Is Political Fundraising Adding to the Financial Crisis in the Nonprofit Sector?

By Ann Bown · 23 Jun 2009

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Picture: Democratic Alliance & David Sandison
Picture: Democratic Alliance & David Sandison

Non-government organizations and community-based organizations are cost efficient implementers and service providers in the fight against poverty and they are the partners of choice for government to raise the living standards of millions of South Africans. It is estimated that there are well over 100 000 nonprofit organizations (NPOs) in the country.

The economic downturn has affected the nonprofit sector severely. International funders have reduced or halted grants. Corporate Social Investment (CSI) dwindles as company profits nose-dive. Individuals have reduced or even withdrawn their support.

Declining interest rates on investments depletes rainy day funds and slices of sponsorship have shuffled their way into 2010 FIFA World Cup deals.

South Africa could see the demise of hundreds of good causes this year. The tragedy is that the poorest of the poor will suffer as the majority of NPOs work in underserved communities.

We need to seriously examine why the sector is living from hand to mouth and lurching from one funding crisis to another.  We need to ask questions such as: Did political fundraising also contribute towards the troubled NPO sector this year?  Could companies be redirecting CSI budget lines to political parties? Are individuals succumbing to calls for money from charismatic politicians? Will future fundraising from the private sector be an open field day between politics and the nonprofit sector if the richest party always wins the most votes?

The ANC has stated that they had a war chest of over R200 million for the 2009 campaign. Speculation is that it was well over R900 million. Where did this money come from?  The Democratic Alliance reportedly budgeted R60 million, but we are guessing once more because we just don’t know. The new party, COPE, aspired to raise R40 million.

Other parties such as the Independent Democrats (ID), United Democratic Movement (UDM) and Inkatha Freedom Party (IFP) didn't appear to set targets outside of the public funding system, but they must have raised a few Rand from the public as well.  In total, our political parties fundraised more than R500 million from the South African public to contest the 2009 elections.

Since 1997, political parties have stated on numerous occasions that they would like to see regulations legislated, but somehow this just doesn't get off the ground. A little shimmy shake occurs and then the process stands still again.

The Institute for Democracy in South Africa (IDASA) and the Institute for Security Studies (ISS) have been working towards a solution for many years, but the two major parties duck and dive on the issue. Under current South African legislation, donations to political parties do not have to be disclosed, and there is no ban on foreign funding for parties.

How political parties raise the money is not so much in question here, but who donates and why mostly, with strings attached.

Access to records of private donations is not required under the Access to Information Act as civil society lobbyists discovered during a ruling by Judge Benjamin Griesel in April 2005. Yet, NPOs with Section 18a Public Benefit Status (PBO) have an obligation, under the PBO Act to issue receipts for all donations received. Most are happy to list their income sources in annual financial statements. This is not regulated but encouraged in the spirit of transparency and accountability. Why is this so difficult for political parties to do?

In the interest of transparency, regulations must be introduced.

In the interest of good governance we need to ensure that all fundraising is transparent and accountable.  Corporate South Africa and for that matter NPOs are encouraged to comply with The King III Report for adherence to good corporate governance.

Political parties should also comply with codes of ethics and possibly ascribe or adapt the International Statement of Ethical Principles in Fundraising.

Without such guidance, a lack of clarity and openness will not become a reality.

The ISS notes, "private funding may allow the rich to 'buy' influence through secret donations, drowning out citizens' voice and undermining the equal value of each person's vote."

Political fundraisers fear that their business donors will cease support if their amounts and names are revealed and made public. Yet these same individuals probably insist on receiving recognition in the form of a receipt and thank you letter from a nonprofit. Why be shady about it as we each have a right to support a party or a charity of our own choice.

It's worth examining public funding versus private funding.

If private funding is more lucrative during political campaigning and has no requirements for accountability then we can expect political parties to pursue this with more vigour in years to come inflicting greater pain on good causes and stymying growth and development.

Public Funding through the IEC (Independent Election Commission) disburses funds to political parties based on a formula according to the share of seats each party holds in the national assembly plus 10% according to an equitable funding formula. In total R88,3 million was allocated during the 2008/2009 period.

This meant that the ANC received R61 million (or 69,2%) and the Democratic Alliance, the official opposition, received R10,5 million (or 11.9%) and the rest went to the smaller players like the IFP, ACDP and the ID.

IDASA has been facilitating a process for the managing of party donations; the process is slow and has been shelved several times since first discussions in the late 1990's.

However, sixteen large corporations voluntarily disclosed donations during the 2004 elections. Among the businesses that disclosed were Standard Bank, Liberty Group, Anglo Gold Ashanti, Sanlam, Mvelaphanda, Sappi, Kumba, Cell C, MTN, Absa Bank and Gencor.

Thus far we know that during 2009 Standard Bank donated R5 million, Anglo Gold Ashanti reserved R4 million, SAB Miller disbursed R5 million and MTN stated they would distribute R13 million.

So, taking stock of these figures, how did the ANC attain the rumoured R1 billion?

Foreign donors, it appears, have also played a role in the fortunes of our political parties.

The major parties keep very quiet about funding sources for election campaigns from foreign donors, but a Mail and Guardian article, "ANC’s Dodgy Funders," dated 21 March 2009 referred to a party source who said they were heavily subsidized by the ruling parties in Libya, Angola, China and India.

It may astonish some to learn that a few NPOs also receive funds or other support from dodgy sources too and this adds credence to the call for regulations in raising funds from the public and out of the country sources.

The 2008 USA Presidential election campaign for Barack Obama proved that utilizing new media such as MySpace and Facebook is the most effective new wave in raising funds for political campaigns. The final total in donations from the private sector was US$745 million (R6,3 billion), almost double that of previous years’ campaigns.

According to Giving USA Foundation, donations to nonprofits dropped in 2008 (when adjusted for inflation) by 5,7%. Some were surprised that this figure was so low, expecting more, yet it's the worst plunge in 50 years!

Is this a consequence or a coincidence of political fundraising?

Through a general lack of willingness to measure and evaluate such activities we won't be able to quantify or compare such numbers in South Africa, so we just don't know if political fundraising is having a harmful affect on the work of nonprofit organizations, but we fear the worst.

Bown is the head of Charisma Communications. She is a financial sustainability consultant to the nonprofit sector.

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