Scaling The Growth Of Impact Investing In African Economies


March 29, 2021, 11:10 a.m.

The economic chaos amidst coronavirus

The apparent crisis of the Covid-19 pandemic has indeed hit the global economy hard. With an estimated 55% of the global population having no social protection, income losses (expected to exceed $220 billion) will further exacerbate the already pending socio-economic issues prevalent particularly in underdeveloped and developing communities (most of which are residents within the African continent). Africa’s GDP growth prospects were estimated to drop from 2.4% in 2019 to between -2.1% to -5.1% in 2020 depending on the policy response.

Though Africa has recorded the lowest rate of casualties so far, (compared to the numbers in America and Europe), the emergent situation has amplified the woes impeding its economic growth. Nigeria, for instance, recorded that the experience of economic shocks months after the outbreak of coronavirus far exceeds shocks experienced between 2017 to 2019, most common of which is the increase in prices of major food items.

Pressured by the resultant economic hardship and vulnerability of the majority of its ever-increasing population, most African governments now rely heavily on financial interventions and development assistance from international bodies. Consequently, most are now in greater debt and lobby for loan forgiveness.

Social entrepreneurial intervention

Aside from the rapid responses from governments in Africa, the organized private sector has also shown immense collaborative support in fighting the spread of the virus via healthcare support and financial assistance. More so, the interdependence of social and economic development in Africa has given more credence to the essence of building business models that thrive on innovation and facilitate sustainable change to addressing the socio-economic challenges that abound.

Notwithstanding the looming circumstances, there seems to be an increasing interest in and engagement with social entrepreneurship and innovation within African economies, as mechanisms for addressing complex development problems. This is evident in the numerous social enterprise ventures (e.g Yunus Social Business, Easy Solar, One Acre Fund, Mpharma, etc.) deploying innovative business models as mediums to efficiently address poverty, unemployment, improve health, provide educational opportunities, and resolve other social problems for people at the bottom of the pyramid. The achievements of social innovation and its real-time impact in the most vulnerable communities have created an opportunity for interested institutions to invest and drive the concept of impact investing in Africa.

Simply put, and according to Global Impact Investing Network (GIIN), Impact investments are investments made to generate positive, measurable social and environmental impact alongside a financial return. With the current coronavirus situation, investors are opportune to put their money to work in rebuilding businesses, creating jobs, and increasing access to basic services (health, housing, education). As an advantage, this patient impact capital will usually have the stamina to see an economy through in its long-term recovery plan. Impact funds like AfDB Social Bond, Acumen Fund, Impact Investing Exchange (to name but a few) are in place to support in this regard. International alliances are also being formed in support of this movement – International Finance Corporation, World Economic Forum.

Creating an enabling ecosystem for impact investing

Seeing its initial input and having ascertained its potential invaluable contribution to economic empowerment and growth, some African countries had before now taken pilot steps in creating a support ecosystem for social enterprises to thrive by creating social investment plans. For instance, South Africa has created learning hubs for knowledge exchange (e.g., the Bertha Centre for Social Innovation and Entrepreneurship [BCSIE]); formed practitioner networks (e.g., The African Social Entrepreneurs Network [ASEN]) and impact fund social stock exchange platform (South African Social Investment Exchange (SASIX) – a philanthropic initiative with the Johannesburg Stock Exchange). Kenya and Rwanda have also taken giant strides in creating opportunities to canvass streams of social investments. As of 2015, Nigeria and Ghana alone represented 59% of the total pool of impact capital in West Africa.

Despite the economic headwinds amidst covid-19, the GIIN’s 2020 Annual Impact Investor Survey highlighted that impact investors are responding to this crisis with flexibility and resolve. It reported that investors are “mitigating the potential for defaults by renegotiating loan terms, investing more funds to support their investments, and exercising patience to still realize their performance expectations over the longer term”.

However, despite significant funding activities, huge gaps remain that leave investor needs unmet and potentially stifle the size of the impact investing landscape in Africa. These gaps include; lack of awareness, lack of credible impact measurement standards, unclear fiscal frameworks, lack of investment vehicles, and lack of appropriate corporate structures.

An enabling environment envisages a flexible ecosystem, interested and willing investors, and a system whose roadmap sets an innovative framework to consistently build best-practice standards and measures for a sustainable and credible platform for investment. To this end, the following factors should be considered:


Relevant stakeholders should be educated on the concept of impact investment and its potential to support the nation’s economic resilience and recovery. This would require targeted outreach and engagement efforts with the relevant potential funders including domestic institutional investors, retail investors, philanthropic foundations, venture capital funders, and high net worth individuals. With consistent efforts on this, an increase in impact capital becomes feasible as their understanding of the investment strategy improves.

Create investment opportunities

Priority sectors that will make the most positive impact on the economy should be identified and special policy interventions should be tailored to suit. Key proactive and influential social enterprises with a track record of high impact performance can also serve as pioneer beneficiaries of the proposed interventions. Establishing social capital markets for the social stock exchange will also be instrumental in developing a vibrant public impact investing market for both retail and institutional investors.

Fiscal frameworks and incentives

Fiscal frameworks and incentive structures should be reviewed such that they encourage private partners (including entities that look to seek means of promoting sustainable development beyond their grants and donations) to mobilize them as pioneer drivers for impact investment. Offering tax incentives can encourage the patient role of impact capital and will be ideal for investors prepared to accept below-market rates or to provide first-loss capital.

Corporate Legal Forms – Impact capital must be recognized as a distinct investment strategy and not a charitable offer. Government efforts in reflecting this can begin by setting corporate legal forms for entities that will be recognized as viable for impact funds eg. Community Interest companies in the UK. In the absence of this, impact capital risks being treated in the same manner as other types of investment capital. When corporate legal frameworks are set up, impact investors will also be assured that their activities are recognized and regulated. This will further ease its access into the investment market.

Develop best practice standards and principles on impact measurement and reporting Via its investment and finance agencies, governments can firm up frameworks and templates for standard impact assessment and reporting and encourage consistency in practice by social enterprises and listed companies (for capital markets). This will boost investors’ confidence and encourage transparency and accountability.

Building Research Institutes and Interventions

Building the capacity of social enterprises to be investment viable is also vital. This can be in the form of entrepreneurial skills training on business management, fundraising, reporting standards, and social innovation. Start-up hubs and incubators which house most enterprises of this kind can also be supported. The ecosystem will also need to develop the skills and expertise of budding professionals for impact investment practice.

In conclusion, Impact Investment is a strategy to align the power of private markets to the social and environmental development needs of society at large. Knowing that financial assistance should ideally not be forever and is usually tied to ‘not so comforting’ conditions, it is very critical for Africa to look inward by prioritizing, factors that will enable it to bounce back with stronger support structures during and after this pandemic. Going forward, the most important source of long-term finance should not be foreign aid nor huge debts, but impact investments, foreign direct investment in Africa’s productivity, trade, increased domestic savings, entrance into international capital markets, and revenue generation from the internal economic activity of empowered citizens.

Author: Elizabeth Abubakar

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