Ploughing back

Getting the necessary funding to become sustainable is one of the biggest challenges non-governmental organisations (NGOs) in South Africa face.

The Ditikeni Investment Company is an innovative approach to providing funding for NGOs that aims to make them both sustainable and largely self-sufficient in the years ahead.

Not only does access to their own funding make the NGOs less dependent on donor organisations, it also gives them the freedom to act on projects without always having to align themselves to donor requirements on where money should be spent, the organisation believes.

Ditikeni is this year’s winner in the Most Innovative category.

Greg Erasmus, a director of the Ditikeni Investment Company, says Ditikeni is an investment company that assists NGOs to achieve financial sustainability. About 10 years ago Ditikeni was established by an original group of 23 NGOs which put up a total of R2,8-million to capitalise the new entity.

‘They took some money out of their reserves to fund their stake in the investment company. At the time they were advised to invest no more than they could afford to lose,” Erasmus says.

The NGO shareholders hold shares proportional to the initial amounts they invested in the company and, given the company’s success, some may wish they had taken a larger slice of the shareholder pie. Five years ago Ditikeni had a rights issue among its shareholders to raise funds for further investments and for additional working capital.

Investment requires both time and skill so Ditikeni employed a full-time investment manager, Gordon Young, who investigates potential investments and proposes transactions to the board.

A BEE transaction manager, Thembekile Sikenqe, was also recently appointed to the team.

Since 2000 Ditikeni has made an annual compounded return of 43% for its investors. Effectively, an NGO shareholder who bought a share for R1 at inception has seen it appreciate to just more than R10.

Ditikeni has 17 active investments in a range of different sectors and industries. As many of its investments are in non-listed entities, valuation is done on an irregular basis.

Ditikeni’s success is exceptional as its net asset value is R30-million and estimated gross asset value is in the region of R100-million.

In addition the company has a panel of directors that it appoints to the boards of some of the companies in which it invests.

‘Where we have a significant stake in the company, we make sure we have a representative on the board,” Erasmus says.

He says Ditikeni has a number of investment strategies that it follows.

On occasion the company will go into a transaction as the sole black economic empowerment (BEE) investor in smaller deals.

As a consequence of its BEE status in such transactions, Ditikeni also benefits from discounts offered by companies seeking BEE partners and it is able to increase the value that it is developing for its shareholders.

Another approach is for Ditikeni to enter into a transaction as a shareholder in a bigger group, such as its arrangements with the J&J Group, Sphere Holdings and African Pioneer.

‘They are BEE investment holding companies and we take a stake as a smaller shareholder. We also engage in joint ventures with other major BEE entities. We make use of our broad-based identity to give transactions broad-based BEE status where this is lacking,” he says.

Many BEE transactions were initially vendor-financed, which means that Ditikeni was able to gear up its initial capital significantly.

Over the years the successful deals in which it has been involved have created significant equity for the company.

This gives the company the ability to bring its own cash to the transaction, further enhancing its attractiveness as a BEE partner and enabling it to obtain additional value for its shareholders.

‘We were part of the Stanlib BEE deal and the realisation of that deal changed the course of Ditikeni’s life. We generated enough money to secure our working capital for the next seven years.

‘We set up an endowment that pays a perpetual dividend to our shareholders of about 20% of their initial investments.

‘Furthermore, we returned the initial R2,8-million capitalisation to shareholders and paid two healthy dividends,” says Erasmus.

The cash allowed Ditikeni to establish an investment fund that allowed it to bring its own cash to transactions. Ditikeni carried out a preference-share issue and it managed to raise R21-million from Metropolitan Asset Management, Old Mutual and Pick n Pay.

‘We have established an investment committee and Metropolitan and Old Mutual are assisting us actively in identifying deals and helping us to decide on transactions to invest in.

‘From a very low capital base we have focused on using innovative strategies to extend our ability so that we can entertain larger transactions,” Erasmus says.

He says Ditikeni has made use of its partnerships with other broad-based BEE players and it leverages off their investment teams so that it is able to participate in transactions without having the expense of creating its own large team.

Keeping a mean and lean team has enabled Ditikeni to engage in multiple investments while keeping its costs down. Erasmus says the Ditikeni model can be replicated by other NGOs and charities.

‘However, investors need to be patient and take a long-term view and they have to be able to maintain their equilibrium when the market drops by 20%.

‘Furthermore, due to the risk, a stake in an investment company should not be the NGO’s only investment strategy,” Erasmus says.

Helping with housing
Finalist in the categoryMost Innovative: MES

Metro Evangelical Services (MES) began life as a street work- and people-centred outreach programme and the organisation has gone on to focus on a sustainable community development model.

The organisation has formed an unusual partnership with the Madulamoho Housing Association (MHA). The association is focused on being the heartbeat of affordable housing in Johannesburg’s inner city.

While the organisations are different in terms of their focus areas and services, through cooperation they are able to make a real difference in the lives of poor and destitute communities in which they operate.

MHA provides housing units that are used by MES’s clients, mainly students who are either engaged in MES training programmes or have graduated from the programmes.

Newly employed graduates in entry-level positions lack affordable accommodation and its lack can drive people back on to the streets or into dilapidated housing.

The MES Impilo programme makes use of MHA units to place homeless patients who have been discharged by the Zaziwe Hope for Life Care Centre hospice.

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Andrew Gillingham
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