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1. NATIONAL EMPOWERMENT FUND Growing Economic Participation PRESENTATION TO THE SELECT COMMITTEE ON ECONOMIC & FOREIGN AFFAIRS 24FEBRUARY 2005

2. CONTENTS • Introduction • Organisational Structure • Investment Division • Finance Division

3. Main objective To be a catalyst in facilitating economic equality and transformation Driven by • Current market needs • Broad-based empowerment charter • Government policy and other sectoral charters • Addressing past failures of BEE structures New focus Maximise the empowerment dividend NEF INTRODUCTION

4. NATIONAL EMPOWERMENT FUND (NEF) NEF TRUST NEF VENTURES FUND DIFFERENTIATION • In terms of the NEF Act • Capitalisation from National Treasury • Specific product offerings in terms of June 2004 product relaunch • Joint Fund between IDC and the NEF • Separate investment criteria and fund mandate • Transactions between R3m to R10m • Minimal overlap with NEF Trust Transformer product only • NEF screens and processes applications as Fund Manager • Capitalisation on a 50/50 basis between both organizations • Fund Size R170m, with initial expectations of an additional R30m to be earmarked for a smaller Fund • Management fees paid by IDC and NEF respectively

5. Minister NEF Board Audit Committee Human Capital & Remuneration Risk Management Committee Investment Committee Risk / Internal Auditor Vacant Secretarial & Compliance Officer E Riley Chief Executive Officer PA Vacant Chief Financial Officer A Wright (Acting) Executive - Group Entrepreneurial Schemes P Naidoo (Acting) Support Services Executive Executive - Market Making Vacant Executive Advisory Services Vacant Management Accounting Financial Accounting Process and Projects Coordination Underwriting for IPO BEE Facilitation Strategic Projects Rural & Community Support BEE Retail Equity Manager Generator Accelerator Transformer Knowledge Management Human Resources Information Technology Marketing & Comms Legal Advisory Services Office Administration. NEF ORGANISATIONAL STRUCTURE Total number of employees: 41

6. NEF’S BUSINESS OFFERING

7. THE NEF IS A DFIOPERATING UNDER THE UMBRELLA OF THE dti The NEF’s product offerings have been structures to address the NEF’s objectives and the dti’s strategic objectives for 2004 to 2007 NEF’s products/ activities NEF’s objectives as per the NEF Act dti’s objectives addressed Market Making – Current products (CMF, LWF, SPF) • providing historically disadvantaged persons with the opportunity of, directly or indirectly, acquiring shares or interests in state owned commercial enterprises that are being restructured or in private business enterprises; • encouraging and promoting …. investments and meaningful economic participation by historically disadvantaged persons; • promoting and supporting business ventures pioneered and run by historically disadvantaged persons; • promoting the universal understanding of equity ownership among historically disadvantaged persons; • encouraging the development of a competitive and effective equities markets inclusive of all persons in the Republic; • contributing to the creation of employment opportunities • Increasing the contribution of small enterprises to the economy • Significantly advancing broad-based black economic empowerment • Increasing the level of direct investment in the economy and in specific priority sectors • Contributing towards providing accessible, transparent and efficient access to redress for economic citizens • Partially fulfilling • Contributing towards building skills, technology and infrastructure platforms in the economy from which enterprises can benefit • Repositioning the economy in higher value-added value matrices in manufacturing and services

8. NEF’s products/ activities NEF’s objectives as per the NEF Act dti’s objectives addressed Group and Entrepreneur schemes – existing products Generator, Accelerator, Transformer • Providing historically disadvantaged persons with the opportunity of, directly or indirectly, acquiring shares or interests in state owned commercial enterprises that are being restructured ….; • Encouraging and promoting savings, investments and meaningful economic participation by historically disadvantaged persons; • Promoting the universal understanding of equity ownership among historically disadvantaged persons; • Encouraging the development of a competitive and effective equities markets inclusive of all persons in the Republic; • Increasing the contribution of small enterprises to the economy • Significantly advancing broad-based black economic empowerment • Contributing towards providing accessible, transparent and efficient access to redress for economic citizens • Partially fulfilling • - Increasing the level of direct investment in the economy and in specific priority sectors • - Contributing towards building skills, technology and infrastructure platforms in the economy from which enterprises can benefit Group and Entrepreneur schemes – existing products (Rural and Community Development) • Providing historically disadvantaged persons with the opportunity of, directly or indirectly, acquiring shares or interests in state owned commercial enterprises that are being restructured or in private business enterprises; • Encouraging and promoting savings, investments and meaningful economic participation by historically disadvantaged persons; • Promoting and supporting business ventures pioneered and run by historically disadvantaged persons; • Promoting the universal understanding of equity ownership among historically disadvantaged persons; • Contributing to the creation of employment opportunities; • Increasing the contribution of small enterprises to the economy • Significantly advancing broad-based black economic empowerment • Increasing the level of direct investment in the economy and in specific priority sectors • Contributing towards providing accessible, transparent and efficient access to redress for economic citizens • Partially fulfilling • - Contributing towards building skills, technology and infrastructure platforms in the economy from which enterprises can benefit THE NEF IS A DFIOPERATING UNDER THE UMBRELLA OF THE dti (continued)

9. NEF’s products/ activities NEF’s objectives as per the NEF Act dti’s objectives addressed Group and Entrepreneur schemes – existing products (Retail Equity ownership) • Providing historically disadvantaged persons with the opportunity of, directly or indirectly, acquiring shares or interests in state owned commercial enterprises that are being restructured or in private business enterprises; • Promoting and supporting business ventures pioneered and run by historically disadvantaged persons; • Promoting the universal understanding of equity ownership among historically disadvantaged persons; • Contributing to the creation of employment opportunities • Significantly advancing broad-based black economic empowerment • Contributing towards providing accessible, transparent and efficient access to redress for economic citizens THE NEF IS A DFIOPERATING UNDER THE UMBRELLA OF THE dti (continued)

10. Identification of market failures in SME sector • Avoid duplication of other DFI offerings • Positioning of NEF to complement other DFIs and financial institutions The NEF’s initial products have been designed to address specific market failures as highlighted below: Group and Entrepreneurial Schemes Product Market failure Complementary to other DFIs/Banks • Generator(R250k-R1m) • Limited access to finance for HDSA entrepreneurs with no collateral • Brings new businesses into bankable positions. • Khula and IDC • Accelerator(R1m-R3m) • Limited access to finance for HDSA entrepreneurs with no collateral • Enhances existing businesses future prospects of maintaining independent banking relationships. • Khula and IC • Transformer(R3m-R10m) • Limited access to finance for HDSA entrepreneurs with no collateral • Enter buy-in/buy-out negotiations from a position of weakness • Co-investment with other DFIs • Rural and community development(R1m-R3m) • Lack of equity funding fro rural & community economic infrastructural development especially with prospects of long term (10 year) medium to low returns. This equity catalyses debt from DFIs and banks. • NEF will only provide a potion of total capital requirement, balance as debt from IDC, DBSA, Land Bank, Banks • Working with CPPP NEFPOSITIONING IN ADDRESSING MARKET FAILURE

11. Market Making Product Market failure Complementary to other DFIs/Banks • Capital Markets fund (R1m-R10m) • Institutional fund managers do not focus on listed companies with market caps <R1bn and even less emphasis is placed on markets caps of <R500m • IPOs and capital raisings for small to medium sized Black Empowered businesses are thus extremely • Assists with exists from equity positions held in successful medium to large private businesses • IDC • Second round funding requirements on broad based structures can dilute the BEE shareholding. • Other than IPOs, there is not much market liquidity for HDSA owner-managers who wish to realise some value from their businesses without compromising BEE status and hence value. • Historic funding structures, especially where BEE groups have acquired controlling stakes, are often punitive and over-geared which places pressure on the underlying operations. • Liquidity and warehousing(R10m-R50m) • Restructure funding with a longer-term view • IDC, Banks • Strategic projects (>R25m) • Large strategic projects create an ideal opportunity for BEE participation at the outset. • Funding to secure an equity position for BEE participants at the start-up phase is not readily available. • Adverse funding structures dilute the BEE strategic positioning. • Co-investment with IDC, DBSA, Land Bank NEFPOSITIONING IN ADDRESSING MARKET FAILURE cont.

12. WHAT DIFFERENTIATES NEF? • Exclusive generalist funding for BEE • Not focused on personal credit worth/ security • Focused on the “Hurt Factor” (livelihood dependent) • Appetite for risk with a development focus

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

14. Generator Accelerator Transformer Size of investment • R250 000 to R1m • R1m to R3m • R3m to R10m Principal goal • Create new HDP-owned and managed enterprises • Grow and develop existing HDP-owned and managed enterprises • Transformation of enterprises at the ownership, decision-making and control levels Types of organisations supported • Close corporations) and private (Pty) Ltd companies. • CCs and (Pty) Ltd companies • Unlisted limited companies Principal use of investment capital • Acquisition of equipment • Financing of working capital • Bridging finance • Acquisition of licenses/franchises • Rehabilitation, lease and performance bonds • Primarily to fund business expansion, either by acquisition or organically • Management buy-outs • Management buy-ins • Employee buy-ins, Employee share ownership plans Types of investment • Debt (secured and unsecured) • Equity • Secured debt • Convertible debt • Preferred equity • Equity • Secured debt • Convertible debt • Preferred equity • Equity HDP equity thresholds (including NEF stake) • >75% • >50% • >25% Term of investment • 3 – 7 years • 3 – 7 years • 3 – 7 years DETAILED INVESTMENT CRITERIA – ENTREPRENEUR SUPPORT

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

16. INVESTMENT PROCESS: TRANSACTIONS > R5m

17. INVESTMENT PROCESS: TRANSACTIONS > R5mcont.

18. Application Form / Screening / Business Plan Preliminary Investment Report Investment Committee Due Diligence Final Investment Report PIDSA Receipt of Investment Application Form & Business Motivation Assessment of application for eligibility Investment Associate perform assessment for commercial viability, incorporating business plan Communication with applicant: decline application or proceed with evaluation Completeness of Business Plan Evaluate Financial forecasts Internal Team Approval Prepare Investment Report for pre-due diligence & proposed Term sheet Approval by EXCO Investment Committee (INCOM) PIDA Present Pre Due Diligence Report to EXCO INCOM Perform Due Diligence (DD) Final Investment Report EXCO INCOM Submission for Approval Presentation to the NEF INCOM / Ventures IC for Final Approval (FICA) 1. Datacentrix R50,000,000 (GP) 2. E & B Conservancy R10,000,000 (EC) 3. Solar Systems R7,000,000 (GP) 4. Vac Air Technology R10,000,000 (GP) Pending Applications (01/06/04 – 21/02/05) 70 (Pre-Investment Business Support required to accelerate transactions) 1. E & B Citrus R10,000,000 (EC) 2. EHD Components R9,940,000 (GP) Total Applications Received (01/06/04 – 21/02/05) 185 Interim Investment Committee for transactions above R5m approved INVESTMENT PROCESS: TRANSACTIONS > R5m

19. INVESTMENT PROCESS: TRANSACTIONS UP TO R5m

20. Due diligence Final Investment Report Investment Committee Legal → → → → Perform Due Diligence (DD) Final Investment Report EXCO Submission for approval Legal agreements & disbursement NOTES: • Timings associated with the Generator and Accelerator products may be quicker in that structuring would be standardised to a point. • Capital expansion transactions would likely be able to be accelerated. • EXCO comprise of executive management, including CEO of NEF. • Negotiations with respect to MBI’s and MBO’s would expectantly take a longer turnaround. • Timings are indicative assuming all information from the application is complete and timeous and represents actual time spent on transaction. • Risk focused • Return assessment based on sensitivity scenarios • Sign off DD file for quality review DD working paper file • Executive Summary report of DD • Team members form investment associate team • Specialist, if necessary • Prepare investment report recommending deal & subject to legal contracts • Include scope of DD • DD results on executive summary report • Investment Associate • Circulate Investment Report to EXCO • Final term sheet to be included in investment report • Exco team • Drafting of legal agreements using NEF standard templates • Finalise with attorney’s input • Circulate to investee for review & acceptance • Disburse • Outsource legal service Formal Documentation Required: • Due Diligence file • Executive summary of DD • Investment Report • Executive Summary report of DD • Signed Term Sheet • Investment Report • Executive Summary report of DD • Signed Term Sheet • Minutes of Meeting • Approval letter • Legal contracts • Disbursement documentation INVESTMENT PROCESS: TRANSACTIONS UP TO R5m cont.

21. Due Diligence Final Investment Report Application Form / Screening / Business Plan Preliminary Investment Report Investment Committee Receipt of Investment Application Form & Business Motivation Assessment of application for eligibility Investment Associate perform assessment for commercial viability, incorporating business plan Communication with applicant: decline application or proceed with evaluation Completeness of Business Plan Evaluate Financial forecasts Internal Team Approval Prepare Investment Report for pre-due diligence & proposed Term sheet Approval by EXCO Investment Committee (INCOM) Present Pre Due Diligence Report to EXCO INCOM Perform Due Diligence (DD) PIDSA Final Investment Report EXCO INCOM Submission for Final Approval PIDA Invested Portfolio 1. Greisen Finance (Pty) Ltd. R3,990,000 (GP) 2. Izazi Support Systems R300,000 (MP) 3 JC Backhoe Spares R2,000,000 (GP/PE/KZN) 4. Khanya Plastic R1,800,000 (WC) 5. Ogwini Bakery R1,167,367 (GP) 6. Platinum Koi R900,000 (WC) 7. Quality Frozen Food R2,950,000 (GP) 8. Speedy Umtata R415,000 (EC) 9. Steel Metal & Tools CC R3,374,700 (GP) 1. Exotic Breads R1,700,000 (KZN) 2. Isibane Safety R1,000,000 (WC) 3. Kuzuko R5,000,000 (EC) 4. Notae R960.000 (KZN) 5. National Trans. & Ind. R1,500,000 (WC) 6. Secretarial Unlimited R450.000 (KZN) 7. Theme-U-Snack CC R1,000,000 (WC) 8. Tilt Tango CC R820,000 (WC) NEF VENTURES– 5 Transactions (As per attached Report) Pending Applications (01/06/04 – 21/02/05) 553 (Pre-Investment Business Support required to accelerate transactions) Total Applications Received (01/06/04 – 21/02/05) 1174 1. Something Fishy R390,000 (GP) 2. Makarapa Headwear R400,000 (GP) 1. Amsterdam T/D ‘65 CC R680,000 (GP) 2. Semaku R1,345.000 (GP) NEF TRUST– GES & MARKET MAKING 6 Transactions (As per attached Report) INVESTMENT PROCESS: TRANSACTIONS UP TO R5m

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

23. WIPSCHEDULE – INVESTMENT DIVISION • NEF summary dealflow pipeline is attached. • This summary includes the transaction within NEF Ventures. • Excluding the transactions that are in various stages of review (pending), 27 transactions are being considered within a formal approval framework (dealflow pipeline). • 2 of these transactions have had final approval and awaiting disbursement subject to completion of legal documentation. • 11 Transactions have been completed & disbursed and form part of the invested portfolio.

24. NEFTRANSACTION WIPSCHEDULE

25. NEFTRANSACTION WIPSCHEDULE cont.

26. NEFTRUST – INVESTMENT PORTFOLIO

27. NEFVENTURES – INVESTMENT PORTFOLIO

30. DESIGNATED SOCE’s

31. FUNDING

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

33. CAPITALISATION • Investments • R150 million has been earmarked for investment capital to the NEF which is expected next week following the successful signing of the Shareholder Performance Agreement. • The NEF has cash reserves at present (January 2005 – R64 million) to funds its operations and investment activities until end March 2005 at which point these will be depleted operationally and fully invested through its current funding work in progress (R129 million). • The first tranche of the R2 billion allocation is expected in the first quarter of the next financial year and this is understood to be in the order of R450 million based on the NEF business plan capitalisation draw downs and discussions with National Treasury. • The DG’s and the DPE are currently working on the transfers of the remaining allocation of SOCE equity investments. Significant impact on the balance sheet.

34. CASH FLOW FORECAST FOR PERIOD ENDING MARCH 2005

35. CONSOLIDATED BUDGET

36. NEFCAPITAL DRAW-DOWN SCHEDULE FOR YEARS ENDING 31MARCH 2009

37. REQUIREMENT DUE DATE • Annual Report 24 Sep 04 (done) • Budget 2006 15 Oct 04 extension (done) • Corporate Strategy/ Business Plan 15 Oct 04 extension (done) • Internal Audit 31 Jan 2005 – IA Manager 1 Jan 2005 – IA Co-source • Q3 Report 31 Jan 2005 (done) • S38 Certificate 24 Nov 2004 (done) • Materiality Framework 10 Feb 2005 (presented to AC) • Dti Performance Agreement 31 Jan 2005 (done) • Risk Assessment 22 Feb 2005 (in progress) ENTERPRISE GOVERNANCE Statutory Compliance: • Emphasis of matter in terms of PFMA / Treasury Regulations were raised in the March 2004 External Audit Report. • These are being dealt with and will be fully cleared by March 2005 • Ongoing PFMA / NTR compliance is being fully adhered to as described alongside.

38. FIRST NEW PRODUCT DISBURSEMENTS "NOVEMBER 2004" Launch new product "June 2004" Started trading "2002" NEF Act 1998 CONCLUSION