THE EASTERN Cape Development Corporation (ECDC) is a business of the state with a complex mission which involves being a catalyst for the economic development of the Eastern Cape.
Its job is to grow the Eastern Cape economy, facilitate job-creation to ameliorate the huge income inequalities and reduce poverty levels. This task requires due diligence, collateral and a capital base.
A recent review of ECDC’s corporate strategy and the reconfiguration of the ECDC mandate have clarified its purpose, which is to focus on providing quality financial and non-financial support to qualifying businesses that have the potential for long-term growth to stimulate economic activity and to realise socio-economic development imperatives.
To meet the demands of its core business as a responsible development financier, the ECDC must unbundle and dispose of those non-performing assets which are eroding its capital base.
This includes the residential property portfolio which has been bleeding the balance sheet due to tenants who refuse to honour their rental obligations.
When tenants do not feel obliged to pay rent, it means the ECDC does not have enough money to finance its core business. In such instances, the corporation has to act decisively to ensure that public assets respond to the stated objective of growth and development.
Before the former Transkei and Ciskei development agencies were amalgamated into the ECDC they operated as instruments of apartheid – the only agenda was to justify separate development. In fact they would switch resources on and off to discipline what could be characterised as impish behaviour by leaders of the former Transkei and Ciskei. This brought a sense of self-doubt, instability, uncertainty and deliberately distorted the vision to inspire self-reliance and genuine independence of these communities.
The properties had originally been used to attract industrialists to “industrial development areas”. Houses were built to accommodate “key management” in these industrial key points. A few townships were developed for construction workers building factories and later providing cheap labour. The original purpose to hold and maintain residential houses for “key management” is no longer relevant – residential property is therefore no longer a part of ECDC’s mandate.
The residential portfolio has a balance sheet value of R233-million while the entire property portfolio has a balance sheet value of R611-million. The ECDC needs these funds to reinvest to support those citizens who want to grow the economy.
Serial rental defaulters are damaging the corporation and the situation is clearly untenable.
ECDC rentals are the lowest in the market, yet it is owed more than R60-million in arrears. A Grant Thornton study of ECDC properties in Butterworth revealed that 82% of the tenants fell in the medium to high income bracket and therefore could afford rentals ranging from R90 to R2100 a month. Only 18% of these tenants could be classified as indigent.
Rent collection from the entire property portfolio is R50-million per year, but the ECDC spends more than R55-million a year on rates and services, security costs for empty and vacant properties, costs for legal-related matters and personnel.
The ECDC has thus had to make some tough decisions to ensure that it remains viable. The continued existence of the corporation is not guaranteed unless its assets are properly managed, directed to its core mandate and are adequately accounted for. Its revenue streams must continue to grow, costs should be tightly managed to reduce wasteful expenditure and those using public assets must honour their obligations towards them and relinquish the sense of entitlement, or lose them.
When all these mechanisms are in place, the ECDC will have more money to invest in the growth of other businesses and economic sectors.
The ECDC took a considered decision to dispose of its entire residential property portfolio. However, the corporation is also cognisant that it has to do this in a fair and transparent manner. As such the ECDC in December last year gave current tenants of its 238 stand-alone houses until the end of March to contract to buy the houses they occupy at market prices.
The ECDC will not accede to demands by certain defaulting tenants to write off long outstanding arrears, to withdraw legal action against those who refuse to pay and or to transfer the properties to them “free of charge” or at construction value. Such a transaction would be irregular, in contravention of the law, corrupt and unethical and will not be tolerated.
The ECDC Act is clear that only economic considerations should be taken into account in the disposal of public assets.
This means the economic value of the houses must be realised and the value of the properties is determined by independent valuations. Properties, for which no offers are made will be sold through a public process, though tenants would even then be able to compete with public bidders.
We have already had 100 offers and this is expected to increase towards the end of the month, when we will process the offers and issue deeds of sale for them to obtain finance.
Tenants must be careful not to be duped by criminal and corrupt elements who pose as ECDC agents collecting cash from them. Any official of ECDC found to be doing that will be dealt with severely through internal processes.
While the ECDC is committed to this strategy, the task requires us to be conscientious, hardworking and scrupulous in the execution of this task and to build public confidence in this process.
The roll-out of the strategy should stimulate the local economy, fairly distribute ownership, and bring a sense of equity to the majority of the province’s citizens. The ECDC will continuously review the process to ensure that it complies with the law and protects the ECDC’s reputation as a premier development finance institution.
A transaction adviser will be appointed to advise and benchmark the process with other development agencies. The process requires due diligence, auditing, confirming the asset register and its valuation.
During this process, the ECDC will maintain tight management of its property portfolio while assessing market readiness. Proceeds realised will be used to capitalise the balance sheet to further execute its core development mandate.
Sitembele Mase is CEO of the ECDC
Insight: ECDC mandate is to help grow province’s economy
Its job is to grow the Eastern Cape economy, facilitate job-creation to ameliorate the huge income inequalities and reduce poverty levels. This task requires due diligence, collateral and a capital base.
A recent review of ECDC’s corporate strategy and the reconfiguration of the ECDC mandate have clarified its purpose, which is to focus on providing quality financial and non-financial support to qualifying businesses that have the potential for long-term growth to stimulate economic activity and to realise socio-economic development imperatives.
To meet the demands of its core business as a responsible development financier, the ECDC must unbundle and dispose of those non-performing assets which are eroding its capital base.
This includes the residential property portfolio which has been bleeding the balance sheet due to tenants who refuse to honour their rental obligations.
When tenants do not feel obliged to pay rent, it means the ECDC does not have enough money to finance its core business. In such instances, the corporation has to act decisively to ensure that public assets respond to the stated objective of growth and development.
Before the former Transkei and Ciskei development agencies were amalgamated into the ECDC they operated as instruments of apartheid – the only agenda was to justify separate development. In fact they would switch resources on and off to discipline what could be characterised as impish behaviour by leaders of the former Transkei and Ciskei. This brought a sense of self-doubt, instability, uncertainty and deliberately distorted the vision to inspire self-reliance and genuine independence of these communities.
The properties had originally been used to attract industrialists to “industrial development areas”. Houses were built to accommodate “key management” in these industrial key points. A few townships were developed for construction workers building factories and later providing cheap labour. The original purpose to hold and maintain residential houses for “key management” is no longer relevant – residential property is therefore no longer a part of ECDC’s mandate.
The residential portfolio has a balance sheet value of R233-million while the entire property portfolio has a balance sheet value of R611-million. The ECDC needs these funds to reinvest to support those citizens who want to grow the economy.
Serial rental defaulters are damaging the corporation and the situation is clearly untenable.
ECDC rentals are the lowest in the market, yet it is owed more than R60-million in arrears. A Grant Thornton study of ECDC properties in Butterworth revealed that 82% of the tenants fell in the medium to high income bracket and therefore could afford rentals ranging from R90 to R2100 a month. Only 18% of these tenants could be classified as indigent.
Rent collection from the entire property portfolio is R50-million per year, but the ECDC spends more than R55-million a year on rates and services, security costs for empty and vacant properties, costs for legal-related matters and personnel.
The ECDC has thus had to make some tough decisions to ensure that it remains viable. The continued existence of the corporation is not guaranteed unless its assets are properly managed, directed to its core mandate and are adequately accounted for. Its revenue streams must continue to grow, costs should be tightly managed to reduce wasteful expenditure and those using public assets must honour their obligations towards them and relinquish the sense of entitlement, or lose them.
When all these mechanisms are in place, the ECDC will have more money to invest in the growth of other businesses and economic sectors.
The ECDC took a considered decision to dispose of its entire residential property portfolio. However, the corporation is also cognisant that it has to do this in a fair and transparent manner. As such the ECDC in December last year gave current tenants of its 238 stand-alone houses until the end of March to contract to buy the houses they occupy at market prices.
The ECDC will not accede to demands by certain defaulting tenants to write off long outstanding arrears, to withdraw legal action against those who refuse to pay and or to transfer the properties to them “free of charge” or at construction value. Such a transaction would be irregular, in contravention of the law, corrupt and unethical and will not be tolerated.
The ECDC Act is clear that only economic considerations should be taken into account in the disposal of public assets.
This means the economic value of the houses must be realised and the value of the properties is determined by independent valuations. Properties, for which no offers are made will be sold through a public process, though tenants would even then be able to compete with public bidders.
We have already had 100 offers and this is expected to increase towards the end of the month, when we will process the offers and issue deeds of sale for them to obtain finance.
Tenants must be careful not to be duped by criminal and corrupt elements who pose as ECDC agents collecting cash from them. Any official of ECDC found to be doing that will be dealt with severely through internal processes.
While the ECDC is committed to this strategy, the task requires us to be conscientious, hardworking and scrupulous in the execution of this task and to build public confidence in this process.
The roll-out of the strategy should stimulate the local economy, fairly distribute ownership, and bring a sense of equity to the majority of the province’s citizens. The ECDC will continuously review the process to ensure that it complies with the law and protects the ECDC’s reputation as a premier development finance institution.
A transaction adviser will be appointed to advise and benchmark the process with other development agencies. The process requires due diligence, auditing, confirming the asset register and its valuation.
During this process, the ECDC will maintain tight management of its property portfolio while assessing market readiness. Proceeds realised will be used to capitalise the balance sheet to further execute its core development mandate.
Sitembele Mase is CEO of the ECDC
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