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Mandela-Inspired, $80-Million ‘Noble Experiment’ Coming To An End

Mandela-Inspired, $80-Million ‘Noble Experiment’ Coming To An End

On his first state visit to the U.S. in 1994, South African President Nelson Mandela asked Americans to start investing in South Africa again following years of apartheid-era sanctions.

The result was a 20-year, $80 million Southern Africa Enterprise Development Fund, established to kickstart the economy of a developing region, according to a story in the Huffington Post.

The fund, considered an experiment in some aspects, helped a lot of people but didn’t always work, according to fund Chairman Carlton A. Masters.

President Bill Clinton and Mandela stood side-by-side on the White House South Lawn that day in 1994. Despite the “old and deep wounds of apartheid,” Clinton said, “the United States will continue to do everything in our power to support the new nation you and your South African people have created and now seek so strongly to build.”

The fund was designed to provide economic opportunity to the formerly disenfranchised people of Southern Africa, and it has almost run its course.
“It’s a testament to the success of this noble economic experiment, and the remarkable rebirth of the South African economy, that the fund has now outlived its storied role,” said Masters, who is chairman of the Southern Africa Enterprise Development Fund, in an article he wrote in the Huffington Post.

The Southern Africa Enterprise Development Fund, or SAEDF, succeeded, Masters said, providing more than $80 million in financing to indigenous private businesses in South Africa. The fund invested in at least 18 start-ups and small companies, sponsored 12 financial intermediary firms and leveraged additional money for local entrepreneurs, Masters said.  The businesses it funded employed more than 2,500 people directly and created spin-off jobs for thousands more.

The southern Africa fund was not the only U.S. development fund but  it was the only one with a mandate to fund development projects in remote or troubled regions while also turning a profit, according to Masters. For example, the fund financed a hospital outside a poor Cape Town township, then gave the hospital to the community.

The fund also helped establish an employee share trust for indigenous farm workers on white-owned farms with a $2 million loan, giving employees equity in a large corporate farm.

The southern Africa fund was also the only U.S. Enterprise Fund run by a government bureaucracy. It was controlled by the State Department’s U.S. Agency for International Development while its European counterparts operated independently like private equity funds, Masters said.

And the fund served 11 southern African nations, operating a small budget with a large pool of recipients who spoke a variety of languages. Half the funds had to be spent in South Africa, leaving $40 million for 10 other African nations.

“Candidly, not all our efforts worked,” Masters said. The SAEDF’s attempt at privatization failed. At U.S. taxpayers’ expense, three former SAEDF employees were authorized to form a management company that they would own. The three partners had two years to get irrevocable commitments from private investors of at least $37.5 million. When they couldn’t pull it off, USAID shut the venture down and directed SAEDF to sell off its properties.

So now, 20 years later, that’s what SAEDF is doing, Masters said. It has listed the sale of a Tanzania hotel for $40 million, is selling off Malawi telecom interests and liquidating other assets. All proceeds will flow back to U.S. taxpayers, according to the article. “The silver lining is that the economy in southern Africa is so much stronger now – thanks in part to SAEDF – that it is time to close up shop,” Masters said in the article.

Ambassador Andrew Young was the SAEDF Chairman from 1994 to 2011 and is the former U.S. Ambassador to the United Nations.

“SAEDF attracted so many other commercial and governmental investment firms into the region that USAID feels that SAEDF’s mission is now complete,” Young said in the article.  “While all the ills of the apartheid system have not been cured, there are now private equity funds, banks and hedge funds eager to invest in southern Africa, including several headed by managers trained and inspired by SAEDF. We just hope they continue to be responsive to the needs of the people we helped over the years.”

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