NEWS: Advancing SA Inc through social infrastructure investment

South African problems can only be achieved by far-sighted social and economic policies, co-mingled with similar investment approaches says Thando Sishuba.

It aims to address long-standing social challenges — such as the lack of affordable housing, student accommodation, education and healthcare facilities. It also helps address critical economic infrastructure challenges such as the creation of large dams and water-reservoirs, functional motorways, and sophisticated energy systems. These act as the engine of most modern, advanced economies.

SA is an ideal case study for the myriad possibilities that exist to address these challenges, given its mix of developed and developing social and economic structures. These social and economic contrasts have resulted in us having one of the highest Gini coefficient scores in the world, a measure representing the income inequality found within a country.

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This is fertile ground for social scientists and economic strategists to unearth workable solutions that could herald a better future for all. The goal of any thriving and forward-looking economic system is to have all-encompassing, unifying solutions that emphasise inclusivity.

That SA sorely requires such a working and incrementally empowering system is beyond debate. In the context of our country this can only be achieved by far-sighted social and economic policies, co-mingled with similar investment approaches. Socially focused investments such as property impact funds can make a real, lasting impact, while being a transformative force for good that sustainably empowers disadvantaged communities, ensuring their inclusion in our overall growth trajectory. 

Such investments are predicated on certain expected outcomes and predetermined goals, such as:

• 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 healthcare 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. Research points to a combined R2.7-trillion investment universe and market opportunity in this emerging area.
• According to the National Housing Finance Corporation, the demand for affordable housing in SA is estimated at about 2.3-million units, with a large backlog in urban areas. Investing in affordable housing would help address these chronic shortages and provide more people with equitable access to quality, safe and secure housing units. It would also help ameliorate 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, with no basic services such as water, electricity and sanitation. The need is particularly acute and pervasive at lower-income/missing-middle levels of our society — the segment of the population that can afford rent levels of R4,000-R9,000 a month — which presents what is estimated to be an investment opportunity of more than R1-trillion.
• Investing in affordable housing and student accommodation can stimulate the local economy by creating direct and indirect jobs in the built environment, thus 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 and acclimatise to the higher standards and demanding requirements of higher-learning institutions, leading to a prevalence of dropouts. The provision of safe, quality, well-located and affordable student accommodation is critical in fostering confidence and ensuring the success of these students, greatly enhancing educational outcomes and assisting in reducing future unemployment, poverty and inequality.
• The inclusion of township/rural retail centres in social investment portfolios is also an important facet. Improving living conditions within township/rural communities that often lack access to basic goods and services typically offered by retail outlets is a worthy goal, including the provision of essential services such as grant payments, and creating permanent jobs in retail supermarkets, banks, pharmacies and restaurants. Retail centres require cleaning and security services, a quick win for in-community job creation and poverty-alleviation strategies aimed at addressing disparities in our society.
• The provision of quality, affordable healthcare facilities in underserved areas could lead to better outcomes as these facilities are often under-resourced and in short supply. The value-add would be immense in improving people’s lives and future economic prospects, while helping avoid higher incidences of illnesses and diseases. According to the World Health Organisation SA has a high burden of disease, especially in underserved and rural areas. A multipronged approach that combines investments across several sectors in a property impact vehicle will mobilise private sector capital towards social investments, directing it to the most-needy, deserving and underserviced areas of the country. The key is targeting individuals occupying the “missing-middle” component of our society, to “lift as we rise” as a nation. The government has demonstrated a strong commitment to improving access to and involvement in these social investments, albeit with limited success in implementing all of them. The private sector can make an enormous difference by getting involved in large-scale projects that generate strong financial — and social — returns. 

This hardhatNEWS article was written for the Business Day by Thando Sishuba the head of SA Property at Sanlam Investments.