Investing for positive environmental and social impact or good governance (ESG) is becoming the norm rather than the exception in Africa. More than $428 billion in financial assets have been directed to ESG investing in southern, East and West Africa in the past year, according to African Investing for Impact Barometer (AIFIB).
To understand both the drivers and obstacles to this type of investment in Africa, global legal firm Hogan Lovells recently hosted CEO’s and thought leaders from across the continent to discuss the topic at the company’s annual Africa Forum held in Johannesburg. The theme for the event was Africa Fit for the Future, where solutions were explored that will make a positive impact in shaping a sustainable and successful future for the continent.
Trillions of dollars are set to be invested in Africa by 2030 with a massive impact economically and socially, according the World Economic Forum. Smart investors are scrambling to lay the foundations now for African businesses which will soar over the course of the next decade alongside the continent’s population and spending prospects.
The term impact investing, which has grown in popularity globally, refers to investments made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return. For example we have seen a rise in green energy projects in South Africa recently with a R56 billion (about N1.42tn) agreement signed between Independent Power Producers (IPP’s) and government to increase investment in renewable energy and move away from relying solely on fossil fuels.
According to the World Economic Forum, by 2030 the African population is set to soar to 1.7 billion people with combined consumer and business spending set to reach a massive $6.7 trillion with a huge investment potential. The UN estimates that sub-Saharan Africa will account for about half the increase in the global work force by 2030.
To benefit and take advantage of this projected growth Africa needs to address the three key drivers, or three C’s, of certainty, corruption and currency to encourage investment that will have a positive impact on the continent. Increasing impact investment will mean that there should be certainty around important government policies, corruption must be cleaned up and prevented, and currency stability must be encouraged.
Though investors look at the continent with a mixture of optimism and nervousness, initiatives like President Ramaphosa’s drive for $100 billion in new investment in South Africa signals that Africa is open for business and a new scramble for Africa is underway. This drive for new investment opportunities on the continent is also being fuelled by global factors like Brexit and the trade wars by US president Donald Trump. Africa must become fit for the challenge to embrace these new investment opportunities that will make a tangible positive social impact.
Indeed, the recent visit to West Africa by German Chancellor Angela Merkel to focus on economic development and migration is testament that impact investing is a global priority – some Europeans hope that investing more in West Africa will help keep people from migrating, especially in a region plagued with unemployment, poor infrastructure, rising extremism and now the effects of climate change. Panelists also agreed that education is of vital importance for the youth of the continent to make the most of the opportunities available to them, and for sustainable economic growth going forward.
James Campbell, MD of Botswana Diamonds, said there is a strong link between education and the economic growth of a country. Vincent Raseroka, CEO at Bridge Taxi Finance, also believes the key for growth is a strong education system, with an emphasis on science, technology, engineering and maths, which unfortunately is lacking in many African countries. He believes there needs to be an inclusive model for impact investment and it is vital that technology is leveraged the correct way without merely digitizing everything. There needs to be a balance and change management needs to play a role for inclusive development through impactful socio-economic investment.
Bonang Mohale, CEO of Business Leadership South Africa (BLSA) concluded by saying harnessing the continents raw materials and imparting the education and skills for processing materials into end products through impact investment will put Africa on the road to prosperity and have a positive social as well as a positive economic effect on the continent.