Why Africa needs Impact Investments

In a fast growing continent where the poor are growing poorer as the rich grow richer, impact investments might be the only lasting solution to bridge the rich-poor divide with much-needed social infrastructure.

Could the continent finally be headed for a stable economic future, away from the shadow of volatile resource prices? A preliminary analysis does indeed argue in favour of this optimistic conclusion.

A 2015 article in The Economist notes that ‘despite turmoil in commodity markets, Africa continues to be one of the world’s fastest-growing regions’. Indeed, the author avers that ‘with better education systems, investment in infrastructure and sensible regulatory reforms’, the continent could completely break the spell that has held it back so often in the past.

No denying that the journey from the mines to the malls, or the emergence of conspicuous consumption, powerfully driven by Africa’s emerging middle class, is largely responsible for a weakened ‘resource curse.’ Huge domestic demand makes a de-facto case for lower reliance on export earnings from the resources that were both Africa’s natural boon, as well as the biggest reason for the continent’s unfortunate and heedless exploitation at the hands of endless explorers and fortune hunters.

Yet, more than the resource curse, the true blight of the continent remains that this economic growth has no visible trickle-down effect. Indeed, despite all this progress, many Africans still lack access to essential services like schools, banks and hospitals.

Consider healthcare. There are only nine hospital beds for every 10,000 people in Africa. This presents an unacceptable scenario, being two-thirds below the global average.

Education isn’t much better. A majority of African students find themselves trapped in overcrowded classrooms with insufficiently trained teachers, according to a study by UNESCO.

Overcrowded classrooms in Africa

Financial inclusion presents an equally grim scenario, with less than 25 percent of Sub-Saharan adults having access to any financial services at all, as an IFC study indicates.

Even as social infrastructure remains a pressing concern, the real question remains: Who shall shoulder the vast responsibility of implementing this social infrastructure and bearing the associated costs?

The Government alone cannot be expected to step into the breach, while it is certainly expected to play a facilitating role. Meanwhile, the social sector, through its philanthropic groups and non-governmental organisations (NGOs), operates with limited budgets at best. Ultimately, it is the private sector on which falls the burden of helping those left behind by the continent’s rapid economic expansion.

It is then in Africa, more than anywhere else in the world, that the decade old concept of ‘impact investments’ appears to be a panacea to all its growth pains.

The process of providing appropriate capital to businesses that are working to expand accessibility to essential products and services to those who most need them – a concept pioneered as ‘impact investing’ – was first brought to the fore by The Rockefeller Foundation’s Bellagio Center in 2007.

The Global Impact Investing Network (GIIN) defines impact investments as “investments made into companies, organisations, and funds with the intention to generate social and environmental impact alongside a financial return.”

Thus, impact investments certainly extend beyond mere philanthropy.

When it comes to social investments, as a layperson, the much-touted ‘microfinance’ is likely to be first term to come to your mind. But, even as the impact on the individual is immense, the individual dollar amounts involved in microfinance are, more or less by definition, very small. And the needs in Africa are very big. We must look to larger horizons, and to small and medium enterprises (SMEs) rather than micro enterprises, to meet the need of the hour.

This is where impact investments can, and do, make a big difference.

Our organisation, GroFin, is one such financier that is working to support social infrastructure in Sub-Saharan Africa (SSA) as well as Middle East and North Africa (MENA) with the creation and growth of viable, sustainable businesses with deep socio-economic impact.

Since 2004, we have supported more than 7,000 entrepreneurs across SSA and the MENA and helped sustain over 62,450 jobs across our investees, who support more than 312,270 family beneficiaries per annum and add more than US$ 469 million in economic value each year.

5. Shinil_Oman_National Private School 1

Join the impact investment revolution today! Investors and entrepreneurs alike can support and pioneer local businesses that provide practical solutions to real problems. Remember, the fate of an entire continent rests in your hands.

This post was first published on LinkedIn Pulse.