South Africa is home to some of the world's most diverse ecosystems, boasting a rich natural heritage that is crucial for both global biodiversity and the nation's socio-economic well-being. However, the country is facing a growing biodiversity funding gap that threatens its conservation efforts. The gap, initially highlighted by BIOFIN in 2018, has widened significantly due to escalating fiscal constraints. 

In this context, South Africa’s successful biodiversity stewardship model, which has played a pivotal role in conserving vital ecosystems, is now under severe financial pressure. There is, therefore, a need to rethink the financing model, by incorporating innovative financing mechanisms and increased private sector involvement.

The current funding model: a system under strain:

The biodiversity stewardship model has played a crucial role in achieving the National Protected Areas Expansion Strategy (NPAES) targets, supported ecological infrastructure and promoted rural development by energizing economies linked to protected areas. To date, the model accounts for 11.79% of all protected areas in South Africa, with 68% of the nation’s protected areas established between 2008 and 2016 due to stewardship initiatives. The model has also been identified as a cost-effective way to meet Target 3 of the Global Biodiversity Framework. Expanding the conservation estate through this model can cost the state 17 times less per hectare than managing a state-owned protected area. 

A study in 2017 estimated that nature’s services benefit the South African population by at least R275 billion (in 2017 prices). Also, data from a UNDP BIOFIN programme highlights a significant increase in the role of biodiversity stewardship in South Africa's protected area network

The current biodiversity stewardship model relies heavily on public and NGO funding. Provincial governments are primarily responsible for delivering biodiversity stewardship services. In 2016, the government introduced a tax incentive for landowners declaring a Nature Reserve or National Park, allowing a 4% annual deduction of land value from taxable income for 25 years, positively impacting landowners' finances and enabling them to fund biodiversity stewardship activities. Additionally, some NGOs provide extension services and funding for various biodiversity stewardship projects. 

The reliance on state funding for biodiversity stewardship is also increasingly unsustainable. South Africa’s fiscal space is increasingly constrained by high debt, rising debt servicing costs, and weak revenue generation. In 2023/2024, the budget deficit is projected at 5.1% of GDP, with debt servicing set to rise from 20.7% of revenue in 2023/24 to 22.1% by 2026/27. These pressures have led to significant budget cuts for biodiversity entities. 

This has led to a growing funding gap which poses a significant threat to national conservation efforts, tourism, and the biodiversity stewardship model. 

Alternative investment options:

Given the budget cuts and the strain on public finances, there is an urgent need to explore alternative investment options to sustain biodiversity stewardship. 

South Africa’s well-established capital markets could potentially bridge the biodiversity funding gap. However, the biodiversity sector must evolve to present biodiversity as an attractive investment class, beyond impact investing. To attract private investment, the Government may need to:

• Guarantee that communities have title to the land on which biodiversity stewardship sites are established.

• Invest in capacity building for Community Property Association (CPAs) to enable them to engage with the private sector and utilize innovative finance mechanisms.

At a macro level, the Government could consider:

• Redirect funds from harmful subsidies to derisk private sector investments in biodiversity.

• Develop blended finance instruments geared towards increasing investment in biodiversity stewardship.

• Elevate biodiversity to an investable asset class, similar to climate finance, to attract participation from South Africa’s capital markets. The climate finance narrative in South Africa is well-developed, with various mechanisms encouraging the participation of large capital markets.

Conclusion:

The biodiversity stewardship approach in South Africa has been a remarkable success, significantly advancing the creation of new protected areas and preserving essential ecosystems. However, the widening biodiversity funding gap poses a serious threat to the sustainability of this flagship initiative. It is evident that the government can no longer finance stewardship using traditional methods, given the increasing limitations on financial resources.

To ensure the long-term sustainability of biodiversity management in South Africa, it is crucial to foster partnerships with private investors and embrace innovative finance structures. The Government of South Africa and other stakeholders must rethink how best to structure biodiversity stewardship to attract investment from sources beyond the public purse. As investors increasingly accept the concept of double materiality and show a willingness to invest in nature-related activities without negatively impacting their balance sheets, the onus is on the Government and other stakeholders to innovate and adapt the successful stewardship model for private sector investment.

By mobilizing significant financial flows from capital markets, repurposing detrimental subsidies, creating blended financing instruments, and elevating biodiversity as an investable asset class, South Africa can secure the future of its rich natural heritage.

Nokutula Mhene, the BIOFIN Specialist at UNDP South Africa, champions innovative financial solutions to enhance biodiversity conservation, driving sustainable development and empowering local communities to protect their natural resources.