Throughout the growth of civilisations, the issue of human inequality has been at the forefront of thinking for rulers and politicians, with money-making endeavours tending to favour the few over the many. How to encourage money-making innovation while ensuring social equality is a constant conundrum, the solution to which lies within public-private sector partnerships, with the common goal being to achieve a sustainable path forward.
In some capitalist countries we are starting to see state control break down and the private sector playing a bigger role. For example, in the UK, private schooling as an alternative has been prevalent for years, while National Health Service private contractors perform many procedures.
When it comes to infrastructure, many schools, hospitals and other state facilities have been built (and in many cases are managed) by the private sector. This encroachment of the private sector often yields greater productivity levels for state-offered services, as private sector incentives force productivity improvements. Such advancements bring great benefits to end users as costs are reduced and service levels improved.
In South Africa, and across other parts of Africa, social and income inequality is pronounced. Many efforts have been made to redress this unfortunate situation, particularly outside South Africa in countries that have been previously ravaged by civil war, extreme dictatorships and famine.
Overseas aid programmes have poured huge sums of money into many of these regions. While the worst of the tragedies have perhaps been averted as a result, it is far from clear whether the money has had much of an effect in moving such countries forward to a more prosperous and sustainable future.
The South African government’s National Development Plan (NDP) outlines a significant framework for the building blocks of a long-term sustainable economy. These include urgent social and economic needs at a national level and range from housing and job creation to infrastructure and education.
While we at Old Mutual Investment Group recognise that the local listed equity market has an important role to play in job creation and economic growth, it offers investors limited direct exposure to these key sustainability growth themes. There has to be a better model, which promotes development and includes the entire population in the benefits of growth. This model needs to be based on a partnership between the private and state sectors in a way that allocates state funding more effectively and in a truly sustainable way.
From an investment perspective, getting exposure to the key themes outlined by the NDP requires investors to look beyond the listed equity market into the alternative investment and fixed income arenas, both of which offer access to opportunities in areas such as education, housing, low carbon energy and agriculture.
As investment managers, we have a responsibility to allocate clients’ investments in a way that ensures their long-term saving ambitions. The source of such investments can be pension payments, life insurance premiums or retail savings investments, with many of the investments from the government and its employees. The recycling of these savings into productive domestic investments seeks to support sustainable socio-economic growth. On behalf of our clients, and often in partnership with them, we invest in South African infrastructure, affordable housing, schools, private equity and agriculture.
Infrastructure provides roads, bridges, ports, wind farms and solar energy plants that help form the backbone for economic growth for the nation. Our Ideas (Infrastructural, Developmental and Environmental Assets) Managed Fund is South Africa’s largest domestic infrastructure equity fund, with assets totalling R5.5 billion. Partnering with the government, the fund has invested about R1.5bn in renewable energy projects with a clean power generation capacity of 631 megawatts.
Our Schools Investment Fund has R1.2bn of committed capital, with R600 million already allocated to financing 16 independent low-fee paying schools.
Charitable giving is a wonderful contribution to social upliftment and, while we do that, it is finite as it yields no return. Ultimately, by delivering returns while essentially doing good, we have a model that is extremely powerful and can be replicated across our great continent in pursuit of a sustainable future for all.
Hywel George is the director of investments at Old Mutual Investment Group.