Nxesi orders judicial review of R5bn investment awarded by UIF

Employment & labour minister Thulas Nxesi has ordered a judicial review of the Unemployment Insurance Fund’s (UIF) controversial award of a R5bn investment in a company, Thuja Capital, which at the time existed only on paper.

Nxesi has ordered the review with a view to setting aside the award, intended for a job creation scheme and decided upon without due diligence, after a Sunday Times investigation into the matter.

On Monday evening, Nxesi’s office confirmed he recently received a 225-page forensic report into the proposed R5bn transaction and it made damning findings, including that the UIF had not followed processes when striking the deal.

The investigation followed a Sunday Times report in December last year about the scheme which would have benefited Mthunzi Mdwaba, the chair of the board of Productivity South Africa — another state institution that falls under Nxesi’s department — and his musician son, who is also a director in Thuja Capital.

At the time, UIF commissioner Teboho Maruping and the director-general of the department of employment & labour Thobile Lamati confirmed the deal to the Sunday Times, saying the rationale for the huge investment was for Thuja to invest in established companies and influence them to train and employ more people.

They also defended their decision to commit R5bn to what they admitted is an “untested concept”.

Besides the court application to reverse the funding decision, Nxesi has also instructed his department to begin “consequence management” for staff found wanting in the awarding of the contract.

“The minister has asked the responsible person/s to furnish him with written reasons why he should not suspend them,” Nxesi’s office said .

It is understood that among those he has asked for reasons not to suspended them — the first step in a disciplinary process — are Maruping and Lamati.

Lamati was not immediately available for comment.

Maruping said: “I am not aware of the developments on the report and so far I have not received any communications from the minister. I think it’s best you speak to the minister.”

Nxesi said: “I have no doubt in my mind that consequence management must be implemented to prevent further waste of state resources. The employer/employee processes will ensue henceforth and consequently we are unable to divulge details until internal processes are concluded.”

Among further measures the department says Nxesi intends taking in line with the forensic investigation’s recommendations is more stringent due diligence to be conducted on proposals and a new declarations regime for officials who sit on adjudication and evaluation committees.

In January, following the Sunday Times report, Nxesi ordered the R5bn transaction to be suspended and an independent forensic investigation conducted.

“The minister has read the report, which reveals serious allegations of irregularities in the process of the appointment of Thuja Project by the department,” his office said.

“The report has found and established that the senior officials of the department and the UIF failed to ensure that the UIF maintained an effective, efficient and transparent systems of financial and risk management, including internal controls, and an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost-effective.

“After considering the media reports and calls by among others Cosatu, and following initial probing, the minister further established that approvals by the UIF governance processes, including the interim Labour Activation Programme (LAP) National Adjudication Committee (LNAC), were not obtained and consequently instructed the accounting officer to suspend the implementation of the project and to stop any contemplated payments to Thuja,” Nxesi’s office added.

The statement by Nxesi’s office said that he had shared a copy of the report with President Cyril Ramaphosa as well. 

In December the Sunday Times reported that UIF insiders alleged that Mdwaba received preferential treatment despite his job creation concept not being properly evaluated, and after it has been rejected by the traditional state development finance institution, the Public Investment Corporation. 

The whistle-blowers also accused Lamati of pressuring the UIF to clinch the deal, going as far as saying the Industrial Development Corporation (IDC) performed due diligence and was happy with the concept, when it did not.

At the time of publication both Maruping and Lamati defended the decision saying, though the idea had been untested, it had the potential to alleviate the country’s unemployment crisis. There was nothing untoward about the deal, they said at the time.

The two also said the UIF, which did not have the capacity to conduct proper due diligence, would have done due diligence after paying the R5bn over to Mdwaba. 

The R5bn would have gone towards starting Thuja’s operations, investment in listed and unlisted companies, with the hopes of using the equity to push for companies to employ more people, and unsecured grant funding for the unemployed to start businesses. In return, the UIF would have received a 19% stake in the companies Thuja invested in, including an unnamed bank, and an insurance firm. 

At the time of publication, Lamati defended Mdwaba’s track record as an entrepreneur and global vice-chair at the International Labour Organisation. He also denied any conflict between his work at Productivity SA and Thuja.

At the time, Mdwaba declined to comment at the time for confidentiality reasons.

“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.

This is a developing story. Comment from Mdwaba, Lamati and Maruping will be added as soon as it becomes available.

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