NPOs have to think innovatively at a time when government is hard-pressed to meet social needs and many companies have to use their resources to fight for survival in a depressed economy.
A 28.5% internal rate of return on investment over 20 years is impressive, particularly in recent times when economic growth has all but evaporated. “Not many asset managers achieve that kind of return,” believes Gordon Young, advisor to black-owned investment holding company Ditikeni.
The return achieved by Ditikeni is even more noteworthy when it is delivered by an investment company whose purpose is not merely to turn a profit but to dedicate all dividends to social development projects.
Ditikeni’s shareholders are 17 not-for-profit organisations (NPOs) that provide social services to some 2 million South Africans in great need of the kind of support that government increasingly finds difficulty to deliver and in times when many donors are not as giving as they used to be.
“Ditikeni is a commercial enterprise with a strong social purpose,” says Young.
Ditikeni was established 20 years ago. Back then a group of NPOs facing a general decline in donor support scratched together R2.8 million from their reserve funds to provide seed capital to Ditikeni, which would obtain shares in listed and private companies. “This was strictly risk equity,” says Young, “but it has turned out well for them.”
Ditikeni, which means “something to lean on” in tshiVenda, now has net assets of R200 million with investments in five listed and 12 unlisted companies. Over the 20 years, its NPO shareholders have received R32.8 million in dividends which have constituted a significant part of the overall funding they have managed to raise and have contributed to their resilience and sustainability.
Dividends have been used to augment administrative costs and the funding of projects ranging from upliftment of rural communities to early childhood education, combating violence against women and children and supporting youth empowerment.
Ditikeni ascribes much of its success to government’s Broad-Based Black Economic Empowerment (BBBEE) legislation. Being 98.03% black- and 62.35% black women-owned, Ditikeni has become an attractive partner for companies that require BBBEE credentials.
“We are not just black-owned,” explains Young.
“Our ownership is broad-based. Companies in which we obtain equity receive additional BBBEE points because the dividends they pay us serve the needs of specific classes of people such as highly vulnerable, poor rural communities and the youth.
Companies that take us on board as shareholders like to deal with Ditikeni because our activities benefit large numbers of poor people rather than enriching a few private individuals.”
However, Ditikeni’s success cannot be ascribed solely to its BBBEE status.
“Our operations as an investment holding company comply with all the prescripts of good corporate governance,” explains Young. “We also avoid taking big risks and prefer a very cautious approach when we use our own cash to make an investment.”
Ditikeni has invested in more than 30 companies over the years and has sold about half of the shares it has acquired. In some cases, its holdings have been initially financed by companies in which it has obtained shares, often with payment being made from future dividends.
A standout investment has been made not in a white-owned company but in black-owned Ntsimbintle Mining which can also be seen as another significant BBBEE success story.
Formed by nine BBBEE groups as a greenfield venture in 2004 and now South Africa’s largest manganese exporter, Ntsimbintle issued shares to Ditikeni for a nominal amount but the investment company has bought additional shares with its own cash when they became available.
“We gained enormously from following our rights when we could and acquiring more shares, even when the manganese price looked low and the company had not yet made a profit,” explains Young.
“This paid off massively in the past two years in the form of dividends.”
Black business veteran Saki Macozoma, whose Safika group was instrumental in establishing Ntsimbintle, says Ditikeni was attractive as a shareholder because of its capacity to distribute resources in an accountable and sustainable way.
“Unlike many so-called broad-based structures that go to war among themselves as soon as the first cent flows in, working with Ditikeni has been a pleasure. The services delivered to marginalised people and communities by Ditikeni have made us proud that we had a little hand in enabling it.”
Ditikeni has also invested successfully in two other BEE holding companies which invited it to become their broad-based partners. The companies, African Pioneer Group and Sphere Holdings, have matured to the extent that they are able to pay “handsome” dividends, says Young, citing them as further good examples of successful BBBEE.
And the future? “We are still keen to transact, and we have some capital to put into suitable deals, though there would normally be a requirement for leverage,” says Young pointing out that Ditikeni recently used its own funds to increase its investment in one company .
But what can other NPOs do if they are struggling to find sufficient donor or grant funding to sustain their operations and activities in today’s depressed economic environment? Young believes it would be difficult for most of them to establish their own Ditikenis because of the必利勁
time it takes to create a strong and consistent dividend flow upon which shareholders can rely.
‘’In addition to serving their communities, NPOs should consider using the specialised skills they have developed in social development to provide services to companies. They can commercialise their skills and generate additional income without compromising their core functions and principles.”
He cites the example of a major retail company that wanted to establish day care centres. A Ditikeni shareholder with experience in this field proactively and successfully bid to establish the centres and charged a fee for its services. Another Ditikeni shareholder used some of its dividends to buy a property to use as its own offices and rent out unused space, thus developing an asset, free office space and additional income.
“NPOs have to think innovatively at a time when government is hard-pressed to meet social needs and many companies have to use their resources to fight for survival in a depressed economy,” he says.