Arrangement yields good returns for society
The days of associating the Unemployment Insurance Fund (UIF) with chaos, bad audit reports and maladministration have been replaced with clean books, accountability and, more importantly, job creation and preservation. Thanks to the partnership between the UIF and the Industrial Development Corporation (IDC), several companies have been able to preserve and create about 54 000 jobs in the past five years.
UIF commissioner Boas Seruwe says after he and his management team managed to turn things around at the fund, they started looking to add value to the economy.
“After the effects of the 2008 global financial crisis, we embarked on a plan to alleviate the effects of unemployment. We came up with funding the wages of companies in distress. We reskilled people who had lost their jobs and made them ready for the workplace, and we were investing in JSE-listed companies via the Public Investment Corporation. So we decided to give money to unlisted companies.”
Seruwe says that in 2010, the fund gave the IDC about R2 billion to lend to unlisted companies to create and preserve jobs. The UIF had instructed the IDC to invest the money in start-ups and companies that wanted to expand their operations.
“Within a short space of time, it was a success and we started getting good results. After two years, we expanded the project by investing another R2 billion in the IDC. All the funding has been allocated and we are quite happy with what we have achieved. We’re looking at working with the IDC again.”
Seruwe says when the programme started, the interest rate on loans to the IDC was 5%.
This was linked to the inflation rate at the time, he adds. A 5% interest rate is low, as commercial banks peg their rates to inflation and add their own charges, depending on the client’s risk profile. Commercial banks charge up to 11%, but when the programme continued in 2012, the interest rate was reduced to 4%.
“We instructed the IDC to, at the very least, return our capital. And they have done that. The return for us is creating and preserving jobs. We have been able to do that.
“But if people are not retrenched, we also achieve social returns. If people are not retrenched, it means they will not come to us to claim,” says Seruwe.