In some ways, the challenges I faced thirty years ago growing up in a typical African village in central Kenya are the same ones children living there today continue to face: lack of electricity , poor nutrition , and inconsistent sanitation . Africa also continues to be, by far, the poorest continent ; United Nations statistics show that two-thirds of the worldâs poorest countries are in Africa, where a full 40% of people live below the poverty line. For decades, governments and non-government institutions have struggled with these issues and have not had much success on the continent. Over the past ten years, however, people and governments have begun seeking changeâthrough market-based solutions , and through the emergence of a triple-bottom-line framework that values social, environmental and financial dimensions.
A new class of entrepreneurs has arrived, working to provide solutions to the social and environmental challenges faced by the people of Africa. Innovations are happening in sectors such as agriculture, health , energy , education , water and sanitation , telecommunication , and finance and investments . These developments are fuelled in large part by an infusion of investment, not aid. Impact investing is the new way to do business in Africa, and it is proving to be the solution to deep-rooted problems that have flown under the radar of traditional donors and investors , governments and even local philanthropists.
Going back to my village, many people are paying the price for the realities we had to endure just to survive; painfully, my mother is one of them. She is partially blind! This happened in the last 10 years and the diagnosis has pointed at air pollution-related causes. The pollution that is to blame for her partial blindness is caused by the smoke that was perpetually to be found in her kitchen, where we cooked using all sorts of firewood.
In Africa, more than 80% of the population has been using wood fuels and paraffin as the primary source of household energy . A smokeless kitchen is a relatively new concept in the continent and, sadly, many of our women have already suffered the effects of smoke, even as they begin to shift to cleaner fuel.
Thankfully, we are seeing the increased emergence of entrepreneurs who are working to provide cleaner solutions such as biogas , clean cook stoves and alternative cooking fuels such as bioethanol . These entrepreneurs are not just making money in a space that was previously unexploited, but they are also making sure that future generations will not pay the same price as many women like my mother who spent years in smoky kitchens.
The common thread to all the challenges noted above is the low level of disposable income among many of those living in African countries. Millions in this age still live on less than a dollar per day, which means that they cannot access many of the utilities and services that those with money come to take for granted.
What Is Impact Investing, and Why Is It Now Showing Growth?
Impact investing is not philanthropy . It is business that addresses the challenges that humankind faces and offers a reasonable return to the financiers of the business. Multiple factors have aligned to bring about this change. I have seen first-hand the increased economic activity and developments in more than thirty African countries . There have been marked improvement in the state of the roads, the size of the markets , and infrastructure growth has set the stage for significant gains in commerce; while the continentâs economy overall is growing at an average rate of 5%, many countries predict double-digit growth rates .
Africa has the fastest-expanding labor force in the worldâand will surpass that of China and India by the year 2040. This workforce is young: over 60% of the population is under the age of 25 years.1 And increasingly, it is urban. More than 40% of Africans live in cities, with some countries such as Angola, Ghana, and Nigeria boasting over 80% urbanization levels. Thus, both the labor market and the resulting expanded markets for goods and services are increasingly concentrated, making business growth easier and cheaper.
The population growth of the continent and that fact that it is the youngest continent currently and in the near future is a great potential for businesses. It is estimated that by 2050 the continent will be home to over 2.5 billion people and half of this population will be under the age of 25 years.2
This, on one hand, presents an opportunity and on the other hand a challenge. The challenge is whether the continent will have the capacity to maintain the population growth in a sustainable way. Impact investing , which will bring the needs of all the stakeholders together, seems like the solution that will help move the continent towards sustainability despite the huge population growth .
This progress has resulted in a middle class who now account for over 30% of the African population. The Economic Intelligence Unit (EIU) forecasts that by 2030, the continentâs top 18 cities could have a combined spending power of US$1.3 trillion.3
Consumers in the rapidly growing middle class have also become more sophisticated regarding new products and services, frontiers that were non-existent fifteen years ago. Mobile telecommunication is transforming the way Africa does business, with over 600 million subscribers in 2017.4 Kenya alone, with over 30 million subscribers, has more phone users today compared with the whole of African continent fifteen years ago. The middle-class category is rising and will be the main driver of the consumer demand in the continent.
Another factor that is contributing to the growth in the continent is the stability in government and government policies compared to twenty to thirty years ago. Governments are now more progressive and are working toward improving the welfare of Africans. Many now offer an enabling environment for business, improving infrastructure and ensuring the right economic and regulatory environment to attract Foreign Direct Investment (FDI). The main target of FDI is industrial development that benefits locals through the creation of jobs and the provision of social services .
There are some small patches where political change has not yet happened, but it is just a matter of time before we start seeing change. The political shifts that happened in 2018 in South Africa, Ethiopia and Zimbabwe are just an example of what to expect in the future. These changes are good for business and will be expected to result to more impact investing activities in the continent. However, it is not enough for businesses to just generate revenues , they must also solve some of the challenges faced by Africans if they are to be sustainable in the long term.
This policy of lifting others up as part of the process of growth creates a sustainable economy, which will open up further opportunities not just for individual business but also spawn auxiliary entrepreneurs .
For a continent with societies that are often fraught with conflict and fraction, building a sustainable economy that is inclusive of all goes a long way towards fostering peace .
For social enterprises to thrive, they will need capital. The type of capital required for this is high-risk capital and capital that is not only looking for the financial returns but also looking for social returns. Impact investing in enterprises that seek more than just profit can solve the problem above, but it does call for a different kind of investor . Unfortunately, there are not many who are willing to invest in such businesses due to their size (i.e., small) as well as the level of expected financial return (i.e., minimal).
Those of us who have seen the benefit of impact investing therefore are obliged to spread its gospel and educate our people and investors on the sustainability of enterprise that improves the lives of people (who are also future customers, once they leave the poverty trap). In this book, I will endeavour to show that impact investing is the new way to do business, using examples of impactful investing that I have seen across the African continent in the course of over 20 years of working for the private sector , public sector and non-p...