Business, labour, fiduciaries and government stand together to rescue a post Covid-19 SA
The Covid-19 pandemic is paving the way for a new era of collaboration between business, government and labour as they seek solutions for South Africa’s dire economic and fiscal outlook. “Never before have we seen this much collaboration between government and the private sector; it is the first time since 1994 that a meaningful social compact is becoming a reality,” said Elias Masilela, Chairman of recently-established Impact Investing South Africa (IISA) and Chairman of DNA Economics. Collaboration was among the key themes that emerged amongst panellists during a webinar hosted by Sanlam Investments on 4 September 2020. The panel reflected on what optimal capital allocation should be in a post-pandemic South Africa.
The ensuing discussion focused on the role that impact investing could play in addressing the country’s fiscal crisis without impeding investors’ longer-term returns. Masilela urged local asset managers to expand their investment philosophies from the “do no harm” encapsulated in their current environmental, social and governance (ESG) focused investments, to the “do good” proposition contained in impact investing. True sustainability lies beyond ESG. Those involved in allocating retirement fund capital were reminded that impact investing was not an asset class; but an investment outcome.
Tshediso Matona, Head of the National Planning Commission Secretariat in The Presidency, picked up on the partnership theme. “One of the shortcomings in advancing government’s National Development Plan has been the lack of strategic, goal-focused partnerships between the private and public sectors,” he said. He further observed that the emergence globally of social impact investing had introduced a new paradigm to the asset allocation debate.
Government, which faces significant challenges in managing the country’s post-pandemic fiscal crisis, can contribute to the success of impact investments by creating an enabling and supportive policy and regulatory framework. Matona noted that allocators of capital would be able to turn to institutions such as the IISA for actionable intelligence and localised insights into sectors that will advance the United Nations’ Sustainable Development Goals (SDGs), with more than 30 opportunities already shortlisted in priority sectors such as agriculture, education, healthcare and infrastructure.
The high-level partnerships mentioned by business and government will fail without buy-in from labour. “South Africa’s old abnormal, which is littered with race-based inequality, poverty and unemployment, must be addressed,” said Jan Mahlangu, Retirement Fund Co-ordinator, Principal Officer and Trustee at Cosatu. He added that the Covid-19 pandemic had exposed the triple fault lines that define the present socio-economic reality. He also warned against blurring the lines around who the true owners of this capital (ie in retirement funds) were. “The real owners of the capital are not the financial services providers or fund managers, but the workers because retirement funds are really just the deferred wages of workers”.
Given that self-regulation has failed, if Impact investing is to succeed then there should be mandatory regulation to govern this, Mahlangu added.
Impact investing is not a new concept. Zanele Mocumi, Portfolio Manager: Developmental Impact Investments Eskom Pension and Provident Fund, observed that the fund was already committed to impact investing. She said that their primary focus currently was on infrastructure, education, agriculture, renewable energy and low-cost housing. The elephant in the room was the misperception among investors and fund managers that impact investments produce lower returns. “Once asset allocators realise that impact investments can deliver attractive and similar returns to those offered by traditional investments in listed markets, we will see more allocations to the strategy,” she said. The only caveat is that the sector reduces the time taken between identifying, conducting its due diligence and investing in impact opportunities.
Mocumi’s final appeal was to local government to ensure that shortlisted impact investment projects were not unnecessarily delayed.
Arthur Kamp, Investment Economist at Sanlam Investments, outlined the devastating impact of Covid-19 on the SA economy. He focussed on the shortage of available funding, government’s extraordinarily large borrowing requirement, the balance of payments pressure as well as SA’s low-growth potential. He quoted some interesting statistics, including that we could have up to 1.5 million people losing their jobs, which could push unemployment to 37%. “The reality is that South Africa simply cannot recover through government’s stimulus measures alone. Even though this makes up 10% of national GDP, it merely helps limit the downside”. However, he gives full credit for the government's R500 billion stimulus plan. The key to a recovering job market lies, in part, says Kamp, to attracting foreign investment, as well as through major interventions from all key players (both public and private) in our economy.
Todd Micklethwaite, Head of Strategy and Impact (Alternatives) at Sanlam Investments, stepped in to lay the ground for solutions to salvage the ravaged SA economy. “Asset owners in the retirement funding sector are able to make a real, sustainable difference to people and planet through private markets in particular, with there being sufficient scope within regulations to support impact investing in this manner”.
Sanlam Investments’ latest step towards meaningful capital allocation through an impact investing lens has taken place under the ‘pandemic relief’ banner, while still allowing retirement fund trustees to deliver on their financial mandate for members. It recently committed R2.25 billion to three impact funds (the Investors’ Legacy range), that will create and preserve jobs, and generate inclusive economic growth. Each impact fund will be measured for its contribution to four of the UN’s 17 sustainable development goals, including SDG 1: No poverty; SDG 3: Good health and wellbeing; SDG 8: Decent work and economic growth; and SDG 10: Reducing inequality.
Janina Slawski – Head: Investments Consulting at Alexander Forbes, affirmed that she was an enthusiastic supporter of impact investing, and that private markets were pivotal to making a sustainable difference in the SA economy. She did, however, raise the issue of liquidity (access to listed infrastructure options) and the fact that it tended to be the main barrier for trustees, particularly for defined contribution funds making allocations to impact investing. However, she mitigated this barrier by saying that the bigger retirement funds could allocate to unlisted investments if there were good opportunities, and that the financial services sector was committed to finding liquid alternatives.
She concluded by making an impassioned appeal to her fellow panellists: “Let’s work together to collaborate, to find solutions; to salvage the South African economy, and to save and create new job opportunities”. She emphasized the importance of public-private partnerships, and the need to respond swiftly and collectively.
Asset and fund managers who adopt an impact investing strategy will assist government in steering South Africa Inc towards achieving the UN’s SDG outcomes by 2030. As Mahlangu eloquently summarised: “Impact investing is about a social compact [between business, government and labour] to address the three fault lines in the republic, and to make sure we take South Africa to the next level”.
Masilela concluded on a more philosophical note: “If you are not sure about what impact investing is about, then consider your answer to the following question: What is the economy or world that you want to bequeath to your children and future generations?”