Responding to South Africa’s socioeconomic development needs requires concerted effort from all stakeholders. Corporates in particular have considerable resources and influence to position themselves at the forefront of this response. In a breakout session at The Trialogue Business in Society Conference 2019, panellists discussed how corporates could leverage innovative finance to create impact in specific sectors.
The agricultural balancing act
The South African agricultural landscape is characterised by various challenges, including land reform, biodiversity, water usage (61% of the water in South Africa is used in the agricultural sector) and changing weather conditions. It is a pivotal sector for food security, a reasonable contributor to the country’s gross domestic product (GDP) and a key rural employer in the country. “Agriculture has the largest potential to really transform the country in terms of how to grow our GDP.” This, according to Motlalekgomo Matseke, a consultant specialising in the agricultural sector.
The sector constantly finds itself in a “balancing act where, on the one hand, we have commercial farmers that are well integrated into the market and, on the other hand, there are small-scale farmers that do not have access to capital and access to markets. The polarisation is quite clear”. Moreover, a large portion of the food – 60% – that is produced in South Africa is wasted, while many people have no access to food.
Matseke identified the key challenge impacting the growth of the sector as the technical aspect or capacity of an individual to produce and be commercially sustainable. For example, a prospective farmer with land and markets for their products may not have the ability to meet the demands in a sector that is governed by 30 types of legislation; including water usage licenses, occupational health and safety and minimum wage requirements. “People looking to go into the sector might get finance if they make a compelling enough case, but they are literally one drought away from poverty… Access to finance really needs to be contextualised in terms of the affordability of that finance, which speaks to issues of collateral and equity,” cautioned Matseke.
The potential of the renewable energy sector to drive community development
On the renewable energy front, Dr Holle Wlokas of Synergy Global Consulting discussed the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) which was started in 2011. She spoke about the comprehensive but ambitious economic development scorecard that government put in place, with four of the elements asking every wind and solar farm and hydro project to invest funds into local community investments. There are three specific pots of money: socioeconomic development, enterprise development and a local shareholding requirement.
There are 102 approved projects, with about 66 online and currently feeding into the grid, and 27 that are in construction. R20 billion has been raised for socioeconomic development (SED); R16.5 billion is committed to communities living within a 50km radius of project sites and about R577 million has been spent to date. For enterprise development, a commitment of R6.4 billion has been raised; R4.9 billion of which is earmarked for local communities and about R170 million has been spent to date. Local community trusts own around 11% of the shareholding in these projects which equates to about R30 billion.
Dr Wlokas identified some of the opportunities, including place-based investments, the development of integrated strategies, the opportunity to drive local economic development in the areas surrounding the farms and the ability to pool funds from farms that may overlap in 50km radii, in order to have greater impact. She also spoke about the readiness of the sector to be supported by corporate funding that would not only be investing sustainable energy, but would also be securing their license to operate, through investment in community development.
In terms of challenges, Dr Wlokas explained that SED funds were required to be spent every six months, so were not able to accumulate in order to make larger investments into specific initiatives. As much as the 50km radius could be leveraged to pool funding in some cases where the proximity of farms overlap, it could also exclude many people in areas where farms are sparesly spaced.
Sazini Mojapelo of Absa contextualised the sector in relation to the demographics of the continent: Africa is constituted of 65% young people and the one thing that is consistently requested is quality education. However, the sector remains largely broken and this has given rise to the parallel private education sector which is only accessible to an economically advantaged few. Mojapelo also cautioned that, with the South African pass mark at around 30-35%, the country is not readying its youth to compete at an international level.
Mojapelo spoke about Absa’s concerted effort to address institutional capacity in the sector, stating that “every year universities have over one million applications against their capacity of 300 000 students”. A portion of the remainder are then absorbed by the Technical and Vocational Education and Training (TVET) colleges which are largely free. However, only 10% of these students complete their studies”. This situation is even worse in countries like Zambia and Tanzania. Another issue is the high dropout rate between first and second year. While TVET colleges play an instrumental role in educating young people, it is important to question whether their curriculums and skills training are relevant and aligned with industry needs.
Absa is committed to helping to transform the sector. Since it cannot possibly reach every school in South Africa, it is engaging basic education at a policy level. The company also wants to support the TVET sector by helping to ensure that the technical skills taught are aligned with what is currently needed in industries and, ultimately, to grow the economy. In terms of university students, Mojapelo questioned whether enough is being done to support them to not only become job seekers, but to hone their entrepreneurial skills to also become job creators.
Absa has elevated the education conversation to extend beyond the classroom; looking at future skills, future work, what is working, what is broken and how to actively invest in driving the right outcomes required for the sector to flourish.
“With the recent announcement of free tertiary education, that was a lost opportunity to establish an education bond which would have allowed us to have a blended finance option where part of the funding would come from the payback that a student would need to make over 10 to 20 years. A bond would reduce repayment from R2 000 to about two or three hundred rands a month. As recipients of these young workforces, company tax could be increased. Government could get national treasury to be the bond guarantee and SARS the collectors of student repayments. “That’s innovative finance – it does not say that every young person will get education for free, in perpetuity,” explained Mojapelo.
Mojapelo also spoke to the significant shortfall of student housing in South Africa, estimated at 300 000 beds. “Therein lies an opportunity for innovative finance. Each university has scoped out how many beds they need. The municipalities have given land, but how do we finance that? What is the cost per bed and per unit?” Mojapelo suggests that government, property developers, community trusts, BBBEE players and other stakeholders could be brought in to respond to the issue by pooling their resources.
IMAGE: Flr-Motlalekgomo Matseke (Consultant specialising in agricultural sector) , Sazini Mojapelo (Absa), Dr Holle Wlokas (Synergy Global), Charles Reed (Absa)
Article written by Zyaan Davids
Photo taken by Cobus Oosthuizen