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NPOs in crisis as financial crisis hits funders and government excludes them from Covid-19 financial relief

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Martin Schneider is a freelance journalist based in Cape Town. He has previously worked for the Daily News and Sunday Tribune in Durban, the Boston Globe in the USA, the Rand Daily Mail and the Financial Mail in Johannesburg. He was previously a senior journalist with Leadership magazine.

Not-for-profit organisations are often a lifeline for marginalised communities. But many of South Africa’s estimated 230,000 NPOs are facing closure as funding dries up.

One of South Africa’s largest but least-acknowledged sectors stands to be hard hit in the wake of the Covid-19 pandemic and impact of the protracted lockdown.

The estimated 230,000 registered not-for-profit organisations (NPOs) that provide a wide range of services to marginalised communities and employ about 800,000 people are expecting, and are in some cases already experiencing, cutbacks in donations and other sources of income such as fees for implementing government programmes and corporate social investment (CSI) projects.

“We are in serious danger of losing many NPOs and the immense value of the support they provide to our poorest communities,” says veteran social activist Shelagh Gastrow who provides advisory services to NPOs and philanthropic foundations that donate funding to many of them.

NPOs now face serious challenges on all their funding fronts. These include:

Lack of government support

Gastrow describes as “shocking” the fact that government has not included NPOs in Covid-19 financial relief packages that have been extended to such organisations as small businesses (though they do qualify under the Temporary Employer/Employee Scheme). This is despite the fact that President Cyril Ramaphosa acknowledged in his 2020 State of the Nation address the “critical role” NPOs play “in tackling poverty, inequality and related social problems”. The president said he would convene a social sector summit this year to improve the “interface between the state and civil society” and address challenges faced by NPOs.

“NPOs are also small businesses,” says Gastrow. “The only difference between them and other small businesses is that they do not work to make a profit. They work for the public good, but they function like any other business. They comply with the law, they register with government, they have boards, they are audited, they are accountable to their funders.”

Philanthropic foundations

Philanthropic foundations that are members of the Independent Philanthropic Association South Africa (Ipasa) donate about R1-billion annually to support social development programmes, much of which is donated to NPOs or paid to them to implement projects, explains Ipasa chairperson Sarah Rennie.

However, stock market crashes have led to many foundations losing between 30% and 40% of the value of their endowments, says Rennie. In order to respond to the Covid-19 pandemic by providing emergency funding, many foundations have been forced to dip into their reserves, which, says Rennie, “is a rare step for them to take”. Gastrow adds that philanthropic foundations will need to be more circumspect in making future donations.

Corporate social investment

South African companies spent R10.2-billion on CSI initiatives in 2019, according to an estimate by the Trialogue consultancy which specialises in corporate responsibility issues. Of this, NPOs received 54% or about R5.5-billion.

Since then, the economy has moved into a recession followed by the country’s junk investment grade rating and the Covid-19 pandemic. Most analysts believe this will lead to a shrinkage in the economy of at least 4.5%, faltering corporate performance and major expenditure cutbacks. This is likely to adversely affect CSI expenditure and make it even more difficult for NPOs to raise funding, says Gastrow.

NPOs and the Covid-19 crisis

While NPOs are well known in many marginalised communities, they only enter the general public consciousness during times of crisis, such as the Covid-19 pandemic, when their role in supporting people in distress becomes well publicised.

“Covid-19 has really showed up the value of the NPO sector and particularly those organisations which work closely with communities and have been able to use their local knowledge to provide emergency support in a time of great need,” says Gastrow.

Some NPOs have been contracted by entities such as the Covid-19 Solidarity Fund to undertake emergency community relief work; donors of other NPOs, such as Ipasa members, have permitted NPOs to divert funds from existing projects to Covid-19 actions; private donors have channelled donations through NPOs to provide support to people in need; other NPOs have been in the fortunate position to be able to access reserve funds to support communities.

An example is the Social Change Assistance Trust (SCAT) which is one of 16 NPO shareholders in an investment entity, Ditikeni, that has obtained shares in public and private companies. Formed 20 years ago with seed capital of just R2.8-million, the Ditikeni fund today has net assets of more than R200-million and has paid its NPO shareholders R44.5-million in dividends, which provide a regular source of income and supplement donations which often fluctuate.

By accessing reserve funds accumulated from Ditikeni dividends, SCAT was able to provide an initial R10,000 to each of the 30 local development agencies (LDAs) that implement projects it supports in remote areas. SCAT will also provide IT hardware and data to the LDAs to enable more effective communication and co-ordination between itself and the LDAs and their broader community.

The value of NPOs

No recent estimates of the number of NPOs appear to be available. A Stats SA survey in 2014 estimates there were 120,000 NPOs but Gastrow says at least 230,000 NPOs are registered with the NPO Directorate in the Department of Social Development. They are legally obliged to submit to the directorate detailed financial and other information.

Gastrow says as far as she is aware no research has been undertaken to quantify or evaluate NPOs’ contribution to social development. One indicator is an estimate by Ditikeni that its NPO shareholders have over the past 20 years provided services to two million people. The services range from work with children and youth to crime prevention and reintegration, community development, education and training, HIV and AIDS, land and agricultural rights, people with disabilities, women and gender-based violence, and poverty alleviation.

NPOs come in many shapes and sizes. They range from micro voluntary groups with minimal resources to grassroots organisations that are embedded in communities and formal groups which perform extensive and often highly specialised functions.

Their value may be gauged from the following points raised by Gastrow:

  •       NPOs deliver services that government – and hence taxpayers – would be hard pressed to provide. They should be seen as partners to government and civil society, in much the same way as business and labour;
  •       Community-based NPOs support social cohesion by helping people to work together, identify and articulate their needs, claim constitutional rights, engage with the authorities and mobilise during times of crisis. Community leaders often emerge during these processes;
  •       NPOs, mainly the larger, better-resourced groups, play a vital advocacy role. They are able to conduct thorough research; shape national, provincial and local government policy formulation; campaign for changes in legislation; and undertake court action. High profile examples are the Treatment Action Campaign, Centre for Environmental Rights and Equal Education; and
  •       NPOs are involved in every facet of society. “Name any issue, however big or small, and you will find an NPO or NPOs involved in it,” says Gastrow.

SCAT director Joanne Harding points to arguably the least-known value of NPOs. “The NPO sector is a massive employment provider,” she explains. “When I did my masters degree, I surveyed a cross-section of NPOs and extrapolated from my findings that the NPO sector employs at least 800,000 people. A survey back in 2002 concluded they employ 645,000 people.”

What deeply concerns Harding is that likely lower future funding will reduce NPOs’ ability to deliver their traditional services to many millions of people. “We seem to be heading for a social justice crisis,” she says. DM

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