Breaking the Mold: How Impact Investment in Africa is Propelling Sustainable Growth

Impact investment in Africa has seen tremendous growth in recent years and it looks like the trend will only accelerate. Investing in companies that have a positive impact on society and the environment has been a growing trend in recent years. Impact investing refers to investments made with the intention of generating both financial returns and measurable social or environmental impact. In the past decade, impact investing has grown significantly, with investors increasingly recognizing the value of investing in companies that are making a positive difference in the world. Impact Investment in Africa

The Global Impact Investing Network (GIIN) has been tracking the growth of impact investing for over a decade. According to the GIIN’s 2022 report, impact investing has grown steadily over the past decade, with the total market size now estimated to be around $715 billion. In 2010, the GIIN’s annual survey had around 50 respondents, 75% of whom thought the market was in its infancy and who expected to invest an aggregate $4 billion the following year. In 2020, the GIIN’s report was based on feedback from close to 300 investors, 69% of whom regarded the market as growing steadily and who expected to invest $48 billion in 2021.

One area of growth in the impact investing market has been in green bonds. Green bonds are typical bond instruments in which the proceeds finance or re-finance projects that are labeled as green. Due to their ability to generate revenues for financing environmental projects and infrastructure, diversify investment portfolios, and meet stakeholder demands for greater environmental accountability, issuance of green bonds has grown at an annual rate of 43% to reach USD 578 billion in 2021. However, not all green bonds qualify as impact investments, as the holders may not have a specific organization-dictated impact investment strategy that includes allocation of capital via green bonds.

Corporate impact investing is another area of growth in the impact investing market. As of 2022, the collective cash reserves held by all U.S. companies have been estimated as high as USD 5.8 trillion. Shareholder pressure to invest cash reserves productively, coupled with stakeholder demands for corporations to address climate change and social inequity, have led to the rise of corporate impact investing. To act as impact investors, corporations mainly use balance sheet vehicles to deploy cash reserves as impact investments. Off-balance sheet options, such as corporate foundations and fund of funds, are also becoming increasingly popular.

The growth of impact investing is encouraging, as it shows that investors are recognizing the importance of investing in companies that have a positive impact on society and the environment. Impact investing is not just a way to generate financial returns, but also a way to make a positive difference in the world. By investing in companies that are addressing social and environmental challenges, impact investors are helping to create a more sustainable and equitable future.

Another area of growth in the impact investing market has been in gender lens investing. Gender lens investing refers to investments made with the intention of advancing gender equality and women’s empowerment. This can include investing in companies that promote gender diversity in leadership positions, provide products and services that benefit women, or have policies that support work-life balance and equal pay. According to a report by the Wharton Social Impact Initiative, the gender lens investing market is expected to grow to $4.5 billion by 2025.

There are many benefits to gender lens investing. By investing in companies that promote gender equality, investors can help to create a more diverse and inclusive economy. Studies have shown that companies with more diverse leadership teams tend to be more innovative and perform better financially. Investing in companies that provide products and services that benefit women can also help to address gender-based inequalities and promote economic empowerment for women.

Impact investing is not without its challenges, however. One challenge is measuring the impact of investments. Impact investors need to be able to measure the social and environmental impact of their investments in order to ensure that, a challenge that is particularly important in Africa where development challenges are acute. Measuring the impact of investments in Africa is crucial because it enables investors to identify successful interventions and scale them up for maximum impact. Additionally, impact measurement can help investors to identify areas where further investment is needed, as well as potential risks and challenges that may need to be addressed. Without proper impact measurement, it can be difficult for investors to evaluate the effectiveness of their investments and make informed decisions about future investments in Africa. Therefore, while impact investing offers immense potential for positive change in Africa, it is important that investors prioritize impact measurement in order to ensure that their investments have the desired social and environmental impact.

Impact Investment in Africa

In the past few years, more impact investment capital has gone to Africa. According to the Global Impact Investor Network’s 2020 survey, nearly half of all impact investment capital in the world goes to the region. As a impact venture capital firm opperationg in Souh Africa, we have seen an enourmous increase in impact reated entrereneurial activity.

With typical age of less than 20 and 70% of the population under the age of 30, Africa has the youngest people in the world. This continent’s young population is driving innovation and business, which is bringing in more investments from both domestic and foreign investors in a wide range of industries. This has led to a middle class that is growing quickly and giving consumers more power.

One of the major drivers of impact investing in Africa is the healthcare sector. Healthcare is the fastest growing area for impact investing according to the survey and it also plays a major role in supporting societal impact, a major objective for private equity on the continent. Impact investments have the capacity to deliberately fill the funding gap in many areas of the healthcare ecosystem, including drug and vaccine development as well as physical infrastructure or epidemic prevention and response.

Another sector that is fuelling the growth of impact investing in Africa is the role of African FinTechs in promoting financial inclusion. Democratizing financial instrument access is critical to ensure economic progress in the region. One of the most effective drivers to increase financial inclusion in Africa is mobile money. In addition, crowdfunding led by emerging FinTechs shows the potential to mitigate the limitations of small and medium-sized enterprises to access the traditional banking segment.

Lastly, renewable energy is one of the sectors with the fastest growth rates in many African nations. Lower prices for renewable energy, especially solar, are driving investments. In 2022 and beyond, attention will continue to be paid to addressing the strong, ongoing need for sources of energy. In order to bridge Africa’s energy gap by 2040, investments would have to be multiplied by four to reach $1.2 Trillion per year.

While the impact investing trend is gaining traction in Africa, improved data is a crucial component to unleash major investments. However, the relative scarcity of data will tend to discourage impact investment in many African economies. Lack of data among others increases the cost of due diligence and makes it more difficult to value assets.

The active role of worldwide Development Finance Institutions (DFIs) and International Finance Institutions (IFIs) in the private equity and venture capital fields has long been an essential source of capital for managers, investing in the region and promoting focus on environmental, social, and governance (ESG) matters. The tandem between public money brought by public institutions and private investors has proven to be a major driving force. This ‘blended finance’ has been very successful in mobilizing significant amounts of commitment, which are in turn deployed on the ground to generate both financial and extra financial return.

It is clear that Africa is primed to experience one of the century’s biggest economic developments. The impact investing trend is gaining traction in the continent, and investors are increasingly interested in sectors such as healthcare, financial inclusion, and renewable energy. While data remains a challenge, the active role of Development Finance Institutions and International Finance Institutions in the private equity and venture capital fields has been a major driving force in mobilizing significant amounts of commitment, which are in turn deployed on the ground to generate both financial and extra financial return.

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Matthew Musgrove

Matthew Musgrove

Matthew is an entrepreneur and business Advisor with a passion for change management and social empowerment. With a background in business accounting and advisory, as well clinical research project management, he strives to find strategic and sustainable solutions to business problems.

Mark

MARK VAN HOFF

Mark Van Hoff comes from background of technical & production planning, budgeting & scheduling of major live events. As the first production co-ordinator at M-NET for Outside Broadcasts, Mark has managed major local and international productions including Miss South Africa, Miss World, multiple music events and major sports events, including the PnP Cycling Tour.​Mark co-founded Van-Man Productions in 1994, Page to Picture in 2000 and Move Media Networks in 2007. All three companies have achieved domestic success and have been well-regarded in the South African production industry.

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OLUWASEUN ADEWUYI

Oluwaseun Adewuyi who is the Group Chief Finance Officer (CFO) at Caban, is a Certified Chartered Accountant, with Fellowship status at both the ACCA as well as the Institute of Public Finance and Accountancy, a UK Based industry body with a specific focus on the management of charities, not-for-profit organisations and NGOs.. Oluwaseun comes with strong business acumen and 20+ years of progressive experience in finance and operations management within well-reputed and high growth organisations Including Next Plc and Royal Mail. He has been heavily involved in impact investment across Sub-Saharan Africa and has been instrumental in the creation of a series of community schools in West Africa. Throughout his career, he oversaw a broad range of operations, including Business Strategy and Business Reorganisation, summarising the organisation’s financial status, and coordinating the preparation of tactical plans, financial forecasts, and budgets. Adept at developing and implementing effective internal control framework to maintain sound financial accountability.

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TIM SCHOLTZ

Tim Scholtz, who's is the Chief Operating Officer (COO) at Caban Investments, is experienced in implementing corporate governance guidelines, formulating risk management structures, process and cost optimization. Tim has a strong corporate background, having worked as COO at the South African Tourism board, was COO at the Nelson Mandela foundation and as a internal audit manager at Arthur Anderson earlier in his career.

Ben Botes

BEN BOTES

Ben Botes is Entrepreneur, VC, co-Founder, Author and Academic with a strong social conscience. Ben Involved with early stage and growth firms for the past 20 years and has been Co-founder of 9 separate businesses across Africa. Ben has directly and indirectly been involved in impact investment and the support of charities and non profits for the last 30 years. Ben is a regular speaker at the African Investment Conference in London and has been featured in Wall Street for Europe, The Guardian Small Business, BBC, the Mail and Guardian in the UK and BizCommunity, Channel 3 TV, Investors Weekly, The Cape Times, Radio 702 with John Robbie and Good Hope FM in South Africa

Dave Romero

DAVE ROMERO

Dave Romero is a venture capitalist and entrepreneur with a passion for making an impact. A qualified Professional Accountant, Dave has been a director in multiple financial institutions and was once the youngest Chairman on the JSE, in addition to being listed as one of Business Times’ Top 100 companies and the 40th fastest-growing company in South Africa. Dave is a core founder of the Caban Group, which aims to provide a comprehensive service offering to small businesses in return for equity. With a passion for nurturing entrepreneurs, Dave can often be found outside of the boardroom – offering advice, creating innovative funding solutions and building communities through sustainable practices.

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Dr RUBEN RICHARDS

Dr Ruben Richards is a truly inspirational South African leader. Through his peace-building seminars for criminal gangs, Dr Ruben has facilitated the longest ceasefire in the history of gang warfare on the Cape Flats. In addition to being Chairman & Founder of the non-profit Ruben Richards Foundation, Dr Ruben is an ordained cleric, company director, non-executive Chairman of Visual International Limited and was once the Deputy Director-General of the now-disbanded Scorpions.