JOHANNESBURG - There is no doubt that the impact of coronavirus on the economy will be huge.
Already some countries have announced stimulus packages to get their economies back on the feet. There has never been an opportune time to invest for inclusive development than in this epoch of our lives.
According to the Organisation for Economic Co-operation and Development (OECD), three out of four people on the African continent live in poor conditions, while the continent accounts for half of the world’s poorest. Furthermore, the continent is home to 24 classified low income countries, according to World Bank data. Africa has significant developmental challenges that include poverty, climate change, poor levels of education and healthcare, financial exclusion and food security; to name a few.
Considerable development progress has been made but many scholars and institutions argue that development efforts thus far have been inadequate to meet the growing demand and make a meaningful impact. In the same breath, the current growth levels of Africa are not sufficient enough to correct the structural and macroeconomic challenges it faces. Furthermore, Africa is only partly on track for three of the seventeen Sustainable Development Goals (SDG’s). These are Life on Land, Equality and Climate Action.
The Sustainable Development Goals Centre of Africa estimates that there is an annual financing gap of between $500 billion and $1.2 trillion to meet these goals.
This presents a considerable opportunity for Impact Investing as an attractive investment vehicle for Africa. Impact Investing refers to investments that are made with the objectives of generating both a financial return and a measurable and positive social and environmental impact. According to the Global Impact Investing Network (GIIN), Impact Investing can offer capital to address some of the greatest challenges across various sectors. Development Finance Organizations (DFI’s), Philanthropist and Impact Fund Managers have pioneered this initiative globally, with many integrating impact strategies in their portfolios. Furthermore, significant amount of investors are adopting the UN’s SDG; and the African Union’s Agenda 2063 objectives as a reference point to gauge the impact their investments are making.
However, only 14% of impact capital makes its way to Africa, according to GIIN (2019) annual survey, despite Africa having compelling investment case. The continent has strong economic growth rate that is diversifying away from commodity dependency and; the fastest and youngest growing urbanized population globally. Africa still, however, has many pressures and investor concerns on its outlook. The continent is plagued by poor debt and fiscal management, whilst investors are cautious, weighing-up risk, reward and impact. Poor regulatory and governance frameworks; the lack of liquidity, information and trust deficits as well as funding constraints amongst others, may hinder investment appetite.
Whilst DFI, Philanthropy funding continues, Institutional and Private Equity players are on the rise - although still developing. More capital needs to be raised to catalyze the achievement of the continent’s development goals by 2030.
The Public Investment Corporation (PIC) and Impact Investing South Africa (IISA) have recently launched the Africa Impact Report 2019.The Report aims to be a catalyst for collaborative coordination amongst global stakeholders to fast track sustainable and scalable solutions for Africa’s prioritized impact needs. The Report presents a baseline of the progress pertaining to the United Nations (UN) Sustainable Development Goals and the African Union (AU) Agenda 2063, macroeconomic growth prospects, capital availability and sector opportunities.
It further outlines gaps which require a collaborative effort to address in order to ensure the much needed outcomes for the African continent is achieved.
Some of the key outcomes of the report discusses are several gaps that need to be closed to catalyze the scale of impact Investing needed in Africa.
Firstly the gap analysis shows that capital is concentrated in certain countries (Kenya, South Africa and Nigeria) and certain sectors (Energy and Financial Services). The authors argue that demand side opportunities require development for broader sector inclusion, such as manufacturing and social infrastructure (healthcare, education and affordable housing). Furthermore, the author’s detail that a 3 “I” framework is suggested to align effort for Impact and considers the following factors as critical: Infrastructure as a bedrock for development, Industrialization as a catalyst for inclusiveness and self-sustainability; and Intra-regional trade for economic independence and inclusivity. The report also mentions several other structural investment gaps, such as awareness of impact, sourcing investment projects that meet both social and financial mandate, regulatory and leadership gaps, impact measurement gaps and employment and skill gaps, amongst others.
Africa is a continent of many extremes and uncertainties, but well-suited for a diversified set of impact outcomes. While Impact Investment in Africa is growing, deliberate sectoral and regional co-ordination strategies will be needed to match the growing demand side opportunities with supply-side evolving capital. Investors of all types have an important opportunity in Africa and a responsibility to help achieve its development goals. However, this responsibility needs to be shared equally amongst all participants in the impact eco-system.
African investment requires a conscious shift in which investors and policy makers need to reduce the silos and work more collaboratively. The development agenda of Africa is becoming a broader, shared objective, whilst investors have to consider developing more innovative strategies and models to adapt. These strategies and models need to be aware of the risks, and must attempt to mitigate them. By reducing the silos, partnering-up and embracing local networks, investors would be able to realize the maximum social and financial return that can be achieved.
As much as policy reforms are taking place an “Impact Investing Inc.” approach would allow partnering and facilitating of investments where Africa needs it most that are shared amongst all types of impact investors.
The GSG Impact Summit 2021 takes place in Johannesburg, South Africa on a date yet to be confirmed. The full Africa Impact Report 2019 is available on www.pic.gov.za under Research & Insights.
Brenton Lalu is a Research Specialist at the Public Investment Corporation, focusing on Africa.