The concept of impact investment is gaining traction in Africa, and elsewhere in the world, too. Despite this, the term is not well understood. This can be attributed to various similar approaches used by companies and organizations, including Socially Responsible Investing (SRI). Whilst similar, both investment approaches are fundamentally different. What is clear, is that impact investing agendas are making a difference in Africa, for instance among start-ups, writes Southern Africa Ambassador Takunda Mambo. In his inaugural blog for Afrinection, he sheds a light on what impact investing is, who is involved, how to go about, and where it is making a difference in Africa.
To kick things off – what is impact investing and why is it important?
The Global Impact Investing Network (GIIN) defines impact investing as ”investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return”. This differs from SRI, which integrates social and environmental factors into a company’s investment strategy to avoid investing in initiatives that may be bad for the environment and communities.
Companies involved in impact investing incorporate the SRI approach but go a step further by ensuring positive environmental and social impacts alongside financial returns. This is particularly important in developing countries where governments may not have the financial means to address many of the environmental or social issues they face despite the pressing need for intervention.
These sectors all need significant attention, particularly in Sub-Saharan Africa which according to the harbours half of the world’s extreme poor. Most of these individuals live in rural areas without access to schools, clean water, electricity and other facilities which are crucial to meet basic human needs.
Who is involved and how is it making a difference?
Whilst GIIN acknowledges that the size of the impact investment sector is not entirely understood, it is substantial nevertheless. The organisation’s 2016 Annual Impact Investment Survey, for instance, the value of global impact investment amounted to USD77.4 billion in 2016, USD15 billion than in 2015.
The diversity of investors in the impact investing arena is also eye-catching as they include fund managers, development finance institutions, diversified financial institutions, private foundations, pension funds and insurance companies, family offices, individual investors, NGOs, and religious institutions.
The African Investing for Impact (AIFI) Barometer 2016 notes that more than USD353 billion in assets is dedicated to one or more impact investing strategies across 9 countries. Southern Africa is ahead of the other regions with USD325.9 billion. Further perspective is provided through research by the IFI strategies, with USD15.4 billion dedicated to East Africa, and USD12.6 billion dedicated to West Africa.
How your start-up can tap into impact investing
To make up for electricity shortages in South Africa, Shakti Energy provides pedal-powered generators for recharging lights and electronics in off-grid informal settlements in South Africa. Similarly, in Kenya, Strauss Energy designs building materials that capture the sun’s rays and convert them into solar energy. For instance, the solar tiles can sustain a household without the need for an additional source of energy. Also in Kenya, promoting environmental sustainability is Kencoco which produces 50 tonnes of charcoal briquettes every month from coconut shells, husks, and other biomass.
While these are only a few examples it is fairly evident that the most important aspect is ensuring that your start-up is addressing a social or environmental need. So in other words – do your research. Additionally look into various accelerator and investor readiness programmes that are becoming increasingly available to assist startups to prepare for initial contact with investors. The Silicon Cape Initiative provides an extensive list to look into. Others to consider include the Barclays Accelerator – Think RIse, Think Accelerate, Growth Africa, and Impact Amplifier.
About the author: Takunda Mambo from South Africa is Afrinection's southern Africa Ambassador. He is an experienced writer and passionate about Africa, entrepreneurship, and anything that makes a positive impact on our continent.
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