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Draft Green Paper for the Social Economy – Version: May 2019

DraftGreen Paper on the Social Economy

7 May 2019

Economic Development Department


FOREWORD

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FOREWORD............................................................................................................................2

GLOSSARY.............................................................................................................................4

LIST OF ABBREVIATIONS......................................................................................................7

EXECUTIVE SUMMARY.........................................................................................................8

THE GREEN PAPER...............................................................................................................91. INTRODUCTION............................................................................................................92. DEFINITION................................................................................................................123. SIZE AND ECONOMIC CONTRIBUTION........................................................................174. POLICY FOCUS AREAS AND INTERVENTIONS.............................................................195. MONITORING AND EVALUATION.................................................................................326. CONCLUSION.............................................................................................................34

ACKNOWLEDGEMENTS......................................................................................................35

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GLOSSARY

Cooperatives An autonomous association of persons united voluntarily to meet their common economic, social or cultural needs and aspirations through a jointly owned and democratically controlled enterprise organised and operated on cooperative principles (Cooperatives Act, 2005).

Cooperative Banks Means a cooperative registered as a cooperative bank in terms of this Act whose members—(a) are of similar occupation or profession or who are employed by a common employer or who are employed within the same business district; or(b) have common membership in an association or organisation, including a business, religious, social, cooperative, labour or educational group; or(c) reside within the same defined community or geographical area (Cooperative Banks Act, 2007).

Community-Based Organisation

Informal non-profit organisations, typically based in the townships or rural areas and very close to beneficiary communities (Coetzee, 2018).

Cooperative Financial Institution

Co-operative Financial Institution is the umbrella term for member based deposit taking financial cooperatives, owned and controlled by their members who have a common bond and whose members choose to call themselves either a Credit Union, Savings and Credit Co-operative, Financial Services Co-operative and Financial Co-operative. These terms are often used interchangeably in the sector (Cooperative Banks Development Agency ).

Expanded Public Works Programme

This is a national government Public Employment Programme aimed at drawing a significant number of unemployed people into productive work. The Programme is implemented across four sectors: Infrastructure, Social, Non-State, and Environment and Culture (Department of Public Works, 2019).

Foundation A loose descriptive term for a set up specifically to give philanthropic donations to other organisations and causes. It is not a type of legal form in South Africa (Coetzee, 2018).

Green and White Papers

The process of making a law may start with a discussion document called a Green Paper that is drafted in the Ministry or department dealing with a particular issue. This discussion document gives an idea of the general thinking that informs a particular policy. It is then published for comment, suggestions or ideas. This leads to the

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development of a more refined discussion document, a White Paper, which is a broad statement of government policy. It is drafted by the relevant department or task team and the relevant parliamentary committees may propose amendments or other proposals. After this, it is sent back to the Ministry for further discussion, input and final decisions (RSA Parliament, 2019).

Non-Government Organisation

A non-profit organisation that operates independently of any government, typically one whose purpose is to address a social or political issue (Oxford Dictionary).

Non-Profit Company One of the legal forms that can be selected by non-profit organisations in South Africa. Its founding document is a Memorandum of Incorporation (MOI) and it is governed by a Board of Directors. It is incorporated under the Companies Act and registered with the Companies and Intellectual Properties Commission (CIPC). It is possible to have a NPC either with members or without members (Companies Act, 2008).

Non-Profit Organisation

A trust, company or other association of persons - (a) established for a public purpose; and (b) the income and property of which are not distributable to its members or office-bearers except as reasonable compensation for services rendered (Non-Profit Organisations Act, 1997).

Non-Profit Trust or Charitable Trust

A trust can be established for private benefit or for a charitable purpose. ‘Trust’ means the arrangement through which the ownership in property of one person is by virtue of a trust instrument made over or bequeathed- (a) to another person, the trustee, in whole or in part, to be administered or disposed of according to the provisions of the trust instrument for the benefit of the person or class of persons designated in the trust instrument or for the achievement of the object stated in the trust instrument; or (b) to the beneficiaries designated in the trust instrument, which property is placed under the control of another person, the trustee, to be administered or disposed of according to the provisions of the trust instrument for the benefit of the person or class of persons designated in the trust instrument or for the achievement of the object stated in the trust instrument (Trust Property Control Act, 1988).

Philanthropy An organisation distributing or supported by funds set aside for humanitarian purposes (Merriam-Webster, 2019).

Public Benefit Organisation

An accreditation provided by the South African Revenue Services to qualifying non-profit organisations. Defined in S30 of the Income Tax Act. It enables non-profit organisations to derive various tax benefits. (Income Tax Act, 1962)

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Public Employment Programmes

Interventions adopted across the world in various countries aimed at addressing economic and social challenges. Devereux (2002) indicated that public works programmes are intended to alleviate poverty through providing work opportunities to economically active people who are either unemployed or underemployed (Department of Public Works, 2019).

Social Enterprise A social business or business venture that exists to address a social or environmental problem, earns a significant proportion of its income through the sale of goods and services, and uses its profits to fulfill its purpose (SE Green Paper, 2019).

Stokvels Voluntary groups of natural persons [members] bound by a common cause who pool financial resources for the benefit of the group. (National Association of Stokvels of SA, NASASA.co.za)

Voluntary association

A legal form that can be selected by non-profit organisations in South Africa. Its founding document is a Constitution. No registration is required. It is "easiest" legal form to establish in South Africa but is suitable only for membership-based, democratic structures. Governance is provided by a committee, elected by members.(Coetzee, 2018)

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LIST OF ABBREVIATIONS

ABBREVIATION FULL NAMEAI Artificial Intelligence

CBO Community-Based Organisation

CIPC Companies and Intellectual Properties Commission

COGTA Department of Cooperative Governance and Traditional Affairs

DBSA Development Bank of Southern Africa

DEA Department of Environmental Affairs

DFI Development Finance Institutions

DoL Department of Labour

DPW Department of Public Works

DSBD Department of Small Business Development

DSD Department of Social Development

DST Department of Science and Technology

DTI Department of Trade and Industry

EDD Economic Development Department

EPWP Expanded Public Works Programmes

IGAC Inter-Governmental Advisory Committee

IOT Internet of Things

KPAs Key Performance Areas

MIT National Union of Mineworkers’ Mineworkers Investment Trust

NARYSEC National Rural Youth Service Corps

NGO Non-Government Organisation

NPC Non-Profit Company

NPO Non-Profit Organisation

NT National Treasury

PBO Public Benefit Organisation

POPCRU Police and Prisons Civil Rights Union

QLFS Quarterly Labour Force Survey

SACTWU Southern African Clothing and Textile Workers Union

SARS South African Revenue Service

SE Social Economy

SEOs Social Economy Organisations

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VA Voluntary association

EXECUTIVE SUMMARY

1 The term ‘Social Economy’ refers to a range of organisations and economic activities in which social and environmental benefit rather than individual benefit is intentionally prioritised. The South African government has recognised the Social Economy as an important economic sector (New Growth Path, 2011).

2 This Green Paper is the result of consultations undertaken on a Draft Green Paper. Following consideration by the Minister of Economic Development, and approval by Cabinet, this Green Paper will form the basis of a national public consultation process, leading to a White Paper. The White Paper will be an integrating policy document that aims to support the growth and sustainability of the Social Economy Sector in South Africa.

3 The structure of the Green Paper is as follows:

3.1 Introduction outlines the context for the development of a White Paper.

3.2 Definition provides the definitional approach that will be proposed in the White Paper, with the reasoning for the approach taken. A spectrum definition is preferred to a narrow definition.

3.3 Size and economic contribution outlines what the Social Economy currently contributes to the national economy. Preliminary indications suggest 3% of national jobs are in the Social Economy. The main observation here is that, because there is no single definition of the Social Economy, and government data is not organised to fully capture the Social Economy ontology in the South African context, there can only be an estimate at this point. A key recommendation of this paper is therefore the need for further work to be done to identify and, or develop, key performance indicators that are specifically tailored to measure the Social Economy.

3.4 Policy and Intervention Recommendations will outline the policy focus areas proposed for the White Paper, along with interventions recommended for each policy focus area. The Policy Focus Areas identified are:

Legal and Regulatory Environment

Finance Mechanisms

Access to markets

New Economies

3.5 Finally, a Monitoring and Evaluation Framework is proposed.

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THE GREEN PAPER

1. INTRODUCTION

4 The value of communal efforts in creating support and resilience is well documented (Defourny, 2009). Whilst Social Economy activities have been around in some form or other for as long as societies have been around, and whilst the term itself is also not new, it has gained prominence in recent years for a number of reasons (Utting, 2017).

5 There is an ongoing re-evaluation of the roles of state, market and society in delivering prosperity in an inclusive and sustainable way. The neo-liberal market-led model, which has guided economic policy since the 1980’s, has achieved many things: it has reduced poverty and raised living standards in many parts of the world, has generated large-scale innovation which has enhanced productivity, and has reduced inequality between countries to a significant degree.

6 However, it is increasingly clear that it has failed and continues to fail in sustainability and inclusivity terms. The relentless ‘growth at all costs’ focus has jeopardised the ecological base which underpins all human activity, and has generated large amounts of public and private debt which constrains future prospects. Furthermore, since the global financial crisis, growth itself has also faltered, a trend due at least in part to the inhibiting effects of an insufficient focus on sustainability and inclusivity.

7 The Social Economy is an existing sector in South Africa. Stokvels, societies, cooperatives, non-profit organisations and various other forms of activities are generally viewed as part of the Social Economy. The Social Economy is viewed as a viable alternative to the “standard” market economy (Stiglitz, 2018). The South African government has recognised the need to facilitate the growth and development of this sector of the economy (New Growth Path, 2011).

1.1Why do we need a Social Economy policy?

8 A policy is a statement of intent. It gives the position of government with regard to a significant country phenomenon and the approach government intends to take in tackling that phenomenon. Policy is articulated through a policy document – a Green Paper being a draft version, and a White Paper being the final policy

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document. Legislation, regulations, frameworks, programmes may follow a White Paper together with implementation plans.

9 South Africa has a number of public and private sector policies, frameworks and interventions that directly and indirectly impact the Social Economy. Because these have been developed without an overarching integrating policy position on the Social Economy specifically, they tend to overlap, duplicate and focus on specifics. A White Paper on the Social Economy is intended to bring policy coherence with the aim of growing this existing sector in a way that can be supported and sustained without dependence on government.

1.2 Motivation for a Social Economy policy

10 The aim of this Green Paper is to create a coherent policy that allows for a common national understanding of the Social Economy, what it can contribute to economic growth, reducing poverty and inequality, sustainability and social upliftment, and what government intends to do to facilitate that contribution. This will be an integrating policy. That the Social Economy matters, is the point of departure. Three guiding questions can be identified:

What does the Social Economy currently do for the country?

Why does it need the state to help it do this?

What can the state do to enable the Social Economy?

11 This Green Paper supports the view that the Social Economy can contribute meaningfully to addressing the following challenges South Africa faces: Poverty and inequality

High levels of unemployment, especially amongst young people

Weak ‘economic inclusion’

Social marginalisation

Climate vulnerability

Low Innovation

Uncoordinated social capital

State-dependence

Sluggish local development

Low numbers of small enterprises

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12 Government intervention can help to create a common understanding of the Social Economy, which would then allow for the sector to get tailored support that will help it grow. Without definition, coherence and support, it is difficult, for instance to motivate for changes in finance mechanisms that recognise the environment that a Social Economy entity functions within. Targeted government interventions, based on a coherent policy position, will help identify and target specific points to unlock support.

1.3 Aim of the Social Economy policy White Paper

13 The aim of the White Paper will be to present a coherent policy framework that enables the sustainable growth of the Social Economy sector in South Africa.

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Framework Laws on Social EconomyMany countries have embarked on designing a framework laws on the Social Economy. This is a process, which has some similarities to producing a policy such as in the case of a Green-White paper process, by creating an enabling environment and granting formal recognition to the distinct identity of the Social Economy. These processes also have a clear impact on awareness raising, increasing reputation, improving advocacy capabilities and the sustainability of policies at intra and intergovernmental levels.

Since the first example of Honduras (1997), followed by Colombia (1998) several years passed until Spain (2011) initiated a very fertile period followed by a frantic legal activity: Greece (2011), Mexico (2012), Ecuador (2012), Portugal (2013), France (2014) and Romania (2015). The most relevant sub-national example is Quebec (2013). Korea (2007) initiated a specific Law on a new Social Economy company (Social Enterprise) followed by a general strategy involving several ministries and municipalities. It also included the reform of the Cooperative Law. Besides those it is worth mentioning one country that has included Social Economy in its Constitution: Ecuador (2008).


2. DEFINITION

14 There is no common definition for the Social Economy, locally or internationally. Key local and international definitions, descriptions and characteristics are set out below.

15 The New Growth Path defines the Social Economy in the following way:

“The Social Economy includes myriad not-for-profit institutions that provide goods and services, including cooperatives, non-governmental organisations (NGOs) and stokvels.” (New Growth Path, 2011)

16 The International Labour Organisation states:

“[A] concept designating enterprises and organizations, in particular cooperatives, mutual benefit societies, associations, foundations and social enterprises, which have the specific feature of producing goods, services and knowledge while pursuing both economic and social aims and fostering solidarity.” (ILO, 2009)

17 At the National Social Economy Draft Green Paper Consultation Conference held at the IDC in February 2019, the following definition was proposed:

“The Social Economy is people-centred and drives economic activities that foster solidarity, social inclusion and cohesion as well as being driven by impactful social, community and environmental missions.”

18 These different definitions and lists of descriptions have resulted in an environment where there is no definitive and all-inclusive list of what the Social Economy is.

2.1 Policy Position

19 Different organisations participate in the Social Economy in different ways. Some organisations have programmes they implement even though those organisations are not themselves of the Social Economy such as Corporate Social Investment Initiatives and Public Employment Programmes such as the Expanded Public Works Programme. Some organisations register a separate associated organisation, which fulfills a social good function, alongside their primary work. Examples here would include Foundations and initiatives such as the Zenzeleni Clothing Factory started by the Southern African Clothing and

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Textile Workers Union (SACTWU); the Safer South Africa Foundation supported by the Police and Prisons Civil Rights Union (POPCRU); the POPCRU Education Trust and the National Union of Mineworkers’ Mineworkers Investment Trust (MIT).

20 Then there are organisations that are formed with distinct and deliberate social goals such as co-operatives, non-profits and social enterprises.

21 There is therefore an organisational level and a programme level in terms of who and what forms part of the Social Economy. This Green Paper recognises both but plots them separately on a spectrum.

22 Recognising the short-term nature of the programme-focused approach, the Green Paper’s goal is to encourage sustainability, recognising that in a policy environment, we can best do this by enabling the eco-system for organisations to achieve their specific social and environmental goals.

23 A spectrum definition is therefore proposed. Anchoring opposite sides of the spectrum is the organisational type: not-for-profit companies (which are often registered as non-profit organisations) and for-profit-companies, or traditional profit-driven businesses. There are two primary distinctions between the two: their purpose and how they generate funding.

24 Non-profit companies are set up to achieve a declared social or environmental mission. They deliver primarily social value. For-profit companies exist to deliver goods and services, against a mission that is determined by self-interest and that can include a social or environmental mission, whilst returning a profit to shareholders or owners. Their value is measured in economic returns. The strength of the for-profit model is that income is earned, and there is no dependency on donors, which is a recognised limitation in the not-for-profit model (Wyngaard, 2013; Krige, 2015).

25 Recognising the strengths of the two legal forms, the Social Economy Policy is designed to bring sustainability to organisations that have high social and environmental impact. We have therefore introduced a vertical axis, which allows the plotting of organisations against the strength of their social mission. This allows us to plot socially focused programmes (e.g. EPWP) alongside organisations set up to deliver on their social and environmental mandate.

26 The part of the definitional spectrum that this policy would cover is from non-profit up to hybrid non-profit company / hybrid for-profit company with a primary social mission. We have taken the position of maintaining this hybrid model as a conceptual construct that can be incentivised, rather than regulated.

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2.2 Definitional Spectrum of Social Economy

27. The proposed definitional spectrum is drawn in Figure 1. Here organisations are plotted against their social value on a continuum that runs from for profit companies which are income generating, to not for profit companies which are dependent on grants and giving.

Figure 1: Spectrum definition of the social economy as implied in the Social Economy Policy

28. We include programmatic interventions such as EPWP, and interventions that promote Access to Markets, financing mechanisms for the social economy towards the base of the spectrum as shown in Figure 2:

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29. Finally, the intention of the policy is to strengthen the eco-system for social and economically focused organisations with a long term vision to enable profitability alongside high-social benefit. This goal is relevant across the spectrum as shown in Figure 3:

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Figure 2: Spectrum definition of the social economy, considering programmatic interventions


Figure 3: Policy goal: Sustainable high social benefit organisations across the spectrum


3. SIZE AND ECONOMIC CONTRIBUTION

30. There is no consistent measure of the size and impact of the Social Economy in a South African context. The Green Paper starts by relying on quantitative indicators (number of jobs; contribution to GDP), with the note that a more rounded measure has to be developed.

31. A measure of the size of the Social Economy cannot be quantitative only, though. Much of what the Social Economy ‘produces’ is produced not-for-profit, and a substantial part of this production is not monetised, but may have a substantial non-monetised value. To complicate the matter further, the Social Economy’s contribution to GDP is conceptually challenging given the current national accounts building blocks.1 Social Economy entities and activities run across conventional national accounts and labour force instruments.

3.1 Indicative Size of the Social Economy

32. An estimate is that the Social Economy accounts for approximately 500,000 jobs; about 3% of total jobs - given the labour intensity of the sector, its contribution to GDP is likely to be slightly less, in the absence of the adjustments mentioned below.

33. Our focus is on setting a foundation for regular reporting mechanisms, integrated into the country-level data collection processes, that allows us to “colour in” our picture of the Social Economy.

3.2 Social Economy Measurement Scale

34. A country-level Social Economy Measurement Scale, which gives a ‘Beyond GDP’ economic contribution, is likely to be required, including both quantitative and qualitative indicators.

1 National accounts are used to measure the economic activity of a country based on an agreed upon framework and set of accounting rules. National accounts are specifically intended to present specific economic data in such a way as to facilitate analysis and even policy-making. The Satellite National Accounts recommends the calculation of GDP and value-added by institutional sector (namely type of ownership) rather than by economic activity. Institutional sectors are defined on the basis of their principal function. The Non Profit Institutions serving households (NPISH) sector includes legal social entities that provide goods and services to their members or to households without price or at prices that are not economically significant. See StatsSA,(2017), “National Accounts: Statistics for the non-profit sector of South Africa, 2010-2014.


35. Contribution to GDP and number of jobs created should be kept as the quantitative indicators because they give a ready comparison to other sectors of the economy; but these quantitative indicators, insofar as they relate to the Social Economy, require more work. A clear set of sub-indicators that make up the final figures has to be identified.

36. Given the definitional spectrum of Social Economy, it is proposed that the following organisational sub-sectors be included:

● Non-profit Companies

o Organisations registered as non-profitso Mutual Benefit Societies such as Burial Societieso Trusts such as churcheso Foundations such as philanthropic entitieso Community Investment Vehicles such as Stokvels, Trade Union entities

● Cooperatives

o Cooperatives o Cooperative Finance Institutions o Credit Unions

● Hybrid non-profit and for-profits

● Social enterprises (although not a recognised legal structure in South

Africa, there are numerous organisations that self-identify as social enterprises)

● For-profit companies with a social mission

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4. POLICY FOCUS AREAS AND INTERVENTIONS

37. This section will outline the policy focus areas, along with interventions recommended for each policy focus area. The Policy Focus Areas that have been identified are:

Legal and Regulatory Environment Finance Mechanisms Access to Markets New Economies

38. The intention is to focus on policy areas that allow for the achievement of the proposed overall purpose of the Green Paper (to support the sustainable growth of the Social Economy sector), and similarly to identify interventions that move the needle in that direction. The policy focus areas and interventions have to work towards promoting policy cohesion, while recognising that because a spectrum definition is taken there will be different needs along that spectrum.

4.1 Legal and Regulatory Environment

4.1.1 Background39. South Africa already has legislation, regulatory frameworks, policies and

interventions that directly and indirectly impact the Social Economy. These are focused on specific areas within the Social Economy. An initial mapping exercise of relevant legislation, policies and programmes under the purview of various government departments, is captured in the table below.

Table 1 Legal and regulatory environment:

Legislation Responsible Institution FocusIncome Tax Act South African Revenue Service Regulate tax affairs -

Sections 12J, 18A, 9th Schedule

Companies Act Companies and Intellectual Property Commission: Department of Trade & Industry

Regulate companies - Section 8 Non-profit companies, Schedule 1

Cooperatives Act Department of Small Business Development

Cooperatives

Cooperative Banks Act National Treasury Cooperative Finance Institutions and Cooperative Banks

Broad-Based Black Economic Empowerment

Department of Trade and Industry

Measurement of Broad-Based BEE

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Act and Codes of Good PracticeNon-profit Organisations Act

Department of Social Development

Facilitate functioning of NPOs

Policy Framework Responsible Institution FocusNational Development Plan: Vision 2030

Presidency Consolidate national development view

The New Growth Path Economic Development Department

Economic Growth Drivers

Industrial Policy Action Plan (IPAP)

Department of Trade and Industry

National Industrial strategy

Innovation Towards a Knowledge Based Economy (2008-2018)

Department of Science and Technology

Drive South Africa towards a knowledge economy

Codes of Good Practice for South African Non-profit Organisations


Issued in terms of the NPO Act, guideline on operating effective NPOs

White Paper on Science, Technology and Innovation

Department of Science and Technology

Science, Technology and Innovation sector long-term policy approach of government

Interventions Responsible Institution FocusExpanded Public Works Programme

Department of Public Works Sectoral support: Non-State Sector: Non-profit Organisations, Community Works ProgrammeEnvironment and Culture Sector: Working for Water, Working on FireSocial Sector

Cooperative Incentive Scheme

Department of Small Business Development

Cooperatives

Register of Non-profit Organisations


Non-profit Organisations

The Green Fund Department of Environmental Affairs and the Development Bank of Southern Africa (DBSA)

Green Enterprises

Community Enterprise Support Programme

Independent Development Trust (IDT) – Department of Public Works

Support for community entities with a social purpose

The Social Enterprise Fund Industrial Development Corporation (IDC)

Social Enterprises support

National Rural Youth Service Corps Programme

Department of Rural Development and Land Reform

Rural Youth

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4.1.2 Policy Intent40. A purpose of this Social Economy Green Paper is to create a coherent national

view of the Social Economy, with the eventual goal of creating a regulatory environment that supports the sustainable growth of the Social Economy. This policy framework is therefore not intended to add to the intervention-focused and sectoral measures that already exist; but rather to complement and connect them, by creating a common understanding.

41. The logic of taking an integrating, coherent stance in this Green Paper is because South Africa has on the one hand a range of constraints that impede the growth, sustainability, and impact of Social Economy organisations, and on the other, a range of public measures that shape it already. These measures create opportunities, may block opportunities (as in red tape), and may create risks (unintended consequences) and alter incentives.

42. Effective enablement is not necessarily a matter of heavy-handed intervention, nor is it necessarily a matter of large additional resource allocations. Care needs to be taken to steer a middle ground between the need for effective support alongside the need for the sector to retain its independence and resilience.

43. The current legislative and regulatory framework for organisations that are defined in this Green Paper as participants in the Social Economy is largely adequate and not unnecessarily burdensome. The Companies Act, the Non-profit Organisations Act and the Cooperatives Act provide sufficient definitional clarity and effective legal structures for organisations operating in the Social Economy. The Income Tax Act provides incentive structures for such organisations.

44. A sector of the Social Economy that remains undefined because of both its new and hybrid nature, are social enterprises. The Industrial Development Corporation’s Social Enterprise Fund outlines the following characteristics of social enterprises:

● Places social and environmental issues and job creation of social value as

its primary focus;

● Uses business principles to create, build and maintain social value;

● Has a long-term strategy towards a degree of self-sustainability (with at

least 50 percent of operating costs recovered from revenue generated through its own trading); and

● Re-invests a majority of its revenue back into the business to ensure a

larger social impact.

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45. One thing that is clear is that the Social Enterprise sub-sector of the Social Economy requires a definition (National Consultation, 2019), as it is commonly used as a colloquial term for organisations (for-profits and non-profits) with a social purpose. This presents a starting point of a possible definition. This definition should then be linked to tax incentives to encourage for-profit companies to incorporate meaningful social purposes.

4.1.3 Proposed Policy Interventions46. To strengthen the legal and regulatory environment for the Social Economy we

propose the following:

4.1.3.1 Insertion of the Social Economy into key legislation47. Insert a definition of a “social enterprise” in the Income Tax Act as a label for

such organisations and not as a new legal form. A proposed definition would be:

“A social business or business venture that exists to address a social or environmental problem, earns a significant proportion of its income through the sale of goods and services, and uses its profits to fulfill its purpose.”

48. Conduct a review of potential tax incentives for social enterprises, with a view to amending the Income Tax Act, based on the definitional spectrum outlined. We will incentivise investment into the Social Economy through appropriate well-defined tax structures.

4.1.3.1 Developing common indicators

49. Formulate and integrate Social Economy indicators into national frameworks and key governance reporting standards. In particular three are identified:

The National Development Plan – as a national document, King Reports on Corporate Governance – as a guide for all organisations along

the spectrum, NPO Codes of Governance – as a guide for non-profit organisations.

50. Practice Note with National Treasury on outcomes based reporting.

51. We believe that these practical amendments will bring substantial change to the sector, responding to the need to legitimise and incentivise social enterprises, without creating another legislative layer; whilst also bringing consistency and transparency in reporting standards. Our attempt to integrate the Social Economy into the King IV Codes is a commitment to connecting organisations across the financial and social pillars of the spectrum, whilst holding all organisations, irrespective of their make-up, to the high standards set by the King commission.

52.

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4.2 Finance Mechanisms

4.2.1 Background53. Access to finance is repeatedly cited as an area of constraint for the Social

Economy. This is articulated in a lack of access to: 1) finance; and 2) to types of finance, that meet the variety of needs that exist across the organisational spectrum.

54. Our focus on finance and access to finance has been influenced by:55. Ensuring that financial access is inclusive and open to the variety of

organisations that exist from leveraging cooperative banking as well as Credit Unions, to encouraging funding for hybrid organisations, such as social enterprises.

56. Accounting for the effectiveness of public and private investment in the Social Economy. This links to the need for common indicators, discussed above, to improve measurement and reporting.

57. Supporting Social Economy organisations to accurately report financial and impact performance data.

58. Ensuring that the use of finance as a policy intervention where necessary, is always well considered, incisive and clear about its intended impact.

59. Ensuring capital is available at a local level.

4.2.2 Policy Intent60. Government should facilitate the development of finance mechanisms that allow

Social Economy entities to access finance that is appropriate to their needs and constraints, while promoting transparent reporting both by lenders and lendees.

4.2.3 Proposed Policy Interventions

4.2.3.1 Patient Venture Capital61. High impact organisations require longer and more flexible investment terms to

ensure they survive and grow. We will promote patient venture capital and venture debt with its longer lead times on returns and measurement of social and environmental returns. We will establish mechanisms that increase supply of patient, flexible capital for early stage and growth enterprises.

4.2.3.2 Promotion of Impact Reporting62. Impact reporting is a foundational component of the eco-system, which enables

the public and private sectors to compare and improve allocation of resources. We will strengthen impact measurement and reporting by improving standardisation of reporting on financial and social impact performance of public and private investments. We will promote and support transparency and

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coalescence around impact measurement and management in the private sector. We will promote the Social Economy in the market by publicising the social and environmental impact that they have created.

4.2.3.3 Enhance Government Outcomes 63. The government contributes a significant amount of funding into the Social

Economy and consistently creates efficiencies in order to enhance government outcomes. This can be done by contracting for results and to this end we will develop a practice note with National Treasury to help to guide national outcomes-based public investment; in the form of performance-based contracts, impact bonds and outcomes funds.

64. We will promote the aggregation of substantial, sustained government funding and catalytic, risk tolerant, philanthropic funding to address intractable social and environmental problems.

65. We will also identify and promote the scaling of existing successful government and Development Finance Institutions (DFI) investments into the Social Economy and create efficiencies in accessing finance from government and DFI’s.

4.2.3.4 Unlock Private Sector Early-Stage Funding67. Early stage private sector funding is a key component in the funding ecosystem.

This can be unlocked by facilitating public-private sector dialogue engagements, specifically with the banking sector, to open up Appropriate-to-Context funding mechanisms. In particular early stage asset-backed lending, and quick access to small funds, are potential mechanisms to support organisations across the spectrum, to survive and grow.

68. We propose leveraging existing government and DFI funding to attract private sector investment into the Social Economy, in this way minimising risk and building blended models. We will also promote collaborative funding models between different types of investors within the financial sector.

69. We will support broad based ownership models such as cooperative banks and stokvels as a way to improve access to personal and business finance and distribute access to equity in the financial system to all members of society. These models build on the African ethos and existing organic community practices meant to enhance household living standards and increase the share of returns to contributors. The returns are monetary surpluses after the costs of producing services and products by members.

70. Lack of access to appropriate finance is a key constraint to the growth of organisations operating in the Social Economy. Government alone cannot fund this economy but can put policies in place that enhance our own use of

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resources, leverage private sector resources and stimulate the private market to support the growth of high impact enterprises. In this way we aim to increase the supply of investment across the Social Economy spectrum, in a manner that benefits all of society.

4.3 Access to markets

4.3.1 Background71. We recognise the role the Social Economy plays as both a bridge between for-

profit and not for-profit organisations, and encouraging more organisations to be socially/ environmentally focused. Feedback from our consultation sessions shows the importance of opening markets to organisations and companies in the Social Economy, which feel excluded from supply chains in public and private procurement. Our focus is therefore on enabling direct access to markets in both the private and public sectors whilst encouraging cross-sectoral collaboration.

72. We also recognise that changes in production and consumption habits are at the heart of calls for a green economy. We believe that introducing principles of environmental and social sustainability to value chains will have profound long-term effects in building an inclusive economy.

73. There are various ways in which markets can be accessed; through collaborations and partnerships, service offerings into an existing value chain, competitive service offerings and value creation.

74. 4.3.2 Policy Intent75. Specific focus should be placed on:

Connecting organisations and companies operating in the Social Economy spectrum into existing value chains;

Capacity building to heighten participation across value chains; Collaboration with other sectors, to strengthen competitiveness, access to

opportunity, and a foundational shift from principles of competition to principles of co-operation and collaboration.

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Jobs FundAshburton Investments was awarded the first portfolio guarantee from the South African Government In 2015 under the Jobs Fund Program. Over R700 million was leveraged from pension fund investors and created over 9000 sustainable jobs resulting in a larger follow up guarantee (Jobs Fund, 2017).



4.3.3.1 Value Chains76. An economic value chain is understood to be a series of processes that

progressively transform raw material inputs into products or services that are ultimately purchased by consumers in the market. It describes the activities required to bring a product or service from conception, through phases of production and delivery to consumers, to the final phase of disposal and recycling after use. Within this chain, some stages will have barriers to entry.

77. Value chains differ, both within and between sectors; as do local contexts. Each value chain has particular characteristics, whose distinctiveness and relevance can only be understood through value chain research and analysis of the broader issues, which are involved.

78. We propose looking at ways of practically integrating Social Economy entities into existing value-chains, through the identification of gaps in value chains and new value chains; communication of such opportunities to the public; and capacity building support mechanisms, such as training or seed funding for Social Economy entities interested in providing the required service. The work that the Competition Authorities do in breaking up monopolies and cartels would provide a good practical starting point for the identification of gaps.

4.3.3.2 Social Economy Mark: “Buy Social”

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Ecuador Social Procurement System Ecuador has arguably the friendliest legal frameworks towards SE entities, based on its inclusion as a preferential sector in the Constitution. This has facilitated some strong positive discrimination measures in the different laws. The Ecuador Social Procurement system is based on four key elements:

● Inclusion of a preference in the law regulating public purchasing. This preference can be enacted through different mechanisms such as proportional preference margins over the offers of other suppliers, market reserve and preferential sub-contracting.

● Inclusion of Social Economy entities in the electronic catalogues for Public Purchasing and by means of Inclusive Fairs.

● Providing the opportunity to SMMEs (not only SE) to improve their proposals so that they can match or surpass the bid of other suppliers, after bids have been evaluated.

● Setting up a guarantee fund in collaboration with the Social Economy financial sector through a specialised fund.

According to some data these different measures resulted in an increase in sales to the public sector of 608% in the period between 2010 and 2016. The total amount of public purchases to SE entities in 2018 was 301,4 USD millions, 4,3% of the total amount of public procurement in that year and up from 2,7% in 2015. It is also important to mention that this


79. Introduce a Social Economy mark; “Buy Social” for Social Economy produced products and services. Our goal would be to work towards creating a sustainable economy that is anchored in encouraging production and consumption in Social Economy organisations, which have as their purpose social benefit. It is envisaged that the perceived value of purchasing Social Economy products will be increased. We commit to exploring opportunities to collaborate with BrandSA in order to align with the Buy South Africa effort.

4.3.3.3 Intermediary support80. In the long-term, work should be done to create sustainable, competitive value-

chains that comprise of entities in the Social Economy. One mechanism that should be prioritised is the strengthening of intermediary organisations that offer support to the Social Economy. Competition and collaboration among Social Economy organisations and companies is encouraged, in order to support continued improvements. More thorough work is needed to determine whether revision of public procurement processes is required in order to stimulate the Social Economy sector.

4.3.3.4 Capacity Building81. Social Economy entities may not always have the required capacity to deliver,

especially considering the complexity and scope of their work, when considered across the spectrum. Our consultations highlight a need for capacity building initiatives that are varied, practical and fit-for-purpose. These include: Management and Leadership training programmes accessible and relevant to

the Social Economy; Document local models that have worked, and not worked, in different local

settings, historically and currently; Practice-led Approaches, such as mentoring and twinning. Long-term, the

goal should be to create formalised accreditation or certification programmes for the Social Economy sector in partnership with institutions of higher education and training;

82. Use public and private incubators and accelerators, such as those managed by the Small Business Development Agency as well as private and international

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greenAble, South Africa

Co-funded by the Government of Flanders and supported by the Industrial Development Corporation, greenAble is a registered non-profit company created in 2012 by for-profit company GreenOffice. greenAble diverts printer cartridges from landfills and recycles them. It reports that it has diverted over 800 000 kilograms of recyclable plastic and metals from landfills, whilst providing people with disabilities access to learnerships and work opportunities.


donor entities such as 22 on Sloane (Johannesburg), Oribi Village (Cape Town) and Impact Hub (Johannesburg), to support potentially high impact business models.

4.3.3.5 Collaboration with Other sectors83. The Social Economy is recognised for its collaborative approach (Santos, 2012).

We believe that strengthening collaboration between the Social Economy and for-profit entities will be beneficial across the spectrum. We therefore propose shared approaches that can help lessen isolation of entrepreneurs, share knowledge, and encourage partnerships that leverage the benefits of both organisations.

84. Responding to the goal to build sustainable organisations will require: Support for scaling models for Social Economy entities, for example,

franchising models where a number of entities operate under successfully proven working principles.

Work together to learn from each other. This has the advantage of using practical experience as it happens both for learning and delivery. Social Economy organisations operate in highly complex ecosystems and we recognise that there is much for-profit organisations can learn from their experience, and vice versa.

Promote and support the establishment of Communities of Practice - a coming together of entities or practitioners with similar interests, challenges or approaches to share lessons and experience. This can be encouraged through Imbizos in specific areas or with a specific combination of invitees. A way of lending legitimacy to these processes would be to invite high interest keynote speakers, such as government Ministers, private sector leaders as well as public entities that can help unblock specific practical problems, such as regulatory registrations.

4.4 New Economies

4.4.1 Background85. The movement from an economy based mainly on manufacturing to an economy

based on service provision and knowledge production, is what is referred to as the ‘New Economy’ (Erber & Harald Hagemann, 2005). Within the New Economy there are different aspects where there are substantial changes to the norm: technology (commonly articulated through the 4th Industrial Revolution); Circular Economy (with close links to the Green Economy), the Sharing Economy (closely linked to Peer-to-Peer e-activity), the Caring Economy (which has been used as a proxy for the Social Economy), the Knowledge Economy and the Blue Economy (also referred to as the Ocean Economy). What they all have in common is that they are an effort to expand beyond the traditional economy. Some aspects, such as the Circular Economy have the distinct characteristic of emphasising renewal

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and re-use, while others are still primarily profit driven, such as the Sharing Economy.

86. The Social Economy has the distinct characteristic of placing people at its centre. People are common to all other economies – new and old. This makes the Social Economy a common denominator, from which it then becomes possible to draw from and influence these different economies. This is ideal for innovation.

87. Social Innovations are new responses to social needs, which create social relationships and form new collaborations. These innovations can be products, services or models addressing unmet needs more effectively (Neef, 2009; Mulgan, 2006). There is an opportunity to encourage the development of innovative solutions that are socially and environmentally responsible.

88. In innovative, fast changing economies, where global competitiveness is at a premium, social entrepreneurship and the Social Economy have been identified as important complements to the work of the state in development. Entities in the Social Economy can get to where the state can’t, may be able to respond more quickly, more flexibly, more locally and may be better able to tap into innovative thinking and the dynamism associated with the private sector. Ideally, the Social Economy is envisaged as taking the best from both private and public sectors and forging a new way of addressing social challenges: from the private sector, efficiency and innovation, from the public, a basic value-driven mandate towards collective wellbeing and the public interest.

89. In some instances, the Social Economy can and does take on work the state could in principle do equally well (for example in delivering primary health or early childhood development services). In other instances, and this is a key issue, there are areas where it is likely to address them better than the state will be able to. This may be due to its proximity to the problem, its speed, its innovative drive and its use of business approaches, which render it more efficient, cost-effective and responsive to social gaps.

90. There are substantial potential benefits to the Social Economy from technological advances. The 4th Industrial Revolution offers opportunities to encourage the development of innovative solutions, disrupt and reform existing economic structures, as well as leverage and demonstrate the value of social and environmental returns. In addition to online platforms, apps, and mobile money, other emerging technologies with potential for transforming the Social Economy include artificial intelligence (AI), blockchain, drones, Internet of Things (IOT), robotics, and 3D printing. These emerging technologies both complement and enable each other, and provide the potential to improve efficiencies, streamline

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processes, and leapfrog traditional methods to impact society across multiple impact themes.

4.4.2 Policy Intent91. Social Economy practitioners should be supported to pilot test, scale, and make

available innovative solutions to social challenges.


4.4.3.1 Promote Innovation for Social Good92. Providing seed-funding, showcasing and pilot testing innovative Social Economy

solutions. Use the existing incubation and innovation hubs to host Ideas Festivals particularly for young people and sustainability and scaling success stories. Create safe spaces for the Social Economy to test innovative products, services, and business models without needing to overcome traditional regulatory hurdles (e.g. licensing). There is a need to create an even playing field for both big and small businesses to develop and test innovative products.

4.4.3.2 e-Social Economy93. One of the best ways to encourage innovation is to pursue a mandate to lesson

red tape, whilst recognising the accountability and legitimacy that good systems bring. We therefore propose using technology in government systems that affect the work of Social Economy entities, lessening red tape through online platforms, encouraging e-access to information, and implementing simplified yet secure e-processes for establishing businesses and reporting.

94. The Green Paper proposes that organisations are deemed registered and legal whilst the administrative process associated with registration is underway.

4.4.3.3 Document lessons the Social Economy presents 95. This holds some promise in helping develop strategies on handling the growing

precariousness of traditional work models. Informal and non-traditional approaches to work that are evident in the Social Economy, could aid quicker adaptation to the new world of work.

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greenAble, South Africa

Co-funded by the Government of Flanders and supported by the Industrial Development Corporation, greenAble is a registered non-profit company created in 2012 by for-profit company GreenOffice. greenAble diverts printer cartridges from landfills and recycles them. It reports that it has diverted over 800 000 kilograms of recyclable plastic and metals from landfills, whilst providing people with disabilities access to learnerships and work opportunities.


4.4.3.4 Integrate the Social Economy into other government plans96. Promote Social Economy principles of inclusiveness and people-centred

interventions as part of the approach and goals within the New Economies, by participating in government teams and platforms that are working on plans for these various New Economies. This will help to legitimise and mainstream the Social Economy. In addition to participating at programme level, work to include Social Economy indicators into South Africa’s commitments to the Sustainable Development Goals.

4.4.3.5 New models97. Social Economy practitioners can explore opportunities created by technology

while keeping the majority of the added value within the local communities because of the social ownership basis of the Social Economy (platform cooperativism). They can use new technologies to build trust and help improve access to economic value chains (blockchain for good), facilitate access to technologies and encourage innovation in excluded communities (Rlabs, Silulo), while also promoting technological literacy (such as Ekurhuleni fablabs).

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Silulo Ulutho TechnologiesSilulo Ulutho Technologies (Silulo) is a Cape Town-based one-stop-shop IT Company working to bridge the digital gap in South Africa’s township and rural population. The company was founded by Luvuyo and Lonwabo Rani, who opened their first store in 2006. What started as a computer sales outfit in the back of Luvuyo’s car has grown to more than 50 stores across the Eastern and Western Cape, each of which combines a training centre with a one-stop internet cafe. Silulo has made use of multiple replication strategies, including social franchising.


5. MONITORING AND EVALUATION

97. This policy document will only be effective if it is implemented well. Monitoring and evaluation of the implementation process is necessary. The focus of the monitoring and evaluation efforts will be on the policy and whether the aim of the Green Paper is being achieved.

5.1 Policy Intent98. The main aim of the Social Economy Green Paper is to present an integrated

approach to the Social Economy, to support the sustainable growth of the sector.

5.2 Monitoring and Evaluation Principles99. Monitoring and evaluation efforts will not be on the many different policies,

frameworks and interventions – but rather on whether the overarching Social Economy Green Paper is achieving its aims. Over time existing policies and the final White Paper should be closely aligned. Data collection and reporting practices should enable better policy coherence

and effectiveness. Monitoring and evaluation of implementation efforts should be transparent. Emphasis must be put on Non-financial Impact Reporting, with Financial

Reporting mentioned as appropriate.

5.3 Policy Measurement Indicators: Key Performance Areas (KPAs)

100. KPA 1: Integration Indicator Question: Does the White Paper mention each relevant national

policy and framework, with their areas of overlap?101. KPA 2: Support growth

Indicator Question: Do the policy interventions implemented because of the White Paper support an increase in the number and/or reach of Social Economy entities?

Indicator Question: Do the interventions support economic inclusion, entrepreneurship, innovation, and environmental resilience?

102. KPA 3: Support sustainability Indicator Question: Do the interventions implemented create a Social

Economy sector that can operate without continued government financial input?

Indicator Question: Do the interventions implemented promote self-organization and collaboration within the sector?

103. These KPAs and Indicator Questions will be the basis for a Monitoring and Evaluation Framework for the final White Paper on the Social Economy.

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5.4 Proposed Policy Interventions

5.4.1 Two National Structures: Inter-Governmental Advisory Committee and a Reference Panel104. As part of the development of the Green and White Papers, the EDD chaired

an Inter-Governmental Advisory Committee (IGAC). Further, a Reference Panel comprising ordinary South Africans with an interest in the Social Economy was put together following advertisements in national newspapers. It is recommended that these structures be maintained in the following manner:

105. IGAC – comprising departments in both the economic and social clusters. This structure will use the Monitoring and Evaluation Framework to monitor implementation of the final White Paper, with the eventual aim of achieving a coherent and integrated policy environment characterised by aligned programme interventions.

106. Reference Panel with a 12-month membership period - with allocated seats for business, labour, government and private interested citizens. The Panel should be of a size that does not make it too cumbersome, but also not too small as to be incapable of accommodating key national stakeholders. This structure could serve as a sounding board on the implementation of the policy, providing experiences from the field and making recommendations.

107. The Reference Panel and the IGAC should meet from time to time – to allow for sharing of experiences from a government perspective and from a lived experience perspective.

5.4.2 Reporting Mechanisms108. Through the IGAC, ensure that the various government departments have the

same Key Performance Indicators, aligned to the final White Paper KPAs, as outlined earlier. This will be to ensure that the policy aims are consistently integrated within government reporting templates.

109. Develop a regular report – initially annual to move to a quarterly report – in which the progress on the implementation of the final White Paper, and the performance of the Social Economy sector is reported on. This should eventually be linked to key indicators in Statistics South Africa reports, such as the Quarterly Labour Force Survey (QLFS).

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6. CONCLUSION

110. The Social Economy is a robust sector of the economy in South Africa. It has a long history and is diverse. The qualities of inclusion, self-organisation and people-focused development are worthy of replication and support. Government has recognised that this sector is important for economic growth. Due to a lack of coherence with regard to how it is viewed, the sector is not adding as much value to the economy as it potentially can.

111. The Green Paper recognises that there are already a number of sectoral policies, frameworks and interventions in place in South Africa – both in the private and public sector. This Green Paper proposes a coherent national policy with regard to the Social Economy. A set of proposed Policy Focus Areas, with recommended policy interventions, are put forward – the aim being to support the sustainable growth of the Social Economy as an economic sector.

112. A Green Paper is intended to initiate discussion and debate, within a structured framework with the clear aim of ending up with a clear policy position. Having been approved, public consultation processes will commence across the country, to get the views and opinions of stakeholders on the Green Paper. A National Consultation Strategy has been developed parallel with this Green Paper. The feedback and input from the national consultation process will lead to a White Paper, with its linked implementation plan.

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ACKNOWLEDGEMENTS

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