The department of employment and labour and the Unemployment Insurance Fund (UIF) are gambling R5bn of workers’ money by investing in a company with no premises, website or track record.
By March, and without due diligence, the two plan to invest the first R2bn in Thuja Capital Fund, which exists only on paper.
The department and the UIF intend paying the full R5bn by the end of 2023, after concluding the deal against the recommendation of an internal adjudication committee.
Critics have questioned the wisdom of proposal, describing it as a “get-rich-quick” scheme and said it seemed “rigorous processes” were being avoided. But the planners are adamant that it will create jobs.
Thuja is part-owned by Mthunzi Mdwaba, chair of Productivity SA, a department entity tasked to save jobs and up productivity. Thuja’s other two directors are Mdwaba’s son Litha, a rapper, and Alta Roets.
Department and UIF insiders alleged Mdwaba received preferential treatment despite his concept not being properly evaluated.
They also accused the department’s director-general, Thobile Lamati, of pressuring the UIF to clinch the deal, going as far as saying the Industrial Development Corp (IDC) performed due diligence and was happy with the concept, when it did not.
The UIF confirmed the first R2bn will be paid to Thuja in the first quarter of 2023 and will be used to start its operations. Another R2bn will be paid in the second quarter and the remaining R1bn in the third.
In return, the UIF has been promised a 19% stake in companies Thuja invests in, including R1bn destined for investment in, among other businesses, an unnamed bank and insurance firm.
Another R2.5bn will be spent on unsecured grant funding for unemployed people to start businesses, while the remaining R1.5bn will ostensibly be used to provide loans to businesses and entrepreneurs.
Lamati and UIF commissioner Teboho Maruping told the Sunday Times this week that the rationale for the huge investment is for Thuja to invest in established companies and influence them to train and employ more people.
For far too long the UIF has been playing fast and loose with money
— Cosatu’s parliamentary co-ordinator, Matthew Parks
They said there is nothing untoward about the deal and they will perform due diligence after the money is paid and the plan actioned.
They defended their decision to commit R5bn to what they admitted is an “untested concept”.
They admitted Thuja’s scheme had been rejected by the Public Investment Corp (PIC), which invests UIF funds, after they referred the company to it for funding.
By March last year, the UIF had R116bn under management by the PIC.
Instead, the two predicted the plan will create 200,000 jobs and R16m a month in new UIF contributions.
“Risks will always be there, even if you do a proper due diligence,” Lamati said of the proposal he approved on December 18.
He said the UIF did “not have the capacity” to conduct due diligence on the “unique” proposal, but the prospect of helping millions of young South Africans get jobs is too good to pass up.
“We decided that instead of being risk averse, we will go ahead with this project because of its potential. We may be wrong or we may be right, but we think young people need employment. Once this thing has started, we will be in a position to do our own due diligence … because there’s no way you will know this thing is going to work unless the entities that are going to be acquired are acquired,” he said.
Maruping added that when the agreement was signed, the UIF did not know which bank or insurer Thuja would invest in because it was commercially sensitive information. “Some of the things they couldn’t disclose,” he said.
Lamati and Maruping said they relied on section 5(d) of the Unemployment Insurance Act, which says the fund should be used to create and retain jobs and train workers.
Thuja is one of many private companies that responded to the department’s 2019 call for proposals to train unemployed people and place them in jobs under the UIF’s labour activation programme (LAP).
In November, the Sunday Times reported that in another LAP scheme, Fuze Institute for Humanitarian and Development Praxis, was paid R344m to train more than 14,000 school feeding scheme handlers who already had jobs.
The UIF and department insiders said the Thuja investment is a “joke”.
“Internally, the UIF’s LAP adjudicating panel did not support the application because it was nothing more than a concept and did not have its own funds. But they were overruled by the commissioner and the director-general because they said it would create jobs,” an insider said.
“It’s not even clear how investing in these companies will assist with job creation because an investor in a business can’t simply force it to employ people. What about the other partners? This simply can’t work.”
Lamati said unemployment is a crisis and requires unorthodox solutions. He accused UIF officials of being slow to conclude approved applications.
Despite insiders’ misgivings, Lamati wrote several letters to the department and the UIF 'directing' that the agreement be concluded and payment made
“You have 11-million unemployed people in this country and you have an opportunity to impact on this. Government officials are dilly-dallying and act as if they don’t know what they’re supposed to do,” he said.
Despite insiders’ misgivings, Lamati wrote several letters to the department and the UIF “directing” that the agreement be concluded and payment made.
On September 21, he suggested the IDC backed the deal. “After a rigorous examination of the concept and ecosystem, the IDC has expressed satisfaction at the prospect of the project and its potential to deliver on employment creation and enterprise development,” he wrote.
But IDC COO Joanne Bate denied this: “The IDC was approached by the UIF to assist in performing a due diligence for an ecosystem opportunity focused on job creation that the UIF had expressed interest in funding. The IDC was not in a position [to] assist. The corporation does not conduct due diligence exercises on behalf of third parties.”
In November, Lamati wrote to Maruping to say the Thuja agreement must be finalised and the first R1bn paid by December 1 2022.
Maruping said what made Thuja’s proposal enticing for the UIF is that it concluded an agreement for the R5bn investment to be matched by the Swedish government.
Lamati defended Mdwaba’s track record as an entrepreneur and global vice-chair at the International Labour Organisation. He denied any conflict between his work at Productivity SA and Thuja.
Mdwaba said for confidentiality reasons, he cannot detail how his company will increase and save jobs or how the R5bn will be used.
“There is no way I can answer it without unpacking our business model, which we are not ready to do until we finalise our partnerships. We, as a country, have failed in creating jobs and what we need is innovative, disruptive and creative models to change things and ensure impact,” he said.
Cosatu’s parliamentary co-ordinator, Matthew Parks, said: “For far too long the UIF has been playing fast and loose with money.”
Zwelinzima Vavi, general secretary of the South African Federation of Trade Unions, said: “How are decisions that impact or deploy R5bn taken when there is no due diligence or any sort of security? And why is the UIF investing in companies when the IDC and the PIC are there? It seems they are avoiding the rigorous processes and balances a R5bn investment requires.”
Economist Duma Gqubule said the Thuja plan was a “crazy scheme. The UIF has got a surplus of R83bn and they don’t know what to do with it.”
He added it could recapitalise the jobs fund, or be invested in the expanded public works programme and the Presidential Employment Stimulus plan.
“These are the three major public employment programmes which have shown capacity to create jobs at a larger scale.”
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