Africa is the go-to destination for impact investment

Africa has become the emerging market for impact investing that seeks to bring about social and environmental change.

And it holds the promise that, in pushing the continent upwards, investors can also earn a return on their investment. In the words of one British official, they can “do good without losing money”.

This would explain why, even as most African countries keep losing ground on the targets of the UN sustainable development goals, about half of all global impact investment capital is being injected into Africa, according to the Global Impact Investor Network’s 2020 annual impact investor survey. Sub-Saharan Africa in particular is attracting 21% of the $404bn in impact investing assets under management (AUM) held. This is despite only 6% of organisations managing impact investing AUM sit in the region, according to a 2022 estimate by the network.

Three sectors are driving that flow of investment into Africa. Healthcare is the fastest-growing area with a clear societal impact, while fintechs — the “darling of the technology sector in Africa ”— are attracting increasing investment as they promote financial inclusion and higher returns on investment. Renewable energy is staking its claim as a fast-growing sector in Africa as energy shortages continue to put the brakes on development.

International investors are also getting behind the establishment of private schools. The wave of international providers is particularly evident in West Africa, where wealthy parents are said to spend about £30m annually on sending their children to schools and universities in the UK.

SA, too, has seen a rise in for-profit but more affordable “independent” schools.

We can debate whether the increased investment in such schools is impact investing in its purest form. But it suggests that not only do market gaps exist, but there can be returns on such investments. The task now is to identify more such opportunities and to improve the metrics and evidence that can attract greater impact investing. And we have to do this across Africa.

But to get there we have a lot of work to do to create a more enabling environment. Pundits have pointed to the abundant energy and natural resources, Africa’s vast tracts of uncultivated arable land, its potential as a green energy hub, its young and growing population, and the promise of agreements such as the African Continental Free Trade Area as indicators of the continent’s potential for economic growth and inclusion. But opportunities may not translate into investments that generate actual impact on the ground without important shifts.

First, the relative scarcity of data needs to be addressed. A lack of reliable data on issues such as financial performance, due diligence practices, environmental, social and governance measures, investor relations, and management can increase the cost of due diligence and make it more difficult to value assets or measure impact, and thus disincentivises impact investment.

Governments and investors could look to encourage the production of, as well as the demand for, reliable data by, for example, providing incentives for business owners to create market data aggregation and reporting firms to meet investor demands for information.

Second, those in the impact investing space need to look to collaborate more effectively. We have much to learn from each other, despite the often particular contexts and challenges we face in our respective countries, and there has been a groundswell of impact investing collaborations across Africa in recent years. However, these remain mostly informal and small-scale.

In July, the Africa Impact Summit in Cape Town will take an important step towards building more formally on these relationships and engagements. The aspirations for the event are simple but ambitious: to grow a body of knowledge drawn from experiences of impact investing across Africa and build a network of partners and collaborators to enhance impact.

The deadline for meeting the 2030 sustainable development goals is fast approaching. If we are going to at least put up a decent attempt to get close to those targets, we are going to have to work together to attract more investment and make sure this money is wisely spent.

Impact investment stakeholders in Africa — from development finance institutions and private equity and venture capital businesses to investible businesses — cannot do this alone, nor should they. Whether motivated by profits or impact or both, together we can build the thriving Africa that we all crave.