Download An Exploratory Study into factors influencing an

An Exploratory Study
into factors influencing an
Enabling Environment for
Social Enterprises in
South Africa
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First published 2010
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An exploratory study into factors influencing an enabling environment for social enterprises in South Africa.
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978-92-2-123726-6 (web pdf)
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AN EXPLORATORY STUDY INTO FACTORS INFLUENCING AN
ENABLING ENVIRONMENT FOR SOCIAL ENTERPRISES
IN SOUTH AFRICA
Research by
Dr Susan Steinman
Centre for Social Entrepreneurship
Faculty of Management
CONTACT DETAILS
[email protected]
Tel.: +27 (0)82-459-2082
Commissioned by
INTERNATIONAL LABOUR OFFICE (ILO)
This document enjoys copyright protection through the ILO. The responsibility for opinions expressed in this study rests solely with the
author, and the publication does not constitute an endorsement by ILO of the opinions expressed herein.
Dr Susan Steinman joined the Faculty of Management at the University of Johannesburg in 2009 as the
head of the Centre for Social Entrepreneurship. The Centre was established to promote social enterprises
and social entrepreneurship and to inspire programmes that would assist the development of social
enterprises in the region. She was awarded an ASHOKA fellowship in 2002 and realised that her
experience could be of value for other social entrepreneurs.
Her second doctoral thesis (awarded in 2008) dealt with social entrepreneurship. In the same year, Susan
won the Nedbank Regional Social Entrepreneur of the Year award for her unique social enterprise (using a
dual model) which effectively dealt with changing attitudes regarding violence in the workplace.
Apart from being a flexible and internationally published researcher, Dr Steinman is also an international
keynote speaker and, in addition, since 1997, she has published, authored and co-authored several books
and programmes in her areas of expertise.
i|Page
Acknowledgements
In addition to the contributions of the participants in the surveys, focus group discussions, conversations
and interviews, the following people or organisations made significant and extraordinary contributions to
the quality of the final paper.
The researcher would like to thank them for their thoughts and insights that helped make this exploratory
study a worthy starting place for our future discussions:
• First and foremost, the ILO and, in particular, Tom Fox, Chief Technical Advisor for Social
Enterprises of the International Labour Organisation (ILO), deserves praise and respect for his
support. Apart from providing the infrastructure and data, he introduced the researcher to
participants; arranged the focus group meetings and set up the facilities, and acted as note taker
for the focus group meetings. Tom was supportive beyond the call of duty and eagerly engaged in
many debates and discussions – adding insights and wisdom and encouragement at all stages of
the research. His willingness to give time and support, and make contributions to the study, is
deeply appreciated. Also, my appreciation is extended to Busisiwe Siyona who assisted Tom Fox
by sending out letters to participants of focus group discussions and in the interviews.
• Kathleen van der Linde, a professor in mercantile law at UJ, who revised Chapter 4 which deals
with the regulatory environment
• Sabine Zajderman, who assisted me with the preparation of final research document
• Dr Arnold Beyleveld, who assisted me with various tasks
• While a large number of persons participated in focus group discussions, personal and telephonic
interviews – everybody cannot be listed individually – the following organisations played a
prominent role in this study:
o
o
o
o
o
o
Department of Social Development
Department of Trade and Industry
Department of Labour
Ashoka regional office and several of its
fellows
The legal departments of the University of
Johannesburg and the University of
Pretoria
African Social Entrepreneurs Network
(ASEN) for facilitating on-going dialogue
during the research
o
o
o
o
o
o
o
o
o
o
Development Bank of South Africa
Organised labour: Cosatu, Fedusa,
Nactu and the Job Creation Trust
National Youth Development Agency
The Business Place
Provincial Governments
Local Governments
SEDA
Individual social entrepreneurs
Companies creating social value
Corporate social investors
• The Faculty of Management of the University of Johannesburg, the researcher’s personal assistant
and the language editor.
• All who participated – you know who you are - thank you for your time and enthusiasm and for
making this study possible.
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Executive Summary
This study explored the development of an enabling environment for social enterprises in South
Africa, using a mixed methodology for research purposes.
It became clear from the literary survey that a foundation for social enterprises to flourish has
been laid through major policy documents such as the Medium Term Strategic Framework
(MTSF) by the Minister for Planning in the Presidency (2009) and the Framework for South
Africa’s Response to the International Crisis (2008). These documents pave the way for social
enterprise development to create decent work opportunities, the alleviation of poverty and the
promotion of high levels of investment through a favourable taxation system.
While the intent of government is clear from the above-mentioned policy directives, it is
apparent from this exploratory study that South Africa still has a long way to go in creating an
enabling environment where social enterprises could indeed flourish and contribute to the
economy. The challenges relating to capacity building for social enterprises are compounded by
the fact that there is no reliable database available for the identification of the role-players in the
social entrepreneurial space. Furthermore, it seems that, although the majority of social
enterprises have been founded by white persons, the majority of beneficiaries of social
entrepreneurial activities are black and so it is apparent that the racial profile of social
entrepreneurs is not seen as an obstruction to the enabling environment for the creation of
social enterprises.
The study found that it was difficult to address legal and regulatory issues in the absence of a
working definition and therefore adopted the following definition for this purpose: ‘A social
enterprise’s primary objective is to ameliorate social problems through a financially sustainable
business model, where surpluses (if any) are principally reinvested for that purpose.’ In view of
this definition, social enterprises currently exist as Section 21 nonprofit organisations, as trusts
and voluntary associations and even as cc’s and companies; yet the business construct of ‘social
enterprises’ is not defined in any legislation, which isone of the greatest obstacles to financial
sustainability. It is to be noted that, according to this definition, social enterprises cannot obtain
equity.
Various options for accommodating social enterprises were considered: the amendment to
existing company and nonprofit entity legislation; new legislation dedicated to social enterprises,
and a fiscal solution by recognising social enterprises in the Income Tax Act. In the lastmentioned case, which is the preferred short and medium term solution, the legislator could, in
the case of public benefit organisations (PBOs), allow for more robust trading by upwardly
adjusting the current threshold for trading ) and by allowing a capped share equity for social
enterprises. However, as part of a long-term strategy, South Africa will need to consider
dedicated legislation for social enterprises, similar to the Community Interest Companies (CiCs) of
the UK and the low-profit, limited liability corporations (L3Cs) of the USA.
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Social enterprises experience the same problems as conventional business enterprises in gaining
access to finance, loans and investment. Finance for scaling up remains one of the most pressing
issues facing social enterprises; therefore, a dispensation where social enterprises could get
some share equity for this purpose would certainly go some way towards ameliorating the
problem.
Business Development Service (BDS) providers do not actively encourage social enterprises to
make use of their services nor do they provide the services most needed by social enterprises.
The former are also perceived as not being informed or understanding of the concept of social
enterprises. A significant percentage of respondents in the quantitative survey said that social
enterprises are turned away from BDS centres. However, there is no data available on best
practices for BDS providers or on the lessons learnt thus far.
In terms of taxation, the thresholds for individual and business donations and trading by PBOs do
not contribute to an enabling environment and are, indeed, restricting. It is felt that the South
African Revenue Services (SARS) has a large contribution to make in terms of adjusting legislation
to encourage social enterprises to flourish.
Changes in legislation should go hand in hand with the extension of BDS products to social
enterprises and in raising public awareness.
Creating an enabling environment for social enterprises in South Africa is more than finding the
correct definition. It requires commitment, on a political level, to bring about the changes
needed on the legislative and regulatory level, in order to make access to finance easier for social
enterprises and for the provision of social enterprises with the same BDS as is the case with
conventional business.
These challenges are not insurmountable and could be achieved within a short space of time. It
requires the will and enthusiasm to put social enterprises on the agenda and to see this construct
as a valuable tool to be used in the creation of meaningful employment and the alleviation of
poverty.
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TABLE OF CONTENTS
CHAPTER 1 ......................................................................................................................................................... 1
BACKGROUND, SCOPE AND METHODOLOGY .......................................................................................................1
1.1.
INITIAL PROPOSED TITLE ........................................................................................................................ 1
1.2.
OBJECTIVE OF RESEARCH PROJECT ........................................................................................................ 1
1.3.
RESEARCH QUESTION AND TERMS OF REFERENCE................................................................................. 1
1.3.1.
RESEARCH .......................................................................................................................................... 1
1.3.2.
BROADENING OF THE TERMS OF REFERENCE .................................................................................... 2
1.4.
REVIEW OF TITLE OF THIS RESEARCH ..................................................................................................... 3
1.5.
ONTOLOGY AND EPISTEMOLOGY........................................................................................................... 3
1.5.1.
ONTOLOGY ........................................................................................................................................ 3
1.5.2.
EPISTEMOLOGY ................................................................................................................................. 4
1.6.
RESEARCH METHODOLOGY AND DESIGN ............................................................................................... 5
1.6.1.
METHODOLOGY ................................................................................................................................. 5
1.6.2.
RESEARCH PROCEDURE ..................................................................................................................... 7
1.7.
RESEARCH CHALLENGES ....................................................................................................................... 12
1.7.1.
QUALITATIVE SURVEY: THE VALIDITY OF FOCUS GROUP DISCUSSIONS & GROUP DISCUSSIONS ..... 12
1.7.2.
REPRESENTATIVENESS OF SAMPLE: QUANTITATIVE SURVEY ........................................................... 13
1.7.3.
TIME CONSTRAINTS ......................................................................................................................... 14
1.7.4.
BUDGET CONSTRAINTS .................................................................................................................... 14
1.8.
SIGNIFICANCE OF THE STUDY ............................................................................................................... 15
1.9.
FINDINGS: AVAILABLE DATA ................................................................................................................ 15
CHAPTER 2 ....................................................................................................................................................... 16
CONTEXTUALISING THE STUDY......................................................................................................................... 16
2.1.
GOVERNMENT PUBLICATIONS INDICATING POLICY DIRECTIONS ......................................................... 16
2.1.1.
MEDIUM TERM STRATEGIC FRAMEWORK (MTSF) ........................................................................... 16
2.1.2.
FRAMEWORK FOR SOUTH AFRICA’S RESPONSE TO THE INTERNATIONAL ECONOMIC CRISIS........... 17
2.1.3.
THE DIRECTION ................................................................................................................................ 17
2.2.
DEFINITIONS AND CONCEPTUAL CLARITY ............................................................................................ 18
2.2.1.
TOWARDS A SOUTH AFRICAN DEFINITION ...................................................................................... 18
2.2.2.
AMELIORATING SOCIAL PROBLEMS ................................................................................................. 19
2.2.3.
THE DEVELOPMENT OF THE TERM “SOCIAL ENTERPRISE” ................................................................ 19
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2.2.4.
2.3.
SOCIAL ENTREPRENEURSHIP ............................................................................................................ 20
AN ENABLING ENVIRONMENT ............................................................................................................. 21
2.3.1.
POLICY, LEGISLATIVE AND REGULATORY FACTORS .......................................................................... 21
2.3.2.
INSTITUTIONAL FACTORS ................................................................................................................ 22
2.3.3.
POLITICAL AND CULTURAL FACTORS ............................................................................................... 22
2.4 FINDINGS: POLICY DIRECTIONS .................................................................................................................. 23
CHAPTER 3 ....................................................................................................................................................... 24
IN SEARCH OF A ‘HOME-GROWN’ DEFINITION ...................................................................................................24
3.1.
FOCUS GROUP DISCUSSION ON 22 JULY 2009 ...................................................................................... 24
3.1.1.
SOCIAL PURPOSE ............................................................................................................................. 25
3.1.1.1.
BUSINESS ENTITIES TO BE CONSIDERED ‘SOCIAL ENTERPRISES’ ....................................................... 25
3.1.2.
FINANCIAL SUSTAINABILITY ............................................................................................................. 25
3.1.3.
COMMUNITY ENGAGEMENT ........................................................................................................... 26
3.1.4.
VALUES AND OPERATIONAL PARAMETERS ...................................................................................... 26
3.1.4.1.
VALUES ............................................................................................................................................ 26
3.1.4.2.
OPERATIONAL PARAMETERS ........................................................................................................... 27
3.1.5.
KEY QUALIFIERS FOR A SOCIAL ENTERPRISE .................................................................................... 27
3.2.
INTERVIEWS......................................................................................................................................... 27
3.3.
THE QUANTITATIVE SURVEY AND DEFINITION ..................................................................................... 29
3.3.1.
SOCIAL PURPOSE ............................................................................................................................. 29
3.3.2.
AMELIORATING SOCIAL PROBLEMS ................................................................................................. 30
3.3.3.
PROFIT MAXIMISATION ................................................................................................................... 30
3.3.4.
SUSTAINABILITY .............................................................................................................................. 30
3.3.5.
COMMUNITY ................................................................................................................................... 31
3.3.6.
GENERAL GOVERNANCE, MEMBERSHIP & OPERATIONAL PARAMETERS ......................................... 31
3.3.7.
VALUES ............................................................................................................................................ 32
3.3.8.
FINANCIAL GOVERNANCE IN THE EVENT OF A SURPLUS/PROFIT ..................................................... 32
3.4.
CLARIFICATION THROUGH A BROADER BASIS OF INQUIRY .................................................................. 32
3.5.
TOWARDS A DEFINITION FOR SOCIAL ENTERPRISES ............................................................................ 36
3.5.1.
3.6.
EXPLANATION OF TERMINOLOGY .................................................................................................... 36
FINDINGS ............................................................................................................................................. 40
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CHAPTER 4 ....................................................................................................................................................... 41
THE LEGISLATIVE, REGULATORY & POLICY ENVIRONMENT ...............................................................................41
4.1.
REGULATORY FRAMEWORK FOR THE NON-PROFIT ENVIRONMENT .................................................... 42
4.1.1.
KNOWLEDGE AND AWARENESS OF THE DIFFERENT LEGAL OPTIONS ............................................... 42
4.1.2.
NONPROFIT ORGANISATIONS ACT, NO. 71 OF 1997 (NPO ACT) ....................................................... 44
4.2.
LEGAL STRUCTURES FOR SOCIAL ENTERPRISES .................................................................................... 47
4.2.1.
NPO ENTITY: SECTION 21 COMPANY UNDER THE COMPANIES ACT NO 61 OF 1973 (TO BECOME A
NON-PROFIT COMPANY IN 2010) ..................................................................................................................... 48
4.2.2.
NPO ENTITY: TRUSTS UNDER THE TRUST PROPERTY CONTROL ACT, ACT NO. 57 OF 1988 ............... 49
4.2.3.
OF 1977
NPO ENTITY: VOLUNTARY ASSOCIATIONS UNDER THE NON-PROFIT ORGANISATIONS ACT, NO. 71
49
4.2.4.
FOR-PROFIT ENTITY: THE CO-OPERATIVES ACT, NO. 14 OF 2005 ..................................................... 50
4.2.5.
FOR-PROFIT ENTITY: PRIVATE AND PUBLIC COMPANY UNDER THE COMPANIES ACT, NO. 61 OF
1973, AS WELL AS THE COMPANIES ACT, NO. 71 OF 2008 ................................................................................ 51
4.2.6.
FOR-PROFIT ENTITY: CLOSE CORPORATION UNDER THE CLOSE CORPORATIONS ACT, NO. 69 OF
1984, TO BE AMENDED BY THE COMPANIES ACT, NO. 71 OF 2008 ................................................................... 52
4.3.
CURRENT LEGISLATION AND PROPOSED AMENDMENTS AT A GLANCE ............................................... 52
4.4.
OTHER IMPACTING LEGISLATION OR POLICIES..................................................................................... 56
4.4.1.
BROAD-BASED BLACK ECONOMIC EMPOWERMENT ........................................................................ 56
4.4.2.
TAXATION........................................................................................................................................ 60
4.4.3.
SECTION 18A APPROVAL – PBOS AND ENTITIES ESTABLISHED BY OR UNDER LAW CONDUCTING
APPROVED PBAS .............................................................................................................................................. 61
4.4.4.
TRADING ......................................................................................................................................... 61
4.4.5.
EMPLOYMENT LEGISLATION ............................................................................................................ 62
4.4.6.
GOVERNANCE: THE KING III REPORT................................................................................................ 62
4.5.
FINDINGS: THE LEGAL AND REGULATORY ENVIRONMENT ................................................................... 64
CHAPTER 5 ....................................................................................................................................................... 66
AN ENABLING ENVIRONMENT: BUSINESS DEVELOPMENT SERVICES (FINANCIAL AND NON-FINANCIAL) ........ 66
5.1.
FINANCIAL BUSINESS ENVIRONMENT .................................................................................................. 67
5.1.1
ISSUES RELATING TO THE FINANCIAL ENVIRONMENT IDENTIFIED BY RESEARCH PARTICIPANTS ......... 67
5.1.2
DIFFERENT TYPES OF FINANCING MODELS FOR SOCIAL ENTERPRISES ................................................. 74
5.1.3
SOCIAL ENTERPRISE FRANCHISING AND REPLICATION ......................................................................... 77
5.2.
NON-FINANCIAL BUSINESS DEVELOPMENT SERVICES (BDS) ................................................................ 78
5.2.1 WHAT DOES NON-FINANCIAL BDS ENTAIL? ............................................................................................. 78
5.2.2
ORGANISATIONS LENDING SUPPORT ................................................................................................... 82
5.2.3
GOVERNMENT AND ORGANISED LABOUR AND NPOS ......................................................................... 88
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5.2.4
ACCESSIBILITY OF SERVICES AND PROBLEMS FACING THE BDS MARKET.............................................. 89
5.2.5
RELEVANCY OF BDS.............................................................................................................................. 90
5.3.
IDENTIFICATION OF PRIORITIES ........................................................................................................... 90
5.4.
FINDINGS: ENABLING ENVIRONMENT: ACCESS TO FINANCE AND BUSINESS DEVELOPMENT SERVICES 90
5.4.1.
IN SOME INSTANCES, THE SAME FINDINGS APPLY TO FINANCIAL AND NON-FINANCIAL BDS AND
FOR THAT PURPOSE THE FINDINGS ARE COMBINED. ....................................................................................... 90
CHAPTER 6 ....................................................................................................................................................... 93
RECOMMENDATIONS ....................................................................................................................................... 93
6.1 GENERAL RECOMMENDATIONS.................................................................................................................. 93
6.2
RECOMMENDATIONS: THE LEGAL AND REGULATORY ENVIRONMENT ................................................ 93
6.3 RECOMMENDATIONS: ACCESS TO FINANCIAL AND BDS ............................................................................. 94
6.3.1
ACCESS TO FINANCE ............................................................................................................................ 94
6.3.2 BDS .......................................................................................................................................................... 95
CHAPTER 7 ....................................................................................................................................................... 97
ROADMAP FOR THE FUTURE ............................................................................................................................ 97
7.1. ON THE POLITICAL AND REGULATORY LEVEL ............................................................................................. 97
7.2. FUNDING FOR SOCIAL ENTREPRENEURSHIP AND SOCIAL ENTERPRISES..................................................... 97
7.3. CAPACITY BUILDING AND RAISING AWARENESS ABOUT SOCIAL ENTREPRENEURSHIP .............................. 98
7.4. RESEARCH ARISING FROM THIS STUDY ...................................................................................................... 98
REFERENCES ..................................................................................................................................................... 99
ANNEXURES ................................................................................................................................................... 102
ANNEXURE A: TERMS OF REFERENCE ............................................................................................................. 103
ANNEXURE B: RESEARCH SURVEY .................................................................................................................. 106
ANNEXURE C: CASE STUDIES ON BEST PRACTICE IN SOCIAL ENTERPRISE DEVELOPMENT ............................... 116
ANNEXURE D: ILO CONFERENCE ON ENABLING ENVIRONMENT ..................................................................... 119
ANNEXURE E: DEPARTMENT OF SOCIAL DEVELOPMENT – BUSINESS PLAN .................................................... 124
ANNEXURE F: CASE STUDIES OF NON-PROFIT ORGANISATIONS FOR WHICH IT IS WISE TO RETAIN THEIR
CURRENT STATUS ........................................................................................................................................... 143
ANNEXURE G: CASE STUDIES OF A VARIETY OF ENTITIES (FOR-PROFIT AND NON-PROFIT) THAT WILL BENEFIT
FROM A NEW DISPENSATION FOR SOCIAL ENTERPRISES ................................................................................ 148
ANNEXURE H: LISTING OF SERVICES, CHALLENGES AND NEEDS BY STAKEHOLDERS IN THE SOCIAL
ENTREPRENEURIAL SPACE AND BUSINESS DEVELOPMENT SERVICE PROVIDERS ............................................ 154
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List of Tables
Table 1: Demographic Breakdown of Respondents ................................................................................ 10
Table 2: Matrix – Legal Structures for Social Enterprises at a Glance ..................................................... 53
Table 3: Recommendations for Government to Advance Social Entrepreneurship (Wolk A, 2009, p.9) 66
Table 4: Financial Models available to Social Entrepreneurs .................................................................. 75
Table 5: Needs of Different Sectors ........................................................................................................ 79
Table 6: Comparison of Priorities by each Stakeholder Group ............................................................... 81
List of Graphs
Figure 1: Survey Respondents Breakdown ................................................................................................ 9
Figure 2: Primarily Social Purpose ........................................................................................................... 29
Figure 3: Ameliorate Social Problems ..................................................................................................... 30
Figure 4: Demonstrate Connectivity ....................................................................................................... 31
Figure 1: Need for Legislation ................................................................................................................. 43
Figure 2: Need for a New Entity .............................................................................................................. 43
Figure 3: Regulatory Framework on NPO ................................................................................................ 45
Figure 8: Gaining access to capital - difficulties by both SEs and entrepreneurs.................................... 68
Figure 9: Equity shareholding .................................................................................................................. 70
Figure 10: SEs operate as a for-profit to attract investors ...................................................................... 72
Figure 11: Loans by Government ............................................................................................................ 73
Figure 12: Non-financial BDS Ranking ..................................................................................................... 78
Figure 13: The Business Place Model ...................................................................................................... 88
Figure 14: % BDS Providers turning SEs seeking assistance away ........................................................... 90
Figure 15: SE awareness before changes in legislation ........................................................................... 92
List of Boxes
Box 1: Case Study - WIZZIT Bank ............................................................................................................. 35
Box 1: Case Study - Rather Profit than Multiple Registrations with Non-profit...................................... 46
Box 2: Case Study - ECONOBEE on BBBEE code interpretation .............................................................. 60
Box 4: Case Study - Blended Value and Heart ......................................................................................... 70
Box 5: Case Study - Life College, Randburg ............................................................................................. 71
Box 6: Shonaquip retains independence ................................................................................................. 73
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CHAPTER 1
BACKGROUND, SCOPE AND METHODOLOGY
The work of the International Labour Organisation (ILO) on the enabling environment for
social enterprise development in South Africa can be linked to the work of the Social
Enterprise Development Targeting Youth in South Africa (SETYSA) project. The aim of this
project is the promotion of social enterprise development in South Africa by supporting
progress towards an enabling environment.
1.1.
INITIAL PROPOSED TITLE
POLICY RESEARCH ON THE ENABLING
DEVELOPMENT IN SOUTH AFRICA
1.2.
ENVIRONMENT
FOR
SOCIAL
ENTERPRISE
OBJECTIVE OF RESEARCH PROJECT
The principle objective of the research project is, according to the International Labour
Organisation’s terms of reference (Annexure A), to contribute to the promotion of
employment in social enterprises by assisting the SETYSA project to deliver on selected
outputs in the project work plan, specifically the output concerning a widely accessible body
of empirical evidence of social business development worldwide and in South Africa.
1.3.
RESEARCH QUESTION AND TERMS OF REFERENCE
1.3.1. Research
The assignment is that, with the above objective of the research project in mind, the
University of Johannesburg (UJ) will, in collaboration with the ILO, engage in research
analysing the enabling environment for social enterprise development in South Africa. For this
purpose the following research question needs to be answered: What is the existing enabling
environment in relation to the development of social enterprises in South Africa?
1.3.1.1. What is the existing enabling environment (comprising policy, legal, regulatory and
institutional factors) in relation to the development of social enterprises in South
Africa? {The following sub-questions arise: To what extent are there policies that
specifically seek to encourage social enterprise development? To what extent are
these existing policies being implemented? Which policies, regulations, laws and
initiatives have an incidental impact on the development of social enterprises (e.g.
BEE)?}
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1.3.1.2.
1.3.1.3.
1.3.1.4.
1.3.1.5.
What examples are there in South Africa of what might be regarded as ‘best
practice’ in social enterprise development?
What preliminary recommendations could be put forward concerning changes to
the overall policy, legal, regulatory and institutional environment for the
development of social enterprises in South Africa? [These draft recommendations
will be developed through a process of focus-group discussions with key
stakeholders].
Regarding outcomes/deliverables, it is envisaged that the researcher participate in
a national conference on social enterprise development to be held from 22 to 23
October 2009.
In collaboration with the ILO, the preliminary recommendations developed in 3.1.3
above will be refined in line with the outcomes of the conference described in
3.2.1 above, and a draft roadmap for implementation of the recommendations will
be developed.
1.3.2. Broadening of the terms of reference
From the outset it was clear that the title of the research project did not capture the terms of
reference adequately. This was not seen as a major obstacle, but as the study progressed it
became clear that a number of issues required consideration:
• The development of social enterprises remains the main focus of the research, but
cannot be studied in isolation. Instead, it must rather be examined as part of the
development of the social sector in South Africa using a holistic approach.
• The emerging ILO approach that defines social enterprises as “sustainable market
solutions to social problems” is regarded as being too vague and open-ended.
However, the emerging ILO approach or definition relates to Emerson’s (2004) concept
of ”blended value”1 rather than what “social enterprises” is understood to be locally.
Therefore, broad debate and consensus about the characteristics of the phenomenon
of social enterprises or a definition became very important.
• The low level of public awareness about social enterprises
• The historic development of the social sector in South Africa
• The societal inequalities still reflected in this social sector (social enterprises are
mainly embraced by the white section of the population)
• Political and cultural issues
1
While all organisations attempt to create value of one kind or another, the central premise of the blended
value proposition is that value is itself a combination, a “blend” of economic, environmental and social factors,
and that maximising value requires taking all three elements into account. The five silos of activity identified are
that of Corporate Social Responsibility (CSR), Social Enterprise (SE), Social Investing (SI), Strategic Philanthropy
(SP) and Sustainable Development (SD). Retrieved from http://www.blendedvalue.org.
2|Page
•
New legislation envisaged for non-profit and for-profit entities to be introduced,
according to government officials, in 2010.
Therefore, the terms of reference were broadened to consider these factors as part of the
investigations into an enabling environment.
1.4.
REVIEW OF TITLE OF THIS RESEARCH
Subsequently, in view of (3) above, and the fact that this study is aimed at preliminary
recommendations, as was originally envisaged, it would be more appropriate to call it an
“exploratory study” than “policy research” as the enabling environment identified by the ILO
also includes financial and non-financial business development services. Therefore, the title of
the research should be changed to read:
AN EXPLORATORY STUDY INTO FACTORS INFLUENCING AN ENABLING ENVIRONMENT
FOR SOCIAL ENTERPRISES IN SOUTH AFRICA
1.5.
ONTOLOGY AND EPISTEMOLOGY
Briefly, one may describe the concepts of ontology, epistemology and methodology in
research as follows:
• Ontology has to do with our assumptions about how the world is made up and the
nature of things and
• Epistemology has to do with our beliefs about how one might discover knowledge
about the world.
1.5.1. Ontology
What is the nature of the phenomena, the entities or things, the social reality you want to
study, or your object of research? Mason (2002, p. 14) argues that:
… this question requires you to ask yourself what your research is about in a
fundamental way, and probably involves a great deal more intellectual effort than
simply identifying a research topic. Because it is so fundamental, it takes place
earlier in the thinking process than the identification of a topic. It involves asking
what you see as the very nature and essence of things in the social world or in
other words, what is your ontological position or perspective.
3|Page
Researchers have different and conflicting beliefs when it comes to their views of the nature
of the phenomena they intend to study. The options one has here are to start from the
premise that:
• social phenomena exist “out there”, as well as outside people’s consciousness, and as
researchers we need to study scholars’ views of these phenomena by “testing”
hypotheses derived from the existing abstract scholarly literature;
• instead of scrutinising existing constructs such as “theories”, in order to assist us in our
understanding of phenomena, we should rather, at least initially, establish and
describe people’s everyday experiences (that is, how they make sense of the their
reality) by using methods sensitive to them; and
• people constantly create social phenomena and when we study the phenomena we
actually co-construct what we study.
Like the exponents of interpretive and related constructivist paradigms (and also in the case
of this research project), the researcher is interested in understanding the world of lived
experience from the point of view of those who live it – the social enterprises, the social
entrepreneurs, bodies or organisations representing them, the relevant government
departments dealing with social enterprises and their environment, academics studying the
phenomenon of social enterprises, the sponsors of social enterprises and so on. The
researcher contends that social reality is not a given, but is built up over time through shared
history, experience and communication. In other words, a person is an agent who actively
constructs meaning within an ever-changing social and historical context. That which is taken
for “reality” is what is shared and taken for granted as the way the world is perceived and
understood. In order to appreciate the lived world of experience, we must engage and
participate in it; we must actively interpret it (Locke, 2001).
1.5.2. Epistemology
Epistemology or theory of knowledge is the branch of Western philosophy that studies the
nature and scope of knowledge (http://www.wikipedia.org/epistemology). How do we know
what we know? What is knowledge? What is reality?
Schwandt (2007, p. 87) writes:
This is the study of the nature of knowledge and justification. There are many
theories of epistemology. For example, empiricist epistemology argues that
knowledge is derived from sense experience. Genuine, legitimate knowledge
consists of beliefs that can be justified by observation. Rationalist epistemology
argues that reason is the sure path to knowledge. Rationalists may claim that
sense experiences are an effect of external causes; that a priori ideas (concepts,
theories, etc.) provide a structure for making sense of experience; and/or that
reason provides a kind of certainty that the senses cannot provide.
4|Page
Mason (2002) says that questioning what we regard as knowledge or evidence of things in the
social world entails the epistemological question. In general, these questions are designed to:
…help you to explore what kind of epistemological position your research expresses or
implements. It is important to distinguish questions about the nature of evidence and
knowledge — epistemological questions — from what are apparently more
straightforward questions about how to collect, or what I shall call ‘generate’ data. Your
epistemology is, literally, your theory of knowledge, and should therefore concern the
principles and rules by which you decide whether and how social phenomena can be
known, or how knowledge can be demonstrated. Different epistemologies have different
things to say about these issues, and about what the status of knowledge can be …
Epistemological questions should therefore direct you to a consideration of philosophical
issues involved in working out exactly what you would count as evidence of knowledge of
social things (Mason, 2002, p. 16).
Epistemology also asks questions about how knowledge is constructed and here the following
aspects are important:
•
Developing knowledge by applying the methodology of the natural sciences
“objectively” to social phenomena and mathematically proving relationships
between variables or causes
•
Building knowledge by applying non-quantitative methods to social phenomena
and reconstructing the experiences and views of people involved in such
phenomena
•
In building knowledge, acknowledging that researchers cannot remain aloof as the
preceding positions suggest, since they co-construct the data required to create
knowledge.
The epistemological position of the researcher would be (iii) above. In other words, the
relationship of the knower and what is known are inseparable.
1.6.
RESEARCH METHODOLOGY AND DESIGN
1.6.1. Methodology
Methodology has to do with the tools and techniques of research. The methodology can use
either qualitative methods (such as such as interviews, focus groups, or participant
observation), or quantitative methods using research techniques to gather data for
information dealing with numbers and anything that is measurable. Statistics, tables and
graphs are often used to present the results of these methods. Therefore they are to be
distinguished from qualitative methods. The decision to use either qualitative or quantitative
techniques largely depends on what is being investigated.
5|Page
According to Borkan (2007):
… the nature of quantitative research and its data collection tools allow the researcher to infer
only about that which he or she is examining (you “see” only what you are “looking at”),
whereas qualitative methods can expand the gaze to key elements that were never elucidated or
even previously considered.
Mixed methodology is about using both qualitative and quantitative research. While it can be
said that a mixed methodology may be incompatible with ontological and epistemological
stances, it is often overlooked that ontological theories do not entail epistemological ones
and especially those methods wrongly associated with a given epistemological theory.
Furthermore an ontological position (e.g. realism) does not commit one to a given
methodology (Tashakkari & Teddle, 2002).
Using mixed research techniques, or mixed methodologies, has advantages, for example the:
• improved strength of the research
• use of multiple methods in a research study helps one to research a process or a
problem from all sides
• usage of different approaches helps the researcher to focus on a single process and it
also confirms the accuracy of data. Employing mixed research methods complements
a result from one type of research with that yielded by another one. This research
does not miss any available data.
Hunt (2007) succinctly describes quantitative and qualitative methods as follows:
For example, a quantitative component of a mixed research assumes the usage of deductive
scientific method while a qualitative component assumes inductive scientific method. Moreover,
a quantitative approach collects quantitative data based on exact measurement applying
structured as well as validated information collection. For instance, rating scales, closed-ended
items and responses. This approach produces a statistical report with correlations.
A qualitative component uses qualitative information. For instance, interview, field notes, openended questions, etc. This approach considers a researcher to be the major means of
information collection. At the end of a research, this approach supposes a narrative report with
context description and quotations taken from research material.
Therefore, the researcher is of the opinion that using mixed methodology and carefully
reflecting on, and discussing, particular lived experiences through interviews, focus group
discussions, and controlling interviews, and by also gathering data through surveys, in some
instances, this will bring about important insights into what social enterprises entail, the role
of social entrepreneurship within this context, and the current and desired enabling social
environment needed to enhance the capacity of social enterprises in South Africa.
6|Page
1.6.2. Research procedure
In the Terms of Reference (Annexure A) initially provided by the ILO, a qualitative method was
indicated as the research methodology. However, the use of conferences and breakfast
seminars are not good practice for gathering data because the validity of such data can be
contested.
At the outset, it was decided that the research procedure would include the following:
• Identification of factors influencing the development of an enabling environment
The researcher and the ILO’s senior technical advisor for the project identified such factors.
However, as the research progressed, other factors emerged that were included in the study
so as not to limit the study and to provide a comprehensive picture of these factors as they
emerged.
• Review of related literature and documentation
This assignment requires a review of related local and international literature as well as
investigation into policy, legislation and regulatory documentation about social enterprises as
well as social entrepreneurship. Social enterprises and social entrepreneurship represent
significant overlapping areas.
Current South African policies, legislation and regulations have been studied and analysed for
the purpose of this research project.
In carrying out the study, the researcher was desk-bound while engaging in telephonic
interviews, correspondence and gathering relevant information.
•
Telephonic and Personal Interviews
Where possible, especially in the case of thought leaders or heads of departments,
participants have been interviewed in person, while telephonic interviews sufficed in other
instances. These interviews involved the relevant officials in all levels of government,
government agencies and providers of financial and non-financial business development
services to establish what they understand social enterprises to be; the level of awareness
about social enterprises in that specific organisation; whether the organisation supports social
enterprises; what policies are in place to support social enterprises or policies they wish to
put in place, and what should be done specifically to support social enterprises.
For purposes of confidentiality, the names of participants cannot be revealed.
7|Page
•
Survey (quantitative)
The quantitative methodology became essential in the light of problems experienced with the
qualitative data (see 1.7), especially in the case of focus group discussions, and represents a
switch to mixed methodology for this study.
For the purposes of the research project, the contact list, containing 356 names, was used as
a database. Potential participants each received, from the researcher, a personal email with a
link to the online survey, followed by an SMS requesting them to participate voluntarily. This
process was repeated a week later. The Create Survey facility on CreateSurvey.com has been
used for this purpose, and in those cases where people expressed the wish to complete a
hard copy rather than using the online facility, a questionnaire was sent via fax/email and in
the same manner for online processing. A copy of the questionnaire is attached as Annexure
B.
The contact list comprised the following categories of contact persons:
o National government departments (Department of Trade and Industry, the
Department of Social Development, South African Revenue Services and the
Department of Labour) [42 potential participants]
o Provincial government departments (Premier’s office or otherwise directed)[26
potential participants]
o Local government (CEO or otherwise directed), which includes the capital cities of
each of the provinces [28 potential participants]
o Financial and non-financial service providers [79 potential participants]
o Government agencies (such as National Development Agency [NDA]) and organised
labour [68 potential participants]
o Social entrepreneurs [40 potential participants]
o Corporate social investors [79 potential participants].
While this list indicates a potential of 356 participants, some of these participants were was
indicated as personal assistants of the contact person and, therefore, they were not expected
to participate – but it cannot be excluded that they did, indeed, participate. Furthermore, 14
emails bounced because of incorrect addresses, and in 12 cases [3.4%] the correct email
address could not be determined. Therefore, only 344 of the contacts had valid email
addresses.
The African Social Entrepreneur Network (ASEN) also sent out a link to the survey in a generic
news flash and one may gauge that some of the social entrepreneurs who participated in this
survey would have come from that source too. However, the response level of the participant
social entrepreneurs remained consistent at 33.33% of all respondents throughout the
survey, and even after the generic news alert of ASEN, did not result in an increase in the
volume of participants.
8|Page
The personalised emails, SMSs and telephone calls to participants were instrumental in
driving participants to the online questionnaire. It can also be assumed that social
entrepreneurs are more likely to participate as the issue of social enterprise affects them
directly – more so than any other group on the contact list.
It is then fair to assume that the 87 persons who participated in the survey, representing as
much as 25.3% of those targeted from the contact list, signify a representative sample of
persons known to be dealing with social enterprises or social entrepreneurs running social
enterprises. Unfortunately, there is no reliable and comprehensive database for social
enterprises available in South Africa.
The graph below indicates the extent of participation in the different categories within the
contact list:
Figure 1: Survey Respondents Breakdown
48.28% of the respondents were male, while 51.72% of the respondents were female and
94.25% were South African citizens.
It was evident from the data that the social enterprise space is still mainly occupied by white
South Africans (53.5%) and that they are notably more active in the private or economic
sector as indicated below
9|Page
Table 1: Demographic Breakdown of Respondents
(d) Provider
of non-
(b) Social
(c) Provider
QUESTION:
financial
(a)
Entrepreneurial of financial
How would
business
National,
concern
/
business
you be
development
Provincial or
Social
services
services
classified by
Local
Entrepreneur /
(such as
(such as
the South
Government
Non-profit
banking,
training,
African
department
Entity / Social investment,
business
government?
Enterprise
broker)
(e) Both
(c) and
(d)
(f) Corporate Social
Responsibility(CSR)
/Corporate Social
Investment(CSI)/
Foundation /
Fellowship or grantmaker
(g) Other,
please
specify:
plan,
marketing)
50%
13.79%
20%
21.43%
50%
25%
8.33%
8 of 16
4 of 29
1 of 5
3 of 14
1 of 2
2 of 8
1 of 12
12.5%
68.97%
80%
57.14%
50%
62.5%
50%
2 of 16
20 of 29
4 of 5
8 of 14
1 of 2
5 of 8
6 of 12
31.25%
13.79%
0%
14.29%
0%
12.5%
33.33%
5 of 16
4 of 29
0 of 5
2 of 14
0 of 2
1 of 8
4 of 12
6.25%
3.45%
0%
7.14%
0%
0%
8.33%
1 of 16
1 of 29
0 of 5
1 of 14
0 of 2
0 of 8
1 of 12
5.88%
0%
0%
0%
0%
0%
1 of 17
0 of 29
0 of 5
0 of 14
0 of 2
0 of 8
(a) Black
(b) White
(c) Coloured
or of
Indian/Asian
descent
(d) Other,
please specify
0%
No response
The fact that the social entrepreneurial space and the corporate social investor space are
predominantly white is also evident from observing attendance at social entrepreneurial
functions where the attendees are mainly white. The same is the case for providers of
financial and non-financial business development services and investors in the social
enterprises.
The distribution of male and female respondents, as well as observations made in terms of
the distribution of colour in the sector, indicates that the researcher was able to obtain a
reasonably reliable sample, enabling the researcher to draw meaningful findings and to make
the appropriate recommendations.
10 | P a g e
•
Focus Group Discussions and Pilot Studies
Focus group discussions were arranged for the following dates to explore various aspects of
the enabling environment:
22 July 2009
27 August 2009
3 September 2009
10 September 2009
Definitional Clarity
Financial Aspects (Pilot Study)
Legal, Policy and Regulatory Aspects (Pilot Study)
Non-financial
(In two instances, the desired number of representatives could not be obtained. The
discussions took place nonetheless, and, therefore, the information gleaned from these
discussions prompts this to be regarded as a pilot study).
Criteria for selection for the focus group discussion were based on the following:
• In the case of government departments, the relevancy of the topic under discussion to
the participant’s scope of responsibilities was taken into consideration.
• In the case of social entrepreneurs or social entrepreneurial representative bodies,
their contribution regarding specific aspects (e.g. business development services) was
considered.
• In the case of private sector participants, the relevancy of their positions and degree
of contact with social enterprises was considered.
• Business development service providers (financial and non-financial) were invited to
participate in the relevant discussion.
• Academics were invited to participate where their knowledge and theoretical input
could enhance the discussion.
When it was not possible for focus group participants to be physically present, they
participated via speaker phone.
All the focus group discussions took place at the ILO offices in Pretoria. With the exception of
the Legal and Regulatory Focus Group, all focus groups were moderated by the researcher,
while the Senior Technical Advisor of the ILO acted as note taker.
•
Documenting examples of best practices in social enterprises in South Africa
The interviews held prior to the focus group discussions led the researcher to examples of
best practices in social enterprises. The example of “best practices” has been documented to
include the following:
o Demographic details of the enterprise (that is, number of years in existence; name;
where situated; board members; area of operation; reliability; the business model
being used and reason therefore)
o Impact
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o Streams of income
o Corporate governance
o Sustainability.
o Changes needed for upscaling.
(A typical questionnaire used for this purpose is attached as Annexure C)
1.7.
RESEARCH CHALLENGES
1.7.1. Qualitative Survey: The validity of Focus Group Discussions & Group Discussions
It was difficult to put focus groups together and in two instances, despite the best attempts
by the ILO office, participants could simply not fit it into their schedules, and so all the
researcher could do was merely to use this information as a discussion or field study. Neither
could the following be used for scientific purposes: the e-conference arranged by ASEN/ILO to
deal with social enterprise definition; the legal and regulatory environment; access to finance
and business development services. The unscientific structuring of such conferences made it
unsuitable for data gathering.
While focus group discussion and group conversations (or group discussions as was used at
the conference after the survey) are useful tools, there are definite disadvantages such as
facilitator bias; the dominance of strong personalities who tend to take over groups and
“drown” other viewpoints, and the fact that agreement is usually built around strong
individuals’ viewpoints rather than by consensus. The issue evokes associations with
Heisenberg’s famous Uncertainty Principle2. Heisenberg argued that what we observe is not
the real situation, but a situation exposed to our methodology of question or, for that matter,
to facilitation. Similarly group dynamics play an important role. Indeed, the design of the
focus group study (e.g. respondent selection, the questions asked, how they are phrased, how
they are posed, in what setting, by whom, and so on) affects the answers obtained from
respondents. The position of each of the participants may play a role, for someone lower
down the hierarchy or who is in an acting position may not feel as free to express him/herself
where his/her seniors or peers may be present.
The focus groups or discussion groups in other circumstances are placed in an artificial
environment, which can influence the responses generated. For this reason the ethnographic
methodology is often preferred over focus groups because, in the case of the latter, the
environment is real, whereas in the case of focus groups, people collect, by design, in a
meeting room. Thus, participants might behave differently and that has an impact on how
they respond. This fact was evident during interviews when a member who agreed to some
principle in a focus group discussion would acknowledge that he could not express his real
2
Retrieved from http://en.wikipedia.org/wiki/Heisenberg on 6 November 2009
12 | P a g e
opinion in the group (possibly because of the presence of a strong individual, or from being
shy or because he did not want to offend the “majority”).
One of the participants of a discussion group at the ILO conference held from 22-24 October,
with hindsight, complained that the person who did the report-back for their group’s
contribution misconceptualised what the group had said, and felt that what was presented
did not adequately reflect the decisions taken by the group.
The focus groups and group discussions were particularly problematic and, as Douglas
Rushkoff (2005)3 argues, focus groups and group discussions are often useless and frequently
cause more trouble than they are intended to solve, with focus groups often aiming to please
(the facilitator, members of the group) rather than offering their own opinions or evaluations.
However, the researcher’s experience is that focus group discussions are more successful in
cases where the group is homogeneous in respect of status and position of the participants,
age group and sex – for example, where the group comprises staff nurses working night shift,
or a group of pharmacists. It was not possible to have a homogenous focus group or a group
discussion in this study, which resulted in unreliable data being gathered in this manner.
Amelioration of this challenge:
The problem has been ameliorated through a large number of personal and telephonic
interviews by large number of known stakeholders (almost 60 persons), who provided better
background information for the quantitative survey – which was conducted towards the end
of the survey in an effort to make it more valid. Therefore, the personal interview is regarded
as a valid form of data gathering over focus groups, e-conferences and group discussions.
1.7.2. Representativeness of sample: Quantitative Survey
The format of the research in the case of the quantitative survey was both a hard copy of the
research questions and the opportunity for respondents to fill in the questionnaire online.
While a somewhat different and, in some cases, significantly different response was obtained
with the quantitative survey, the data gathered from the respondents in the quantitative
survey was more reliable than that gathered through group discussions.
However, it must be pointed out that the list of respondents used cannot be regarded as
representative of the “sector” or of all stakeholders but representative of the available
information.
Amelioration of the challenge:
3
Rushkoff, D. (2005). Get back in the box : innovation from the inside out, New York : Collins.
13 | P a g e
The quantitative survey represents a reasonably known stakeholder basis and so, in order to
avoid criticism, the title of this research has been changed to an exploratory study rather
than having it regarded as a fully-fledged research project. One cannot set aside that this was
still the best possible way to obtain scientific data: therefore, the outcome of the quantitative
survey is, for purposes of the study, valid.
1.7.3. Time constraints
The conference was originally planned for the end of November 2009 (which could have led
to a reasonable time frame in which to conduct the research) with a final report date
scheduled for 31 December 2009. There was good motivation to move the conference
forward and have it coincide with the social economy conference, but the unintended
consequence was that the research suffered as a result of the rescheduling. Given the short
period for the research – it must be remembered that it takes a much longer to conduct
qualitative research than it does qualitative research – it was extremely difficult to meet the
deadline. This affected the quality of the draft report which was used at the ILO conference
from 22 to23 October. In terms of the time available in which to properly formulate the
findings and recommendations and to pay attention to the legal section as well as the findings
and recommendations, some quality was lost.
A further problem is that time constrains not only affected the researcher but also those who
had to be interviewed. While some of the interviews were very important, these could not
take place because schedules could not be synchronised. Earlier in this progress report, the
time constraints in terms of transcribing and inserting all the interviews were also mentioned.
It was simply a nightmare for the researcher to pull all of these issues together in such a short
period of time and, unfortunately, these constraints could not have been foreseen in the
research proposal or by the ILO, for the need to delve deeper and consult more persons as
well as other factors only became apparent during the course of the research project.
However, some concerns around the definition emerged in December and it was dealt with in
2010 and included in this final report.
1.7.4. Budget constraints
The additional work also led to the original budget being too small, resulting in a shortfall of
income over expenditure in terms of this specific project and which is to be carried by the
University of Johannesburg.
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1.8.
SIGNIFICANCE OF THE STUDY
To the researcher’s knowledge, this study is the first of its kind in South Africa, and the
findings and recommendations are largely expected to help point the way towards an
enabling environment in South Africa where social enterprises could flourish.
The findings of the study will also be used in e-conferences to be held after the focus-group
discussions to stimulate broad dialogue among members of the general public. Moreover, the
findings of the research will be presented at a national conference to be held from 22 to 23
October 2009 and hosted by the ILO.
The University of Johannesburg will be hosting the Social Enterprise World Forum (SEWF)
2011 event, where this study and subsequent developments/studies could be among the
topics discussed.
1.9.
FINDINGS: AVAILABLE DATA
The primary findings of the research study emerging from this first chapter are the following:
1.8.1. There is no reliable database on who does what in the social entrepreneurial space.
1.8.2. The social enterprise space is still predominantly white as evident from the data
provided on page 10 of this report.
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CHAPTER 2
CONTEXTUALISING THE STUDY
During the course of 2009, government published a few important documents that are
indicative of policy pertaining to social and economic development for the country. The policy
documents will provide a backdrop, or even a mandate, for the development of further
policies and other factors that may influence the development of social enterprises in South
Africa.
2.1.
GOVERNMENT PUBLICATIONS INDICATING POLICY DIRECTIONS
2.1.1. Medium term strategic framework (MTSF)
In July 2009, the Minister for Planning in the Presidency issued a framework to guide
government’s programme in the electoral mandate period 2009 to 2014. While this lengthy
document cannot be discussed in full here, it is worthwhile to note that the halving of poverty
and unemployment by 2014 is envisaged, while economic and social infrastructure is
identified as a priority area.
It is of particular importance that the critical role that each sector has to play in addressing
the challenges facing South Africa enjoys recognition in the MTSF:
These efforts have the potential to lay the foundation for a social compact among
South African social partners in ensuring a speedy recovery and setting the country
on a higher and more inclusive growth and development trajectory. At the core of
this should be efforts to build a developmental state with the strategic, political,
administrative and technical capacity to give leadership to this process, and an
active civil society. These capacities and partnerships cannot be decreed: they are
meant to emerge in the context of the development and implementation of both the
strategic vision of the South African nation and the medium-term strategy derived
from the electoral mandate (p. 5).
South Africa understands itself to be positioned within a global environment and
acknowledges that changing the social and economic structure, and culture, of society would
take a long time, but that a shared agenda should aim at securing an explicit social agreement
commanding the support and commitment of all the major stakeholders in society that is
arrived at through a process of social dialogue.
16 | P a g e
It is also envisaged that the state and all sectors of society work with their counterparts in
Africa and across the globe to build a better world.
The main focus in the foreseeable future is to:
minimise the impact of the economic down turn in the country’s productive capacity as
well as jobs and poverty-reduction measures, to identify opportunities for new areas of
growth and economic participation....
The document argues that it would require a change in mindset and performance on the part
of the state, the private sector and all of civil society in a developmental state:
“complementary and mutually-reinforcing activities among all social actors” are needed.
The paper argues that growth did not accrue equitably to all sections of society because of
factors such as weak support for small and micro-enterprises and co-operatives. In fact, the
strengthening of the competitiveness and promotion of small and medium-sized (SMEs) and
co-operatives “remains a cornerstone for the growth of the economy and the creation of
decent work opportunities”.
It is also argued that the taxation system should encourage higher levels of productive
investment and employment creation in an effort to maximise the creation of decent work.
While a number of developmental priorities are addressed in the paper, it is important to
note that South Africa sees itself within the context of Africa, and as a regional player; bearing
this in mind, the development of the social sector and particularly social enterprises must also
be viewed in this light.
(From: “Together Doing More and Better: medium term strategic frame (MTSF). A framework
to guide government’s programme in the electoral mandate period from 2009-2014”)
2.1.2. Framework for South Africa’s response to the international economic crisis
This document emphasises the role of co-operatives (and by implication social enterprises
too) : “The parties recognise the important role that cooperatives can play in absorbing the
unemployed and the poor into employment as well as in providing services in poor
communities. Accordingly, the parties agree to promote the establishment and funding of
cooperatives, including housing cooperatives and to ensure proper support for and regulation
of the cooperative sector.”
2.1.3. The direction
It is clear from the above policy documents (2.1.1 and 2.1.2) that the newly-elected South
African government values, among other things, initiatives that seek:
17 | P a g e
•
the development of co-operatives (and, by implication, social enterprises) as one of
the areas by which to increase the number of decent work opportunities
•
to align development in South Africa in the African and regional southern African
context
•
co-operation between all stakeholders to alleviate poverty and stimulate
development, including social development
•
to stimulate and strengthen SMEs for economic growth
•
to encourage high levels of investment through a favourable tax system.
2.2.
DEFINITIONS AND CONCEPTUAL CLARITY
Although not intended and not foreseen by the ILO, the issue of finding a definition or
conceptual clarify formed a very important part of the study, because all policy and regulatory
arguments and changes would be built around a definition and what is understood in South
Africa and by South Africans. No other issue regarding this study was debated as fiercely as
that of a definition, or of what would be meant when referring to a social enterprise.
Therefore, the international literature review or conceptual framework, which was also
commissioned by the ILO and lead by the Catholic University in Leuven, Belgium,
acknowledges in the first paragraph that “despite the increasing academic interest in social
economy and social entrepreneurship, there is no common conceptual agreement and
understanding of these concepts” (Deraedt, 2009; p. 2). Some of these concepts are familiar
in that they are widely used in South Africa, whereas others are not. It is notable that the
bibliography indicates a strong European orientation.
2.2.1. Towards a South African definition
It was felt that a “home-grown” definition and description of social enterprises would serve
South African interests best. Therefore, for the purpose of the study, the researcher set out to
understand what the different stakeholders understood “social enterprises” to mean;
whether there is a need to call specific entities “social enterprises” and what the
characteristics of such an entity should be so as to enable the researcher to propose a
definition that would be acceptable to all stakeholders.
The emerging ILO approach defines social enterprises as “sustainable market solutions to
social problems”. In the same vein, Thompson & Doherty (2006) contend that: “Social
enterprises – defined simply – are organisations seeking business solutions to social
problems.” When this emerging approach and the definition posed by Thompson & Doherty
are analysed, a sustainable market solution or business solution refers to “those enterprises
18 | P a g e
with a viable business model, which may incorporate a variety of income streams, in line with
the ILO understanding of ‘sustainable enterprises’. With this definition it is understood that
“social problems” are addressed by making use of economically viable business models. When
describing these models, it became clear that, although the definition can be considered very
wide and vague – as is the case with the ILO definition – the characteristics described by
Thompson and Doherty clearly distinguish a social enterprise from a conventional enterprise
creating social value.
2.2.2. Ameliorating social problems
It is clear from the above descriptions that social enterprises are specific to ameliorating
social problems. In the process of moving towards conceptual clarity, one should also be clear
as to what is considered a social problem. A widely acknowledged definition of social
problems includes the following:
• An existing and socially undesirable condition or phenomenon in society (three
general areas of social problems are: deviant behaviour, social inequality and conflict,
and problems relating to human progress and social change)
• It compromises certain basic and generally accepted values in society
• A significant number of people are affected by this condition/phenomenon
• There is a strong feeling that something should be done about it by means of some
form of collective action.
2.2.3. The development of the term “social enterprise”
The concept of the “social enterprise” was first developed by Freer Spreckley in 1978:
An enterprise that is owned by those who work in it and/or reside in a given locality,
is governed by registered social as well as commercial aims and objectives and run
co-operatively may be termed social enterprise. Traditionally, ‘capital hires labour’
with the overriding emphasis on making a ‘profit’ over and above any benefit either
to the business itself or the workforce. Contrasted to this is the social enterprise
where ‘labour hires capital’ with the emphasis on personal, environmental and
social benefit.4
According to Jeff Boschee (2003), social enterprises developed when the non-profit sector
began exploring earned-income strategies during the 1980s and 1990s when they were
searching for new sources of revenue to help them maintain and expand their programmes.
Boschee (2003) contends: “They were dealing with a simple, deadly fact: Traditional sources
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of revenue – charitable contributions and government subsidies couldn’t keep pace with
social needs. So they set out to find the money they needed to serve more people...”
A distinguishing feature of social enterprises is their emphasis on generating an income as
opposed to simply venturing forth with a begging bowl. Even those social enterprises that
receive donations tend to consider them as prepayments for a service purchased on behalf of
their beneficiaries. Social enterprises actively sell the social changes they wish to create in
society, and package their services and brand themselves accordingly
(http://www.businesssculptors.com/social-enterprise-folder/social-enterprises-heralding-a-new-era).
Seen from this point of view, therefore, it is clear that a large number of social enterprises
would declare their “grants” as a type of income. Similarly, tax breaks or subsidies received
from government (in the case of care for the elderly) would be seen in the same light.
The Social Enterprise Alliance (SEA), that is based in the United States of America (USA) and
has membership mainly from the USA and Canada, broadened its definition of Social
Enterprise in March 2006 to read as follows: An organization or venture that advances its
primary social or environmental mission using business methods. Previously, its definition
was: “Any earned-income business or strategy undertaken by a non-profit to generate
revenue in support of its charitable mission” (http://en.wikipedia.org/wiki/Social_enterprise).
This change in definition specifically encompasses for-profit entities with social or
environmental missions, since some organisations are choosing to incorporate as for-profit
corporations (and some non-profits are creating for-profit subsidiaries). The focus here is on
the enterprise being carried out by an organisation, and generating revenue, but not
necessarily a surplus (http://en.wikipedia.org/wiki/Social_enterprise). It must also be
remembered that, in the same way as any business, social enterprises may suffer losses in
one year and have a surplus in the next. A surplus is not always an indication of the social
enterprise status of the entity.
A discussion of findings of research into social enterprises will indicate South Africans’
preferences for a social enterprise model.
2.2.4. Social entrepreneurship
The terms social entrepreneur and social entrepreneurship were first used in literature about
social change in the 1960s and 1970s5. It came into widespread use in the 1980s and 1990s,
and was promoted by Bill Drayton, the founder of Ashoka: Innovators for the Public.
5
For example, the phrase was used as a description of Robert Owen in J Banks, The Sociology of Social Movements, London:
MacMillan, 1972
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Social entrepreneurship is an emerging field of inquiry and therefore there is no single
preferred definition. According to Bill Drayton, “leading social entrepreneurs” would:
• provide unique solutions to social problems
• have a huge social impact crossing regions and national borders
• be replicable and sustainable
• occurs within or across the non-profit, business and public sectors
• be a dynamic process created and managed by an individual
• strive to exploit social innovation with an entrepreneurial mindset
• create new social value in the market and community.
Dees (2001) contends that social entrepreneurs play the role of change agents in the social
sector by displaying certain characteristics apart from adapting a mission to create and
sustain social value, “recognizing and relentlessly pursuing new opportunities to serve that
mission; engaging in a process of continuous innovation, adaptation and learning; acting
boldly without being limited by resources currently in hand, and exhibiting heightened
accountability to the constituencies served and for the outcomes created”.
It is accepted that although not all social entrepreneurs might run social enterprises, and not
all social enterprises will be lead by social entrepreneurs, these areas do indeed overlap.
2.3.
AN ENABLING ENVIRONMENT
For purposes of the research study the concept of an existing enabling environment would
include policy, legal, regulatory and institutional factors that would play a significant role in
bringing about social enterprises in South Africa. In Cabinet’s publication on the Third Sector,
“Social enterprise action plan. Scaling new heights” (2006), it is clear that government does
not create social enterprises, but that it can create conditions that enable social enterprises
to thrive. In the United Kingdom (UK), the Government achieved this by:
• fostering a culture of social enterprise
• ensuring that the right information and advice are available to those running social
enterprises
• enabling social enterprises to access appropriate finance
• enabling social enterprises to work with government.
2.3.1. Policy, legislative and regulatory factors
Defining policy factors is not easy because the word “policy” itself is not tightly defined.
Webster's dictionary has a number of closely related definitions. They are:
• A definite course or method of action selected (by government, institution, group or
individual) from among alternatives and in the light of given conditions to guide and,
usually, to determine present and future decisions.
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•
•
A specific decision or set of decisions designed to carry out such a course of action.
Such a specific decision or set of decisions together with the related actions designed
to implement them.
• A projected programme consisting of desired objectives and the means to achieve
them (http://www.fao.org/wairdocs/ilri/x5547e/x5547e05.htm)
All policies that have a bearing on social enterprises – whether the regulatory or policy
environment governing social or conventional enterprises – will directly or indirectly influence
the development of social enterprises in South Africa. Studying the policy, legislative and
regulatory factors would naturally involve studying the environment as well as interviewing
key stakeholders on the issue of creating an enabling environment for social enterprises.
2.3.2. Institutional factors
There are a number of government and private institutions that serve to create an enabling
environment for social enterprises. Apart from government agencies - such as the Small
Enterprise Development Agency (SEDA) or the National Youth Development Agency and
municipalities - providing financial and non-financial support, universities such as the
University of Johannesburg, the University of Pretoria’s business school (GIBS), Stellenbosch
University and the University of South Africa (UNISA) are also showing an interest by
establishing special units dealing with social entrepreneurship. Furthermore, the World Bank
Institute is also encouraging student participation in social entrepreneurial competitions.
Ashoka and, to a lesser extent, Echoing Green and others, directly support social
entrepreneurs with seed capital, while organisations such as the Skoll Foundation, Schwab
Foundation, Acumen Fund and a number of other organisations operating locally and
internationally are playing a role in creating an enabling environment by raising awareness,
through competitions and by facilitating a variety of activities that would benefit social
enterprises financially and otherwise.
There are a number of business development agencies such as The Business Place, Social
Incubators, The Greater Good South Africa, that are already in place in South Africa and
delivering financial and non-financial business development services to stakeholders.
2.3.3. Political and Cultural factors
Political factors and particularly the role of the non-profit sector during the struggle were
considered too.
There is also a need for “home-grown” solutions instead of South Africans merely copying
foreign solutions and attempting to apply them successfully to local problems. One has to
take the resistance to what is considered “foreign solutions” into consideration.
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One could also ask the question whether a philosophy such as “ubuntu”6 plays a role in
creating an enabling environment for social enterprises in South Africa and, specifically, how
co-operatives, as a form of social enterprise, could blend with the cultural disposition. Apart
from a literature survey, dialogue with key stakeholders would be of importance.
2.4 FINDINGS: POLICY DIRECTIONS
2.4.1. A foundation has been laid for social enterprises to flourish through the provision of
major policy documents such as the MTSF document by the Minister for Planning in the
Presidency (2009) and the Framework for South Africa’s response to the International
Crisis (2008). These documents encouraging social enterprise development to create
decent work opportunities, the alleviation of poverty and the promotion of high levels
of investment through a favourable taxation system.
2.4.2. There is a need for a ‘home-grown’ definition.
The next chapter will deal with a ‘home-grown’ definition and the importance of clarifying the
nature of the building blocks underpinning this definition – such as values and community
engagement.
6
This is short for: Umuntu ngumuntu ngabantu – a person is a person through other people
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CHAPTER 3
IN SEARCH OF A ‘HOME-GROWN’ DEFINITION
The search for a definition for ‘social enterprises’ and reaching consensus on the
characteristics of a social enterprise have been fiercely debated in focus group discussions.
These issues emerged as being important in the quantitative survey too.
It was also viewed as imperative that South Africa adopts its own version of social enterprises
rather than simply embracing a European or an American version. In other words, there
should be broad consensus about what constitutes a social enterprise for South Africans.
South Africans are not familiar with the word ‘social enterprises’. However, on 28 September
2009, Mr Gerry Higgins, chair of the Social Enterprise World Forum, conceded in a telephonic
conversation with the researcher that the situation is similar in Scotland where his social
enterprise, CEiS, is based. When you ask people in Scotland what a social enterprise is, they
are likely to be uncertain, but if you direct them to examples of social enterprises (such as
Divine chocolates, which is well-known in the UK) they immediately understand. The
researcher also observed at the Social Enterprise World Forum in Melbourne, Australia in
2009 that, gauging from conversations and questions during presentations, many participants
could not distinguish a charity from a social enterprise.
There is a difference when participants debate the issue of social enterprise in a focus group
and when they answer questions about the characteristics of a social enterprise in a
quantitative survey. In the focus group, some participants’ viewpoints are more dominant
than others, and this could sway the opinion to one side or another. When the majority
opinion in the focus group discussion was tested during interviews with participants, the
focus group’s opinion prevailed in the majority of cases.
3.1.
FOCUS GROUP DISCUSSION ON 22 JULY 2009
It is, therefore, important to look more closely at the focus group discussion that took place at
the ILO offices in Pretoria on 22 July 2009. The purpose of this focus group discussion was to
explore characteristics and approaches to social enterprise in South Africa which could lay the
foundation for establishing a definition.
The sampling of participants was stratified to include the following stakeholders:
• Academic interest
• Representatives from the relevant government departments
• Social entrepreneurial associations/networks/sponsors,
• Tripartite constituents, and
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•
Social enterprises not represented by any of the institutions.
Seven people accepted the invitation and were present in person, while two participants
were connected to the meeting through a speaker-phone.
The summary below reflects the majority viewpoint in the discussions and acknowledges that
one or two participants may, at times, have held different viewpoints. However, in terms of
this summary, differences were accommodated, but in essence the summary reflects the
majority viewpoint.
The following key issues emerged:
3.1.1. Social Purpose
A business is considered to have a social purpose if the social objectives are aimed at
ameliorating social problems and creating social value.
3.1.1.1.
Business entities to be considered ‘social enterprises’
Social enterprises would include the following business entities:
• Entities operating as non-profit organisations (NPOs), Section 21 companies,
cooperatives, social entrepreneurial concerns, NGOs and other business forms7
• Emerging social enterprises and ‘pre-cooperative entities’ working towards
sustainability8.
Social enterprises would exclude:
• A corporate business entity or subsidiary thereof
• A business whose primary purpose is profit maximisation, even if it is creating social
value.
3.1.2. Financial sustainability
Financial sustainability would imply financial or business practices that would ensure the
continued viability of a product, practice or service well into the future. Therefore, financial
sustainability includes:
• An understanding that the social enterprise is a self-sufficient, income-generating
entity, able to cover its operational costs and with the likelihood of generating a
surplus
7
The diversity of non-profit and for-profit enterprises, such as NPOs, Section 21 companies, Trusts and other entities, results
in the possibility of these being regarded as social enterprises, subject to key qualifiers for a social enterprise being t
identified.
8
This means that these entities shall have the basic building blocks – such as a sustainability plan and a business plan –for
becoming social enterprises.
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•
•
The extension of the term ‘financial sustainability’ to emerging social enterprises or
pre-cooperatives who may be receiving seed money (start-up capital) or grants,
provided that such entities have a definite business plan to work towards becoming an
income-generating entity as described under the previous point
Provision for the fact that a social enterprise often takes a longer period of time than a
conventional business entity to achieve sustainability
Financial sustainability excludes:
• Dependence on corporate social investment (CSI) or grant funds beyond the start-up
phase
• Capital investment of a speculative nature.
3.1.3. Community engagement
A ‘community’ can be dispersed with common characteristics (e.g. deaf people) or it could be
geographically defined (e.g. residents in a particular area).
Based on the cooperative model, it was accepted that the relevant community will be
engaged and that;
• Governance of the entity will be guided by democratic principles and open and
equitable membership in the case of cooperatives. Other forms of social enterprises
shall embrace an open and transparent process of governance.
• Voting may not be along the lines of shareholding but should be based on the equality
of each member.
3.1.4. Values and operational parameters
3.1.4.1.
Values
The following values are of importance for social enterprises:
• The initial social mission is never compromised. The social enterprise stays true to its
core social purpose
• Motive is a central factor in determining social purpose.
• To work towards societal good as encapsulated in the constitution of the Republic of
South Africa.
• The beneficiaries and objectives of the social enterprise are clearly defined by the
community.
• Members for the social enterprise are, as far as possible, recruited within the
community they serve.
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3.1.4.2.
Operational parameters
The following operational parameters are acknowledged as being useful in certain
circumstances:
• In the case of a dual model, the social enterprise must be clearly separated from the
income-generating arm.
• A social enterprise model can be geared towards systemic change.
• The social enterprise model may be replicable in other parts of the country, region or
world.
3.1.5. Key qualifiers for a social enterprise
The group indicated that the key principles or features that would qualify an entity as a social
enterprise include:
• A clear social purpose aimed at achieving social good
• engagement with the community the enterprise is serving
• Financially sustainability
• The practice of democratic , open and transparent governance
• A financial surplus (if any) should be reinvested in the community or for the social
purpose it serves.
3.2.
INTERVIEWS
The focus group was followed up with telephonic and face-to-face interviews where possible.
Interview participants were selected from a contact list, provided by the International Labour
Organisation (ILO) in Pretoria, containing names of government officials, providers of financial
and non-financial business development services. In order to broaden the scope, the
researcher further complemented the list with the names of representatives from provincial
and local government in all the provinces as well as from government agencies providing
business development services.
While every endeavour was made to involve the government on the provincial and local tier
of government, very few participated or responded to requests for an interview. Some
requested the questions beforehand and then ’googled’ the phrase ‘social enterprises’ to get
to a response.
For the sake of confidentiality, the names of those interviewed are not listed. However, there
were, apart from the 4 focus group discussions, close to 60 telephonic and personal
interviews, the majority endorsing the aforementioned focus group findings when asked to
express an opinion on the characteristics of a social enterprise. The reason that the question
regarding a definition was asked in this way is that the concept was relatively unknown to a
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large number of participants and it was easier for the participants to simply comment on the
majority view of the focus group rather than formulate what a social enterprise is. One may
assume that, in some instances, the participants agreed with the focus group outcomes
simply because they were not familiar with the concept of social enterprises. Taking these
factors into consideration, the responses from the interview participants relating to what
constitutes a definition may not be regarded as accurate and reliable in all instances.
While the majority of respondents simply endorsed the focus group findings, others
emphasised that all profits or surplus should be reinvested while others added:
• ‘Leave the definition about surplus open so that all businesses, even for-profits can
decide whether they want to be social enterprises or not.’
• ‘Sharing equity and venture capital is a problem, and if you can get a social investor
they would like a financial return on investment too. They do not necessarily want to
make a big profit.’
• ‘Requiring community involvement is absurd. If I want to do good, I need not ask the
permission or involvement of the community.’
• ‘Cooperatives are not working. They are a disaster because the structure is too flat and
nobody takes responsibility. Social enterprises need a flexible structure that allows for
accountability from a board or management.’
• ‘The new trend is that an investor is willing to put money into a venture and does not
necessarily expect a huge return on investment or any return at all. Social enterprises
should allow for share equity.’
• ‘If you want to call yourself an enterprise, register a for-profit and pay tax. Why do you
want to call yourself an enterprise and for taxation purposes be treated like a nonprofit?’
• ‘Any business can have a social purpose but a social enterprise should not exclusively
do it for the sake of a profit – all business models should be included.’
• ‘Money should be ploughed back or, if there is a return on investment, it should be
capped.’
• ‘The different business structures are required to deal with the issue of governance in
a different way; therefore, one cannot prescribe the cooperative as the desirable
model for social enterprises.’
It was clear after the focus group discussion that many issues still needed to be answered;
therefore, it is important to take note that the quantitative survey, covering a broader target
group than the focus group or telephonic interviews, delivered the following results:
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3.3.
THE QUANTITATIVE SURVEY AND DEFINITION
The qualitative survey process – in the form of focus group discussions, interviews and
telephonic conversations – was useful in enabling the researcher to construct questions that
could address the issue of definition in a meaningful way.
Instead of testing a specific definition, questions were asked about the characteristics of a
social enterprise to enable the researcher to construct a definition. These questions also took
into consideration minority viewpoints arising from the qualitative survey. Another difference
between the qualitative and quantitative surveys is the broader base of the quantitative
survey, allowing for opinions from social enterprise practitioners, investors and academics.
For the purpose of drawing meaningful conclusions about the quantitative survey, the term
‘agree’ will include ‘agree’ and ‘strongly agree’, and the term ‘disagree’ will include ‘strongly
disagree’ and ‘disagree’. Two-thirds – or 67%– will be regarded as ‘consensus’ while 50,1%
will be regarded as a ‘majority’ in favour of.
3.3.1. Social purpose
The consensus among respondents (94.25%) was that a social enterprise should have a
primarily social purpose.
Figure 2: Primarily Social Purpose
Later in the questionnaire this question is tested further by asking the respondents whether a
social enterprise should ONLY have a social purpose. There was broad consensus (78.16% of
respondents disagreed) that a social enterprise cannot ONLY have a social purpose, which
further validates the earlier consensus about a primarily social purpose.
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3.3.2. Ameliorating social problems
There is consensus (95.4%) that a social enterprise should ameliorate social problems as set
out in the figure below. This strong association between social purpose and social problems is
further strengthened by the fact that it was agreed by the overwhelming majority (94.25%
constitutes consensus) that there must be a clear connection between the social purpose and
the social problems.
Figure 3: Ameliorate Social Problems
3.3.3. Profit maximisation
The question whether a social enterprise’s primary purpose should be profit maximisation
through the creation of social value, a majority of 54% agreed. When cross-tabulated with the
relevant sector, it becomes evident that there is no consensus on this question because
71,43% of providers of non-financial business development (BDS) services agreed with this,
while 62,5% of corporate investors indicated the same. All other categories or groups
reflected a minority in their extent of agreeing or disagreeing with the statement. Therefore,
it can be said that profit maximisation as a primary purpose mainly represents the viewpoint
of investors and non-financial BDS providers.
3.3.4. Sustainability
As far as financial sustainability is concerned, there was consensus among the participants on
a number of issues:
• 94.25% said that social enterprises include emerging entities (i.e. entities still receiving
grants and/or seed capital at start-up and working towards financial sustainability).
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•
•
•
94.25% agreed that financial sustainability implies that the social enterprise generate
enough income to cover its operational costs, and may even show a surplus.
89.65% agreed that social enterprises should be able to attract investors or equity
shareholders, and a slight majority of 50.5% agreed that social enterprises exclude
capital investment of a speculative nature, while only 36.79% disagreed, and 12.64%
indicated that they did not know the answer.
While there is consensus (72.41%) that social enterprises should have shareholders,
only 57.47% felt that social enterprises should pay dividends while 77% of the
respondents indicated that dividends should be limited or capped.
3.3.5. Community
There was consensus regarding the question whether a social enterprise should show
connectivity through engagement or consultation with the community it claims to serve. An
overwhelming number of respondents (92%) agreed that community connectivity is
important:
Figure 4: Demonstrate Connectivity
While the majority (59.77%) of the respondents felt that members of the social enterprise
should emanate from the community, there was also realism, and 54.02% of the respondents
agreed that social enterprise can create social value without being engaged or involved in the
community it claims to serve.
3.3.6. General governance, membership & operational parameters
As far as general governance, membership and operational parameters of a social enterprise
is concerned, 97.71% of the respondents agreed that the entity must demonstrate
participatory, transparent and accountable governance. Furthermore, there was consensus
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(67.82% agreed) that voting should not take place on the basis of shares held, but according
to the equality of each member’s vote.
The majority of participants agreed on the following issues:
• 62.07% felt that a social enterprise can also be a ‘one man/one woman’ show.
• 63.22% agreed that social enterprises could include traditional for-profit business
entities.
• 59.77% felt that social enterprise membership should be open.
• 54.02% said that in the case of a dual model, the social enterprise and the incomegenerating arm be clearly separated.
3.3.7. Values
There was an overwhelming consensus (95.40%) that a social enterprise’s business must be
directed at societal good and, furthermore, 89.65% agreed that the initial mission or core
social purpose of the social enterprises should never be compromised. It was also found that
82.76% agreed that a social enterprise’s business remain autonomous and not be influenced
by a public entity.
3.3.8. Financial governance in the event of a surplus/profit
First clarity was obtained about preference between the words ‘surplus’ and ‘profit, and
consensus was reached (70.11% agreed) that ‘surplus’ is the preferred term.
When asked whether social enterprises should do with the surplus what they wanted, a
majority of 59.77% of respondents disagreed with the statement. When asked whether the
surplus should be reinvested in the social business or community and nothing else, a majority
of 58.62% agreed, but when asked whether the surplus should be PRINCIPALLY reinvested in
the social purpose or community, the consensus was 73.56% of respondents agreeing on this
issue, with 79.31% indicating again that dividends be limited or capped.
Even though 56.32% agreed and only 32.19% disagreed (11.49% did not know) that social
enterprises would be likely to be subject to the same tax exemption benefits as public benefit
companies, when asked whether an exclusive tax regime for social enterprises were
considered desirable, 61.07% of all respondents agreed.
3.4.
CLARIFICATION THROUGH A BROADER BASIS OF INQUIRY
A clearer definition as to what the South African definition should look like emerged from the
broader basis of inquiry that took place in the quantitative survey. While regulations in the
law could determine issues of community connectivity, governance (e.g. in the event of the
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social enterprise being a cooperative) and other key issues identified in the qualitative and
quantitative surveys were that:
•
Respondents felt that the primary social purpose should be clearly connected to the
social problem (that is, aimed at ameliorating a social problem). This finding validated
the findings in the qualitative survey.
• The entity should be financially sustainable and operate along the lines of a business
model. ‘Grants’ and the streams of income have not been debated adequately. In the
USA, subsidies and grants as streams of income, together with trading in services, are
acceptable for a social enterprise while the USA definition also allows for mixed
revenue streams for a social enterprise:
Any organization, in any sector, that uses earned income strategies to pursue a
double bottom line or a triple bottom line, either alone (as a social sector
business) or as part of a mixed revenue stream that includes charitable
contributions
and
public
sector
subsidies
(http://www.socialent.org/beta/definitions.htm).
It is clear that in a South African definition, mere charitable contributions and grants
will not be regarded as ‘income’ for a social enterprise, and only acceptable as income
in the case of ‘emerging social enterprises’. However, the requirement of sustainability
implies that the social enterprise be not dependent on grants or donations.
• The surplus must principally be reinvested, and respondents agreed that social
enterprises should be able to attract investors/shareholders, but dividends (if any)
should be capped or limited.
Some realities need to be taken into consideration when drawing the boundaries within
which social enterprises can operate. For instance, while it is clear that some for-profits are
indeed social enterprises, it may also happen that a for-profit is perceived to be a social
enterprise, but when examined closely, the pendulum of purpose would swing towards profit
maximisation rather than the social purpose being the entity’s raison d'être.9
One such an example of a corporate for-profit entity creating social value is WIZZIT Bank.
CASE STUDY: WIZZIT BANK
WIZZIT Bank is a private company and Pty Ltd-registered enterprise. In order to trade as a
bank, a company needs a bank licence, and WIZZIT Bank has therefore created an alliance
relationship with the South African Bank of Athens. WIZZIT Bank only pays a fee for the use
of their licence, and the South African Bank of Athens has no ownership within WIZZIT Bank.
9
Popular French phrase for “reason for being”.
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CASE STUDY: WIZZIT BANK
WIZZIT Bank decided to go with a private company model as they are profit-driven and,
therefore, a Section 21 Company would not have served their business rational. Their prime
motivation is not for short-term profit, but to prove that an economically sustainable
business case at the bottom end of the pyramid can, indeed, work.
WIZZIT Bank’s primary social purpose is to lift people out of the poverty quagmire. Brian
Richardson is the founding director and CEO of WIZZIT Bank. WIZZIT is a bank operating as a
division of The South African Bank of Athens Limited aimed at the under-banked segment of
the population utilizing cell phone technology. WIZZIT was launched in November 2004 and,
in providing affordable banking to the mass market, it was the first to launch, as part of its
offering, cell phone banking that works across all the networks, all phones and across all SIM
cards. WIZZIT solves not only an accessibility and affordability issue and, from a convenience
point of view, offers 24/7 real time transactions; hence, it is ‘your bank in your pocket’.
WIZZIT is recognised as the global pioneer in mobile banking. Richardson is listed as a
distinguished leader locally and internationally. He is an Ashoka fellow and was recently
awarded the Netexplorateur Grand Prix award for innovation and has been featured in many
international books, articles and TV shows. He has lectured and presented at seminars and
conferences throughout the world and was invited by the Clinton Global Initiative to present
the WIZZIT model as a means to Bank a Billion.
WIZZIT banking provides the following services:
• An alternative to the high costs and inconvenience of assessing, transferring and
storing cash
• A way to avoid the long queues, high travel costs, time and inconvenience
• No monthly fees nor a minimum balance
• Easy, secure shopping with a Maestro debit card
• Easy, secure payments using a cell phone
• Prepaid airtime, etc.
• Person-to-person payments
• Debit orders / stop orders.
The WIZZIT transactional savings account is opened under FICA (Financial Intelligence Centre
Act) regulations, Exemption 17. This means that the WIZZIT customer will only be able to
conduct business on the account without exceeding R5000.00 on daily debit; or without
having accumulated R25 000.00 per month on credit/deposit transactions, or without having
exceeded a balance of R25 000.00 in their account. Once these limits are exceeded, a
customer needs to submit required proof of residence documentation. FICA requires
different types of documentation based on the South African residence status of a customer.
Required documents (utility bill, account, bank statement, retail account etc.) must be less
than 3 months old and reflect the physical address of the customer.
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CASE STUDY: WIZZIT BANK
WIZZIT Bank only employs previously unemployed staff, and they have shareholders for the
past 18 months which include the World Bank and some other banks that have
representation on the board of WIZZIT Bank. Voting is in accordance with shareholding.
WIZZIT Bank has not yet managed to achieve any surplus, but has paid out some dividends,
and the current financial model is to reinvest profits for the foreseeable future.
Initially WIZZIT Bank had problems securing loans and venture capital. Even though the IDC,
PIC and Development Bank of South Africa were favourably disposed to the concept, these
institutions did not understand why the larger and established banks do not offer this kind of
service. They were of the opinion that in order to succeed a venture like this must have big
bank backing and needed international investments and therefore were not willing to
provide any loans or venture capital.
WIZZIT Bank is interested in giving back to the community in the form of a financial literacy
programme. They are also investigating the idea of group-based community-based loans.
They are also willing to evaluate the concept of social enterprises but not in favour of
switching over to a social enterprise.
WIZZIT Bank is a good example of blended value, but is this bank a social enterprise?
Creating social value is not the only criteria for a social enterprise because the surplus is not
designated to be reinvested in the business or social purpose. Even if the surplus or profit is
reinvested in business development, this is a natural progression in every business cycle at
start-up and the first few years and unless it is written into the memorandum of association,
one should be careful in classifying businesses creating social value as social enterprises.
Box 1: Case Study - WIZZIT Bank
Social value can be created in many ways by almost any type of business. However, it is the
social purpose, aimed at ameliorating a social problem, and the manner in which the
enterprises choose to deal with the surplus, which determines its status as a ‘social
enterprise’. In this case it is not a social enterprise, although there is no doubt that Brian
Richardson is a leading social entrepreneur irrespective of his business model.
The researcher also bore in mind that one should approach the issue of social enterprises
with great sensitivity and respect for the non-profit sector. Social enterprises should not
affect the status of the non-profit companies or enterprises or grant-dependent entities
delivering specific services, but rather should free up capital for entities that are grantdependent.
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However, the purpose for acknowledging social enterprises is not about giving a new name to
something that already exists and/or working well or to create a new entity. The development
of the concept of social enterprises is aimed at creating an opportunity for share equity in the
case of nonprofits, to allow more flexibility and an injection of capital into the social
enterprise market. In September 2004, the World Economic Forum, the Rockefeller
Foundation and the International Finance Corporation hosted a workshop for a large number
of stakeholders in the social entrepreneurial field to discuss the emerging blended value
investing market. Private investment for social returns has the potential to have an equal or
greater social impact, and can do more to establish the sustainability of an organization than
pure grant-making. Unlike grants, capital invested for financial return – even at below-market
rates – can be reused, multiplying its effectiveness. Microfinance is perhaps the best known
global example of private investing for social returns (World Economic Forum, 2005).
Blended value investing is currently carried out by a number of institutions in a variety of
ways, and it is clear that blended value investing presents a tremendous opportunity to
generate social value. It is important that South Africa’s definition of social enterprises allows
for this opportunity without changing the concept of social enterprises into one which assigns
this status to for-profit companies doing good and not answering to the main features of a
social enterprise. While good corporate citizenship and social entrepreneurship may play
important roles, a social enterprise is about answering to specific criteria within a chosen
business model as set out earlier in this report.
3.5.
TOWARDS A DEFINITION FOR SOCIAL ENTERPRISES
The definition for cooperatives is descriptive and has stood the test of time: it has been
around for almost one hundred years! What makes the definition of a ‘cooperative’ a good
one? The definition, in less than 30 words, answers the following questions about the nature of
a cooperative, for what reason it has been established; how it functions; what needs are being met,
and how it is controlled .
The longevity of the definition of a cooperative speaks to what the definition for its ‘sister’, a social
enterprise, should be.
3.5.1. Explanation of terminology
Better understanding of the functioning of a social enterprise is obtained by explaining the
terminology used in the definition:
• Financially sustainable business
‘Financial sustainability’ suggests an understanding that the social enterprise (SE) is a selfsufficient, income-generating entity, through its trading in services or goods, with the ability to
draw investments or to share equity. The social enterprise is likely to generate a surplus. The
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requirement of ‘financial sustainability’ as part of the definition is extended to emerging SEs
and pre-cooperatives who may be receiving seed money (start-up capital) or grants, provided
that such entities have a definite business plan to work towards sustainability. Therefore,
‘financial sustainability’ excludes dependence on corporate social investment (CSI) or grant
funds beyond the start-up phase.
• Social purpose
A business is considered to have a social purpose if the primary objective is aimed at
ameliorating social problem(s) and creating social value. The Public Benefit Activities, as set
out in the Tax Exemption Guide, could also be used as indicators of the social purpose.
Examples: Social enterprises would include entities operating as non-profit
organisations (NPOs), Section 21 companies, cooperatives, social
entrepreneurial concerns, NGOs and other business forms as well as
emerging social enterprises and ‘pre-cooperative entities’ working
towards sustainability. Social enterprises would exclude a corporate
business entity or subsidiary thereof or a business whose primary purpose
is profit maximisation, even if it is creating social value.
• Ameliorating social problems
It is clear that social enterprises are specific to ameliorating social problems. In the process of
moving towards a definition, one should also be clear as to what is considered a social
problem. A widely acknowledged definition of a social problem includes the following:
• An existing and socially undesirable condition or phenomenon in society (Three
general areas of social problems are deviant behaviour, social inequality and conflict,
and problems relating to human progress and social change.10)
• It compromises certain basic and generally accepted values in society.
• A significant number of people are affected by this condition/phenomenon.
• There is a strong feeling that something should be done about it.
• The amelioration of the social problem should not result in unintended consequences
that would add to or create further social problems or consequences that would be
against the law or values of a society.11
10
It is generally accepted that human progress is affected by economic and environmental conditions too and
therefore social problems would include those caused by economic and environmental affairs.
11
Closely related to the social problem is the principle that by ameliorating a social problem another should not
be created. An example is the selling of ‘charity wines’ to address foetal alcohol syndrome (FAS). Similarly, during
the course of the study, the researcher was informed of some ‘township grannies’ obtaining goods through
illegal, and even criminal, means to take care of child-headed households. Crime, and specifically theft, cannot
ameliorate a social problem because such transgressions are social problems in themselves. Social
entrepreneurship is value-driven.
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• Surplus (if any) principally reinvested
The social enterprise will plough back the money into the social purpose, community or
business in a way it may seem fit, without affecting the ability of the social enterprise to obtain
share equity and to pay dividends to shareholders. The payment of dividends will depend on
the constitution of the specific social enterprise and should be capped to strike a balance
between encouraging people to invest in social enterprises and the principle that the assets
and profits of the social enterprise should be devoted to its social purpose.
The following definition is a succinct description of what a social enterprise is, its objectives
and how it operates:
A social enterprise’s primary objective is to ameliorate social problems through
a financially sustainable business model, where surpluses (if any) are principally
reinvested for that purpose.
• Proposed change of definition by the ILO Conference, 22–23 October 2009
Right from the outset the definition was problematic because of individual differences, (e.g.
ASEN internet conferences) and this was compounded by the fact that, while it was stated
that the definition was to be regarded as the working definition for the conference, it was
introduced again as an issue to be debated.
Use of language
However, the assumption that the word ‘ameliorate’ was beyond the grasp of average South
Africans was introduced at the opening of the ILO conference. This assumption cannot be
verified as everybody apparently understood this in the quantitative survey where the word
‘ameliorate’ was used. The same goes for ‘principally’, which was also introduced as being
problematic by one of the group facilitators at the same conference. In both cases the issue
was introduced by persons whose first language is not English.
Mr Gerry Higgins, head of the CEiS in Edinburg, Scotland and chair of the Social Enterprise
World Forum (SEWF) responded: “In terms of ‘ameliorate’ or ‘address’, ‘ameliorate’ is a much
less common term and is a little formal/academic/dated, but I like the implication that as well
as addressing the problem, it actually tries to find a solution.” He further assumes that, in
countries where English is not a first language, ‘address’ may be better. Mr Higgins feels that
‘principally’ is a stronger term than ‘mainly’ and should, therefore, not be replaced by the
latter (E-mail from Mr Gerry Higgins to Dr Susan Steinman on 8 November 2009: subject line
“SEWF position on a definition”).
However, one can also educate people into the meaning of ameliorate because, to replace
‘ameliorate’ with ‘address’ skews the meaning, for one cannot, for instance, ‘address’ the
issue of disability, but one can ‘ameliorate’ the situation for the disabled.
Ameliorate remains the better word under the circumstances. Within the context of social
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enterprise ‘ameliorate’ succinctly captures the essence of the modus operandi of a social
entrepreneur dealing with social problems.
Reinvestment of surplus
The conference statement of the ILO (Annexure D) states: ‘Note that this working definition
embodies key principles that define social enterprise, notably (1) the primacy of the social
enterprise’s social purpose and (2) financial sustainability. The clause on reinvestment of
surpluses is an indicator and guarantor of the primary social purpose.’
The statement in the paragraph directly above is a deductive interpretation of the working
definition and was not the intent of the researcher and neither is such an interpretation
supported by research. Contrary to this statement, the research indicates that participants
had strong feelings about the reinvestment of surpluses as an imperative for the identification
of a social enterprise. (Telephonic and personal interviews, e-mail correspondence, the
quantitative survey and the first FG discussion dealing with the definition refers). The
definition does not need further explanation as it is clear and it offers unambiguous
conceptual clarification.
At the conference one of the delegates, a BDS provider, asked the researcher afterwards if
the part of the definition dealing with the reinvestment of surplus “... where surpluses (if any)
are principally reinvested for that purpose.” could be removed from the recommended
definition to which she answered that the manner in which surpluses (if any) should be
treated was indicated by participants as an imperative in defining a social enterprise.
Also following the conference another participant also referred to a conversation after the
conference, when people he spoke to argued that it is difficult for persons from
disadvantaged communities to understand the concept of “surplus” as they perceive surplus
or profit to be “the money left over to pay the salaries after all expenses have been paid”.
According to this explanation, it becomes apparent that the enterprises in disadvantaged
communities do not work on the basis of a set salary, and take home whatever is left over,
which they call “profit”. Furthermore, confusion would arise if the “reinvestment of surplus”
were to be introduced into the definition, because the members of the disadvantaged
communities would be of the opinion that their salaries would be used for reinvestment
purposes. It is argued that the reinvestment element of the working definition is therefore
problematic and potentially exclusionary for some social entrepreneurs. However, the
working definition already excludes the type micro enterprises described above on the
grounds of sustainability but one could refer to some of these as ‘emerging social
enterprises’.
It is true that the definition for social enterprises would exclude some social entrepreneurs
using for-profit models and not reinvesting the surplus (principally) while some social
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entrepreneurs who are grant-dependent would also be excluded (see case studies). Social
enterprises are an organizational movement and the social purpose and business model
(inclusive of what happens to the surplus) is at the heart of the definition. However, one of
the fundamental principles of social enterprises is that decent jobs are created and that
people are remunerated for their work – even though it may not be understood as such by
emerging social enterprises at present.
Because a definition is never constructed with the view of benefit to a particular group, but
rather is phrased in such a way as to provide conceptual clarity, this argument indicates a
problem with perceptions of what surplus is and the running of the micro enterprises:
•
The custom where a person would use income to pay expenses and then, if anything is
left, pay himself a salary is typical of a start-up one-man (owner) enterprise or
survivalist enterprises. These emerging social enterprises should be nourished by BDS
providers to sustainability which requires that they understand basic concepts such as
profit, losses and salary. [This argument is strengthened by recent research indicating
that in a reasonably sophisticated urban area like Soweto, 65% of all micro enterprises
are informal: 17% are registered and that 18% are unregistered but large enough to be
formal. 69% of entities are run from home and most are involved in buying and selling
while 70% of all enterprises are doing business at non-survival rates (Smallbone, 2010)]
•
The challenge is not in the understanding of the definition, but ensuring that emerging
social enterprises receive the necessary support to understand the fundamentals of
business and social enterprise so that they can flourish and become fully-fledged
social enterprises
3.6.
FINDINGS
3.6.1. The study, after taking all recommendations and comments into consideration,
supports the research findings and therefore supports the following definition as being
suitable
A social enterprise’s primary objective is to ameliorate social problems through a
financially sustainable business model, where surpluses (if any) are principally reinvested
for that purpose.
3.6.2. Not all social entrepreneurial activities can be defined as social enterprises while not
all social enterprises are founded or run by individual social entrepreneurs.
3.6.3. Emerging social enterprises are in need of special education in the fundamental
principles of social enterprises.
3.6.4. This study engaged the stakeholders such as bankers, venture capitalists, nonprofit
organisations and government departments for opinions on the definition. One should
take note that vested interested can sometimes pose as a matter of principle. This
definition strikes a balance between the viewpoints of the different groups.
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CHAPTER 4
THE LEGISLATIVE, REGULATORY & POLICY ENVIRONMENT
It is important to determine which laws have a bearing on the development of social
enterprises in South Africa. It is also important to determine a distinction between those laws
which relate directly to the social enterprise as a body corporate, and those which are
intended to allow it to flourish. This chapter will also take into consideration the policy
documents contributing to an enabling environment as set out in Chapter 2.
During a discussion which formed part of a pilot study into the legal environment, held at the
ILO offices on 3 September 2009, the following laws (some of which have been amended)
were identified as having a bearing on the enabling environment for social enterprises:
• The Companies Act, No. 61 of 1973, as well as the Companies Act, 2008, No. 71 of
2008, to be implemented in 2010
• The Nonprofit Organisations Act, No. 71 of 1997 (NPO Act)
• The Trust Property Control Act, No. 57 of 1988
• The Close Corporations Act, No. 69 of 1984
• The common law on associations
• The Income Tax Act, No. 58 of 1962
• The Broad-Based Black Economic Empowerment Act, No. 53 of 2003
• The Preferential Procurement Policy Framework Act, No. 5 of 2000
• The Co-operatives Act, No. 14 of 2005
• All Labour legislation (including measures related to volunteerism)
• The Constitution of the Republic of South Africa.
The pilot study into the legal, regulatory and policy environment also focused on the question
as to whether the development of a policy framework could not be accommodated within an
existing legal framework.
It emerged that – while it is acknowledged that there is a need for an audit of legislation as it
affects social enterprises – this study does not allow for that in-depth analysis, but rather,
gives broad guidelines of what needs to be explored further. However, once an audit is done,
it would be possible to remove hindrances blocking the development of social enterprises.
According to the Department of Social Development, civil society, or the social sector of South
Africa, is characterised by a wide variety of organisations across the political, economic and
social spectra of society and which range from religious to community-based organisations,
from charitable welfare to developmental and non-governmental organisations, including
other social and sports clubs. This sector is being viewed as critical for the functioning of
democracy and is believed to spend more than R12,5 billion per annum.
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The enabling legal environment for civil society supports and encourages the formation of
organisations. The different entities within the regulatory framework are discussed below:
4.1.
REGULATORY FRAMEWORK FOR THE NON-PROFIT ENVIRONMENT
4.1.1. Knowledge and awareness of the different legal options
In the quantitative survey, only 49% of all respondents indicated that they are familiar with
the NPO Act – which cannot be regarded as a satisfactory state of affairs as one would have
expected a much higher percentage being familiar with this act, because 77% indicated in a
later question that they are, indeed, familiar with for-profit and non-profit companies, trust
and cooperatives, while only 38% indicated that they have a fair knowledge of the new
Companies Act coming into operation in 2010.
Just under half (46%) of the respondents indicated that they have a fair knowledge of how
social enterprises operate in other countries, while others indicated that they had no
knowledge. However, there is consensus (88.5%) among participants that the term ‘social
enterprises’ is not well-known in South Africa, while 81.6% felt that the term ‘social
enterprises’ exists under other names.
As far as the legal and regulatory environment is concerned, only 27,6% agreed that the new
legislation for nonprofits will address current problems experienced by social enterprises
while the rest disagreed, and the majority indicated that they did not know.
Respondents indicated a significant uncertainty when asked to what extent they ‘agree(d)’ or
‘disagree(d)’ that new legislation is not needed because existing laws could be amended to
provide for social enterprises – as illustrated in the graph below:
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Figure 5: Need for Legislation
The uncertainty in the graph above was affirmed when the question was turned around and
respondents were requested to show their level of agreement or disagreement about
creating a separate entity, which implies new legislation for social enterprises with its own
rules and tax regime.
Figure 6: Need for a New Entity
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A similar response emerged when the respondents had to indicate their agreement or
disagreement as to whether SARS’s tax exemption for the non-profit sector is considered
adequate.
4.1.2. Nonprofit Organisations Act, No. 71 of 1997 (NPO Act)
Based on the fundamental principles of the Bill of Rights, the current legal framework on civil
society organisations serves three purposes:
• Enabling organisations to establish themselves as legal structures
• Regulating the way in which such legal structures operate (including the registration of
a legal entity with the government registration authority)
• Providing for the sector, tax and other incentives towards sustainability.
Organisations qualify as non-profit organisations under the NPO Act if they satisfy the
following requirements:
• The organisation must have a public purpose
• Assets and income may not be distributed among the members or office bearers
• When the NPO dissolves, the assets must be transferred to another similar NPO.
In terms of the definition of a social enterprise, the NPO Act accommodates only those social
enterprises that devote their income entirely to a public social purpose, thus excluding social
enterprises that do so principally but not exclusively. Social enterprises with equity financing
on which members can expect some form of return cannot operate as nonprofit
organisations. The NPO Act also regulates organisations that do not qualify as social
enterprises, such as charities that do not trade and which are not financially sustainable.
Three types of organisation can register under the NPO Act, namely voluntary associations;
trusts and section 21 companies. Each of these entities is also subject to other legislation or
principles and, accordingly, their governance structures differ.
The NPO Act attempts to mainstream the legislative framework for the registration of
organisations by providing for voluntary registration of the mentioned entities. Primarily, the
purpose of the NPO Act is to create an enabling environment in which NPOs can flourish and,
by extension, to establish an administrative and regulatory framework within which
organisations can conduct their affairs. Specifically, the Act is aimed at encouraging NPOs to
maintain adequate standards of governance, transparency and accountability and at creating
an environment within which the public may have access to information on registered
organisations. The National Department of Social Development is administrating this Act.
The regulatory framework on NPO is illustrated as follows in the business plan of the NPO
directorate:
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Figure 7: Regulatory Framework on NPO
The NPO Act is perceived to be the entry point in the regulatory framework for organisations
to derive benefits from the enabling environment as registration is required for all public nonprofit entities. These benefits include access to benefits such as:
• Tax exemption provisions provided for by the Income Tax Act, in particular following
the recent amendments brought about by the Taxation Laws Amendment Act 9 of
2006
• Exemption from paying skills levies as stipulated in the Skills Development Levies Act 9
of 1999
• National Development Agencies (NDA) Act for funding purposes
• Lotteries Act, also for funding.
A recent audit Report by the Audit General and the Impact Assessment on the NPO Act
identified a number of challenges in the implementation of the Act. It was found that the
regulatory framework is fragmented; that there are challenges regarding the registration
process. For instance, a section 21 company may have to register three times [Registrar of
Companies, NPO Directorate and Tax Exemption Unit of SARS] and comply with the
prescriptions of three different regulatory bodies that require different kinds of information,
which in turn leads to amendments in the founding documents; and different reporting
requirements lead to unnecessary duplication of work.
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CASE STUDY: RATHER FOR-PROFIT THAN MULTIPLE REGISTRATIONS WITH NON-PROFIT
Multiple registrations can be frustrating and time-consuming and may result in a social
entrepreneur registering as a for-profit instead of as a non-profit. The case of the social
entrepreneur Carva Pop is a good example. He registered a closed corporation after receiving
funding to train youth in entrepreneurship in the East Rand township of Daveyton. The name
of the social entrepreneurial project is New Venture Creation. Due to time constraints, Carva
did not see his way clear to wait for two months to get an NPO number to start his social
enterprise and neither could he afford the costs and requirements for setting up a Section 21
non-profit company. Although this step is to the entity’s detriment in the case of taxation,
Carva was prepared to cut his losses rather than being held ransom to a slow system and it is
easy to buy a closed corporation off the shelve. This project would have qualified for tax
exemption as a public benefit company if he registered it as a non-profit entity.
This case study illustrates the need for central and fast registration. The new legislation
envisaged to come into effect in 2010 will definitely make it easier to form non-profit
companies but it will still not reduce the number of different registrations for legal
compliance.
Box 2: Case Study - Rather Profit than Multiple Registrations with Non-profit
Social Development’s Impact Assessment also found that there were clear problems with a
‘one size fits all’ approach to NPOs, which is inherent in the NPO Act, due to a lack of
recognition of the different categories of NPOs. The absence of an online database is seen as
a challenge as is the lack of capacity of organisations in managing their affairs and complying
with the NPO Act.
Subsequently, the Directorate of Non-profit Organisations identified the improvement of the
regulatory framework on NPOs; the maintenance of efficient registration of NPOs; access to
information on registered NPOs; the enhancement of the institutional capacity of NPOs, and
the enhancement of the Directorate’s internal institutional capacity to perform efficiently.
However, while the ‘enabling environment’ is assigned to this department, it must be
recognised that the legal entities necessary for enabling the environment are the
responsibility of the Department of Trade and Industry. The financial and non-financial
business development services are not the sole responsibility of this department and
therefore the Directorate Non-profit Organisations is limited in what it can achieve in terms of
an enabling environment. (See full report attached as Annexure E)
South Africa does not have a law or policy on ‘social enterprises’ as such. It is an emerging
concept and represents a generic term covering a range of business entities with a social
purpose. South Africans are more familiar with the concept of social entrepreneurship, and a
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number of universities are paying attention to the subject matter by establishing centres or
by incorporating social entrepreneurship into the business school curriculum.
While there is reasonable clarity on what social entrepreneurship is, there is no consensus
about what ‘social enterprises’ should be, and, therefore, the lack of definition became an
obstacle early on in the study. It was clear that, apart from ascertaining a definition through
the process of interviews, a focus group discussion may be the best way to establish what is
understood by the term ‘social enterprises’ through participation by the main stakeholders,
namely, the relevant government departments; representatives of social entrepreneurs such
as Ashoka; academics; providers of financial and non-financial services, and social enterprises
themselves. The uncertainty surrounding the concept and definition of a social enterprise also
poses difficulties in assessing and developing an enabling environment.
Cooperatives are not deemed to be part of the non-profit sector and are, therefore, not
included for voluntary registration in the NPO Act. Similarly, close corporations and
companies other than section 21 companies cannot register as NPOs.
4.2.
LEGAL STRUCTURES FOR SOCIAL ENTERPRISES
It is the case studies of social enterprises that, significantly, highlight the fact that there need
to be different options for the number of diverse organisations. While some wish to remain
non-profit organisations (Annexure F), others are already operating as social enterprises
(Annexure G) but need some form of formalisation through the regulatory framework.
Sustainability is not only measured by the balance sheet, but also by the vision, mission and
social purpose of the organisation. An organisation may be perfectly sustainable and soundly
managed, but it is fair to accept that, for example, an organisation involved in taking care of
vulnerable babies between birth and 6 months on the one hand and a social enterprise
engaging in training do not have the same needs or capacity to trade.
For instance, it became clear in the course of the study that Masimayane Women Support
Centre, Tomorrow Trust and others (See Annexure F) are highly sustainable organisations, but
they prefer to remain non-profit companies, while the Job Creation Trust, Student Health &
Welfare Centres Organisation (SHAWCO), the International Centre for Eye care Education
(ICEE), WET Africa, Khulisa Crime Prevention and others (see Annexure G) would easily
embrace a dispensation where social enterprises are not stripped of their tax exemption
status should they do robust trading or obtain equity financing.
The size and complexity of the organisation, as well as the requirements of potential funders,
are determining factors when choosing a legal entity. The different legal entities available to
social enterprises are discussed below.
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4.2.1. NPO Entity: Section 21 company under the Companies Act No 61 of 1973 (to become
a non-profit company in 2010)
A non-profit organisation can register as a Section 21 company which is an association not for
gain, incorporated under the Companies Act No 61 of 1963. Its name ends in ‘Association
incorporated under Section 21’ or certain instances ‘incorporated association not for gain’.
A company has to satisfy the following requirements in order to qualify as a Section 21
company:
• It must be established for a lawful purpose
• Its main objective must be a social purpose, which could be the promotion of religion,
the arts, science, education, charity, recreation or any other cultural or social activity
or a communal or group interest
• The income and property of the association must be applied solely towards the
promotion of its main object and no portion thereof may be paid by way of dividend
or bonus to its members or office-bearers. However, members, office-bearers and
employees may receive reasonable remuneration for work done.
• Upon its winding-up, the remaining assets must be transferred to another association
having objectives similar to the company’s main objective.
In addition to the above, a Section 21 company must:
• Appoint official auditors
• Keep financial and accounting records
• Hold an annual general meeting.
A Section 21 company is an independent legal person and shall continue to exist even if the
membership changes. The assets and liabilities of the organisation will be held separately
from those of its members. Each member has to undertake to contribute an amount to the
company’s estate if it is liquidated and cannot pay its debts. The minimum amount is R1.
The founding documents are the Memorandum and the Articles of Association. The
Memorandum sets out the purpose of the company while the Articles of Association describe
how it will be governed.
When the new Companies Act (Act No. 71 of 2008) comes into operation in the course of
2010, some of the current requirements will be relaxed. For instance, whereas now the
company must have a minimum of seven members, it will be possible, in future, to form a
non-profit company without any members. If there are members, they need not undertake to
make a contribution should the company be liquidated. Where three directors will be
required, two are currently sufficient. (For registration under the NPO Act, three directors are
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required in any case.) The auditing requirement will be replaced by another form of
independent verification, except in the case of non-profit companies that exceed thresholds
to be determined by the minister.
4.2.2. NPO Entity: Trusts under the Trust Property Control Act, Act No. 57 of 1988
It is easier to set up a trust than to incorporate a Section 21 company. One can set up a trust
under common law and under the Trust and Property Control Act. A trust can be described as
a ‘written agreement between an owner and trustees’. The owner hands over property
and/or funds to the trustees, who use this to assist beneficiaries to meet a specific objective.
The trust is run by a trustee or board of trustees in accordance with the powers and duties as
set out in the trust deed.
A trust generally does not have separate legal personality, but when a trust registers as an
NPO under the NPO Act (in addition to registering with the Master of the Court), it becomes a
body corporate with independent legal personality (s 16(1)(c)).
4.2.3. NPO Entity: Voluntary Associations under the Non-profit Organisations Act, No. 71
of 1977
The vehicle of voluntary associations (VAs) remains the easiest way to set up an NPO, and
only three or more people are needed. The constitution will determine the management of
the entity. However, for the VA to have an independent legal personality, the constitution
must specify that the organisation will continue to exist even if the membership changes and
that assets and liabilities of the organisation will be held separately from those of its
members.
The constitution of a VA will have information on:
• The purpose and objectives of the organisation
• Type of organisation
• Membership of the organisation – who may become a member and rights and duties
of members, how to become a member, resigned and under what circumstances a
member can be expelled
• The structure and main procedures of decision-making in the organisation cover areas
such as
o annual general meetings
o elections and appointments to the different structures in the organisation
o the powers and functions of members
o who makes decisions and how
o roles, rights and responsibilities
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o financial governance and what happens in the event of the organisation closing
down.
4.2.4. For-profit entity: The Co-operatives Act, No. 14 of 2005
To co-operate means to work together and a co-operative, therefore, is a business that has a
purpose in reaching a common goal, be it to build houses, or to grow vegetables for the
export market. It has an unconventional method of raising and sharing monies.
It is based on the value of self-help, self-responsibility, democracy, equality, equity and the
ethical values of honesty, openness, social responsibility and caring for others.
A co-operative operates on seven important principles.
• Co-operatives are voluntary organisations, open to all persons able to use their
services and who are willing to accept the responsibilities of membership, without any
discrimination.
• Co-operatives are democratic organisations controlled by their members, who actively
participate in setting their policies and making decisions. Elected representatives are
accountable.
• Members contribute equitably to, and democratically control, the capital of their cooperative. Part of the capital is the common property of the co-operative. Members
receive limited compensation, if any. Surpluses are allocated for development, setting
up reserves, part of which at least would be indivisible; benefiting members in
proportion to their transactions with the co-operative; and supporting other activities
approved by the membership.
• Co-operatives are autonomous self-help organisations, controlled by members.
• Co-operatives provide education and training for their members, representatives,
managers and employees.
• Co-operatives strengthen the movement by working together through local, national,
regional and international structures
• Co-operatives work for the sustainable development of their communities through
policies approved by their members.
Adapted from (http://www.capegateway.gov.za/xho/pubs/guides/U/85540/4/E#4h)
The Act provides for various types of co-operatives, such as agricultural, housing, worker,
social, services, marketing and supply, as well as consumer and burial society co-operatives.
Some of these have a clear social purpose. A co-operative is a separate legal person and is
established through the registration of its constitution. It is managed by a board of directors.
There is no limit on the number of members it may have, but it must be formed by at least
five persons. Members have equal voting rights. A co-operative must appoint an auditor to
verify its financial statements.
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4.2.5. For-profit entity: private and public company under the Companies Act, No. 61 of
1973, as well as the Companies Act, No. 71 of 2008
Under the 1973 Companies Act, the distinction between public and private companies is
based on the minimum and maximum number of shareholders, minimum number of directors
and on whether the entity may offer its shares to the public. A public company must have at
least seven members and there is no upper limit to the number of members. A private
company can have one or more members, but the maximum is 50. Public companies must
have at least two directors and private companies one. Both types have to have their financial
statements audited. A private company has to restrict the transfer of its shares and may not
offer its shares to the public. Shares in a public company are freely transferable and may be
offered to the public.
The constitutive documents of a company are the memorandum of association and the
articles of association. Companies are funded through equity capital. In exchange for the
capital so contributed, the company issues shares to its shareholders. These shares entitle
their holders to dividends and other distributions (subject to the solvency and liquidity of the
company); to the return of capital; to surplus assets in the event of a liquidation, and to
participation through voting rights.
A company has to set out its main objective in its memorandum. This determines the capacity
of the company as all the ancillary powers and objectives it must contribute to the realisation
of the main objective. It is possible for a public or a private company to have a social purpose.
Although it is not customary to do so, a company can voluntarily impose a restriction on
dividends or distributions to shareholders, which could satisfy the requirement of a social
enterprise that the profits be applied principally to the realisation of the main purpose.
Similarly, a company could determine through its memorandum and articles that its assets
will be transferred to a similar organisation when it is liquidated and dissolved, although this
is not necessarily a requirement under the working definition of a social enterprise.
The Companies Act of 2008 provides for two types of profit companies, namely public and
private companies. It retains the basic distinction between public and private companies in
relation to the offering and transfer of shares, but distinctions based on the number of
members/shareholders fall away. Both a public and a private company could have a single
member under the new Act and there is no upper limit for either of them. A private company
must have at least one director and a public company three.
Under the new Companies Act, companies will not be limited by a stated main objective or
purpose, unless the powers of the company are expressly limited or restricted by the
51 | P a g e
memorandum of incorporation. In order to satisfy the purpose requirement of the working
definition of a social enterprise, a company under the new Act will have to restrict its powers
in some way compatible with the definition. The memorandum of a company under the new
Act can also potentially limit the distribution of profits so as to satisfy the social enterprise
working definition.
Public and private companies under both the 1973 Companies Act and the 2008 Companies
Act will not qualify for tax exemptions on their income, as the possibility of distributions to
shareholders militates against the characteristics of a PBO. They may, however, enjoy some
tax relief to the extent that they make tax deductible donations to PBOs. If they are used as
social enterprises, they will be at a tax disadvantage compared to NPOs that trade within the
acceptable limits.
4.2.6. For-Profit Entity: Close Corporation under the Close Corporations Act, No. 69 of
1984, to be amended by the Companies Act, No. 71 of 2008
A close corporation is a separate legal entity incorporated under the Close Corporations Act.
Its constitutive document is a founding statement and it can have an optional association
agreement regulating the internal relations between members. A close corporation can have
one to ten members. Companies and other juristic persons cannot become members. The
members are not in principle liable for the debts of the close corporation, but there are
certain instances where personal liability is used as a sanction for non-compliant behaviour.
The members obtain members’ interests in exchange for their contributions to the close
corporation. They can receive a return similar to dividends provided the close corporation
complies with the solvency and liquidity requirements.
When the new Companies Act of 2008 comes into operation it will no longer be possible to
set up new close corporations, but pre-existing ones can continue in operation.
As social enterprises, close corporations are in a similar situation as public and private
companies in that they can restrict dividends or payments to their members and so devote
most of their income and assets to achieving a social purpose. Close corporations can be
formed for social purposes and need not even pursue gain.
The above entities represent the range of business models used by social enterprises to fulfil
their social purpose.
4.3.
CURRENT LEGISLATION AND PROPOSED AMENDMENTS AT A GLANCE
The following matrix is a summary of the current legal framework and also indicates the
changes that will be brought about through the new Companies Act.
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Table 2: Matrix – Legal Structures for Social Enterprises at a Glance
A social enterprise’s primary objective is to ameliorate social problems through a financially sustainable business model,
where surpluses (if any) are principally reinvested for that purpose.
Legal structure
Voluntary
Association
(VA)
NPO Act
[71 of 1997]
Can its activities
benefit those who
own and/or run it?
Ownership, governance
and constitution
Informal. Can be set up
when 3 or more people
enter into an agreement to
form an NPO. No general
regulation of this structure.
Makes its own rules.
Common law and the NPO
Act. Governed according to
own rules. If registered as
an NPO it must reinvest all
its profits in the social
purpose May not distribute
dividends or bonuses to
members.
For a VA to have an
independent legal personality,
the constitution must specify
that the organisation will
continue to exist even if the
membership changes. The
assets and liabilities of the
organisation will be held
separately from those of its
members.
Depends on own rules.
But if registered under
the NPO Act it has to
provide that no
distributions may be
made to members and
office-bearers.
To achieve this, it needs to
be stipulated in the
constitution. Constitution
has to stipulate this if VA to
be registered under the
NPO Act.
Yes, if it meets the criteria for
being a public benefit
organization.
Assets owned by trustees
and managed in interest of
beneficiaries in terms of the
trust deed.
No. Trustees are personally
liable, but only out of trust
funds. If a trust registers as an
NPO under the NPO Act (in
addition to registering with the
Master of the Court), it
becomes a body corporate with
independent legal personality.
Depends on trust deed.
Possible to benefit
founder and even
trustee, provided there
is sufficient separation
of assets.
Yes, if the trust deed
specifies this.
Yes, if it meets the criteria for
being a public benefit
organisation.
However, if it registers
under the NPO Act it is
subject to governance
rules.
NEW
LEGISLATION
Will remain unchanged.
Trust
A way of holding assets so
as to separate legal
ownership from economic
interest.
NEW
LEGISLATION
Will remain unchanged.
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Is it a legal person distinct
from those who own and/or
run it?
Summary - most typical
features
Assets "locked in" for
community benefit?
Can it get Tax Benefits
Legal structure
Section 21
company
NEW
LEGISLATION
Non-profit
company
Cooperatives
NEW
LEGISLATION
Summary - most typical
features
Ownership, governance
and constitution
Is it a legal person distinct
from those who own and/or
run it?
Can its activities
benefit those who
own and/or run it?
Most frequently adopted
corporate legal structure for
non-profit activities. Can be
adapted to suit most
purposes. Income applied
solely to the promotion of
main objectives. Upon
winding up, remaining
assets to be transferred to
similar organisation.
Directors manage the
business on behalf of
members. Considerable
flexibility over internal rules.
Auditors, AGM required.
Yes. Members' liability is limited
to amount each undertook to
pay by way of guarantee in
event of liquidation (minimum is
R1 each).
No distributions may be
made to members. All
assets and profits to be
applied towards, e.g.
charitable purpose.
Yes, determined by
specified main objective of
company.
Yes, if it meets the criteria for
being a public benefit
organisation.
Used for, e.g. public
benefit, community,
cultural, communal
objectives. Existing Section
21companies will
automatically become
NPCs.
Can be formed with or
without members. Directors
manage business. Internal
rules flexible.
Yes. No need for members to
make any contribution or to
give a guarantee. May levy
membership fees.
No distributions to
members are allowed.
Yes, assets and income to
be used entirely for stated
purpose, e.g. community
benefit.
Yes, if it meets the criteria for
being a public benefit
organisation.
For bona fide cooperatives
that serve members'
interests, by trading with
them or otherwise supply
them with goods or
services.
Managed by board of
directors. One member,
one vote (regardless of,
e.g. size of respective
shareholdings). Shares
optional. Could have
membership fees or
subscriptions.
Yes. Members' liability is limited
to unpaid nominal value of
shares.
Yes. Depends on
patronage, i.e. dealings
with cooperative. At
least 5% of annual
surplus must be
allocated to a reserve
fund which may not be
distributed.
Would need bespoke
drafting in constitution
(which could be amended
by members).
No.
Will remain unchanged.
Entities NOT commonly associated with social enterprises
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Assets "locked in" for
community benefit?
Can it get Tax Benefits
Legal structure
Close
Corporation
(CC)
Summary - most typical
features
Most popular incorporated
business form in SA, but
need not have a profit
motive. 1 to 10 members.
Ownership, governance
and constitution
Managed by
members/owners.
Members do not hold
shares; they have
members’ interests. Very
flexible. Capacity not
limited to specific objective.
Is it a legal person distinct
from those who own and/or
run it?
Yes. Members not liable
beyond initial contribution. In
exceptional circumstances
members can incur personal
liability.
Can its activities
benefit those who
own and/or run it?
Assets "locked in" for
community benefit?
Can it get Tax Benefits
Yes. But members
could agree in
constitution that profits
will not be distributed to
members.
Members have a right to
share in assets on
dissolution. Although they
could exclude this right in
the constitution, it would be
unusual.
No.
No new close corporations to
be formed, but existing ones
will continue.
NEW
LEGISLATION
Public or private
company
Companies with share
capital, public or private.
Shareholders are owners.
Directors manage affairs.
Main objective in memorandom of association
determines capacity.
Yes. Shareholders not liable for
debts. (Shares fully paid upon
issue – this is the only amount
shareholders risk in business.)
Yes, Memorandum and
articles could limit or
exclude distributions,
but this would be
unusual.
Shareholders are entitled to
assets on dissolution.
Although they could
exclude this right in the
memorandum and articles,
it would be unusual.
No.
NEW
LEGISLATION
Profit company, public or
private
Shareholders are owners.
Directors manage affairs.
Has full capacity of a
natural person, but
memorandum of
incorporation may limit this.
Yes. Shareholders liable only
for amount outstanding on
shares (shares need not be
paid up prior to issue).
Yes. Memorandum
could limit or exclude
distributions, but it
would be unusual.
Shareholders are entitled to
assets on dissolution.
Although they could
exclude this right in the
memorandum it would be
unusual.
No
Public or private
company
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4.4.
OTHER IMPACTING LEGISLATION OR POLICIES
4.4.1. Broad-based black economic empowerment
BBBEE is defined as ‘an integrated and coherent socio-economic process that directly
contributes to the economic transformation of South Africa and brings about significant
increases in the numbers of black people that manage, own and control the country’s
economy, as well as significant decreases in income inequalities (http://www.fmd.co.za)
Elements of human resource development, employment equity, enterprise development,
preferential procurement, as well as investment, ownership and control of enterprises, form
part of the total BBBEE process.
The BBBEE Codes of Good Practice indeed favour social enterprises and are among the most
enabling factors for social enterprise development in South Africa.
• BBBEE status
A PBO with a turnover of less than R5 million is automatically accorded a level 4 status for
BBBEE purposes, which means that, by procuring goods or services from a PBO, another
entity will have the procurement recognised for their own BBBEE scorecard purposes.
PBOs with a turnover of between R5 million and R35 million that carry on an approved socioeconomic development programme (SED) will secure BBBEE scorecard points for contributors
to the PBO. The full value of the contribution may be recognised if at least 75% of the value of
the contribution directly benefits black people (Seccombe, 2009)
• Verification
Verification of suppliers is crucial – no guidelines for the verification process have yet been
set – and each verification agency uses and applies different standards and methodologies.
The South African National Accreditation System (SANAS) has been tasked with the
accreditation process of verification agencies as well as to develop accreditation standards.
However, SANAS does not provide the necessary directives and refer people back to the
Department of Trade and Industry for a directive in the case of uncertainty.
• BBBEE Codes
The BBBEE Codes and regulations are too lengthy to attach to this research document as
annexures; thus, readers are referred to the website of the Department of Trade and Industry
to the specific section on the BBBEE Codes (http://www.thedti.gov.za/bee/beecodes.htm)
where all relevant codes can be studied and/or downloaded. The Preferential Procurement
Policy Framework Act, No. 5 of 2000 Draft Preferential Procurement Regulations, 2009
56 | P a g e
(Notice
1103
of
2009)
can
be
downloaded
by
http://www.thedti.gov.za/bee/DraftPreferentialProcurementRegulations.pdf
going
to
From the results of the quantitative survey, it is clear that respondents reached consensus
(72.3%) that the procurement process should favour social enterprises, NPOs and cooperatives, while 85% of the respondents felt that BBBEE Codes should accommodate social
enterprises specifically.
• Ownership Code
Regarding BBBEE, the ownership code refers to NPOs and PBOs, so it should, theoretically, be
scored. But as these entities do not have ‘owners’ in the usual sense of the word, it is difficult
to apply the ownership code. This would need to be changed. There is already an exception
for Section 21 companies, which would need to be extended. Readers can also glean more
information on the interpretation of ownership codes by visiting http://www.beescorecard.co.za/bbbee_codes_of_good_practice.htm
In addition to ownership, social enterprises are also particularly relevant to the BBBEE
scorecard elements of enterprise development, and under the residual element as socioeconomic development. This could create difficulties in arriving at the most appropriate
rating.
The case study below is a perfect illustration of a situation where the verification agency
interpreted the BBBEE codes in a manner that was to the disadvantage of the social
enterprise involved:
CASE STUDY: KEITH LEVINSTEIN, CEO ECONOBEE ON THE INTERPRETATION OF BBBEE CODES
1. Introduction
Barrier Breakers and Skyward Bound are both divisions of the Association for the Physically
Disabled (APD). The Association is a voluntary association and has no ownership.
The beneficiaries of the association’s activities are disabled people, with more than 75% of
them being black. In terms of the BBBEE Codes of Good Practice, the Association is a Social
and Economic Development (SED) beneficiary.
However, both Barrier Breakers and Skyward are business activities of APD. As such, it would
appear as though they were also potential enterprise development (ED) beneficiaries.
2.
Background to Enterprise Development
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CASE STUDY: KEITH LEVINSTEIN, CEO ECONOBEE ON THE INTERPRETATION OF BBBEE CODES
2.1 Definition
‘Enterprise development (ED) means monetary or non-monetary contributions carried out for
the following beneficiaries, with the objective of contributing to the development,
sustainability and financial and operational independence of those beneficiaries12’
Therefore, the APD is an exempted micro-enterprise (EME) because its annual revenue is
below R5 million. The issue at hand is that APD is a voluntary association and has no
ownership.
2.2 Interpretation
Econobee’s view is that the operating/profit-making entities (Skyward Bound – SB and Barrier
Breakers - BB) of the APD can be regarded as a Category A ED beneficiary because:
• The fundamental principle for measuring BBBEE compliance is that substance takes
precedence over legal form (para. 2.1 of Code 000, statement 000). This implies that
under certain conditions, the legal form can be relaxed if the intention of the
enterprise is to achieve the exact goals as in the ED definition.
•
The beneficiaries of the APD are more than 80% black: any profit is ploughed back to
the key stakeholders, exactly as if the APD were a “normal” business. The objectives of
SB and BB are to make a profit for its stakeholders and to grow their own businesses
to further benefit the stakeholder. The fact that the stakeholders are all disabled and
at least 80% black cannot be ignored. Both SB and BB should not be unduly punished
because its structure is that of an association and not a sole proprietor, sole trader, cc,
proprietary limited company, etc.
Code 000, statement 004, specialised enterprises specifically talks about the issues of
companies limited by guarantee, Section 21 companies, NPOs, and public benefit
organisations.
Para 2.3 states:
….This does not imply that companies limited by guarantee and Section 21 Companies
sharing in the ownership of other Enterprises as broad-based ownership schemes
cannot contribute towards black ownership to such enterprises...
Para 2.4 states:
….This does not imply that Non-Profit Organisation and Public Benefit Organisations
sharing in the ownership of other Enterprises as broad-based ownership schemes
•
•
12
Category A Enterprise Development (A ED) contributions involve enterprise development contributions to
exempted micro-enterprises or qualifying small enterprises which are 50% black-owned or black-women owned
Category B Enterprise Development (B ED) contributions involve enterprise development contributions to any
other entity that is 50% black-owned or black-women owned; or 25% black-owned or black-women owned with a
BEE status of between level one (1) and level six (6);
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CASE STUDY: KEITH LEVINSTEIN, CEO ECONOBEE ON THE INTERPRETATION OF BBBEE CODES
cannot contribute towards black ownership to such enterprises... (Bold and italic
emphasis added).
The codes do not refer to voluntary associations. Econobee believes this omission is
not intended, but came about due to the low incidence of voluntary associations that
could contribute to ownership, and that is why substance over form takes precedence.
The minister could have no conceivable reason to penalize voluntary associations.
Econobee submit that the APD be classified from a BEE viewpoint in the same way as a
Section 21 Company.
•
The codes do recognise that even if an organization has no ownership it can be
deemed to have ownership under certain conditions. Code 100, Statement 100 para. 6
refer:
Para 6.
Section 21 companies and companies limited by guarantee:
A measured entity may elect to include or exclude Section 21 companies or companies limited
by guarantee for the purposes of measuring ownership in terms of this statement.
6.1 A Section 21 company, or company limited by guarantee that houses a broadbased ownership scheme or an employee ownership scheme, is subject to the
provisions governing those types of schemes and not to this paragraph.
6.2 When a measured entity elects to exclude such companies, it can do so by
excluding up to 40% of the level of their ownership completely from the determination
of its compliance with the ownership target.
6.3 A measured entity electing not to exclude Section 21 companies or companies
limited by guarantee, when it is entitled to do so, may either treat all of that
ownership as non-black or obtain a competent person’s report estimating the extent of
black rights of ownership measurable in the measured entity and originating from
those Section 21 companies or companies limited by guarantee.
6.4 Black participants in a Section 21 company holding rights of ownership in a
measured entity may contribute:
6.4.1 A maximum of 40% of the total points on the ownership scorecard of
the measured entity if they meet the qualification criteria for broadbased ownership schemes as set out in Annexure 100(B);
6.4.2 100% of the total points on the ownership scorecard of the measured
entity if they meet the additional qualification criteria set out for
broad-based ownership schemes in Annexure 100(B).
3. Econobee’s recommendation
• Based on para. 6.3 of the codes above, Econobee submit that since more than
80% of the participants of the businesses of SB and BB are black, both entities
can be viewed as more than 50% black-owned enterprises for the purposes of
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CASE STUDY: KEITH LEVINSTEIN, CEO ECONOBEE ON THE INTERPRETATION OF BBBEE CODES
Code 100, ownership, and this also applies to code 600, enterprise
development.
•
By extension, therefore, SB and BB are Category A ED beneficiaries. Any ED
contributions as outlined in Annexure 600 of the Codes of Good Practice to SB
or BB can be recognized at 125% of the original amount.
Box 3: Case Study - ECONOBEE on BBBEE code interpretation
4.4.2. Taxation
According to the Tax Exemption Guide for Public Benefit Organisations in South Africa, the
Taxation Laws Amendment Act, No. 30 of 2000, which came into operation on 15 July 2001,
introduced two new concepts of a ‘public benefit organisation’ (PBO) and a ‘public benefit
activity’ (PBA). The Minister has approved a list of qualifying PBAs which he may expand from
time to time by notice in the Gazette. Specific sanction measures have also been introduced
to deal with situations where a PBO misuses its exempt status or does not comply with the
provisions of the Act.
The following types of organisations are deemed to be PBOs:
• A company incorporated and registered in the Republic under Section 21 of the
Companies Act, 1973 whose founding document is a memorandum and articles of
association
• A trust established in the Republic and registered with the Master of the High Court
whose founding document is a trust deed
• An association established in the Republic, as a voluntary association of persons whose
founding document is a constitution adopted by its members
• A branch established in the Republic by a foreign charitable organisation which is
exempt from income tax in its country of origin (SARS 2007, p.5).
Public benefit activities are categorised as: welfare and humanitarian; health care; land and
housing; education and development; religion; belief and philosophy; cultural; conservation;
environment and animal welfare; research and consumer rights; sport; providing of funds,
assets and other resources to approved organisations carrying on PBA, and there is also a
general category.
It is required that the formal requirements for being regarded as a PBO be incorporated in the
founding document, namely:
• Fiduciary responsibility (at least three unconnected persons to accept fiduciary
responsibility for the organisation).
60 | P a g e
•
•
•
•
The sole and principle purpose must be to carry out one or more PBAs and utilise its
objectives, and that surpluses (if any) are invested for income and future use. Trading
activities must form a source of income for the approved PBA. It is not acceptable for a
PBO to have the sole or principle object of conducting a commercial business activity
in order to fund a PBA.
The PBO may not distribute its funds directly or indirectly to any person.
Investment of surplus funds: the Act no longer describes precisely how surplus funds
of the PBO may be invested. The PBO may distribute funds as desired, provided this
does not amount to an indirect distribution of profits or the award of an impermissible
benefit.
The PBO may not, on dissolution, distribute any of its funds to individuals or other taxpaying entities (Adapted from SARS, 2007).
4.4.3. Section 18A Approval – PBOs and entities established by or under law conducting
approved PBAs
A PBO that is tax exempt in terms of section 10(1) c(A)(i) of the Act, and carries on any
approved PBA, may apply for Section 18A of the Act, which provides for the tax deductibility
of donations made to approved public benefit organisations, institutions, boards or bodies or
the government, provincial administration or local authorities, carrying on certain approved
PBAs as listed in Part II of the Ninth Schedule to the Act (SARS, 2007). This enables other
persons and entities which provide funding to PBOs to enjoy some tax relief. It will also make
it easier for PBOs to obtain funding.
4.4.4. Trading
Before 2006, PBOs were only permitted to carry out limited trading activities within
permissible rules.
A system of partial taxation was implemented, which allows PBOs to carry on trading
activities outside the permissible rules without losing exempt status as long as the proportion
of income earned from trading does not exceed R150 000 or 5% of total income. The PBO’s
secondary trading activities must support the aims and objectives of the PBO. Certain trading
activities are excluded from tax where they are central to the purpose of the NPO, e.g.
employing disabled people. In the pilot study in the legal environment, it emerged that
Treasury had already been approached on the 5% limit on untaxed trading income for PBOs.
The Treasury’s response was that PBOs are not intended for enterprises, so they do not want
to encourage PBOs to trade. In fact, this was further validated in an interview with SARS: the
researcher established that a PBO may not trade in competition with a for-profit company.
61 | P a g e
According to the Tax Exemption Guide for Public Benefit Organisation in South Africa, a PBO
may only conduct a trading activity or business undertaking
... where the activity is utilised as a source of funding for the approved PBAs, provided
that the carrying on of a business involving a commercial activity with the intention of
earning a profit does not, in effect, become the sole or principal object or activity.
Where PBO approval has been granted, but where it subsequently transpires that the
PBO does not comply with these requirements, the exempt status may be withdrawn
retrospectively (SARS, 2007, p.11).
It is almost certain that one would need to develop a solid business case if one wanted to
raise this limit for trading by PBOs. The motivation would have to address the issue of unfair
competition between PBOs and for-profit organisations which are subject to taxation.
4.4.5. Employment legislation
Employment legislation could provide a barrier to volunteerism because South Africa does not
have a dispensation for volunteers, as volunteers are not treated as employees by law. There
is also an issue for cooperatives in terms of employment law, as there is no
employer/employee relationship. This aspect should be explored in a separate study.
4.4.6. Governance: The King III Report
The King Code of Governance Principles (King III) was released on 1 September 2009 and will
become applicable on 1 March 2010. While the release of King III represents a significant
advance in good corporate governance, it falls short of responding to the needs of the social
sector.
In a joint statement by Inyathelo - The South African Institute for Advancement - and Ricardo
Wyngaard Attorneys on 7 September 2009, the parties refer to a public submission to the
Institute of Directors, endorsed by 57 civil society organisations and by 17 individuals, on the
Draft King III report. This submission pointed out the key differences between non-profit and
commercial entities and how the draft King III Code failed to give recognition to the distinctive
features of non-profit entities.
The submission cautioned against enacting superficial changes in addressing the Draft King
III’s fundamental shortcomings with regard to NPOs. The submission further recommended
that a sub-committee be appointed to develop a chapter within King III that specifically
addresses non-profit governance.
King III remains unquestionably designed for businesses. Although components of
King III will benefit some NPOs, the final version of King III remains wanting in its
62 | P a g e
appropriateness and applicability for the non-profit sector as a whole. More
particularly, King III has not take into account the following important factors:
1. That the majority of South African NPOs are small community-based organisations.
Procedures such as “integrated reports”, “audit committees”, “corporate citizenship
policies” and “business rescue proceedings” would not find place amongst such
organisations. Yet, NPOs will effectively be required to discern which of the principles
contained in King III apply to them and explain to their stakeholders why other
principles may not be applicable.
2. The Directorate for Nonprofit Organisations is tasked with the responsibility under
the Nonprofit Organisations Act of 1997 to ensure that the standard of governance
within NPOs is maintained and improved. One of the objectives of that Act is to
encourage NPOs to maintain adequate standards of governance, transparency and
accountability and to improve those standards. The Directorate for Nonprofit
Organisations is accordingly a key stakeholder with reference to non-profit
governance in South Africa. Contrary to its message of ‘inclusivity of stakeholders’,
the committee has seemingly excluded this important stakeholder in developing King
III.
3. Section 8 of the Companies Act of 2008 recognises two types of companies, namely:
profit companies and non-profit companies. This Act notes that the main objective of
a non-profit company is to pursue a broader public objective or to promote social
change as opposed to generating profit. King III’s main emphasis remains firmly on
business. The non-profit sector is however not a sub-sector of the marketplace and it
cannot be assumed that governance principles aimed at governing commercial
entities should apply to NPOs.
King III has however addressed some key concerns with regard to its relevance and
applicability to the non-profit sector, namely that:
1. King III now deems a company’s stakeholders as its ultimate compliance officer, thus
considering the fact that NPOs are not marketplace led.
2. Noting that NPOs do not have “shareholders”, performance is deemed to be the
ultimate responsibility of the board. Appropriately, King III applies the notion of
“improvement of economic value” only in relation to “trading entity” and not to
NPOs.
(Inyathelo, 7 September 2009)
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4.5.
FINDINGS: THE LEGAL AND REGULATORY ENVIRONMENT
4.5.1. The following laws were identified as having a bearing on the enabling environment
for social enterprises:
•
The Companies Act, No. 61 of 1973, as well as the Companies Act, 2008, No. 71 of
2008, to be implemented in the course of 2010
•
Nonprofit Organisations Act, No. 71 of 1997 (NPO Act)
•
Trust Property Control Act, No. 57 of 1988
•
Close Corporations Act, No. 69 of 1984
•
Common Law on Associations
•
Income Tax Act, 1962 (No. 58 of 1962)
•
Broad-Based Black Economic Empowerment Act 53 of 2003
•
Preferential Procurement Policy Framework Act, 2000 (No. 5 of 2000)
•
Co-operatives Act (No. 14 of 2005)
•
All Labour legislation (including measures related to volunteerism)
•
The Constitution of the Republic of South Africa.
4.5.2. The NPO Act, No. 71 of 1997 already has space for social enterprises as it answers to
the principles of public purpose, non-distribution of assets among members and that
when the NPO or social enterprise dissolves, assets must be transferred to a similar
organization but should allow for trading by social enterprises and share equity.
However, it covers only those social enterprises that devote their income exclusively
to the social purpose, leaving no room for entities which make limited distributions to
their members or investors. It also covers entities that do not trade and which,
therefore, do not have the same needs as social enterprises.
4.5.3. Multiple registrations frustrate social enterprises and lead to bona fide social
enterprises registering as for-profits because of bureaucracy. For instance, a Section
21 company may often have to register three times (Registrar of Companies, NPO
Directorate and Tax Exemption Unit of SARS).
4.5.4. For a vendor, multiple registrations at the different government institutions are timeconsuming. There is no central database on which to register vendors in the provinces,
let alone for the country. A small social enterprise, not to mention small businesses,
finds it time-consuming and costly to register.
4.5.5. There are various avenues for the provision of social enterprises including
amendments to the NPO act, amendments to the Companies Act and acts governing
trusts, cooperatives, close corporations and the Income Tax Act, all of which need to
be explored. One may consider:
(a) a fiscal solution by only amending the Income Tax Act and/or
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(b) amendments to all legislation relating to the different entities under which social
enterprises function; and
(c) new legislation dedicated to social enterprises.
4.5.6. Because of the number of institutions involved with BBBEE (DTI, SANAS and
accreditation agencies), it is essential that DTI takes the leadership in policy
interpretation as there are still instances where the codes are not correctly
interpreted (see page 50). Regarding BBBEE, the ownership code refers to NPOs and
PBOs, so it should, theoretically, be scored. But as none has a vested interest in these
entities, it is difficult to apply the ownership code. This would need to be changed.
There is already an exception for Section 21 companies, which would need to be
extended.
4.5.7. Under certain circumstances a VA, a Section 21 company and a trust may receive tax
exempt status as well as Section 18A approval (tax deductibility of donations). Social
enterprises are only allowed to trade under certain circumstances, provided the
earnings from the trading do not exceed R150 000 or 5% of total income.
4.5.8. There is a need for a self-regulatory Code for Good Governance for social enterprises
(and NPOs) as the King III report failed to adequately address governance issues for
social enterprises and nonprofits.
4.5.9. Social enterprises are not allowed to get share equity or to pay dividends.
65 | P a g e
CHAPTER 5
AN ENABLING ENVIRONMENT: BUSINESS DEVELOPMENT SERVICES
(FINANCIAL AND NON-FINANCIAL)
The financial and non-financial business development services (BDS) is, second to the
regulatory aspects, very important in creating an enabling environment where social
enterprises will be able to flourish. This chapter examines the financial and non-financial
business development services (BDS) currently available in South Africa.
It is very important to take note of research regarding an enabling environment in a country
such as the USA. In a ground-breaking research document, A Wolk (2008) listed 13
recommendations to be considered by the USA government for laying the foundation for a
new era of social entrepreneurship; for setting policy to enable and encourage social
entrepreneurship and for developing financial and non-financial resources for social
entrepreneurship as set out below:
Table 3: Recommendations for Government to Advance Social Entrepreneurship (Wolk A, 2009, p.9)
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Wolk (2008; p.8) provided the following conceptual clarification of terminology used in Table
3 above:
1. Encourage social innovation – For any entrepreneur, the start-up period of an
organisation is critical. Government can encourage social innovation and help spur the
testing of promising new approaches to solving social problem.
2. Create an enabling environment for social entrepreneurship – The very nature of
innovation means that social entrepreneurs will be heading into new territory, and
they often encounter unexpected barriers along the way. Government can set policies,
encourage public-private partnerships, and lift such barriers for social entrepreneurs so
that they can make progress more swiftly and easily.
3. Develop standards and produce knowledge for understanding performance –
Government already serves as a critical source of standards and data that can advance
the field of social entrepreneurship. Government can further that role by helping to
develop clear performance standards and producing knowledge that will inform future
social entrepreneurship.
4. Reward social-entrepreneurial initiatives for exceptional performance – Access to
reliable sources of funding is essential to the growth and sustainability of solutions
that work. By tying decisions about funding and purchasing to performance,
government can help ensure that solutions that work will sustain and grow their
impact.
5. Scale successful approaches – Expanding the reach of a proven solution is critical if it
is to become truly transformative. Yet acquiring the recognition, support for
dissemination, or funding to scale a successful initiative is notoriously difficult.
Government can play a crucial role in scaling successful solutions by seeking out what
works and enabling the expansion of proven programmes.
The South African realities are discussed below:
5.1.
FINANCIAL BUSINESS ENVIRONMENT
5.1.1 Issues relating to the financial environment identified by research participants
• Access to capital
As illustrated below, respondents indicated that they realised that social entrepreneurs faced
the same difficulties seeking access to capital from banks and investors, where the majority
(61% of the respondents) agreed that social entrepreneurs and conventional entrepreneurs
find it equally difficult to get access to loans or venture capital.
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Figure 8: Gaining access to capital - difficulties by both SEs and entrepreneurs
It is, therefore, important to note what the Small Enterprise Development Agency (SEDA)
indicated as challenges for small enterprises. One may readily accept that social enterprises
would face the same challenges as set out below:
• Inadequate capital for start-up and for expansion
• Inaccessibility of the relevant financial products
• The enterprise’s limited knowledge and understanding of how the lending market
works
• Inability to comply with minimum financing requirements due to inadequately
prepared business ideas and poorly compiled business plans.
Banks are treating conventional and social enterprises in the same manner when each
approaches them for finance. They do look at cash flow and regular and consistent streams of
income, collateral, references, proven ability, success in other ventures, the probability of
repayment, reputation for paying commitments, previous dealings with banks, and interests
in other business properties.
It is important to note that the bankers interviewed for the purposes of this survey were
familiar with the concept of social enterprises, and they are excited about the future
relationship between bankers, investors and social enterprises.
To a large extent, banks are creating an enabling environment through the development of
community trusts: the Tutuwa Community Trust initiative of Standard Bank is a case in point,
which is about:
• Black small and medium enterprise (BSME) development
• Community development
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South African banks are engaging in community banking and microfinance, and supporting
organizations which offer micro or developmental financing. An example is the Women’s
Development Bank.
•
Blended Value
The blended value proposition has been described earlier in this report. Banks and the private
investors who were interviewed claimed that there is more evidence that a large number of
double-barrelled investments (social and financial return) are now materialising. At one of
South Africa’s largest banks, this happens in micro finance where investment funds invest in
micro funds. The investor is usually a private sector entity (for-profit). Non-profit
organisations are being reformatted in the process. This bank has a specific unit with the
absolute focus on the double barrelled investment objective. There must be profit plus social
impact. Operating group lending always works with NGOs in community to interact with
community. They are measured on impact. There can be no contract if there is no impact.
In South Africa, HEART’s Blended Value Funds aim at incubating high growth and high-impact
social enterprises that are sustainable, scalable and replicable. The focus is exclusively on
ventures that address social and environmental challenges facing local communities.
CASE STUDY: BLENDED VALUE AND HEART
HEART is a registered Section 21 Company and a registered nonprofit, whose mission is to
transform quality of life by creating, incubating and establishing social enterprises that work
long term. According to HEART, start-up social enterprises by their nature simply do not have
access to traditional funding channels such as banks, nor the resources to afford strategic and
operational expertise. Therefore, HEART combines its business development services with
venture loans, thereby enabling social entrepreneurs to finance their operations.
They combine their business development services with Blended Value Loans from social
investors to enable social entrepreneurs to finance their operations through various phases of
business development. HEART is, therefore, a nexus between the social entrepreneurs
needing capital and support in order to develop their social enterprises and investors seeking
social and financial returns, otherwise referred to as Blended Value (Shrimpton & Pichulik,
2009)
Accordingly, HEART is pioneering a new way of giving called Impact Plus. In this structure,
investors have the opportunity of creating social impact, plus the potential to get their
principal back at some future point. By creating social enterprises that are both impactful and
financially sustainable, investment opportunities are created that offer investors the potential
for both social and financial returns on their capital.
Investors do not, however, make Blended Value Loans with gratuitous intent. Financial
returns are expected. Investors will have no legal recourse on the funds should the loans fail
69 | P a g e
to mature.
It is a contradiction in terms that HEART is very vocal in advocating non-grant dependent
social entrepreneurship, but yet is raising millions in grants as a registered Section 21
(nonprofit) company to finance its incubator.
Box 4: Case Study - Blended Value and Heart
Similarly, when we talk about blended value, the issue of share equity is also relevant. This
has been discussed in the previous chapter too, but it is important to note what the
quantitative survey revealed:
• Scaling and replicating – raising capital
On the issue of equity shareholding, there was consensus (68.6%) that equity shareholding
would facilitate capacity building and scaling up – as illustrated in the graph below:
Figure 9: Equity shareholding
The increasing rise in blended value or double-barrelled investments is sure proof of the fact
that South Africa is ready for a new dispensation, where social enterprises and robust trading,
replication and scaling could ameliorate the high levels of poverty still experienced in this
country.
The need for equity and the frustrations experienced by social entrepreneurs in a quest to
raise capital are further illustrated by the innovative ways in which social enterprises raise
capital. The case of Life College is of specific interest.
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CASE STUDY: LIFE COLLEGE, RANDBURG
Life College is a social enterprise, functioning as three legal entities. The first entity, Life
College Association, has been in operation for twelve years as a Section 21 Company with
Section 18(a) tax exemption. Then there is Life Trust, a water-tight trust, which owns 100%
shares in LifeCo Investments (Pty) Ltd and ,and its only beneficiary is Life College Association.
LifeCo Investments (Pty) Ltd is a for-profit company, seeking to invest opportunistically. It was
started for the purpose of raising private equity for the purpose of upscaling and replication
to allow other investors to get involved. It is impossible for other investors to get involved in a
Section 21 company. However, with LifeCo Investments, Life College is suddenly able to
structure equity deals, and to deal with companies who want to use their BBBEE status. They
are also able to raise capital on the basis that they are able to trade.
Pat Pillay, the founder and CEO of Life College Association, says that in order to function and
upscale, a number of entities had to be created to get around the system. The frustration is
that under South African company law, there is no space for social enterprises to do all of this
at once. This, however, is the case in the USA where the L3C, or Low-Profit Limited Liability
Company, recently came into operation and in the UK, where Community Investment
Companies (CIC) address the specific needs of social enterprises who are trading in the
market. A social enterprise should be a ‘no loss, no dividend’ business.
Life College Association wants to scale up and to franchise their model throughout South
Africa. According to Pat Pillay, society should remain the stakeholder in social enterprises: it
should not have any private shareholders. We need to change our mindset about
sustainability, because sustainability is not only linked to the balance sheet but to vision,
mission and social purpose.
The vision of Life College is to eradicate poverty in the lifetime of their students. Our vision is
a nation of champions. The college seeks to build a champion mentality in each of its
students.
Life College Association is an innovation hub: groups of about 12 people are supported by 250
volunteers. Their gap in society is providing for the mentality of someone who will be
successful, no matter what. Its curriculum uses a unique model for that purpose. More about
Life College is available by going to www.lifecollege.org.za
Building this nation of champions will require franchising and replication.
Box 5: Case Study - Life College, Randburg
• Procurement
One may ask whether the procurement process in government departments and in the
private sector really favours social enterprises on the issue of procurement. While the BBBEE
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Codes are favourably disposed towards social enterprises, one social entrepreneur, in an
interview, indicated that it is difficult to obtain work from government.
However, marketing is an important aspect of the procurement process. The researcher got
the distinct impression that the social entrepreneurs’ difficulties may have something to do
with the marketing of their products, services or enterprise.
While preferential procurement is embedded for social enterprises in the BBBEE Codes and in
the legal framework, access to government contracts remains elusive – this may be an
unrelated issue. The issue of successful bidding for government quotes or tenders and the
social enterprise’s relationship with marketing and presentation needs to be explored further.
• Operate as a for-profit entity to attract investors
There are circumstances, such as the Life College example earlier above, where adopting a
for-profit entity alongside a non-profit entity is done to attract investors. Respondents to the
quantitative survey are well aware of the fact that some social enterprises are, indeed, forprofit entities:
Figure 10: SEs operate as a for-profit to attract investors
• Switch to for-profit to avoid donor interference
Prescriptive donors or social investors can also drive a social enterprise into opting for a forprofit entity. This case is clearly illustrated by Shonaquip, providers of wheelchairs.
CASE STUDY: SHONAQUIP RETAINS INDEPENDENCE
While the owner, Shona McDonald, started two non-profit organisations over a period of ten
years, the restrictions of being funded by organisations with their own agenda was simply too
frustrating because of the funding criteria laid down by the sponsors. This interfered with the
72 | P a g e
social purpose and she felt that she was never able to do what needed to be done and to do
so openly. The funders’ needs took precedence over that of the people that needed to be
served. An example of such a frustration is as follows: a funder has Rx amount of money and
is interested in the quantity of chairs (20 wheelchairs costing R4 000 each rather than 10
wheelchairs for special needs at R8 000 each.) An example of the need for special wheelchairs
is that people in rural areas need special chairs because of problems such as uneven surfaces.
The wheelchair needs to address the needs of the user.
The frustrations led her to start up her own for-profit company because she could make her
own decisions how to spend money and how to respond to the need of people with
disabilities. However, Shonaquip reinvests all surpluses in business development.
Shonaquip is basically driving change in the field of wheelchair provision, now impacting at a
global level– demanding that wheelchairs address needs of the user in terms postural support
and prevention of secondary health complication, which costs a great deal. In order for this to
work, Shonaquip provides associated services and training for all involved: user, parent, carer,
rehab worker and professional.
Shona MacDonald started a foundation to raise money to pay for these additional activities to
make the model work and to get access to funding for disadvantaged people.
Box 6: Shonaquip retains independence
• Government involvement expected
While there is eagerness on the side of the SEs to perform and to become financially
sustainable, there was also consensus (75.9%) that government should provide SEs with seed
capital, while 86,23% of respondents agreed that government should either make loans
available or facilitate access to loans for social enterprises.
Figure 11: Loans by Government
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5.1.2 Different types of financing models for social enterprises
Table 3 explains the different types of financing models for social enterprises currently
available.
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The following financial models are of importance to social enterprise development:
Table 4: Financial Models available to Social Entrepreneurs
Funding Option
Venture Capital
Traditional Financial
Investment
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Supplies capital and
other resources to
entrepreneurs in new
business with high
growth potential for a
high rate of return on
invested funds
Normal financial
planning which involves
various investments
and savings issues to
achieve long-term
profit from present
wealth
Investment Objective
The objectives of
corporate venture
capitalists vary from one
to the other: some
corporate investors want,
mainly, to identify and get
stakes in companies they
may someday acquire;
others want to tap into
promising technology, and
there are still others that
are like traditional venture
capitalists– purely
interested in return on
investment.
Capital Types
Private equity, often
exchanged for part
ownership or shares in
the new business
Return on Investment
Seek financial return
Rate of ROI
High rate of return
Purely profit-driven
Market rate capital
Seeks financial return
Above market rates
Funding Option
Blended Value
Investment
opportunities inclusive
of social and/or
environmental factors
for investment
decisions
Investment Objective
High Social Return - Social
mission with financial
return and promotes
specific social and/or
environmental agenda, OR
Some Social Return –
Market-rate financial
return with some broad
social return, and reflects
investor’s moral and
ethical beliefs
Traditional Philanthropy
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The effort or inclination
to increase the wellbeing of humankind, as
by charitable aid or by
donations for the love
of humankind in
general.
Maximizes social return
with no financial return
Capital Types
High Social Return –
Below market capital or
mix of donations and
market rate capital, OR
Return on Investment
Seeks both social and
financial return
Rate of ROI
Risk-adjusted or below
market rates
No return
N/A
Some Social Return –
Market-rate capital
Donations and grants
5.1.3 Social enterprise franchising and replication
Social enterprise franchising as business models is developing momentum within the United
States of America (USA) and the United Kingdom (UK). The aims of this business model are to
assist existing social enterprises to expand their social business through replication and to
afford existing and new social business ventures access to the required infrastructure
resources and systems, business knowledge and venture capital through replication. Social
enterprise franchising and replication are still in its infancy in South Africa and this business
model should be researched and investigated further within the South African context. ‘Sport
for All’ claims to be the only social enterprise franchise within South Africa.
The best current available study on social enterprise franchising, conducted in Scotland, is the
study by Gerry Higgins, Kevin Smith and Russell Walker on Social Enterprise Business Models:
An Introduction to Replication and Franchising, 2008. For the purpose of this study, the
research done by these authors will be used to explain social enterprise franchising and
replication.
Commercial franchising recognises two kinds of franchising models, namely, ‘business format
franchising’ and ‘product and trade name franchising’. The latter focuses on the rights to
distribute and sell products and services to one or more countries: this type does not include
royalty fees, and the franchisor provides trademarks, logos, and national advertising
campaigns. The motor industry and soft drink companies are good examples of ‘product and
trade name franchising’. The key features of ‘business format franchising’ include purchasing
of a licence, use of branding, an allocated geographical territory, rules of operation, payment
of ongoing fees to cover ongoing support and marketing (Higgins, Smith & Walker, 2008).
Social enterprise franchising is different from the commercial franchising agreements that
exist and is, at present, not recognised by the commercial sector in the UK as ‘franchising’.
Currently within the UK two main streams of ‘social franchising’ exist. The first stream is
where one or more manufacturer participates in a scheme where a NGO is licensed to
distribute its products free of charge to developing and/or underprivileged communities. In
this instance there are no business systems involved, no marketing and no sales activity, and
its purpose is mainly for the NGO to get products from manufactures into developing and
underprivileged communities without distorting the First World marketplace of these
products. In the second instance, some formal replication in the social enterprise sector is
being termed ‘social franchising’ when, in fact, no franchising is involved. It involves more of a
social enterprise collaboration to take the systems and experiences of one enterprise and to
apply it to another (Higgins, Smith & Walker, 2008).
•
Engaging the personnel from one enterprise to support the development and
establishment of another, similar enterprise;
77 | P a g e
•
Allowing another business to access systems, business information or other intellectual
property to assist them to develop a new social enterprise (Higgins, Smith & Walker,
2008, p. 13)
The authors (Higgins, Smith & Walker, 2008) of the UK study found that the franchising
method most suited for a social enterprises is the ‘business forma franchising’ model as it
offers a variety of services to potential franchisees. The franchisor will provide the franchisee
with the use of trademarks, logos and a complete system of doing business, business advice,
interior layout and design, hiring and training of staff, national and local advertising and
marketing, and could even assist in the supply of products and/or raw materials.
A potential South African social enterprise that can benefit from social enterprising
franchising is the Life College case study presented earlier in this study.
5.2. NON-FINANCIAL BUSINESS DEVELOPMENT SERVICES (BDS)
The purpose of this study is not to index the services available but rather to provide an
overview as to whether there are, indeed, non-financial services available and how these
impact on the enabling environment for social enterprises in South Africa. It is important to
note what services are available to social enterprises. Unfortunately BDS are, in many
instances, only available to conventional enterprises as is illustrated in the graph below:
5.2.1 What does non-financial BDS entail?
There are a number of BDS providers offering either the same or different services. While
these services vary, respondents were requested to indicate the five most important nonfinancial BDS. Below are the results:
Figure 12: Non-financial BDS Ranking
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The seven most important services listed are:
• Marketing
• Monitoring and evaluation of projects
• Linking up social entrepreneurs with business opportunities
• Business plans
• Business advice
• Project management
• Strategic management planning.
One realises why there are difficulties when comparing the needs of the different sectors: for
instance, what government deems important versus what is deemed to be important by the
social enterprises themselves, as set out below:
Table 5: Needs of Different Sectors
Please select and
tick the FIVE (5)
most important
non-financial
Business
Development
Services that
should, in your
opinion, be
provided....
(d) Provider of
(c) Provider of
(b) Social
non-financial
(a) National,
financial
Entrepreneurial
business
Provincial or
business
concern / Social
development (e) Both (c)
Local
services (such
Entrepreneur /
services (such as
and (d)
Government
as banking,
Non-profit Entity /
training,
department
investment,
Social Enterprise
business plan,
broker)
marketing)
(f) Corporate Social
Responsibility(CSR)
/Corporate Social
Investment(CSI)/
Foundation /
Fellowship or grantmaker
(g) Other,
please
specify:
82.35%
44.83%
60%
57.14%
50%
62.5%
33.33%
14 of 17
13 of 29
3 of 5
8 of 14
1 of 2
5 of 8
4 of 12
29.41%
44.83%
0%
35.71%
50%
25%
33.33%
5 of 17
13 of 29
0 of 5
5 of 14
1 of 2
2 of 8
4 of 12
23.53%
31.03%
20%
7.14%
50%
25%
25%
4 of 17
9 of 29
1 of 5
1 of 14
1 of 2
2 of 8
3 of 12
41.18%
34.48%
40%
28.57%
50%
62.5%
33.33%
7 of 17
10 of 29
2 of 5
4 of 14
1 of 2
5 of 8
4 of 12
29.41%
27.59%
60%
28.57%
0%
12.5%
25%
5 of 17
8 of 29
3 of 5
4 of 14
0 of 2
1 of 8
3 of 12
Marketing
Legal Advice
Tender
Assistance
Accounting
Services
Financial
Statement
Literacy
79 | P a g e
Please select and
tick the FIVE (5)
most important
non-financial
Business
Development
Services that
should, in your
opinion, be
provided....
(d) Provider of
(c) Provider of
(b) Social
non-financial
(a) National,
financial
Entrepreneurial
business
Provincial or
business
concern / Social
development (e) Both (c)
Local
services (such
Entrepreneur /
services (such as
and (d)
Government
as banking,
Non-profit Entity /
training,
department
investment,
Social Enterprise
business plan,
broker)
marketing)
(f) Corporate Social
Responsibility(CSR)
/Corporate Social
Investment(CSI)/
Foundation /
Fellowship or grantmaker
(g) Other,
please
specify:
41.18%
31.03%
40%
42.86%
50%
25%
41.67%
7 of 17
9 of 29
2 of 5
6 of 14
1 of 2
2 of 8
5 of 12
35.29%
37.93%
60%
57.14%
50%
37.5%
41.67%
6 of 17
11 of 29
3 of 5
8 of 14
1 of 2
3 of 8
5 of 12
41.18%
48.28%
40%
42.86%
50%
37.5%
66.67%
7 of 17
14 of 29
2 of 5
6 of 14
1 of 2
3 of 8
8 of 12
23.53%
58.62%
40%
57.14%
50%
50%
58.33%
4 of 17
17 of 29
2 of 5
8 of 14
1 of 2
4 of 8
7 of 12
5.88%
13.79%
40%
14.29%
0%
12.5%
33.33%
1 of 17
4 of 29
2 of 5
2 of 14
0 of 2
1 of 8
4 of 12
70.59%
34.48%
40%
28.57%
50%
50%
41.67%
12 of 17
10 of 29
2 of 5
4 of 14
1 of 2
4 of 8
5 of 12
17.65%
37.93%
40%
50%
0%
62.5%
33.33%
3 of 17
11 of 29
2 of 5
7 of 14
0 of 2
5 of 8
4 of 12
47.06%
41.38%
20%
42.86%
50%
25%
33.33%
8 of 17
12 of 29
1 of 5
6 of 14
1 of 2
2 of 8
4 of 12
Financial
Advice
Business
Advice
Linking me
with
business
opportunities
Monitoring
and
Evaluation of
projects
Proposing
best
business
model
Business
Plan
Strategic
management
advice
Project
Management
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Please select and
tick the FIVE (5)
most important
non-financial
Business
Development
Services that
should, in your
opinion, be
provided....
Computers,
faxes and
internet
facilities at a
centre
(d) Provider of
(c) Provider of
(b) Social
non-financial
(a) National,
financial
Entrepreneurial
business
Provincial or
business
concern / Social
development (e) Both (c)
Local
services (such
Entrepreneur /
services (such as
and (d)
Government
as banking,
Non-profit Entity /
training,
department
investment,
Social Enterprise
business plan,
broker)
marketing)
(f) Corporate Social
Responsibility(CSR)
/Corporate Social
Investment(CSI)/
Foundation /
Fellowship or grantmaker
(g) Other,
please
specify:
11.76%
3.45%
0%
7.14%
0%
12.5%
0%
2 of 17
1 of 29
0 of 5
1 of 14
0 of 2
1 of 8
0 of 12
0%
10.34%
0%
0%
0%
0%
0%
0 of 17
3 of 29
0 of 5
0 of 14
0 of 2
0 of 8
0 of 12
0%
0%
0%
0%
0%
0%
0 of 17
0 of 29
0 of 5
0 of 14
0 of 2
0 of 8
Other, please
specify:
0%
No response
One can understand why the services of BDS providers are perceived to be unsatisfactory
when comparing the priorities identified by each of the important groups. The BDS providers
and the government are clearly not on the same page as the social enterprises or those
associated with the latter.
Table 6: Comparison of Priorities by each Stakeholder Group
Social enterprises and those
associated with SEs
Monitoring and Evaluation tools
(58.62%)
Links to business opportunities
(48.28%)
Marketing (44.83%)
Legal advice (44.83%)
BDS providers
All levels of government
Marketing (60%)
Marketing (82.35%)
Financial literacy (60%)
Business plan (70.59%)
Project management (47.06%)
Links to business opportunities
(41.18%)
Project management (41.38%)
Financial advice (40%)
Financial advice (41.18%)
Strategic management Advice Links to business opportunities Accounting advice (41.18%)
(37.93%)
(40%)
Business advice (37.93%)
Monitoring and Evaluation Financial Services (41.18%)
(40%)
Proposing best business model
(40%)
Business plan (40%)
Strategic Management Services
(40%)
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Business advice (60%)
Accounting (40%)
During the interviews with business development service providers, it became clear that,
although assistance is provided with some of the above, not all the priorities are addressed.
This information should be valuable to BDS providers – for them to reinvent their outreach to
social enterprises – and perhaps valuable to conventional enterprises too.
The BDS providers are spread all over South Africa, together with government agencies in an
effort to stimulate small business. In a focus group (FG) discussion which took place on 10
September at the ILO office in Pretoria, FG participants agreed that BDS is needed by
conventional and social entrepreneurs.
5.2.2 Organisations lending support
It is impossible to have had interviews with all organisations which are lending support to
social enterprises or who could fulfil this role. The organisations that were in a position to
provide the researcher with information are listed below. Where it is feasible, the groups are
clustered into, e.g. banks, BDS consultants and educational institutions..
The list of BDS providers were selected randomly and do not appear in any particular order
below:
• Ashoka
Ashoka is a catalyst for systemic social change and a dynamic global organisation that aims to
build a strong citizen sector by developing the profession of social entrepreneurship. Ashoka
works on three levels. First, it provides support to individual social entrepreneurs who deliver
high-impact solutions to society’s most pressing problems —financially and professionally—
throughout their life cycle. Second, it brings communities of social entrepreneurs together to
help leverage their impact, scale their ideas, and capture and disseminate their best practices.
Finally, it helps build the infrastructure and financial systems needed to support the growth of
the citizen sector and facilitates the spread of social innovation globally.
Upon election, Fellows enter a robust learning community and gain access to programmes to
support their efforts. Ashoka offers to fellows:
-
-
Individual mentoring, exposure, media support, lifelong access to its growing global
network of Fellow social entrepreneur and to new fellows, a three-year living stipend,
allowing them to focus full-time on building their institutions and spreading their
ideas.
A variety of business development support services and consultancies as well as pro
bono legal advice
Access to group collaborations and funds allowing for the meeting of other fellows,
exploring potential partnerships, combining expertise, developing joint projects,
replicating a successful methodology and starting initiative to induce policy change.
Ashoka has presently over 2000 Ashoka Fellows around the world. The Southern Africa
programme initiated in 1990 has to date elected over 115 Fellows in Bostwana, Mozambique,
South Africa, Zimbabwe and Zambia.
(Adapted from www.ashoka.org and http://usa.ashoka.org/fellowship).
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• Schwab Foundation
The Schwab Foundation does not offer grants but rather works to create unique opportunities
for accomplished social entrepreneurs. With the World Economic Forum (WEF),the Schwab
Foundation values relationships and networks and arranges high-level access to government
and, through the WEF networks, to philanthropists, funders, donors, social venture funds and
high-network individuals. They also bring social entrepreneurs into contact with auditing
firms, strategy firms and with the Lex Mundi Pro Bono Foundation, which provides legal
advice. Besides identifying and connecting the world’s leading social entrepreneur at regional
and global meetings of the WEF, the Schwab Foundation:
-
sponsors scholarships in social entrepreneurship at the largest universities in the USA,
in the UK and in Europe.
-
advocates community building by encouraging the peer-to-peer exchanges between
social entrepreneurs and by supporting the replication of their methodologies among
each other.
-
works to generate solutions in partnerships to advance specific activities of social
entrepreneurs or initiatives that support social entrepreneurship.
-
sponsors the social entrepreneur category of the World Entrepreneur Competition
organised, worldwide, by Ernst and Young.
(Adopted from www.schwab.fond.org)
• Banks
To a very limited extent, some banks provide BDS apart from financial services, such as
assistance with a business plan and meeting / conferencing facilities. However, not all the
banks in the country were interviewed and therefore the banks which were represented in
this study will not be identified so as to avoid the perception of bias. South African banks,
through micro financing and community banking, are making a difference. One of the bank’s
finance division targets the poorest of the poor, and its basic business skills programme
enhances rural women’s micro-enterprises. Empowerment takes place through a computer
literacy programme and some banks stimulate business by making meeting facilities available
to small businesses, including social enterprises. Please see p.74 for a review on the different
options for access finance.
•
Examples of BDS consultants and agencies interviewed
The services provided by these entities are indeed exciting, but most of them only
recently started focusing on social enterprises as the activities were previously viewed
as being projects and so could not benefit from the available business products.
o Community Self-Employment Centre (COMSEC)
COMSEC is geared towards enterprise development and poverty alleviation. They
are known nationally and internationally as a small business development centre of
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renown which consistently adapts itself to the changing small business
environment that requires innovative methods to create impacts.
They do training and follow a holistic programme to help people improve their
businesses. They replicate the model and provide a full replication manual.
COMSEC train the incubator staff for a two-week period and provide aftercare to
ensure adherence to the replication model.
The integrated package of services in support of entrepreneurship and BDS is an
integral support function performed by full-time, multi-skilled business counsellors,
who provide assistance with feasibility studies, marketing plans, business
mentoring and advice, project management, assistance with business registration,
tender advice regarding policies and company profiles.
(Adapted from www.comsec.co.za)
o Small Business Development Agency (SEDA)
The aims of SEDA are to:
- strengthen support for SMMEs, including social enterprise access to
finance
- expand market opportunities for specific categories of SMEs
- localise small business support through a grid of SEDA-coordinated
information and advice access points
- initiate a national entrepreneurship drive, and expand education and
training for small businesses.
- co-fund minimum business infrastructure facilities in local authority
areas across the country.
(Adapted from www.seda.org.za)
According to the Eastern Cape branch of SEDA, the essence of support of a social
enterprise is needs-driven. SEDA provides support with financial performance and
does scenario planning – ’What if?’. SEDA also provides SEs with packages and
diagnostic tools. SEDA makes it its business to establish where a company is at and
where it wants to go and the gap between the scenario and the reality.
SEDA will plan non-financial interventions for SMMEs regarding the direction they
wish to take, e.g. implementation of official systems, website development, and
they will define the interventions in gap. SEDA will also ‘grow' terms of reference
and send the terms to three consultants for a quote. The entrepreneur will select a
consultant and SEDA then funds up to 90% of interventions down to 20%: the
funding scale drops off because a maximum of five projects over a three-year
period can be facilitated. SEDA does project management in collaboration with the
entrepreneur and, in the process, creates a market for business services. SEDA also
trains the entrepreneur in project management skills to ensure that the consultant
delivers before SEDA signs off.
The role of SEDA cannot be underestimated because of its valuable know-how in
this area. However, no impact assessment has been done
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o National Youth Development Agency (NYDA)
The NYDA is the result of the merger of the National Youth Commission (NYC) and the
Umsobomvu Youth Fund (UYF). This organisation is aimed at creating and promoting
coordination in youth development matters.
As the primary custodians of youth development in the country, the NYDA’s mandate
is to:
- advance youth development through guidance and support to
initiatives across sectors of society and across spheres of government.
- embark on initiatives that seek to advance the economic development
of young people.
- develop and coordinate the implementation of the Integrated Youth
Development Plan and Strategy for the country. The two documents
serve as guiding instruments in advancing youth development at all
levels of government.
The functions of the NYDA include the following:
- national youth service and social cohesion
- economic participation
- policy, research and development
- governance, training and development
- youth advisory and information services
- national youth fund
(Adapted from www.nyda.gov.za).
In an interview, the NYDA stated that it is aware of the need for social
entrepreneurship and that the main thrust and part of the strategy is to take it to a
national level. The NYDA also described some of the existing BDSs for social and
business entrepreneurs and also the challenges faced by the organisation on various
levels of the service delivery:
-
information and referral information using electronic databases on the
NYDA portal . This intervention works well in affluent areas and not in
rural areas.
-
business consulting services voucher to help business set up, expand or
develop. This is a flagship programme which had a major success but
was cut back, due to budgetary constraints.
-
walk-in youth advisory centres, that provide and disseminate relevant
and up-to-date information so as to assist young people in making
informed decisions about their livelihoods. These centres also provide
outreach activities covering a broad spectrum of young people even in
remote areas. Branches are located in every province and at smaller
points in immediate communities.
However, the reporting line was somewhat flawed because NYDA staff
were reporting to the municipality, finding themselves without the
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quality of support needed. This has generated adverse publicity for the
centres despite the fact that the bulk of complaints was not related to
core services offered by the NYDA. The NYDA will tidy up the reporting
line in the future and provide appropriate support to centres.
Municipalities are to set up infrastructure and the NYDA is to set up the
necessary services.
-
Masisizane Women’s Enterprise Fund, resulting from a partnership
between Old Mutual’s Fund and UYF, was a R200-million development
finance initiative for the advancement of women-owned enterprises.
The fund aimed at women of all ages, mainly in peri-urban and rural
areas, and where enterprises are economically viable. Loans range from
R100.00 to R5 million, with a maximum repayment period of five years.
No loans are provided for property development, primary agriculture,
gambling, tobacco, gaming and socially undesirable activities. The
Masisizane Women’s Enterprise Fund was working well, but it came to
an end and will not be restarted.
However, the concept and focus of the fund might be revisited but only
to service, according to the NYDA Act, people in the 18-35 age group.
Other criteria for eligibility will be those operating a cc and companies
that are economically viable. It is also important to note that the
awareness and the focus will be on social enterprises too.
-
Registration. The registering a legal entity, e.g. a cc or a company.
-
Cooperative training: cooperative training is a service provided by NYDA
branches, covers demand or need for training and training groups while
linking trainees with the Department of Trade and Industry to receive
methods of financing.
-
The Entrepreneurship Education Training: This programme is designed
by the UYF is a great new way for someone starting out to get the right
skills to become an entrepreneur and, thus far, has received a very
good response from the market. This programme teaches an aspirant
entrepreneur how to start his or her own business; how to grow an
existing business, and even how to create jobs for other people. Part of
Entrepreneurship Education Training is – instead of getting consultants
to perform these tasks – learning how to develop concepts and ideas;
getting marketing skills; polishing one’s communication skills; learning
about different types of businesses, and understanding the basics of
money management.
o The Business Place
The Business Place is well-known for the services it offers to both conventional and
social entrepreneurs. On its website, The Business Place provides a list of their
services, adapted below:
- One-on one consultations
- Access to confidential consultations with trained staff about the
business development process
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-
-
Presentation of a structured series of ongoing progressive business
skills workshops
Participation in and offering to clients an ongoing series of industryspecific networking forums with sector specialists
Direct connection of clients to relevant business opportunities
Provision of access to computer facilities, the Internet and business
research materials
Quick response to client queries
Support own services with further referral to a wide range of additional
service agencies from a comprehensive directory of business support
organisations.
Comprehensive client-tracking processes and monitoring of business
impact and progress
Research into strategies and interventions that impact the SMME
environment which helps The Business Place to develop further
services and advise clients regarding up-to-date strategies.
Other initiatives listed are:
- The Opportunity Exchange: Many established businesses lack relevant
industry-specific information or knowledge on how to access available
opportunities. The Opportunity Exchange creates a relevant forum for
clients in key sectors such as construction, tourism, arts and crafts,
women in business issues and other. This connects entrepreneurs to
relevant information and support from its [The Business Place’s] broad
network of sector leaders.
- Enterprise Development Initiative: The Business Place has formulated a
strategy to link its clients directly to business opportunities within key
industries. This programme enables The Business Place to form
strategic partnerships with leading private and public sector companies
that are interested in supporting small business.
- Accounting Mentorship Programme (AMPS): Recognizing that a large
number of clients lack proper bookkeeping systems, The Business Place
has set up a programme to help clients develop a proper computerized
bookkeeping system through a ‘learning-by-doing’ approach. During the
8 four-hour training sessions, clients are helped to set up their own
bookkeeping system. The programme also links each client to a mentor
in order to transfer necessary computer literacy skills.
- SMME Loan Fund: The Business Place is connected to a fund offering
loans between R 25 000 to R 500 000. An intermediary agency serves as
a portfolio manager working with a loan committee to identify
reasonable clients for this special programme.
- Regional Centre for SMME Support Excellence: [Its] vision is to become
a recognized international standard of quality support to SMMEs, and
[to] help consolidate some of the practices implemented in [its] sector.
The Business Place wants to establish an SMME Support Sector
‘Learning Academy’ to serve as an international centre for learning,
research and methodologies focused on best practices in SMME
support.
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(Adapted from www.thebusinessplace.co.za)
The model below allows one to glean, at a glance, the services offered by The
Business Place.
Figure 13: The Business Place Model
5.2.3 Government and Organised Labour and NPOs
With the exception of one province, most of the provincial efforts are into local economic
development, with the emphasis on the development of cooperatives to alleviate poverty in
rural areas especially. However, it must be noted that there is not a high level of awareness
about the nature of social enterprises.
In one of the provinces the provincial government is actively engaging with stakeholders and
potential partners to drive systemic social change in the province and to encourage the
development of social enterprises.
The general secretaries for Fedusa and Nactu were interviewed, and in both cases they
expressed support for social enterprises and said that the union federations jointly
established the Job Creation Trust to stimulate social and conventional enterprises and to
reduce joblessness. They have had a lot of success with this venture. The social development
coordinator of COSATU was interviewed and he expressed support for the development of a
new dispensation for social enterprises.
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A number of case studies of BDS providers that could, for practical purposes, not be added to
this chapter, is attached as Annexure H.
5.2.4 Accessibility of services and problems facing the BDS market
•
Policy implementation
In the FG discussion it was said that policy implementation is of utmost importance,
wherein the DTI policy on cooperatives was cited as an example of an excellent policy
which is challenged when implemented. In this case, there is a need for the effective
use of community meetings and ‘imbizos’, usually held in multi-purpose centres, as
conduits or vehicles for information gathering and dissemination and also as a skills
audit exercise. This can bring government departments and information closer to the
people. The blockages to the implementation of developmental policy need to be
researched in depth
•
Coordination of services
As stated in the FG discussion, there is a need for mapping and coordination of the
services of BDS providers throughout the country so that more can be done to better
service enterprises. Some of the BDS providers work with municipalities, but there
should also be consultation with structures on the ground, such as the Local Economic
Development departments, ward committees, local councillors and chiefs so as to
avoid duplication of services by BDS providers.
While one person in the FG discussion felt that government should coordinate a
database for BDS providers, the feeling was that government should not coordinate,
but that social enterprise organisations need to coordinate and own such a network,
while liaising with government and recommending what government should do.
The public-private service partnership is important and there should be an office in the
presidency for social enterprises. Oversight will be best achieved with the Planning
Commission in the presidency.
•
Discrimination against social enterprises
Many social entrepreneurs, when they approach BDS providers they get declined
because they are not seen as conventional enterprises: they are told that they do not
qualify, and many of them find themselves needing the service. They restructured
themselves to become cooperatives and now they become eligible for assistance by
the BDS providers. It is a fact that ‘the projects’ were scorned in the past and probably
many BDS providers may still be unaware of social enterprises.
A significant number (30%) of respondents agreed in the quantitative survey that BDS
providers turn away social enterprises seeking assistance, while more than 44%
indicated that they do not know whether this is the case.
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Figure 14: % BDS Providers turning SEs seeking assistance away
5.2.5 Relevancy of BDS
While respondents did not speak about it openly, it became evident that the BDS market is
facing a crisis or even collapse because of the following reasons:
• Those using BDS providers’ services flit between BDS providers, and sometimes the
service is inappropriate. For example, a person gets a voucher to develop a website for
his business, but does not have internet access. In other cases it is difficult to check
whether businesses are established and what their impact is.
• Central information management system is necessary between BDS providers, but that
is not possible because of competition and the drive to meet targets. This problem
needs to be overcome.
• There is a need to screen entrepreneurs: this is essential because there is no way in
which one can establish whether a person is an entrepreneur and whether the service
is appropriate.
5.3.
IDENTIFICATION OF PRIORITIES
Respondents of the quantitative survey indicated their three priorities for creating a more
enabling environment for social enterprises. Below are the priorities as they emerged from a
data analysis:
(1) Business development services
(2) Improved attitude by business and access to capital
(3) Government and public support.
5.4.
FINDINGS: ENABLING ENVIRONMENT: ACCESS TO FINANCE AND BUSINESS
DEVELOPMENT SERVICES
5.4.1. In some instances, the same findings apply to financial and non-financial BDS and for
that purpose the findings are combined.
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5.4.2. It is as difficult for a social entrepreneur as for a conventional entrepreneur to gain
access to loans from banks.
5.4.3. Theoretically speaking, social enterprises can, if allowed to trade, free up money that
can be used for non-profit organisations. However, the experience thus far in
countries such the United Kingdom (UK) and the United States of America (USA) does
not suggest that this is achievable.
5.4.4. Finnancial BDS providers are mainly from a capital investment background and are
sometimes perceived to be anti-NGO.
5.4.5. BDS providers do not actively encourage social enterprises to make use of their
service. They are furthermore perceived as not understanding the concept of social
enterprises: a significant percentage of respondents in the quantitative survey said
that social enterprises are turned away from BDS centres.
5.4.6. One of the problems facing social enterprises is that there are more opportunities for
the development of SMEs than is the case with social enterprises.
5.4.7. Social entrepreneurs need share equity to replicate or to scale up, but it is not possible
to obtain share capital for this purpose as a non-profit entity and as social
entrepreneurs often have to employ dual models to be able to raise capital.
5.4.8. Donors often do not understand the environment of the social enterprise and they are
prescriptive with what funds should be allocated for which: this could sound good in
an annual report but may not always work well for those whom the social enterprise
needs to serve (see the case study on page 62).
5.4.9. SARS has increased the maximum number of deductible donations from 5% to 10% in
respect of both individuals and companies, which is not sufficient stimulation for the
private sector to contribute to the development of sustainable social enterprises.
5.4.10. There is a need to further investigate social enterprise franchising and replication.
5.4.11. Most social enterprises are in need of seed capital and are hopeful of government
providing support.
5.4.12. In terms of sustainability, there is uncertainty as to when a grant is a donation or when
it can be regarded as payment for a service to be delivered. The issues around grants
and payments for services need to be explored in further research.
5.4.13. Social enterprises differ from one another and it may be unfair to expect the same
sustainability performance from all. Some NPOs will retain their status but should be
eligible to receive the same BDS as social enterprises.
5.4.14 Accessibility of BDS remains a problem, especially in the rural areas. Where agencies
are partnered with municipalities (approximately 200 in NYDA’s case), it does not
always work because of the various problems encountered..
5.4.15. Policy implementation (for cooperatives) is perceived to be problematic.
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5.4.16 There is a problem of integrity experienced with the users of BDS, which leads to
further problems because these users flit between providers.
5.4.17 Users of BDS need to be screened for entrepreneurial flair before they are allowed to
use the services.
5.4.18 There is no data available on the successes or failures of the users of BDS products.
5.4.19 The seven most needed BDSs identified by SEs or by those working for SEs differ
drastically from what BDS providers and government perceive the most needed
services to be, which indicates that better communication between the parties and a
better understanding of the SE environment is absolutely necessary for the
development of SEs.
5.4.20. Changes in legislation should go hand in hand with the raising of awareness. There is a
warning about the readiness of the public and various stakeholders from the
respondents of the quantitative survey:
Figure 15: SE awareness before changes in legislation
5.4.21. People do not always recognise the term ‘social enterprises’, they know what a social
enterprise is when you give them an example. Social enterprises are part of the
landscape of South Africa, and South Africa is destined to take the lead in Africa to
make social enterprises a viable option for creating social values and for making a
difference to society.
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CHAPTER 6
RECOMMENDATIONS
6.1 GENERAL RECOMMENDATIONS
6.1.1. The government should be requested to consider a focal point in the Office of the
Presidency to assist with the streamlining of social enterprises and with the
development of the entities. (This should be similar the Office for the Third Sector in
the Office of the Prime Minister in the UK, or to the Office for Social Innovation in the
White House).
6.1.2. There is an urgent need for a database categorising and indexing everybody in the
social entrepreneurial and social enterprising space. Such a database should
preferably be the priority of the focal point in the Office of the Presidency or in any
other organisation or network. Mapping the role-players in social enterprise
development in South Africa is of utmost importance.
6.1.3. Outreach to social enterprises in raising awareness must be countrywide. The
definition in this study should be accepted as a working definition.
6.1.4. The Department of Trade and Industry should consider raising awareness about social
enterprises (in its various forms, including cooperatives) in targeted campaigns such as
advertising on television and radio, holding a national cooperatives week, a national
social enterprise week and a national nonprofit week to stimulate interest in these
entities
6.2
RECOMMENDATIONS: THE LEGAL AND REGULATORY ENVIRONMENT
Using the working definition for social enterprises, the following amendments or steps could
bring closer social enterprises, robust trading and share equity:
6.2.1. The amendment and alignment of existing legislation pertaining to models used by
nonprofit organisations (VAs, Section 21 companies, Trusts) to accommodate social
enterprises are not recommended as this could change the essence of such
organisations.
6.2.2. In the short-term, a fiscal solution through the amendment of taxation legislation
[Income Tax Act, 1962 (Act 58 of 1962) as amended] to include the concept of social
enterprises into legislation is recommended. [Currently a social enterprise, especially a
social enterprise functioning as a for-profit entity cannot receive tax deductible
donations, even if it reinvests its profit to serve the social purpose. Neither can it
register as a public benefit organisation (PBO). A social enterprise registered as a nonprofit organisation cannot obtain share equity and also loses its preferential tax
treatment if it engages in trading, exceeding the threshold determined by SARS.].
6.2.3. The following adjustments could be considered with regard to 6.2.2 above:
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•
The social enterprise definition should be used to determine PBO status in terms
of the PBA of the entity – the same as for non-profits.
•
Tax legislation currently discourages social enterprises from trading, especially in
competition with for-profit companies. There could be relief for public benefit
organisations (PBOs) by changing the cap of 5% or R150,000 to a more
reasonable level to encourage robust trading that may lead to sustainability for
social enterprises.
•
There should be a dividend cap to strike a balance between encouraging people
to invest in social enterprises and the principle that the assets and profits of the
social enterprise be devoted to the social purpose. Like the CIC, the social
enterprise should provide for a maximum dividend per share, which limits the
percentage of the paid-up value of a share (which could be, for example, 5
percentage points higher than the Reserve Bank’s lending rate), and the
aggregate dividend could preferably not exceed 35% of the distributable profits.
•
The interest cap could, as in the case with CICs in the UK, be fixed at a suggested
4 percentage points higher than the Reserve Bank’s lending rate.
6.2.4. In the medium- and long term, South Africa will need to consider dedicated legislation
for social enterprises, similar to the Community Interest Companies (CiCs) of the UK
and the low-profit, limited liability corporations (L3Cs) of the USA.
6.2.5. The threshold for earnings from trading should be adjusted upward to allow for more
robust trading by social enterprises.
6.2.6. There is a need to address the ownership codes for BBBEE to provide clarity on the
status of social enterprises and voluntary associations. The Department of Trade and
Industry should also appoint an ombudsperson for BBBEE to provide directives
regarding the interpretation of codes in the case of a dispute.
6.2.7. There should be a separate Code of Governance, similar to the King III for social
enterprises, and it should be developed with social enterprises by the focal point in
the Presidency suggested earlier on.
6.2.8. As in 6.2.5 above, there should be a code for social venture funders too and this code
should include guidelines relating to values, the amelioration of social problems and to
good corporate governance.
6.2.9. The process of registration as a vendor for all three levels of government in South
Africa should be centralised ideally by the Department of Trade and Industry (DTI). A
social enterprise should be able to provide the DTI with all the necessary information
and latest tax update so that information can be obtained and confirmed online by
government departments.
6.2.10. The impression should not be created that the social enterprise movement is antinonprofit organisation.
6.3 RECOMMENDATIONS: ACCESS TO FINANCIAL AND BDS
6.3.1 Access to finance
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•
•
•
•
•
•
•
•
•
•
There is a need to create a better understanding of social enterprises with financial
and non-financial BDS providers through education and raising awareness.
Supplementing the regulatory recommendation 6.2.2 the following practical:
A database of investors, willing to invest in social enterprises should be set up. This
ought to be a separate research project.
Financial arrangements have to be appropriate and should recognise that social
enterprises take longer to break even than conventional enterprises.
Social enterprise franchising should be investigated in a further study on social
enterprise franchising and replication.
Government should assist with the provision of seed capital for social enterprises or
should facilitate ‘soft loans’ for social enterprises in the start-up phase.
The maximum deductable for donations could remain at 10% in the case of individuals
and companies, but individuals and companies should be allowed to make, over and
above the donation, a tax-rebatable, dividend-free investment in social enterprises for
a maximum of an additional 10% of taxable income in order to stimulate investment in
the social enterprise market.
The issue of ‘when is a grant a donation’ and when could it be regarded as ‘money in
advance of services to be rendered’ needs to be explored in further research.
Further research is necessary to determine the level of sustainability that would be
required for the different social enterprises, e.g. those taking care of vulnerable
children as opposed to a social enterprise with a strong focus on training.
Awareness about the different options of access to finance for social enterprises such
as the ‘blended value model’, venture capital, seed capital and the option of
availability of share equity should be raised among social enterprises so that they can
be better informed, should they want to scale up the social enterprise.
6.3.2 BDS
•
•
•
•
Social enterprises should receive the same treatment as conventional enterprises by
BDS providers.
Legal and accounting services should be available at discounted costs to social
enterprises.
Social enterprises should have easy access to markets to trade their products or
services.
Government-created or supported agencies/parastatals such as SEDA, IDT, NDA and
NYDA should be better informed and should become champions for the cause of social
enterprises and accommodate them in the financial and non-financial services made
available.
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•
•
•
•
•
•
BDS providers should have an impact assessment study to determine whether these
services are indeed effective because indications are that they may be missing the
point due to lack of understanding of the market and/or the lack of communication.
BDS providers should ascertain whether candidates using their services have
entrepreneurial skills before making these services available. An example is to make it
a prerequisite that a candidate have experience in running his/her own business for
least six months before being eligible for assistance by BDS providers.
There should be dialogue between CSI and social enterprises so that the interest of the
beneficiaries and not the donor is best served.
Best practices with good examples in BDS must be documented.
It must be noted that social enterprises identified the services most needed in the
following order: monitoring and evaluation, linking up with business opportunities,
marketing, legal advice, project management, strategic management advice and
business advice. BDS providers should gear their services to social enterprises in
accordance with needs identified in the different regions of the country.
Government should consider establishing BDS providers for dealing with the needs of
social enterprises exclusively because SEs still experience discrimination by a number
of BDS providers and need focused support.
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CHAPTER 7
ROADMAP FOR THE FUTURE
7.1. ON THE POLITICAL AND REGULATORY LEVEL
A period of advocacy and raising awareness through the targeting of politicians is
necessary so that the issue of social enterprises can be addressed on the political and
regulatory level. While promising indications of access to the political level emerged
during the study, there needs to be buy-in from the whole Cabinet –in particular, from
those ministers whose domain will be affected – and on official level too. It is imperative
that the modus operandi include, inter alia, the following:
o Bringing about a better understanding of what social enterprises entail on the
political level
o The establishment of a South African leadership core for the promotion of social
entrepreneurship and enterprises. Such a leadership core should comprise a
limited selection of social entrepreneurs, universities, organisations such as
Ashoka and ASEN representing social entrepreneurs, BDS providers, government
officials and CSI representatives to form an advocacy group that can talk to
government and promote social enterprises in general
o The exploring of the different regulatory and fiscal options with the departments
by participating in meetings, gathering information and reaching consensus on the
official level of what the best possible solution would be.
7.2. FUNDING FOR SOCIAL ENTREPRENEURSHIP AND SOCIAL ENTERPRISES
Government, through the Department of Trade and Industry, the Department of Social
Development as well as government agencies/parastatals made funds available in the
form of soft loans and/or seed capital to conventional business enterprises. However, it is
time to recognise social enterprises through:
o A dedicated social entrepreneurship fund providing seed capital and soft loans
to social enterprises – in particular to emerging social enterprises that function
as nonprofit organisations
o Improvement of advocacy for broadening the mandate of government
departments, agencies and parastatals to be inclusive of social enterprises in
furthering the agenda of social and economic development
o Looking into the possibility of providing start-up social entrepreneurs with a
living stipend.
o
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7.3. CAPACITY BUILDING AND RAISING AWARENESS ABOUT SOCIAL ENTREPRENEURSHIP
Government should take the lead regarding the introduction of a new approach to social
entrepreneurship by:
o Canvassing the public, private and nonprofit sectors on critical social issues to advance
solutions
o Developing awards programmes and competitions to recognise and reward
innovative, effective and sustainable solutions
o Engaging in celebratory events such as ‘National Social Entrepreneur Week’ and other
public relations ventures to promote awareness.
7.4. RESEARCH ARISING FROM THIS STUDY
The following issues have been alluded to in this study and should be explored in
research or investigations arising from this study:
o Best practices BDS for social enterprises need to be documented to serve as
guidelines for BDS providers on a national basis.
o Impact Assessment on the BDS products offered by the different providers as a
longitudinal study to enable this sector to be relevant in product offerings.
o Social enterprise franchising and replication are still in its infancy in South
Africa and this business model should be researched and investigated further
within the South African context.
o The obstacles to the implementation of developmental policy – with specific
reference to social and economic development in South Africa – need to be
researched in depth.
o Streams of income for social enterprises and the sustainability thereof. In
terms of sustainability, there is uncertainty as to when a grant is a donation or
when it can be regarded as payment for a service to be delivered. The issues
around grants and payments for services need to be explored to determine
whether organisations are bona fide social enterprises.
o A national database of financial institutions, government departments,
agencies, parastatals and investors willing to invest in social enterprises, as well
as terms and conditions attached to such investment, must be set up so that
social enterprises can have access to all the options available at a glance.
o Develop a national database categorising and indexing SEs in their different
stadia of development
o Research into what constitutes financial sustainability for social enterprises is
necessary and this study should take international trends, and particularly
trends in other developing countries, into consideration to develop a uniquely
South African model
o Compile a position paper on ethics and social entrepreneurship.
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Family Medicine 20.
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to Nurture - and Which to Abandon, Nonprofit World, September-October 2003, pp. 12-15. 04
January; 2(1): 4-6. PubMed Central.
Deraedt, E. 2009. Social Enterprise: A Conceptual Framework. Conceptual Discussion Paper
for the ILO social Enterprise Developing Targeting Unemployed Youth in South Africa (SETYSA)
project.
Dees, J.G. 2001. The meaning of social entrepreneurship.
Emerson, J and Bonini, S. 2004. The Blended Value Map: Tracking the Intersects and
Opportunities of Economic, Social and Environmental Value Creation. Tracking the intersects
and opportunities of economic, social and environmental value creation downloadable from
http://www.blendedvalue.org.
Higgins,G. (2009). Email to Steinman, S. 8 November 2009. Email correspondence.
Higgins, G. (2010) Email to Steinman, S. 8 February 2010. Email correspondence.
Hunt, O.
2007. A Mixed Method Design. Retrieved on 16 July 2009 from
http://www.articlesbase.com/education-articles/a-mixed-method-design-177933.html.
Mason, J. 2002. Qualitative Researching. London; Thousand Oaks, California, SAGE
Publications.
Locke, 2001. Grounded Theory in Management Research, London: Sage Publications.
Mason, J. 2000. Qualitative Researching. Sage.
Office of the Presidency of the Republic of South Africa. 2009. Together doing more and
better. Medium Term Strategic Framework. A framework to guide government’s programme
in the electoral mandate period (2009-02014). Issued by: Minister in the Presidency: Planning.
Republic of South Africa. 2008. Framework for South Africa’s response to the international
economic crisis. Collective response from the Presidential Economic Joint Working Group
(including organised labour, business and government).
Shrimpton, P & Pichulik, M. 2009. Fund fact sheet. Heart Social Investments for life. Version
10 August 2009, Cape Town.
Schwandt, T.A. 2007. The Sage Dictionary of Qualitative Inquiry. (3rd ed). Los Angeles: SAGE
Publications.
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Seccombe, D. 2009. Public Benefit Organisations and the raising of funds. Mazars Moores
Rowland.
Smallbone, D. 2010. Promoting Local Economic Development through Entrepreneurship.
Keynote at the International Conference on transforming the townships to economic
powerhouses. University of Johannesburg, 27-28 January 2010. Soweto Campus.
South African Concise Oxford Dictionary. (2002). Oxford University Press, Cape Town.
Spreckley, F. 1981. Social Audit - A Management Tool for Co-operative Working, Local
Livelihoods
Retrieved
from
http://www.locallivelihoods.com/Documents/
Social%20Audit%201981.pdf, on 17 September 2009.
Tashakkori, A. & Teddle, C. (1998). Mixed Methodology. Thousand Islands: SAGE Publications.
Thompson, J. & Doherty, B. 2006. The diverse world of social enterprise. A collection of social
enterprise stories. Emerald International Journal of Social Economics. Vol 33 No. 5/6, pp. 361-375.
World Economic Forum. 2005. Private Investment for Social Goals: Building the Blended Value
Capital Marketing. World Economic Forum global Foundation Leaders Advisory Group in
partnership with IFC and the Rockefeller Foundation. Retrieved from website
www.weforum.org.
Wolk, A. 2008. Advancing Social Entrepreneurship Recommendations for Policy Makers and
Government Agencies. The Aspen Institute/Rootcause/MIT.
Websites:
Ashoka information. Retrieved from http://www.ashoka.org and http://usa.ashoka.org/fellowship
on 17 October 2009.
Broad-based black economic empowerment. Retrieved from fmd.co.za on 14 October 2009.
Companies. Retrieved from
http://www.capegateway.gov.za/xho/pubs/guides/U/85540/4/E#4h on 9 October 2009.
COMSEC information. Retrieved from htt://www.comsec.co.za on 19 October 2009.
National Youth Development Agency
http://www.nyda.gov.za on 19 October 2009.
(NYDA)
information.
Retrieved
Epistemology. Retrieved from http://www.wikipedia.org/epistomolgy on 28 July 2009.
Life College at http://www.lifecollege.co.za.
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from
Reading about BBBEE Codes: http://www.thedti.gov.za/bee/beecodes.htm) where all
relevant codes can be downloaded and Preferential Procurement Policy Framework Act, Act.
No. 5 of 2000 Draft Preferential Procurement Regulations, 2009 (Notice 1103 of 2009) can be
downloaded by going to
http://www.thedti.gov.za/bee/DraftPreferentialProcurementRegulations.pdf and ownership
codes by visiting http://www.bee-scorecard.co.za/bbbee_codes_of_good_practice.htm.
Schwab Fondation information. Retrieved from http://www.nyda.gov.za on 19 October 2009.
Small Business Development Agency (SEDA) information. Retrieved from www.seda.org.za on
19 October 2009.
Social enterprise definition. Retrieved from http://www.socialent.org/beta/definitions.htm
on 9 October 2009.
Social enterprises heralding a new era. Retrieved from
http://www.businessculptors.com/social-enterprise-folder/social-enterprises-herhalding-anew-era on 17 October 2009.
The Business Place information. Retrieved from www.thebusinessplace.co.za on 19 October
2009.
The word ‘policy’ according to Webster’s dictionary. Retrieved from
http://www.fao.org/wairdocs/ilri/x5547e/x5547e05.htm on 15 July 2009
Various forms of registration. Retrieved from
www.hospicepalliativecaresa.co.za/.../Annexure%202%20Various%20forms%20of%20registra
tion.pdf on 29 September 2009.
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ANNEXURES
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ANNEXURE A: TERMS OF REFERENCE
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ANNEXURE B: RESEARCH SURVEY
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CENTRE FOR SOCIAL ENTREPRENEURSHIP – FACULTY OF MANAGEMENT
UNIVERSITY OF JOHANNESBURG/ILO
SURVEY ON SOCIAL ENTERPRISES
Dear Participant
The ILO Pretoria Office has commissioned the University of Johannesburg to carry out research on
the current enabling environment for social enterprise in South Africa. The research forms part of the
ILO's SETYSA project which supports progress towards a conducive and enabling environment and the
development of appropriate business development service products for potential social enterprises.
In order to understand first-hand the extent of the perceptions and existing enabling environment for
social enterprises in South Africa and what steps need to be taken to create a conducive environment
for these entities to flourish, the University of Johannesburg wishes to undertake a survey. For this
purpose a survey instrument has been developed, responses to which will provide very helpful insight
into the current and desired enabling environment for social enterprises. Your response is
ANONYMOUS and all information provided by you will be treated as confidential at all times.
Information will only be reported in collated (summated) format.
You have the option to:
• complete, save and email this questionnaire in MS-Word to [email protected] or
• print it out, complete and fax it to 011-507-5628 or 086-612-3158 or
• complete the questionnaire online: http://cs.createsurvey.com/c/87/1187/survey/8128-3Kpkwg.html
Please answer ALL the questions, unless it is indicated as optional. Should you have any queries, please
feel free to call my office or send an email as per contact details below. Thank you for your
participation and your time to further the cause of social entrepreneurship and social enterprises in
South Africa.
DR SUSAN STEINMAN
Tel.: 011-664-6527
Fax: 011-507-5628
E-Mail: [email protected]
1. DEMOGRAPHIC DATA
1.1 OPTIONAL: What is the name of the organisation you represent?
* 1.2 Please choose the sector you currently belong to by highlighting or ticking the
appropriate block. Should you see yourself as belonging to more than one category,
please choose only that category where you are employed or spend more than 50% of
your time:
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(a) National, Provincial or Local Government department
(b) Social Entrepreneurial concern / Social Entrepreneur / Non-profit Entity / Social
Enterprise
(c) Provider of financial business services (such as banking, investment, broker)
(d) Provider of non-financial business development services (such as training, business
plan, marketing)
(e) Both (c) and (d)
(f) Corporate Social Responsibility(CSR) /Corporate Social Investment(CSI)/ Foundation
Fellowship or grant-maker
(g) Other, please specify:
* 1.3 Sex (Please indicate by ticking or highlighting the appropriate box)
Male
Female
* 1.4 Are you a South African citizen? (Please indicate by ticking or highlighting the
appropriate box)
Yes
No
1.5 OPTIONAL: How would you classified by the South African government? (Please
indicate by ticking or highlighting the appropriate box)
(a) Black
(b) White
(c) Coloured or of Indian/Asian decent
(d) Other, please specify
2. POSSIBLE CHARACTERISTICS OF A SOUTH AFRICAN SOCIAL ENTERPRISE
Please indicate to what extent you agree or disagree about the following possible
characteristics of social enterprises in question 2.1, 2.2, 2.3, 2.4, 2.5 and 2.6 below. (Please
indicate your choices by completing ALL questions, ticking one box per line only)
2.1 What is a social enterprise?
(a)
Strongly
agree
* 2.1.1 A social enterprise has a
PRIMARILY social purpose or mission
* 2.1.2 A social enterprise should
ameliorate social problems
* 2.1.3 Social enterprises should
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(b)
Agree
(c)
Strongly
Disagree
(d)
Disagree
(e)
Don't
know
exclude businesses whose primary
purpose is profit maximisation, even
when it is creation social value
* 2.1.4 A social enterprise has ONLY
a social purpose or mission
* 2.1.5 The social problem connected
to the social purpose must be clearly
stated
2.2 Financial Sustainability
(a)
Strongly
Agree
* 2.2.1 Social enterprises include
emerging entities (i.e. entities still
receiving grants and/or seed capital at
start-up and working towards financial
sustainability)
* 2.2.2 Financial sustainability implies
that the social enterprise generate
enough income to cover its operational
costs and may even show a surplus
* 2.2.3 Grants or donations by
corporate or public entities to social
enterprises earmarked for specific
services to be delivered should be
considered income generated through
trading or services
* 2.2.4 Financial sustainability of a
social enterprise excludes capital
investment of a speculative nature
* 2.2.5 To be financially sustainable,
social enterprises should be allowed to
attract investors or equity shareholders
* 2.2.6 A social enterprise should be
able to pay dividends to investors
* 2.2.7 If a social enterprise is allowed
to pay dividends, such dividends must
be limited
* 2.2.8 A social enterprise should have
no shareholders
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(b)
Agree
(c)
Strongly
Disagree
(d)
Disagree
(e)
Don't
Know
2.3 A community can represent residents in a geographic area or its members can be
dispersed with common characteristics, for example deaf persons. Should social
enterprises relate to their communities?
(a)
Strongly
Agree
(b)
Agree
(c) Strongly
Disagree
(d)
Disagree
(e)
Don't
Know
* 2.3.1 The social enterprise should
demonstrate connectivity
(involvement and/or consultation) with
the community it claims to serve.
* 2.3.2 Members of the social
enterprise emanate from the
community
*2.3.3 A social enterprise can create
social value without being engaged or
involved in or based in the community
it aims to serve
2.4 The following statements refer to the general governance, membership and
operational parameters of a social enterprise
(a)
Strongly
Agree
* 2.4.1 Social enterprises should have
the same governance system as
cooperatives
* 2.4.2 Social enterprises should
demonstrate participatory,
transparent and accountable
governance
* 2.4.3 A social enterprise can also be
a "one man/woman" show"
* 2.4.4 Voting at meetings should not
be based on shares held in the social
enterprise, but based on the equality
of each member's vote
* 2.4.5 Social enterprises should
include traditional for-profit business
entities
* 2.4.6 Membership to a social
enterprise must be open
* 2.4.7 In the case of a dual model the
social enterprise should be clearly
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(b)
Agree
(c)
Strongly
Disagree
(d)
Disagree
(e)
Don't
Know
separated from the incomegenerating arm
2.5 The following statements refer to the values of a social enterprise
(a)
Strongly
Agree
(b)
Agree
(c) Strongly
Disagree
(d)
Disagree
(e)
Don't
Know
* 2.5.1 The initial social mission or
core social purpose of a social
enterprise should never be
compromised
* 2.5.2 The social enterprise must
be autonomous (i.e. not influenced
by any public or private entity)
* 2.5.3 Social enterprises must be
directed at societal good
2.6 The following statements refer to the financial governance relating to the surplus or
profit of the social enterprise
(a)
Strongly
Agree
* 2.6.1 I prefer to use the term "surplus"
to "profit" when referring to social
enterprises
* 2.6.2 The financial surplus/profit (if
any) should be reinvested in the
community or in the social purpose of
the social enterprise and nothing else
* 2.6.3 Social enterprises should be
allowed to do with the profits what they
want
* 2.6.4 Social enterprises should be
subject to the same rules for tax
exemption than any other Public Benefit
Organisation (PBO)
* 2.6.5 There should be a an exclusive
tax regime for social enterprises
* 2.6.6 The financial surplus of a social
enterprise should be PRINCIPALLY
reinvested in the community or the
business allowing for the payment of
interest and dividends
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(b)
Agree
(c)
Strongly
Disagree
(d)
Disagree
(e)
Don't
know
* 2.6.7 The payment of dividends to
shareholders in social enterprises
should be limited
3. LEGAL, POLICY AND REGULATORY ISSUES RELATING TO SOCIAL ENTERPRISES
Please indicate your agreement/disagreement with each of the following statements by
clicking the option that best describes your opinion
3. 1 The following statements refer to your knowledge of legal, policy and regulatory
aspects the legal and regulatory options available to social enterprises
(a)
Strongly
Agree
(b)
Agree
(c)
Strongly
Disagree
(d)
Disagree
(e)
Don't
know
* 3.1.1 I know the NPO Act of 1997 as
amended
* 3.1.2 I have a fair knowledge of the
different options in the company act for
the different business entities (nonprofits and for-profit companies, trusts
and cooperatives)
* 3.1.3 I have a fair knowledge of the
new companies act that will come into
operation in 2010
* 3.1.4 I have a fair knowledge of how
"social enterprises" operate in other
countries
* 3.1.5 The term "social enterprises" is
not well-known in South Africa
* 3.1.6 People in South Africa do not
use the word "social enterprises", they
call it by other names
3.2 The following statements refer to the legal/regulatory Options available to social
enterprise
(a)
Strongly
Agree
* 3.2.1 The new legislation for nonprofit companies will address most of
the problems experienced by social
enterprises
* 3.2.2 We don't need new legislation,
we only need to amend existing
legislation to provide for social
enterprises
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(b)
Agree
(c)
Strongly
Disagree
(d)
Disagree
(e)
Don't
Know
* 3.2.3 Procurement regulations should
favour social enterprises, non-profits
and cooperatives
* 3.2.4 BBBEE Codes should
accommodate social enterprises and
all-forms of non-profit organisations
* 3.2.5 We need a new entity and new
legislation for social enterprises with its
own rules and tax regime
* 3.2.6 SARS's tax exemption for
Public Benefit Companies(PBOs)is
adequate for the non-profit sector and
social enterprises
4. FINANCIAL BUSINESS DEVELOPMENT
The following statements refer to
the role of financial business
development services in enabling
and facilitating the growth of social
enterprises
4.1 It is equally difficult for a conventional
entrepreneur and a social entrepreneur
to get access to loans or venture capital
4.2 A non-profit entity cannot raise capital
through equity shareholding
4.3 Some social enterprises operate as
for-profit entities because they cannot
attract investors otherwise
4.4 Equity shareholding for social
enterprises will facilitate capacity building
and scaling up of the organisation
4.5 Bank charges are discounted for nonprofit entities
4.6 Government should provide social
enterprises with seed capital
4.7 Government should make loans
available or facilitate access to loans for
social enterprises
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(a)
Strongly
Agree
(b)
Agree
(c)
Strongly
Disagree
(d)
Disagree
(e)
Don't
Know
5. NON-FINANCIAL BUSINESS DEVELOPMENT SERVICE
5.1 What is the current situation with Business Development Services (BDS) of a nonfinancial nature for social enterprises?
(a)
Strongly
Agree
(b)
Agree
(c) Strongly
Disagree
(d)
Disagree
* 5.1.1 BDS Providers focus only
on the conventional businesses
* 5.1.2 BDS Providers turn nonprofits/social enterprises seeking
assistance or services away.
* 5.1.3 BDS Providers do not
understand social enterprises
* 5.1.4 BDS Providers provide
relevant training or consulting
services for social enterprises
* 5.1.5 There should be more BDS
Providers for social and
conventional enterprises in South
Africa
* 5.2 Please select and tick the FIVE (5) most important non-financial Business
Development Services that should, in your opinion, be provided through training,
consultative means or in an open environment/learning centre.
5.2.1 Marketing
5.2.2 Legal Advice
5.2.3 Tender Assistance
5.2.4 Accounting Services
5.2.5 Financial Statement Literacy
5.2.6 Financial Advice
5.2.7 Business Advice
5.2.8 Linking me with business opportunities
5.2.9 Monitoring and Evaluation of projects
5.2.10 Proposing best business model
5.2.11 Business Plan
5.2.12 Strategic management advice
5.2.13 Project Management
5.1.14 Computers, faxes and internet facilities at a centre
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(e)
Don't
Know
5.2.15 Other, please specify:
6. GENERAL SECTION
6.1 Please indicate which of the following statements you believe to be true and which
false:
(a)
True
(b)
False
(c) Don't
Know
* 6.1.1 Social enterprises is just a passing "fad"
* 6.1.2 There is a real need for social enterprises in South Africa
* 6.1.3 Organisations that are dependent on grants will be
adversely affected by awarding social enterprises' special status
* 6.1.4 More awareness about social enterprises is needed
before legislation can be introduced
* 6.2 What are the three priorities, according to you, towards creating a more enabling
environment for social enterprises in this country?
6.2.1
6.2.2
6.2.3
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ANNEXURE C: CASE STUDIES ON BEST PRACTICE IN SOCIAL ENTERPRISE
DEVELOPMENT
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CASE STUDIES
BEST PRACTICE IN SOCIAL ENTERPRISE DEVELOPMENT
Title, Name & Surname
Organisation
Department / Section
Position
Email address
Tel/Cell numbers
Type of Business
Date completed:
QUESTIONS: SEMI-STRUCTURED
What type of social enterprise do you have (e.g. Section 21, association, trust, cooperative)?
Any reason why you chose this model?
What is the social purpose of your organisation?
What are your primary activities
(Website material and brochure could be provided as additional background material for the
researcher to use)
What community do you serve and how do you relate to the community13 or engage them?
13
A community can be dispersed with common characteristics (e.g. deaf people) or it could be geographically defined (e.g.
residents in a particular area).
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Are members of the community also members of your organisation?
Tell me about your corporate governance and management structures/ membership
What are your values
What do you do with your surplus or profit
Do you experience any problems such as financing, staff shortages or frustrations not being able to
fulfil your social purpose
Is bureaucracy a problem?
Do you have problems in obtaining loans or venture capital? If so, why?
If so, how do you overcome it or what needs to change (e.g. legislation) for you to overcome this?
Is there any changes that you would like to see in the law/attitudes/from corporate sector that
could benefit the work you do better?
Do you think that creating a new entity such as a social enterprise, where the key issue is the social
purpose of the organisation to ameliorate a social problem and financial sustainability14, would
solve the problem?
14
Financial sustainability acknowledges that a social enterprise has a growth cycle and a need to receive seedcapital and grants at start up but that there is a definite plan towards financial sustainability.
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ANNEXURE D: ILO CONFERENCE ON ENABLING ENVIRONMENT
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ANNEXURE E: DEPARTMENT OF SOCIAL DEVELOPMENT – BUSINESS
PLAN
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ANNEXURE F: CASE STUDIES OF NON-PROFIT ORGANISATIONS FOR WHICH IT
IS WISE TO RETAIN THEIR CURRENT STATUS
Msimayane Women Support Centre
Tomorrow Trust
Small Enterprise Foundation
Youth Empowerment Network
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Small Enterprise Foundation (SEF)
Mr John de Witt
SEF is a not-for-profit Section 21 company of which the social purpose is the eradication of poverty by
creating a supportive environment through pro-poor (proper?) microfinance where credit and savings
services foster sustainable income generation, job creation and social empowerment.
SEF has since 1992 successfully concentrated on the provision of loans to women in the lowest income
groups. SEF is particularly active in rural areas in the Limpopo and Eastern Cape Provinces. The
organisation starts working in a community by initially conducting wealth ranking of all households.
Thereafter field staff visit the poorest households to motivate the women to start or resume an
income generating enterprise. They then apply the Grameen Bank of Bangladesh’s methodology to
form a group of five people to obtain a loan, each of them guaranteeing each other’s payments. No
other collateral is required. SEF’s loans are only for enterprise and a series of checks are in place to
ensure that loans are not diverted for other purposes.
SEF is currently working with 57,000 people in groups of five according to the Grameen model,
accommodated by 373 staff members through 36 branches scattered across Limpopo Province, the
north eastern part of Mpumalanga and the Eastern Cape.
SEF defines itself as a social enterprise but uses the non-profit model as it suits its needs best. All
regulations are the same as for a normal company, however profits cannot be distributed and are all
reinvested for either further expansion or to increase the organisation’s capital to further address
small borrowings which are provided to their clients.
SEF finances its operations with soft loans from various ventures and grants sourced locally or
internationally. Although it is important for the financial sector to recognise the enterprise as a social
business which is operated efficiently and transparently, SEF does not experience any problems in
obtaining funds.
SEF is a good example of a social enterprise that has made efficient use of a non-profit legal structure
to reinforce its credibility to achieve its social mission.
Youth Empowerment Network (YEN)
David Litnaitzky
YEN’s social purpose is to enable unemployed and disadvantaged youth, aged between 17 and 26, to
overcome inner oppression, develop inner qualities of confidence, resilience, social conscience and
responsibility, as well as encourage them to become creative and productive members of society.
They do so through ‘Facing the Future with Courage’, a nine week intensive, full-time selfdevelopment and empowerment programme run in different communities. This programme is
augmented by the ‘Youth Support Unit’, which provides follow-up coaching and other support to
graduates of the above mentioned programme.
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Through informal partnerships with local government and community groups, providing them with a
platform for recruitment of participants, access to venues, and facilitation of post programme followup, YEN has conducted its programmes in Gauteng in Thokoza, Soweto, Alexandra, Tembisa and
Joubert Park and in the Western Cape in Elsies River.
A decision was made to operate YEN as a Voluntary Association as it was the simplest process with the
least onerous requirements. The operations and finances of the organisation are overseen by a
management committee, while the operational team is responsible for the day to day running of the
organisation following the set of values that underlies its programmes: Wonder, Compassion,
Conscience and Self-transformation.
YEN does not in reality produce a profit. The organisation does not generate any significant income,
and depends on funding, donations and grants. All monies are used to fulfil the organisation’s aims.
When funding is in short supply, YEN reduces its activities accordingly and conversely, when funds are
adequate, activities are expanded.
Since the organisation is reliant on grants, financing is a major challenge and source of frustration
which threatens its survival and considerably affects its social mission and related potential impacts.
YEN illustrates the case in point that not all social enterprises can become financially self-sustainable
due to the nature of their activities. Certain social activities such as education, art, health, etc will
never become entirely financially sustainable, resulting in an ongoing need for funding.
Tomorrow Trust
Kim Feinberg
Tomorrow Trust’s social purpose is to have a meaningful and sustainable impact on the lives of
orphans and vulnerable children through education. Tomorrow Trust is therefore committed to
assisting children in passing their schools exams through a Holiday School support programme which
provides these children with the tools and opportunities to become self-sustainable and selfempowered, as well as compassionate and proactive members of their economy and society, instead
of being reliant on charity.
Tomorrow Trust chose to adopt a Section 21 and Section 18 (a) strategy to pursue its social mission as
its main income is generated from grants and general fundraising. This legal structure also allows
individuals or companies to obtain tax rebates on their donations.
The organisation does not realise a surplus or a profit, however, it always endeavours to maintain a
reserve to progress its activities.
Tomorrow Trust, as is the case with many other non-profit organisations, faces challenges related to
fundraising to finance its operations, but will not consider diversifying its source of finance through
obtaining loans or other venture capital. Instead, its aspiration is for government to realise where
funds are truly required and to provide more accessible funds to NGOs involving less bureaucracy and
administration. In this regard Tomorrow Trust encourages more grants to be allocated to children up
to the age of eighteen years in order to address their educational needs.
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Due to the nature of its operations, Tomorrow Trust will benefit more from a non-profit status than by
moving to a social enterprise status as it is understood from the working definition adopted in this
research study: ‘A social enterprise’s objective is to ameliorate social problems through a financially
sustainable business model, where surpluses (if any) are principally reinvested for that purpose’
(Steinman, S., 2009).
Masimanyane Women Support Centre (MWSC)
Lesley Ann Foster
MWSC is a world renowned international women's organisation based in East London, South Africa.
With a specific focus on gender-based violence, sexual and reproductive health and rights and the
gendered nature of HIV and Aids, it aims to build the capacity of women and human rights advocates
to claim and realise women's human rights. This is achieved through the development of new
knowledge and the utilisation of a rights-based approach.
MWSC opted for a Section 21 company structure to achieve its social purpose and promotes
the values of professionalism, integrity, accountability and honesty. The organisation does not
generate any surplus as it operates through the support of grants and has not experienced
any significant problems in terms of financing and staff shortages or frustrations from not
being able to fulfil its social purpose. A new legal social entity or operating under such a new
structure is not an attractive prospect for the type of social activities pursued by MWSC.
Conquest For Life (CFL)
Glen Steyn
CFL’s social purpose is to create alternatives for young people and to revitalise communities
through a variety of programmes aiming at developing a sense of self, strengthening family
structures, strengthening community structures and promoting youth development and
empowerment.
CFL is registered as a Section 21 company as it seemed practical considering the
organisation’s activities. Such a structure creates more opportunity to trade without having to
set up a separate entity to administer all the projects.
CFL has become financially sustainable by using a mixed source of funding that includes grants
and innovative income generation strategies. The surplus realised is reinvested into the
organisation, property and CFL’s staff.
Despite this success, the organisation still faces various challenges, especially when it comes
to obtaining loans or venture capital as banks and other service providers are not open to
providing loans to social enterprises, despite the provision of collateral security.
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The administrators of CLF believe that there is a definite need for the creation of a new entity
such as a social enterprise and the establishment of a government body that will administer
the development of sectors as is the case in other countries such as the United Kingdom and
the United States.
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ANNEXURE G: CASE STUDIES OF A VARIETY OF ENTITIES (FOR-PROFIT AND
NON-PROFIT) THAT WILL BENEFIT FROM A NEW DISPENSATION FOR SOCIAL
ENTERPRISES
Student Health & Welfare Centres Organisation (SHAWCO)
International Centre for Eyecare (ICEE)
Greater Good South Africa
Greater Capital
Trevor Mulaudzi
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Student Health & Welfare Centres Organisation (SHAWCO)
University of Cape Town
Director: Mr Varkey George
SHAWCO is a dynamic, innovative student-run Section 21 non-profit company based at the
University of Cape Town, constantly striving to improve the quality of life of individuals in
developing communities within the Cape Town metropolitan area. The organisation emerged
from being a welfare organisation to taking on the social entrepreneurial model of
community development. The model provides some leeway to engage with profit-making
initiatives.
The social purpose of SHAWCO is to provide free health services, educational outreach, food
to the needy and help for starting up small businesses in the townships. It serves the
community around Cape Town and owns multi-purpose centres in the townships manned by
staff that are from the community.
A part of the profit or surplus is kept as start-up capital for social business and the rest is kept
as a reserve or for investment. SHAWCO experiences challenges to obtain funding without
collateral, however, it is supported by those who would rather invest in a social business than
merely hand out charity.
SHAWCO supports the idea of social enterprises because it already owns three private
companies that are legal, pay taxes and where surplus funds are being ploughed back into the
non-profit organisation.
International Centre for Eyecare (ICEE)
Prof Kovin Naidoo
ICEE supports, as its social purpose, the prevention of blindness. Prof. Naidoo has developed a
comprehensive, sustainable and horizontal economic service delivery model for poor rural
communities in South Africa. Errors in visual refraction correction that are left untreated
contribute to 10 percent of world blindness. In South Africa, where eye care is expensive and
reaches only about 25 percent of the population, the rural poor have virtually no access to
vision treatment, creating a barrier to education and employment. Kovin’s model has
extended the reach of eye care in South Africa by training community-based health care
workers and staffing small clinics with student interns. To make glasses more affordable, he
works with companies to obtain cheap frames and lenses, and has trained local young people
to do the lens fitting — cutting the price of glasses from $80 to $2-10 while generating
income for the community.
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ICEE measures social impact through socio-economic factors - looking at the loss of
productivity and the quality of life issues as indicators. A study in Cambodia measured the
impact on factory workers pre and post correction of vision. When vision is corrected, there is
an impact on the opportunities for children and adults.
ICEE employs full time staff, including an Africa director, COO, financial manager, programmes
manager and 42 staff members for various programmes.
Surpluses are reinvested for the purpose of business development. ICEE established a global
resource centre and supplies various institutions throughout Africa, however, obtaining
finance remains a big problem.
Social enterprise will be the answer for ICEE as long as equity shareholders have a minority
share. This will allow ICEE to scale up and receive donations at the same time.
Greater Good South Africa
Managing Director: Sophie Hobbs
Greater Good (GG) South Africa Trust is a registered Trust, NPO and Section 18A Public
Benefit Organisation (PBO) The nature of the work of Greater Good South Africa is entirely for
public benefit with no intention of trading, but with a desire to establish significant levels of
public trust in its work. The organisational structure chosen was in support of that.
Greater Good South Africa brings good causes and committed givers together in meaningful
and innovative ways to end poverty in South Africa.
GG is a social networking and communications platform that uses online technology and
offline outreach, engagement and marketing campaigns, to encourage giving through
facilitating direct engagement between all kinds of social investors, philanthropists and
charitable givers and thousands of non-profit development organisations, social enterprises
and social mission businesses across South Africa. To reach its objectives GG makes use of a
number of online platforms, significant offline outreach activities, workshops, training
programmes and advocacy forums including:
GG’s primary social networking tool – www.greatergoodsa.co.za – which is South Africa’s first
online social marketplace. The site promotes the concept of social benefit networking where
over 1,000 registered causes connect with donors and GG’s call-to-action campaigns. Giving
accounts create an online space for donors, connecting them with great causes and other
givers in their area.
Dedicated Cause Spaces for registered causes make it easy for non-profit organisations to
showcase their work online and connect with potential donors for free.
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The South African Social Investment Exchange (SASIX)
The SA Social Investment Exchange (www.SASIX.co.za) is GG’s most financially successful
channel. SASIX provides independent research, evaluation and monitoring to ensure that
listed projects meet a set of criteria, including the ability to deliver measurable returns. The
SASIX Giving Foundation was created in November. This is a personalised online charitable
fund that investors can set up as a family, an individual or as a business.
SASIX also provides investors with financial return opportunities through SASIX Financial. This
enables investments in responsible initiatives with market-related financial returns. The first
R70m investment into SASIX Financial projects is already yielding positive returns – both
socially by, for example, supporting low income housing for families or establishing
livelihoods for rural women, and financially by performing better than typical comparative
benchmarks.
A central part of GG’s work is to level the playing field by giving small, pioneering non-profit
organisations the same access to funds and capacity development as the better-known
causes.
It also operates various training programmes and networking forums – each targeting
different sectors.
GG contends that establishing an enterprise that could accept public equity and be listed on a
stock exchange would be useful to attract and raise significant finance as other listed entities
could do. Creating a new form of legal structure for social enterprises/social purpose
businesses could be useful and would provide an environment to enable particularly equity
investments in such businesses and could significantly address the issue of going to scale.
Greater Capital
Managing Director: Dean Hand
Greater Capital is a Section 21 company (although their ‘parent’ organisation is a Section 18A
trust – see separate responses for Greater Good South Africa Trust).
Greater Capital was established to commercialise the intellectual property developed by the
GG South Africa Trust. As such it was a trading organisation but had no external shareholders
and did not intend to make distributable profit beyond that for the trust itself.
Services cover the full range of CSI consulting activities including research, investment
opportunity identification and origination, due diligence, risk benefit analysis, output
monitoring, outcomes measurement, evaluation and reporting, as well as related grant, social
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economic development and social investment advisory services. See www.sasix.co.za and
www.http://www.myggsa.co.za/csiservices/.
Greater Capital could effectively be seen as an intermediary serving two communities which
themselves have significant diversity viz. “issuers” or “fund seekers” on the one hand and
“investors” or funders on the other hand.
Greater Capital is only two-and-a-half years old and although it has more than tripled
revenues and earnings in this time, there is as yet no surplus profit given the overheads it
carries to support the trust and its operations to remove the donor dependence of that
entity.
Greater Capital is already a social enterprise but could benefit from a new dispensation.
The Clean Shop
Managing Director: Mr Trevor Mulaudzi
The Clean Shop (TCS) is a 100% black-owned cleaning company (close corporation) and its
social purpose is to solve the social issues around hygiene and sanitation in schools.
In 2007 TCS employed 350 people and had a turnover of R1,2 million per month. Since then
the business has been going through a rough time because of lack of government support.
Sadly, in spite of this pioneering initiative, neither the education authorities nor the schools
have contracted TCS for toilet cleaning purposes. There are not many schools contracting TCS
because schools still do not appreciate the advantages of clean toilets which is a serious
indictment on the Department of Education.
According to TCS there is a correlation between pupils' performance and the availability of
good facilities. Such is the dedication of the former AngloGold employee to his calling that he
has gone as far as developing a school toilet charter. Besides cleaning school toilets, TCS has
been awarded various contracts to clean corporate toilets, change houses, kitchens, hostels
and residential flats for mining companies.
TCS is currently struggling financially and feel that the current business model (close
corporation) is adequate but that, should social enterprises receive soft loans or preferential
procurement, the close corporation could benefit by becoming a social enterprise.
Khulisa Crime Prevention Initiatives
Managing Director: Lesley Ann van Selm
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The purpose of the Khulisa Crime Prevention Initiative (hereafter referred to as Khulisa), is to
contribute to building a healthy and crime free South Africa. Ideally this would be achieved
through prevention, early intervention, youth leadership, reintegration, restorative justice
and skills development.
South Africa is one of the countries in the world with the highest crime rates, especially
violent crimes. Cognitive Behavioural Therapy is the preferred methodology for intervention
and therefore Khulisa offers a uniquely holistic approach which employs innovative and
experiential learning methods to build capacity and individuals and communities through
innovative life-changing programmes in order that they may completely break away from the
cycle of violence. At the core of Khulisa’s programme offering lays the spirit of restorative
justice.
During the past two years Khulisa has developed a strategy to generate non-donor streams of
income for the organisation which will eventually lead to financial sustainability. Khulisa has
identified markets for the export of their programme to the UK and USA, Australia and other
parts of southern Africa. Furthermore, Khulisa has developed a separate profit making
division which focuses on the development of skills and the provision of accredited training to
various SETAs.
Khulisa is most certainly a prime example of an organisation that moved from grant
dependency to sustainability and it is therefore eager to embrace a new dispensation where
social enterprises will be acknowledged.
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ANNEXURE H: LISTING OF SERVICES, CHALLENGES AND NEEDS BY
STAKEHOLDERS IN THE SOCIAL ENTREPRENEURIAL SPACE AND BUSINESS
DEVELOPMENT SERVICE PROVIDERS
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SERVICES, CHALLENGES & NEEDS
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SERVICE PROVIDED
CHALLENGES & NEEDS
ABSA
The microfinance division creates an absolute focus on the double Upscaling of enterprises. Working towards a
barrel objective – profitably on the economic level, while the social solution of bringing banking to the community –
impact is obtained through community development. The small this would involve social enterprise development.
business division has a clientele of half a million – the emphasis is on
contributing to communities and making a profit. ABSA supports
social enterprises and focuses on profit plus social impact. Impact is
measured within the community and there is no contract or business
if there is no social impact.
TSIBA EDUCATION
Tsiba provides support to social enterprises on a limited basis – it has Including social enterprises in the curriculum of its
an entrepreneurial support centre also used by the SEs and the business degree and looking to include education
around SEs in entrepreneurial curriculum. Short
training material of the ILO is being used.
courses for entrepreneurs and follow through with
training and ongoing mentorship. Regards financial
sustainability as essential.
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BDS PROVIDER OR
STAKEHOLDER IN SE SPACE
SERVICE PROVIDED
CHALLENGES & NEEDS
CITY OF CAPE TOWN
High level of awareness of social enterprises and all types of
businesses. Positioning it to be the leading enabler of social
enterprises, including social enterprise development. City of Cape
Town (CT) in partnership with Raymond Ackerman Academy of
Entrepreneurial Development paid for students to attend a six month
entrepreneurship development programme. Percentage of
Capetonians who pursue business opportunities almost three times
the national average while Johannesburg is 60% above the national
average. CT provides tax rebates on land for non-profits – they are
empowered and encouraged by city council. Policy is that project
must have social impact.
Cape Town is positioning itself to be the leading
enabler of enterprise and social enterprise
development in South Africa and has an annual
trade fair. Encourages and showcases its social
enterprises, awards grants and provides other
forms of support. The “red door” in Cape Town also
provides support to social entrepreneurs.
SANGOCO
North
Province (NWP)
West As an existing community-based organisation (CBO), SANGOCO has
not done much membership supporting capacity building
countrywide. However in the NWP water is a catalyst for
development. SANGOCO came in as coordinators of integrated water
resource management (IWRM) which was very helpful for building
social enterprises – about 40 programmes. Farmers, for instance,
developed into commercial farmers. In the process HIV/Aids orphans
are also fed. Grass-roots and Millennium Development Goals are
SANGOCO’s reference point. DANIDA funded.
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Social enterprise development will be supported by
plans to introduce the new IWRM. SANGOCO wants
to be able to develop an environment for social
enterprises, providing skills at local level and move
them to the next level so that they can become
income-generating and sustainable. Legislation will
help to create an enabling environment for social
enterprise but enterprises also need to have access
to skills that allow them to access market
opportunities. The procurement processes of
SANGOCO assists their social enterprises in developing their own government and private business should favour
budgets, business plans, time sheets and go to beneficiaries.
social enterprises.
Encourages NGOs to keep minutes and to be accountable for projects.
Beneficiaries are linked to other stakeholders. SANGOCO supports
income-generation by their members and provides business services.
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THE JOB CREATION TRUST
SERVICE PROVIDED
CHALLENGES & NEEDS
Following agreements reached at the Presidential Job Summit held in
1998, the Congress of South African Trade Unions (Cosatu), the
National Council of Trade Unions (Nactu), and the Federation of
Unions of South Africa (Fedusa) founded the Job Creation Trust and
workers of South Africa contributed one day’s wages in the year 2000
to the value of R89 million. The funds contribute to the establishment
of co-operatives and community driven projects where all the
unemployed work together to make a livelihood for their families.
The Job Creation Trust is actively participating in
the debate on social enterprises in South Africa as
this is another way of job creation and the
upliftment of poor communities. It is also clear that
some of these projects would benefit from evolving
into social enterprises.
To date more than 38 000 jobs have been created and nearly 25 000
people were trained in various skills. Many indirect job opportunities
have been created through procurement and supply of goods and
services. All those people now possess the capacity to train others
and/or create their own small businesses in which other people get
employed and trained. Examples of projects started through the Job
Creation Trust are: Bophelo Community Project, Virginia; BoiteloLetsie HIV/Aids Care and Support, Welkom; Bhongo Meat and
Vegetable, Zastron; Center for Uplifting Rural Economies (CURE),
Bloemfontein; Ntabiseng Joint Agriculture, Bloemfontein; Thosang
Garden Project, Selosesha; Kungwini Welfare Society, Zwaelpoort;
Philadelphia National Youth Directorate, Zuurbekom/Lawley;
Twanano Paper Making, Ivory Park; Siyaya Fisheries, Mkomasie;
Bombani World Travel & Tour Operators; Griqua Ratelgat Tourism;
Murraysburg Fire Wood Strand, Bricks Ovens and Vegetables; Greater
Moutse Cotton.
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STAKEHOLDER IN SE SPACE
SERVICE PROVIDED
CHALLENGES & NEEDS
The municipality provides its non-profit organisations with donations,
on condition that the social purpose is clear and that the municipality
is provided with financial statements. The municipalities provide nonprofit organisations with land while district municipalities provide
donations and help these organisations to engage in social capacity
building. There are no specific policies regarding social enterprises but
they have community-based officers in the district working with nonprofit organisations as well as HIV/Aids.
The municipality cannot provide money or
expertise. It does not have trade shows, but can
promote its social enterprises. The Local Economic
Development (LED) section needs to get people
together to share experiences and do a needs
assessment. Workshops and consultation should
inform the development of social enterprises.
MHANI
GINGI
SOCIAL Mhani provides specific support to social enterprises through training,
ENTREPRENEURIAL NETWORK marketing, introducing capital where possible and making networks
available for technical training – working closely with ten such
enterprises. Mhani is in the process of registering a non-profit entity
to supply a form of social development funding where small entities
can borrow from. However, these funds will be supported by training.
Examples of the Mhani enterprises are: indigenous plants (orchids),
education, skills, sewing and designing, catering, traditional dancing,
mobile catering for building sites, food processing (community
bakery), vegetable gardens, tour guides (from the taxi industry), B&Bs,
property development, printing, caring for orphans and an internet
cafe.
There needs to be a change to the bureaucratic way
funding is done – change the funding and supply a
voucher to go to a supplier. The criteria and
processes involved are not helpful. There needs to
be a marketing space where production and sales
can take place at the same time.
KIMBERLEY MUNICIPALITY
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SERVICE PROVIDED
KWAZULU NATAL PROVINCE KZN’s activities are specific to cooperatives – by assisting cooperatives
in setting up, providing training and trying to assist in aspects of
(KZN Province)
running a business, start-up capital to buy small implements, seeds,
fertilizer and so on. KZN further favours cooperatives and NGOs in the
procurement process.
CHALLENGES & NEEDS
KZN will focus on cooperatives in the agricultural
arena rather than on social enterprises – training is
the key to capacity building. Alleviation of poverty
is the biggest challenge and big business needs to
support the small enterprises in the procurement
process and with sponsorships. Partnerships
between big business, social enterprises and
cooperatives are essential.
CENTRE OF DEVELOPMENT Although social enterprises are not included in the mandate of CDE, Clear guidelines for entrepreneurship in South
there is awareness and interest to support social enterprises with Africa and how to support social enterprise is
AND ENTERPRISE (CDE)
necessary. There should be a shift from enterprise
research and training.
support to government-private partnerships and
expertise should be provided to support social
entrepreneurs. Better monitoring and evaluation of
the social enterprise sector is necessary. Identify,
celebrate and publicise social entrepreneurs to
encourage them.
LEARN TO EARN
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Learn to Earn already provides specific support to social enterprises by Need to develop social enterprises besides being a
creating job opportunities and facilitating people to start their own business resource centre. The unemployed must be
businesses – this support is provided irrespective of whether they are developed and trained.
SEs or not.
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NATIONAL
COUNCIL
TRADE UNIONS (NACTU)
NELSON
MANDELA
MUNICIPALITY
SERVICE PROVIDED
OF There is a level of awareness about social enterprises at NACTU –
more on the level of the non-profit organisations and vulnerable
workers, for example, people living with disability. NACTU feels that it
can become a vehicle to help social enterprises. NACTU is also one of
the founders of the Job Creation Trust.
CHALLENGES & NEEDS
Greatest impact is needed by focussing on the
youth in rural areas, but also on women. Skills
development is needed for the sustainability of
social enterprises.
BAY The concept of social enterprises is still very new at the Nelson The primary objective of the municipality is to have
Mandela Bay Municipality. There is a need to make grant funds appropriate tools to assist social enterprises and to
available and offer support to social enterprises in the form of grants. raise awareness.
LIMPOPO PROVINCE
The Limpopo province is focussing its efforts on cooperative
programmes, but it is also assisting the Limpopo business agency.
Cooperatives are encouraged because rural development is of utmost
importance in a developmental state. New avenues for business
development are currently being explored.
The biggest challenge facing the province is a lack
of
infrastructure.
Communication
remains
problematic and needs to expand. Business
development is of utmost importance.
KUMBULANI TRUST
Kumbulani believes that job creation is not in the formal sector and
therefore creating small business is very important and its focus is on
profit-making small businesses. However, Kumbulani provides
equipment, material and training to social enterprises in some
instances, e.g. a project for food security in KwaZulu Natal.
The challenge is to influence attitude: one of the
biggest challenges faced is the change in mindset
and attitude of all stakeholders to develop social
enterprises.
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DEPT OF WOMEN, CHILDREN The DWCPA had its first consultation with the women’s gender and
AND
PERSONS
WITH groupings represented and the initial discussion on issues of
empowerment and how to take it from there. There is a need to ‘scan’
DISABILITIES (DWCPA)
the environment, identify gaps – people are trying to run businesses
but don’t have access to the right tools. There is a need to bring in
mentorship and know-how. The DWCPA would like to see a
partnership between business and government and for social
enterprises and big companies to form partnerships for procurement
purposes.
CHALLENGES & NEEDS
Women in rural areas should be empowered to get
access to markets. There should be plenty of
communication and information going out to
communities about the different options available.
Knowledge should be shared and people living with
disabilities should be brought into the main stream
of the national agenda.
FEDERATION OF UNIONS OF The Job Creation Trust acts as the agent for Fedusa in the The term ‘social enterprises’ is unknown and there
should be greater awareness. However, Fedusa is
SOUTH AFRICA (FEDUSA)
development of social enterprises.
making its contribution through the Job Creation
Trust.
CONGRESS
OF
AFRICAN TRADE
(COSATU)
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SOUTH COSATU also contributes to the Job Creation Trust and the alleviation Social enterprises could lead to job creation for
UNIONS of poverty and upliftment of the poorest of the poor is of utmost South Africa and should be explored.
importance.
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DEPARTMENT OF SOCIAL The role of the Department of Social Development in regulating the
non-profit sector is discussed in Chapter 4 of this document. However
DEVELOPMENT (DSD)
it should be noted that it is the mandate of the DSD to create an
enabling environment for the non-profit sector, and by implication for
social enterprises.
CAUSE AND EFFECT
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CHALLENGES & NEEDS
Interdepartmental meetings are to be encouraged
to promote the integration and sharing of ideas. An
interdepartmental task team has been proposed in
order to create a platform where people who are
unemployed and poverty stricken will be able to
participate in the economy. The DSD, Department
of Labour, Department of Education, the
Department of Trade and Industry and National
Treasury should take the lead in forming a task
team.
Cause and Effect is capacitating NGOs through strategic planning and Challenges are to raise awareness about social
training, a fundraising plan and a marketing plan. By creating a enterprises and find sponsorships for events to
networking forum for NGO fundraisers and marketers to share assist the non-profit organisations.
knowledge and experience; to maximise resource development and
offer opportunities for creation and implementation of successful
fundraising campaigns; to bring them into contact with experts in
their field and with senior corporate CSI and other executives and to
provide education and professional support.
BDS PROVIDER OR
STAKEHOLDER IN SE SPACE
DEVELOPMENT BANK
SOUTH AFRICA (DBSA)
SERVICE PROVIDED
CHALLENGES & NEEDS
OF The DBSA aims to provide a full package of support to development Interested in social enterprise development but
initiatives within South Africa and the Southern African Development looking at financing on a large scale – more into the
Community (SADC) region, in the realization that infrastructure area of local economic development.
delivery has broader socio-economic and cross-border implications
and impacts. The Bank is primarily concerned with promoting the
economic integration of the SADC economies, enabling individual
economies to use internal resources more effectively and the region
to become more competitive in the global economy. To qualify for
funding, projects must meet certain key criteria. In the first instance,
a project must be consistent with the DBSA’s sectoral and geographic
mandate, i.e. in support of infrastructure development within South
Africa and the SADC region.
WOMEN
DEVELOPMENT WDB now operates in four provinces and branches increased from 3
to 27, creating about 178 jobs. WDB Micro Finance is the second
BANK (WDB)
largest developmental micro finance institution in South Africa and is
rural-based. Since its inception in 1992, about 247 000 loans have
been disbursed to rural entrepreneurs.
Goal is to make WDB Micro Finance sustainable and
independent from its donors. WDB Trust also
continues to work towards the expansion of the
Enterprise Development Unit.
INDUSTRIAL DEVELOPMENT The IDC recognises the importance of a dynamic private sector in The IDC has taken an interest in social enterprises
securing and stimulating rapid and sustainable economic growth, and will be developing directives in support of
CORPORATION (IDC)
creating employment and reducing poverty. IDC believes in the these entities in the future.
development of a holistic socio-economic model that combines social
inclusion, social capital and economic development.
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BDS PROVIDER OR
STAKEHOLDER IN SE SPACE
SERVICE PROVIDED
NATIONAL
DEVELOPMENT The NDA’s mandate is 1) poverty reduction through grant funding for
community projects; 2) institutional strengthening of civil society
AGENCY (NDA)
organisations; 2) research and publication aimed at providing the
basis for development policy, and 4) encouraging dialogue,
consultation and sharing development experience between civil
society and relevant organs of state to inform/debate policy
development. The NDA is currently piloting a business support
programme targeting youths, entrepreneurs and SMMEs. The
programme includes funding support, mentoring and training.
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CHALLENGES & NEEDS
Although the NDA does not define social enterprise
as yet, they could consider extending similar
services to social enterprises. This, indeed, could
play a major role in the development of the social
enterprise sector in South Africa in terms of
capacity building and seed capital.
SETYSA
Social entrepreneurship development targeting unemployed youth in South Africa
Project summary
SETYSA is a project facilitated by the International Labour Organization (ILO), a specialized agency of the United Nations, in
collaboration with various South African institutions. The project seeks to support the ILO’s constituents and partners in
their efforts to promote social enterprise development in South Africa, supporting progress towards a conducive enabling
environment and the development of appropriate business development service products for potential social
entrepreneurs, with a particular but not exclusive focus on youth entrepreneurs.
What we do
Encouraging informed debate on the enabling environment for social enterprise development in South Africa:
The project is supporting a comprehensive programme of research and policy dialogue intended to strengthen the
capacity of South African policy level stakeholders to conceptualise social enterprise development, and to make informed
decisions regarding possible policy options in South Africa.
Developing appropriate business development service products for potential social entrepreneurs:
In collaboration with the African Social Entrepreneurs Network and local business development service (BDS) facilitators
and suppliers, the project is developing and piloting a toolbox of tailored training materials, adapted to the reality of social
enterprises. The project is also working with BDS facilitators and providers to develop tailored social BDS products drawing
on the toolbox content, and aims to promote access to these products through existing institutions and delivery
mechanisms. The toolbox and other outputs of the project are hosted at www.asenetwork.org.
Stimulating awareness of social enterprise and demand among potential social entrepreneurs for social enterprise
training and advisory services:
The project is working with business development service providers at local level in pilot communities to run social
business plan competitions which seek to raise awareness, identify potential social entrepreneurs and to create demand
for social business development services.
Contacts
International Labour Organization - Pretoria Office
Crestway Block C
3 Hotel Street, Persequor Park, Pretoria
PO Box 11694,Hatfield 0028, South Africa
Tel: +27 (0)12 818 8000
Fax: +27 (0)12 818 8090
The SETYSA project is funded by the Ministry for Foreign Policy of
the Flemish Region of Belgium