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March 07, 2016
Demand for Impact Capital in Southern Africa Faces Challenges
    by Robert Kropp

The Global Impact Investing Network finds ample opportunities for increased sustainable investment in the region, but acknowledges that challenges to development persist.


Early in his first term in office, President Obama traveled to Africa. Speaking before the Ghanaian Parliament, he 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."

Years later, sustainable investment opportunities abound on the continent, but many of the challenges—an underdeveloped infrastructure and insufficient regulatory regimes, to name but two—persist as well. The region of southern Africa is unlike other regions of the continent in some respects—for the most part, agriculture is not as dominant a part of national economies, and the national economy of South Africa is much larger than that of other African countries—but the investment opportunities in southern Africa are many, while challenges to the risk-averse investor remain.

Impact investing in Southern Africa is the subject of a new report recently published by the Global Impact Investing Network (GIIN) and Open Capital Advisors. Entitled The Landscape for Impact Investing in Southern Africa, the report makes clear that there is much room for growth for sustainable investment, but accurately describes the ongoing challenges as well.

The report focuses on the twelve countries of the region: Angola, Botswana, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Zambia, and Zimbabwe.

The lion's share of sustainable investment in the region continues to come from 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.”

“The majority of impact capital in the region has come from international DFIs,” the report states. “International DFIs have closed more than 650 deals and disbursed USD 16.7 billion.” However, “Domestic South African DFIs have closed more than 7,500 deals and disbursed USD 17.1 billion throughout the region,” the report continues.

Sustainable investors unaffiliated with DFIs have focused their attention on South Africa as well; more than 60% “of the total USD 5.6 billion non-DFI impact capital disbursed in the region” occurred in South Africa, the authors find.

Among the opportunities for investment in the region is a projection by the International Monetary Fund (IMF), “that the region will continue to experience roughly five percent annual growth through 2020, with the region’s total GDP (PPP) growing to over USD 1.5 trillion.” Additional opportunities, led by agro-processing, energy, and supply chain integration, are described as well.

As noted earlier, historic challenges persist. These include: insufficient investment-ready opportunities; insufficient human capital; limited financing in local currency; and limited electrical capacity. To overcome these obstacles, the report states, the following steps are necessary: leverage technical assistance facilities to support pre-investment; develop sector specialization; expand investment instruments; and establish a local presence.

The report concludes with several recommendations for further study, including: support for developing “investment-ready and scalable businesses”; developing and retaining top talent; and exit strategies that ensure impact potential will not be lost.

 

 
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