Surviving an economic downturn: Philanthropy and the non-profit sector

Working in the philanthropy field gives me some idea of how confident people are about South Africa. Until 1976, huge philanthropic investments were made in the country by the then white elites — they established charitable foundations to ensure that their legacies endured into the future, and we still reap the benefits of some of these long-term thinkers. Local foundations such as the DG Murray Trust, the Mauerberger Foundation and the Fuchs Foundation continue to play a key role in community development.

In 1976, this all stopped. Confidence in the country plummeted and anyone with spare cash sent it abroad. This continued until the thaw in 1994, after which we began to see a resurgence of confidence and hope. This drew philanthropic money and new foundations were established such as the Shuttleworth Foundation. Philanthropy has, in fact, been growing and increasing over the past 18 years and this includes money from all communities and all classes.

So what has happened recently? It is incredible to me how confidence, trust and hope can disappear like mist on a sunny morning. The first signs of a speed wobble came with the Jacob Zuma rape trial when people saw out-of-court behaviour that clearly represented a reverse of gains made by women. Then the run-up to Polokwane and the bitter infighting within the ruling party led to increased feelings of insecurity, but when this was topped by public undermining by members and factions of the ruling party of the judiciary, the Constitution and other institutions that form part of our democracy, the bottom fell out of the hope market.

This has been exacerbated by the electricity crisis, which showed poor management at the highest level, the collapse of the rand, even against the weakening dollar, and the hikes in interest rates linked to growing inflation.

Can philanthropic giving operate and grow in an economic and political context where there are significant indications of lost confidence — billions of rand sent offshore, a declining rand and confusion around political leadership? Ironically, as the economy slows down, so the numbers of people who need assistance increase. This leads to pressure on those non-profits that are providing welfare services at the same time that their funding is reduced. Thousands of people are also employed in the non-profit sector and, as funding becomes harder to come by, posts will not be filled and retrenchments or closures could take place, adding to unemployment.

A slowing down of the economy will affect on the number of individuals who will donate, and it will affect the endowments of foundations that form the bedrock of a significant amount of giving as well as the corporate sector, which will see its profits cut and therefore reduce levels of corporate social investment.

So which non-profit organisations will survive a potential funding crisis? Essentially, those that have managed to build an endowment or a reserve should get through. When times are good, there are many donors who refuse to make a contribution to the operational costs of an organisation, let alone make a contribution to its endowment. This is very short-term thinking and, if we see not only small businesses collapse under the weight of inflation and a down-turn, we will also see non-profits close because they were unable to build up any form of long-term sustainability when funding was more easily available.

What therefore constitutes financial sustainability for a non-profit? Essentially, diversified sources of funding — including individuals, foreign aid agencies, local corporates and foundations. Added to this is effective budgeting to ensure every project pays its own way in the organisation in terms of operational costs and some level of service provision where the organisation can claim cost recovery from clients. If an organisation can add a reserve or endowment to the above, it should be able to see its way through bumpy periods. Most important, however, is the strength of the relationships between organisations and those that support them. Keeping lines of communication open and spending time ensuring that these relationships survive through difficult times is critical to maintaining support.

It is unlikely that the powers-that-be are particularly concerned about the state of giving in South Africa. However, it is this giving at all levels of society that cements our social capital, that brings people together in forms of self-help and community support and forges relationships between millions of ordinary South Africans, the corporate sector, the non-profit sector and the communities they serve.