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• Makhamisa Foods has found funding from another finance institution but it needs some assurance from the IDC • The IDC has been heavily criticised for allegedly frustrating black-owned businesses • Makhamisa rejected IDC’s advice to file for business rescue

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Sizwe sama Yende

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A relish and sauces producing company is frustrated at the Industrial Development Corporation (IDC) for blocking potential funding that will bring it back on its feet.

All that Makhamisa Foods needs is a commitment letter from the IDC confirming that it will not recall its loan facilities already given to the company. This is a condition that another government development finance institution has set before it can give Makhamisa Foods a R48 million grant. 

Makhamisa Foods has applied for a total amount of R73 million in funding for equipment and operations from two institutions. 

The IDC is under fire for following a barrage of criticism that it was funding black-owned enterprises only to frustrate them until they are out of business.

Beside the IDC’s alleged counterintuitive actions against black industrialists, Makhamisa Foods’ two directors had to grudgingly accept shareholders foisted on them when they negotiated their first funding in 2017. They then had to deal with an underhand overture by a senior Limpopo politician to take over the company when its financial situation worsened at a later stage, primarily due to loss of an anchor client, Famous Brands.

The IDC has refused to give the commitment letter to the finance institution. The delay weakens Makhamisa Food’s business case. Makhamisa Foods director, Terence Leluma. said the delay was “systematic.”

The funding will take the company out of the doldrums and save it from dissolution. Makhamisa Foods has obtained an equity partner who has put down the required 20% own contribution, which the development finance institution requires. 

Leluma said the company, as it waits for the IDC’s commitment letter, already has offtake agreements and Letters of Intent from five blue chip companies in the Quick Service Restaurants market as well as one major retailer. 

IDC RESPONDS

Regarding the commitment letter, the IDC said: “Letters of commitment are issued only once all internal approvals and conditions precedent have been met. The presence of potential co‑funding from another institution does not automatically result in a commitment from the IDC.”

The corporation further said that Makhamisa Foods had experienced sustained operational and financial challenges and, despite multiple interventions, has been unable to achieve commercial sustainability.

“Over the course of the IDC’s involvement, the Corporation restructured the business on a number of occasions, including the provision of additional funding, with the objective of stabilising operations and supporting a turnaround.”

COVID 19 PANDEMIC

The IDC approved R38 million funding for Makhamisa Foods under the Department of Trade, Industry and Competition’s Black Industrialists Scheme in 2018 after the latter offered R18 million in grant funding in 2017. Makhamisa had already clinched a deal with Famous Brands when it applied for funding.

The company built its state-of-the-art plant in 2019 and began producing an assortment of relishes and sauces in 2020. However, production grinded to halt a few weeks after the commissioning of the plant, when the country was placed under lockdown in 2020 due to the Covid-19 pandemic.

As restaurants and the whole hospitality industry were forced to close their doors to curb the spread of Covid-19, Makhamisa’s plant also had to follow suit.

This was the beginning of the company’s financial problems, Leluma said.

Repayments of the IDC’s loans fell behind and the development funding institution proposed that Makhamisa Foods should file for business rescue, but the company rejected this proposal. 

The IDC offered Makhamisa R10 million as a Covid-19 relief intervention, which enabled the company to resume operations after lockdown was uplifted. Leluma said they began repaying the IDC loan around February 2021, but still struggled to pay in full which resulted in the company being placed under business advisory and turnaround as an attempt to resolve its cash flow problems.

THE ALLEGED SABOTAGE

During these trying times, the IDC’s decision to foist the directors on Makhamisa directors began to jeopardise the company’s products. 

When Makhamisa began applying for funding in 2017, the IDC had put a precondition that its co-founders should offer sweat equity to a food technologist and a mechanical engineer of IDC’s choice.

“We were not in favour of this decision because the individuals were not known to us,” Leluma said. “The IDC team working on the case stated that they would not support our case at the credit committee without this condition being met,” he added.

Leluma said he and his partner, Phumzile Leluma, eventually succumbed to the IDC’s pressure and issued 200 shares in favour of the food technologist (15%) and  5% to the mechanical engineer (5%).

In 2022, Leluma said, the food technologist demanded extra shares in the company which would automatically elevate him to be a majority shareholder. When his demand was turned down, the food technologist staged a “business sabotage.” 

“The business lost approximately R1 million in one day as a result of a Famous Brands’ product recall. He (food technologist) had warned in a shareholders’ meeting two weeks prior that he was going to stage an espionage using his people in the plant.”

After this incident and the reputational damage it had to endure, Famous Brands decided not to renew the contract when it expired in 2023. The Famous Brands’ deal accounted for 80% of Makhamisa’s annual income.

Leluma said that his company had plans in place to survive. “We also requested the IDC to restructure the facilities at the back of the new offtake agreements and letters of intent. The IDC did not consider Makhamisa's case for support,” Lulama said.

“Instead, they required the business to go out and secure an equity investor,” he added. That was when a senior politician invited by a Limpopo-based company came into the picture. 

Nothing concrete, however, came out of the engagement with the politician. 

IDC’S DENIALS

In denying Makhamisa’s allegations, the corporation said:

·      The IDC does not compel companies to alter their ownership structures, appoint specific individuals, or cede equity as a condition for funding. Where capacity or risk issues are identified during due diligence, the IDC may recommend appropriate risk‑mitigation measures; however, decisions regarding appointments, equity arrangements and operational matters remain the responsibility of the company and its shareholders.

·      The IDC does not participate in, direct or influence third‑party or political efforts to acquire equity in client companies. Any such engagements fall outside the IDC’s mandate and control.

·      Operational matters within funded entities, including internal disputes, product quality issues or commercial losses, are managed by company management and boards. The IDC does not have an operational role in client businesses.

·      Letters of commitment are issued only once all internal approvals and conditions precedent have been met. The presence of potential co‑funding from another institution does not automatically result in a commitment from the IDC.

 PARLIAMENTARY INQUIRY

The Portfolio Committee on Trade, Industry and Competition decided to conduct an inquiry following a presentation by the National African Federated Chamber of Commerce and Industry (Nafcoc) three weeks ago highlighting how the IDC had sabotaged black businesses. 

Nafcoc presented cases of a few enterprises from textile to engineering that the IDC has allegedly driven to ruin through various forms of tactics.

Last week, Green Scooters founder, Fezile Dlamini, went public about how the IDC rejected his application for financial support and he had to spend R9.5 million of how own to build his electric vehicles company, which has deployed 70 electric vehicles to blue chip companies, local SMMEs and exported to the United Arab Emirates. 

Dlamini said that the IDC gave R69 million funding to a white-owned competitor.