Transformation at the Crossroads: South Africa’s Lessons for Impact Investing

This article was published by GREENMONEY JOURNAL, covering sustainable business and investing since 1992.

Twenty-two years ago, when apartheid fell, South Africa pointed the way from disinvesting to reinvesting in one of the landmark nonviolent social transformations of our time. A number of international investors decided then to put their money to work in building a more equitable South Africa. Today South Africa is the largest impact investment market on the African continent, with US $24 billion disbursed for impact investments by development financial institutions (DFIs), and US $4.9 billion by organizations other than DFIs.

No Quick Fix

First, South Africa itself teaches the importance of long-term strategies, and the impossibility of a quick fix for severely distorted economies. The African National Congress was 82 years old by the time Nelson Mandela was elected President, and that was only the beginning of the country’s “long walk” to economic democracy – a process still in its infancy. Many of us have worked hard to help South Africa overcome its pariah status and become more like the rest of the world. Now it is. Ironically, this means that it is dogged not only by its own history, but also by the challenges of global markets and the rising inequality that all too often accompany the concentration of capital. The removal of deeply entrenched distortions that have historically barred black-owned businesses from the marketplace will require many years more. For impact investors, this means patient capital.

Multi-Pronged Approaches

It also means that economic transformation requires numerous complementary strategies, as did South Africa’s victory over apartheid. During the “struggle years” these included the initiatives of the country’s own liberation movements, civil society and domestic defiance campaign, as well as international boycotts, divestment, sanctions, shareholder resolutions and protests carried out around the world. Today, as then, profound change requires what we often describe as a new “ecosystem.” Reshaping what is still one of the world’s most unequal countries in terms of both income and wealth requires a variety of strategies and tools [1]. The goal is not simply launching X businesses or creating Y jobs, but reshaping an economy that will address the needs of all its people.

Shared Interest, for example, has found it essential to use a variety of strategies to ensure the success of its client enterprises and small farms, and move commercial lenders to serve them. While we use our impact investors’ funds to partially guarantee loans from local banks to black borrowers (typically) without collateral or credit histories, we ensure that the new entrepreneurs and farmers also receive technical assistance in launching, managing and scaling their businesses. Through our partners on the ground – notably the Thembani International Guarantee Fund – we provide support for commercial lenders in working with new clients – and creating products for markets they have historically sidelined.

Creative Collaborations

But the new “ecosystem” requires numerous other actors in the private and public sectors to create significant changes and opportunities – and fertile soil for impact investing. They are particularly necessary to jumpstart black-owned small and growing businesses and farms in South Africa, whose colonial structure was built on extractive industries and agribusiness – much of it on land forcibly taken from black South Africans. Moreover, blacks were legally barred from doing business in “white” areas – the most populous – under apartheid. Twenty years after Nelson Mandela was elected President, the Global Entrepreneurship Monitor (GEM) pegged South Africa’s entrepreneurial activity at 25 percent that of other Sub-Saharan African nations.

And so, to support the development of small and growing (and potentially investable) black-owned businesses, numerous enterprise incubators and accelerators have sprung up around the country. They include the University of Pretoria’s Gordon Institute of Business Science (GIBS), which prepares promising emerging enterprises to succeed and scale; and LifeCo, which assists and invests in social and environmental businesses. There is also a bumper crop of business development service (BDS) providers that support small enterprises, farms and cooperatives across the country.

Public Carrots and Sticks

The government is another key player. During the early days of majority rule, in the mid 1990’s, many expected the spirit of the new South Africa to move the private sector to play its part in transformation. But much more has been needed. It is still early days for government to establish a regulatory framework for impact investing, and organizations like the Aspen Network of Development Entrepreneurs (ANDE) are working to encourage such policies. Nonetheless, in agriculture, the state has implemented a number of strategies for change, such as its purchase of land from willing whites and giving it to black farmers – often in cooperatives. The authorities quickly discovered, however, that without technical support, many new farmers failed, and some ended up selling their land back to whites, defeating the purpose of the program. Moreover, without working capital, even the best-trained farmers cannot succeed. Shared Interest’s guarantees for working capital loans, together with technical support, have helped a number of cooperatives achieve excellent results.

Another government initiative has been the creation of codes of conduct for companies in different sectors to broaden the distribution of ownership and jobs, and to assist emerging black-owned enterprises. South Africa drew on its own history of corporate conduct codes encouraged by anti-apartheid advocates, and eventually by the companies themselves, through mechanisms like the Sullivan Principles. While motives behind the measures sparked debate, the codes did establish precedents.

Since 1994, the country has developed a complex system of sector charters and a system known as Broad-Based Black Economic Empowerment (B-BBEE). These codes use “scorecards” to evaluate measures that enhance benefits and opportunities for black shareholders, workers and suppliers. Government considers companies’ ratings when assigning contracts, using a preferential procurement strategy. The criteria now further apply to those companies which, in turn, sell to government suppliers. Companies are currently spending significant funds on this “carrot” for good behavior, according to Grant Thornton’s 2016 international business report. And the government is sharpening the provision’s “teeth” by establishing a B-BBEE Verification Regulator.

The measure is promising for the development of private sector collaborations that enhance companies’ strategies to purchase from and assist their small and growing suppliers and clients. Shared Interest’s client, One Vision, for example, benefits from its contract with one of the country’s largest retailers, Woolworth’s, which purchases all the vegetable chips One Vision produces. The contract, Shared Interest’s loan guarantee and Thembani’s technical support have helped the start-up company launch and create 63 jobs, making it one of the only employers in a rural community decimated by an earlier plant shut-down. Shared Interest is also working with the Omnia chemical company to bolster emerging farmers and their associations through a combination of guarantees, Omnia’s agricultural extension services, and additional mentoring. Thembani has helped structure a financial product that mitigates the risk of investors and the farmers themselves, who are developing their own self-insurance fund.

Addressing Problems at their Grassroots

Zanele Mkokeli, supervisor at the Rietkloof Farm, with her son.

In August, UN Women’s Executive Director (and South Africa’s former Deputy President) Phumzile Mlambo-Ngcuka provided a simple but profound insight: “If it doesn’t work for grassroots women, it probably doesn’t work.” Like effective development initiatives, impact investing will not help transform the ecosystem if it simply benefits large enterprises that do not better the lives and enhance the economic power of people at the bottom of the economic ladder – particularly women.

Numerous studies have found that investing in the creation of enterprises and opportunities for women provides the maximum benefit for low-income communities. The Small Enterprise Foundation, a typical high-functioning microfinance institution, has grown, with a combination of grant and guaranteed loans to benefit more than 140,000 black women and their families in deep rural areas of South Africa. A traditional rural community, Lambasi, is also achieving significant impact outcomes by using guaranteed loans and technical support to plant 1,000 hectares of maize and beans – benefiting a community of 8,000 members, in which the majority of the farmers are women.

A grape and citrus-growing worker cooperative on Rietkloof Farm, which has received the enterprise from the government, is using a guaranteed loan, as well as technical support from Thembani and a local BDS provider to expand the farm and make it profitable. Coop member Zanele Mkokeli described the significance of moving from day laborer to supervisor to cooperative member. Considering her economic security and options, she noted, “Now, for the first time, I can think about the future. I am one of the owners of this farm.”

Impactful International Partnerships for a New Time

Finally, as a virtual laboratory of international collaboration strategies for change, South Africa has important lessons to teach impact investors placing funds in other countries. Withdrawing investments to pressure a pariah state has been replaced by proactive investing. But the principle of using international capital to bolster the country’s own initiatives to improve its people’s lives remains the same. Those partnerships and investments that strengthen local stakeholders’ developmental initiatives create the greatest long-term impact. Shared Interest has opted for a model to move the country’s own commercial lenders to extend credit to emerging entrepreneurs and farmers. And it is working. Many other impact investors also ensure that their exits leave productive assets in the hands of people who have been excluded and exploited in the past. In the end, such catalytic and collaborative strategies produce the most profound and enduring impact. While approaches vary from community to community and country to country, South Africa’s powerful transformation mandate and international role are likely to provide an important mirror for impact investors for years to come.

Article by Donna Katzin, the founding executive director of Shared Interest (, a social investment fund that mobilizes the financial and human resources of South Africa’s lowest income communities of color. Since 1994, Shared Interest has helped to create more than 180,000 new small and micro-enterprises, 1.9 million jobs, and 120,000 affordable homes – benefiting 2.3 million economically marginalized South Africans – the majority of them women. The organization is now extending its work to other Southern African countries, including Swaziland, Mozambique and Zambia. Previously, she served as Director of South Africa and International Justice Programs for the Interfaith Center on Corporate Responsibility. She has been honored by the South-African-American Organization, received the North Star Fund’s Frederick Douglass Award, the South African Embassy’s Inaugural Friends of South Africa Siyabonga Award, the inaugural Ubuntu Award from Face2face Africa, and the SRI Service Award in 2015 at The SRI Conference on Sustainable, Responsible, Impact Investing.

In an unpaid capacity, she has also coordinated Tipitapa Partners, a people-to-people project that began 29 years ago with a sister city relationship between the Upper West Side of New York and Tipitapa, Nicaragua. Throughout this time the partnership has empowered local Nicaraguan women and their communities to uphold their children’s rights to food and education, and supported their efforts to sustain early childhood nutrition and education centers.

A board member of the Thembani International Guarantee Fund in South Africa, and the Center for Community Change in the U.S., Ms. Katzin holds a master’s degree in Community Organization and Planning, and a doctorate in Human Services Education and Development. She has written extensively about South Africa, community development and impact investing, and is also the author of With These Hands, a volume of poetry inspired by the birth of South Africa’s democracy.

Article Note:

[1] Anna Orthofer, “Wealth Inequality – Striking New Insights from Tax Data,” July 2016,

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