Businesses Can Take the Lead in Setting up Social Enterprises in South Africa

By Marcus Coetzee, May 2008.

We need to see more social enterprises in South Africa, particularly since they can help to strengthen our economy and fight poverty at the same time.

However, this is only likely to happen if businesses continue their involvement in social issues and work with nonprofit organizations to establish social enterprises. This will also benefit the businesses themselves (as we will show), and provide an alternative approach to Black Economic Empowerment (BEE) and Corporate Social Investment (CSI).

So what are social enterprises? A social enterprise is a business with a social purpose – an enterprise that seeks to earn both a financial and social profit. This allows social enterprises to continue to fulfill and expand their social agenda once they’ve been set up, unlike traditional nonprofit organizations which need a constant supply of donations to survive.

Social enterprises are an established phenomenon overseas. For example, the British Government has even set up the Social Enterprise Unit to drive its social enterprise strategy in the UK. This unit estimates that there are over 15,000 social enterprises in the UK alone. Well-known examples of social enterprises include the Grameen Bank and The Big Issue.

Why should businesses take advantage of this opportunity and start setting up social enterprises? The answer is quite simple – to fulfill their responsibilities, improve their business and make a real difference to society at the same time.

Many businesses have begun to embrace their social and environmental responsibilities. They are also discovering that this helps them to become market leaders, and comply with various legislation and industry charters. There is also substantial evidence that responsible businesses are better at attracting and keeping ethical consumers, investors and staff than those businesses that stick to the old rules of doing business. In other words, businesses are realizing that there is a financial return as well as a social return on being good corporate citizens.

The question for many business is therefore no longer whether or not to become responsible, but rather how to do it in a way that is good for business at the same time. One of the ways to do this is to establish social enterprises.

Business leaders need to consider to the following questions when thinking about setting up social enterprises.

A. The first question is how to integrate the social enterprise into their value chain or business system.

Businesses can set up social enterprises to develop their supply of valuable inputs. For example, consider SAB Miller’s project with barley farmers in a poverty-stricken region of the Northern Cape. In order to develop its supply of valuable inputs it has helped over 170 unemployed farmers to set up barley farms providing 10,000 tons of barley/year. The Body Shop is another enterprise that has done this well – it has used its community trade programme to develop communities in third-world countries and buy from these communities.

Businesses can also setup social enterprises to stimulate demand for their products or services. For example, Premier Foods has used their ‘Snowflake Bake-For Profit’ project to help thousands of unemployed women, predominantly from rural areas, to set up baking businesses. These social enterprises help Premier Foods while helping unemployed women start a career for themselves and provide nourishment to their communities.

This all fits with the Fortune at the Bottom of the Pyramid model of C.K. Prahalad, which explains how businesses can increase their profits and fight poverty at the same time. Businesses can do this by helping the poor to participate in the economy – by buying from them and selling to them in a responsible manner.

B. The second question for business leaders to consider is what the social and/or environmental purpose of the social enterprise should be.

Some social enterprises seek to employ and skill a particular group of people such as unemployed mothers with HIV from a particular community or even former prisoners leaving jail. For example, Tetra Pak, SASOL and Timber Plastics are working with a nonprofit organization to set up a social enterprise to recycle TetraPak-type packaging waste and produce low-cost and eco-friendly housing materials. What’s interesting is that this social enterprise will also employ ex-prisoners leaving jail and try to reintegrate them back into society. This social enterprise will help all these organizations to improve their business and reputations.

Social enterprises can also serve a particular group or cause. For example, the Grameen Bank, which started in Bangladesh and lends money to groups of unemployed women, estimates that it has helped over 25 million women to cross the poverty line and build valuable skills.

Another good example is the social enterprise that the Acumen Fund has helped to set up in Tanzania to fight malaria in Africa. This social enterprise manufactures mosquito nets which are specially treated with a long-lasting insecticide and affordable to poor families. Now this social enterprise produces 7 million of these nets each year and does not need donations to survive. This social enterprise is now an active participant in the fight against malaria in Africa and a cheaper solution than simply giving millions of nets away.

Businesses can become social enterprises themselves, as some are already becoming, in much the same way that the Body Shop has become a social enterprise. They can do this by truly embracing a social purpose and building it into their core business.

C. Let’s not forget the BEE Codes

Businesses can also fulfill three of the seven BEE codes by setting up social enterprises, namely the enterprise development, socio-economic development and preferential-procurement codes. This makes social enterprises particularly attractive for businesses with less than a R35million turnover which only need to comply with four codes to become BEE accredited.

D. Conclusion

In conclusion, we need to see businesses continuing to embrace their responsibilities, and being more strategic about how they go about investing in social causes and complying with the BEE codes. Let’s not wait for the government to get round to developing a social enterprise strategy for our country. South African businesses can become social entrepreneurs right now.

Marcus Coetzee is a business strategist who helps leaders to think clearly about the future. To find out more about how he can help you, call 0828799131 or visit Marcus Coetzee.co.za.

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