Description
Interest in social enterprise in South Africa is growing and we are seeing an increase in activity in the space.
Directors: GG Gomwe (chairman), AH Arnott (non-executive), NB Gxumisa (non-executive), TW Henry,
P Rungasamy (non-executive)
6
th
floor, 28 Harrison Street, Marshalltown, J ohannesburg, South Africa
PO Box 61593, Marshalltown, 2107, South Africa
Telephone: +27 (0) 11 377 7300 / Facsimile: +27 (0) 11 834 3682
Social Enterprise Development in South Africa - creating a virtuous circle
Compiled for
Tshikululu Social Investments
By
Bridget Fury
Social Enterprise Development in South Africa – creating a virtuous circle
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This document is proprietary to Tshikululu Social Investments. Content may not be republished in whole or in part without without due knowledgement
given to Tshikululu Social Investments.
Table of Contents
1. Executive summary ......................................................................................................................... 3
2. Introduction ...................................................................................................................................... 4
3. What is meant by social enterprise in South Africa......................................................................... 5
3.1. Towards a workable definition................................................................................................. 5
3.2. Players in the Social Enterprise space ................................................................................... 6
3.2.1. International ..................................................................................................................... 6
3.2.2. African / South African initiatives ..................................................................................... 8
3.2.3. Business Schools ............................................................................................................ 9
3.2.4. Support for entrepreneurs with a development focus ..................................................... 9
3.2.5. Support for entrepreneurs with a social enterprise focus.............................................. 10
3.2.6. Business Development Service (BDS) providers .......................................................... 11
3.3. State initiatives ...................................................................................................................... 12
3.4. Enterprise Development ........................................................................................................ 12
4. The policy environment ................................................................................................................. 13
5. The opportunity to create a virtuous circle .................................................................................... 15
Social Enterprise Development in South Africa – creating a virtuous circle
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This document is proprietary to Tshikululu Social Investments. Content may not be republished in whole or in part without without due knowledgement
given to Tshikululu Social Investments.
1. Executive summary
Interest in social enterprise in South Africa is growing and we are seeing an increase in activity in the
space. The impetus for this interest is in part driven by perceived advantages that social enterprise
has: over government - in efficient delivery of services; over conventional business - on trust,
accountability, and purpose; and over charities and NGOs - due to financial sustainability and access
to capital. And it is in part driven by the BBBEE regulations which place an increased emphasis on
supporting enterprise development.
There is a growing body of work which supports the role of social enterprise, but in South Africa the
concept is still relatively new and as such is not well understood. Social enterprise and social
entrepreneurship are often used interchangeably, despite some clear differences, and definitions of
social enterprise can be contentious.
There is anecdotal evidence which suggests that the idea of “social economy” is gaining a higher
profile at the most senior levels of the South African government, with issues tabled at Cabinet
meetings on the role of the “social economy”. Social enterprise is seen as a part of the “social
economy”. There are also moves being made by the likes of Small Enterprise Development Agency
(SEDA), the National Youth Development Agency (NYDA) and other government bodies to better
understand and support social enterprise development and social entrepreneurship more generally.
Corporates have to date largely focused on what they see as two separate and distinct areas –
enterprise development and CSI - aspects of both of which are encompassed in the concept of social
enterprise. In terms of enterprise development, the B-BBEE legislation allocates 15 scorecard points
to companies which invest 3% of post-tax-profit for this purpose. This is three times the number of
points which are allocated to CSI spend under the socio-economic development (SED) category.
Investing in social enterprise development therefore may present an opportunity to support both
enterprise development while at the same time fulfil the criteria for SED. This has the potential to
create a virtuous circle in which financially sustainable enterprises can be stimulated, which tackle key
social issues and, assuming the B-BBEE frameworks can be tweaked to take this hybrid approach
into account, provides an added incentive for the private sector to invest in social enterprise
development with a potential full 20 point reward on the B-BBEE scorecard.
Social Enterprise Development in South Africa – creating a virtuous circle
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2. Introduction
During 2010, a scoping exercise was undertaken by Bridget Fury for Tshikululu Social Investments, to
better understand the state of social enterprise development in South Africa.
The scoping project included the following key areas:
• What is meant by social enterprise in South Africa, and how is this different from enterprise
development and from corporate social investment and where, if any, are there overlaps;
• What organisations – private and public, local, national and global are operating in social
enterprise development in South Africa and what do they do;
• What is the policy environment in which social enterprises operate;
• What, if any, opportunities exist for corporate social investment spend to be used in support of
social enterprise development.
In completing the work, a range of research methods were used which included extensive desk and
web-based research, interviews with more than 30 individuals, representing a range of organisations,
and participation in group workshops hosted by third party organisations.
Social Enterprise Development in South Africa – creating a virtuous circle
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3. What is meant by soci al enterprise in South Africa
There is no existing South African policy on social enterprise, nor is there a legal definition.
However, there are many existing policies, regulations and initiatives which have a direct bearing on
social enterprise development, which include registration and obligation of companies and Non-profit
organisations; tax law; B-BBEE, CSI, Enterprise development, and provision of business development
services.
3.1. Towards a workable definition
“A social enterprise’s primary objective is to address social problems through a financially sustainable
business model where surpluses (if any) are mainly reinvested for that purpose”
The above definition was adopted as a working definition for social enterprise in South Africa at a
National Conference on the enabling environment for social enterprise development in South Africa,
hosted by the ILO in October 2009.
It is however, by no means an agreed definition. While the first two elements of the definition – that it
has a core social purpose and is financially sustainable are accepted, it is the point about whether to
restrict the definition to include only those enterprises where “surpluses ... are mainly reinvested” that
is unclear, as this potentially excludes a number of for-profit enterprises which have at their core a
social mission.
Other issues which continue to be debated are a) how we understand intent with regard to the primary
objective of a business and, b) how to measure social impact.
Without a definition, it is difficult to address legal and regulatory issues; however we risk being
hamstrung by detailed conversations about wording and meaning and need to have something that is
workable.
Adding to the confusion are differences between the concepts of social entrepreneurship and a social
enterprise, which are often used interchangeably. They can be quite different – social
entrepreneurship is involved with creating innovative solutions to social problems, but not necessarily
business-like ones, (social entrepreneurs are often social change agents, not people running
enterprises) and a social enterprise is usually taken to operate according to a sustainable business
model.
Where there is some consensus, it is that there should be three elements which make up the working
definition for social enterprise in South Africa and they are:
? Has a primary social purpose – has a clearly stated social purpose as its core objective;
? Uses a financially sustainable business model – has a realistic prospect of generating sufficient
income to exceed costs, now, or at some point in the future; and
? Is accountable and transparent – has a mechanism for ensuring accountability to its beneficiaries.
In South Africa, using the above definition, social enterprises can and do currently exist as Section 21
non profit organisations, as trusts and voluntary associations, as CCs and as companies.
Social Enterprise Development in South Africa – creating a virtuous circle
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In defining what a social enterprise is, it is also important to know what it is not. A social enterprise is
generally considered not to include the following:
? A corporate entity or a subsidiary thereof is not a social enterprise; and
? A business whose purpose is solely profit maximisation, even if it is creating social value, is not a
social enterprise.
3.2. Players in the Social Enterprise space
The ILO research found that one of the problems relating to capacity building for social enterprises is
that no reliable database is available for the identification of role players in the social enterprise
space.
There is however work currently being undertaken to try to rectify this. Two such initiatives are the
African Social Entrepreneurs Network (ASEN) and the South African Social Stock Exchange (SASIX)
project being spearheaded by Greater Good SA.
Other informal initiatives are bringing together various parties interested in social enterprise, including
those at various business schools, the ILO, World Bank and others. There is, as yet, no definitive
resource which is available and this is partly due to the confusion around the concept and an absence
of a clear delineation about what is considered in (and what is outside) the space, with a great deal of
overlap with enterprise development, Corporate Social Investment, microfinance, commercial
banking, and so on.
Below is a brief description of some of the key players in this space and the role / function they
perform. This is not a definitive list, but seeks to cover the range of different constituencies which are
currently represented:
3.2.1. International
Schwab Foundation
Represented in South Africa by Dr. Francois Bonnici, himself a social entrepreneur, the Schwab
Foundation is concerned with creating links with and between social entrepreneurs and, through the
World Economic Forum (WEF), facilitates high-level access to government, funders, and professional
services.
The Schwab Foundation uses the regional and global WEF meetings to bring together leading social
entrepreneurs, and supports the growth and development of social entrepreneurs by sponsoring
scholarships to Universities in the US, UK and Europe, by sponsoring awards for social
entrepreneurship (Ernst and Young World Entrepreneur Competition) and by encouraging peer-to-
peer learning and building partnerships.
Aspen Network of Development Entrepreneurs (ANDE)
ANDE is a global network of organisations that invest money and expertise in order to encourage
entrepreneurship in emerging markets. It is a membership-based organisation which is focused on
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small and growing businesses that create economic, environmental, and social benefits for
developing countries.
ANDE aims to be the key convener of small and growing businesses in developing markets with a
focus on finding the so-called “missing-middle” – that space representing the disparity between
investments in small businesses as compared to other business in emerging markets.
ANDE members with direct links into South African social enterprise include:
? TechnoServe;
? Endeavor; and
? Heart Social Investments.
Skoll Foundation/ Skoll Centre for Social Entrepreneurship
The Skoll Foundation seeks large-scale change by investing in, connecting and celebrating social
entrepreneurs and other innovators dedicated to solving the world’s most pressing problems.
The Skoll Awards Programme is the Foundation’s flagship investment initiative through which it
provides social entrepreneurs, whose models for sustainable change have already yielded significant
impact, with unrestricted funding to scale their programmes and amplify their reach across regions,
countries and continents.
The Skoll World Forum takes place annually in Oxford and has become one of the leading forums for
bringing together key stakeholders from around the world to help support social entrepreneurship.
Ashoka
Ashoka is best known for its Fellows - individual social entrepreneurs who are recognised for their
contribution as change makers in society. Through the Ashoka network, they are able to gain access
to programmes which support their efforts, from a three year stipend which enables them to focus full-
time on developing their ideas, through mentorship, BDS and other professional support, and through
the Ashoka network to share ideas, leverage from one another and develop best practice.
Ashoka also focuses on capacity building and support for civil society through NGO peer learning and
advocacy; and has a Youth Venture programme empowering young people (12-24) involved through
teams.
World Bank Institute
The EVOKE project was developed by the World Bank Institute after a series of conversations with
African stakeholders about how to develop the right skills which meet industry demands by engaging
young people in real world problems in order to develop their capacities for creativity, innovation and
entrepreneurial action.
EVOKE uses a social networking platform to enable the “game” to be played – online and on mobile
phones – in which the “textbook” takes the form of an online graphic novel set in the year 2020.
During each of the 10 weeks that that game runs, the players are guided though a process by which
they learn to form their own innovative networks, brainstorm solutions to real-world development
problems and discover how to be a successful social incubator.
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EVOKE attracted more participants at its launch than it had anticipated and has therefore achieved
one of its aim - of encouraging more young people to think about finding sustainable solutions to
social problems. What it does point to, is the growing interest in social enterprise development within
multi-lateral organisations such as the World Bank Institute.
3.2.2. African / South Afri can ini tiatives
ILO – SETYSA (Social Entrepreneurship development targeting unemployed youth in South Africa)
As part of the ILO’s work on job creation, SETYSA is supporting a programme of research and policy
dialogue intended to strengthen the capacity of South African institutions to understand the concept of
social enterprise development.
As part of the project, SETYSA has supported the following programmes of work:
? research by the University of J ohannesburg on the enabling environment;
? International research into initiatives to create an enabling environment from experiences of other
countries;
? Community-level research on the potential for social enterprise in two pilot geographical areas;
? Research by the South African Institute of Entrepreneurship on existing and potential market for
social Business Development Services (BDS);
? A study visit for South African policy makers to learn from other countries;
? Various policy dialogues and e-conferences; and
? A National conference on the enabling environment for social enterprise
Following from this work, mostly carried out in 2009, a group has met to discuss financing for social
enterprises and a research programme to better understand the gaps in knowledge. This work is
ongoing.
ASEN and SASIX are also represented on this forum and the ASEN platform is being used to collate
and share existing resources on what financing is available for social enterprise development.
African Social Entrepreneurs Network (ASEN)
Through the use of an online platform, ASEN aims to provide Social Entrepreneurs with an
opportunity to collaborate and access resources though an online “marketplace” where players can
provide information on themselves (social entrepreneurs, intermediaries, the private sector, other
investors, etc.) and share ideas, challenges, and access resources.
The platform is membership based and driven and its initial focus has been on providing for the needs
of the social entrepreneur, rather than a “marketplace”. There is some overlap with what SASIX is
launching (see below), but there may well be a continued role for ASEN as a membership driven
organisations which supports the social entrepreneur and in particular, if it can develop a
comprehensive database of service providers into the social entrepreneurship / social enterprise
space, as a one-stop shop.
South African Stock Exchange (SASIX)
Research is currently being undertaken by the South African Network for Impact Investing, the
Business Trust and the J ohannesburg Stock Exchange to assess the feasibility of launching the
world’s first fully independent social stock exchange in South Africa. This would provide a mechanism
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for social purpose entities (social enterprises) looking to raise capital, to connect with socially
conscious investors looking to invest, while providing the rigour of certain listings requirements and
associated accountability.
As phase one of the project, SASIX is seeking to create a database of all interested parties, to include
social purpose entities, intermediaries and asset owners or managers. This has been launched and is
currently being populated.
Whether it is possible to create a functioning social stock exchange remains to be seen – there have
been attempts made elsewhere in the world with little success as the demand has never been
sufficient – but cataloguing the information will be a useful exercise in itself.
3.2.3. Business Schools
There is growing recognition in South Africa of the role that business schools must play in both
research into the role of social enterprise and preparing more social entrepreneurs / social enterprises
for the market. Most business schools now offer or are looking at offering specific courses on social
enterprise development, and some of the main players include:
Centre for Social Entrepreneurship, University of Johannesburg (ULJ)
Headed by Susan Steinman who has recently been involved in conducting research around the
enabling environment for social enterprises in South Africa as part of the ILO project, UJ will also be
hosting the The Social Enterprise World Forum in April 2011.
This is the first dedicated Centre for Social Entrepreneurship and together with the central role played
in the ILO research, has given Susan first mover advantage in the academic response to social
entrepreneurship.
Gordon Institute of Business Science (GIBS)
GIBS run a Social Entrepreneurship Certificate Programme which is aimed at social entrepreneurs
and leaders and managers of NGOs. Teaching on the course is delivered by both academics and
practitioners.
GIBS also have an important Bottom of the Pyramid work stream into which some of the research
themes relating to social enterprise development currently fit.
UCT Graduate School of Business (GSB)
The GSB is doing some work around social entrepreneurship through its existing centres: the
Raymond Ackerman Academy of Entrepreneurial Development and the Centre for Innovation &
Entrepreneurship. It is also in the process of launching a Centre for Social Entrepreneurship.
3.2.4. Support for entrepreneurs with a development focus
Enablis South Africa
Enablis South Africa was the first regional hub in the Enablis network, with offices across South
Africa.
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Enablis is a Canadian not-for-profit organisation which supports entrepreneurs in developing countries
who share similar values and who believe in the importance of small-to-medium enterprises for
poverty reduction and sustainable development.
Enablis has three key areas of focus:
? Entrepreneur development;
? Business Support and peer learning; and
? Funding opportunities.
In South Africa, Enablis has developed partnerships with Khula Enterprise Finance (an independent
agency operating under the auspices of DTI to provide funding to small businesses) and FNB though
the Enablis Khula Loan Fund and Khula Enablis SME Fund.
Endeavor
Endeavor is a global non-profit organisation that finds and supports innovative, high-growth
entrepreneurs in emerging markets, including South Africa. Most entrepreneur candidates lead
companies with at least R3m in revenues, but Endeavor seeks entrepreneurs at varying stages so
long as they are at a “tipping point” at which Endeavor can help the entrepreneur reach new levels.
Endeavor South Africa partners with corporates, enterprise development funders, financial supporters
and suppliers, including Deloitte, FNB, Discovery, Ernst and Young and Dell.
3.2.5. Support for entrepreneurs with a social enterprise focus
TechnoServe
TechnoServe is a US-based, donor-funded organisation which has traditionally focused on
agribusiness opportunities and the supply-chain. They are currently undergoing a complete review of
the current strategy for South Africa – looking to take advantage of their successful track record of
providing business turnaround support, which includes developing market linkages, securing access
to finance and transferring skills to rural entrepreneurs.
TechnoServe is actively looking at ways in which to engage with the corporate sector to help deliver
social enterprise development, with a particular focus on those industries in and around rural
communities and in support of entrepreneurship.
Heart Global
Heart was the first organisation in South Africa to set up an incubator that is explicitly focused on
social enterprises. They aim to do two things:
1. To incubate start-up social enterprises through seed, venture and capital phases of
development; and
2. Provide specialist fund management services to socially and environmentally conscious
investors, and to use funds raised to provide BDS to social entrepreneurs.
UnLtd South Africa
A very recent entrant to the South African market, UnLtd South Africa aims to provide support to
early-stage social entrepreneurs, by finding and supporting exceptional individuals with a 50%
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financial reward and with 50% technical support, often provided through existing BDS suppliers such
as Black Umbrellas and the Business Place.
UnLtd has identified the most important gaps in support for social enterprises and is focusing initially
on level one in South Africa, with a view to moving up through the value chain to plug the gaps known
as the “missing middle” – that which exists between a survivalist businesses and those that are
investment ready.
UnLtd’s Heather Brandon and Kathy Watters are currently involved in developing a measurement and
evaluation framework to be used to measure social impact and this is due to be rolled out and tested
from late 2010.
3.2.6. Business Development Service (BDS) providers
BDS providers offer a combination of the following services, often through a drop-in centre. Some also
act as an informal conduit to access financing:
• Marketing;
• Legal advice;
• Accounting services;
• Financial advice;
• Business advice;
• M & E of projects;
• Business plan support;
• Project management; and
• Links to business opportunities.
The Business Place
Started by Investec, the Business Place has a network of drop-in hubs across South Africa which
provides BDS services to both entrepreneurs and social entrepreneurs, which include, at the most
basic level, access to computer facilities, the internet and a business library and at a more advanced
level help in developing skills and business plans.
The Business Place has a good infrastructure and reach, and has been involved in partnering with the
ILO and UnLtd on running business plan competitions for social entrepreneurs.
Shanduka Black Umbrellas
Shanduka Black Umbrellas is a non-profit company involved in the support of emerging black
business through enterprise development. Members are provided with a working environment and
support services that will enable them to thrive. For a nominal monthly fee, depending on the size and
maturity of the business, a range of BDS services are available over a three year period.
Shanduka Black Umbrellas has a range of financing options through which it supports itself which
include money from enterprise development budgets to a loan guarantee fund which it has
established with ABSA.
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Raizcorp
Raizcorp is a for-profit business which supports entrepreneurs through its 3-year programme which
includes rigorous selection, learning (through an accredited University programme), and mentoring
(guiding).
Raizcorp uses a partnership model in which it takes an equity stake in all businesses that enter the
programme through Raizcorp’s selection process. However, currently some 75% of its business is
enterprise development “bursary” funding from corporates, who outsource their enterprise
development to Raizcorp.
3.3. State initiatives
There are a number of government initiatives in place to support SMMEs, either through the provision
of BDS or access to finance through micro-loans or both. None of these has a specific social
enterprise focus, but as part of the policy debate, there is interest being generated around creating
social enterprise-specific funds.
Some of the agencies involved include SEDA (Small Business Development Agency), COMSEC
(Community Self-Employment Centre), the NYDA (National Youth Development Agency) and
IDC.
3.4. Enterprise Development
There are also a raft of for-profit consultants working in enterprise development – from BBBEE
specialists, to venture and private equity plays who are interested in taking advantage of the
enterprise development budgets available.
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4. The policy environment
The ILO, together with a range of partners, has initiated a policy dialogue on the enabling
environment for social enterprise development in South Africa. This work, which was supported by
research conducted by Susan Steinman’s team at the University of J ohannesburg, culminated in a
National Conference in October 2009 at which various recommendations were made intending to
promote access by social enterprises to affordable finance.
Some of these included:
? Encouraging the Government to stimulate the market for finance for social enterprises;
? Encouraging the development of intermediaries and products that can link investors with
appropriate social enterprises; and
? Exploring the establishment of a Risk Guarantee Fund to stimulate access to commercial finance,
and a Social Enterprise Fund (which might reside in the IDC, or a similar body), to provide capital
specifically for social enterprises.
Minister of Economic Affairs, Ebrahim Patel, announced early in 2010 that a percentage of pension
fund investments would be earmarked for investment in economic development, proving a potential
R70 billion pot for businesses with a social mission.
However, the mechanisms for investing this money do not currently exist, nor is it clear whether there
is full acceptance of this proposal within government. What it does signal is a desire, at least in some
spheres of government, to look at ways of stimulating sustainable social enterprise development.
The concept of the role of the social economy in development also appears to be resonating more
often within senior Government circles.
The ILO describes the “social economy” as follows:
Social Economy activities put people and their community, rather than profit, at the centre of their
goal. Social economy entities do not primarily pursue the goal of profit, but aim at creating economic
and social surplus. The Social Economy is defined by a thriving and growing array of enterprises and
organisations that include in particular cooperatives, mutual benefit societies, associations and social
enterprises. Social economy enterprises are run like businesses, producing goods and services
pursuing economic, social and societal goals. Social economy enterprises and organisations serve
and enable their members to take part in the market, and defending their economic, social and
societal interests and aspirations.
Investment in Enterprise Development has formally been incentivized under the B-BBEE codes, which
allocate 15 points to companies investing in 100 percent black owned SMMEs of their choice. This is
the best option for companies with between R5 million and R35 million turnover. Additionally points
may be earned for Corporate Social Responsibility (5 points) and contributions are deductible for tax
purposes according to the prescribed limits under Section 18A.
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Where clarity is needed is on how investment in social enterprises fits into the B-BBEE and tax codes
and whether points awarded for Enterprise Development that through providing a solution to a social
problem - i.e. a social enterprise – can be awarded points in the SED category as well.
While there are legal structures in countries outside South Africa, which are specifically designed to
support social enterprises (a Community Interest Company in the UK and a Low-profit, Limited
Liability Company in the US) these structures are not always 100% fit for purpose and many social
enterprises exist within a range of traditional structures – both for profit and not-for profit.
Where we can and should look, in the short-term, to lobby for changes to the regulatory framework, is
in getting recognition for social enterprises in the Income Tax Act – to enable PBOs more robust
trading by lifting the current thresholds on trading and by allowing a capped share equity for social
enterprises.
Equally important is to create clear guidance for corporates and other potential private sector
investors wanting to take best advantage of B-BBEE scorecard points (particularly when investing
through enterprise development budgets) by investing in social enterprises, so that there is no
misunderstanding over whether investment in a social enterprise should be allocated points – as CSI
rather than enterprise development - but rather as both.
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5. The opportunity to create a virtuous ci rcle
The opportunity for investing in social enterprise is a simple and compelling one. If sustainable
businesses which meet social needs can be financed and supported, we have the ability to create
lasting social impact. And, at the same time, working within the BBBEE frameworks, if social
enterprise development is categorized as both enterprise development and as socio-economic
development (SED) for which there is a strong argument being made, there are potentially 20 BBBEE
scorecards points up for grabs - a win-win for business and for society.
That is not to suggest that all enterprise development spend, nor all CSI spend be diverted to social
enterprises. In fact even if that were desirable, there is at present neither a sufficient pipeline of social
enterprises, nor the capacity to provide the crucial non-financial support to incubate large numbers of
social enterprises.
Rather, as part of a joined-up, strategic approach to creating maximum social impact, corporate
decision-makers should look outside their narrow CSI or enterprise development focuses to consider
alternatives for creating social change through social enterprise development.
And it is not just in providing important access to finance that corporates can contribute, but also in
filling the gaps that exist in the provision of essential non-financial business development services
such as education and technical assistance in order to bring these enterprises to a point of investment
readiness.
Social enterprises do and will continue to exist through the efforts of those determined to make a
sustainable difference to their communities. In order to encourage and accelerate the development of
more social enterprises, corporate should be looking at ways in which they can support the process.
doc_526613061.pdf
Interest in social enterprise in South Africa is growing and we are seeing an increase in activity in the space.
Directors: GG Gomwe (chairman), AH Arnott (non-executive), NB Gxumisa (non-executive), TW Henry,
P Rungasamy (non-executive)
6
th
floor, 28 Harrison Street, Marshalltown, J ohannesburg, South Africa
PO Box 61593, Marshalltown, 2107, South Africa
Telephone: +27 (0) 11 377 7300 / Facsimile: +27 (0) 11 834 3682
Social Enterprise Development in South Africa - creating a virtuous circle
Compiled for
Tshikululu Social Investments
By
Bridget Fury
Social Enterprise Development in South Africa – creating a virtuous circle
Page | 2
This document is proprietary to Tshikululu Social Investments. Content may not be republished in whole or in part without without due knowledgement
given to Tshikululu Social Investments.
Table of Contents
1. Executive summary ......................................................................................................................... 3
2. Introduction ...................................................................................................................................... 4
3. What is meant by social enterprise in South Africa......................................................................... 5
3.1. Towards a workable definition................................................................................................. 5
3.2. Players in the Social Enterprise space ................................................................................... 6
3.2.1. International ..................................................................................................................... 6
3.2.2. African / South African initiatives ..................................................................................... 8
3.2.3. Business Schools ............................................................................................................ 9
3.2.4. Support for entrepreneurs with a development focus ..................................................... 9
3.2.5. Support for entrepreneurs with a social enterprise focus.............................................. 10
3.2.6. Business Development Service (BDS) providers .......................................................... 11
3.3. State initiatives ...................................................................................................................... 12
3.4. Enterprise Development ........................................................................................................ 12
4. The policy environment ................................................................................................................. 13
5. The opportunity to create a virtuous circle .................................................................................... 15
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1. Executive summary
Interest in social enterprise in South Africa is growing and we are seeing an increase in activity in the
space. The impetus for this interest is in part driven by perceived advantages that social enterprise
has: over government - in efficient delivery of services; over conventional business - on trust,
accountability, and purpose; and over charities and NGOs - due to financial sustainability and access
to capital. And it is in part driven by the BBBEE regulations which place an increased emphasis on
supporting enterprise development.
There is a growing body of work which supports the role of social enterprise, but in South Africa the
concept is still relatively new and as such is not well understood. Social enterprise and social
entrepreneurship are often used interchangeably, despite some clear differences, and definitions of
social enterprise can be contentious.
There is anecdotal evidence which suggests that the idea of “social economy” is gaining a higher
profile at the most senior levels of the South African government, with issues tabled at Cabinet
meetings on the role of the “social economy”. Social enterprise is seen as a part of the “social
economy”. There are also moves being made by the likes of Small Enterprise Development Agency
(SEDA), the National Youth Development Agency (NYDA) and other government bodies to better
understand and support social enterprise development and social entrepreneurship more generally.
Corporates have to date largely focused on what they see as two separate and distinct areas –
enterprise development and CSI - aspects of both of which are encompassed in the concept of social
enterprise. In terms of enterprise development, the B-BBEE legislation allocates 15 scorecard points
to companies which invest 3% of post-tax-profit for this purpose. This is three times the number of
points which are allocated to CSI spend under the socio-economic development (SED) category.
Investing in social enterprise development therefore may present an opportunity to support both
enterprise development while at the same time fulfil the criteria for SED. This has the potential to
create a virtuous circle in which financially sustainable enterprises can be stimulated, which tackle key
social issues and, assuming the B-BBEE frameworks can be tweaked to take this hybrid approach
into account, provides an added incentive for the private sector to invest in social enterprise
development with a potential full 20 point reward on the B-BBEE scorecard.
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2. Introduction
During 2010, a scoping exercise was undertaken by Bridget Fury for Tshikululu Social Investments, to
better understand the state of social enterprise development in South Africa.
The scoping project included the following key areas:
• What is meant by social enterprise in South Africa, and how is this different from enterprise
development and from corporate social investment and where, if any, are there overlaps;
• What organisations – private and public, local, national and global are operating in social
enterprise development in South Africa and what do they do;
• What is the policy environment in which social enterprises operate;
• What, if any, opportunities exist for corporate social investment spend to be used in support of
social enterprise development.
In completing the work, a range of research methods were used which included extensive desk and
web-based research, interviews with more than 30 individuals, representing a range of organisations,
and participation in group workshops hosted by third party organisations.
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3. What is meant by soci al enterprise in South Africa
There is no existing South African policy on social enterprise, nor is there a legal definition.
However, there are many existing policies, regulations and initiatives which have a direct bearing on
social enterprise development, which include registration and obligation of companies and Non-profit
organisations; tax law; B-BBEE, CSI, Enterprise development, and provision of business development
services.
3.1. Towards a workable definition
“A social enterprise’s primary objective is to address social problems through a financially sustainable
business model where surpluses (if any) are mainly reinvested for that purpose”
The above definition was adopted as a working definition for social enterprise in South Africa at a
National Conference on the enabling environment for social enterprise development in South Africa,
hosted by the ILO in October 2009.
It is however, by no means an agreed definition. While the first two elements of the definition – that it
has a core social purpose and is financially sustainable are accepted, it is the point about whether to
restrict the definition to include only those enterprises where “surpluses ... are mainly reinvested” that
is unclear, as this potentially excludes a number of for-profit enterprises which have at their core a
social mission.
Other issues which continue to be debated are a) how we understand intent with regard to the primary
objective of a business and, b) how to measure social impact.
Without a definition, it is difficult to address legal and regulatory issues; however we risk being
hamstrung by detailed conversations about wording and meaning and need to have something that is
workable.
Adding to the confusion are differences between the concepts of social entrepreneurship and a social
enterprise, which are often used interchangeably. They can be quite different – social
entrepreneurship is involved with creating innovative solutions to social problems, but not necessarily
business-like ones, (social entrepreneurs are often social change agents, not people running
enterprises) and a social enterprise is usually taken to operate according to a sustainable business
model.
Where there is some consensus, it is that there should be three elements which make up the working
definition for social enterprise in South Africa and they are:
? Has a primary social purpose – has a clearly stated social purpose as its core objective;
? Uses a financially sustainable business model – has a realistic prospect of generating sufficient
income to exceed costs, now, or at some point in the future; and
? Is accountable and transparent – has a mechanism for ensuring accountability to its beneficiaries.
In South Africa, using the above definition, social enterprises can and do currently exist as Section 21
non profit organisations, as trusts and voluntary associations, as CCs and as companies.
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In defining what a social enterprise is, it is also important to know what it is not. A social enterprise is
generally considered not to include the following:
? A corporate entity or a subsidiary thereof is not a social enterprise; and
? A business whose purpose is solely profit maximisation, even if it is creating social value, is not a
social enterprise.
3.2. Players in the Social Enterprise space
The ILO research found that one of the problems relating to capacity building for social enterprises is
that no reliable database is available for the identification of role players in the social enterprise
space.
There is however work currently being undertaken to try to rectify this. Two such initiatives are the
African Social Entrepreneurs Network (ASEN) and the South African Social Stock Exchange (SASIX)
project being spearheaded by Greater Good SA.
Other informal initiatives are bringing together various parties interested in social enterprise, including
those at various business schools, the ILO, World Bank and others. There is, as yet, no definitive
resource which is available and this is partly due to the confusion around the concept and an absence
of a clear delineation about what is considered in (and what is outside) the space, with a great deal of
overlap with enterprise development, Corporate Social Investment, microfinance, commercial
banking, and so on.
Below is a brief description of some of the key players in this space and the role / function they
perform. This is not a definitive list, but seeks to cover the range of different constituencies which are
currently represented:
3.2.1. International
Schwab Foundation
Represented in South Africa by Dr. Francois Bonnici, himself a social entrepreneur, the Schwab
Foundation is concerned with creating links with and between social entrepreneurs and, through the
World Economic Forum (WEF), facilitates high-level access to government, funders, and professional
services.
The Schwab Foundation uses the regional and global WEF meetings to bring together leading social
entrepreneurs, and supports the growth and development of social entrepreneurs by sponsoring
scholarships to Universities in the US, UK and Europe, by sponsoring awards for social
entrepreneurship (Ernst and Young World Entrepreneur Competition) and by encouraging peer-to-
peer learning and building partnerships.
Aspen Network of Development Entrepreneurs (ANDE)
ANDE is a global network of organisations that invest money and expertise in order to encourage
entrepreneurship in emerging markets. It is a membership-based organisation which is focused on
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small and growing businesses that create economic, environmental, and social benefits for
developing countries.
ANDE aims to be the key convener of small and growing businesses in developing markets with a
focus on finding the so-called “missing-middle” – that space representing the disparity between
investments in small businesses as compared to other business in emerging markets.
ANDE members with direct links into South African social enterprise include:
? TechnoServe;
? Endeavor; and
? Heart Social Investments.
Skoll Foundation/ Skoll Centre for Social Entrepreneurship
The Skoll Foundation seeks large-scale change by investing in, connecting and celebrating social
entrepreneurs and other innovators dedicated to solving the world’s most pressing problems.
The Skoll Awards Programme is the Foundation’s flagship investment initiative through which it
provides social entrepreneurs, whose models for sustainable change have already yielded significant
impact, with unrestricted funding to scale their programmes and amplify their reach across regions,
countries and continents.
The Skoll World Forum takes place annually in Oxford and has become one of the leading forums for
bringing together key stakeholders from around the world to help support social entrepreneurship.
Ashoka
Ashoka is best known for its Fellows - individual social entrepreneurs who are recognised for their
contribution as change makers in society. Through the Ashoka network, they are able to gain access
to programmes which support their efforts, from a three year stipend which enables them to focus full-
time on developing their ideas, through mentorship, BDS and other professional support, and through
the Ashoka network to share ideas, leverage from one another and develop best practice.
Ashoka also focuses on capacity building and support for civil society through NGO peer learning and
advocacy; and has a Youth Venture programme empowering young people (12-24) involved through
teams.
World Bank Institute
The EVOKE project was developed by the World Bank Institute after a series of conversations with
African stakeholders about how to develop the right skills which meet industry demands by engaging
young people in real world problems in order to develop their capacities for creativity, innovation and
entrepreneurial action.
EVOKE uses a social networking platform to enable the “game” to be played – online and on mobile
phones – in which the “textbook” takes the form of an online graphic novel set in the year 2020.
During each of the 10 weeks that that game runs, the players are guided though a process by which
they learn to form their own innovative networks, brainstorm solutions to real-world development
problems and discover how to be a successful social incubator.
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EVOKE attracted more participants at its launch than it had anticipated and has therefore achieved
one of its aim - of encouraging more young people to think about finding sustainable solutions to
social problems. What it does point to, is the growing interest in social enterprise development within
multi-lateral organisations such as the World Bank Institute.
3.2.2. African / South Afri can ini tiatives
ILO – SETYSA (Social Entrepreneurship development targeting unemployed youth in South Africa)
As part of the ILO’s work on job creation, SETYSA is supporting a programme of research and policy
dialogue intended to strengthen the capacity of South African institutions to understand the concept of
social enterprise development.
As part of the project, SETYSA has supported the following programmes of work:
? research by the University of J ohannesburg on the enabling environment;
? International research into initiatives to create an enabling environment from experiences of other
countries;
? Community-level research on the potential for social enterprise in two pilot geographical areas;
? Research by the South African Institute of Entrepreneurship on existing and potential market for
social Business Development Services (BDS);
? A study visit for South African policy makers to learn from other countries;
? Various policy dialogues and e-conferences; and
? A National conference on the enabling environment for social enterprise
Following from this work, mostly carried out in 2009, a group has met to discuss financing for social
enterprises and a research programme to better understand the gaps in knowledge. This work is
ongoing.
ASEN and SASIX are also represented on this forum and the ASEN platform is being used to collate
and share existing resources on what financing is available for social enterprise development.
African Social Entrepreneurs Network (ASEN)
Through the use of an online platform, ASEN aims to provide Social Entrepreneurs with an
opportunity to collaborate and access resources though an online “marketplace” where players can
provide information on themselves (social entrepreneurs, intermediaries, the private sector, other
investors, etc.) and share ideas, challenges, and access resources.
The platform is membership based and driven and its initial focus has been on providing for the needs
of the social entrepreneur, rather than a “marketplace”. There is some overlap with what SASIX is
launching (see below), but there may well be a continued role for ASEN as a membership driven
organisations which supports the social entrepreneur and in particular, if it can develop a
comprehensive database of service providers into the social entrepreneurship / social enterprise
space, as a one-stop shop.
South African Stock Exchange (SASIX)
Research is currently being undertaken by the South African Network for Impact Investing, the
Business Trust and the J ohannesburg Stock Exchange to assess the feasibility of launching the
world’s first fully independent social stock exchange in South Africa. This would provide a mechanism
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for social purpose entities (social enterprises) looking to raise capital, to connect with socially
conscious investors looking to invest, while providing the rigour of certain listings requirements and
associated accountability.
As phase one of the project, SASIX is seeking to create a database of all interested parties, to include
social purpose entities, intermediaries and asset owners or managers. This has been launched and is
currently being populated.
Whether it is possible to create a functioning social stock exchange remains to be seen – there have
been attempts made elsewhere in the world with little success as the demand has never been
sufficient – but cataloguing the information will be a useful exercise in itself.
3.2.3. Business Schools
There is growing recognition in South Africa of the role that business schools must play in both
research into the role of social enterprise and preparing more social entrepreneurs / social enterprises
for the market. Most business schools now offer or are looking at offering specific courses on social
enterprise development, and some of the main players include:
Centre for Social Entrepreneurship, University of Johannesburg (ULJ)
Headed by Susan Steinman who has recently been involved in conducting research around the
enabling environment for social enterprises in South Africa as part of the ILO project, UJ will also be
hosting the The Social Enterprise World Forum in April 2011.
This is the first dedicated Centre for Social Entrepreneurship and together with the central role played
in the ILO research, has given Susan first mover advantage in the academic response to social
entrepreneurship.
Gordon Institute of Business Science (GIBS)
GIBS run a Social Entrepreneurship Certificate Programme which is aimed at social entrepreneurs
and leaders and managers of NGOs. Teaching on the course is delivered by both academics and
practitioners.
GIBS also have an important Bottom of the Pyramid work stream into which some of the research
themes relating to social enterprise development currently fit.
UCT Graduate School of Business (GSB)
The GSB is doing some work around social entrepreneurship through its existing centres: the
Raymond Ackerman Academy of Entrepreneurial Development and the Centre for Innovation &
Entrepreneurship. It is also in the process of launching a Centre for Social Entrepreneurship.
3.2.4. Support for entrepreneurs with a development focus
Enablis South Africa
Enablis South Africa was the first regional hub in the Enablis network, with offices across South
Africa.
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Enablis is a Canadian not-for-profit organisation which supports entrepreneurs in developing countries
who share similar values and who believe in the importance of small-to-medium enterprises for
poverty reduction and sustainable development.
Enablis has three key areas of focus:
? Entrepreneur development;
? Business Support and peer learning; and
? Funding opportunities.
In South Africa, Enablis has developed partnerships with Khula Enterprise Finance (an independent
agency operating under the auspices of DTI to provide funding to small businesses) and FNB though
the Enablis Khula Loan Fund and Khula Enablis SME Fund.
Endeavor
Endeavor is a global non-profit organisation that finds and supports innovative, high-growth
entrepreneurs in emerging markets, including South Africa. Most entrepreneur candidates lead
companies with at least R3m in revenues, but Endeavor seeks entrepreneurs at varying stages so
long as they are at a “tipping point” at which Endeavor can help the entrepreneur reach new levels.
Endeavor South Africa partners with corporates, enterprise development funders, financial supporters
and suppliers, including Deloitte, FNB, Discovery, Ernst and Young and Dell.
3.2.5. Support for entrepreneurs with a social enterprise focus
TechnoServe
TechnoServe is a US-based, donor-funded organisation which has traditionally focused on
agribusiness opportunities and the supply-chain. They are currently undergoing a complete review of
the current strategy for South Africa – looking to take advantage of their successful track record of
providing business turnaround support, which includes developing market linkages, securing access
to finance and transferring skills to rural entrepreneurs.
TechnoServe is actively looking at ways in which to engage with the corporate sector to help deliver
social enterprise development, with a particular focus on those industries in and around rural
communities and in support of entrepreneurship.
Heart Global
Heart was the first organisation in South Africa to set up an incubator that is explicitly focused on
social enterprises. They aim to do two things:
1. To incubate start-up social enterprises through seed, venture and capital phases of
development; and
2. Provide specialist fund management services to socially and environmentally conscious
investors, and to use funds raised to provide BDS to social entrepreneurs.
UnLtd South Africa
A very recent entrant to the South African market, UnLtd South Africa aims to provide support to
early-stage social entrepreneurs, by finding and supporting exceptional individuals with a 50%
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financial reward and with 50% technical support, often provided through existing BDS suppliers such
as Black Umbrellas and the Business Place.
UnLtd has identified the most important gaps in support for social enterprises and is focusing initially
on level one in South Africa, with a view to moving up through the value chain to plug the gaps known
as the “missing middle” – that which exists between a survivalist businesses and those that are
investment ready.
UnLtd’s Heather Brandon and Kathy Watters are currently involved in developing a measurement and
evaluation framework to be used to measure social impact and this is due to be rolled out and tested
from late 2010.
3.2.6. Business Development Service (BDS) providers
BDS providers offer a combination of the following services, often through a drop-in centre. Some also
act as an informal conduit to access financing:
• Marketing;
• Legal advice;
• Accounting services;
• Financial advice;
• Business advice;
• M & E of projects;
• Business plan support;
• Project management; and
• Links to business opportunities.
The Business Place
Started by Investec, the Business Place has a network of drop-in hubs across South Africa which
provides BDS services to both entrepreneurs and social entrepreneurs, which include, at the most
basic level, access to computer facilities, the internet and a business library and at a more advanced
level help in developing skills and business plans.
The Business Place has a good infrastructure and reach, and has been involved in partnering with the
ILO and UnLtd on running business plan competitions for social entrepreneurs.
Shanduka Black Umbrellas
Shanduka Black Umbrellas is a non-profit company involved in the support of emerging black
business through enterprise development. Members are provided with a working environment and
support services that will enable them to thrive. For a nominal monthly fee, depending on the size and
maturity of the business, a range of BDS services are available over a three year period.
Shanduka Black Umbrellas has a range of financing options through which it supports itself which
include money from enterprise development budgets to a loan guarantee fund which it has
established with ABSA.
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Raizcorp
Raizcorp is a for-profit business which supports entrepreneurs through its 3-year programme which
includes rigorous selection, learning (through an accredited University programme), and mentoring
(guiding).
Raizcorp uses a partnership model in which it takes an equity stake in all businesses that enter the
programme through Raizcorp’s selection process. However, currently some 75% of its business is
enterprise development “bursary” funding from corporates, who outsource their enterprise
development to Raizcorp.
3.3. State initiatives
There are a number of government initiatives in place to support SMMEs, either through the provision
of BDS or access to finance through micro-loans or both. None of these has a specific social
enterprise focus, but as part of the policy debate, there is interest being generated around creating
social enterprise-specific funds.
Some of the agencies involved include SEDA (Small Business Development Agency), COMSEC
(Community Self-Employment Centre), the NYDA (National Youth Development Agency) and
IDC.
3.4. Enterprise Development
There are also a raft of for-profit consultants working in enterprise development – from BBBEE
specialists, to venture and private equity plays who are interested in taking advantage of the
enterprise development budgets available.
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4. The policy environment
The ILO, together with a range of partners, has initiated a policy dialogue on the enabling
environment for social enterprise development in South Africa. This work, which was supported by
research conducted by Susan Steinman’s team at the University of J ohannesburg, culminated in a
National Conference in October 2009 at which various recommendations were made intending to
promote access by social enterprises to affordable finance.
Some of these included:
? Encouraging the Government to stimulate the market for finance for social enterprises;
? Encouraging the development of intermediaries and products that can link investors with
appropriate social enterprises; and
? Exploring the establishment of a Risk Guarantee Fund to stimulate access to commercial finance,
and a Social Enterprise Fund (which might reside in the IDC, or a similar body), to provide capital
specifically for social enterprises.
Minister of Economic Affairs, Ebrahim Patel, announced early in 2010 that a percentage of pension
fund investments would be earmarked for investment in economic development, proving a potential
R70 billion pot for businesses with a social mission.
However, the mechanisms for investing this money do not currently exist, nor is it clear whether there
is full acceptance of this proposal within government. What it does signal is a desire, at least in some
spheres of government, to look at ways of stimulating sustainable social enterprise development.
The concept of the role of the social economy in development also appears to be resonating more
often within senior Government circles.
The ILO describes the “social economy” as follows:
Social Economy activities put people and their community, rather than profit, at the centre of their
goal. Social economy entities do not primarily pursue the goal of profit, but aim at creating economic
and social surplus. The Social Economy is defined by a thriving and growing array of enterprises and
organisations that include in particular cooperatives, mutual benefit societies, associations and social
enterprises. Social economy enterprises are run like businesses, producing goods and services
pursuing economic, social and societal goals. Social economy enterprises and organisations serve
and enable their members to take part in the market, and defending their economic, social and
societal interests and aspirations.
Investment in Enterprise Development has formally been incentivized under the B-BBEE codes, which
allocate 15 points to companies investing in 100 percent black owned SMMEs of their choice. This is
the best option for companies with between R5 million and R35 million turnover. Additionally points
may be earned for Corporate Social Responsibility (5 points) and contributions are deductible for tax
purposes according to the prescribed limits under Section 18A.
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Where clarity is needed is on how investment in social enterprises fits into the B-BBEE and tax codes
and whether points awarded for Enterprise Development that through providing a solution to a social
problem - i.e. a social enterprise – can be awarded points in the SED category as well.
While there are legal structures in countries outside South Africa, which are specifically designed to
support social enterprises (a Community Interest Company in the UK and a Low-profit, Limited
Liability Company in the US) these structures are not always 100% fit for purpose and many social
enterprises exist within a range of traditional structures – both for profit and not-for profit.
Where we can and should look, in the short-term, to lobby for changes to the regulatory framework, is
in getting recognition for social enterprises in the Income Tax Act – to enable PBOs more robust
trading by lifting the current thresholds on trading and by allowing a capped share equity for social
enterprises.
Equally important is to create clear guidance for corporates and other potential private sector
investors wanting to take best advantage of B-BBEE scorecard points (particularly when investing
through enterprise development budgets) by investing in social enterprises, so that there is no
misunderstanding over whether investment in a social enterprise should be allocated points – as CSI
rather than enterprise development - but rather as both.
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5. The opportunity to create a virtuous ci rcle
The opportunity for investing in social enterprise is a simple and compelling one. If sustainable
businesses which meet social needs can be financed and supported, we have the ability to create
lasting social impact. And, at the same time, working within the BBBEE frameworks, if social
enterprise development is categorized as both enterprise development and as socio-economic
development (SED) for which there is a strong argument being made, there are potentially 20 BBBEE
scorecards points up for grabs - a win-win for business and for society.
That is not to suggest that all enterprise development spend, nor all CSI spend be diverted to social
enterprises. In fact even if that were desirable, there is at present neither a sufficient pipeline of social
enterprises, nor the capacity to provide the crucial non-financial support to incubate large numbers of
social enterprises.
Rather, as part of a joined-up, strategic approach to creating maximum social impact, corporate
decision-makers should look outside their narrow CSI or enterprise development focuses to consider
alternatives for creating social change through social enterprise development.
And it is not just in providing important access to finance that corporates can contribute, but also in
filling the gaps that exist in the provision of essential non-financial business development services
such as education and technical assistance in order to bring these enterprises to a point of investment
readiness.
Social enterprises do and will continue to exist through the efforts of those determined to make a
sustainable difference to their communities. In order to encourage and accelerate the development of
more social enterprises, corporate should be looking at ways in which they can support the process.
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