According to the Directorate of Non-Profits website, as at August 2018, 198,350 organisations were registered as NPOs (Department of Social Development, 2018). Despite this seemingly prolific civil society community, much of it is not homogenous with well over half being small, semi-structured, survivalist community-based organisations (Kuljian, 2005; Russell & Swilling, 2002). Levy (2015) points out that less than a quarter of the registered NPOs are registered PBOs and very few are both a PBO and an endowed foundation. Given that the ninth schedule drives tax exempt status for PBOs against the NDP, this, by default, makes foundations’
activities more aligned to the Country’s development agenda and the rest of the registered NPOs unaligned. Even if as Davis (2018) suggests, civil society is key to the augmentation of the Country’s development agenda, the reality is that this sector is fractured and therefore its capacity to support the NDP is limited.
Even though endowed foundations have gained traction in the last 10 years, there is not a comprehensive repository of information in South Africa that allows one to determine the size and extent of the philanthropic foundations in South Africa (Gastrow & Bloch, 2016; Theobald et al., 2017). However, through the convening of private philanthropic foundations, CSI practitioners and research on the impact of charitable foundations that have been established through B-BBEE empowerment deals, one is able to establish that private foundations hold
R12.5 billion of assets and B-BBEE foundations, R32.5 billion of assets (Gastrow & Bloch, 2016; Levy, 2015; Theobald et al., 2017). This excludes the R8.5 billion per annum that is granted through commercial company CSI programmes (Duff & Rockey, 2015).
Depending on how the assets of the private and B-BBEE foundations are invested, returns on investment less operational costs are then available for philanthropic giving, usually in the form of grant. While the final figure of philanthropic capital available for ‘doing good’ will be dependent on the investment mandate and parameters set by the foundation’s trustees for investment of the foundation’s endowment, it is usually a very small percentage of the
endowment (Walker, 2017). In the United States, the Ford Foundation’s departure from their traditional approach of grant-making resulted from the realisation by Darren Walker, the Foundation’s CEO, that only 5% of their sizable $12 billion endowment was being used to achieve their philanthropic aims and the balance of the endowment was tied up in investments (stocks, property and bonds) that bore little relationship to their work (Paynter, 2017; Walker, 2017). Apart from this mission misalignment, in downward economic cycles, many foundations experienced the blow of being tied to equity markets, with market crashes contributing to sudden losses in their giving capacity as endowment capital could not perform sufficiently to provide for the necessary philanthropic capital (Ewing & Guliwe, 2005). In South Africa, there are very few foundations that have considered aligning their endowment’s investment strategy with the
foundation’s mission beyond shareholder activism and screening out undesirable assets (Gastrow & Bloch, 2016). In a survey of 21 South African private philanthropic foundations, only one was considering a RI policy and none were considering blended models (Gastrow & Bloch, 2016). Yet in other geographies, there is a small, but growing trend for foundations to consider impact investing and blended models as a way to address both adverse market conditions and use all their capital for their mission (Alijani & Karyotis, 2018; Cooch et al., 2007; Jeffery &
Jenkins, 2013; Roundy et al., 2017).
A notable development over the past two decades is the fact that 22% of B-BBEE deals have resulted in benefit flowing to philanthropic foundations (Theobald et al., 2017). The nature of the capital that has benefited philanthropic foundations from B-BBEE deals is that their
existing foundations) through tranches of shareholdings gifted to them by the corporate that seeks to become empowered. To ensure that the corporate remains empowered, the foundation’s shareholding often cannot be traded for a period of time, normally a restriction of ten years (Theobald et al., 2017). Currently, these decade long investment restrictions are being lifted, therefore philanthropic foundation’s trustees will have increasing power to diversify and make decisions as to the investment mandate of their endowment capital. This presents an opportunity for foundation trustees to make potentially more impactful investment decisions.
The size of the philanthropic foundation’s asset base is relatively small when one considers the size of the pensions savings pool, discussed earlier, in South Africa. As indicated earlier, this fiduciary capital is calculated at between R2.3 to R2.7 trillion and endowment capital (being the asset base of a philanthropic foundation) is conservatively calculated at R45 billion (Association for Savings and Investment in South Africa (ASISA), 2018; Gastrow & Bloch, 2016; Levy, 2015; Moleko & Ikhide, 2017; Theobald et al., 2017).
2.4.3 Conclusion
Civil society in South Africa has played an important role in the Country’s transition to democracy, but also in supporting government’s development and transformation agenda. Although not all efforts are aligned to the NDP, there is strong philosophical approach of community support and taking care of one’s own expressed in ubuntu.
The tax legislation goes some way to align efforts to the NDP by granting tax exempt status to philanthropic organisations that conduct activities listed in the Act. However, the legislation is complex and interpreted conservatively by both SARS commissioners and foundations
themselves. There may be room within the legislation for foundations to be more innovative with their capital whilst still remaining compliant and in so doing, use their capital more effectively toward their impact objectives.
Despite not being able to accurately verify, through a process of triangulating various data sources5, it is possible to estimate the value of foundation’s asset base in South Africa at R45
5 The size of the South African endowed philanthropic foundation asset base has been calculated by the author using
the data set out in the assets listed in the Levy (2015) report on philanthropic foundations and the Theobald et al. (2017) research on foundations that were established as part of B-BBEE empowerment deals. There is no data on
billion. South African foundations’ assets are sizeable having been bolstered by the number of B-BBEE deals that either supplemented existing or created new foundations.
As B-BBEE foundations find themselves with greater control over their endowment’s investment mandate and philanthropic foundations are presented with the opportunity to align their
endowment’s investment strategy to their mission, there may be room to consider how endowment capital as well as philanthropic capital could be used to leverage South Africa’s fiduciary capital for the broader benefit of society.