As a developing country, South Africa has many social problems like poverty, poor health services, poor educational services and joblessness. These need to be addressed in an innovative manner, and that‘s where social entrepreneurship comes in.
People like Shona MacDonald, Brian Richardson, Lesley-Ann van Selm and Nora Tager are all pioneering social entrepreneurs who address issues such as disability, banking for the poor, crime prevention and community development. They are making a difference and their solutions are sustainable.
“Because money is scarce in developing countries, you need to couple entrepreneurial flair with a passion to make a difference,” says Dr Susan Steinman, director: Centre for Social Entrepreneurship and Social Economy (CSESE), Faculty of Management, University of Johannesburg. “These people have managed to do so very successfully.”
Defining social entrepreneurship
The business model used by social entrepreneurs is often referred to as a social enterprise, says Steinman. “A social enterprise’s primary objective is to ameliorate social problems through a financially sustainable business model, where any surpluses are reinvested in purpose. The social purpose permeates the business model and becomes the essence or core of the social entrepreneur’s passion.”
Professor Gregory Dees of Duke University in the US describes social entrepreneurship best: Social entrepreneurs play the role of change agents in the social sector by:
- Adopting a mission to create and sustain social value (not just private value)
- Recognising 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
- Exhibiting heightened accountability to the constituencies served for the outcomes created.
The challenges in SA
In developing countries, the gap between rich and poor is often extreme. While investment capital is streaming into the private sector and GDP may be growing, often very little of that money trickles down to the poorest of the poor, or the rural areas. “Social enterprise can start to bridge that gap by interesting investors who want a return but also realise they need to address the social issues in the areas they work. It allows for a financial return (often lower than what would be expected for standard businesses, but still there) and more importantly social return on investment,” says Amy Tekié, course convenor, Social Entrepreneurship Certificate Programme (SECP) at the Gordon Institute of Business Science.
Funding in emerging economies is usually still limited to traditional corporate social investment (CSI) grant funding. Even in South Africa the social investment model (whereby investors get financial as well as social returns, either through debt or equity) is only just beginning to gain traction.
Working together for good
There are some excellent examples of social entrepreneurs and corporates working together. “Brian Richardson started Wizzit Bank and is working with a banking group to make banking possible for the poor through cell phones,” says Steinman. “There are many examples where a social problem is of great concern for corporate organisations. They use the services of social entrepreneurs to address problems such as HIV/Aids and crime reduction. CSI money increasingly goes towards social entrepreneurs because they deliver in a sustainable and innovative manner.”
Tekié says there are several ways that social entrepreneurs and corporates can work together. “Start-up social entrepreneurs have trouble finding the funds they need to get their ideas off the ground. CSI departments can look at setting aside funds to support people who have great ideas with huge potential for impact and scale. Companies can also look at using social entrepreneurs as supply line providers as many of them teach disadvantaged communities to produce goods that can be sold. Also, many social entrepreneurs would really benefit from the business learning that skilled corporate employees can offer. Pairing up employee volunteers with these entrepreneurs to provide input on strategic frameworks, business plans and marketing options could have great impact.”
Tekié adds that while there is a huge emphasis on entrepreneurship in South Africa, not enough attention is paid to social entrepreneurship. “Entrepreneurship incubators and capital providers should consider providing a specific type of support for social enterprises — either as incubators or financiers. There is, however, increasing interest from organisations like the Business Place or Shanduka Black Umbrellas in collaborating with social entrepreneurs.”
Another example highlighted by Tekié is that of Veronica Khosa who found that people living with AIDS in townships were sometimes left alone all day, with no one to take care of them. “She got former prostitutes who were looking for a new career to start providing home-based care. After a few years of running this model on very little income, she finally got recognition from the Department of Health that there was a great need for a home-based model of health care provision in South Africa. This has since been rolled out at scale.”
Can social entrepreneurship be learnt?
“When you have the passion it takes to want to make a difference, skills can be learnt,” says Steinman.
Tekié agrees. “You can provide people with the skills and confidence to start up their own initiative,” she says. “There are many budding social entrepreneurs out there who are either intimidated by the risk involved in going out on their own, or feel they don’t have a sufficient understanding of the context and grasp of the skills required. Many of the students on our programme come into the room and realise that they are not the only crazy ones. The support and networking that develops among the students is critical in getting people to take the leap.”
She notes that higher learning institutions also help to develop the theory and research that can provide useful models and legal frameworks and enable shared learning. They create awareness among students and faculty of the opportunities within social business and social entrepreneurship. “At top universities and business schools around the world there is a huge movement to create centres and programmes to support social entrepreneurship and innovation.”
It’s certainly happening here at home too. If you see yourself as a social innovator, you can arm yourself with the strategic, technical and business skills you need to create sustainable, scalable, high impact social enterprises through one of the programmes in social entrepreneurship being offered at many of the country’s universities.
“The job of a social entrepreneur is to recognise when a part of society is stuck and to provide new ways to get it unstuck.
He or she finds what is not working and solves the problem by changing the system, spreading the solution and persuading entire societies to take new leaps. Social entrepreneurs are not content just to give a fish or teach how to fish. They will not rest until they have revolutionised the fishing industry.”
Source: Ashoka Fellows
How Economic Crime Is Impacting Business In South Africa
77% of SA organisations have experienced economic crime and CEO’s and boards are increasingly being held accountable for economic crime.
South African organisations continue to report the highest instances of economic crime in the world with economic crime reaching its highest level over the past decade, according to PwC’s biennial Global Economic Crime Survey.
South African organisations that have experienced economic crime is now at a staggering 77%, followed in second place by Kenya (75%), and thirdly France (71%). With half of the top ten countries who reported economic crime coming from Africa, the situation at home is more than dire.
The Global Economic Crime and Fraud Survey examines over 7200 respondents from 123 countries, of which 282 were from South Africa.
The rise of economic crime
Trevor White PwC Partner, Forensic Services and South Africa Survey Leader, says: “ Economic crime continues to disrupt business, with this year’s results showing a steep incline in reported instances of economic crime. At 77% South Africa’s rate of reported economic crime remains significantly higher than the global average rate of 49%. However, this year saw an unprecedented growth in the global trend, with a 36% period-on-period increase since 2016.”
Related: PwC Focus On Sugar Tax
Economic crime in South Africa is now at the highest level over the past decade. It is also alarming to note that 6% of executives in South Africa (Africa 5% and Global 7%) simply did not know whether their respective organisations were being affected by economic crime or not.
While the overall rate of economic crime reported was indeed the highest for South Africa, the period-on-period rate of increase for South Africa and Africa as a whole was below that of our American, Asian and European counterparts.
Global indicators of a rise in economic crime
From a regional perspective, the biggest increase in experiences of economic crime occurred in Latin America, where there was a 25% increase since 2016 to 53% in respondents who indicated they had experienced economic crime. The US was a close second with a 17% increase over 2016 to 54% of respondents, while Asia Pacific and Eastern Europe experienced increases of 16% and 14%, respectively.
Asset misappropriation continues to remain the most prevalent form of economic crime reported by 45% of respondents globally and 49% of South African respondents. While the instances of reported cybercrime showed a small decrease in the South African context (29% in 2018 versus 32% in 2016), it retained its second place in the global rankings (31%) albeit at a lower rate of occurrence than 2016.
One of the new categories of economic crimes was that of “fraud committed by the consumer”.
It is the second most reported crime in South Africa at 42% and takes third place globally at 29%. This was followed closely by procurement fraud (39% in South Africa versus 22% globally). This indicates that the entire supply chain in SouthAfrica is fraught with criminality.
Related: PwC: Pria Chetty
When combined with the high instances of bribery and corruption reported (affecting more than a third of organisations at 34%), the resultant erosion in value from the country’s gross domestic product (GDP) is startling. Accounting fraud, which is usually perpetrated by senior management and results in the largest losses, increased from 20% to 22%.
Accountability of the board
Accountability for fraud and economic crime has moved into the executive suite, with the C-Suite increasingly taking responsibility, and the fall, when economic crime and fraud occur.”
The survey shows that almost every serious incident of fraud has been brought to the attention of senior management (95%).
85% of South African respondents indicated their organization had a formal business ethics and compliance programme in place.
In addition, 20% of local respondents indicated that the CEO (who is part of the first line of defence) has primary responsibility for the organisation’s ethics and compliance programmes, and is therefore more instrumental to the detection of fraud and the response to it.
PwC Focus On Sugar Tax
The proposed sugar levy is unlikely to make sizeable dent in fiscal deficit, but the Sugar Beverage Industry is offering a helping hand to reduce obesity.
In 2016, the National Treasury announced a Sugar Beverage Levy (SBL) on sugar-sweetened beverages (SSBs) scheduled to take effect April 2018. The aim of the levy was to prevent and control obesity in South Africa, but key industry players also viewed it as a potentially significant new source of revenue that could help plug the growing fiscal deficit.
The fiscal deficit has been widening as National Treasury faces slow economic growth and a shrinking tax base. Initially estimated at 3.1% of GDP, fiscal deficit projections increased to 4.3% of GDP in October last year.[i]
However, official data suggests the deficit already reached R195 billion in the first 8 months of the 2018/19 fiscal year, so it could amount to approximately R250 billion, thereby exceeding Finance Minister Gigaba’s October projections by 25%.
The levy has undergone various changes since it was first announced.
When the levy takes effect in April this year, it will amount to 2.1 cents per gram of sugar per 100ml, above 4 grams per 100ml.
This is down from an initial 2.29 cents per gram of sugar with no exempted amount.[ii]
Our estimations suggest the tax burden is approximately 10% given current levels of sugar content, down from approximately 20% previously. In addition, industry has recently reacted to the news of the SBL, reducing the sugar content of popular beverages by including non-nutritive sweeteners.
In addition to efforts to reformulate, the industry introduced smaller bottle sizes to curb excessive sugar consumption and limit the excise tax burden.
SBL excise revenue estimations
We estimated that in a scenario in which the beverages industry makes no change to the sugar content of SSBs, the levy would result in an estimated R1.5 billion loss in sales revenue and a R 1.4 billion excise revenue gain for government.
However, a reformulation by industry would result in a lower loss in sales revenues of only R1.07bn and lower than expected excise revenue gain for government of R990mn.
Given the estimated fiscal budget deficit of up to R250bn, additional revenues of between R990mn and R1.4bn are unlikely to make a significant dent in plugging the deficit and could support the assertion that the levy will focus on curbing sugar consumption rather than providing significant additional revenue inflows.
In our quantitative analysis of the proposed tax on SSBs, we use the PwC Economic Impact Assessment Model to derive the potential impacts, based on a 10% sales reduction calculation due to potential excise driven price changes.
Although excise revenues are expected to increase, other tax revenue streams are likely to experience a decline. Not considering excise impacts, the prospective tax revenue loss stemming from reduced sales revenues and showing in lower VAT, corporate income tax (CIT) and personal income tax (PIT) could range between R363 million and R518 million in the reformulation and non-reformulation scenarios, respectively.
Therefore, the net impact on estimated tax revenue combining the implications for excise tax, VAT, CIT and PIT revenue would only range between R631 million and R856 million, subject to which scenario is implemented.
It is unclear whether the SBL levy will assist in reducing consumers’ sugar consumption. However, industry facilitates lower sugar consumption by reducing bottle sizes and through reformulation.
Smaller sizes nudge consumers to lower sugar consumption
In addition to reformulating popular SSBs, the beverages industry has altered the size of the 500ml buddy bottle to 440ml, potentially nudging consumers to reducing their sugar consumption.
The move to the 440ml bottle represents a 12%[iii] reduction in size and means that sugar content fell from 53 grams in the 500ml bottle to 46.6 grams in the 440ml bottle.
The implementation of the new levy could still result in an approximately 61 cent increase in the price of the 440ml bottle.
It remains to be seen how South Africans will react to the current and impending price change of SSBs and if the SBL can indeed assist in reducing obesity. It is clear that monitoring and evaluation are key tools to help government and industry understand the effectiveness of this initiative to prevent and control obesity in South Africa.
- [i] Treasury, 2017. Medium Term Budget Policy Statement. [Online] Available: http://www.treasury.gov.za/documents/mtbps/2017/speech/speech.pdf [Accessed 08 February 2018]
- [ii] SARS, 2017. SARS to collect for sugar tax (SBL) from 1 April 2018. [Online] Available: http://www.sars.gov.za/Media/MediaReleases/Pages/15-December-2017—SARS-to-collect-for-sugar-tax-from-1-April-2018-.aspx [Accessed on 06 February 2018]
- [iii] PwC calculations
What It Will Really Take For South Africa’s Businesses To Scale And Create Jobs
It is the “low-hanging fruit” of scaling up South Africa’s established SME businesses that we believe is at the core of how we can grow this economy further.
Much has been said about the potential of SMEs to drive job creation and economic growth for South Africa. Our unemployment rate is at 26.7% – an astonishing figure that speaks volumes about the dire need for job creation. On the back of this, we are seeing increasing amounts of money being channeled into incubators and the funding of startup companies.
Although important, the starting of new businesses, unless they are completely innovative, well-timed and highly scalable, will not provide us with much-needed quick wins on our path to job creation and economic growth. It is the “low-hanging fruit” of scaling up South Africa’s established SME businesses that we believe is at the core of how we can grow this economy further.
The state of established businesses in South Africa
Established businesses that already employ 10-20 people have a working product, willing buyers and a proven business model and with some modifications, increased guidance and adequate management, they have the potential to increase their number of employees significantly as they scale up. However, a 2016/2017 report by the Global Entrepreneurship Monitor (GEM) in partnership with the University of Cape Town found that the rate of established businesses in South Africa has declined by an incredible 26% since 2015.
In fact, South Africa had one of the lowest established business rates of all the economies that participated in the GEM 2016 study (ranked 61st out of 65 economies). This, the report says, “paints a bleak picture of the SMME sector’s potential to contribute meaningfully to job creation, economic growth and more equal income distribution.” While we should not neglect the starting of new businesses, scaling up established businesses will provide young people with much needed experience to ensure that when they eventually start their own businesses, they may have greater chances of success.
How to increase the proportion of established businesses that scale up
Have a clear vision for your business
When we as business coaches work with established businesses that are scaling up, we make sure to start with the founder as their attitudes and desires determine how far the business will go. Scaling up an established business begins with a clear vision. Often, we find that the businesses owners don’t have a clear vision of where they want to take their business, and without a vision, it’s very difficult to scale.
Determine why your business exists
Linked to a clear vision, business owners need to have a strong purpose that answers the question of why they want to scale. Some business owners often see their business as a vehicle that provides them with an income, rather than the business serving a bigger purpose to impact an industry or the broader society. As a result, they often stop short of developing the full potential of their businesses.
Be willing to learn and seek help where needed
Business owners also need to have a willingness to learn. Being entrepreneurs, they often have a definitive view of the world and how it should work, which drives them to create something that they believe needs to exist (a new business venture). A risk to these strongly held views and high levels of confidence is that entrepreneurs potentially won’t open themselves up to new ideas, or to being challenged that some of their beliefs and views may, in fact, be holding their businesses back.
Business owners need to realise that they may not have all the skills to scale their business. I’ve found that entrepreneurs tend to be strong in customer service, innovation and sales, and are often weaker in people management and attention to detail – skills that become a lot more critical at the point of scaling the business.
Other areas of importance in scaling up
There are other critical areas that businesses need to address in scaling up but dealing with the founder is most critical. Strategy is one, cash flow is another, as is the question of hiring/finding and developing key talent. I will be unpacking these and more at the upcoming Business Day TV SME Summit on 8 March; and with increasing efforts by government to address the unemployment crises through platforms like the Jobs Summit announced in the State of the Nation Address, we hope that more conversations are had around harnessing the job creation power of established businesses that manage to scale up quickly and sustainably.
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