Social investment’s coming depression

Social investment spend is likely to crash over the next years because of SA’s economic contraction. Private sector funders of developmental work will need to work out how best to mitigate the effects of this, and quickly.

Most corporate social investment (CSI) budgets are derived from company allocations of 1% Net Profit After Tax – and we can expect company profits to plunge across the board. Trialogue[1] has tracked CSI spend since 1998 and, naturally, CSI spend seems to correlate with overall economic health (along with changes in how companies may perceive their corporate citizenship role).

So, there was consistent and often significant growth in real annual CSI spend from 1998 to 2013; reductions in 2014 and 2015; flattening in 2016 and 2017; only slightly recovering in 2018. It flattened again in 2019, at R10.2bn CSI spend.

CSI spending may hold up this year (maybe) because of pre-set budgets, but coming budgets must be pummelled by SA’s economic retreat following the severe restrictions imposed on economic activity from late March 2020. On 30 April, National Treasury forecast a 7% contraction of the SA economy in 2020[2], while Business SA would later suggest a GDP contraction of up to 17%[3].

Those CSI departments/foundations that haven’t built up reserves for the coming storm are going to be very hard-pressed to support their standing developmental partners and to see projects through. There’s going to be a lot of blood on the floor, as there will be in every part of the private sector, whether profit-making or non-profit. There certainly won’t be unallocated CSI moneys sloshing around. It’s more likely that there will be a lot less available for private social investment than hitherto.

In addition, the largest funder of NPOs in South Africa outside of CSI is the National Lotteries Commission with disbursement figures of around R1,3bn[4]. The national lockdown included a prohibition on the sale of Lotto tickets at retail outlets, and punters could only buy online. That must seriously hurt the Commission’s income stream, and thus its ability to keep funding NPOs at current levels. The Commission has made R150m urgent funding available “to lessen the impact of C19 on NPOs” for now, but things will surely get grim from the next funding cycle onwards.

Indeed, many NPOs likely have their funding sorted for this financial year, in the usual way, and the real crunch will only come in the next funding cycles – and then for quite some time. In all the talk about a “new normal”, there are admirable, necessary, initiatives to support NPOs providing urgent welfare services today, but not enough discussion about how they are likely to hit a funding wall in the years to come.

And there’s almost no talk at all about how social investors will probably face a crisis of diminishing income themselves, and what that means for grantmaking, CSI, philanthropy, social enterprise support, etc.

Given the immediate urgency, all talk right now is understandably about the needs of the NPO side of the CSI developmental bridge. But the other side of the partnership – funders – are about to be in trouble too. They will need to get their heads around the coming, very straightened, times.

  • Paul Pereira, WHAM! Media.  

[1] For access to Trialogue publications, visit www.trialogue.co.za.

[2] Briefing by National Treasury on Financial Implications of Covid-19 on both the Economy and Budget, http://www.treasury.gov.za/comm_media/press/2020/JT%20SCoF%20and%20SCoA%20briefing%20COV19.pdf, 30 April 2020.

[3] News24; SA economy could shrink by up to 17% in 2020 despite stimulus, warns business alliance, https://www.news24.com/fin24/economy/south-africa/sa-economy-could-shrink-by-up-to-17-in-2020-despite-stimulus-warns-business-alliance-20200506, 6 May 2020.

[4] National Lotteries Commission 2019/20 Mid-Term Review, http://www.nlcsa.org.za/wp-content/uploads/2020/06/Mid-term-review-NLC-APP-2019-20.pdf, 2020.

4 Comments

  1. Karl Muller

    I think even NPO’s with relatively stable income, e.g. foundations with corporate endowments will be in the same boat. It is a good wake up call for NPO’s and an real opportunity for innovation!

  2. Maria Roth

    Paul, perhaps all NPOs and PBOs (Private Benefit Organisations) should make sure they are registered in terms of section 18 (a) of the income tax Act.
    Even in a climate of contracting profits, tax will have to be paid, possibly at a higher rate, so being allowed to donate to a PBO up to 5% (?) before tax and getting some relief for it, would still be more attractive than giving the money to people who will take a personal cut and play silly buggers with the rest. I certainly hope the people who donate survive the crunch.

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