Government’s role in supporting
social investments
SHILUBA MAWELA CA(SA) Managing Partner: Tshiamo Impact Partners – an impact advisory and impact fund management firm
In South Africa, many efforts support investment into SMMEs. These include initiatives and programmes administrated or supported by public institutions and development finance institutions like the Development Bank of Southern Africa (DBSA) and the Industrial Development Corporation (IDC), which recently launched the Township Economy Partnership Fund (TEPF). There has also been great traction with the Start-Up Act which has been proposed to ‘fast-track development of the start-up sector and spur innovation’.
National government can leverage its power by promoting investment in social enterprises or social investment platforms. Social investments provide critical capital that enables social organisations to deliver both social and financial returns. The investment is repayable thus ensuring sustainability and scalability.
Currently, there is no overarching policy or legislative framework that governs social or impact investing in South Africa. Various stakeholders are lobbying for such change, including the National Taskforce for Impact Investing South Africa (IISA), whose key membership groupings include representatives from government, foundations, capital providers, impact measurement and monitoring organisations, along with impact investment organisations.
South Africa only has two main legal classifications: profit entities and non-profit entities. Entities that have the objective to create both a social and financial return are forced to either form parallel structures or explore PBO structures or small business funding entities (that both have limitations as it relates to permissible investment activities to generate sustainable revenue).
Other jurisdictions around the world make provisions for social investments. For instance, the United Kingdom has a social investment strategy overseen by the Cabinet Office Social Investment and Finance team that supports over 180 000 social enterprises, which represent 15% of all SMEs, and contribute at least R1,1 trillion to the economy whilst employing two million people (OECD Report). This work is coordinated and facilitated in collaboration with several players such as DFIs along with the Trade and Investment Office, which enables an estimated 37% of these social enterprises to work in and with the most deprived communities (British Council).
Critical to the advancement of social or impact investments is the need to better align and enable the supply of this capital with demand-side opportunities that can enable the attainment of both social and financial returns. The public sector has an opportunity to promote social investment by proposing the necessary legislative change to drive social investment and collaborations. With the rising unemployment numbers, now at a desperate high of 35%, social enterprises that are key job creators are the low-hanging mechanism to solve social issues. Social investment offers the archetypal and dexterous David-esque solution to a Goliath-sized problem.
In Brief
Government’s role in supporting the social enterprise ecosystem is fundamental. Social enterprises have clear characteristics: they have a clear social purpose, they generate a significant portion of their income from trading, and they reinvest the majority of their profits in social missions. Social enterprises mobilise entrepreneurial skills in the private sector with the values and ethos of the public sector. Value and values need not be in conflict
