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Tackling social issues - South Africa Launch Fund

In many ways, South Africa is a success story. It had a remarkably peaceful transition to democracy after the Apartheid era and has taken advantage of its natural resources and well-developed infrastructure to create a burgeoning economy.

However, growth hasn't been strong enough to deal with all the legacies of Apartheid. Poor education, unemployment, crime and the ravages of HIV/AIDS remain challenging issues.

  • 34% of the population live below the poverty line, living on less than $2 a day (UNAIDS, 2006).
  • The poorest 20% of the population share just 3% of the country's wealth (World Development Indicators, September 2006).
  • 32% of households have no access to piped water (South Africa General Household Survey, 2005).
  • 12% of the population live in 'shanty' style accommodation (South Africa General Household Survey, 2005).
  • Black unemployment is over 40%, compared to white unemployment at around 8%. Amongst black women unemployment is 50% and for black youths under 25 years it is 64% (South Africa Government Labour Force Survey, March 2006).
  • Education is a particular issue because Apartheid prevented access to good education for huge swathes of the black population. Even now, 78% of children do not complete secondary education (South Africa General Household Survey, 2005).
  • South Africa has the fifth highest HIV/AIDS infection rate in the world. 5.5 million adults are living with HIV/AIDS, and 21% of adults (15-49) are infected. The number of AIDS orphans (0-17) stands at 1.2 million (UNAIDS, 2006).
  • Life expectancy is 45 years, compared to 79 in the UK and 77 in the US (World Bank World Development Indicators, September 2006).

President Mbeki has described the huge inequality that exists in South Africa in terms of two economies: a vibrant first world economy and a much larger secondary economy where poverty is still rife.

Enterprise is an important tool in stimulating the economy and driving economic empowerment which in turn will combat unemployment and
social malaise.

Market assessment

Entrepreneurs Unite has closely reviewed the South African market and we have concluded that although capital is available, banks and other investors are extremely risk averse.

Venture capital is growing but remains comparatively small and focused at the higher end of the market. Microfinance is offered by a number of competent organisations. However, a large funding gap exists above the level at which micro financiers operate but below where banks and traditional venture capital companies will engage. The risk profile is high, as is the cost of transacting and technical assistance, which makes this market ideal for patient capital.

Closing the investment gap

The gap above microfinance and below traditional funding from banks and venture capital creates an opportunity for Entrepreneurs Unite to fund and assist two groups:

  • Sustainable social businesses and programmes that are dealing with the legacy of Apartheid and the crisis created by HIV/AIDS
  • Small commercial businesses which banks will not fund (because they lack collateral) and which need assistance with basic business processes. Crucially these will be black-empowered businesses.

We have established a partnership with Enablis in South Africa who will source a wide variety of determined and aspiring entrepreneurs. After investment decisions have been taken, Enablis will also nurture the businesses and manage the investment. This will both maximise the chances of success for each business and ensure that members' funds are effectively deployed.

The average investment size will be £25-50k, but investments from £7.5k to £375k will be considered.