Five ways to scale up impact investment in Africa
Clearing key obstacles could open the door to a host of opportunities for investors looking to make a positive social or environmental impact alongside a financial return.
Africa offers tremendous potential for impact investors. Owing to the continent’s deficits in infrastructure and access to finance, every dollar of investment in Africa has greater potential to help solve intractable problems than a dollar invested in developed markets.
Technology investment in Silicon Valley has provided entertainment, created new online communities and driven changes in business efficiency. In Africa, it is more likely to “enable somebody in a remote area to have access to the financial system, a health practitioner or educational content,” said Tokunboh Ishmael, founder of Alitheia Capital, an impact-investing private equity and financial advisory firm headquartered in Lagos, Nigeria.
Impact investment reached an estimated USD1.5 trillion globally in 2024, with demand from large asset owners to deploy capital into impact solutions far outstripping the supply of strategies able to accommodate them.
But impact investment in Africa grew at a much slower pace than in the US and Europe in the five years to 2022 (see Figure 1). This partly reflects the difficulties institutional investors face in accessing appropriately structured impact opportunities on the continent, stemming from a shortfall in local awareness, capabilities and support.
By addressing five key issues, Africa could potentially receive much more funding to put towards enterprises that drive positive social and environmental change.
1. Clear up misconceptions
When Ishmael founded Alitheia Capital in 2007, ‘impact investing’ as a term was just being coined and few understood what it meant. Having previously worked on Wall Street and as a venture investor focused on Silicon Valley, “a lot of my colleagues in the industry thought I had lost the plot talking about this soft thing,” she said.
The concept of impact investing has since gained traction, but is still often confused with philanthropy. “This is a real branding problem,” said Ashraf El Khatib, Chief Investment Officer at Ekuity Holding, the Egypt-based arm of the Kuwait Investment Authority (KIA). “Sometimes when I’m talking to someone about an opportunity, they say ‘OK, let’s start with USD10,000,’ because they look at it as some sort of charity,” he said.
This is partly the result of impact investing on the continent having been traditionally dominated by donations from non-governmental organizations.
In reality, most global impact investors are after financial returns, with nearly three-quarters targeting risk-adjusted market-rate returns (see Figure 2).
In view of this, El Khatib said impact investing “needs a rebranding to focus on the financial returns it can provide private investors. We can then find different ways of de-risking investments, so they are commercially viable.”
Impact investors focused on Africa have long had their eye on both financial returns and positive social or environmental impact.
Take LeapFrog Investments, which in 2009 provided financing for South African life insurer AllLife, which covers customers with diabetes and HIV/AIDS, whom other providers deem uninsurable. Not only does AllLife provide essential services to previously excluded groups, but it also generates profits.
2. Work together
Many of the continent’s impact investment opportunities are too small to attract the attention of international investors, which suggests there may be an opportunity to drive more interest by grouping projects together.
This is especially the case in Africa’s agriculture sector. Although 60% of Africa’s economically active population works in agriculture, the continent is a net importer of food because productivity is low. It could be improved using technology and innovation, but this requires closing the USD117 billion financing gap for small- and medium-sized agricultural enterprises and smallholder farmers.
Because it is difficult to extend financing to individual smallholder farmers, there are a number of startups working to aggregate them into investable entities, according to El Khatib. These include Apollo Agriculture in Kenya and Mozare3 in Egypt.
Building awareness of the scope of impact investing can help open the door to a larger range of impact opportunities. Much of the continent trails the rest of the world on the United Nations’ Sustainable Development Goals, so there are a lot of ways to make a positive impact (see Figure 3).
A more recent focus of Africa’s impact investors is gender equality, as exemplified by HerVest, a Nigerian digital platform providing access to financial services to women farmers in Nigeria.
Ishmael’s mission is to address the disparity in funding for women-led enterprises. “Even though over 50% of small businesses in Africa were started by women, only 2% of funding was going to them,” she said.
3. Build local talent
Another challenge to scaling impact investing on the continent is finding local talent with a track record in achieving both meaningful impact and financial returns. El Khatib noted that “many times you couldn’t find this complementary skill set — you will find one or the other.”
As a result, most impact investment into Africa comes from funds in Europe and the US, but these can lack the local context and experience needed to effectively identify and assess local opportunities.
Developing local talent will take time. External investors could hasten the process by working more closely with people on the ground in sourcing investments. Ultimately, this could open up new opportunities for all involved.
4. Measure impact properly
Measuring impact is complex — and often even more difficult in Africa because of that shortage of local impact investment expertise.
“There are a number of companies in different sectors, from healthcare to fintech, that have achieved above-market returns for their investors while making a positive impact, although they are not labeled as impact,” said El Khatib. “They are just saying ‘we are focused on enabling better education, better access to banking products or increasing jobs.’”
Many such projects are also not measuring their impact in a coherent way nor are they using a rigorous framework that investors can monitor.
There are, however, global reporting frameworks that offer helpful guidance on what to measure and how, following the introductions of the Operating Principles for Impact Management in 2019, the OECD-UNDP Impact Standards for Financing Sustainable Development in 2021 and the Impact Management Platform in 2023.
5. More government support
Finally, governments can catalyze private investment in projects that promise positive social and environmental impact — including infrastructure, affordable housing, clean energy, healthcare and education — through public-private partnerships.
Another way is to create blended finance vehicles, which combine public funds with commercial funds to de-risk private investments in impact ventures.
A similar principle applies on a smaller scale to government matching funds, such as Ghana’s Venture Capital Trust Fund (VCTF), a platform for pooling private sector and government funds to provide financing for startups. Or credit guarantee schemes, such as Kenya’s Kilimo Biashara, which enables smallholder farmers to access low-interest loans to procure productivity-enhancing inputs.
Such arrangements can help impact-focused businesses achieve sufficient scale to become profitable — just as catalytic investments in solar and other renewable energies have helped these once prohibitively expensive technologies become even cheaper than fossil fuels, El Khatib pointed out.
Governments could also consider fast-tracking regulation to enable innovative companies to solve important social and environmental problems.
Nigeria’s Paga, for example, was held back in its ambition to expand from mobile payments to micro savings and insurance because the government was slow to allow it to do so. “Fast forward to today, new fintechs come along, and they get the license to do everything, and so their time to take off is shorter,” said Ishmael.
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