Navin Lala | Client Director | Old Mutual Alternative Investments (OM AIternatives) | mail me |
The formation of South Africa’s new Government of National Unity (GNU) bodes well for the consolidation of state reform and pro-growth initiatives, including better performing parastatals, such as Eskom and Transnet. Given that economic growth is essential to spur social development, I believe 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.
The critical buildings blocks of South Africa’s economy
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. Over the past few weeks positive sentiment has swung significantly in South Africa’s favour, thanks to the formation of South Africa’s first 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.
Economic growth requires capital and specialist expertise. 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, I believe 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.
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.
We have 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, we are particularly interested in access to affordable education and housing. Two of our funds have this focus, namely the Education Fund (EduFund) and the Housing Impact Fund SA (HIFSA).
Affordable housing is more than just a shelter. 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. 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.
Related FAQs: Driving growth through strategic capital allocation
Q: How can strategic capital allocation drive economic growth?
A: Strategic capital allocation involves effectively distributing resources to profitable ventures, which in turn stimulates economic activity, creates jobs and boosts overall economic growth in the country.
Q: What role do pension funds play in driving economic growth?
A: Pension funds are crucial institutional investors that channel funds into various industries and assets, contributing to capital formation and economic development in the country.
Q: Why is collaboration important for enhancing economic growth?
A: Collaboration among industry players, asset managers and fund managers promotes knowledge sharing, best practices and synergies that can lead to more efficient allocation of resources and ultimately drive economic growth.
Q: How can alternative investments contribute to the growth of the South African economy?
A: Alternative investments offer diversification opportunities beyond traditional asset classes like stocks and bonds, attracting capital to sectors with growth potential and fueling economic expansion.
Q: What are some important links between strategic capital allocation and economic growth in South Africa?
A: The strategic allocation of funds towards key sectors such as infrastructure, technology, and innovation can have a multiplier effect on economic growth, creating a conducive environment for investment and job creation.
Q: How do pension funds impact the local market and asset management industry in South Africa?
A: Pension funds, being significant investors in the local market, play a pivotal role in shaping asset management practices, influencing investment trends and driving growth in the asset management industry.
Q: What steps can be taken to leverage the potential of pension funds to drive economic growth in South Africa?
A: Encouraging pension funds to invest in a diverse range of local assets, promoting transparency and accountability in fund management and providing incentives for socially responsible investments can amplify the positive impact of these funds on economic growth.
