Over the past few months positive sentiment has swung significantly in South Africa’s favour, thanks to the formation of South Africa’s first government of national unity (GNU) since the 1990’s and its new Cabinet. The new administration is expected to expedite the implementation of (existing) reform policies, accelerate fiscal consolidation and spur economic growth initiatives.
While South Africa is alive with possibilities, and enjoying improving investor confidence, the results of policy reform and pro-growth initiatives will undoubtedly take time for its effects to be felt in the real economy.
Economic growth may not be the panacea to South Africa’s challenges; however, it remains the most effective way to improve livelihoods and societies as a whole. Economic growth results in job creation, rising wages, financial inclusion, higher standards of living and an improved fiscal position through growing tax revenue.
Propelling South Africa forward and unlocking its growth potential is a significant endeavour requiring several stakeholders (from government; the private sector; civic society and the investment community) working together towards a common goal.
To grow an economy and improve livelihoods requires the development of several key building blocks (to name a few) to create a virtuous cycle for growth:
Governance
- Governance is a critical aspect of nation-building, as it provides the necessary framework for informed decision making, implementation, accountability and the efficient allocation of resources.
- Strong governance instils trust and confidence creating a conducive environment for investment and growth.
Infrastructure
- Infrastructure serves as the backbone of an economy. It producers the power that allows business and manufacturing to produce the necessary goods and services that we consume.
- Transport and logistics enable the transportation of people connecting them with the world, and the movement of raw materials and finished goods.
- South Africa has a lack of infrastructure, and deterioration of existing infrastructure. Investment into new bulk infrastructure capacity will be critical in pushing the economy to its productive capacity.
- The building of new infrastructure has a positive impact on the supply chain, driving demand for materials (steel and concrete), engineering, construction, finance and legal services – all of which increases the pace of economic activity and job creation.
Growing businesses
- Ultimately it is businesses that create jobs, employ people and pay salaries.
- Businesses that are efficiently run prove to be more sustainable and provide greater job security.
- As businesses grow and develop, they require more employees and have increased capital requirements to fund their expansion activities.
- With business being so crucial to economic development, investing requires more than just capital. Where a partnership approach between business and equity investors is well suited to making businesses more efficient, more profitable and sustainable.
Affordable housing
- As more and more jobs are created it facilitates greater financial inclusion and demand for improved living conditions.
- Affordable housing is more than just a shelter. It plays a pivotal role in fostering social stability and creating vibrant communities.
- Stable home environments have been shown to raise young children’s math and reading test scores.
- Homeownership promotes wealth building for low-income households, helping families secure their future and build home equity.
Affordable education
- Education is a human right – it’s one of the most powerful instruments for reducing poverty.
- Allows better absorption of employment in the economy, helping people break from the cycle of poverty.
- Education contributes to social stability and drives long-term economic growth.
- A well-educated workforce is generally more productive and better at allocating resources – productivity gains.
The above building blocks are not exhaustive but provides a good foundation for growth which requires capital and specialist expertise. Thankfully this is the domain in which impact orientated investment funds are focused on.
Retirement funds have an opportunity to allocate capital towards investments that can both develop and strengthen these critical buildings blocks. By pursuing an impact investment strategy, pension funds can earn competitive real returns while providing funding (debt, mezzanine or equity funding) to businesses and impact projects that may not necessarily be able to access funding through traditional channels.
Investments need to be sustainable to have lasting impact (generational impact), in which case it is crucial to partner with a trusted asset manager that has specialists with deep expertise and a long track record in achieving lasting impact.
The future of our economy, planet, societies and communities is shaped by the decisions we make today. Ultimately, impact investing matters because it allows investors to make a significant contribution to economic growth and development in South Africa.