, the tenant of that unit is granted “first right of refusal” to purchase the property. In the event that the tenant owes outstanding rentals, full settlement of debt needs to be made before the Corporation will proceed with the transfer of ownership.

In some cases, however, the amount owed to ECDC in outstanding rentals is nearly tantamount to the book values of the property occupied by the tenant in question. The tenant would then be required to pay close to double the value of the property, which he or she would not be able to recoup in the resale of the property on the market, leaving him or her worse off than before.

Assuming a property inflation rate of 10%, the new property owner would only recover their capital through a property sale after seven years of ownership, excluding the interest they would pay on a mortgage bond and inflation, which would further negatively impact this timeline. In such a situation, ECDC would approach the disposal in a different manner, one that creates opportunity rather than burden.

In dealing with its extensive arrears problem, the Corporation is holding to its course to eliminate a sense of entitlement amongst tenants, while ensuring an overall atmosphere of opportunity rather than burden in the province.


31

JustoutsideEastLondon,world-classqualityKoiare

beingfarmedforthelocaland

international ornamental fish wholesale market, proving once again that the Eastern Cape

is full of latent potential.

TheconversionofAmalindaFishStation’sderelictbu

ildings,pondsandinfrastructure

almosttenyearsagogavebirthtoAmalindaFishFar

m,whereSimphiweZono,Staff

Supervisor,says“ourcorefocusnowistoproducehi

ghqualityKoifishthatrangefrom

nineto19cm.”

The business was set up with financial planning assistance from ECDC and its

geographical situation is ideal, where the water temperature remains above 20˚C for much

oftheyear.Althoughornamentalfishrequireexpensiv

efeed,theshortgrowingtimeand

considerably high unit market price outweigh this disadvantage. Because of their small

size,Koi(whicharecommoncarpselectedoversever

alcenturiesfortheaestheticvalue

oftheircolouration)needminutequantitiesoffoodand

waterincomparisontofoodfish,

makingAmalindaFishFarmasustainablecommercia

laquaculturefarmwithagood

investment return.

32

The Difference

ECDC

Koi farming takes off in East LondonSimphiwe Zono, Staff Supervisor, Amalinda Fish Farm

Channels of development:A review of the

Development Services unit

During the year of review, the Corporation’s project development team secured 32 project approvals, totalling R7.6 million. The highlights of our project development efforts are as follows:

1 Ndlambe pineapple industry turnaround The Corporation engaged the ailing industry to bring about a renewed viability by exploring the untapped value of pineapple fruit and applying innovative strategies to realise that value (see also pages 20, 36 and 55).

2 Amalinda Fish FarmECDC played a crucial role in administrating the funding and project development of this initiative, which is well under way to becoming one of three new fish farms in East London that will supply fin-fish to local and global markets(see also page 32).

The Development Services Unit is geared towards the identification, research, expansion and facilitation of developmental initiatives within the province. It operates as a probe to discover and develop channels through which jobs might be created, poverty alleviated, and the socio-economic landscape changed.

The year of review presented the unit great opportunity and, along with it, the many and varied challenges, complexities, and frustrations that have made our role a fascinating one. We have persevered through tough economic times and maintained the courage required to catalyse the opportunities that align with the Provincial Growth and Development Plan to diversify the developmental asset base of the province. The objective behind this diversification is to prevent unsustainable dependencies by communities on any given industry or sector.

The atmosphere in the unit has changed as capacity has been developed and fresh perspectives introduced by newly appointed business advisors and programme heads. A new vibrancy is evident in the unit as a result, and we are proud to review a year of significance and progress.

The value-add of the Corporation’s Development Services Unit has resulted in the increased empowerment and organisation of communities so that they are able to maximise the opportunities presented to them. The most important interventions in this regard took place in the villages of Gomolo, Lower Kroza, and Mlengana and in Mthatha.

EAStERn CAPE

34


3 Packaging and implementationECDC continues to provide support towards the packaging and implementation of projects post the OR Tambo District Investment Conference.

4 Blueberry project As profiled in the previous ECDC review, the project constitutes a R45 million, 5,000 job creation venture near Stutterheim. The first planting of 15ha of protected blueberries took place in October 2008, and results are to follow in the forthcoming review period.

5 Hazelnuts in Queenstown

The exploration of hazelnut production has commenced in

Queenstown in partnership with a multinational confectioner (see also

page 38).

6 Lukhanji Aerodrome and integratedbusiness hub

Queenstown is increasingly a growth node in the province, and has been the continued focus for the development of the Lukhanji Aerodrome business hub during the year.

7 Matolweni Irrigation SchemeThe investment of R600,000 into Matolweni Irrigation Scheme – this created 40 new jobs.

8 Agriculture and rural developmentThis involves skills development for 30 emerging farmers in Nyandeni, Mhlontlo and Port St Johns.

9 Lusikisiki under explorationECDC, in partnership with the Land Claims Commission, Department of Agriculture, and AsgiSA-EC (provincial champions of the Accelerated Shared Growth Initiative of South Africa) embarked on a mission to identify opportunities in agricultural production, tourism and infrastructure development industries as a diversification measure in Lusikisiki that will alleviate the unsustainable pressure placed on the tea industry in the area.

10 Steinhoff truck stopGerman timber giant Steinhoff has built a R25 million truck stop on the road that links Ugie with Mthatha, one of many projects near its flagship timber processing plant in Ugie, and created 23 jobs.

11 Pure Ocean Pure Ocean Aquaculture is a new company building and operating a land- based marine fish farming operation in the East London Industrial Development Zone: R20 million project, 44 jobs created.

12 SMA EngineeringThe R61 million expansion of SMA Engineering South Africa, a global manufacturer and supplier of air conditioning and engine cooling lines for the automotive industry, has created 20 jobs.

13 Rise Safety GlassThis Chinese business has developed a R20 million project and created 90 jobs in the manufacturing industry.

14 Rehau PolymerThis German business’s Uitenhage branch has undergone a R250 million expansion and created 80 jobs: Rehau is the leading international systems manufacturer in the building solutions, automotive and industrial sector worldwide.

15 SeaArkPhase 1 of Africa’s first ever prawn farm at Coega has resulted in a R250 million investment and 347 jobs.

16 SiyahlwayelaECDC piloted a business outreach programme, Siyahlwayela, in partnership with Community Self-Employment Centre (COMSEC) targeting the Makana and Nelson Mandela Metropolitan Municipalities incorporating PE, Grahamstown, Alicedale, Riebeeck East, Fort Brown, Salem, Sidbury

EASTERN CAPE DEVELOPMENT CORPORATION | ANNuAL REVIEWDEvELOPMENT SERvICES

35

Pineapple industry turnaround

The Corporation demonstrated its synergistic value- add to the pineapple industry turnaround project in the Ndlambe Municipality by delivering a packaged combination of project development, development finance and enterprise development services. ECDC is playing a central role in the strategic overhaul of the sector necessitated by various economic challenges that have caused it to suffer major losses and threatened its sustainability.

The objective of the turnaround project is to convert the industry from being one of primary production (supplying its own local population) to being one of beneficiation (participating in national and global markets).

The Corporation conducted a multi-million rand research project during the year, the outcomes of which indicate that pineapple fruit offers attractive commercial opportunity far greater than was ever conceived of in the Ndlambe area. Included in these opportunities are the cultivation of human-grade dietary fibre and the use of pineapple fibre in the renewable energy, textile fibre and juicing industries.

The research also found that the inflated cost of processing inputs has weighed down the industry significantly.

Project phases

Ndlambe Natural Industries Products (NNIP) (Pty) Ltd, the broad-based black economic empowerment company that will facilitate the sector’s turnaround, is a collaborative partnership between the Eastern Cape Department of Agriculture, the Pineapple Growers’ Association, and the Eastern Cape Pineapple Industry Workers’ Trust. Numerous established and emerging farmers across a wide demographic and geographic scale within Ndlambe region (Bathurst, Peddie and Port Alfred) will benefit as a result of the initiative.

The objectives of the NNIP are expressed in phases which will be executed as follows:

• AcquireacontrollingequitystakeinSummerprideFoods(completed in the 2008/09 year).

• ImplementabusinessturnaroundstrategywithinSummerpride Foods.

• Commencewiththepineapplewasteprocessingprojectto enter the dietary fibre market.

• EstablishanintegratedfruitprocessingfacilityinBathurst(Summerpride to relocate from East London).

• Implementthepioneeringprojecttocultivatepineappleproduce for renewable energy.

• Initiatethepineappleleaf-fibreprojecttopenetrate the textile market.

• Rolloutthepineappleenzyme(bromelain)project.

NNIP (Pty) Ltd development impact

The trying economic conditions of the provincial pineapple industry are evidenced by the fact that since 2003, the number of active pineapple growers has decreased from 46 to 22, representing an attrition rate of 48%. Considering that this stagnation occurred in times of general economic buoyancy, rapid intervention is required to sustain the industry that provides 1,500 jobs in times of general economic slowdown.

The NNIP project’s establishment of an integrated fruit processing plant in Bathurst, together with the innovative utilisation of previously discarded plant material and processing waste, will spark increased commercial trade with national and global markets. The relocation of Summerpride foods (subsidiary of NNIP) to Bathurst will save the industry R5 million in travel costs per year, and ensure a fresher perishable product to end users of pineapple products.

The overall developmental impact of the project will take place in the following areas:

development of emerging entrepreneursNumerous small, medium and micro enterprises (SMMEs) in the region will participate in the newly re-structured pineapple industry. NNIP, the Industrial Development Corporation (IDC), the Department of Industry, the Department of Economic Development and Environmental Affairs (DEDEA), Ndlambe Municipality and its community representatives have engaged to identify a strategy to formalise the various investment and community involvement programmes that will be required to facilitate the training and development of these entrepreneurs.

ownership by the previously disadvantagedThe Eastern Cape Pineapple Industry Workers’ Trust owns 26% of NNIP (Pty) Ltd, which effectively falls into the hands of 1,500 previously disadvantaged people employed on farms in the area. The share acquisition was funded by the Department of Agriculture’s R17.5 million grant to the trust, who will also hold 19.62% voting rights in Summerpride foods.

the nnIP/ndlambe Municipality Pineapple training CollegeInteractions between NNIP, Ndlambe Municipality, the Development Bank of South Africa (DBSA) and ECDC took place during the year and

have led to NNIP’s funding applications to European union grant sources, as well as to local funders, to establish a Pineapple Training College for the development of emerging farmers and entrepreneurs in the pineapple processing industry. The college will be housed on the 126ha of land earmarked for the NNIP plant in Bathurst, and will be an initiative shared by the company and the Ndlambe Municipality.

textile training for job creationThe focus of the training college will be to develop skills in the textile sector to support the proposed pineapple fibre project, which will generate an estimated 2,000 to 3,000 new jobs. The majority of these will be employed in the “cut, make and trim” of garments, and will thus have a natural bias to the employment of women. Tradelink Textiles, a free State-based company, will partner with NNIP to implement this aspect of the turnaround project.


the danish International development Agency (danida) grant fundingOutside funding, amounting to 5.744 million Danish kroner, has been secured from Danida through the NNIP’s association with Advanced Non-Woven in Denmark, a Danish manufacturer and operator of non-woven fibre production lines. The grant will be invested into training on the conversion of pineapple fibre into composite materials such as insulation, sound-proofing and oil absorption materials.

generation of employment opportunitiesThe anticipated job creation to be provided by the NNIP project will amount to 400 to 600 new jobs. The successful establishment of a vertically integrated textile fibre operation could see this figure rising to 3,000. The facility would integrate the entire textile supply chain into one business, from raw material to the manufacture of complete garments.

Emerging farmers’ access to prime agricultural landAn established and successful emerging farmer programme in the Peddie area known as PineCo, is a company co-owned by the South African Pineapple Association, the local Peddie community, and the workers in the industry. This model will be replicated by NNIP in the Bathurst area as it seeks to maximise the yield from large tracts of underutilised municipal land perfect for pineapple production. These lands will be operated by participating emerging farmers.

Contribution to food security at a national levelIt is conservatively anticipated that the NNIP Project will improve our national food security situation as it increases pineapple production by at least 25% and implements the human-grade dietary fibre project.

Socio-economic developmentNNIP’s project and business plans are based on triple bottom line investment principles. This means that the project’s aim is to benefit environmental, social and economic drivers in the area. In this regard, ECDC and NNIP are embarking on initiatives such as the sustainable cottage industry, where women and disabled people will be employed to manufacture pineapple fibre garments using antique methods. This operation will be housed in the Bathurst Agricultural Museum and used to promote tourism activity in the Bathurst area.

Lukhanji a provincial growth node

Hazelnuts about the Eastern Cape

The Corporation’s newly initiated working partnership between its project development team and an international confectioner looking to invest resources into the development of a hazelnut farm near Queenstown, has resulted in a long-term trial and testing process that will ascertain the suitability of the area to hazelnut production. Should the investment take place, the project will provide numerous new jobs. The outcomes of the research are expected soon.

Lukhanji Aerodrome and integrated business hub

The Spatial and Rural Development arm of the Development Services unit worked with the Development Properties unit on a project to develop the existing aerodrome infrastructure in Lukhanji Municipality’s Queenstown area. The year of review saw the launching of a project scoping exercise to evaluate the viability of establishing an aerodrome business hub. Pending the outcomes of the research, the project will take form through the redevelopment of existing ECDC facilities and other infrastructure in and around the aerodrome to become an integrated commercial park.

REnEwIng thE PInEAPPLE InduStRy

ECDC engaged the ailing pineapple industry in the Ndlambe municipality, which incorporates the districts around Port Alfred, to bring about a renewed viability by exploring the untapped value of pineapple fruit and applying innovative strategies to realise that value.

Located on the outskirts of Bathurst just off the R67, only 15km from Port Alfred, is where the world’s biggest pineapple is found, standing 16.5 m high with three stories. The Bathurst “Pineapple” is constructed from a fibreglass outer skin covering a steel and concrete superstructure.


37

WithECDCassistance,MitrockcommunityoutsideQueenstownhavelaunc

hed

pilotandtrialprojectstogrowhazelnutsforInter

nationalItalianchocolate

companyFerrero,withthefirsttreesplantedinMay2009.

Ifsuccessful,over10,000haofhazelnutplantation

swillcovertheland,

makingthisthelargesthazelnutplantationinAfric

a.“Ongoingevaluationof

the performance of these trees will be done over the next four years together

withthecommunity,”saysPatienceQiqimana-Bal

eng,anAdministratoronthe

project, “and close collaboration is in place with the local municipality as well as

the provincial Department of Agriculture.”

38

The Difference

ECDC

Chocolate makes the world go roundPatience Qiqimana-Baleng, Administrator,

Mitrock Community, Queenstown

Crafters excel with ECDC support and development

During the year of review, 11 Eastern Cape crafters claimed the “Best Crafts Stand Award” at the South African handmade Collection exhibition at Gallagher Estate in Gauteng.

The group was part of an ECDC delegation to the DTI-managed event, and a substantial measure of its success can be attributed to the Corporation’s ongoing skills development programme, which aims to capacitate established and novice crafters to access markets, and to develop the skills of people starting their own businesses in the province.

The crafters, who hail mainly from Queenstown, Port Elizabeth, Alice and Mthatha, exhibited craft in the disciplines of ceramics, mohair products and beaded jewellery, and attracted high praise from passersby at the exhibition.

ECDC helps individual crafters with product development, the correct pricing for the right market, and colour trends and packaging. Those individuals starting their own businesses are taught basic business skills, such as bookkeeping and gaining market access. Established crafters receive assistance in compiling a marketing strategy to facilitate the exposure of their products to local and international audiences.

Creative industries

Creative solutions to access local and global markets

The depth of creative talent in the province has begun to generate returns as ECDC has worked strategically over the past year to facilitate increased access to markets for entrepreneurs in this sector.

The Corporation has leveraged its relationship with the Department of Trade and Industry (DTI) to generate numerous international leads, which have resulted in our products reaching global markets, and in partnership with DTI and the Department of Arts and Culture, has commenced with the establishment of a provincial craft hub. While the hub is in its embryonic stages, ECDC has commenced with the implementation of some of the support programmes that will later form a part of its offering to provide access to local and global markets for craft produced in the province.

having conducted what we have termed “product development training” with craft enterprises, the Corporation saw 15 ECDC-supported crafters attending the Grahamstown Arts festival and the Christmas in July festival in hogsback. On a national platform, we supported 14 enterprises as they ventured out to attend the Decorex Expos in Durban, Johannesburg and Cape Town. And finally, five local Eastern Cape crafters made their way to international expos in Germany (Ambiente exhibition), Seoul in South korea, and Atlanta, uSA.

ECDC spearheaded training for local people to cultivate traditional crafts into business opportunities, creating new jobs within crafters’ home areas. Crafters’ were provided with business skills needed to develop and operate a viable craft business and engage effectively with the retail market.

Product development training sessions are usually held in partnership with local municipalities. The following sessions were conducted during the year:

• 15womenintheWillowmoreareaweretrainedin the development of wire, bead and felt product development.

• 13womeninNieuBethesdaweretrainedinthemaking of mohair felting.

• InMzamba,25womenweretrainedinweaving,beading, pottery and the making of soft furnishings.

• 10ofFortBeaufort’speopleweretrainedin leather craft.

• 70peopleintheprovincereceivedtraininginthemaking of products using beading, woodwork, soft furnishings and ceramics.

As a result of these initiatives, crafters generated income in excess of R400,000 during these events, which evidences the value-add of the training provided by the Enterprise Development team of ECDC.


the Integrated Emerging Contractors development Model

Impact on government delivery

The value-add contributed by the multi-year Integrated Emerging Contractors Development Model (IECDM), which was pioneered by the Corporation a year prior to this review has proven to be a synergistic asset to our Development Investment unit. A deeper inquiry into the benefits of the project, however, will reveal the high level of value it has added to the delivery of government projects.

The programme’s focus on enhancing contractors’ service delivery in terms of quality, cost and time management has made a significant qualitative impact on various government projects executed by the Department of housing and the Department of Roads and Transport.

Mentorship on site

During the year, the R5 million programme recruited 62 contractors, nine of whom are from Port Elizabeth, 14 from East London, 11 from Queenstown, and 28 from Mthatha. These players have received theoretical and practical training in construction contracting issues.

Mentorship programme 2008/09

Programme value: R5 millionContractors recruited 62

To apply this learning effectively, each contractor is allocated a qualified mentor in the construction industry who provides support to the contractor on site in the areas of quality assurance and business management.

Many of the contractors who have passed through the programme have seen notable capacity improvements to the point where they have been moved up three grades on the Construction Industry Development Board (CIDB) register. The programme accepts emerging contractors from grades one to five.

Developed in partnership with the Council for Scientific and Industrial Research (CSIR) and the Construction Education and Training Authority (CETA), the programme is a first for South Africa and is only operational within the Eastern Cape. The CIDB is, however, in the process of formulating a national framework to regulate all construction development programmes including this one.

From emerging to establishedContractors arise

Luzuko Mtwebana, from Zani Construction in Butterworth, joined the programme in 2005. he explains that he once operated in a vacuum without considering the statutory or legal requirements necessary to comply with industrial specifications. he now testifies to the success of the programme: he says he is better organised to both comprehend and apply the various legal regulations and cash-flow principles required for him to apply for Grade 7 status – which means he will compete with established contractors, and migrate from his “emerging” status.

South African Value Education (Save), which facilitated the training of the programme, endorsed the design of the programme as it enabled proper testing of contractors’ knowledge and highlighted where top-up training was required to bring contractors up to speed.

The developmental impact of IECDM

Over 200 contractors on the programme are to receive financial support, job creation and skills development by the departments of housing and Public Works, which have testified to the strategic nature and effect of the programme by entering into a two-year tripartite memorandum of understanding with the Corporation to sustain the programme’s success. The departments have agreed to offer graduates from the programme preference as they participate in tenders for infrastructure development projects. The Department of housing has set aside 1,098 housing units for development by emerging contractors, and a new directorate for the management of emerging contractors has been established.

This has taken place as a measure in line with government’s declaring the construction sector a developmental priority because of its potential to create jobs and bolster economic growth.

EAStERn CAPE


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the SMME Conference and Business Expo 2008: empowerment through enterprise

South Africa still faces huge challenges in the areas of poverty, inequality and unemployment. The development of small, medium and micro enterprises (SMMEs) is seen to constitute one of the strategic tools to overcome these systemic problems.

The SMME Conference and Business Expo, hosted by the Corporation in partnership with the university of fort hare and the Department of Economic Development and Environmental Affairs during the review period, sought to facilitate information-sharing, discussion and debate between entities involved in the development of SMMEs.

Of primary importance during the event was the emphasis placed on the following issues:

• TheimportanceofSMMEgrowthanddevelopmentin the provincial economy.

• SMMEresearch.

• TheprovisionofaplatformuponwhichSMMEentrepreneurs, government representatives, donors, academics and other experts on a local and global scale could interact and network.

• Thedisseminationofcuttingedgeinformationand innovative solutions that define best practice methodologies and execution in the SMME sector.

Four day conference, business expo and gala event

The four day conference was held in September 2008, and reached close to 300 small businesses from all six districts in the province. Targeted economic sectors included agriculture, manufacturing, tourism, information and communication technology, forestry and services.

The attendance at the conference saw delegates from local, provincial and national government, non-governmental organisations, entrepreneurs from big businesses to rural and urban SMME entrepreneurs, academics and students.

following the conference, the Business Expo hosted exhibitors from all categories of conference delegates, and the two gala events provided an opportunity for informal discussion between delegates and for the official launch of the Centre for Enterprise Development.

The Corporation’s partnership with the Eastern Cape AIDS Council, the South African Business Coalition on HIv/AIDS and Inwent (a German capacity building agent) to implement a programme to support SMMEs in their development of workplace HIv/AIDS policies and programmes, saw close to 170 companies being equipped to effectively manage the effect of the illness on their operations. The need for this manner of support and development cannot be overstated at this stage in the province’s developmental history.

Skills development programmes during 2008/09

Money matters for emerging companies

During the year the Corporation’s Development Services unit identified the need to provide emerging companies with training in costing and pricing matters. This training was conducted in four key development nodes in the province being Mthatha, Queenstown, East London and Port Elizabeth. A total of 59 enterprises received training in this regard.

Quality management by quality managers

The initiative to develop enterprises for 2010 and beyond included the Corporation’s training to inform and equip enterprises to manage the quality of their processes and products. 200 Eastern Cape SMMEs received International Standards Organisation (ISO) certificates during the year, allowing them to compete in international markets and for big contracts.

The SMMEs went through a rigorous training programme conducted through Qualitec, which focused on quality management services as a means to ensure that the quality of the SMMEs’ products and services align with international standards. The R3 million project was funded by ECDC, together with the Small Enterprise Development Agency (SEDA), Tourism Enterprise Partnership (TEP), the Eastern Cape Tourism Board (ECTB) and the Department of Economic Development and Environmental Affairs (DEDEA).


42

highlights

• Weareproudtoannouncetheconfirmedinvestment of Espadon Marine and Pure Ocean Aquaculture into the province as a result of the Corporation’s introduction and partnership with East London Industrial Development Zone sector specialists.

• TheCorporationcollaboratedwithindustryplayers in the newly introduced business process outsourcing and off-shoring sector through a partnership with Business Process Enabling South Africa Eastern Cape, which is an industry association; the focus of the collaboration was to raise awareness and lobby provincial-wide support.

The profile of training during the year was as follows:

• Nearly140enterprisesprovidingaccommodationweretrainedin hACCP (hazard Analysis and Critical Control Points), the standard also known as the ISO 22000 which is maintained by the Integrated Organisation for Standardisation in the food health and safety category.

• 46enterprisesreceivedtrainingonqualitymanagementsystems,the standard referred to as the ISO 9001.

• 35entitiesreceivedtraininginOHSAS,theOccupationalHealthand Safety Advisory Services accreditation.

Both the public and private sectors make it an imperative that service providers comply with ISO standards, particularly because the public sector is the major procurer of SMME services. This programme helps improve competitiveness of small business, and gives them an edge to compete abreast with big business.

CIPRo and ECdC Business Registration programme

On the whole, the Corporation’s level of intervention in the lives of SMMEs in the province increased by 65% during the review period. This is evidenced by the fact that more than 2,000 new entities were registered with the Companies and Intellectual Property Registration Office (CIPRO) in a synergistic partnership between ECDC and CIPRO to fast track new applications of emerging entities.

The improvement of turnaround times from the time of application to official registration of new entities was achieved by the Corporation as it streamlined its relationship with CIPRO to bolster its one-stop shop value-add to new enterprises. Its offering includes the processing of applications for registration, the formulation of business plans, the processing of applications for finance, and the provision of mentorship and support services. This translates to increased cost efficiency for both the client and the Corporation, and reduces the time delays for these players to commence operations.

In order to achieve this level of turnaround, ECDC employed resources in a full-time capacity, and we are pleased to report that CIPRO’s ratings indicated that ECDC, as a representative of the province, outperformed the new registrations of any other province within the year of review.

The Corporation attributes the major upswing in new registrations in the province to the increased rate of unemployment that stemmed from the global economic recession in the automotive, shipping and manufacturing sectors, and retrenched persons turning to entrepreneurship to make ends meet.

Increase in ECdC intervention

65% growth

2,000 new SMMEs registered

Eastern Cape: a prime fin-fish investment destination

The various investment solicitation efforts of ECDC during the review period have helped position the province as the premier investment destination for marine fish culture in South Africa. Massive investments into the aquaculture industry, running into billions of rands, have constituted a challenge to the Western Cape’s dominance of the industry.

having begun its endeavours with the I&J’s pilot project in Port Elizabeth, the first operation in the country to grow indigenous marine fish (Yellowtail and Cob), the Corporation has facilitated the set up of four more fin-fish operations in the province.

I&J achieved a major breakthrough in spawning and rearing two endangered indigenous species, Silver Cob and Dusky Cob, in Port Elizabeth. Trials in a sea cage system are necessary to evaluate the biological suitability of fish to cage culture and farming economics.


East London IDZMariculture hot-spot

ECDC’s strategic environmental assessment conducted during the year to identify sites for aquaculture in the province found that Algoa Bay, St francis Bay, and East London present prime investment opportunities for investors in the industry. The most attractive of destinations has proved to be the East London Industrial Development Zone, where Seatek has been running a pilot abalone farm for three years. Two operations, Espadon Marine and Pure Ocean Aquaculture, confirmed their decision to locate their operations within the Zone in the year of review. Both operations’ industrial focus is on the land-based culture of Cob (Argyrosomus japonicus). Probably the single most important traditional line fish species in South Africa, Cob populations have been drastically depleted in recent decades.

During the financial year, Espadon Marine spawned Cob under commercial conditions for the first time in the Eastern Cape. Both companies utilise re-circulating technology which allows greater control over the culture process than when the fish are housed in cages or ponds. This allows for greater control over diseases, water quality and feeding regimes, and leads to an optimised rate of growth.

EASt London Idz gRowIng In StREngth

The East London Industrial Development Zone (ELIDZ), an initiative by the South African government to encourage export-oriented growth in the country through the attraction of foreign and local investors, aims to bring economic growth to the Eastern Cape and beyond by offering investors a globally competitive combination of geographic position, infrastructure, services and labour.

Since its inception in September 2002, the East London IDZ has achieved a number of milestones. The Zone now boasts more than 100 fully serviced sites. Adequate supply of electricity, water and other related services ensure full steam operations for manufacturers that have already settled in the Zone. Road networks and other regional transport linkages allow for speedy access to key markets and on-time delivery of raw materials.

14 manufacturers have already taken up the opportunity of settling within one of South Africa’s prime industrial estates. These manufacturers span a variety of sectors including automotive, aquaculture, transport and logistics. The East London IDZ is currently involved in discussion with a number of other potential investors that want to develop competitive world-class facilities in South Africa.


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ECDC and East London IDZan investment attraction partnership

Both Espadon Marine and Pure Ocean Aquaculture were introduced to the IDZ by the Corporation’s aquaculture and fisheries investment promotion team, and their investments were secured by a team of ECDC and East London IDZ sector specialists. The co-operation between the two agencies in securing the investment was characterised by a level of efficiency that eliminated the common pitfalls of duplication of resources and miscommunication between organisations.

Prospective investors’ interest has spiked since news of these investments was made public. Numerous mariculture inquiries by serious investors are currently being assessed by our aquaculture and fisheries sector specialist. The most recent of these was that of Cell Aquaculture who travelled to the province during the review period to conduct a detailed feasibility for their operation. The study took place as a response to a lead that was generated by one of our outward bound missions to Australia in 2008.

The combined climate, logistics and infrastructure in the province make for a destination of interest to a range of marine fin-fish species, and we as ECDC will continue to pitch the province as the best place to locate land-based fin-fish operations in South Africa.

The industry contributes 0.005% to the country’s gross domestic product, and currently provides 1,200 direct jobs. During the 2007/08 year, the Department of Environmental Affairs and Tourism reported that aquaculture is one of the fastest growing food production systems in the world, growing at rate of 8% per annum since 1950. Africa’s contribution, however, is less than 1% of global production, and South Africa only contributes about 1% of Africa’s production. This indicates the level of opportunity that exists for aquaculture investors to establish the industry in the province.

Eastern Cape’s prime positioning

The Eastern Cape holds several competitive advantages that make it a viable investment destination for fin-fish mariculture: the lower average price of suitable land (as opposed to the Western Cape), the warmer sea temperatures that allow the fish to reach market size in a shorter time than what would be experienced in colder water, and the fact that the province is the home of Rhodes university’s Department of Icthyology and fisheries Science, the leading mariculture research institute in Africa, and the only one of its kind in the southern hemisphere.

The Department of Environmental Affairs and Tourism, which has earmarked aquaculture as an opportunity to diversify fish production to satisfy global exports and the creation of new jobs, has implemented its “Policy for the Development of a Sustainable Marine Aquaculture Sector in South Africa”. The policy seeks to ensure that a range of financial incentives are routinely employed by government to benefit the marine aquaculture industry, and will see the department facilitating access to finance for emerging aquaculture initiatives, farmers and community initiatives in collaboration with the DTI and other relevant agencies.


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A year such as the one in review required the exporters’ networking forum, an offering of the Corporation’s trade promotion team, to hold regular meetings within the province to focus on finding solutions to the effects of the global crisis on exporting operations. It did this by facilitating maximised information sharing and support, specifically emphasising the opportunity that exists within the Southern African Development Community (SADEC) region as an alternative to pressurised European markets.

• TheECDCexporters’platform’sregularleads,together with the financial assistance from the Development Investment Unit, provided these exporters with the ability to respond to inquiries efficiently.

• Throughtheprovisionofefficientmentorshipservices, the unit saw an increase in local applicant businesses who qualified for the Department of Trade and Industry incentives.

• Globalmissionsthattookplace,togetherwiththe “Eastern Cape From Above” photographic exhibition and the television commercial for the Eastern Cape “Make it Yours” campaign, definitely profiled the province locally and abroad in an attractive manner.

• Membersontheexporters’platformhavemade significant headway in accessing global markets, specifically those in the realm of agro-processing.


46

The port of East London is South Africa’s only remaining river port and is situated at the mouth of the Buffalo River in the

Eastern Cape province. The car terminal has an annual capacity of over 50,000 vehicles a year and is highly mechanised and computerised.

the ECdC Exporters’ Platform

The E-platform was launched in february 2008 as a mechanism by which to enhance the access of local exporters to global markets via a central network. Already we can vouch for its value-add, as it has already facilitated global connections between its members and their markets in foreign countries.

The strategic relevance of the E-PlatformOne year down the line

During the year, Transnet National Ports Authority statistics confirmed that exports from the Eastern Cape’s two commercial ports are on the increase, most notably in the automotive sector, reflecting a 4% increase in 2006, and a 7% increase in 2007. The Motor Industry Development Programme has been pivotal to securing the mammoth-sized export contracts secured by the province’s “Little Detroit”, comprising Mercedes-Benz SA, Volkswagen, General Motors and ford. however, smaller entrepreneurs like MfA Global that are currently registered on the E-Platform are now also venturing out into global export markets.

Outside of the automotive sector, which has faced its own global economic challenges during the year, the export of other goods from the province is also on the rise. While maize and motor vehicles dominated bulk and break bulk cargo exports at the East London port, manganese ore exports led this category at the Port Elizabeth port. Bulk cargo is any unpackaged cargo ranging from fuel and bulk liquids to a variety of grains, such as maize, sunflower seed and wheat.

for more than a year now, ECDC’s E-Platform has actively been providing local exporters like MfA Global, Prisma Engineering and Makana Meadery with the support and mentoring they require to become export ready. Exporters wishing to ready themselves for global exports are guided by our various forums and networks as to how best they can access their prospective global markets.

Small, medium and micro enterprises are emerging from the E-Platform with a developed understanding of the several preferential trade agreements that exist at a regional and bilateral level between South Africa and its trade partners, and an awareness of the terms of international commerce. South Africa’s membership of the World Trade Organization (WTO) and it being the founding member of the General Agreement on Tariffs and Trade, also provide impetus to local exporters.

The country’s membership of the Southern African Development Community (SADC), which consists of 14 states and provides access to a population of 140 million, is one of the platform’s key connections to a successful export operation wishing to venture out into global exports.

Our Export Network forums and Exporters’ Clubs offer network opportunities to prospective and existing exporters to discuss any export issues or concerns with logistics service providers and industry specialists.

CoEgA Idz

The Coega Industrial Development Zone near Port Elizabeth is a purpose-built industrial and commercial park covering 11 000 hectares – the size of a small city. The Coega Development Corporation (CDC) provides a highly competitive environment for companies positioning themselves to take maximum advantage of the next upturn in the global economy.

Ideally located for global manufacturers, logistics suppliers and business process outsourcing companies, the Coega IDZ is situated 20 km east of Port Elizabeth on the south-eastern Indian Ocean coast of South Africa. It is served by the new deepwater port of Ngqura, which is the most modern harbour in Africa. There are also direct rail and road links from the IDZ into the Southern African land networks, while the nearby Port Elizabeth airport has daily flights linking travellers to the four corners of the globe.

As part of the Nelson Mandela Metropolitan Municipality, which includes the city of Port Elizabeth and towns of Uitenhage and Despatch, Coega offers a modern, cosmopolitan lifestyle with world-class education and medical facilities, as well as a relaxed Indian Ocean lifestyle surrounded by ‘big five’ reserves, the Baviaanskloof World Heritage site and more.


47

The “Eastern Cape from Above” photographic exhibition showcased the Eastern Cape at Munich Airport in Germany in mid-2009. From there it moved to Portugal, Belgium, Sweden and France.

A bird’s eye view of the Eastern Cape

Eastern Cape From Above Aerial photographic exhibition

Europeans were drawn to expressive photographic imagery of the Bathurst “Big Pineapple”, the Wild Coast’s hole-in-the-Wall, Algoa Bay’s Bird Island and our very own bottle nosed dolphins. The “Eastern Cape from Above” was the Corporation’s third photographic exhibition in Europe which took place in the review period.

The exhibition was received with open arms in Germany’s Lüneburg and Munich Airport. Since then, the exhibition has stirred the intrigue of Swedes and Belgians viewing the display in public areas both indoors and out.

The tremendous interest generated by the 40 aerial photographs in the display indicates the show’s vivid illustration of the Eastern Cape’s scenic beauty which remains one of its most popular features. Other attractions that got people talking were the province’s year-round sunny climate, abundant wildlife, rich heritage and tapestry of fascinating cultures.

One photograph that drew attention was the aerial view of the 2010 World Cup stadium in Port Elizabeth which is able to accommodate 45,000 spectators at any one time.

The objective of the exhibition was to create awareness about the Eastern Cape and to highlight its investment, trade and tourism potential. Because the impact of such a project is primarily on its audiences’ minds and emotions, it is one difficult to measure in statistical terms. The response received by the Corporation to this initiative, however, has been very complimentary indeed. The South African Airway’s office in Munich has reported a “skyrocketing” increase in foreign interest in the country since the exhibition. Co-incidence? We think not.

Photographic feast

“Eastern Cape from Above” attracted up to 28 000 visitors per week in host countries Germany, Belgium, Portugal, Sweden and France from May to November 2009. The exhibition profiled 40 aerial views of the Eastern Cape, home of South African leaders Nelson Mandela and Thabo Mbeki.

ECDC co-ordinated the exhibition on behalf of its provincial government. Josef Neumeier, head of ECDC’s investment promotions unit says exhibiting in Germany, amongst others, makes sound business sense. “Germany is an important trading partner for the Eastern Cape. Our province is home to volkswagen and Mercedes-Benz, two German giants who have invested heavily in our automotive sector. We were exceptionally pleased to include aerial views of these manufacturing plants in our exhibition.”

“Our province’s scenic beauty is its most popular feature. This is followed by our year-round sunny climate, our rich abundance of wildlife, our malaria-free status and our tapestry of fascinating cultures,” says Neumeier.


48

Europe

the atmosphere of the development Services unit

The year of review has seen a vigorous capacity development phase taking place within the unit. This has taken place in line with a move across the Corporation to eliminate any inefficiency that has resulted from years of fragmented strategic oversight.

This initiative has been strategic for the units under the Development Services unit, especially the Spatial and Rural Development unit, where a renewed focus has generated confidence in stakeholders as ECDC now brings a tangible value-add with its involvement in its various developmental projects.

The development of this capacity has taken place using training interventions in the following areas:

• Thedisciplineofprojectmanagementintheareaofinvestmentand trade promotion

• TotalQualityManagementtraining

• Duediligencestudiesandfinancialsustainabilityassessmentsof proposed projects – a joint training effort with the two industrial development zones (IDZs) in the province, the East London and Coega IDZs

The spatial and rural development team within the unit has achieved a dramatic improvement in their performance since the training took place.

The Development Services unit has experienced a notable change in morale as people have been capacitated to perform responsibilities that are well communicated and closely managed by an established strategic management team.

As unit members have realised their identities within the organisation, an environment of inactivity has been supplanted by one of a greater sense of urgency and desire to achieve.


49

1 Lüneburg – Germany

2 Munich airport – Germany 20,000 visitors counted over two weeks

3 Porto Airport – Portugal

4 gent – Belguim 30,000 visitors counted over two weeks

5 gothenburg – Sweden

6 La Rochelle – France

SimthembileNkunzi’sbusinessisbooming.NozuluCivilshandles civil construction, water and sanitation projects and general construction for a number of clients all over South Africa, including government departments, industrial developmentzonesandsomeprivatesectorprojects.ECDChasassistedNozuluCivilsinholdingstaffworkshopsand “has instilled a sense of professionalism in our business,” saysNkunzi.Simplyput,ECDChasenabledNozuluCivilsto grow.

51The Difference

ECDC

Building for the futureSimthembile Nkunzi, Owner, Nozulu Civils

dr Somadoda Fikeni (below right)

fikeni held the position of Chief Operating Officer for the National heritage Council of South Africa. he has received several awards and fellowships for academic performance and community building. fikeni was the founder of the former university of Transkei’s RDP unit, which evolved into the Rural Research and Development Institute. he serves as Chairperson of the Walter Sisulu university council.

Mr John Cerff (below left)

Cerff’s previous work experience at ECDC allows Cerff an understanding of our business, and he brings a wealth of auditing and accounting knowledge to his post on the board of ECDC. he currently serves as Chief financial Officer at Amathole Economic Development Agency (AEDA, trading as ASPIRE).

Ms nothemba Mlonzi (not available at time of photograph)

With a background as an attorney, and with stints as Acting Judge in the Cape Town and Johannesburg high Courts, Mlonzi has served on the boards of the South African Civil Aviation Authority, the South African National Energy Research Institute and as Chairperson of Amatola Water Board. She is currently MD of Econ Oil & Energy, Director of the Agricultural Research Institute, Chairperson of fort Cox College of Agriculture and a director of Mlonzi & Company legal practice.

Charting a new course for ECDC is a task that requires the most astute of minds, and the availability of those minds to continuously steer the “ship” in the direction it must go to fulfil its mission. It is no secret that the leadership of the Corporation, at board level, has experienced some volatility over the past twelve months. however, a newly appointed board is firmly in place, and we are now poised to launch the Corporation into a medium term growth phase that will establish it as the visionary steward of development assets in the Eastern Cape.

Board of directors

Mr Bhekokuhle Sibiya (above)

Sibiya’s varied education, involvement in development programmes and leadership positions around the world bring much to his position of Chairperson at ECDC. As former founding Chief Executive Officer of Business unity South Africa (BuSA), he is also Chairperson of Smartvest, Brait South Africa, eValuations and Born free Investments, and serves on the boards of Inkezo Land Company, famous Brands, Tiger Brands and Pretoria Portland Cement (PPC).

Background and previous

experience

52


Mr Mxolisi d Matshamba (above left)

Prior to joining ECDC as Chief Executive Officer in 2006, Matshamba worked as acting Chief Executive Officer of Trade and Investment South Africa, a division of the Department of Trade and Industry. With an accounting background and experience in trade promotion, Matshamba is well positioned to lead ECDC. he has worked for British Petroleum as audit relationship manager and business performance manager. Matshamba serves on the East London Industrial Development Zone board and as CEO, he holds an ex officio position on ECDC’s board.

Mr Mninawe Pepi Silinga (above centre)

Silinga is currently the Chief Executive of Coega Development Corporation. he is a member of the Institute of Directors, SA and uk, South African Institute of Civil Engineers and Project Management Institute and a fellow of the South African Academy of Engineers. he also serves in the capacity of Non-Executive Chairperson of Agrement SA as well as Chairperson of the Council of university of fort hare. he has worked in the NGO sector, private civil engineering consulting fraternity and the public sector for the past two decades. he has experience in corporate governance responsibilities of boards, having served on various public sector boards in different capacities.

Professor Sipho Buthelezi (above right)

Buthelezi is the director of the School of Public Management and Development at the university of fort hare. he has a strong research background and has published extensively in areas which include public enterprise, globalisation and land and agrarian activities in Africa. Buthelezi is a board member of the history Advisory Panel of freedom Park in Gauteng.

Mr gaster Sharpley (not available at time of photograph)

Sharpley’s vast experience in authoring books on small business development and his own business ownership history contribute to his knowledge on local economic development, social facilitation and development, business law, local government legislation and cooperative governance. he has served on the Mthatha City Council as Executive Chairperson, and was Municipal Manager of Buffalo City Municipality.

Ms nomawethu Mhlaba (not available at time of photograph)

With experience of having owned and run her own business (Nomawethu Trading), Mhlaba also brings her solid accounting knowledge to ECDC. She is currently a director of Yithethe ma-Afrika Promotions in Port Elizabeth.

EASTERN CAPE DEVELOPMENT CORPORATION | ANNuAL REVIEWBOARD OF DIRECTORS

53

The Eastern Cape is known as pineapple country where farmers whose relationshipwiththelandandthepineapplegoesbacktothe1800s,whenitwas first discovered that conditions are perfect to grow succulent and nutritional pineapples,atraditionthathasbeenmaintainedtothisday.SummerprideFoodsproduces more than 200 different canned pineapple products, with the focus on juiceconcentrate,whichispackedwithoutanyformofpreservativesinfrozenand aseptic form. Summerpride’s concentrate is sought after as a preferred base for many tropical fruit juices and blends throughout the world, and products are shippedtomarketsinEurope,NorthandSouthAmerica,theMiddleEast,Africaand Australasia.“Summerpride is an extension of its farmers, who are shareholders in the processingfacility,”saysPatrickNcita,ProductionSupervisoratSummerpride:the company is owned by its growers, staff and agents. The business receives aconsistentsupplyof115,000tonsoffruitsuppliedbyapproximately38accreditedgrowerswhostretchfromKomga90kilometresnorthofEastLondontoAlexandria200kmtothesouth,andwasformedin1994whenitsgrowers took over the factory from the previous owners and set about improving it.The investments made over the past five years, with the help of ECDC loan finance, are starting to bear fruit and Summerpride is now regarded as one of the topqualitypineappleproducersintheworld.Inaddition,everyeffortismadetomaintaintheuniquepineappletraditionoftheEasternCape,withasenseofpride, integrity and total commitment. Anthony Albers of Summerpride says, “Simply put, without the assistance of ECDC this project would never have got off the ground. They have played a true developmental role and we cannot speak highly enough of them. Their staff are committed and skilled, and they are a pleasure to deal with.”

55 The Difference

ECDC

Respect the pineapplePatrick Ncita, Production Supervisor, Summerpride Foods, East London

Financial reports and Annual financial StatementsAuditor-General’s report

Audit Committee’s report

Directors’ report

59 |

62 |

64 |

57


Report of the Auditor-General to the Eastern Cape provincial legislature on the Eastern Cape Development Corporation and group financial statements and performance information of ECDC for the year ended 31 March 2009.

Report of the Audit Committee of ECDC required by Treasury regulations 27.1.7 and 27.1.10 (B) and (C) in terms of the Public finance Management Act 1 of 1999, as amended.

The directors of ECDC are required to maintain adequate accounting records and are responsible for the content and integrity of the annual financial statements and related financial information included in this Review. They are responsible to ensure that the annual financial statements fairly represent the state of affairs of ECDC as at the end of the financial year, and the results of its operations and cash flows, in conformity with South African Statements of Generally Accepted Accounting Practice.

Consolidated Annual financial Statements

Balance sheet

Income statement

Statement of changes in equity

Cash flow statement

Accounting policies

Notes to the consolidated Annual financial Statements

Supplementary information

|

83 |

107 |

68 |

69 |

70 |

74 |

75 |

REPORT OF THE AUDITOR-GENERAL TO THE EASTERN CAPE PROvINCIAL LEGISLATURE ON THE CORPORATION AND GROUP FINANCIAL STATEMENTS AND PERFORMANCE INFORMATION OF EASTERN CAPE DEvELOPMENT CORPORATION FOR THE YEAR ENDED 31 MARCH 2009

REPoRt on thE FInAnCIAL StAtEMEntS

Introduction

1. I have audited the accompanying group financial statements and financial statements of the Eastern Cape Development Corporation which comprise the consolidated and separate balance sheet as at 31 March 2009, consolidated and separate income statement, consolidated and separate statement of changes in equity and consolidated and separate cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes, and the directors’ report as set out on pages 62 to 106.

the accounting authority’s responsibility for the financial statements

2. The accounting authority is responsible for the preparation and fair presentation of these financial statements in accordance with the South African Statements of Generally Accepted Accounting Practice (SA Statements of GAAP) and in the manner required by the Public finance Management Act, 1999 (Act No. 1 of 1999) (PfMA), the Eastern Development Corporation Act, 1997 (Act No. 2 of 1997), (ECDCA) and the Companies Act of South Africa and for such internal control as the accounting authority determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

the Auditor-general’s responsibility

3. As required by section 188 of the Constitution of the Republic of South Africa, 1996 read with section 4 of the Public Audit Act, 2004 (Act No. 25 of 2004) (PAA) my responsibility is to express an opinion on these financial statements based on my audit.

4. I conducted my audit in accordance with the International Standards on Auditing read with General Notice 616 of 2008, issued in Government Gazette No. 31057 of 15 May 2008. Those standards require that I compiy with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

5. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

6. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

opinion

7. In my opinion the financial statements present fairly, in all material respects, the consolidated and separate financial position of the Eastern Cape Development Corporation as at 31 March 2009 and its consolidated and separate financial performance and its consolidated and separate cash flows for the year then ended, in accordance with the South African Statements of Generally Accepted Accounting Practice (SA Statements of GAAP) and in the manner required by the PfMA and the Companies Act of South Africa.

Emphasis of matter

Without qualifying my opinion, I draw attention to the following matters on which I do not express a qualified opinion:

highlighting critically important matters presented or disclosed in the financial statements

8. freehold title was held for the majority of investment properties disclosed in note 2 to the financial statements. however, properties with a combined value of R83,5 million were disclosed as being owned by government, tribal authorities and municipalities.

Auditor-general’s report


59

9. Although the Corporation’s right to occupy properties to the value of R83,5 million has not been laid down in writing, it derives economic benefits from the use thereof and carries the risks that are incidental to ownership.

other matters

Without qualifying my opinion, I draw attention to the following matters that relate to my responsibilities in the audit of the financial statements:

unaudited supplementary schedules

The supplementary information set out on pages 107 to 110 do not form part of the financial statements and is presented as additional information. I have not audited these schedules and accordingly I do not express an opinion thereon.

Key governance responsibilities

10. The PfMA tasks the accounting authority with a number of responsibilities concerning financial and risk management and internal control. fundamental to achieving this is the implementation of key governance responsibilities, which I have assessed as follows:

Number Matter Yes No

Clear trail of supporting documentatlon that is easily available and provided In a tlmely manner

1. No significant difficulties were experienced during the audit concerning delays or the availability of requested information.

Quality of financial statements and related management informatlon

2. The financial statements were not subject to any material amendments resulting from the audit.

3. The annual report was submitted for consideration prior to the tabling of the auditor’s report.

Timeliness of financial statements and management information

4. The annual financial statements were submitted for auditing as per the legislated deadlines [section 55 of the PfMA]

Availability of key officials during audit

5. key officials were available throughout the audit process.

Development and compliance with risk management, effective internal control and governancepractices

6. Audit committee

•Thecorporationhadanauditcommitteeinoperationthroughoutthefinancialyear.

•Theauditcommitteeoperatesinaccordancewithapproved,writtentermsofreference.

•TheauditcommitteesubstantiallyfulfilledItsresponsibilitiesfortheyear,assetoutin section 77 of the PfMA and Treasurv Regulation 27.1.8.

7. Internal audit

•TheCorporationhadaninternalauditfunctioninoperationthroughoutthefinancialvear.

•TheInternalauditfunctionoperatesintermsofanapprovedinternalauditplan.

•Theinternalauditfunctionsubstantiallyfulfilleditsresponsibilitiesfortheyear,assetoutin Treasury Regulation 27.2.

8. There are no significant deficiencies in the design and implementation of internal control in respect of financial and risk management.

9. There are no significant deficiencies in the design and Implementation of internal control in respect of compliance with applicable laws and regulations.

10. The information systems were appropriate to facilitate the preparation of the financial statements.

11. A risk assessment was conducted on a regular basis and a risk management strategy, which includes a fraud prevention plan, is documented and used as set out in Treasury Regulation 27.2.

12. Powers and duties have been assigned, as set out in section 56 of the PfMA.

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EASTERN CAPE DEVELOPMENT CORPORATION | ANNuAL REVIEWAUDITOR-GENERAL’S REPORT

Number Matter Yes No

follow-up of audit findings

13. The prior year audit findings have been substantially addressed.

14. SCOPA/Oversight resolutions have been substantially implemented.

Issues relating to the reporting of performance Information

15. The information systems were appropriate to facilitate the preparation of a performance report that is accurate and complete.

16. Adequate control processes and procedures are designed and implemented to ensure the accuracy and completeness of reported performance information.

17. A strategic plan was prepared and approved for the financial year under review for purposes of monitoring the performance in relation to the budget and delivery by the Eastern Cape Development Corporation against its mandate, predetermined objectives, outputs, indicators and targets (Treasury Regulation 29.1).

18. There is a functioning performance management system and performance bonuses are only paid after proper assessment and approval by those charged with governance.

11. The financial reporting unit has adequate skills and competencies. however various material adjustments were affected after the submission of the financial statements that resulted from revisions of the material judgements and fair value measurement assessments as a result of the audit process.

REPoRt on othER LEgAL And REguLAtoRy REquIREMEntS

Report on performance information

12. I have reviewed the performance information as set out in Eastern Cape Development Corporation’s Annual Report, pages 23 to 50.

the accounting authority’s responsibility for the performance information

13. The accounting authority has additional responsibilities as required by section 55(2)(a) of the PfMA to ensure that the annual report and audited financial statements fairly present the performance against predetermined objectives of the public entity.

the Auditor-general’s responsibility

14. I conducted my engagement in accordance with section 13 of the PAA read with General Notice 616 of 2008, issued in Government Gazette No. 31057 of 15 May 2008.

15. In terms of the foregoing my engagement included performing procedures of an audit nature to obtain sufficient appropriate evidence about the performance information and related systems, processes and procedures. The procedures selected depend on the auditor’s judgement.

16. I believe that the evidence I have obtained is sufficient and appropriate to report that no significant findings have been identified as a result of my audit.

APPRECIAtIon

17. The assistance rendered by the staff of the Eastern Cape Development Corporation during the audit is sincerely appreciated.

East London 31 July 2009

Auditing to build public confidence

EASTERN CAPE DEVELOPMENT CORPORATION | ANNuAL REVIEWAUDITOR-GENERAL’S REPORT

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REPORT OF THE AUDIT COMMITTEE REQUIRED BY TREASURY REGULATIONS 27.1.7 AND 27.1.10 (B) AND (C) INTERMS OF THE PUBLIC FINANCE MANAGEMENT ACT 1 OF 1999, AS AMENDED.

1. ovERvIEw

We are pleased to present our report for the financial year ended 31 March 2009.

1.1 Audit Committee members and attendance

The Audit Committee consists of the members listed hereunder. As per its terms of reference, the committee is required to meet at least 5 times a year. During the year under review, 5 meetings were held.

Name of member Period of membership Number of meetings attended

J Njeke - Chairperson 1 April 2008 – 31 March 2009 4

Prof S Buthelezi 1 April 2008 – 31 March 2009 4

E heynes 1 April 2008 – 31 March 2009 4

T Nodada-Qhali 1 April 2008 – 31 March 2009 1

R Nicholls 1 April 2008 – 31 March 2009 4

1.2 Audit Committee responsibility

The Audit Committee is a committee of the Board and has discharged its responsibilities accordingly in terms of section 51 (1) a (ii) of the PfMA and 27.1.8 of the Treasury Regulations. The Audit Committee adopted a formal terms of reference, has regulated its affairs in compliance with these terms of reference and has discharged its responsibilities contained therein.

1.2.1 Effectiveness of internal control

During the year various reports of the Internal Auditors as well as the Audit Report on the Annual financial Statements and Management Letter of the Auditor General indicated that the system of internal control has shortcomings. The Audit Committee has noted these and based on the outcome of such reviews and the information provided by Management, the Audit Committee is of the opinion that the internal controls of the Corporation operated effectively throughout the year under review.

The Audit Committee is also of the view that progress has been made with respect to the control environment, especially in view of the fact that the Corporation has achieved its third successive unqualified audit report.

1.2.2 Risk management and governance

A risk management framework and policy was adopted and approved by the Board during the current financial year. A process of enterprise wide risk management was implemented by the Corporation wherein risk assessments are conducted and updated on an annual basis by the Internal Audit function at both senior management and

Board level.

During the year the Corporation adopted and approved various policies and procedures to strengthen the control environment. The governance of the various management committees was also improved, with the adoption and approval of formal terms of references.

1.2.3 Monthly and quarterly performance information

The Audit Committee is satisfied with the content and quality of monthly and quarterly reports prepared and issued by the Corporation during the year under review.

1.2.4 Internal audit

The Audit Committee reviewed the activities of the internal audit function and has concluded the following: • thefunctioniseffectiveandthattherewerenounjustifiedrestrictionsorlimitations; • theinternalauditreportswerereviewedatquarterlymeetings,includingitsannualworkprogramme,

co-ordination with the external auditors, the reports of significant investigations and the responses of management to issues raised therein.

Audit Committee’sreport


62

1.2.5 External auditors

The Auditor-General acted as the external auditors throughout the year. The Audit Committee reviewed the external auditors’ scope and work plan to ensure that key risk areas of the business were being addressed during the audit process.

2. EvALuAtIon oF AnnuAL FInAnCIAL StAtEMEntS

The Audit Committee has: • reviewedanddiscussedwiththeAuditor-GeneralandtheAccountingAuthoritytheauditedannualfinancial

statementstobeincludedintheAnnualReport; • reviewedtheAuditor-General’sauditreport,themanagementletterandmanagementresponsesthereto;and • reviewedthesignificantadjustmentsresultingfromtheaudit.

The Audit Committee concurs and accepts the conclusions of the Auditor-General on the annual financial statements and is of the opinion that the audited financial statements be accepted and read together with the report of the Auditor-General and the Directors’ Report. The Audit Committee agrees that the adoption of the going concern premise is appropriate in preparing the annual financial statements.

J NjekeChairperson of the Audit Committee3 August 2009

EASTERN CAPE DEVELOPMENT CORPORATION | ANNuAL REVIEWAUDIT COMMITTEE’S REPORT

63

The directors have pleasure in presenting their report and the audited financial statements for the year ended 31 March 2009.

1. nAtuRE oF BuSInESS

1.1 Constitution

Established in terms of section 2 of the Eastern Cape Development Corporation Act, 1997 (Act No. 2 of 1997), the Eastern Cape Development Corporation (the Corporation) is a Provincial Government Business Enterprise listed in Schedule 3 D of the Public finance Management Act, 1999 (Act No. 1 of 1999) (the PfMA). The Corporation became operational with effect from 1 April 2001. In terms of the PfMA the Board of Directors is the accounting authority of the Corporation.

1.2 objectives

The objectives of the Corporation are to plan, finance, market, promote and implement the development of the Province of the Eastern Cape and its people in the fields of commerce, industry, transport, agriculture and finance.

The objectives set out above are attained through the following:

• Existingbusinesssupport; • Creatingopportunitiesfornewbusiness; • Growingandsustainingexisting,anddevelopingnew,markets; • Improvingaccesstofinance;and • Ensuringthatbusinessdevelopmentissupportedbyskills,infrastructureandpolicies.

Strategic objectives and activities were set for the Corporation to ensure the long term sustainability of the Corporation, which include:

• EstablishingoperationalandbudgetaryalignmentwiththeDepartmentofEconomicDevelopmentand EnvironmentalAffairs;

• MaximisingOperatingIncometoensureselfsustainabilityoftheCorporation; • RealisingreturnfromInvestmentAssets; • Providingefficient,effectiveandintegrateddevelopmentandsupportservicestoSMMEs; • GrowingtheLoanBookwithsustainablebusinesses; • AchievingexpenditureratiosthatareappropriatefortheCorporation; • Increasingtherateofdebtcollectionstoacceptablenorms; • FacilitatingnewinvestmentsinprioritysectorsinlinewiththeProvincialGrowthandDevelopmentProgramme; • ImprovingtheReturnonAssetstolevelsappropriatetotheCorporationasaDevelopmentFinanceInstitution; • HumanResourceManagement;and • FinalisingtheCorporation’sappropriatepositionofitsshareholdinginsubsidiaries.

for the purpose of achieving its development mandate, the Corporation focuses on the provision of finance and support expertise to all businesses types, including small, medium and micro enterprises (SMMEs) and stimulation of domestic and foreign direct investment, and will continue facilitating high economic development impact projects. The Corporation has a clearly defined role of improving access to finance for business with an economic development impact and in improving entrepreneurial capacity for long term economic development and sustainability.

The Corporation also renders economic development services in the areas of investment promotion, export promotion and support to municipalities and local authorities in the Eastern Cape Province.

2. dEvELoPMEnt LoAnS AdvAnCEd

The total disbursement of development loans for the current year amounted to more than R310 million. The bulk of these development loans have been disbursed to SMMEs and are geographically spread throughout the province of the Eastern Cape. Striking a healthy balance between obtaining a commercial return and at the same time effecting sustainable socio-economic development impact remains a challenge due to perceptions in the market that Development finance Institutions are “soft” lenders. This perception and expectation in the market provides its own challenges in the area of debt collection.

directors’report

64


3. InvEStMEnt PRoPERtIES

The Corporation continued to improve the integrity of the Asset Register by integrating the information from the rental billing system onto the fixed asset register. The tenant and asset verification exercise which commenced in December 2008 is planned for completion during the 2009/10 financial year.

The Corporation continued with the implementation of the Asset Conversion Policy, which consists of disposal of residential properties. The global economic climate has affected rental collection and the sale of properties as financial institutions reviewed their lending criteria. Delays were experienced in transferring some of the properties to purchasers, as well as commencement with identified development projects because of land claims.

4. PoSt BALAnCE ShEEt EvEntS REvIEw

The directors are not aware of any material matter or circumstance arising since the end of the financial year.

5. AuthoRISEd And ISSuEd ShARE CAPItAL

The authorised share capital of the Corporation remained unchanged at R1 billion worth of ordinary shares. Of this the Corporation issued R298, 683 million worth of ordinary shares to the Provincial Government of the Eastern

Cape (Department of Economic Development and Environmental Affairs). The issued share capital is made up of 149, 342 million “A” shares of R1 each and 149, 341 million “B” shares of R1 each.

6. FInAnCIAL RESuLtS

The results of the Corporation and the group are disclosed in the annual financial statements.

7. PoLICy dIRECtIvES

During the year under review, no new policy directives were received by the Corporation from the Member of the Executive Council responsible for the Department of Economic Development and Environmental Affairs.

8. dIvIdEndS

The directors of Transkei Share Investments (Pty) Ltd, a subsidiary, declared a dividend of R31,9 million, including Secondary Tax on Companies and R783,000 due to minority shareholders.

9. IntERESt BEARIng BoRRowIngS

No new borrowings were incurred during the year. The corporation continued to reduce its existing borrowings with the Development Bank of Southern Africa Limited.

10. SuBSIdIARIES

financial information in respect of interests of the Corporation in subsidiaries and associates is set out under Supplementary Information (1). During the financial year, funding agreements were concluded with the following subsidiaries in order to improve oversight and governance:

• EastLondonIndustrialDevelopmentZone(Proprietary)Limited • AutomotiveIndustrialDevelopmentCompany(Proprietary)Limited

EASTERN CAPE DEVELOPMENT CORPORATION | ANNuAL REVIEWDIRECTORS’ REPORT

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11. dIRECtoRS’ RESPonSIBILItIES FoR thE FInAnCIAL StAtEMEntS FoR thE yEAR EndEd 31 MARCh 2009 The directors are required, in terms of the Public finance Management Act, 1999 (Act No. 1 of 1999, as amended),

and the Eastern Cape Development Corporation Act, 1997 (Act No. 2 of 1997), to maintain adequate accounting records and are responsible for the content and integrity of the annual financial statements and related financial information included in this report. The directors are further responsible to ensure that the annual financial statements fairly represent the state of affairs of the Corporation as at the end of the financial year, and the results of its operations and cash flows for the period then ended, in conformity with South African Statements of Generally Accepted Accounting Practice. The external auditors are engaged to express an independent opinion on the annual financial statements.

The Corporation’s annual financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates.

Acknowledging their responsibility for the system of internal control established by the Corporation, the Directors place considerable importance on maintaining a strong control environment. The Directors set standards for internal control aimed at reducing the risk of error or loss in a cost effective manner. These standards include proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls were monitored as far as reasonably possible throughout the Corporation and all employees are required to maintain the highest ethical standards in ensuring the Corporation’s business is conducted in a manner that in all reasonable circumstances is above reproach. The risk management focus in the Corporation is on identifying, assessing, managing and monitoring all known forms of risk across the Corporation. It is acknowledged that operating risk cannot be fully eliminated. however, the Corporation endeavours to minimise it by ensuring that appropriate infrastructures, controls, systems and ethical behaviour are applied within predetermined procedures and constraints.

Based on the information and explanations provided by Management, the Directors are of the opinion that the system of internal control provides reasonable assurance that the financial records may be relied upon for the preparation of annual financial statements. Any system of internal control can, however, provide only reasonable, and not absolute, assurance against material misstatement or loss.

12. goIng ConCERn StAtEMEnt having reviewed the Corporation’s cash flow forecast for the year to 31 March 2010 and, in the light of this review

and current financial position, the Directors are satisfied that the Corporation has, or has access to, adequate resources to continue its operational existence for the future.

66



67

13. Directors anD secretary The details of the Corporation’s directors and Secretary are reflected in the Corporate Governance section of this

Annual Report. The directors’ and Audit Committee fees were paid as follows:

FeesBoard meeting

FeesAudit committee

Total

Nkuhlu, W L – Chairperson 102,500 - 102,500

Buthelezi, S 38,500 22,000 60,500

fikeni, S 76,500 - 76,500

Ndabeni, M 63,000 - 63,000

Nonkwelo, L 58,500 - 58,500

Nodada-Qhali, T 33,000 2,000 35,000

Pakati, x 51,500 - 51,500

Tabata, S 104,000 - 104,000

Nicholls, RG - 19,000 19,000

Njeke, JJ 13,000 43,000 56,000

heynes, E 20,500 22,000 42,500

grand total 561,000 108,000 669,000

Mr Bhekokuhle Sibiya Mr Mxolisi D Matshamba

Chairperson of the Board Chief Executive Officer30 July 2009 30 July 2009

Group Company

Note(s) 2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

Assets

non-current assets

Investment property 2 927,336 712,839 511,960 481,389

Property, plant and equipment 3 540,219 566,728 19,054 19,272

Investments in subsidiaries 4 - - 26,119 26,071

Investments in associates 5 45,780 6,094 36,985 3,000

Loans to group companies 6 - 33,765 26,412 55,297

Investments 7 151,847 144,173 151,153 143,450

Deferred tax 8 1,120 1,125 - -

Loans advanced 9 111,084 56,190 111,069 56,177

1,777,386 1,520,914 882,752 784,656

Current assets

Current tax receivable 1,913 246 - -

Trade and other receivables 10 63,024 34,899 32,140 14,322

Loans advanced 9 103,649 52,079 103,649 52,079

Cash and cash equivalents 11 452,084 435,364 254,500 304,110

620,670 522,588 390,289 370,511

total assets 2,398,056 2,043,502 1,273,041 1,155,167

equity And LiAbiLities

Equity - equity attributable to equity holders of parent

Share capital 12 298,683 270,870 298,683 270,870

Reserves 13 741,450 700,039 722,415 680,450

Accumulated loss (16,504) (36,799) (52,724) (81,354)

Minority interest 3,454 6,392 - -

1,027,083 940,502 968,374 869,966

LiAbiLities

non-current liabilities

Loans from group companies 6 - - 27,771 56,623

Interest bearing borrowings 14 16,139 17,601 16,080 17,601

Retirement benefit obligation 15 16,004 10,756 16,004 10,756

Deferred income 16 526,931 675,689 - -

Deferred tax 8 - 1,925 - -

559,074 705,971 59,855 84,980

Current liabilities

Interest bearing borrowings 14 1,495 1,483 1,483 1,483

Current tax payable - 4,260 - -

Trade and other payables 17 100,699 58,856 29,678 23,633

Deferred income 16 520,385 188,643 30,508 37,495

Project grants 18 189,320 143,787 183,143 137,610

811,899 397,029 244,812 200,221

total liabilities 1,370,973 1,103,000 304,667 285,201

total equity and liabilities 2,398,056 2,043,502 1,273,041 1,155,167

Balance sheetConsolidated Annual financial Statements

for the year ended 31 March 2009

68


Group Company

Note(s) 2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

Revenue 19 94,572 92,973 70,432 72,211

Other income 20,329 13,781 18,698 11,225

Government grants 147,127 110,270 68,552 54,094

Operating expenses (301,481) (250,311) (201,448) (179,208)

operating loss 20 (39,453) (33,287) (43,766) (41,678)

Investment revenue 22 46,490 32,272 74,407 32,573

fair value adjustments 23 46,771 61,243 41,965 49,870

Income from equity accounted investments 2,701 1,469 - -

Gain on non-current assets held for sale or disposal groups

1,203 - - -

finance costs 24 (1,579) (2,672) (2,011) (2,850)

Profit before taxation 56,133 59,025 70,595 37,915

Taxation 25 3,633 (1,649) - -

Profit for the year 59,766 57,376 70,595 37,915

Attributable to

Equity holders of the parent 58,578 57,352 70,595 37,915

Minority interest 1,188 24 - -

Income statementConsolidated Annual financial Statements



69

Share capital Fair value adjustmentassets available-for-

sale reserve

Other NDR

R’ 000 R’ 000 R’ 000

grouP

Open balance as previously reported 239,373 - 572,910

Adjustments

Prior year adjustments - - -

Balance at 01 April 2007 as restated 239,373 - 572,910

fair value gains transferred - - 53,946

financial assets - 74,173 -

Duplicate property derecognised - - (750)

Reversal of loans - - (240)

Net income (expenses) recognised directly in equity - 74,173 52,956

Profit for the year - - -

Total recognised income and expenses for the year - 74,173 52,956

Issue of shares 31,497 - -

Correction of tax provision - - -

Change in degree of controll - - -

Total changes 31,497 74,173 52,956

Balance at 01 April 2008 as restated 270,870 74,173 625,866

Changes in equity

fair value gains - - 41,411

Net income (expenses) recognised directly in equity - - 41,411


Total recognised income and expenses for the year - - 41,411


Change in degree of control - - -

Prior period correction - - -

Dividends paid to minority - - -

Total changes 27,813 - 41,411

balance at 31 March 2009 298,683 74,173 667,277

Statement of changes in equityConsolidated Annual financial Statements


70


Total reserves Accumulated loss Total attributable to equity holders of the

group/company

Minority interest Total equity

R’ 000 R’ 000 R’ 000 R’ 000 R’ 000

572,910 (39,024) 773,259 6,371 779,630

- (1,273) (1,273) - (1,273)

572,910 (40,297) 771,986 6,371 778,357

53,946 (53,946) - - -

74,173 - 74,173 - 74,173

(750) - (750) - (750)

(240) - (240) - (240)

127,129 (53,946) 73,183 - 73,183

- 57,352 57,352 24 57,376

127,129 3,406 130,535 24 130,559

- - 31,497 - 31,497

- 92 92 - 92

- - - (3) (3)

127,129 3,498 162,124 21 162,145

700,039 (36,799) 934,110 6,392 940,502

41,411 (42,361) (950) - (950)

41,111 (42,361) (950) - (950)

- 58,578 58,578 1,188 59,766

41,411 16,217 57,628 1,188 58,816

- - 27,813 - 27,813

- - - (48) (48)

- 3,295 3,295 (3,295) -

- 783 783 (783) -

41,411 20,295 89,519 (2,938) 86,581

741,450 (16,504) 1,023,629 3,454 1,027,083

EASTERN CAPE DEVELOPMENT CORPORATION | ANNuAL REVIEWSTATEMENT OF CHANGES IN EQUITY

71

Share capital Fair value adjustmentassets available-for-

sale reserve

Other NDR

R’ 000 R’ 000 R’ 000

CorPorAtion

Balance at 01 April 2007 239,373 - 559,892

Changes in equity


financial assets - 74,180 -

Duplicate property derecognised - - (750)

Loans reversed - - (240)

Net income (expenses) recognised directly in equity - - -


Total recognised income and expenses for the year - 74,180 46,378


Total changes 31,497 74,180 46,378

Balance at 01 April 2008 270,870 74,180 606,270

Changes in equity


Net income (expenses) recognised directly in equity - - 41,965


Total recognised income and expenses for the year - - 41,965


Total changes 27,813 - 41,965

Balance at 31 March 2009 298,683 74,180 648,235

72


Total reserves Accumulated loss Total attributable to equity holders of the

group/company

Minority interest Total equity

R’ 000 R’ 000 R’ 000 R’ 000 R’ 000

559,892 (71,901) 727,364 - 727,364

47,368 (47,368) - - -

74,180 - 74,180 - 74,180

(750) - (750) - (750)

(240) - (240) - (240)

120,558 (47,368) 73,190 - 73,190

- 37,915 37,915 - 37,915

120,558 (9,453) 111,105 - 111,105

- - 31,497 - 31,497

120,558 (9,453) 142,602 - 142,602

680,450 (81,354) 869,966 - 869,966

41,965 (41,965) - - -

41,965 (41,965) - - -

- 70,595 70,595 - 70,595

41,965 28,630 70,595 - 70,595

- - 27,813 - 27,813

41,965 28,630 98,408 - 98,408

722,415 (52,724) 968,374 - 968,374


73

Group Company

Note(s) 2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

CAsH fLow froM oPerAting ACtivities

Cash used/generated in operations 26 187,037 211,183 (41,257) (29,668)

Interest income 39,015 25,879 38,383 26,238

Dividends received 137 100 - 44

finance costs (1,579) (2,672) (2,011) (2,850)

Tax paid 27 (1,697) (299) - -

net cash from operating activities 222,913 234,191 (4,885) (6,236)

CAsH fLow froM investing ACtivities

Purchase of property, plant and equipment 3 (194,518) (160,553) (1,527) (1,742)

Sale of property, plant and equipment 3 1,389 7 - -

Sale of investment property 2 12,282 17,137 12,032 16,790

Loans advanced to group companies - (5,723) (1,785) -

Proceeds from loans from group companies - - - 3,928

Purchase of financial assets (10,080) (4,490) (10,127) (4,493)

Sale of financial assets 630 600 600 600

Net loan disbursements (115,745) (7,624) (115,743) (7,623)

Completion of investment property (178,777) - - -

Completed infrastructure transferred to assets 206,810 - - -

net cash from investing activities (278,009) (160,646) (116,550) 7,460

CAsH fLow froM finAnCing ACtivities

Proceeds on share issue 12 27,813 31,497 27,813 31,497

Repayment of interest bearing borrowings (1,530) (1,421) (1,521) (1,421)

Movement in project grants 45,533 (15,310) 45,533 (15,310)

net cash from financing activities 71,816 14,766 71,825 14,766

total cash movement for the year 16,720 88,311 (49,610) 15,990

Cash at the beginning of the year 435,364 347,053 304,110 288,120

total cash at end of the year 11 452,084 435,364 254,500 304,110

Cash flow statementConsolidated Annual financial Statements


74


1. PRESEntAtIon oF ConSoLIdAtEd FInAnCIAL StAtEMEntS The consolidated annual financial statements of the Eastern Cape Development Corporation have been prepared in

accordance with South African Statements of Generally Accepted Accounting Practice and in the manner required by the Public finance Management Act (Act No. 1 of 1999, as amended) and the Eastern Cape Development Corporation Act. The consolidated annual financial statements have been prepared on the historical cost basis as modified by the revaluations of certain land and buildings, investment properties, available for sale financial assets and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

The preparation of annual financial statements in conformity with South African Statements of Generally Accepted Accounting Practice requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 1.15.

The annual financial statements have been prepared in the Corporation’s functional currency, the South African Rand.

These accounting policies are consistent with the previous period.

underlying assumptions

The financial statements are prepared on the going concern basis, which assumes that the Corporation will continue in operation for the foreseeable future. The financial statements are prepared using accrual accounting whereby the effects of transactions and other events are recognised when they occur rather than when the cash is received or paid.

Assets and liabilities and income and expenses are not offset unless specifically permitted by an accounting standard. financial assets and financial liabilities are offset and the net amount reported only when a current legally enforceable right to set off the amounts exists and the intention is either to settle on a net basis or to realise the asset and settle the liability simultaneously.

Changes in accounting policies are accounted for in accordance with the transitional provisions in the applicable standard. If no such guidance is given, they are applied retrospectively unless it is impracticable to do so, in which case the change is applied prospectively. Changes in accounting estimates are recognised in profit or loss in the period they occur. Prior period errors are retrospectively restated unless it is impracticable to do so, in which case they are applied prospectively.

Recognition of assets and liabilities

An asset, being a resource controlled by the entity as a result of a past event from which future economic benefits are expected to flow, is recognised when it is probable that the future economic benefits associated with it will flow to the Group and its cost or fair value can be measured reliably. A liability, being a present obligation of the Group arising from a past event the settlement of which is expected to result in an outflow of resources embodying economic resources from the Group, is recognised when it is probable that future economic benefits associated with it will flow from the Group and its cost or fair value can be measured reliably.

derecognition of assets and liabilities

financial assets or parts thereof are derecognised, i.e. removed from the balance sheet, when the contractual rights to receive the cash flows have been transferred or have expired or if substantially all the risks and rewards of ownership have passed. Where substantially all the risks and rewards of ownership have not been transferred or retained, the financial assets are derecognised if they are no longer controlled by the Group. however, if control is retained, financial assets are recognised only to the extent of the Group’s continuing involvement in those assets.

All other assets are derecognised on disposal or when no future economic benefits are expected to flow to the Group from their use or disposal. financial liabilities are derecognised when the relevant obligation has either been discharged or cancelled or has expired.

Post-balance sheet events

Recognised amounts in the financial statements are adjusted to reflect events arising after the balance sheet date that provide evidence of conditions that existed at the balance sheet date. Events after the balance sheet date that are indicative of conditions that arose after the balance sheet date are dealt with by way of a note.

Accounting PoliciesConsolidated Annual financial Statements



75

1.1 Investment property

Investment property is held for long-term rental yields or for capital appreciation or both and comprises properties not occupied by the Group. hotel buildings held by the Group are classified as investment property as the Group is not involved in the hotel operations. Investment properties are initially measured at cost, including transaction costs, and are subsequently stated at fair value determined by an independent sworn appraiser every third year.

Fair value

Subsequent to initial measurement investment property is measured at fair value. A gain or loss arising from a change in fair value is included in net profit or loss for the period in which it arises. fair value gains and losses are transferred from accumulated surplus to reserves.

1.2 Property, plant and equipment

Property, plant and equipment are depreciated on a straight line basis at rates that will reduce the gross carrying amount to estimated residual values over the expected useful lives of the assets. Property, plant and equipment acquired under finance lease agreements are capitalised. Such assets are depreciated on a straight line basis at rates considered appropriate to reduce capitalised cost to estimated residual values over the expected useful lives of the assets. Lease finance charges are amortised over the duration of the finance leases using the effective interest rate method.

The expected useful lives of the assets are as follows:

Item Average useful life

Land Indefinite

Buildings and infrastructure 25-50 years

Plant and machinery 4 years

furniture and fixtures 6-10 years

Motor vehicles 4-5 years

Office equipment 4-5 years

IT equipment 3 years

Computer software 3 years

Other property, plant and equipment 5 years

Land is not depreciated as it is deemed to have an infinite life. The residual value and the useful life of each asset are reviewed at each financial period-end.

On initial recognition, property, plant and equipment is measured at cost. The cost of buildings and infrastructure includes all direct building costs, allocated overhead costs and capitalised borrowing costs. Subsequent to initial recognition, costs incurred to add to, replace part of, or perform major services are included in the cost of an item of property, plant and equipment. If a replacement cost is recognised in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is derecognised.

Land and buildings and infrastructure are carried at revalued amounts. All other classes of property, plant and equipment are carried at cost.

When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the revaluation is restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount.

If an asset’s carrying amount is increased as a result of a revaluation, the increase is credited directly to equity under the heading of revaluation reserve. however, the surplus is recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss. If an asset’s carrying amount is decreased as a result of a revaluation, the decrease is recognised in profit or loss. however, the decrease is debited directly to equity under the heading of revaluation reserve to the extent of any credit balance existing in the revaluation reserve in respect of that asset.

Where the carrying amount of an asset is greater than its estimated market value, it is written down to its market value.

76

EASTERN CAPE DEVELOPMENT CORPORATION | ANNuAL REVIEWACCOUNTING POLICIES

1.3 Investments in subsidiaries

Subsidiaries are entities, including unincorporated partnerships and companies without a share capital, that are controlled by the Group. Control exists where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Consolidated annual financial statements

The consolidated annual financial statements incorporate the assets, liabilities, income, expenses and cash flows of the Corporation and its subsidiaries. The results of the subsidiaries acquired or disposed during the year are included from the date of acquisition or up to the date of disposal. Inter-company transactions and balances are eliminated on consolidation.

Corporation annual financial statements

In the Corporation’s separate annual financial statements, investments in subsidiaries are carried at cost less any accumulated impairment.

The cost of an investment in a subsidiary is the aggregate of: • thefairvalue,atthedateofexchange,ofassetsgiven,liabilitiesincurredorassumed,andequityinstruments issuedbytheCorporation;plus • anycostsdirectlyattributabletothepurchaseofthesubsidiary.

An adjustment to the cost of a business combination contingent on future events is included in the cost of the combination if the adjustment is probable and can be measured reliably.

1.4 Investments in associates

Associates are entities, including unincorporated partnerships and companies without a share capital, over which the Group exercises significant influence.

Consolidated annual financial statements

An investment in an associate is accounted for using the equity method, except when the asset is classified as held-for-sale in accordance with IfRS 5: Non-current assets held for sale and discontinued operations. under the equity method, the investment is initially recognised at cost and the carrying amount is increased or decreased to recognise the group’s share of the profits or losses of the investee after acquisition date. The use of the equity method is discontinued from the date the group ceases to have significant influence over an associate.

Any impairment losses are deducted from the carrying amount of the investment in associate.

Distributions received from the associate reduce the carrying amount of the investment.

Profits and losses resulting from transactions with associates are recognised only to the extent of unrelated investors’ interests in the associate.

The excess of cost of acquisition over the Group’s interest in the net fair value of an associate’s identifiable assets, liabilities and contingent liabilities is accounted for as goodwill, and is included in the carrying amount of the associate.

The excess of the group’s share of the net fair value of an associate’s identifiable assets, liabilities and contingent liabilities over the cost is excluded from the carrying amount of the investment and is instead included as income in the period in which the investment is acquired.

Corporation annual financial statements

Associate companies are those companies in which the Corporation holds a long-term equity interest and over which it exercises a significant influence over its financial and operating policies, other than investments in companies acquired to protect advances or as a conduit for advances.

The investments in associate companies are initially recorded at cost. Subsequent to initial recognition, the investment in the associate is carried at fair value as an available-for-sale financial asset in accordance with the accounting policy on financial assets. If fair value cannot be measured reliably, the investment is carried at cost. An appropriate provision is made where there is considered to be a permanent diminution in the value of the investment.


77

1.5 Impairment of assets

An impairment loss on an asset or cash-generating unit is the amount by which the carrying amount, i.e. the amount recognised on the balance sheet after deducting any accumulated depreciation and accumulated impairment losses, exceeds its recoverable amount. The recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use. Value in use is the present value of future cash flows expected to be derived from an asset or cash-generating unit.

At each reporting date the carrying amount of the tangible and intangible assets are assessed to determine whether there is any indication that those assets may have suffered an impairment loss. If any such indication exists, the recoverable amount of the cash-generating unit to which the asset belongs is estimated. Value in use is estimated taking into account future cash flows, forecast market conditions and the expected useful lives of the assets.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount is reduced to the higher of its recoverable amount and zero. Impairment losses are recognised in profit or loss. The loss is first allocated to reduce the carrying amount of goodwill and then to the other assets of the cash-generating unit. Subsequent to the recognition of an impairment loss, the depreciation or amortisation charge for the asset is adjusted to allocate its remaining carrying value, less any residual value, over its remaining useful life.

If an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, limited to the carrying amount that would have been recognised had no impairment loss been recognised in prior years. A reversal of an impairment loss is recognised in profit or loss. Impairments to goodwill are not reversed in subsequent accounting periods.

1.6 Financial instruments

Financial assets

Recognition and measurement

The group classifies its investments into the following categories: • financialassetsatfairvaluethroughincome; • available-for-salefinancialassets; • loansandreceivables; • held-to-maturityfinancialassets.

a) Financial assets at fair value through profit or loss A financial asset is classified as held-for-trading if it is acquired or incurred principally for the purpose of selling

or repurchasing in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking.

b) Financial assets held-to-maturity Investments with fixed maturity that the Group has the intent and ability to hold to maturity are classified as

investments held-to-maturity and are included within non-current assets.

c) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in

an active market.

d) Available-for-sale financial assets financial assets classified by the Group as available-for-sale financial assets are generally strategic investments held

for an indefinite period of time, or financial assets that are not classified in the other three categories.

financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes party to the contractual provisions of the instrument.

financial assets are initially measured at fair value plus transaction costs. however, transaction costs in respect of financial assets classified as at fair value through profit or loss are expensed.

Investments classified as held to maturity are measured at amortised cost less any impairment losses recognised.

Available-for-sale financial assets are measured at fair value with gains or losses being recognised directly in equity. fair value, for this purpose, is market value if listed or a value arrived at by using appropriate valuation models if unlisted. Impairment losses are recognised in profit or loss when there is objective evidence that the asset is impaired. Any reversal of impairment losses is recognised directly in equity.

Loans advanced are stated at the outstanding capital amount and accrued interest after deduction of amounts which, in the opinion of the directors, are required as specific impairment allowances. Specific impairment

78


allowances are made against identified doubtful advances. The aggregate impairment allowances, which are made during the year, less amounts released and recoveries of advances previously written off are charged to the income statement. Irrecoverable advances are written off as irrecoverable when the extent of the loss has been confirmed.

Cash and cash equivalents are measured at fair value, with changes in fair value being recognised in profit or loss.

Financial liabilities

financial liabilities are initially measured at fair value plus transaction costs. however, transaction costs in respect of financial liabilities classified as at fair value through profit or loss are expensed.

financial liabilities that are not designated on initial recognition as at fair value through profit or loss are measured at amortised cost. financial liabilities that are designated on initial recognition as at fair value through profit or loss are measured at fair value, with changes in fair value being recognised in profit or loss.

1.7 Share capital and equity

Ordinary share capital, preference share capital or any financial instrument issued by the group is classified as equity when: • paymentofcash,intheformofadividendorredemption,isatthediscretionofthegroup; • theinstrumentdoesnotprovidefortheexchangeoffinancialinstrumentsunderconditionsthatarepotentially

unfavourabletothegroup; • settlementinthegroup’sownequityinstrumentsisforafixednumberofequityinstrumentsatafixedprice;and • theinstrumentrepresentsaresidualinterestintheassetsofthegroupafterdeductingallofitsliabilities.

The group’s ordinary share capital is classified as equity.

Consideration paid or received for equity instruments is recognised directly in equity. Equity instruments are initially measured at the proceeds received less incremental directly attributable issue costs. No gain is recognised in profit or loss on the purchase, sale, issue or cancellation of the group’s equity instruments.

When the group issues a compound instrument, i.e. an instrument that contains both a liability and equity component, the equity component is initially measured at the residual amount after deducting from the fair value of the compound instrument the amount separately determined for the liability component. Transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and equity components of the instrument in proportion to the allocation of proceeds.

Distributions to holders of equity instruments are recognised as dividends within equity in the period in which they are payable. Dividends for the year that are declared after the balance sheet date are disclosed in the notes.

1.8 government grants and deferred income

Government includes government agencies and similar bodies whether local, national or international. Government assistance is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria. A government grant is assistance by government in the form of transfers of resources.

When the conditions attaching to government grants have been met and the grants have been received, they are recognised in profit or loss on a systematic basis over the periods necessary to match them with the related costs. When they are for expenses or losses already incurred, they are recognised in profit or loss immediately. The unrecognised portion of project spend at the balance sheet date is presented as deferred income. No value is recognised for other government asistance.

Government grants are recognised when there is reasonable assurance that: • theGroupwillcomplywiththeconditionsattachingtothem;and • thegrantswillbereceived.

Government grants are recorded as deferred income when they become receivable and are then recognised as income on a systematic basis over the periods necessary to match the grants with the related costs, which they are intended to compensate.

Government grants related to assets, including non-monetary grants at fair value, are presented in the balance sheet by setting up the grant as deferred income.


79

1.9 Project grants

The grants received and associated expenditure are not included in the income statement of the Group but transferred directly to individual project fund accounts, which are reflected as a current liability. Interest received on the funds is accounted for in the fund account unless the Group is entitled thereto according to the agreement. The funds are applied to either specific expenditure as directed by the funder or in terms of the agreement with the funder.

1.10 Provisions

Provisions are recognised when: • theGrouphasapresentobligationasaresultofapastevent; • itisprobablethatanoutflowofresourcesembodyingeconomicbenefitswillberequiredtosettletheobligation; • areliableestimatecanbemadeoftheobligation.

The amount of a provision is the present value of the expenditure expected to be required to settle the obligation.

Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement is recognised when, and only when, it is virtually certain that reimbursement will be received if the Group settles the obligation. The reimbursement is treated as a separate asset. The amount recognised for the reimbursement shall not exceed the amount of the provision.

Provisions are not recognised for future operating losses.

When the Group has a contract that is onerous, the present obligation under the contract is recognised and measured as a provision.

1.11 Revenue

Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for goods, services and operating lease income provided in the normal course of business, net of value added tax.

Interest is recognised, in profit or loss, using the effective interest rate method.

Operating lease income is recognised as income on a straight-line basis over the lease term or another systematic basis, if more representative of the time pattern of the user’s benefit.

Dividends are recognised, in profit or loss, when the Group’s right to receive payment has been established.

1.12 Employee benefits

Short-term employee benefits

Employee benefits’ cost include all forms of consideration given in exchange for services rendered by employees. The cost of providing employee benefits is recognised in profit or loss in the period they are earned by employees. The cost of short-term employee benefits is recognised in the period in which the service is rendered and is not discounted.

The expected cost of short-term accumulating compensated absences is recognised as an expense as the employees render service that increases their entitlement or, in the case of non-accumulating absences, when the absences occur. The expected cost of performance bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance.

Post-employment benefit obligations

The cost of providing defined benefits is determined using the projected unit credit method. Valuations are conducted annually. The amount recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses.

1.13 Leases

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.

80


operating leases – lessee

Rentals payable under operating leases are recognised in profit or loss on a straight-line basis over the term of the relevant lease, or another basis if more representative of the time pattern of the Group’s benefit. Any contingent rents are expensed in the period they are incurred.

1.14 tax

Current tax

The charge for current tax is based on the results for the year as adjusted for income that is exempt and expenses that are not deductible using tax rates that are applicable to the taxable income.

deferred tax

A deferred tax asset is the amount of income taxes recoverable in future periods in respect of deductible temporary differences, the carry forward of unused tax losses and the carry forward of unused tax credits.

A deferred tax asset is only recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised, unless specifically exempt. It is measured at the tax rates that have been enacted or substantially enacted at the balance sheet date and is not discounted.

A deferred tax liability is recognised for taxable temporary differences, unless specifically exempt, at the tax rates that have been enacted or substantially enacted at the balance sheet date and is not discounted. A deferred tax liability is the amount of income taxes payable in future periods in respect of taxable temporary differences. Temporary differences are differences between the carrying amount of an asset or liability and its tax base.

Deferred tax arising on investments in subsidiaries, associates and joint ventures is recognised except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

A deferred tax asset is recognised for the carry forward of unused tax losses and unused STC credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused STC credits can be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date.

1.15 Key assumptions concerning the future and key sources of estimation

The financial statements are prepared in accordance with and comply with SA GAAP and its interpretations adopted by the Accounting Practices Board. In the preparation of the financial statements the corporation has assumed certain key sources of estimation in recording various assets and liabilities, as set out below.

Credit impairment of loans and advances

The Group adopted an incurred-loss approach to impairment in accordance with accounting policy 1.6. Impairment losses are incurred only if there is objective evidence of impairment as a result of one or more past events that has occurred since initial recognition. This necessitates the establishment of ‘impairment triggers’ on the occurrence of which an impairment loss may be recognised.

Credit impairment is based on discounted estimated future cashflows on an asset or group of assets, where such objective evidence of impairment exists. The discount rates used to calculate the recoverable amount exclude consideration of any anticipated future credit losses.

The group has created a portfolio provision for incurred but not reported (IBNR) losses. The purpose of the IBNR provision is to allow for latent losses on a portfolio of loans and advances that have not yet been individually evidenced. Generally, a period of time will elapse between the occurrence of an impairment event and objective evidence of the impairment becoming evident, which is known as the ‘emergence period’. The IBNR provision is based on the probability that loans that are ostensibly performing at the calculation date are impaired, and objective evidence of that impairment becomes evident during the emergence period.

The implementation of these principles is at a Corporation level and will be specific to the nature of their individual loan portfolios and the loan loss data available to the investment division.


81

Provisions, contingent liabilities and contingent assets

The group, in the ordinary course of business, enters into transactions that expose the group to tax, legal and business risks. Refer to notes 28 and 29 for further information on provisions, contingent liabilities and contingent assets.

Fair value of investment properties

for valuation methodologies utilised to fair value investment properties, refer to note 2.

unlisted investment valuations

The valuation of unlisted investments is based on the discounted free cash flows of the investments taking into account the projected future activities of the entity. These values are established either by independent valuers or management and are reviewed by the Development Investment Committee.

1.16 Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset until such time as the asset is ready for its intended use. The amount of borrowing costs eligible for capitalisation is determined as follows:

• actualborrowingcostsonfundsspecificallyborrowedforthepurposeofobtainingaqualifyingassetlessany temporaryinvestmentofthoseborrowings;

• weightedaverageoftheborrowingcostsapplicabletotheentityonfundsgenerallyborrowedforthepurposeof obtaining a qualifying asset. The borrowing costs capitalised do not exceed the total borrowing costs incurred.

The capitalisation of borrowing costs commences when: • expendituresfortheassethaveoccurred; • borrowingcostshavebeenincurred; • activitiesthatarenecessarytopreparetheassetforitsintendeduseorsaleareinprogress.

Capitalisation is suspended during extended periods in which active development is interrupted.

Capitalisation ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.

All other borrowing costs are recognised as an expense in the period in which they are incurred.

82



2. InvEStMEnt PRoPERty

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

reConCiLiAtion of investMent ProPerty - grouP - 2009

Reconciliation of movement

Balance at beginning of year 712,839 671,689 481,389 449,962

Disposals (13,137) (16,297) (12,897) (15,957)

Additions resulting from capitalised subsequent expenditure 182,854 - 593 -

fair value gain 43,870 57,431 41,965 47,368

Other movements 910 16 910 16

927,336 712,839 511,960 481,389

Reconciliation of fair value gain to income statement

fair value gain per balance sheet 43,870 57,431 41,965 47,368

Compensation received for fair value loss on investment property 2,901 3,812 - 2,502

Fair value gain recognised in profit or loss (note 23) 46,771 61,243 41,965 49,870

These properties are situated throughout the Eastern Cape, with the majority of properties concentrated in the areas in and surrounding Mthatha, Butterworth, king William’s Town, East London and Queenstown. The portfolio mainly consists of industrial, residential and commercial properties.

Percentage value Number

R’ 000 R’ 000 R’ 000

CorPorAtion - 2009

type of properties

Residential 48 244,002 558

Commercial 19 96,456 250

Vacant land 5 26,985 777

Industrial 25 126,115 193

Other 3 18,402 115

100 511,960 1,893

CorPorAtion - 2008

type of properties

Residential 48 226,396 593

Commercial 21 103,469 257

Vacant land 6 29,104 813

Industrial 25 122,026 197

Other - 394 73

100 481,389 1,933

Investment properties were valued in terms of the accounting policy, which requires a value determined by a sworn appraiser every three years. Valuations are normally based on comparable sales in the area or on the income earning potential of the building.

Investment properties are subject to operating leases with tenants. No rental was charged on certain properties, mainly because the properties are vacant or undeveloped land or unoccupied buildings.

notesConsolidated Annual financial Statements


83

freehold title is held by the Corporation for the majority of properties, but not for all. Properties for which freehold title is not held are recorded when they are managed by the Corporation and result in the receipt of economic benefits and rewards and when the Corporation incurs the risks incidental to ownership.

Percentage value Number

R’ 000 R’ 000 R’ 000

CorPorAtion - 2009

Corporation 81 417,044 1,689

Government 9 44,204 131

Tribal land 6 29,978 24

Municipality 4 20,734 49

100 511,960 1,893

CorPorAtion - 2008

Corporation 80 384,947 1,729

Government 9 44,101 131

Tribal land 7 31,695 24

Municipality 4 20,646 49

100 481,389 1,933

The categories of freehold title are further described as follows:

• Corporation- freehold title is registered to the Corporation or one of the former corporations consolidated under the Corporation in terms of the Eastern Cape Development Corporation Act, No 2 of 1997, read with Proclamation 1 of 2001.

• Government-The title over land is registered to government. The Corporation is in the process of analysing the properties within this group, which comprise mainly entitlement in terms of Proclamation 1 of 2001 by the Premier of the Eastern Cape.

• Triballand-This group comprises mainly of properties where the Corporation has assumed “Permission to Occupy”. The majority of these properties are situated on forestry estates and hotels on the Wild Coast.

• Municipality-The title is registered to different municipalities within the Eastern Cape, but improvements have been made by the Corporation.

The Corporation’s right to occupy properties to the value of R83.5 million (2008: R 83.3 million), included in the above, has not been reduced to writing. however, the Corporation has occupied these properties for a number of years and derives economic benefits from their use and carries the risks that are incidental to ownership.

The valuation method used to value these properties assumes that the Corporation has the right to occupy these properties and will receive economic benefits in perpetuity. In the unlikely event that the right of occupation is disputed or expires, the valuation of these properties may be overstated. In terms of the accounting policy these rights are assessed on an annual basis and adjustments may be effected to the valuation of these properties if necessary.

84

EASTERN CAPE DEVELOPMENT CORPORATION | ANNuAL REVIEWNOTES

3. PRoPERty, PLAnt And EquIPMEnt

2009 2008

Cost/valuation

Accumulated depreciation

Carrying value Cost/valuation

Accumulated depreciation

Carrying value

R’ 000 R’ 000 R’ 000 R’ 000 R’ 000 R’ 000

grouP

Land 21,914 - 21,914 17,186 - 17,186

Buildings 539,764 (29,425) 510,339 560,160 (19,043) 541,117

Leasehold property 80 (16) 64 - - -

Plant and machinery 1,986 (1,733) 253 1,986 (1,654) 332

furniture and fixtures 2,584 (1,368) 1,216 2,502 (1,058) 1,444

Motor vehicles 1,330 (371) 959 557 (268) 289

Office equipment 814 (595) 219 862 (652) 210

IT equipment 11,945 (7,560) 4,385 10,246 (4,834) 5,412

Computer software 3,458 (3,298) 160 3,430 (3,046) 384

Other property, plant and equipment 2,805 (2,095) 710 2,419 (2,065) 354

total 586,680 (46,461) 540,219 599,348 (32,620) 566,728

CoMPAny

Land 3,265 - 3,265 3,265 - 3,265

Buildings 15,527 (2,159) 13,368 15,452 (1,849) 13,603

furniture and fixtures 1,653 (1,019) 634 1,598 (817) 781

Motor vehicles 97 (87) 10 97 (63) 34

Office equipment 487 (380) 107 569 (485) 84

IT equipment 4,685 (3,768) 917 4,016 (3,101) 915

Computer software 3,458 (3,298) 160 3,430 (3,046) 384

Other property, plant and equipment 1,635 (1,042) 593 1,247 (1,041) 206

total 30,807 (11,753) 19,054 29,674 (10,402) 19,272

Opening balance

Additions Transfers and disposals

Depreciation Impairment loss

Carrying value

R’ 000 R’ 000 R’ 000 R’ 000 R’ 000 R’ 000

reConCiLiAtion of ProPerty, PLAnt And equiPMent - grouP - 2009

Land 17,186 4,820 (92) - - 21,914

Buildings 541,117 186,413 (206,809) (10,382) - 510,339

Leasehold property - 80 - (16) - 64

Plant and machinery 332 - - (79) - 253

furniture and fixtures 1,444 129 (16) (325) (16) 1,216

Motor vehicles 289 774 - (104) - 959

Office equipment 210 116 (6) (100) (1) 219

IT equipment 5,412 1,750 (41) (2,743) 7 4,385

Computer software 284 28 - (252) - 160

Other property, plant and equipment 354 488 (5) (127) - 710

total 566,728 194,598 (206,969) (14,128) (10) 540,219


85

(continued) Opening balance

Additions Transfers and disposals

Depreciation Impairment loss

Carrying value

R’ 000 R’ 000 R’ 000 R’ 000 R’ 000 R’ 000

reConCiLiAtion of ProPerty, PLAnt And equiPMent - grouP - 2008

Land 16,921 - 265 - - 17,186

Buildings 395,725 154,827 935 (10,370) - 541,117

Plant and machinery 42 312 - (22) - 332

furniture and fixtures 983 778 - (313) (4) 1,444

Motor vehicles 370 40 - (115) (6) 289

Office equipment 321 54 - (164) (1) 210

IT equipment 3,594 4,483 - (2,662) (3) 5,412

Computer software 384 - - - - 384

Other property, plant and equipment 608 59 (5) (308) - 354

418,948 160,553 1,195 (13,954) (14) 566,728

Opening balance Additions Disposals, transfers and

other movements

Depreciation Carrying value

R’ 000 R’ 000 R’ 000 R’ 000 R’ 000

reConCiLiAtion of ProPerty, PLAnt And equiPMent - CoMPAny - 2009

Land 3,265 - - - 3,265

Buildings 13,603 75 - (310) 13,368

furniture and fixtures 781 102 (16) (233) 634

Motor vehicles 34 - - (24) 10

Office equipment 84 81 (6) (52) 107

IT equipment 915 759 (41) (716) 917

Computer software 384 28 - (252) 160

Other property, plant and equipment 206 482 (3) (92) 593

19,272 1,527 (66) (1,679) 19,054

reConCiLiAtion of ProPerty, PLAnt And equiPMent - CoMPAny - 2008

Land 3,000 - 265 - 3,265

Buildings 12,186 781 935 (299) 13,603

furniture and fixtures 466 545 - (230) 781

Motor vehicles 59 - - (25) 34

Office equipment 150 45 - (111) 84

IT equipment 1,443 363 (1) (890) 915

Computer software 1,214 - - (830) 384

Other property, plant and equipment 397 8 - (199) 206

18,915 1,742 1,199 (2,584) 19,272

A register containing the information required by paragraph 22(3) of Schedule 4 of the Companies Act is available for inspection at the registered office of the Corporation.

Land, buildings and infrastructure

Included in the carrying amount of the Group’s buildings and infrastructure is East London Industrial Development Zone (Proprietary) Limited infrastructure of R 484 million (2008: R 514 million).

Land, buildings and infrastructure are valued by a sworn appraiser every three years. Valuations are normally based on comparable sales in the area or on the income earning potential of the building.

86


4. InvEStMEntS In SuBSIdIARIES

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

Investments in at cost 27,453 27,405

Impairments of investments (1,334) (1,334)

26,119 26,071

Details of the Corporation’s subsidiaries are disclosed under Supplementary Information (1).

5. InvEStMEntS In ASSoCIAtES

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

reConCiLiAtion of CArrying AMount

Investments at cost 55,109 5,654 46,314 3,000

Impairment (9,329) - (9,329) -

Share of associates’ earnings since acquisition - 3,440 - -

Share of associates’ losses since acquisition - (3,000) - -

45,780 6,094 36,985 3,000

busHMAn sAnds deveLoPMents (Pty) Ltd

Assets 40,360 22,958 - -

Liabilities 101 69,836 - -

Revenue 360 16,998 - -

Profit (Loss) for the period 259 (12,344) - -

The above information is based on management accounts of Bushman Sands Developments (Pty) Ltd for the year ended 31 March 2009. Bushman Sands Developments (Pty) Ltd disposed of its shareholding in Bushman Sands hospitality (Pty) Ltd. The group now holds a 50% (2008: 20%) interest in the associate.

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

HoLidAy inn trAnskei (Pty) Ltd

Assets 23,041 18,203 - -

Liabilities 6,168 6,477 - -

Revenue 33,233 26,138 - -

Profit for the period 5,148 3,006 - -

The above information is based on the audited financial statements of Transkei holiday Inn (Pty) Ltd for the year ended 31 March 2009. The group holds a 49.95% (2008: 49.95%) interest in the associate of which 9.95% (2008: 9.95%) is held by the Corporation.


87

6. LoAnS to (FRoM) gRouP CoMPAnIES

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

subsidiAries

Eastern Cape Marketing Authority (Pty) Ltd (ECMA) - - 18 1

Centre for Investment and Marketing in the Eastern Cape (CIMEC)(unsecured loan bearing interest at 10.76% per annum with no fixed terms of repayment)

- - 11,787 10,564

Cimvest (Pty) Ltd - - (4,507) (4,893)

Transido (Pty) Ltd - - 82,078 82,051

umtata Small Industries Complex (Pty) Ltd (uSICO) - - 390 384

Transkei Share Investment CompanyLimited (INTRAShARE)

- - (15,779) (47,961)

TDC Property Investments (Pty) Ltd - - 3,433 3,704

Transdev Properties (Pty) Ltd (unsecured loan bearing interest at 16% per annum with no fixed terms of repayment)

- - (7,485) (3,769)

Windsor hotel (Pty) Ltd - - 1,012 462

Automotive Industrial Development Centre(AIDC)

- - 2,000 2,001

Magwa Enterprise Tea (Pty) Ltd 3,756 3,345 3,756 3,345

Subtotal 3,756 3,345 76,703 45,889

Impairment of loans to subsidiaries (3,756) (18) (78,062) (77,653)

- 3,327 (1,359) (31,764)

AssoCiAtes

Bushman Sands Developments (Pty) Ltd(The loan is secured by surety from the Mantis Group, bears interest at prime plus 1% and is repayable by 30 June 2012)

- 35,946 - 35,946

Worthytrade 93 (Pty) Ltd 4,333 4,333 4,333 4,333

Subtotal 4,333 40,279 4,333 40,279

Impairment of loans to subsidiaries (4,333) (9,841) (4,333) (9,841)

- 30,438 - 30,438

Non-current assets - 33,765 26,412 55,297

Non-current liabilities - - (27,771) (56,623)

- 33,765 (1,359) (1,326)

88


7. InvEStMEntS

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

AvAiLAbLe for sALe

Listed shares 694 723 - -

unlisted shares 89,914 87,804 89,914 87,804

Subtotal 90,608 88,527 89,914 87,804

Available for sale (impairments) (6,779) (5,034) (6,779) (5,034)

83,829 83,493 83,135 82,770

HeLd to MAturity

fixed Term Investments 55,140 48,789 55,140 48,789

Other Investments 12,878 11,891 12,878 11,891

68,018 60,680 68,018 60,680

AnALysis of AvAiLAbLe-for-sALe investMents

Listed shares at fair value 723 723 - -

unlisted shares at cost 8,106 7,770 8,135 7,770

unlisted shares at fair value 75,000 75,000 75,000 75,000

75,000 83,829 83,493 83,135 82,770

non-Current Assets

Available for sale 83,829 83,493 83,135 82,770

held to maturity 68,018 60,680 68,018 60,680

151,847 144,173 151,153 143,450

The total amount of change in fair value recognised directly in equity (Note 13)

- 74,173 - 74,180

Investments to the value of R26 million (2008: R26 million) are pledged as security for interest bearing borrowings as perNote 14.

8. dEFERREd tAx

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

deferred tAx Asset / (LiAbiLity)

fair value gains in investment property - (1,925) - -

unutilised tax credits 952 964 - -

Other temporary differences 168 161 - -

1,120 (800) - -

Non-current assets 1,120 1,125 - -

Non-current liabilities - (1,925) - -

1,120 (800) - -


89

9. LoAnS AdvAnCEd

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

Loans advanced 344,416 210,173 344,401 210,160

Impairment allowance (129,683) (101,904) (129,683) (101,904)

214,733 108,269 214,718 108,256

LoAns AdvAnCed

Non-current assets 111,084 56,190 111,069 56,177

Current assets 103,649 52,079 103,649 52,079

214,733 108,269 214,718 108,256

10. tRAdE And othER RECEIvABLES

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

Trade receivables 29,453 18,805 18,757 8,367

Prepayments 43 13 - -

VAT 10,141 4,524 121 -

Other receivables 23,387 11,557 13,262 5,955

63,024 34,899 32,140 14,322

AnALysis of CArrying AMount of trAde reCeivAbLes

Gross carrying amount 235,615 212,886 196,408 174,084


29,453 18,805 18,757 8,367

otHer reCeivAbLes

Gross carrying amount 30,803 18,973 20,678 13,371


23,387 11,557 13,262 5,955

11. CASh And CASh EquIvALEntS

Cash and cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. Cash and cash equivalents include cash on hand, bank deposits, investments in money market instruments and comprise:

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

Bank balances 213,516 137,190 15,932 5,936

Short-term deposits 238,568 298,174 238,568 298,174

452,084 435,364 254,500 304,110

Commited to Projects (Note 18) 189,320 143,787 183,143 137,610

90


12. ShARE CAPItAL

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

AutHorised

50 billion “A” shares of 1 cent each 500,000 500,000 500,000 500,000

50 billion “B” shares of 1 cent each 500,000 500,000 500,000 500,000

1,000,000 1,000,000 1,000,000 1,000,000

issued

“A” shares of 1 cent each 149,342 135,435 149,342 135,435

“B” shares of 1 cent each 149,341 135,435 149,341 135,435

298,683 270,870 298,683 270,870

reConCiLiAtion of nuMber of sHAres issued

Reported as at 01 April 2008 270,870 239,373 270,870 239,373

Share capital received 27,813 31,497 27,813 31,497

298,683 270,870 298,683 270,870

13. RESERvES

Pre-incorporation reserve

Pre-incorporation reserves represent the net book value of assets and liabilities transferred from previous corporations, adjusted for any changes in the value of these assets due to information which has been established during the current and prior years that refer to the value of assets taken over.

Property revaluation reserve

The property revaluation reserve represents the total revaluation of land and buildings and fair value adjustments on investment properties.

Fair value adjustment available-for-sale assets reserve

fair value reserves comprise all fair value adjustments that are recognised directly in equity and/or transfers from retained earnings. When an asset or liability is derecognised, the portion of the fair value reserve relating to that asset or liability is transferred to profit or loss.

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

Pre-incorporation reserve 377,324 377,324 384,265 384,265

Property revaluation reserve 289,953 248,542 263,970 222,005

fair value adjustment on available-for-sale reserve 74,173 74,173 74,180 74,180

741,450 700,039 722,415 680,450

AnALysis of CArrying vALue for ProPerty revALuAtion reserve

Balance at beginning of year 248,542 194,595 222,005 174,636

Total fair value adjustment on investment properties transferred from retained earnings

41,411 53,947 41,965 47,369

289,953 248,542 263,970 222,005


91


Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

HeLd At AMortised Cost

Development Bank of Southern Africa 17,575 19,084 17,563 19,084

finance lease 59 - - -

17,634 19,084 17,563 19,084

non-Current LiAbiLities

At fair value 16,139 17,601 16,080 17,601

Current LiAbiLities

At fair value 1,495 1,483 1,483 1,483

15. REtIREMEnt BEnEFIt oBLIgAtIon

defined benefit plan

The Corporation provides retirement benefits to employees by contributing to the Eastern Cape Development Corporation pension fund. An actuarial valuation of the fund was conducted and the actuary found the fund to be in a sound financial position. The pension fund is governed by the Pension funds Act, 1956.

Retirement benefit costs are expensed in the income statement as and when incurred. furthermore, the Corporation is responsible for 50% of the contributions to medical aid funds of retired employees.

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

Post retireMent MediCAL benefits

Present value of the defined benefit obligation (18,073) (14,092) (18,073) (14,092)

Net actuarial gains or losses not recognised 2,069 3,336 2,069 3,336

(16,004) (10,756) (16,004) (10,756)

CHAnges in Present vALue

Opening balance 10,756 9,656 10,756 9,656

Contributions by members (195) (180) (195) (180)

Net expense recognised in the income statement 5,443 1,280 5,443 1,280

16,004 10,756 16,004 10,756

net exPense reCognised in tHe inCoMe stAteMent

Current service cost 847 538 847 538

Interest cost 1,260 742 1,260 742

Actuarial (gains) losses 3,336 - 3,336 -

5,443 1,280 5,443 1,280

92


Past (accrued) and future service liability

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

PrinCiPAL ACtuAriAL AssuMPtions

health care cost inflation 8,25% 8% 8,25% 8%

Discount rate used 7,25% 9% 7,25% 9%

Present vALue of ACCrued LiAbiLity

Active members 15,018 11,295 15,018 11,295

CAWM’s liability 3,055 2,797 3,055 2,797

18,073 14,092 18,073 14,092

future serviCe LiAbiLity

Active members 11,278 8,672 11,278 8,672

Contributions to Post eMPLoyMent retireMent benefit fund

Employer 7,604 3,520 7,361 3,339

Employee 1,904 1,831 1,784 1,714

9,508 5,351 9,145 5,053

16. dEFERREd InCoME

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

Non-current liabilities 526,931 675,689 - -

Current liabilities 520,385 188,643 30,508 37,495

1,047,316 864,332 30,508 37,495

AnALysis Per grouP CoMPAny

Eastern Cape Development Corporation 30,508 37,495 30,508 37,495

East London Industrial Development Zone(Pty) LTD (ELIDZ)

1,016,808 826,837 - -

1,047,316 864,332 30,508 37,495

Government grants are deferred to the extent that they are unspent.


93

17. tRAdE And othER PAyABLES

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

Trade payables 58,538 25,843 771 607

VAT 6,289 5,201 - 468

Accrued leave pay 5,831 5,448 4,039 4,033

Accrued bonus 1,433 1,552 1,078 1,072

Accrued expenses 1,040 713 51 440

Provision for penalties and interest - 450 - -

Deposits received 1,115 1,316 - -

Other payables 26,453 18,333 23,739 17,013

100,699 58,856 29,678 23,633

18. PRoJECt gRAntS

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

Project grants 189,320 143,787 183,143 137,610

Details of project grants are presented under Supplementary Information (3).

19. REvEnuE

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

Rendering of services 3,629 4,433 - -

Rental Income 72,432 67,219 51,921 50,890

Interest on loans 18,511 21,321 18,511 21,321

94,572 92,973 70,432 72,211

94


20. oPERAtIng LoSS

Operating profit for the year is stated after accounting for the following:

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

oPerAting LeAse CHArges

Premises - Contractual amounts 2,266 1,743 1,690 1,931

Equipment - Contractual amounts 629 882 617 775

2,895 2,625 2,307 2,706

(Loss) profit on sale of property, plant and equipment (66) 1 (66) -

(Loss) profit on sale of investment property (855) 843 (865) 833

Loss on recognition of financial instruments - (142) - (142)

Gain on derecognition of liabilities 1,622 - - -

Impairment on property, plant and equipment 10 14 - -

Impairment on investments 11,074 - 11,074 -

Impairment on loans to group companies - 740 - 740

Reversal of impairment on loans to group companies (8,509) - (5,509) -

Impairment of loans advanced 16,537 21,471 16,537 21,471

Impairment on trade and other receivables 10,084 19,457 9,669 19,457

Reversal of impairment on trade and other receivables (10,671) - (10,671) -

Depreciation on property, plant and equipment 14,128 13,954 1,679 2,584

Employee costs 102,295 75,854 70,017 53,922

Direct property operating expenditure 56,042 40,088 48,081 38,498

21. AudItoRS’ REMunERAtIon

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

fees 1,664 1,599 1,381 1,376

22. InvEStMEnt InCoME

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

dividend inCoMe

Subsidiaries - Local 67 - 28,686 -

Associates - Local 70 101 - 44

137 101 28,686 44

interest inCoMe

Bank 39,015 25,879 38,383 26,237

Investment income 7,338 6,292 7,338 6,292

46,353 32,171 45,721 32,529

grand total 46,490 32,272 74,407 32,573


23. FAIR vALuE AdJuStMEntS thRough PRoFIt oR LoSS

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

Investment property 46,771 61,236 41,965 49,870

Other financial assets - fair value through profit or loss - 7 - -

46,771 61,243 41,965 49,870

24. FInAnCE CoStS

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

finance leases 18 - - -

Late payment of tax (450) 44 - -

Interest expense 2,011 2,628 2,011 2,850

1,579 2,672 2,011 2,850

25. tAxAtIonMajor components of the tax (income) expense

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

Current

Local income tax - current period (3,208) 912 - -

Local income tax - recognised in current tax for prior periods 1,495 - - -

(1,713) 912 - -

deferred

Originating and reversing temporary differences (1,953) 685 - -

Arising from prior period adjustments 33 52 - -

(1,920) 737 - -

(3,633) 1,649 - -

reConCiLiAtion of tHe tAx exPense - Reconciliation between accounting profit and tax expense

Accounting profit 56,133 59,025 70,595 37,915

Tax at the applicable tax rate of 28% (2008: 29%) 15,717 17,117 19,767 10,995

tAx effeCt of AdjustMents on tAxAbLe inCoMe

Change in rate of tax - (8) - -

Other temporary differences (12) 27 - -

fair value gains not subject to capital gains tax - (627) - -

Exempt income (13,341) (14,860) (19,767) (10,995)

Reversal of tax provision (6,101) - - -

Tax losses carried forward 12 - - -

Prior year’s under-provision 92 - - -

(3,633) 1,649 - -

The Corporation has been granted exemption from South African normal taxation in terms of Section 10(1)(cA)(i) of the Income Tax Act.


26. CASh gEnERAtEd FRoM (uSEd In) oPERAtIonS

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

Profit before taxation 56,133 59,025 70,595 37,915

AdjustMents for:

Depreciation and amortisation 12,635 13,968 1,086 2,584

Loss (profit) on sale of assets 921 (843) 931 (833)

Profit on sale of non-current assets and disposal groups (1,203) - - -

Income from equity accounted investments (2,701) (1,469) - -

Dividends received (137) (100) (28,619) (44)

Interest received (64,851) (52,387) (64,219) (52,745)

finance costs 1,579 2,672 2,011 2,850

fair value adjustments (46,771) (61,243) (41,965) (49,870)

Impairment loss 42,676 43,154 45,278 45,787

Movements in retirement benefit assets and liabilities 5,248 1,280 5,248 1,280

Release from debt on liquidation - (2,949) - -

Provision for doubtful performance guarantees - (1,486) - (1,486)

CHAnges in working CAPitAL:

Inventories - 43 - -

Trade and other receivables (41,319) (22,022) (30,661) (21,018)

Trade and other payables 41,843 (4,687) 6,045 (5,895)

Deferred income 182,984 238,227 (6,987) 11,807

187,037 211,183 (41,257) (29,668)

27. tAx PAId

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

Balance at beginning of the year (4,014) (3,401) - -

Current tax for the year recognised in income statement 1,713 (912) - -

Reversal of tax provision (exemption granted) 2,517 - - -

Balance at end of the year (1,913) 4,014 - -

(1,697) (299) - -

28. ContIngEnCIES

The Corporation has exposure to litigation of R 1.3 million (2008: R 1.3 million) against it. The legal claims are expected to be settled in the course of the next twelve months.


97

29. CoMMItMEntS Authorised capital expenditure

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

ALreAdy ContrACted for but not Provided

Purchase of shares 1,243 1,291 1,243 1,291

Loans approved not yet disbursed 93,386 28,608 93,386 28,608

oPerAting LeAses – As Lessee (exPense) - Minimum lease payments due

- within one year 3,355 3,050 2,252 2,599

- in second to fifth year inclusive 8,803 8,003 7,185 7,590

12,158 11,053 9,437 10,189

Operating lease payments represent rentals payable by the Group for certain of its office properties, office equipment and cellular phones. Leases are negotiated for an average term of seven years and rentals are fixed for an average of three years. No contingent rent is payable.

30. RELAtEd PARtIES Relationships

Subsidiaries Refer to Supplementary Information (1)

Shareholder Department of Economic Development and Environmental Affairs (DEDEA)

Directors Refer to the Director’s Report (12)

key management and other senior managers

Eastern Cape development Corporation - M D Matshamba (Chief Executive Officer)- M Daca (Executive Manager: Finance)- C Biermann (Executive Manager: Development Investments)- L Tsipa (Executive Manager: Property Management and Development)- N Ncokazi (Executive Manager: Development Services)

East London Industrial development zone (Proprietary) Limited - S kondlo (Chief Executive Officer)- N Madyibi (Chief Financial Officer)- J Burger (Executive Manager: Technical Services)- T Gwintsa (Executive Manager: Investor Services)- T Zweni (Executive Manager: Business Development)

AIdC development Centre Eastern Cape (Proprietary) Limited- J Manilal (Chief Executive Officer)

98


Related party balances

Subsidiaries and associates: Related party balances with subsidiaries and associates are disclosed in Note 6: Loans to (from) group companies.

Other related parties: The Corporation acquires equity investments in certain entities to which it has advanced loan funds as security for these loans or as part of its investment strategy. Outstanding balances with these entities were as follows:

Preference/ ordinary shares

Loan balance Accumulated impairment

reLAted PArty

Border Copiers - 7,163 -

Road Safety Apparel - 433 (347)

Magwa Tea Enterprise (Pty) Ltd - 3,756 (3,756)

S&P kareedouw - 2,674 -

EC Biomass 3,200 3,836 -

Global pack trading 1,500 3,213 (2,165)

Maritime Academy 245 2,245 (2,245)

Bushman Sands Developments (Pty) Ltd 46,314 - (9,329)

Ikhala Aloes - 1,181 (1,181)

Singisi forest Products 3,061 - -

Amatola berries 2,255 - -

Ndlambe Natural Industrial Products (Pty) Ltd - 11,638 -

56,575 36,139 19,023

Related party transactions

Group Company

2009R’ 000

2008R’ 000

2009R’ 000

2008R’ 000

subsidiAries And AssoCiAtes

Interest from subsidiaries 1,196 -

Interest from associates - 2,413

Impairment expense - loans to associates - (772)

Management fees 772 664

Rent paid to subsidiaries 1,492 1,399

interest reCeived froM reLAted PArties

Border Copiers (Pty) Ltd 1,010 614

Ndlambe Natural Industrial Products (Pty) Ltd 481 -

rent reCeived froM reLAted PArties

Eastern Cape Provincial Legislature - 40

Department of Sport, Arts, Recreation and Culture 29 104

Department of Transport 113 39

Department of Public Works 95 76

Department of health 237 161

dividends reCeived

Singisi forest Products - 42

Transkei Share Investments 28,619 -


31. dIRECtoRS’ EMoLuMEntSfurther details in respect of directors’ fees are disclosed in the Directors’ Report (13).

non-executive

Fees Other expenses total

for serviCes As direCtors

2009 669 216 885

2008 245 180 425

32. RISK MAnAgEMEntoverview

A comprehensive Investment Policy is used to ensure that all the market risks to which the Group is exposed areunderstood and managed. Governance structures are in place to achieve effective independent monitoring and management of market risks through:• theBoardandAuditCommittee,whichisresponsiblefortheoverallriskmanagementoversightoftheGroup;• theExecutiveManagementCommitteethroughsettingupsubcommitteestodealwithspecificfinancialrisks;• theDevelopmentInvestmentCommittee,whichisresponsibleforensuringthattheimpactofrisksintheloanandequity

investments is being effectively managed and reported and that all policy, risk limits and relevant market risk issues are reportedtotheGroup’sBoardandAuditcommittee;

• theInvestmentCommitteewhichisresponsibleformanagingriskassociatedwiththeinvestmentofcashandcashequivalents.

objectives

The group market risks are managed by the Board and Audit Committee through a number of executive management committees. These risks include fair value interest rate risk, currency risk, credit risk, liquidity risk and cash flow interest rate risk.

The Group seeks to minimise the effects of the negative impact of these risks by ensuring compliance with Board approved policies and benchmarks with regard to the following:• proposedmoneymarketinvestmentstrategiesdonotresultinthebreachofasset/liabilitymismatchgaplimit;• ensuringthatthenetinterestincomevolatilityiswithinapprovedbenchmark;• adequateovernightliquiditylimitiscompliedwithbyhavingsufficientcallbalances;• creditriskiscontrolledbyenteringintomoneymarkettransactionswithhighqualitycounterpartyfinancialinstitutions;• instrumentlimitsaresettoavoidexcessconcentrationinanygivenfinancialinvestmentinstrument.

Overall the Group’s main financial risk management objective is to ensure enhanced return within very conservative risk profiles or parameters approved by the Board.

Capital management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of capital levels. The Group’s overall strategy remains unchanged from 2008.

The capital structure of the Group consists of cash and cash equivalents, disclosed in Note 11, and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in Notes 12 and 13, respectively. The Group is not subject to externally imposed capital requirements and does not routinely make use of borrowings.

Liquidity risk

The Group is exposed to liquidity risk through its operational and banking activities. Liquidity risk is measured in terms of a Board approved Investment Policy with appropriate dashboard liquidity risk measures on the basis of which the risk is managed by the finance function.

100


Interest rate risk

The Group’s exposure to interest rate risk arises from primarily the following:• investmentindevelopmentloans;• investmentofsurplusoperationalcash.

The interest rate risk is managed in terms of the Board approved investment and development investment policies. The Group monitors and ensures that the interest rate risk profiles are in line with limits and benchmarks stipulated in the policy.

The cash resources of the group are invested mainly with large money market funds and South African banks.

Development investments are also made in line with Board policy and would be less profitable as interest rates drop.

At year end, financial instruments exposed to interest rate risk were interest-bearing borrowings, held to maturity investments and loans advanced. A 1% decrease in the interest rate applicable to these financial instruments would result in a R1,841 million decrease in net interest income with an equivalent decrease in retained earnings.

Credit risk

Credit risk consists mainly of cash deposits, cash equivalents and trade debtors. The Corporation only deposits cash with major banks with high quality credit standing and limits exposure to any one counter-party. Trade receivables comprise a widespread customer base. Management evaluates credit risk relating to customers on an ongoing basis.

Foreign exchange risk

The Group has no material exposure to foreign exchange risk.

Equity price risk

The Group is exposed to equity risk through its investment in a number of entities as disclosed in Note 7.

Concentration risk

The Group’s exposure to concentration risk arises primarily from over exposure to any one given investment instrument. Concentration risk is managed in terms of the Board approved Development Investment Policy, which in turn specifies a percentage exposure in any approved investment instrument or economic sector.

The aim of the policy is to protect the Group from any over exposure in any investment instrument where the Group could be exposed to liquidity risk in the event of an over exposure in non-tradable instruments like held to maturity assets. The Group could also be exposed to interest rate risk due to over exposure in any investment cluster

Post-tax profit for the year would increase/decrease as a result of gains/losses on equity securities classified as at fair value through profit or loss. Other components of equity would increase/decrease as a result of gains/losses on equity securities classified as available for sale.


101

33. FInAnCIAL ASSEtS By CAtEgoRyThe accounting policies for financial instruments have been applied to the line items below:

Loans and receivables

Fair value through

profit or loss - designated

Held to maturity

Available for sale

R’ 000 R’ 000 R’ 000 R’ 000

grouP - 2009

Investments - - 68,018 83,829

Loans advanced 214,733 - - -

Trade and other receivables 63,024 - - -

Cash and cash equivalents - 452,084 - -

277,757 452,084 68,018 83,829

grouP - 2008

Investments - - 60,680 83,493




143,168 435,364 60,680 83,493

CoMPAny - 2009

Investments - - 68,018 83,135




246,858 254,500 68,018 83,135

CoMPAny - 2008

Investments - - 60,680 82,770




122,578 304,110 60,680 82,770

102


34. FInAnCIAL LIABILItIES By CAtEgoRyThe accounting policies for financial instruments have been applied to the line items below:

Financial liabilities at amortised cost

Carrying amount

R’ 000 R’ 000

grouP - 2009

Interest bearing borrowings 17,634 17,634

Trade and other payables 100,699 100,699

118,333 118,333

grouP - 2008



77,940 77,940

CoMPAny - 2009



47,241 47,241

CoMPAny - 2008



42,717 42,717

35. nEw StAndARdS, AMEndMEntS And IntERPREtAtIonS

Revised standards

The following revisions to International Accounting Standards have not been early-adopted by the Group:

IFRS 3 Business Combinations

Comprehensive revision on applying the acquisition method and consequential amendments to IAS 27 Consolidated and Separate financial Statements, IAS 28 Investments in Associates and IAS 31 Interest in Joint Ventures. The revised IfRS 3 retains the basic requirements of IfRS 3 (2004) to apply acquisition accounting for all business combinations within the scope of IfRS 3, to identify the acquirer and to determine the acquisition date for every business combination. The most significant change is a move from a purchase price allocation approach to a fair value measurement principle. The revision applies to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. The amended IAS 27 requires accounting for changes in ownership interests in a subsidiary that occur without loss of control to be recognised as an equity transaction. When the Group loses control of a subsidiary, any interest retained in the former subsidiary will be measured at fair value, with the gain or loss recognised in profit and loss. This amendment is effective for the Group for the financial reporting period commencing on 1 April 2010.

The revision and amendment is applicable prospectively and will not affect past transactions.

IFRS 8 Operating Segments

IfRS 8 Operating Segments, which is effective for annual periods commencing on or after 1 January 2009, has not been early-adopted in these financial statements and will replace IAS 14 Segment Reporting. IfRS 8 requires an entity to adopt a management approach to reporting the financial performance of its operating segments. Generally, the information to be reported would be what management is currently using internally for evaluating segment performance and deciding how to allocate resources to operating segments. The Group shall apply this IfRS in its annual financial statements for periods beginning on 1 April 2009. IfRS 8 is not compulsory for unlisted entities.


103

IAS 1 Presentation of Financial Statements

Comprehensive revision including requiring a statement of comprehensive income. The changes made to IAS 1 require information in financial statements to be aggregated on the basis of shared characteristics and introduce a statement of comprehensive income. The revision includes changes in titles of financial statements to reflect their functions more clearly. The main change in the revised IAS 1 is the requirement to present all non-owner transactions in the statement of comprehensive income. The amendment also requires two sets of comparative numbers to be provided for the financial position in any year where there has been a restatement or reclassification of balances. The revised standard will affect the disclosures in the annual report. The revision is effective for annual periods commencing on or after 1 January 2009. The Group will adopt the revised standard on its effective date.

Amendments to IAS 32, Financial Instruments Presentation, and IAS 1, Presentation of Financial Statements

Puttable financial Instruments Arising on Liquidation and Obligations: the amendment requires additional information to be presented on puttable instruments that are presented as equity. The amendment will not affect the Group as the Group does not have puttable instruments that are presented within equity. The amendment is effective for annual periods beginning on or after 1 January 2009. The Group will apply the amendment from its effective date.

IAS 39 Financial Instruments: Recognition and Measurement: Amendment

Eligible hedged Items: the amendment clarifies that inflation may only be hedged in instances where changes in inflation are contractually specified portions of cashflows of recognised financial instruments. It also clarifies that an entity is permitted to designate purchased or net purchased options as a hedging instrument in a hedge of a financial or non- financial item, and to improve effectiveness an entity is allowed to exclude the time value of money from the hedging instrument.This amendment is effective for the Group for the annual periods commencing on 1 January 2009 and is not expected to have any impact on the Group as the Group doesn’t apply hedge accounting.

IFRS 2 Share-based Payment

Amendment relating to vesting conditions and cancellation under IfRS 2: failure to meet a condition, other than a vesting condition, is treated as a cancellation. IfRS 2 specifies the accounting treatment of cancellations by the entity, but does not give guidance on the treatment of cancellations by parties other than the entity. The amendment requires cancellations by parties other than the entity to be accounted for in the same way as cancellations by the entity. This amendment is effective for the Group for the annual periods commencing on 1 April 2009 and is not expected to have an impact on the Group as the Group is currently not party to share based payments.

IAS 40 Investment Property

The amendment to IAS 40 brings into its scope property that is being constructed or developed for future use as investment property. Such property previously fell within the scope of IAS 16 Property, Plant and Equipment. The amendment is expected to have a significant impact on the results of the Group.

Annual improvements projects

As part of its first annual improvements projects, the IASB has issued its edition of annual improvements. The annual improvement projects aim to clarify and improve the accounting standards. The improvements include those involving terminology or editorial changes with minimal effect on recognition and measurement. There are no significant changes in the current year’s improvement that will affect the Group and the improvements are effective for the Group with effect from 1April 2009.

InterpretationsThe following interpretations of existing standards are not yet effective and have not been early-adopted by the Group:

IFRIC 13 Customer Loyalty Programmes

The interpretation clarifies the application of IAS 18 to customer loyalty programmes. The interpretation requires an entity that grants loyalty award credits to allocate some of the initial proceeds from the initial revenue-generating transaction to the award credit as a liability (entity’s obligation to provide award). The award is accounted for as a separate revenue-generating transaction. The interpretation is effective for annual periods commencing on or after 1 July 2008. The application of IfRIC 13 will result in the Group deferring a portion of income as a liability. The Group will adopt the interpretation for its annual period commencing 1 April 2009.

IFRIC 15 Real Estate Sales

The interpretation clarifies when real estate sales should be accounted for in terms of IAS 11 Construction Contracts or IAS18 Revenue. The Group has not early-adopted this interpretation. The Group will adopt the interpretation for its annual period commencing 1 April 2009.

104


IFRIC 16 Hedges of a Net Investment of a Foreign Operation

The interpretation clarifies which risks can be hedged under a hedge of the net investment in a foreign operation and by which entities within the group the hedging instruments can be held in order to qualify as a hedge of a net investment in a foreign operation. The Group does not currently have any foreign operations and therefore the adoption of this standard will have no effect on the financial performance or position of the Group. This Interpretation is effective for annual periods beginning on or after 1 October 2008.

IFRIC 17 Distributions of Non-cash Assets to Owners

IfRIC 17 clarifies that:• adividendpayableshouldberecognisedwhenthedividendisappropriatelyauthorisedandisnolongeratthediscretionof

theentity;• anentityshouldmeasurethedividendpayableatthefairvalueofthenetassetstobedistributed;• anentityshouldrecognisethedifferencebetweenthedividendpaidandthecarryingamountofthenetassetsdistributed

inprofitorloss;and• anentityshouldprovideadditionaldisclosuresifthenetassetsbeingheldfordistributiontoownersmeetthedefinitionof

a discontinued operation.

IfRIC 17 is effective for annual periods beginning on or after 1 July 2009 and is not anticipated to have an effect on the Group’s accounts as the Group has no history of dividend distribution.

Standards and interpretations adopted in the current year

Revised standardsThe following revisions to International financial Reporting Standards have been adopted by the Group:

IAS 23 Borrowing Costs

The Group has early-adopted the revision that removed the option of immediately recognising as an expense borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale. There was no effect on the Group financial position and performance of adopting this amendment, as there were no qualifying borrowing costs incurred.

IAS 39 Financial Instruments: Recognition and Measurements

Amendments allowing reclassification of Instruments: this amendment allowed an entity to change the classification of certain ‘held for trading’ financial assets into financial assets carried at amortised cost, subject to certain criteria being met. There was no effect on the Group of adopting this amendment, as the Group did not reclassify any financial assets.

Interpretations

The following interpretations of existing standards have been adopted by the Group:

IFRIC 11, IFRS 2 Group and Treasury Share Transactions

This interpretation clarifies that, where a parent grants rights to its equity instruments to the employees of a subsidiary, the subsidiary will measure the services received from its employees in accordance with the requirements applicable to equity- settled share-based payment transactions, with a corresponding increase in equity. ECDC Group doesn’t have any share based payments and the standard will not affect the Group financial statements.

IFRIC 12 Service Concession Arrangements

The interpretation clarifies the application of existing IfRSs by concession operators for obligations under concession arrangements and rights received in service concession arrangements. The Group is not party to concession arrangements, and the adoption of the interpretation therefore did not have any impact on the Group.

IFRIC 14, IAS 19 The Limit on a Defined-benefit Asset, Minimum Funding Requirements and their Interpretation

The interpretation addresses the implication of minimum funding requirements on the recognition of a defined-benefit obligation. The adoption of this interpretation did not have any effect on the Group’s financial position or performance.


105

36. FAIR vALuE oF FInAnCIAL InStRuMEntS

2009 2008

Carrying amount Fair value Carrying amount Fair value

R’ 000 R’ 000 R’ 000 R’ 000

grouP

fixed term investments 55,140 55,140 48,789 48,789

Other investments 12,878 12,878 11,891 11,891

Listed shares at fair value 694 694 723 723


unlisted shares at cost 8,106 Refer below 7,770 Refer below

Loans advanced 214,733 214,733 108,269 108,269

Trade and other receivables 63,024 63,024 34,899 34,899

Cash and cash equivalents 452,084 452,084 435,364 435,364

Other property, plant and equipment 17,634 Refer below 19,084 Refer below

Trade and other receivables 100,697 Refer below 58,856 Refer below

CoMPAny

fixed term investments 55,140 55,140 48,789 48,789

Other investments 12,878 12,878 11,891 11,891


unlisted shares at cost 8,135 Refer below 7,770 Refer below

Loans advanced 214,718 214,718 108,256 108,256

Trade and other receivables 32,140 32,140 14,322 14,322

Cash and cash equivalents 254,500 254,500 304,110 304,110

Other property, plant and equipment 17,563 Refer below 19,084 Refer below

Trade and other receivables 29,678 Refer below 23,633 Refer below

determination of fair value

Financial instruments with short-term maturities

At year end the carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximated their fair values due to the short-term maturities of these assets and liabilities.

unlisted shares carried at fair value

During the year, the Corporation’s investment in Singisi forest Products was revalued to its fair value of R 75 million. The fair value was determined with reference to an offer to purchase the equity instruments and a subsequent valuation performed by an independent external firm of accountants and auditors.

unlisted shares carried at cost

In accordance with the accounting policy on available-for-sale financial assets, certain unlisted shares are carried at cost as their fair values could not be reliably determined, due to a lack of an active market for these instruments.

held to maturity investments, loans advanced and interest bearing borrowings

The fair values of these financial instruments are determined based on discounted cash flow techniques, taking account of market related discount rates appropriate to the instrument and economic conditions current at the balance sheet date. At this date, the fair value of the financial instruments approximated their carrying values.

106



1. SuBSIdIARIES

Group Company

Issued share capital

R

Percentage shareholding

Shares at cost less provision

R

Indebtedness less provision

R’ 000

2009

TDC Property Investments (Pty) Ltd 4,000 100 - 3,433

Transdev Properties (Pty) Ltd 2,000 100 2,000 (7,486)

Centre for Investment and Marketing in the Eastern Cape - 100 - 11,787

Cimvest (Pty) Ltd 120 100 - (4,506)

Transkei Share Investments Company Limited 232,757 98 26,116,789 (15,779)

AIDC Eastern Cape 100 75 75 2,000

Transido (Pty) Ltd 1,330,200 100 - 8,162

umthatha Small Industries Complex (Pty) Ltd 400 100 - -

East London Industrial Development Zone (Pty) Ltd 1,000 74 740 -

Windsor hotel (Pty) Ltd 100 100 100 1,012

Eastern Cape Marketing Authority (Pty) Ltd 2 100 2 17

26,119,706 (1,359)

2008

TDC Property Investments (Pty) Ltd 4,000 100 - 3,454

Transdev Properties (Pty) Ltd 2,000 100 2,000 (3,769)

Centre for Investment and Marketing in the Eastern Cape - 100 - 10,564

Cimvest (Pty) Ltd 120 100 - (4,893)

Transkei Share Investments Company Limited 232,757 98 26,069,016 (47,961)

AIDC Eastern Cape 100 75 75 2,001

Transido (Pty) Ltd 1,330,200 100 - 7,048

umthatha Small Industries Complex (Pty) Ltd 400 100 - -

East London Industrial Development Zone (Pty) Ltd 1,000 74 740 -

Windsor hotel (Pty) Ltd 100 100 100 462

Eastern Cape Marketing Authority (Pty) Ltd 2 100 2 1

26,071,933 (33,093)

non-consolidation of equity interests exceeding 50%

Certain of the Group’s equity investments have not been included in the consolidated annual financial statements as the Group does not exercise any control over their operations. The entities affected are Magwa Enterpise Tea (Proprietary) Limited and TIDC (Association incorporated under section 21).

Ikhala Aloes has not been consolidated as the shareholding was only acquired as security and the company’s financial information is not material to the Group.

Entities which were not equity-accounted

Certain equity investments in which the Group holds 20% or more of the equity have not been equity accounted as the investments were only acquired to protect loan advances. The entities affected are Border Copiers and S&P kareedow.

Availability of information

A subsidiary, Windsor hotel (Proprietary) Limited, and an associate, Bushman Sands Developments (Proprietary) Limited, have been consolidated on the basis of limited information due to financial statements for the year ended 31 March 2009 not being available.

Supplementary informationConsolidated Annual financial Statements


107


Instalment Date of final payment

Interest rate 2009 2008

R’ 000 % R’ 000 R’ 000

grouP

development Bank of Southern Africa

Office Block Loan 700 2012 3 monthsJIBAR + 0.75%

2,886 3,606

Loan 13942/201 323 2011 3 monthsJIBAR + 0.75%

831 1,163


3,559 4,032

Loan 13942/401 Lump sum on final date

2011 3 monthsJIBAR + 0.75%

10,287 10,283

finance lease 12 2013 24 71 -

1,495 17,634 19,084

CorPorAtion

development Bank of Southern Africa

Office Block Loan 700 2012 3 monthsJIBAR + 0.75%

2,886 3,606


831 1,163


3,559 4,032

Loan 13942/401 Lump sum on final date

2011 3 monthsJIBAR + 0.75%

10,287 10,283

1,483 17,563 19,084

108

EASTERN CAPE DEVELOPMENT CORPORATION | ANNuAL REVIEWSUPPLEMENTARY INFORMATION

3. PRoJECt gRAntS

Opening balance

Transfers in Interest Written off Transfer payments

Closing balance

R’ 000 R’ 000 R’ 000 R’ 000 R’ 000 R’ 000

grouP

AB350 21,870 - 1,224 - (21,113) 1,981

ASGISA - 100,000 - - (100,000) -

DEDEA 54,668 20,000 - - (2,636) 72,032

DRISA 5,131 - - - - 5,131

Premier’s fund 193 3,560 87 - (3,630) 210

Treasury (Steinhof) 45,925 43,810 - - (10,499) 79,236

EL IDZ - 119,910 - - (119,910) -

uvimba finance - 17,473 854 - - 18,327

Mthatha taxi rank 16,000 - - - (3,597) 12,403

total 2009 143,787 304,753 2,165 - (261,385) 189,320

total 2008 159,097 314,967 - (12,375) (317,902) 143,787

CorPorAtion

AB350 21,870 - 1,224 - (21,113) 1,981

ASGISA - 100,000 - - (100,000) -

DEDEA 48,491 20,000 - - (2,636) 65,855

DRISA 5,131 - - - - 5,131

Premier’s fund 193 3,560 87 - (3,630) 210

Treasury (Steinhof) 45,925 43,810 - - (10,499) 79,236

EL IDZ - 119,910 - - (119,910) -

uvimba finance - 17,473 854 - - 18,327

Mthatha taxi rank 16,000 - - - (3,597) 12,403

total 2009 137,610 304,753 2,165 (261,385) 183,143

total 2008 152,920 314,967 - (12,375) (317,902) 137,610

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AB350

The Corporation has been appointed as an implementing agent to revive bus transportation in the rural areas around the formerTranskei. The funds were advanced by the Department of Roads and Transport for this purpose.

department of Economic development and Environmental Affairs (dEdEA)

The fund represents grants from DEDEA and Provincial Treasury, to be administered on their behalf. It is utilised to assist local business service centres, manufacturing technology centres and local economic development units in the Eastern Cape. Transfers to beneficiaries are only made on specific instructions from the respective Departments.

digitisation and Remanufacturing Institute of South Africa (dRISA)

DRISA is a section 21 company whose main purpose is Information Communication Technologies for Development, Education and upliftment. The fund represents amounts that were transferred by DEDEA for this purpose.

East London Industrial development zone (Proprietary) Limited (ELIdz)

funds transferred to the Corporation by the Department of Economic Development and Environmental Affairs to forward toELIDZ. These payments are merely channeled through the Corporation to ELIDZ.

Premier’s Fund

The fund was created by the Office of the Premier. Transfers to beneficiary institutions are only made on specific instructions from the Office of the Premier.

treasury (Steinhof)

The funds are for infrastructure upgrade in ugie for the Steinhof milling plant. The Corporation is an implementing agent for these funds.

Mthatha taxi Rank

The Mthatha Taxi Rank fund is held to be used to fund the development of a taxi rank in Mthatha by the Eastern CapeDepartment of Roads and Transport.

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PhotogRAPhy By:

Clint Muller and Mary-Anne Mack

Cob Creek Wine EstateCOEGA Industrial Development ZoneRory HaschickMike HolmesRob PollockGuy Stubbs

hEAd oFFICEOcean Terrace ParkMoore Street, Quigney, East LondonPO Box 11197, Southernwood 5213Tel: +27 (0) 43 704 5600fax: +27 (0) 43 704 5700

KIng wILLIAM’S town75 Alexander RoadPO Box 498, king William’s Town 5600Tel: +27 (0) 43 604 8800fax: +27 (0) 43 642 4199

ButtERwoRth24 high StreetPO Box 117, Butterwoth 4960Tel: +27 (0) 47 491 4151fax: +27 (0) 47 491 0443

MthAthA7 Sissons Street, fort GalePrivate Bag x5028, Mthatha 5099Tel: +27 (0) 47 501 2200fax: +27 (0) 47 532 3548

quEEnStown22 Cathcart RoadPrivate Bag x7180, Queenstown 5320Tel: +27 (0) 45 838 1910fax: +27 (0) 45 838 2176

PoRt ELIzABEth152 Cape Road, Mill ParkPO Box 1331, Port Elizabeth 6000Tel: +27 (0) 41 373 8260fax: +27 (0) 41 374 4447

Satellite offices

Mount AyLIFFSEDA BuildingNolangeni Street, Mount Ayliff, 4735Tel: +27 (0) 39 254 0584fax: +27 (0) 39 254 0584

ALIwAL noRth98 Somerset StreetP O Box 198, Aliwal North, 9750Tel: +27 (0) 83 399 1427

[email protected]

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ecdc annual report

Documents

channels of development

cape town

annual financial statements57

marine fish

espadon marine

difference ecdc

wherekoifisharebeing

various projects