Caption Start-up finance: Geoffrey Qhena
The Unemployment Insurance Fund (UIF) is a vital part of the South African economic landscape. Providing assistance to people who have lost their jobs is a critical function in the current economic environment.
As part of its operations, the UIF has to invest the money it receives in order to achieve maximum efficiency.
In 2009 the UIF placed a R2-billion bond with the IDC to provide funding to businesses that will create and save jobs.
Of the now R3.5-billion available in this fund, the IDC has approved R2.9-billion since 2010, saving 18 463 jobs and creating 16 255 jobs. The total number of jobs both saved and created is 34 718.
Labour Minister Mildred Oliphant said that the cooperation between the IDC and the UIF demonstrated a serious commitment by government to deal with unemployment.
The UIF/IDC bond provides funding to both existing and start-up businesses.
Expansionary acquisition
IDC chief executive Geoffrey Qhena said the funding is targeted at start-up, expansionary acquisition and expansions of existing businesses.
"It is important that we partner with government to address unemployment in the country. This is a fundamental and sensible cooperation between government agencies," said Qhena.
The initial R2-billion UIF/IDC bond, which was offered to businesses at a fixed concessionary rate, will mature in 2015.
UIF commissioner Boas Seruwe said the good performance of the initial bond prompted the UIF to invest an additional R2-billion with the IDC, in four bonds of R500-million each.
"South Africa needs to create more job opportunities and investing in the IDC is a sure way of ensuring that the economy expands and creates more opportunities for employment. This is part of the UIF's contribution to government initiatives of getting South Africa to work by saving and creating jobs," he said.
This means, Seruwe said, that more revenue is contributed to the organisation and fewer claims are paid out to beneficiaries – a move he said will ensure the UIF's financial stability.
The focus of the fund has also shifted to assisting applicants outside Gauteng, the Western Cape and Kwazulu-Natal, as the remaining six provinces are the poorest in South Africa.
Under the original rules of the scheme the maximum amount per transaction was R100-million, but this has now been reduced to R50-million so that as many rural beneficiaries as possible may be assisted.
The criteria for funding under the IDC's UIF fund are:
- A maximum cost per job of
- R450 000;
- R50-million cap per transaction;
- Jobs must be created or retained in South Africa;
- Only debt instruments are being considered;
- Transactions can be funded on a stand-alone basis or on a co-funding basis with IDC or other institutions;
- Clients are expected to make their first drawdown within seven months after approval; and
- Pricing to clients is fixed at 6% for a period of time, after which it reverts to a concessionary rate linked to prime.
All 12 of the sectors supported by the IDC qualify for funding under the scheme with companies in all sectors having taken advantage of the fund. However, companies from the metals, chemicals and textiles sectors make up 61% of the portfolio in numbers and 52% in the value of approvals.