Page 2 - IDC

10 CITY PRESS, 13 DECEMBER, 2015

news

A
PROJECT IN
PARTNERSHIP

WITH THE
IDC

GOOD JOB The UIF and IDC partnership has provided and saved jobs in many sectors, including agriculture PHOTO: LEON SADIKI

queue of potentially job-creating Jobless fund has not diclosed the correct information.
DEWALD VAN RENSBURG scrutinised, says Mangope.
dewald.vrensburg@citypress.co.za And there is a penalty if it is found that a client

ne has a huge and growing surplus of
When clients report back, the jobs numbers are
funds meant to combat the effects of
audited. If they don’t tally, the IDC department
unemployment. The other has a
penalised. The IDC’s bonus system hinges on these
reviews.
businesspeople outside its doors, responsible for approving the funding is also
Mangope says people can be very creative when
Oclamouring for capital. trying to dupe the system.
from the IDC, money the lender has loaned to is saving jobs and misrepresented the jobs potential of an
The five-year arrangement between the
Unemployment Insurance Fund (UIF) and the
If clients are found to have hoodwinked the IDC
Industrial Development Corporation (IDC) could
mark the beginnings of a new model for
investment, they are penalised.
If they have not adhered to the criteria, and
development finance in South Africa.
Since 2010, the UIF has bought R4 billion in bonds
punitive default rate on their debts to the IDC.
“It is not as bad as the microlenders – it’s not
businesses. The money has been made available to cannot justify their actions, they are slapped with a
IDC-funded companies at discounted interest rates going to go to 25%, but you could find that if you
with one quid pro quo: create or save jobs at less are paying 5%, it could rise to 11%. If you are not
than R450 000 a head. A partnership between the IDC and the Unemployment compliant, you are in trouble,” says Mangope.
The idea came from Brazil, where the Brazilian This often happens with IDC clients, but very
Development Bank is funded by the Workers’ seldom with UIF-funded projects.
Assistance Fund. Insurance Fund is helping to retain and create employment “The rate is so cheap and, if you are saving a
The IDC was looking at something similar in 2008 company, there is adherence. There is very little
with the start of the economic crisis, making the deviation from the norm.”
case for new funding sources more As far as the IDC is concerned, the
compelling. arrangement should continue, says
Lerato Mangope, head of Mangope.
corporate finance at the Arrangement yields good returns for society “To us as two government
IDC, says: “It was right in agencies that drive the
the middle of the National Development Plan
economic crisis; the cost The days of associating the Unemployment people who had lost their jobs and made them interest rate on loans to the IDC and the Industrial Policy
of capital was very high, Insurance Fund (UIF) with chaos, bad ready for the workplace, and we were investing in was 5%. Action Plan, it makes sense.
companies were folding audit reports and maladministration have JSE-listed companies via the Public Investment This was linked to the inflation rate So why not do it together?
and huge industries were been replaced with clean books, Corporation. So we decided to give money to at the time, he adds. A 5% interest rate “We have achieved quite a
coming to the IDC.” accountability and, more importantly, job unlisted companies.” is low, as commercial banks peg their lot. As the IDC, we would
It took two years to iron creation and preservation. Seruwe says that in 2010, the fund gave the IDC rates to inflation and add their own love it [if the UIF funding
out a workable arrangement Thanks to the partnership between the UIF about R2 billion to lend to unlisted companies to charges, depending on the client’s risk became permanent], but it is
because the UIF had “mandate and the Industrial Development Corporation create and preserve jobs. The UIF had instructed profile. Commercial banks charge up to 11%, not up to us.
constraints”. (IDC), several companies have been able to preserve the IDC to invest the money in start-ups and but when the programme continued in 2012, the “They have their own board
The UIF’s annual surplus Lerato Mangope, and create about 54 000 jobs in the past five years. companies that wanted to expand their operations. interest rate was reduced to 4%. UIF and their own mandate, but we
usually goes to the Public IDC head of UIF commissioner Boas Seruwe says after he and “Within a short space of time, it was a success “We instructed the IDC to, at the very least, commissioner will always chase them for it.”
Investment Corporation corporate funding his management team managed to turn things and we started getting good results. After two return our capital. And they have done that. The Boas Seruwe The UIF is bound to use its
(PIC), from which it has to PHOTO: ELIZABETH SEJAKE around at the fund, they started looking to add value years, we expanded the project by investing another return for us is creating and preserving jobs. We funds to provide the statutory
get a certain yield in lending out the money. to the economy. R2 billion in the IDC. All the funding has been have been able to do that. unemployment insurance it was created for, with
But the IDC arrangement involves a concession on “After the effects of the 2008 global financial allocated and we are quite happy with what we have “But if people are not retrenched, we also some leeway to put, at most, 10% of its R113 billion
interest rates. crisis, we embarked on a plan to alleviate the achieved. We’re looking at working with the IDC achieve social returns. If people are not in assets into “developmental investments”.
To make up for this, the money has to make a effects of unemployment. We came up with funding again.” retrenched, it means they will not come to us to “I spoke to the commissioner [of the UIF, Boas
demonstrable impact in the UIF’s sphere of concern: the wages of companies in distress. We reskilled Seruwe says when the programme started, the claim,” says Seruwe. Seruwe]. He says he likes our relationship,” says
unemployment. Mangope.
There have already been two sets of R2 billion The UIF is not the only large pot of insurance
bonds, with a third in the pipeline. fund money controlled by a government agency.
Though not overwhelming in terms of the IDC’s at a cost of below R450 000 a head. profit from the concessionary funding, but pass on According to Mangope, the impairment rate on Another possibility may lie with the Compensation
total portfolio, the funding has demonstrated how Practically, this means that very capital-intensive the cheap funding, says Mangope. UIF fund loans is only 6%, compared with more Fund, which falls under the department of labour,
state entities with relatively idle funds can channel borrowers are excluded. The initial limit of The UIF funding was essentially used to reduce than 16% for the whole IDC portfolio of loans. just like the UIF.
them into investments. R100 million a client was also reduced to R50 million the cost of funding to clients. In other words, they are paid back. Mangope says a similar arrangement with that
This funding made up 17% of the IDC’s debt to spread the money as widely as possible. “If a client had to borrow, say, R100 million, from The project is also delivering job statistics to fund could be worth exploring.
financing at the end of March this year. Nevertheless, it has become a powerful addition to the IDC and they qualify under the criteria, they justify the small hit on its income that the PIC is “What is in it for them? It has to fit their mandate
More importantly, it plays a specific role due to the IDC’s arsenal because it allows the lender to give could get R50 million from the UIF. The weighted taking. for compensation.”
the low interest rate that comes with it and its very clients new concessional interest rates. average interest rate then falls. In total, as of March this year, 32 741 jobs were The IDC could very well channel money from that
simple and stringent criteria. The interest rates are low, with the IDC getting the “If your loan is R25 million, you could get all of it created and 21 644 were saved. This after 258 deals fund into hospitals or medical-supply manufacturing
The main criterion is jobs. UIF money at about 5%. More importantly, the IDC on UIF terms,” she says. “People tend to come in were fully or partially funded with UIF money. that directly suits their mandate, says Mangope.
Any applicant for funding from the UIF pool lends it on at only 1% more, cutting the usual fees. and say they want UIF and UIF only.” These outcomes are key to the UIF remaining a This project is reported by City Press and sponsored
needs to show their project will create or save jobs There is an understanding that the IDC will not The loans have evidently performed well. funder, which means the job statistics are rigorously by the IDC

The IDC and UIF partnership

Number of Total R3.96 Sectors funded
businesses 258 investment
funded since since billion Textiles Metals Chemicals Tourism Healthcare Mining Wood Agriculture
2010: 2010: Number of Number of Number of Number of Number of Number of Number of Number of
businesses: 50 businesses: 55 businesses: 46 businesses: 10 businesses: 15 businesses: 8 businesses: 24 businesses: 18
Number of jobs Number of jobs Investment value: Investment value: Investment value: Investment value: Investment value: Investment value: Investment value: Investment value:
created since 2010: = 1 000 saved since 2010: = 1 000 R378 million R984 million R564 million R56.71 million R350.78 million R406.71 million R373 million R359 million
32 741 21 644 Jobs created and Jobs created and Jobs created and Jobs created and Jobs created and Jobs created and Jobs created and Jobs created and
saved: 3 125
saved: 15 065
saved: 268
saved: 4 134
saved: 13 353
saved: 7 765
saved: 368
saved: 3 915
Where the businesses are
Gauteng KwaZulu-Natal Eastern Cape Western Cape Mpumalanga
Number of Number of Number of Number of Number of
businesses: 87 businesses: 40 businesses: 20 businesses: 57 businesses: 15
Investment value: Investment value: Investment value: Investment value: Investment value:
R1.474 billion R485 million R382.59 million R673.61 million R323.63 million
Jobs created and Jobs created and Jobs created and Jobs created and Jobs created and
saved: 17 451 saved: 5 489 saved: 4 509 saved: 17 113 saved: 2 981
THEUNS KRUGER, Graphics24