Investing for job creation

South Africa entered the Coronavirus pandemic with significant economic and social challenges, which have since been further intensified. Addressing the triple threat of poverty, inequality and unemployment has never been more urgent.

The civil unrest that took place in July, although shocking and devastating, was not surprising in a country characterised by inequality. The 2020 UNDP Human Development Index ranks South Africa 114[1] out of 189 countries. The HDI measures equality by analysing quality of life metrics against national economic development. A country where the poorest 40%[2] hold a mere 7.2% of the national income while the wealthiest 10% have 50.5% of national income is vulnerable to social instability. The pandemic continues to deepen inequality, especially impacting women, semi-skilled and unskilled workers.

The unemployment rate has continued to climb, reaching 32.6%[3] in the first quarter of 2021. The unemployment rate according to the expanded definition (includes discouraged job-seekers not actively searching for a job) was measured at 43.2% for the same period. The statistics are staggering, and our reality is unsustainable.

Creating decent jobs is part of a multi-faceted approach to addressing inequality. The National Development Plan aimed to create 11 million jobs to reduce the unemployment rate to 14% by 2020 and 6% by 2030. In our current reality, these goals seem unattainable. Any meaningful progress will require the active involvement of the private sector through innovative solutions.

Globally, public-private partnerships have been highly effective in leveraging resources from government and expertise from the private sector to achieve measurable outcomes. The South African Government has several job creation programmes, one being the National Treasury Jobs Fund Programme. The Jobs Fund was established to encourage innovation and support initiatives with potential to generate sustainable employment.

The Ashburton Credit Enhanced Funds were established in partnership with the Jobs Fund to support job creation in South Africa. The Jobs Fund provided a grant in the form of a guarantee facility to provide protection to investors. There was recognition that small growing businesses (SGBs) are key to job creation and require investment to grow and increase employment. Investing in a credit fund focused on SGBs was unfamiliar to investors. The purpose of the guarantee mechanism was to provide a level of comfort and mitigate the perceived risk associated with investing in SGB intermediaries and SGBs themselves.

Ashburton Investments has leveraged the initial grant funding provided by the Jobs Fund to efficiently raise capital from pension fund investments. This capital has been invested in growing businesses and has since created over 17 000 jobs. Most notably, 91% of these jobs are held by women, 98% by previously disadvantaged individuals and 75% are based in the under-serviced provinces of Limpopo, North West and the Eastern Cape.

These investments have generated positive, measurable social impacts without sacrificing financial returns. Impact investing is a natural match for pension funds who are concerned with long term risk adjusted returns and ensuring that members retire into a better future. Since inception in 2014, the funds have produced benchmark beating returns (CPI + 3%) while exceeding our job creation targets.

The partnership between the National Treasury Jobs Fund and Ashburton Investments has been exemplary in demonstrating how fund managers can be a bridge between the private and public sectors. Investing pension funds in job creating businesses contributes to a broader tax base and ultimately a more sustainable future for all South Africans. This creates a positive circular outcome furthering economic inclusion. The scale of our national challenges is intimidating but through collaboration, the private sector can contribute to a more sustainable future.

Ashburton Investments continues to expand its focus on positively driving job creation. For asset owners considering how best to address the scourge of unemployment while earning returns in excess of CPI, the fund provides a unique investment opportunity. We are actively seeking pension fund investors to partner with us in delivering inclusive economic growth (UN SDG 8[4]).

 



[1] UNDO Human Development Report 2020

[2] http://hdr.undp.org/en/countries/profiles/ZAF

[3] http://www.statssa.gov.za/?p=14415

[4] Sustainable Development Goal 8 relates to "decent work and economic growth" and is one of the 17 Sustainable Development Goals which were established by the United Nations General Assembly.