Advancing SA Inc. through social infrastructure investment

By Thando Sishuba, head of direct property.

Social infrastructure investment is a key component, and useful lever, in addressing the many social challenges that South Africa faces. Social infrastructure investments aim to address longstanding social challenges, such as the lack of affordable housing, student accommodation, education and health care facilities. They also help to address critical economic infrastructure challenges, by financing the construction of large dams and water-reservoirs, functional motorways, and sophisticated energy systems. These act as the engine of most modern, advanced economies.

South Africa is an ideal case study for the myriad possibilities that exist to address these ever-present challenges, given its mix of developed and developing social and economic structures. As a result of these social and economic contrasts, SA has the highest Gini coefficient score in the world, a measure representing the income inequality within a country. This is fertile ground for both social scientists and economic strategists to unearth workable solutions that could create a better future for all. The major goal of any thriving and forward-looking economic system is to have all-encompassing, unifying solutions that emphasise inclusivity.

There is no question that South Africa sorely requires a working and incrementally empowering system. Such a system can only be achieved through far-sighted social and economic policies, co-mingled with similar investment approaches. Socially-focused investments such as property impact funds can have a real, lasting impact, while being a transformative force for good that sustainably empowers disadvantaged communities and ensures their inclusion in our overall growth trajectory.

Impact investments are predicated on certain expected outcomes and pre-determined goals, such as:

1. Property impact funds focus on social infrastructure investments that aim to generate robust financial returns while making a direct, measurable, positive social and environmental impact. They typically focus on investments in affordable housing, student accommodation, education and health care facilities, while traditional property investments focus on retail, office and industrial properties. These funds often adopt a more value-added management approach. They mainly focus on areas that are relatively underserved and in need of rehabilitation, as opposed to traditional property funds that concentrate on more established locations and higher income populations. Recent research suggests there is a combined R2.7 trillion investment universe and market opportunity in this emerging area.

2. According to the National Housing Finance Corporation (NHFC), the demand for affordable housing in SA is an estimated 2.3 million units, with a significant backlog in urban areas. Investing in affordable housing would help to address these chronic shortages and provide more people with equitable access to quality, safe and secure housing. It would also help to improve living conditions and lessen the need for people in the ‘missing-middle’ segment of the population to resort to the unsafe, squalid conditions often found in many informal settlements, which lack basic services such as water, electricity, and sanitation. The need is particularly acute and pervasive in the lower-income/missing-middle levels of our society – those who can afford rents of R4 000-R9 000 per month – which presents what is estimated to be an investment opportunity of over R1 trillion.

3. Investing in affordable housing and student accommodation can stimulate the local economy by creating direct and indirect jobs in the built environment, boosting economic activity through increased demand and consumption levels. It is well known that students from lower-income families often find it difficult to adjust to the demanding standards of higher-learning institutions, which results in dropouts and general failure. The provision of safe, quality, well-located and affordable student accommodation is critical to foster confidence and ensure these students succeed. It will greatly enhance educational outcomes and help to reduce future unemployment, poverty and inequality.

4. The inclusion of township/rural retail centres in social investment portfolios is also important. Improving living conditions within township/rural communities, which often lack access to basic goods and services typically offered by retail outlets, is a worthy goal. Retail outlets can provide essential services such as grant payments, and create permanent jobs in supermarkets, banks, pharmacies, restaurants, etc. Retail centres require cleaning and security services, a quick win for community job creation and poverty-alleviation strategies aimed at addressing income disparities.

5. Providing better-quality, affordable health care facilities in under-served areas could deliver positive results, as existing facilities are often under-resourced and scarce. The value-add would be immense in improving people’s lives and future economic prospects, while helping to tackle illnesses and diseases. According to the World Health Organisation, South Africa carries a high burden of disease, especially in under-served and rural areas. A multi-pronged approach that combines investments across several sectors in a property impact vehicle will mobilise private sector capital into social investments, directing it to the most needy, deserving and under-serviced areas of the country. The key is targeting individuals occupying the ‘missing-middle’ component of society. The government has demonstrated a strong commitment to improving access to these social investments, as it has had limited success in implementing all of them. The private sector can make a massive difference by getting involved in large-scale projects that generate strong financial – and social – returns.