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Resource id #4 The disability sector as business partner - Volume 2 Issue 21: Disability News and Information Service for India

Feature

Volume 2 Issue 21 - November 01, 2004

The disability sector as business partner

Affirmative action has paved the way in South Africa for the disability sector to become a shareholder, writes Jens Lund-Nielsen, development worker, DSI - The Danish Council of Organisations of Disabled People, in South Africa.

DEC has shares in Ecofone that refurbish cell phones. Many of the workers are hearing impaired.

It is said that profit is to business as air is for man; we breathe to survive, but this it is not the reason we live. Why is the same not the case for civil society organisations? Especially in the developing world, the economic survival of civil society is a pregnant problem without any sustainable solutions. The disability sector in South Africa has perhaps taken the first step of turning business profit into a sustainability strategy for the civil society. Seven major disability organisations have created the investment trust 'DEC - Disability Empowerment Concerns Trust Fund', to pursue business opportunities within the framework of the new policy framework that the South African government has created to deal with the legacy of apartheid to enhance equity in the society.

DEC operates as any other investment trust established to engage in business ventures, looking for sound middle to long-term investments to create a profit. But there are several things that distinguish DEC from other investment funds we know. These are the South African policies of affirmative action, the profile of DEC, and the added value that DEC can offer the companies.

Affirmative action

It is said that when South Africa abandoned apartheid and elected Nelson Mandela as president in 1994, 10 per cent of the population owned 90 per cent of the country's economy. To deal with this inequity that potentially undermined the new democracy, the policy of Black Economic Empowerment (BEE) was developed.

Broad-based black economic empowerment [this definition is outlined in the Broad-Based Black Economic Empowerment Act (No. 53 of 2004)] means the economic empowerment of all black people including women, workers, youth, people with disabilities [Because of the broad interpretation of 'Black', the term 'Historical Disadvantaged Persons' is often used instead of 'Black'] and people living in rural areas through diverse but integrated socio-economic strategies that include, but are not limited to:

  • Increasing the number of black people that manage, own and control enterprises and productive assets;
  • Facilitating ownership and management of enterprises and productive assets by communities, workers, cooperatives and other collective enterprises;
  • Human resource and skills development;
  • Achieving equitable representation in all occupational categories and levels in the workforce;
  • Preferential procurement; and
  • Investment in enterprises that are owned or managed by black people.

Thus the government defines BEE as an integrated and coherent socio-economic process that directly contributes to the economic transformation of South Africa and brings about significant increase in the numbers of black people that manage, own and control the country's economy, as well as significant decreases the income inequalities.

Black empowered company

Any company can be labelled 'black empowered' if some criteria on ownership and employment are followed. The government has developed different incentives for companies to become black empowered, where the most important are:

  • Preferential procurement: a preference point system for government procurement policies in which BEE is one of the factors taken into account in awarding tenders. And as the total governmental institutions on national, regional and local level constitutes the single biggest economic unite in South Africa; the incentive for being eligible for this procurement is very high.
  • Restructuring of state-owned enterprises (another term for the privatisation process): BEE can be achieved through the transfer or sale of an equity stake in state-owned enterprise to black enterprises. Public offerings of shares in state-owned enterprises can be utilised to promote ownership by black people individually, or by community- and broad-based enterprises, through setting aside discounted shares. DEC qualifies as a community-based enterprise.
  • Licence granting: When the government grants licences for gambling, telecommunication, or mining etc, it will likewise evaluate the BEE status of the applier. Recently a charter on the mining industry has been issued, stating that all mining companies must achieve a 26 per cent shareholder ownership by black companies within the coming years.

The balance for the South African government is to create a situation in the business sector that at once will start a redistribution process, ensure economical growths within the country, and not undermine the competitiveness of South African products on the global market. The strategy is to restrain from direct legal demands of wealth redistribution, but to create incentives that will invite the business community to participate on a more voluntary basis. The philosophy is, that the market should itself balance out feasible solutions within some new frame-conditions for doing business.

The profile of DEC

Seven major South African national non-governmental organisations representing the disabled established The Disability Empowerment Concerns Trust in 1996. DEC is at once a financial sustainability strategy for the underlying beneficiary NGOs, and an innovative programme to promote the economic empowerment of people with disabilities.

DEC represents an estimated 4.8 million disabled people in South Africa. This constitutes over 12 per cent of the country's population. At least 85 per cent of the disabled people represented by DEC are black and approximately 55 per cent are women. The youth are also widely represented although an exact percentage is difficult to estimate.

Beneficiary organisations

The DEC beneficiary organisations are:

  • The Thabo Mbeki Development Trust for Disabled People;
  • The Deaf Federation of South Africa;
  • Disabled People South Africa;
  • National Council for Persons with Physical Disabilities in South Africa;
  • South African Federation for Mental Health;
  • South African National Council for the Blind; and
  • Epilepsy South Africa.
A building in Pretoria.

Each of these national NGO's have provincial and local member organisations, affiliates and beneficiaries that reach the vast majority of the estimated 4.8 million South Africans with disabilities.

History of economic involvement

In the years before DEC was established, some of the disability organisations had their first experiences in the business sector, which equipped them for setting up the investment fund. Like the Blind People's business organisation ONCE in Spain, the initial experiences came from issuing scratch card lottery tickets, and later being part of the consortium that got the nationally lottery licence. These early experiences have proven vital for entering the broader market.

Today DEC has shares in a selection of different companies that include Uthingo (national lottery operator), Classic FM (radio station), Biovac Consortium (vaccine development and production), Armadillo (manufacture of canopies and roller doors), Total Oil SA (Petroleum industry), and others.

Funding

The most vital and vulnerable issue is, not surprisingly, the funding. DEC do not have the needed funds to pursue the shareholding opportunities made possible by BEE. In the above cases, where DEC is a shareholder, the funding was made possible through government lending, financial institutions, and special financial arrangements with the companies themselves. Often the shares have been acquired at a discount rate, and through the added business opportunities as a BEE company, the strategy is that DEC in 5-10 years will be able to sell a portion of the shares, and purchase the rest for exclusive ownership. But funding is also the obstacle for DEC to grow big enough to become a sustainability mechanism for the disability organisations. And one reason for this is, the ancient old issue of prejudices towards disability. This is a battle that must be fought in the business sector as well as in parts of society.

Added value

Despite the prejudices, a united disability sector can offer the business community some quite interesting added values. The first is obvious in the South African context, which is to facilitate access to markets by enhancing the BEE equity profile of the company. And as DEC is growing, it will likewise provide access to the increasingly business network.

But more specific add-ons include:

  • Promote access to the growing market represented by disabled consumers, and their family. This is done both by providing knowledge of the market, but also by potentially branding products as social responsible.
  • As DEC is made up of large civil society organisations with a long history of political lobbying, it can equally provide access to the powerful disability lobbying network.
  • Deploying knowledgeable and committed individuals with disabilities to serve on the boards of directors of such companies.
  • Promoting disability employment equity and economic empowerment in line with Government policy as laid down in The Integrated National Disability Strategy White Paper, and the Employment Equity Act (No 55 of 1998).

In a global market, where business has understood the need for a more profound stakeholder involvement, forming partnerships with civil society, and to contribute to the development of society, in order to survive as a long-term business, DEC will be the obvious choice.

New economy

There are good arguments for turning profit into a sustainability strategy for the disability sector in developing countries. It is backed up by sound business arguments, as well as societal arguments. It might be the best response to the donor- and philanthropy-dependency that doesn't offer the organisations long-term sustainability. On better equal terms, the business sector and the disability sector can meet -- for mutual advantages. It does not necessarily take a South African legislation to materialise DEC clones in other developing countries. But the disability sector has to lobby the right institutions to foster this concept, and will have to gather information to back up the arguments.

We have started a research project of DEC to formalise the experiences into insights and arguments. And the next step is to get the World Bank involved, to align research data with a format that can be used inside the World Bank structures for adopting a proactive approach to this model. This will, hopefully develop a future strategy in conjunction with the World Bank.

A possible strategy will be to target the foreign direct investments that go into developing countries. A substantial part of these funds are made available by World Bank institutions like IFC (International Finance Corporation), and the private sector programmes of developed countries. Conditions could be attached the lending procedures of these funds, so a financial arm of the disability sector becomes a shareholder. If IFC lends a company 30 per cent of an investment to set up new business in a developing country, structures should be developed so that the 15 per cent will be owned by a structure like DEC, once the loan is repaid. This will still provide the company with the incentive of establishing new business (the loan), it will ensure local ownership of the business sector, it will give the company access to a local network and knowledge, and it will provide a sustainability strategy for the disability sector.

DEC is participating in the 2004 World Bank International Disability Conference (November 30 - December 1, 2004) to present this model, and hopeful develop new strategies for pursuing disability interest in the new economy.

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