The Trend in Impact Investing in Africa Amongst Private Equity Firms

Impact Investing in Africa has certainly been on the rise over the past 5 years. The private equity industry has never had the best reputation. Even with the staunchest of defenders, private equity is often viewed as greedy and willing to do anything for the sake of making a quick buck. However, with the growing interest in impact investing in South Africa – the term coined to describe investments that are made into companies, organizations and funds with the intention to generate social and environmental impact – we may be seeing this bad private equity reputation changing.

In the general sense, private equity is meant to inject working capital into a promising business and refine products, while keeping shareholders suitably compensated for their risk taking. While this typically means investing in a company that will provide the firm with great returns, these returns – technically – could also be social returns. And that’s where impact investing comes in.

Impact investing in Africa can generate social and environmental returns, as well as positive financial returns. And sometimes even more importantly, it can change the popular attitudes towards a specific business.

Impact Investing in Africa

Impact Investing in Africa

Take a look at the global oil firm BP. After the accident with the Deepwater Horizon offshore rig in the Gulf of Mexico in 2010, their stock values took a severe hit. Under pressure from concerned investors, BP was quick to implement energetic and comprehensive programs to compensate the affected populations and reverse the environmental damage.

Private equity firms are now looking to include impact investing in Africa into their portfolios, and today interest in social impact returns among private equity investors is at a level where it is possible to talk of social investment as an alternative asset class. Some private equity firms are already consciously approaching investments while thinking, “how can we place money for positive impacts?”.

However, not all private equity firms have fully embraced impact investing just yet. Many are not yet ready to look beyond income statements and balance sheets to see if the company’s goals, values and missions address health, social and environmental challenges. But this could soon change.

In recent years, there has been greater attention given to impact reporting – the auditing of non-financial results – which has made sustainable business, social enterprises and charities ventures that much more attractive to private equity firms. Having access to these types of audits can help private equity firms get more involved with social impact investing, as they can show both the social return as well as the cash return.

file The Trend in Impact Investing in Africa Amongst Private Equity Firms

Additionally, there has been a growing awareness in the opportunities to make a positive social impact. As this awareness grows, individual investors, family offices, endowment funds and other sources of private capital are “pushing” their managers to seek out promising impact investment opportunities.

All these facts are likely to accelerate the move towards more and more private equity firms getting involved in more impact investment opportunities. And as they do, these private equity firms can help fill in the remaining gaps to some of today’s biggest social challenges – bringing new products and services to market that deliver both financial and social returns.

A recent study by the Global Impact Investment network (The GIIN), found that based on feedback from close to 300 private equity investors, 69% of whom regard the market as growing steadily and who expect to invest $48 billion in 2021. And the total market size is now reckoned at around $715 billion. Add to this the fact that Norfund, the world’s largest sovereign wealth fund with assets under management of more than $1,289,460,000,000 has formally divested from fosil fuels and in 2020 invested made more than half their investments in Africa, you can see why there is such optimism in both Impact investment and the African opportunity.

While many private equity firms are increasingly keen to change the record, heartened by the attention given to responsible investing, encouragement by the government, clear financial returns and improved reporting – overall, it may take a little longer for past negative associations to fade from popular imagination. Still, there are some who are demonstrating that there may still be a case for them after all.

Impact investing, with its dual focus on financial returns and positive societal and environmental outcomes, has emerged as a powerful catalyst for change, especially in the African context.  The benefits of impact investing in Africa is clear as we outline below. 

  1. Alleviating Social Challenges:

    One of the foremost benefits of impact investing in Africa is its potential to address and alleviate pressing social challenges. Investments in sectors such as healthcare, education, and poverty alleviation can lead to tangible improvements in the quality of life for communities that need it most.

  2. Environmental Stewardship:

    Impact investing places a strong emphasis on environmental sustainability. Ventures that promote renewable energy, conservation, and eco-friendly practices contribute to Africa’s long-term environmental health. This dual focus on financial returns and ecological responsibility aligns with global efforts to combat climate change.

  3. Job Creation and Economic Empowerment:

    Impactful ventures often have a ripple effect, creating employment opportunities and empowering local economies. By investing in businesses that prioritize inclusive hiring practices and skill development, impact investors contribute to economic growth and stability, fostering self-sufficiency within communities.

  4. Community Development and Infrastructure:

    Impact investments can catalyze community development by supporting projects that build essential infrastructure. Whether it’s providing access to clean water, improving transportation networks, or enhancing telecommunications, these investments lay the foundation for sustainable community growth.

  5. Fostering Innovation:

    Impact investing encourages innovative solutions to longstanding challenges. Entrepreneurs and businesses that align with impact goals are often at the forefront of developing creative and sustainable solutions, fostering an environment of continuous innovation that benefits both investors and communities.

  6. Long-Term Financial Returns:

    Contrary to the misconception that impact investing requires sacrificing financial returns, many impactful ventures in Africa demonstrate that doing good and achieving profitability are not mutually exclusive. As sustainable practices become integral to business models, investors can realize stable, long-term financial returns.

  7. Global Collaboration and Partnerships:

    Impact investing encourages collaboration between local and international entities. The pooling of resources, knowledge, and expertise from various stakeholders creates a synergistic effect, amplifying the impact of investments and promoting a shared commitment to sustainable development goals.

  8. Enhancing Social Equity:

    Impact investing seeks to bridge social disparities by directing capital towards projects that address inequality. Whether through affordable housing initiatives, microfinance programs, or education projects, impact investments contribute to building a more equitable society.

In conclusion, the benefits of impact investing in Africa extend far beyond financial gains. By aligning financial goals with positive social and environmental outcomes, impact investors have the potential to transform communities and drive sustainable change. This approach not only addresses immediate challenges but also lays the groundwork for a future where economic prosperity, social equity, and environmental stewardship coexist harmoniously on the African continent. As investors explore opportunities to engage in impactful ventures, they become key contributors to a more sustainable and inclusive future for Africa.

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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.

Olu

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.

tim scholtz

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.