Social investors should not forget the welfare sector

Care work is a public good that is largely undervalued in the South African economy. It is essential to protecting vulnerable communities, including abandoned, orphaned and abused children; the frail and aged; people with disabilities; victims of sexual and gender-based violence; and refugees. In South Africa, this work includes both preventative and rehabilitative services.

South Africa has close to 69 000 registered non-profit organisations providing social services, accounting for 40% of all NPOs[1]. The Department of Social Development (as well as other departments) provides subsidies to NPOs to provide social welfare services, as these organisations provide critical welfare services that would ideally be provided by government. By definition, subsidies are partial payments towards a desired outcome and therefore insufficient to meet the needs of the organisation.

NPOs find it almost impossible to escape the reliance on donor-based funding to deliver services that are of the same or higher standard than government. The implication is that DSD assumes and expects NPOs to have the capacity and capability to raise the balance of funds from other sources, such as donor organisations, trusts, foundations and corporations. In November 2017, DSD presented to a parliamentary portfolio committee on social development funding of welfare services and acknowledge, in its own words, the gross underfunding of the welfare services and the funding of the welfare NPO sector.

This model results in a permanent state of uncertainty and risk for NPOs, despite the fact that these organisations service the very people – our society’s most vulnerable members – that are arguably in the greatest need of financial and non-financial stability.

An assessment of the annual financial statements of 24 welfare partners in the Tshikululu network over the past three financial years was undertaken. It revealed that 65% of partners had a surplus in 2015/16, which fell to 52% in both 2016/17 and 2017/18. This reduced further to 43% in 2018/19. Nineteen organisations experienced a deficit at some point in the period. Nine organisations (38% of the sample) had a deficit for at least one of these financial years, while a further 10 organisations reflected a deficit for more than one financial year. In other words, nearly 80% of the sample had at least one deficit during the period under review.

  • Perhaps now, more than ever, it is necessary to explore and experiment with alternative funding mechanisms to complement grant funding. This includes finding alternative income streams through charging for services to the private sector, renting of assets such as offices/equipment and/or providing training. We do recognise the risk of this approach pulling NPOs away from their core mission and expertise as they search for new sustainability strategies, but we believe it is a worthwhile risk to take if a structured and disciplined process is followed.
  • Financial spend must be coupled with investments in capacity-building. Change is difficult, and NPOs are continually challenged to go beyond their core skill set to stretch resources. Capacity-building can include, amongst other things, improved recruitment and retention strategies; investment in stronger policies and procedures; automation and digitisation; operations management; and other activities to improve efficiency and effectiveness.
  • There is a need to increase the number of social investors who are willing to spend on social welfare and care work. To increase the number of investors, it is important to increase the attractiveness of investing in the welfare space. Welfare isn’t the most alluring sector for investment, but it is undoubtedly one of the most critical to protecting society’s most vulnerable.
  • Finally, we recognise the importance of a strong board. With the relevant skills, expertise and experience to support welfare sector NPOs, walking the difficult journey towards stability and sustainability becomes easier.

[1] Department of Social Development: East Rand chronic underfunding of Child Welfare organisations: Social Development Department response to petition,