The Tshwane Free WiFi project has successfully set the pattern for social impact bonds in South Africa.
Social impact bonds are a form of innovative funding that gives service providers, including non-profit organisations, access to upfront resources to tackle social problems by tapping private funding to cover the upfront costs of social programmes approved by government institutions.
Kasief Isaacs, portfolio manager for infrastructure investments at Mergence Investment Managers, “Mergence’s involvement in the Tshwane free WiFi project is to provide capital to businesses that are aligned with the investment objectives of its Institutional clients.” The investment allows Isizwe to accelerate the WiFi roll-out by funding the interim outlay of capital necessary to speed up deployment while allowing the flow of money from the municipality to proceed as agreed outcomes are achieved.
“Mergence Investment Managers seeks to invest in projects that will make a social impact as well as provide a competitive return for our institutional clients. The social impact of free WiFi in lower income areas has been well documented; indicating on average that every 10% increase in broadband penetration increases a country’s GDP per capita by 1.28%, employment by 0.28% and facilitates the growth of small and medium sized enterprises,” Mr. Isaacs says.
“Most importantly, the funding significantly reduces the risk for the municipality, enabling a demonstrable shift towards an outcomes-based procurement model”, says Mr. Isaacs
Zahir Khan, Chief Operating Officer of Project Isizwe, says “The Mergence investment represents a key building block for Project Isizwe accessing
commercial funding (from fund managers) and the financial markets to help raise capital for further roll-out of the Tshwane project. Over the longer term we could develop a funding and deployment model, in the form of a social impact bond, for similar WiFi projects in other municipalities across South Africa and potentially into the wider African market.
“This model could be used to support the national broadband roll-out envisaged by government and Telkom, with fibre as the backbone and municipal WiFi as the last mile (meaning the process used to connect the end user to the communications network),” he says.