By Marcus Coetzee, 21 November 2024
My clients and colleagues have been complaining about how difficult fundraising has recently become in the UK for charities, social enterprises and community groups.
They observe that there seems to be less funding available, even from anchor funders. I’ve heard several stories of funders unilaterally reducing the terms of existing agreements. Government departments and local authorities have drastically cut back their funding as their budgets are reduced due to austerity policies. These shifts have reduced the income of third-sector organisations, thereby amplifying the problems caused by the cost-of-living crisis. Competition for funding has predictably become more intense. The overall mood at conferences and webinars seems subdued.
Unfortunately, this situation is very familiar to me. It’s almost déjà vu. It reminds me of the situation facing the South African non-profit sector since the early 2000s. I know the endgame – how this can turn out since I’ve spent over two decades helping these organisations overcome these challenges.
Here are some trends I observed about how the third sector in South Africa adapted to the decline in funding. I’m unsure how many of these trends will occur in the UK because there are big differences between the countries. Nevertheless, it’s interesting to reflect and consider what lessons we might learn. My clients have certainly found these points valuable when I’ve informally shared them.
The ten trends are:
1. The government significantly reduced their funding arrangements with charities and put contracts out for tender where any supplier could win them. Several of my clients lost big contracts to businesses that didn’t share their values – contracts ranging from providing TB treatment in communities through to school feeding programmes. This trend often had negative consequences for service users and beneficiaries.
2. The government became a competitor for funding. It found ways to enact policy (and grab opportunities) where it took ownership of pots of funding, primarily those linked to community benefits. This directly affected two of my clients – one was managing a recycling levy that importers and producers were charged. The other received royalties from mining operations in the area.
3. Sensible charities learned to reduce their fixed cost structure (i.e. their core overhead) and link all expenses to funded projects. They used more external suppliers and fixed-term contracts to minimise their risks.
4. Competition for funding became intense. I’ve heard of many instances where over ten thousand applications were submitted to a corporate foundation. This changed the balance of power and created an opaque environment where funders didn’t need to provide feedback or guidance to applicants. It became much the same as applying for a job where everyone saw the same job advert.
5. Less funding meant fewer staff. This resulted in staff becoming more generalists and needing to adopt multiple roles. For many organisations, this led to a more frenetic pace of work with frequent overtime. A hustle culture also emerged where leaders were always ‘on’ and alert for opportunities. They also became skilled at making things happen at short notice. Leaders had to learn how to balance the pursuit of these opportunities with the core purpose of their organisation.
6. There was a massive increase in interest in revenue generation and social enterprise. Unfortunately, the South African tax laws are much less favourable than those in the UK. This led to the increase in hybrid organisational structures with a mix of for-profit and non-profit legal forms, increasing their bureaucratic burden. Furthermore, these organisations tended to adopt a business-to-business approach since their impoverished customers lacked the funds to pay for goods and services.
7. A strong brand, good marketing and trusted partnerships became a prerequisite for securing funding. If a funder didn’t recognise the brand of an organisation, it would be much less likely to be shortlisted. Hence, investing in marketing and relationships proved very worthwhile and created the conditions for fundraising to succeed.
8. The ability to do good monitoring and evaluation became a competitive advantage. I’ve often mentioned to people how this practice is lax in the UK compared with the standard set by the South African organisations I worked with. Part of this is because South Africa is a low-trust environment compared with what I’ve experienced here in the UK; hence more financial controls and evidence is required by funders.
9. Businesses became the primary funders through their charitable foundations and cause-related marketing. While part of this is because businesses in South Africa are mandated to donate 0.1% of their net profit after tax to charities, I believe it’s equally driven by good corporate citizenship and an awareness of the country’s challenges. This led to some innovative partnerships between businesses and charities.
10. There was a constant consolidation of activity within the sector. I know of many well-known organisations that were forced to close. At first, I was upset by this trend, but over time I noticed that newer and/or better-prepared and more efficient organisations eventually emerged to take their place. Similar organisations also merged or created consortia. Nowadays I see these dynamics as a natural evolutionary cycle within the third sector. And where services completely collapsed, people tended to rely on subsistence activities, meagre government benefits and extended-family support structures.
As a relatively wealthy and developed country, it is highly unlikely that the UK will ever find itself in the situation faced by South Africa. The third sector is relatively well funded and government policies are favourable. There are also more checks and balances. However, it is clear that UK organisations will need to become more adaptable and resilient to cope with the prevailing funding climate and state of the economy. Hopefully, these reflections help on this journey.