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August 12, 2015
Report Details Impact Investment Opportunities in East Africa
    by Robert Kropp

The Global Impact Investing Network and Open Capital Advisors publish a country by country analysis of impact investing activity in the region.


When President Obama visited Africa in 2009, he spoke before the Ghanaian Parliament and said, "Together, we can partner on behalf of our planet and prosperity, and help countries increase access to power while skipping—leapfrogging—the dirtier phase of development." And to many, Africa seemed like fertile ground for extensive sustainable investment: 60% of the world's uncultivated, arable land is there, and extensive commodities such as oil and raw materials are plentiful as well.

Of course, challenges to increased investment in much of Africa can be pronounced. Infrastructure remains in poor condition in many parts of the continent, regulatory regimes are often insufficient when they haven't failed completely, and political unrest contributes to investor unease. But in several countries, improved political and economic stability, along with microeconomic reforms, has led to the emergence of a vital private business sector, which has in turn led to increased foreign investment.

A recently published report, co-authored by the Global Impact Investing Network (GIIN) and Open Capital Advisors, focuses on the practice of impact investing—a small but growing subset of sustainable investment, most often sought as an alternative to philanthropy by foundations and high net worth individuals—in East Africa. The report, entitled The Landscape for Impact Investing in East Africa, focuses on impact investment activity in five East African economies—Kenya, Uganda, Tanzania, Ethiopia, and Rwanda—but includes information on six other countries as well.

By far the largest sources of investment activity are development finance institutions (DFIs), which are
defined by the Organization for Economic Co-operation and Development (OECD) as occupying “an intermediary space between public aid and private investment...Their mission lies in servicing the investment shortfalls of developing countries and bridging the gap between commercial investment and state development aid.” More than 85% of impact investment in East Africa, the report states, comes from DFIs.

“Both DFIs and non-DFI impact investors have disbursed more capital in financial services than in any other sector, accounting for nearly 30% of overall capital disbursed,” the report states. “The sector is attractive to many different impact investors as it offers an opportunity to reach large customer bases through well-established local businesses with many years of operational experience.” Other sectors preferred by non-DFI impact investors include agriculture and affordable housing.

Almost half of the impact capital disbursed in the region occurs in Kenya, where, according to the report, “more readily available human capital” is available, “compared to other countries in the region.”

Investment opportunities in the region include agriculture, renewable energy, aquaculture, tourism, consumer goods, urban development, and basic services. Current challenges to increased investment include insufficient investment-ready opportunities, insufficient human capital, remote investment committees, difficulty accessing bank financing, limited local currency financing, and few exit examples. “Without a successful track record of exits,” the report states, “it can be difficult for impact investors to raise additional funding or a second investment fund.”

The report concludes with lists of opportunities common to the East African region, and recommendations for further study. “DFIs are a significant player in the market, having deployed nearly $8 billion in impact capital to date,” GIIN stattes. “However, many other types of investors—including VC/PE funds, foundations, family offices, commercial banks, and angel investor networks—are increasingly active, with these non-DFI impact investors having deployed over $1.4 billion to date in the region through more than 550 deals.”

 

 
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