An example of impact investment in SA is the Futuregrowth Agri Fund. The PIC invested R700m in agricultural land together with Old Mutual (R762m) through a fund managed by Futuregrowth. Picture: 123RF/NUTNUCHIT PHUTSAWAGUNG
An example of impact investment in SA is the Futuregrowth Agri Fund. The PIC invested R700m in agricultural land together with Old Mutual (R762m) through a fund managed by Futuregrowth. Picture: 123RF/NUTNUCHIT PHUTSAWAGUNG

Africa’s vast development needs provide ample opportunity for impact investments, which aim not only to generate a financial return for investors but also to have a positive social and environmental effect, says the Africa Impact Report 2019, launched on Tuesday by the Public Investment Corporation (PIC) and Impact Investing SA.

The report, which aims to present a sound case for investment in African countries, was launched at the Global Steering Group Impact Summit in Buenos Aires, Argentina.

To read the full report click here.

“There is much need for impact investing in Africa to drive the continent to reach its full potential,” the report says, adding that impact investing can offer capital to tackle some of the greatest challenges across various sectors including microfinance, affordable healthcare and housing, agriculture and energy.

To date, impact investments have concentrated on a few sectors (energy and financial services) and on a few countries in Africa (Nigeria, SA, Kenya and Ghana).

An example of impact investment in SA is the Futuregrowth Agri Fund. The PIC invested R700m in agricultural land together with Old Mutual (R762m) through a fund managed by Futuregrowth. The fund aims to provide investors with solid financial returns by investing in farmland and agricultural infrastructure, while creating jobs and alleviating poverty.

The report notes that the global market for impact investing has grown considerably over the past decade. According to one study, assets under management for impact investing at the end of 2018 were estimated at $502bn. Further, it showed that out of 1,340 investor types, 64% were asset managers, with only 20% foundations and 2% development finance institutions.

Furthermore, about 50% of impact capital was from asset managers, indicating a shift from traditional donor and development finance institutions to asset managers, who traditionally sought financial returns only.

Global development goals

“Today, there is a growing recognition and need for impact investing. More traditional investors are heeding the call and transforming their mandates and strategies, aligning them to global development goals and allowing for impact to take place,” the report says. “Globally, impact investments are beginning to be channelled into projects in low-income regions to be a catalyst for poverty alleviation and economic and social prosperity.

“Development finance institutions, philanthropic and dedicated impact fund managers are pioneering this initiative, where they are actively integrating impact considerations and measurements to their investment strategies,” the report says. “A significant number of investors are adopting the UN’s sustainable development goals and the AU’s Agenda 2063 objectives as a reference point to gauge the impact their investments are making.”

Among Africa's many developmental challenges are poverty, climate change, inclusivity, poor levels of education and health, financial inclusion, hunger and sustainable agriculture.

The report examines the various types of investment in Africa and the opportunities that exist for impact investments. It notes that the energy sector presents the greatest potential to unlock multiple economic and developmental outcomes and is also the closest fit for development finance institution funding. The manufacturing sector is also regarded as a positive engine for growth in most developing countries in Africa, which represents the second-fastest growing region globally.

The report looks at the factors favouring investment in Africa, such as its high growth rate, demographic trends and the rate of urbanisation, but at the same time acknowledges there are inherent risks and concerns.

“Doing business in Africa is complex, where the continent has 54 countries with diverse traditions, economic structures and ways of conducting business, depending on which region an investor is looking [at]. According to the Doing Business Report (2019) of the World Bank, African countries perform poorly on many metrics, in comparison to the other 190 nations surveyed.”

Among the difficulties in investing in the continent are poor regulatory frameworks, weak fundamentals, lack of liquidity, numerous languages and cultures, poor governance, political instability and corruption, lack of infrastructure, funding constraints, information and trust deficits, and counterparty risks in projects that include the public and private sector.

ensorl@businesslive.co.za