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British High Commission backs impact investment efforts in South Africa
For the South African business environment to provide a climate in which SMEs and high impact entities can successfully operate and attract the right kind of investment capital, the specific factors that constrain SME growth need to be addressed.
Impact Trust managing trustee Tamzin Ractliffe
Work has started towards a new policy framework for social business and impact investment in South Africa.
Key research has been launched on the design of optimal regulatory and policy frameworks for social businesses and small and medium sized enterprises (SMEs) in South Africa.
Funded by the British High Commission and conducted in consultation with National Treasury and the South African Revenue Services (SARS), the research will culminate in a White Paper for presentation to Parliament.
The White Paper will detail an alternative corporate form and/or policy regulatory framework to encourage both the creation of and the investment into SMEs and social businesses.
The ultimate objective of the White Paper will be to stimulate economic growth and development by facilitating the establishment and financing of SMEs and high impact social businesses in South Africa.
The move is being led by the Impact Trust, a South African public benefit advocacy organisation with a track record in building the impact capital markets in South Africa. The Impact Trust is the sister organisation to Nexii, a social business with a mission to support the growth of impact investment, and the organisation behind the 'iX' Impact Exchange, a global social business stock exchange.
The British High Commission joins the United States Agency for International Development, USAID, as supporters of the work of the Impact Trust and its sister organisation, Nexii, which aims overall to increase the flow of capital to impact.
The Trust has gained the support of key thought leaders with significant global experience in the impact investment, policy and legal issues facing SMEs and high impact businesses who make up the research 'task force' and who have committed to providing the research team with crucial expertise, insight and direction to further this research initially for South Africa but potentially across the continent and the globe in the future.
The British High Commission’s grant funding aligns with the United Kingdom’s pioneering position in furthering the application and flow of social finance, including its development of the first worldwide wholesale social finance agency, Big Society Capital, its creation of the first ‘social impact bond’ and its use of innovative policy and legal structures, such as the Community Interest Company (CIC) and the Social Enterprise LLP.
The Impact Trust’s managing trustee, Tamzin Ractliffe, said: ’For the South African business environment to provide a climate in which SMEs and high impact entities can successfully operate and attract the right kind of investment capital, the specific factors that constrain SME growth need to be addressed.
‘Based on broad research and stakeholder engagement over the past three years and a detailed analysis of SME investment in South Africa in 2011, we believe that an enabling policy framework and/or legal and regulatory structure to specifically identify and reward high-impact investment opportunities that offer both financial and social return would open up access to a much broader range of investment sources.’
The British High Commission’s Prosperity Fund finances projects linked to South Africa’s growth agenda, improving its business environment, fostering a progressive, developmental South African voice in the G20, BRICS and WTO, encouraging South Africa to champion African free trade and embedding South Africa’s low carbon transition on a sustainable development path.
The Impact Trust contends that despite the prioritisation of SME growth by the South African government, there remains insufficient incentive to overcome the perception of risk aversion amongst institutional investors and lending agencies, such as innovative tax schemes – a factor highlighted in recent research conducted by USAID and Nexii.
The Legal Resources Centre published A Guide to Legal Forms for Social Enterprises in South Africa, which described the current legal structures in place and suggested that the lack of a dedicated legal form for high impact SMEs is prohibiting these initiatives from flourishing.
‘Existing policy incentives to encourage equity investment into SMEs through the Venture Capital Company incentive policy have not seen broad based uptake and alone this policy is complicated in implementation and doesn’t speak to the unique and specific requirements for encouraging SME growth and investment,’ the Trust said.