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Allocating capital to investments that grow South Africa’s economy

25 July 2024 Old Mutual Alternative Investments

How impact investing can make a significant contribution to socio-economic development

The formation of South Africa’s new government of national unity bodes well for the consolidation of state reform and pro-growth initiatives, including better performing parastatals, such as Eskom and Transnet, asserts Navin Lala of Old Mutual Alternative Investments. Given that economic growth is essential to spur social development, he believes now is the time to act.

GDP growth may not be the panacea to South Africa’s challenges, however, it remains the most effective way to improve livelihoods. To propel South Africa forward and unlock its growth potential, there are significant investment opportunities to strengthen the critical buildings blocks of South Africa’s economy, while earning a meaningful return.

This is the view of Navin Lala, client director at Old Mutual Alternative Investments (OM AIternatives), who says that over the past few weeks positive sentiment has swung significantly in South Africa’s favour, thanks to the formation of South Africa’s first government of national unity (GNU) since the 1990’s.

“While South Africa is alive with possibilities, and enjoying improving investor confidence, the results of policy reform and pro-growth initiatives will undoubtedly take time for their effects to be felt in the real economy,” says Lala, adding that economic growth requires capital and specialist expertise.

He believes that the private sector, civil society, and the investment community all need to work together towards a common goal to unlock opportunities in the critical areas of SA’s economy.

Alongside more traditional forms of investing, he believes impact investing has immense socio-economic and financial benefits.

More jobs and better infrastructure
The main advantage of impact investing is that it can lead to job creation, business growth and inclusive economic participation. “Impact investments often target industries and businesses that create jobs, particularly in underserved communities,” comments Lala.

Another benefit of impact investing is that it makes a tangible difference in improving infrastructure, the backbone of the economy. “Investments in sustainable infrastructure, such as renewable energy, transportation and affordable housing improve people’s quality of life and their access to economic opportunities,” he says.

OM Alternatives has almost R8 billion in social infrastructure investments, including in schools, education and affordable housing, and approximately R65 billion in economic infrastructure investments.

“South Africa has a lack of infrastructure, and deterioration of existing infrastructure. Investment into new bulk infrastructure capacity will be critical in pushing the economy to its productive capacity.”

Affordable education and housing
As well as supporting business growth, OM AIternatives¬¬¬ is particularly interested in access to affordable education and housing. Two of its funds have this focus, namely the Education Fund (EduFund) and the Housing Impact Fund SA (HIFSA). “Affordable housing is more than just a shelter,” asserts Lala. “It plays a pivotal role in fostering social stability and creating vibrant communities.”

Moreover, having a good education is a powerful instrument for reducing poverty, he says. “It enables better absorption of employment in the economy, helping people break from the poverty cycle. It also leads to a more productive workforce.

“By pursuing an impact-investment strategy, pension funds can earn competitive real returns, while providing funding (debt, mezzanine or equity funding) to businesses and impact projects which may not necessarily be able to access funding through traditional channels,” concludes Lala.

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