Another Measure

SOCIAL IMPACT BONDS - JUST WHAT SA NEEDS OR THE EMPEROR’S NEW CLOTHES?

noreply@blogger.com (Kim) — Thu, 14 Aug 2014 13:24:00 +0000

The Bertha Centre for Social Innovation and Entrepreneurship at UCT’s Graduate School of Business is researching the applicability of Social Impact Bonds (SIBs) to South Africa in a project that is partly funded by the National Treasury with a specific focus on Small Business Development and job creation. The Bertha Centre recently held an information session with interested stakeholders in the Cape Town and Johannesburg.

What is a Social Impact Bond?

Image www.gov.uk

According to Ryan Short, a director of Genesis Analytics, it is “a contract in which the government agrees to pay private investors for securing improved social outcomes. Socially minded investors provide up-front working capital to NGOs, charities, social enterprises and private service providers, to fund their programmes and test innovative interventions. If the programme achieves agreed targets, investors receive a variable return on investment from the government — the more successful the programme, the higher the return. If the programme fails, investors do not recover the investment.”

In short, the benefit to government and governmental organisations is that only pays if the agreed outcome occurs and the risk of the project transferred to the initial investor(s). It sounds pretty good for government.

Source: http://emmatomkinson.com/ as of February 2014

The first SIB was issued with much fanfare in 2010 in the United Kingdom and was hailed as the “future in non-profit financing”. Since then 17 have been launched in the UK and range from North America to Australia and even the Mocambique Ministry of Health is working on one.

WHY NOT JUST GET A REGULAR LOAN?

According to Aunnie Patton from the Bertha Centre

“In one word: incentives. In other words…

DATA: Since outcome-based payments rely on outcomes measurement, service providers, investors and governments are incentivised to create realistic, rigorous metrics for assessing the intervention. Bonus: often this data can lead to benchmarks for similar government programmes to come.
DILIGENCE: Government in essence outsources the due diligence of the service provider to private investors, who risk losing their capital if the provider fails (hence, again, an incentive).
RISK: Investors are used to putting risk capital on the line for a reward commiserate with that risk. Governments are used to spending capital to provide public services. But SIBs shift the risk of a new approach, allowing governments to pay only when outcomes are delivered and investors to be rewarded for taking on the risk of the pilot (once again, incentives all around).
COORDINATION: Often the structure of a SIB requires multiple service providers to coordinate their activities into a “total intervention”. But individual service providers are only rewarded if this total intervention works (one last time, an incentive for all).[1]”

Are these points unique to SIB’s or are we just allocating an additional layer of administrative cost to an already overburdened non-governmental sector meaning that even LESS money gets to the beneficiaries?

Is a SIB Necessary? Let us look at the benefits raised above:

1. DATA Collection –Plenty of research is already done on the effectiveness of projects and outcomes. The Jobs Fund has discontinued significant funding from organisations that do not reach their job creation targets per their original contracts without a SIB in place.

2. DILIGENCE – Here Ms Patton is correct in that the diligence of the provider is outsourced. It is a normal part of contracting arrangements for NGO’s.

3. RISK – This is discussed further below, but in essence there is very little risk being transferred.

4. COORDINATION – This is perfectly doable in the normal course of project funding and should be BAU.

ARE WE TRANSFERRING RISK?

Looking through the list of investors it is telling that there are very few new names and at least 3 of the SIB’s in the UK are funded by the Government itself[2] and as of June 2014 there is no mix of government and non-government funding in UK SIB’s so the much hoped for private-public partnership does not seem to be bearing out. In addition most of the non-governmental funders are philanthropic organisations, organisations with a government mandate for social investment or foundations or corporates who would be spending the funds on similar projects as part of their sustainability objectives. Previously these organisations provided funding with no guarantee of return i.e. they took on the risk. The list of parties showing interest in a South African SIB does not appear any different. Goldman Sacs appears to be an exception to the rule, but in addition to receiving a 22% return on one of their investments (the average return is 6-8%) they have obtained a guarantee for 75% of their exposure to one project and are the preferred creditor in another as well in what one article called “part of their image remake program after 2008”[3].

While there could be a transfer of risk SIB’s do not appear to have not been effective so far in bringing new money to the problem and with an added layer of costs (financial intermediary, administration, co-ordination), excluding the return the effect is SIB’s are reducing the funds available to the final recipient. It is also unlikely that private investors are going to get involved in projects that have no track record so the risk is related to implementation or specific circumstances rather than a complete unknown. Is that worth the additional cost layer? Apparently there has been “millions of pounds worth of private funding as a result” of these instruments according to Bertha Centre’s Dr Susan de Witt, but these numbers are not available outside of academia and it is subjective as to whether this is additional funding beyond “normal” social corporate responsibility levels.

The Bertha Centre is currently calling for a 30% tax relief for social investment in addition to current donations tax exemptions and BEE ranking benefits. In the case of a SIB this effectively amounts to a 30% surcharge on the cost to the fiscus on a “pay for results” investment.

There is no doubt that outcomes based project evaluation is lacking and even basic monitoring and evaluation beyond how the funds are spent, but the answer is not to create another layer of cost. The cost effective solution is to put together a framework of monitoring and evaluation for all projects and ensure that there are sufficient trained staff that this is BAU for all projects and organisation and not just those that are lucky enough to find a 3^rd party funder willing to take the risk on them.

For a more balanced review of SIB’s in South Africa I would recommend reading “Thinking About Social Impact Bonds in the South African Context (lessons from the United Kingdom)[4]” published by Cornerstone Economics which presents reasons for and against a local SIB as well as detailed analyses of 3 of the projects in the United Kingdom for further reading on the topic.

[1] http://insideoutpaper.org/the-story-of-social-impact-bonds/ retrieved 2014/08/07 08:48 PM

[2] http://emmatomkinson.com/2014/02/14/social-impact-bond-sib-uk-v-world-map/ retrieved 2014/08/14 02:00 PM

[3] http://www.reuters.com/article/2013/11/12/us-goldman-social-impact-bond-analysis-idUSBRE9AB0ZD20131112 retrieved 2014/08/07 08:32 PM

[4] http://www.cornerstonesa.net/wp-content/uploads/2014/06/Thinking-about-SIBs-in-SA-Cornerstone-Economic-Research.pdf retrieved 2014/08/07 09:00 PM

Why Does UCT Charge So Much for Its Online Courses?

noreply@blogger.com (Kim) — Thu, 10 Apr 2014 11:06:00 +0000

Another interest rate hike; another petrol price hike; the cost of living in South Africa seems to be getting more expensive by the day. The advent of Internet 2.0 was supposed to help consumers stretch their ever shrinking Rands, but it seems that some South African entities are completely ignoring their primary missions in the pursuit of profit at the expense of the development of the country.

Who am I talking about - there are many that come to mind, but specifically the University of Cape Town ("UCT") and their online education classes. In his 2009 book "What Would Google Do?" Jeff Jarvis looked at how Google changed the revenue mantra of business from "how much can we charge" to "how little can we charge".

Ivy League Universities are using the Freemium Model to share their education with the world. Success stories include an Indian student who took a physics course from his home in rural India and was given a full scholarship to complete his degree at the university due to his work on the course. Having seen the success of Massive Open OnLine Courses ("MOOC's") UCT decided not to use the existing providers but to build their own. This added an additional layer of cost and instead of offering a free or nearly free course they charge as much as they would for a course that they offer in house. Coursera which offers courses from Wharton School of Business; Ohio State; National Geographic Society and Johns Hopkins University allows you to do the course for free or a nominal fee of USD50 (ZAR520). UCT offers courses starting from R8,800 (USD846). When I queried this with the course provider they stated that the pass rate of the Coursera courses is 5% against their pass rate of 90%. As Mark Twain succinctly put it "lies, damned lies and statistics". It turns out that 70% of the students pass if they pay USD50 (Signature track). The other difference noted by the UCT online course provider is that we have access to the lecturers. MIT, another Ivy League University was offering a course with interaction with the lecturers for USD$495 (ZAR5,148). Which would you prefer? A diploma course from MIT or UCT? In addition the MIT online offering offers a 1 week "test" before you pay. A good way to check out if the content is right for you. UCT's offerings don't offer this.

Coursera's Gamification Course Completion Profile

This was just about the fees. Lets look at the numbers ... In another survey it was found that a median number of entrants to each MOOC course offered by the likes of Coursera and Edx was 33,000. That gives us an assumed completion rate of 1,650 per course (using 5% completion). UCT's online service provider has had 15,000 successful participants since inception. A number that is achieved every 9th MOOC. Numbers that UCT can only hope to dream of in their current model.

So is UCT's mission to educate or to make money? It would seem that it is to make a profit. In this example a 43 year old professor and 1 web cam reached 140,000; 8,200 people completed the course over 2 offerings. That is more than 1/2 of all the people who have completed the UCT online courses.
As if we didn't need more examples here is an example of a course run simultaneously online and on campus. There were 29,000 online students and 100 campus based students. Not only was the number of students who passed greater than 13 times the number who took the course on campus, but the students Signature track (paid USD50) had a pass rate of 99% vs on campus students of 74%.

Internet penetration and cost in South Africa means that our local providers will not get the numbers experienced by the examples above, but does training 15,000 people over 40 courses over 3 or 4 years really count as being revolutionary? Will that fix South Africa's skills and education problem? It seems that UCT is focusing on those who can pay, rather than educating the country.

Rate: USD1:ZAR10.20

The REAL News Behind the Nkandla Report

noreply@blogger.com (Kim) — Sat, 22 Mar 2014 10:56:00 +0000

www.madamandeve.co.za

The long awaited report from Advocate Thuli Madonsela on the improvements to President Zuma’s Nklanda home came out this week. The news was full of the findings and Corruption Watch was widely quoted as saying “The Public Protector’s findings on Nkandla have severely damaged the credibility of the government and key custodians of public resources.” It seems that Stephen Francis and Rico, the creators of the satirical comic strip Madam and Eve saw the real story. Everyone was pretty sure what the report SHOULD say. What was in doubt was whether the Public Protector’s office was sufficiently empowered and independent to say what needed to be said. That was the question. The good news for South African democracy is that it did say what needed to be said and it didn’t mince words either.