Impact finance opportunities in Africa
Africa offers many opportunities for impact finance, due to the need to address the economic, social and environmental challenges facing the region. The continent is rich in natural resources, which presents many opportunities for impact investing. Investments can focus on sustainable management of natural resources, protection of biodiversity, sustainable agriculture, renewable energy and water management.
SMEs are an important driver of economic growth in Africa, accounting for more than 80% of the private sector workforce. Impact finance can help these SMEs grow and have a positive impact on local communities by creating jobs and stimulating innovation.
Below are some of the main impact finance opportunities in Africa:
1. Agriculture: Agriculture is a key sector of the African economy, employing the majority of the continent's rural population. Impact finance can help boost agricultural growth by investing in businesses that improve farmers' access to markets, technologies and finance. Investments can also be directed towards projects aimed at increasing crop productivity and quality, as well as improving resilience to climate change.
2. Renewable energy: Access to electricity is limited in many parts of Africa, especially in rural areas. Renewable energy, such as solar and wind, can help solve this problem by providing a clean, reliable and inexpensive source of energy. Investments in renewable energy can help develop sustainable energy infrastructure and reduce greenhouse gas emissions.
3. Inclusive financial services: Inclusive financial services, such as microcredit, savings accounts and insurance, can help reduce poverty by giving low-income people access to basic financial services. Investments in inclusive financial services can help develop financial inclusion and promote entrepreneurship in Africa.
4. Infrastructure: Infrastructure, such as roads, bridges, ports and airports, is essential to Africa's economic development. Infrastructure investments can help improve connectivity, logistics and trade between African countries. Investments can also be directed towards water and sanitation projects, which improve access to safe drinking water sources and quality sanitation facilities.
5. Health and education: Health and education are key sectors for human development in Africa. Impact investments can help improve access to quality health care and education, especially in rural and peri-urban areas.
6. Women and youth are often under-represented in economic sectors in Africa. Impact funding can help fill this gap by investing in businesses and projects that promote women's entrepreneurship and skills training for young people.
Impact investing in Africa can offer attractive financial returns. According to a report by the Institute of International Finance, impact investing in Africa can offer higher returns than traditional investments, with average annual returns of 9% to 12%. In summary, impact finance opportunities in Africa are many and varied, ranging from investment in natural resources and infrastructure to investment in SMEs, health and education. Impact investing in Africa also offers a portfolio diversification opportunity for investors, while having a positive impact on local communities and contributing to Africa's economic and social development.
At Solidarity Microfinance and for the entire ecosystem of Entrepreneurs around the world, investing in human development is the driving force behind our investment and support decisions. With more than 30 partners worldwide, including fifteen in Africa; The continent represents a priority and timely area of action for our development. To do this, based on the SDGs established by the United Nations, we have defined priority areas of action (based on our field and business expertise) to focus on populations in great precariousness. Thus, in 2021, 350,000 families are indirectly supported by MFS via our local partners. According to the following SDGs:
It is natural that our 2023-2026 development objectives are oriented towards partners in the Social Microfinance sector, structures facilitating access to energy as well as organizations promoting sustainable agriculture. To find out more, visit the page dedicated to our call for applications HERE.
- The challenges of impact finance in Africa
The lack of reliable information and data on companies and projects with social or environmental impact is one of the main challenges faced by impact investors in Africa. Investors need data to assess projects and their potential for impact.
Risk is also a significant challenge for impact investors in Africa. Impact investments in Africa are often considered riskier than traditional investments, due to political instability, weak infrastructure and vulnerability to economic shocks.
Lack of liquidity is another significant challenge for impact investors in Africa. Impact investments in Africa may require longer investment periods and may not be as liquid as traditional investments.
Feedback Finance in Common
One of the main challenges when it comes to investing in human and environmental impact in Africa remains the opacity of information and the lack of knowledge of the sector and the actors between them. Indeed, throughout the summit, the exchanges we had during networking sessions and workshops where we could discuss between participants, the difficulty of transmitting the right information at the right time returned. For example, in the area of the three Sahelian borders, made up of Burkina Faso, Mali and Niger, it is very difficult to find an SME in which to invest in impact in general. This is an experience shared by one of the country representatives of I&P (impact investment funds based in several African countries) when he is interested in companies that are not at the stage of development or scaling up. The non-formalization of SMEs and their lack of structure largely explains this difficulty in finding partners.
We thus observe that despite all the opportunities and needs mentioned above, a lot of capital "sleeps" in the coffers of investors. The use of the SDGs as a marketing lever for the promotion of activities, among all actors, has changed the situation a lot. During the workshop organized by Fair and the GSG, it is realized that new tools, policies and financial vehicles that other countries have deployed or are deploying to increase the flow of capital towards the SDGs. The use of the SDGs in communication amounts to more than 22,000 times when referring to Africa since their launch.This makes it possible to bounce back on the phenomenon of Greenwashing and Sustainability washing, this commercial technique aimed at using marketing sustainability arguments wrongly in order to attract customers or impact financing.
Finally, one of the challenges faced by panel participants is the difficulty for women to access impact finance in Africa. One reason is that the products offered are not always suitable for women-led activities and SMEs. Microfinance targets the female population in particular, but the amounts of financing granted remain much lower than that of men. This was one of the issues discussed during the conversation between James Mwangi – CEO, Equity Bank and Ibukun Awosika – Chair, Nigeria NAB where the latter explained that products addressed to female beneficiaries and customers remain the best solution to increase their ability to raise funds and at the same time their solvency and savings in the bank. Investing in gender-focused products thus facilitates wealth creation in local communities and consequently an increased environmental and social impact. It is essential not to think and invest through the prism of charity as many NGOs and foundations do in Africa, but rather from a development perspective.
It is undeniable that impact finance in Africa is constantly evolving and is set to play an increasingly important role in the continent's economic and social development.
Impact investors in Africa have the opportunity to combine positive social or environmental impact with attractive financial returns, investing in companies and projects that contribute to Africa's sustainable development.
Governments, civil society organizations and impact investors must continue to work together to create an enabling ecosystem for impact investing in Africa, developing policies, legal frameworks and standards that promote impact investing.
Côte d'Ivoire, host country of this summit, is a good example of the power of Impact Investing, when all actors work in symbiosis for socio-economic development. There are many impact finance opportunities in Côte d'Ivoire, including sustainable agriculture, renewable energy, financial inclusion, health and education. These sectors offer opportunities for economic growth and social development for the country, while responding to the environmental and social challenges it faces. The Ivorian government has also shown a commitment to promoting impact finance by putting in place investor-friendly regulations, as well as tax incentives to encourage investment in impact projects. In addition, the country benefits from a stable economic environment and a well-developed financial market, offering attractive investment opportunities for impact investors.
During her speech at the opening plenary of the "Joining forces" day, Mrs. Belmonde Dogo, Minister of Solidarity and the Fight against Poverty of Côte d'Ivoire, recalled that "The achievement of the SDGs requires the constant support of public and private sector actors. To this end, mobilizing capital and driving inclusive and sustainable growth in Africa will require a synergy of actions by all stakeholders to create an institutional framework for the promotion of this theme. To illustrate her remarks, she highlighted the decisive power of the AVEC groups, mostly female, thanks to which people in rural areas organize and structure themselves to develop sustainable income-generating activities, save and thus improve their living conditions and standards. Social microfinance institutions like the ones we support play a decisive role for VSLAs by providing them with group credit solutions to support their development.
Article written by Ms. Rahila Rahimou Adamou
Sources
https://www.proparco.fr/fr/le-secteur-prive-dans-les-pays-fragiles-quel-est-le-role-des-dfi
https://thegiin.org/research-and-opinions/
https://www.finance-fair.org/fr/barometre-de-la-finance-solidaire
wp302-ferdi-lost-in-impact-une-nouvelle-cartographie-pour-les-aventuriers-du.pdf https://thegiin.org/assets/160620_01Regional_GIIN_westafrica_FRANCAIS_spreads.pdf