The United Nations estimates that the global population exceeded 8 billion people in November, with over 1,3 billion living on the African continent. Home to 17% of the world population, Africa is the world’s second-most populous and second-largest continent but remains the poorest and least-developed continent.
The African region’s collective GDP stands at $2,98 trillion, less than 3% of the total global economy ($100 trillion) (IMF, April 2022). In terms of GDP, the 24 lowest ranked nations were all African. Furthermore, many Africans still live in poverty, with over 600 million without access to electricity.
The Sustainable Development Goals (SDGs) are 17 global goals aimed at ending poverty and ensuring prosperity for people and planet by 2030. The UN estimates that achieving the SDGs could open over $12 trillion in market opportunities, which is over four times the continent’s GDP and would create over 380 million jobs, mostly in developing countries. Concerningly, the annual funding gap for delivering on the SDGs stands at $3,7 trillion globally, with a $600 billion funding gap for the continent.
Impact investors, along with many impact-led businesses, are solving continental challenges of access to healthcare, education, energy and dignified affordable housing, while still generating attractive financial returns.
It must be noted that challenges for these investors and businesses do remain, such as limited policy and regulation, with most jurisdictions (including South Africa) having no overarching regulations for impact investing. Due to these regulatory constraints, foundations in South Africa are limited in their ability to deploy impact capital that generates both financial and social returns. Although capital leakage cannot be ignored, there are efforts in place to change this with enabling legislation like Regulation 28 for pension fund allocations. Other barriers on the continent include international perceptions of the region as a highly risky investment destination and currency instability, translating into prohibitively high capital costs. Moreover, there is a lack of sufficient capital at the right ticket size, with limited innovative instruments.
All this presents investors and the continent alike with colossal opportunities. A continent of 1,3 billion people, the majority of them young, presents a formidable and growing market for goods and services. Positively, we continue to see government and regulation align to drive more investment. A considerable pool of funders and alternative capital providers are emerging to provide funding to small and growing businesses, oftentimes with a gender lens. The result of the above is the acceleration of innovative investment structures and instruments, as impact thinking becomes mainstream.
We are seeing a greater interest in African assets and investment opportunities, with the Global Impact Investing Network (GIIN) reporting that the ‘majority of impact capital is allocated to emerging markets (59%) with the top region of investment being sub-Saharan Africa with 21% estimated allocation’. This is unsurprising, as impact investing, if I were to be bold, was made for Africa.
Points to ponder
We are seeing a greater interest in African assets and investment opportunities. The Global Impact Investing Network (GIIN) survey estimates that the impact investing market now stands at approximately $1,164 trillion, based on the collective assets under management (AUM) worldwide. Based on inputs from 3349 organisations, over 52% intend to increase allocation in sub-Saharan Africa. The introduction of a free trade agreement, the African Continental Free Trade Area (AfCFTA), is poised to unlock significant development across the region, whilst driving investment of more capital.
Shiluba Mawela CA(SA)
Managing Partner: Tshiamo Impact Partners – an impact advisory and impact fund management firm