A decade making an African impact

OMAI’s head of ESG, Dean Alborough, examines the virtuous cycle of sustainable investment in Africa and how the landscape has changed.

Dean Alborough

The global pandemic has underscored the deficiencies in social infrastructure across Africa, and highlighted the level of inequality and degree of progress required. Rolling blackouts, severely stressed healthcare systems and the inability of educational institutions to adapt to online learning have placed these shortfalls within the context of the inadequate deployment of development capital.

Despite illustrating the long road ahead, covid-19 has also shown us that this gap can be closed. The continued positive performance shown in recent months by funds that deploy capital responsibly underlines the necessity of investing in a sustainable future.

In a way, that encapsulates the African impact story of the past decade. Increasing private sector involvement, greater availability of capital and a better understanding of risk profiles show the steps being taken to supplement the work of development finance and point to increasing opportunities.

As countries make themselves more absorbent of private capital, investment strategies are diversifying.

Increased activity

It was a landmark year in 2013, with sub-Saharan Africa being recognised as the most attractive emerging markets destination for global investors, according to EY. There was a 20 percent increase in private equity activity from the previous year, when 60 percent was deployed to impact projects. Since then it has grown nearly fivefold to $18.7 billion through 2019, signifying robust momentum.

Despite the important progress, plenty of work remains. A decade ago, education and the creation of decent work opportunities were commonly placed as leading priorities, with climate action, healthcare, infrastructure, sustainable agriculture and gender equality among the other key challenges.

Now, digital infrastructure is recognised as a critical developmental outcome for the continent, and protection of natural resources through biodiversity-related impact investing has been included.

As that list grows, Africa faces an annual funding gap of between $500 billion and $1.2 trillion to realise the UN Sustainable Development Goals. Despite this, just less than 13 percent of impact capital is directed to Africa.

Through the past 10 years, the key challenges facing the continent have been known. The question has always been: ‘Can we identify practical, implementable solutions and effectively deploy the required capital quickly enough?’

Infrastructure will continue to underpin the development impact in Africa. Although the challenges remain, the increased debt levels taken on by countries to fight covid-19 have significantly increased the role of private capital.

According to UN Development Programme analysis, for every dollar spent on resilient infrastructure in low- and middle-income countries, the return is fourfold, making the case for increased investment harder to ignore.

Looking to the next 10 years, impact capital needs to be deployed with broader mandates. It needs to reflect a better understanding of the needs of those on the ground and more accurate models of risk perception.