Presentation on Size & Scope of Non-Profit Sector in South Africa

Meeting report

FINANCE PORTFOLIO COMMITTEE
19 August 2002
PRESENTATION ON SIZE AND SCOPE OF NON-PROFIT SECTOR IN SOUTH AFRICA

Chairperson: Ms Hogan (ANC)

Documents handed out:
Programme (includes introductory comments by Prof. Adam Habib) - Appendix
Swilling, M & Russell, B. 2002.The Size and Scope of the Non - Profit Sector in South Africa: Graduate School of Public and Developmental Management (University of Witwatersrand) and The Centre for Civil Society (University of Natal).
[The Study in the form of the book is available from Helen Poonen: Administrator, the Center for Civil Society, University of Natal]
A summary of the Study in the form of a booklet

SUMMARY
Committee was presented with findings of a study on 'The Size and Scope of the Non-Profit Sector in South Africa." The Trade and Industry and Social Development Committees were scheduled to attend the presentation originally set down for 15 August 2002. Because the programme was changed the other two committees were unable to attend. The study found that the non-profit sector in South Africa is bigger than most expected and employed more people than many major sectors in the economy. The panel emphasised the need of Statistics South Africa to do this kind of research as part of its normal business. The Committee agreed and would further pursue this. The broader role of parliament and government would be to have a philosophical debate about the relationship between government and the non-profit sector so as to ensure a more co-ordinated approach to poverty alleviation and development. In the summary it is stated that the views and mandates of government agencies such as the Reserve Bank, Department of Finance, SARS and Stats SA should expand to embrace the realities of the economic significance of the non-profit sector. One of the main aims of the study is to bring about this change of mindset.

MINUTES
The Panel presenting the study consisted of:
Prof. Adam Habib - Director. The Centre for Civil Society, University of Natal (Editor of the book)
Prof. Mark Swilling - Academic Director, Spier Institute, School of Public Management Planning, University of Stellenbosch
Ms Gaza - The Centre for Civil Society

Prof. Habib made introductory comments that contextualised the presentation (refer to Appendix).

Presentation by Professor Mark Swilling
Introduction
He said that the study involved 4 years of extensive research. It was part of a world wide study that is linked to the Johns Hopkins Comparative Non-Profit Sector Study. The South African part of the study was funded by the Ford Foundation, the Atlantic Philanthropies and the Charles Stewart Mott Foundation. The School of Public and Development Management (Wits University) was contracted with Prof. Swilling and h. Van Dyk as Co-Coordinators. Prof. Swilling contracted Social Surveys as a research survey partner.

Post - 1994 Context
Commenting on the Post 1994 period in South Africa, the following realities were highlighted:
There was a new relationship between the state and society
Change in funding priorities
A rise in Corporate Social Responsibility (CSR) commitments
South Africa was a state without sufficient funds for rapid development
A re-alignment of forces within the non-profit sector

Definition of Non-Profit Organisation (NPO)
Before there could be a study Prof. Swilling pointed out that the NPO Sector had to be defined. The definition is similar to the definition in the NPO Act but excludes the 'public purpose' element.
Features of the definition include:
Organised: An NPO must be institutionalized to some extent and must have relative persistent goals, structures and activities. The organisation must not only exist on an ad hoc basis.
Private: it must not be part of government but can be funded or contracted by government.
Self - governing: An NPO must control their own activities in accordance with their own procedures
Non-profit distributing: profits generated are not returned to owners or directors
Voluntary: An NPO must engage volunteers in operational management, there can be non-compulsory contributions and membership but professions requiring compulsory membership is excluded.

Methodology
Committee was told that the methodology was a break from the rest of the world. The developed countries looked at lists like section 21 company lists, lists of trusts etc. of existing organisations, took a sample, did a survey and generated results. This was a problem for developing countries because community based organizations were not on any list. In South Africa a database named Mosaic was funded and is managed by the Knowledge Factory. The database classifies each suburb and community in South Africa according to certain socio-economic criteria. Sandton and Bishops Court would therefore be categorized the same while Soweto (PE) and Khayalitsha would fall under the same category. Samples were then taken and researchers sent to find all the organisations. When researchers kept hearing the same names of organisations being repeated then they knew saturation point was reached. Prof. Swilling said that an award was received for this methodology.

Because this method neglected the large organisations the Prodder List from the Human Sciences research Council was used as well as the Trade Union Directory.

He said that all estimates in the study is based on 1998 data.

Findings
1. NPO Sector is big - bigger than most expected
The Sector is bigger than most developed countries. only a few have a bigger sector. South Africa's nonprofit workforce is larger than the average among 28 countries for which comparable data is available.
It is a R9.3 billion industry. total operating expenditure of all NPO's was R9.3 billion in 1998/99. This is 1.2% of GDP.
The NPO is a major employer employing 645 full time equivalent staff. This is 9% of the formal non-agricultural workforce. Full time equivalent staff includes volunteers and part timers.
More people is employed in the NPO sector than in national government, construction, transport and financial services.

2. Volunteer Involvement
1.5 million volunteers are mobilized in the NPO sector. This relates to 316 000 full-time equivalents which is above the international average.
Volunteer labour was worth R5.1 billion in 1998

3. Organisational Profile
There are 98 920 NPO's across all sectors
53% of NPO's are less formalised community-based organisations
Women and black people play a leading role in the NPO sector. 59% of the leadership/managerial levels are women and 73% are black
Half of all NPO's are in the culture, social services and development sector.

4. Sectoral Breakdown

Prof. Swilling pointed out that in Health a small number of organisations employ a large number of persons. Social services is the biggest sector with very large organisations as well as very small ones operating in the HIV/ AIDS area. The religion sector excludes formal religious institutions like churches and mosques bur rather the organisations set up by these formal institutions.

5. NPO Revenue
Income of R14 billion in 1998
Government contributed 42% or R5.8 billion. 42% is higher than the international average of 39%
South African private sector donates nearly R3 billion or 21% of the total revenue flow to NPO's. Private philanthropy and non-governmental international aid contributes R3.5 billion or 25% of total revenue - the international average is 11%.
Service fees, dues and other self generated income accounted for 34 percent of non profit revenues, or R4.6 billion. The international average is 51% but this is from a survey of more developed countries with larger middle classes.
NPO's can mobilise massive resources - total of R13.2 billion in 1998. Resources NPO's mobilise on their own include volunteer labour, fees and private sector funding.

6. International Funding
Prof. Swilling said that most of the funding in Africa is not from international governments. In South Africa a maximum of R1 billion (private international philanthropy and governments) is from overseas out of a total income of R14 billion.

7. Corporate Funding
The table sets out the total income per sector and where private sector and government funding is going.

8. Conclusions
Stats SA should be mandated to conduct an annual survey of this kind. This Study has proven that this research can be done and Stats SA should do it either as part of its October household survey or the census.
Strategic dialogue is required between the private sector donors and the NPO's
Avoiding simplistic conclusions about CBO's, such as funding them is the answer. Prof. Swilling said that not all CBO;s are interested in funding and some have no capacity to access funding.
Government funding mechanisms and targets need to be reviewed.

Discussion
Dr Woods (IFP) asked if the figure of R9.3 billion included administration expenditure. Secondly he pointed out that what was missing from the study was a look at the value of the NPO sector to society, how efficiently the sector was delivering and more importantly what value was being achieved from all the money government puts in especially since accountability was very loose.

Prof. Swilling replied that the R9.3 billion is overwhelmingly operational expenditure and what might be missed is capital expenditure. A common problem is that the sector sometimes over states the revenue because certain donor funds were still expected but it was not certain when exactly it would be received.

In response to the second question he said that it was a qualitative issue and the next challenge for researchers. Prof. Habib is currently inviting proposals from researchers on how to approach this. he said that evidence from other research into HIV /AIDS and violence against women show that organisations make a significant social impact with few resources. He added that it was impossible to do a value for money analysis because one would need to look at another agency that could do the same job. Professor Swilling agreed that the analysis had to be done but it will be very difficult.

Ms Taljaard commented that a review of the impact of the Taxation Laws Amendment Bill and the ninth schedule was necessary because even though the study was important work in laying the base line more data needed to be collated to enable us to see the route for the future. The member identified this as an immediate need. She also referred to the changes in the Division of Revenue Bill in relation to Home Based community Care and said that the impact of changes of this nature on the sector needs to be traced.

Prof. Swilling agreed with the comment and said that the only thing that one can be certain about is that the Taxation Laws Amendment Act will have certain unintended consequences. There is a R2 billion loss to the tax base that is talked about but the question is where is the money going to and who are the real winners and losers as a result of these changes.

Prof. Habib responded to Dr Woods' earlier question that lots of empirical information is needed and the work has been started. He referred to a study by IDASA that tried to look at the work of the NPO sector and said that the study was seriously flawed. It did not reach the end user, information was only received from the NPO itself. He added that the question of value for money could not be answered in the abstract many factors need to be taken into account, like the kind of organisation and the service that it delivered. He highlighted another area that the study did not look at viz. individual philanthropy. An important question is how much is given, where does it go to and what is the impact thereof. He referred to religions that make it an obligation to make a contribution to the lesser fortunate. The lead agency that needs to do this work is Stats SA and resources needed to be directed towards them. Universities and institutions like the HSRC also has a role to play. The Professor called for all infrastructure and institutional resources to be mobilised to facilitate development.

Ms Joemat (ANC) wanted clarity on the point in the conclusion that warns that funding CBO's is not always the answer.

Prof. Swilling explained that he was not saying the CBO's must not be assisted but the worse case scenario is when there is a CBO that does good work and has a uneducated person leading the organisation but has a strong connection with the community and the goals of the organisation. If a requirement of funding is that there must be persons in place to properly manage the finances then the door is opened for a change in leadership and the possibility that the organisation loses touch with its goals.

Ms Gaza added that accountability was needed but there should be a mechanism that allowed the funding of small organisations without making it too onerous for them.

Dr Woods was unclear what the committee had to do in relation to the taxation legislation. He was clear on what the committee had to do in relation to Stats SA.

Ms Hogan agreed. She read from page ix of the study (Editors Introduction):

' Its workforce is larger that that of prominent economic sectors like mining, national government, construction, transport, financial intermediation, insurance and real estate. If the Reserve Bank and the Department of Finance see it as necessary to collect or mandate the collection of data for these sectors, then why should they not do so for the non-profit sector? Moreover, the Department of Finance and the South African revenue Service need to approach their negotiations on a new tax regime with the Non-Profit Sector Partnership and the South African NGO coalition (SANGOCO) with a new mindset.'

Prof. Habib said that the there were two opposing views in the debate on taxation. The one emphasises the loss to the fiscus. The other emphasises the promotion of philanthropy. The professor was not sure that either view was the answer. One cannot genaralise that tax concession would lead to increased philanthropy. At the same time SARS should not just consider the loss to the fiscus but other issues. He said the mindset of SARS needed to be changed. They have to look at what is required / what are the needs. What relationships are needed between government, the NPO sector and the private sector to reach developmental goals. On this basis taxation needed to be looked at. He criticised all the role players for concentrating to much on short term goals. What is needed is:
institutional forums to discuss the issues
developmental agendas
assessing what partnerships are required.

He added that all the NPO sectors needed to come to parliament for this type of discussion.

Ms Hogan felt that parliament should have the debate possibly in the form of a conference.

Ms Maabe pointed to a deleted point on page two of the summary that reads: rural poverty was not being adequately tackled by the state or established NPO's.

Prof. Swilling explained that he felt that such a bold conclusion was not supported by the evidence and therefore it was deleted. The tables show that in social services and health the majority of government funding goes to NPO's that are active in the middle strata of society and it was not possible to draw the conclusion from that.

Prof. Habib added that the deleted point was debated and that he felt that the study did support the conclusion.

Ms Taljaard said that the focus is much broader than that of SARS and Stats SA and that a review of the statutory and institutional mechanisms that exist is needed.

Prof. Habib summarised what the were hoping for:
a convening of a philosophical conversation on the relationship of the NPO sector with the state.
a conversation about the necessity for the collection of this data and the funding of Stats SA to do this.
-Consideration of how to accelerate the dispersion of money e.g. the lottery
-Debate on how to make the process by which get CBO's access too funds less onerous. ---Accountability is needed but there must be a balance.

Ms Hogan explained that Trade and Industry and Social Development were unable to attend the presentation because of scheduling problems and did and their absence did not indicate a lack of interest. She said that the other two committees should also get this presentation. The chair added that the Finance Portfolio Committee would take up the Stats SA issue and monitor implementation of the Taxation Amendments. She also undertook to raise the issues at the chairpersons meeting in an attempt to open up dialogue in parliament.

Prof. Habib suggested that Parliament should use public funded agencies to do research which parliament thinks is needed. One such agency is the HSRC.

Ms Hogan drew the meeting to a close by thanking the panel for the presentation, the work that has been done and raising key issues that needs to be taken forward.

The meeting was adjourned.

Appendix
Honorable Members of Parliament in the Portfolio Committees in Finance, Social Development and Trade and Industry

On behalf of the Centre for Civil Society, University of Natal, School of Public and Development Management, University of Witwatersrand, the Johns Hopkins University in the United States, the Atlantic Philanthropies, the Charles Stewart Mott Foundation, the Ford Foundation, and all others associated with our research initiative, I would like to thank all of you for giving us this opportunity to speak on the results of the study on the Non-Profit Sector in South Africa. We recognize that there are a number of urgent issues competing for space on the national legislature's agenda. We are indeed most grateful to the chairs of the respective portfolio's committee's and to all of you for facilitating and enabling this intellectual engagement.

The authors of this study will in the course of this meeting speak to the results of the study and the implications thereof. I would, however, like to draw your attention to two issues emanating from and relevant to this study.

1. This study is the most comprehensive attempt to map the size and shape of civil society in South Africa. And, the results of this study have important implications for policy and its implementation. For instance, the study estimates that there are 98 920 non-profit organisations in South Africa, of which 53 percent are less formalised, community-based organizations. Moreover, anecdotal evidence since the fieldwork suggests that informal, community-based networks are on the rise, particularly as a result of communities struggles to address the social crises generated by unemployment, poverty and the AIDS scourge. Yet organizations like these are not the recipients of large amounts of aid, and are in most cases not even factored into the development equation. This raises a number of serious questions. How are these organizations and networks sustaining themselves? Why are they not identified as the primary institutional agents for social welfare and poverty alleviation? And, how do we get public and private resources to these networks and organizations without sacrificing the principle of accountability? These questions go to the heart of one of the most fundamental objectives of our transition, and answers to these need to be sought by all stakeholders, but primarily by you, to whom the electorate has entrusted this responsibility.

2. The relevance of the results of this study for public policy and the broader development project in South Africa suggests that this is the sort of data that should be regularly collected. The public sector's [premier statistical agency, Statistics South Africa (SSA) should be mandated to collect this data as part of its regular research activities. Already there are a number of people in SSA that recognize the need to do this, but are concerned about the resource implications on the organization. Clearly SSA's political principals need to make the necessary resources available for this since it would directly facilitate and enable the evolution of the country's development project. We urge you to consider this issue, and facilitate the necessary political processes and engagements required to make the resources available to the SSA for the collection of this data on a regular basis.

Should you have any queries with regards to any of these issues, or any of the others pertaining to this study, my colleagues and I would be more than willing to address them. Once again, I thank you for facilitating this meeting to present the results of our study and to intellectually engage in the implications thereof for development and democracy in our country.

Sincerely Yours

In the Struggle for Social Delivery, Development and Democracy
Professor Adam Habib
Director: Centre for Civil Society
19 August 2002