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 s