Emerging trends in Africa’s impact investment sector


Impact investing has transformed how philanthropy is activated by embracing collective dimensions. FILE PHOTO | NMG

A multitude of reports show that Africa is emerging as the hotbed of impact investing. Social impact investing is crowned as an attractive approach to international development hinged on the promise of long-term sustainability. This approach provides exciting opportunities to render Africa’s dreams into reality.

Impact investing has transformed how philanthropy is activated by embracing collective dimensions. A deal must increase social good while increasing financial value. A good example is the SimGas Limited, established in 2009 in Tanzania. This commercial biogas company installs bio-digesters for dairy farmers in East Africa, saves lives by reducing indoor pollutants and mitigates climate change. It has improved livelihoods of 12,500 people in the region by selling over 2,500 units of biogas but it now needs economies of scale hence an uptick plan.

In Kenya, M-Kopa has altered how we buy off-grid affordable energy by pioneering pay-as-you-go solar energy services since 2011. More than 600,000 homes use the M-Kopa solar power solution. This has generated growth in climate solutions and built a wide array of employment options while saving an estimated 700,000 tonnes of carbon dioxide by cutting on kerosene usage.

Investors seek socially responsible investments and Development Financial Institutions DFIs, from Europe such as Norfund, IFU, Swedfund, FMO and Proparco are some leading investors at present.

However impact investing faces challenges that include infrastructural issues, difficulty in exiting investments, limited capital supply across the risk-return spectrum, capacity and market volatility. Measuring the full impact of social impact investing has therefore presented challenges in not being fully achieved and requires new evaluation approaches. Private sector and market driven interventions play a key role. The traditional private sector intervention has played a significant role in the development in Africa especially where the business models allows for benefit sharing with other stakeholders. But issues have muddied the party.

The matter is complicated when it relates to provision of social or public good. In most instances the citizens and the private sector expected this provision from the government. Unfortunately limited resources affect progress.

To bridge the gap, social, mission-driven enterprises have appeared and they can solve those challenges. Further, support ecosystems are maturing in the region as impact investment becomes more evidence-based.

Yet impact investment in Africa remains nascent. Ultimately this will replace official development assistance (ODA) which has predominately been the source of development finance in the continent. In some instances, there will be need for allowing ODA and other public funds flows to focus on addressing social needs for which there is no viable market-based solution.

Some funds are now insisting on Sustainable Development Goals (SDG) satisfaction.
Edward Mungai, CEO, Kenya Climate and Innovation Centre (KCIC).