Business Maverick


After the Bell: The weird problem of SOEs that are too successful

After the Bell: The weird problem of SOEs that are too successful
People line up outside the Department of Labour in Cape Town during the Covid-19 pandemic on 3 May 2021. (Photo: Leila Dougan)

After the success of the pandemic’s Temporary Employer-Employee Relief Scheme, clearly some people in the Unemployment Insurance Fund wondered if there wasn’t a way to dip into the fund which was spewing money around so lavishly that people might not notice.

We all know about state enterprises that fail because they run out of money. (Hello, SAA, et al.) What we know less about are state enterprises that fail because they accumulate capital. Sounds bizarre, doesn’t it?

But if you have an organisation which is designed to perform a social function, and it fails to perform that function while its income stream remains static, then effectively it just ratchets up its balance sheet over the years.

The result, an organisation with too much money, is an unfamiliar phenomenon. This is somewhat visible in national roads SOE Sanral, which is a perennial underspender. But the best example here is the Unemployment Insurance Fund, which the Sunday Times reported late last year tried to engage in a wild investment scheme. The scheme didn’t get off the ground and the story is in the news again this week because finally, a year later, the director-general of the Department of Labour and Employment, Thobile Lamati, has been booted out, one assumes for trying to force the scheme through.

SA does not have a state unemployment scheme, but it established decades ago an unemployment insurance scheme which is intended to assist for a limited period people who lose their jobs. Employers and employees pay a small contribution every month directly to the scheme; you may see the subtraction on your payslip.

Because the scheme, which is run under the auspices of the Department of Labour, has been running for so long, it has gradually built up a healthy balance sheet, arguably, too healthy. Before 2021, the fund had assets of around R154-billion, and typically paid out about R8-billion a year.

During the Covid pandemic, the fund was used as an emergency dispersal mechanism, and in total, it paid out a huge whack of its fund, around R50-billion in total, to try to mitigate the unemployment effects of the crisis. Referred to at the time as the Temporary Employer-Employee Relief Scheme (TERS) payments, it was a huge success and the scheme has now been taken over by the State to form part of the social grant system.

Having that huge lump of cash available for quick disbursement hurt the UIF, but made a noticeable difference to the lives of almost a quarter of the population of SA. The UIF fund is managed by the Public Investment Corporation, which means it’s effectively invested in corporate SA.

Even after the big payout, the UIF’s balance sheet seems to me to be pretty healthy. Its assets are now back to over R100-billion and since it is paying out less than the average annual JSE return, you would think it’s pretty solid. This is unless you believe SA has an unemployment problem, in which case you might wonder if the paperwork involved in getting a UIF grant was so difficult and inefficient that its healthy status is baffling and maybe kinda fake.

Anyway, after the success of TERS, clearly some people in the organisation wondered if there wasn’t a way to dip into the fund which was spewing money around so lavishly that people might not notice. So according to the Sunday Times report, a scheme was devised to make a R5-billion investment in a business established just a few weeks before by the then-head of Productivity SA Mthunzi Mdwaba.

The idea was that Mdwaba would invest in companies on behalf of the fund to boost employment. Simple as that. Mdwaba has a long history as an entrepreneur and why he would throw away his reputation on this kind of scheme, I have no idea. There was a midnight scramble to sign off on the project and a desperate attempt to pay the first R2-billion tranche, but it was all reversed earlier this year by Labour Minister Thulas Nxesi. Good for him; an honest minister. What a joy. He should get a medal. Wait a minute; ministers are meant to be honest, I almost forgot. Hard to remember these days.

But I do find the proposed terms of the agreement amusing. For its investment, the UIF would get a 19% stake in the company called Thuja. The idea was that for the first tranche, R1.5-billion would be a loan, and R2.5-billion grant funding. I mean, you can’t make this stuff up. Couldn’t they have negotiated hard, I mean really hard, for, say, a 20% stake? As the provider of, you know, all the money.

Anyway, the larger significance of the whole debacle is that this has all happened notionally post the State Capture/Zondo commission period. But this incident is clearly informed by the State Capture methodology. Nobody seems to have learnt a thing: it’s all still with us. They caught this one, but how many have they missed?

It’s shameful. DM


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