30 June 2020
Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return. Impact investments target a range of returns from below market, to market rate, depending on investors’ strategic goals.
In Africa, impact investment has the potential to complement public spending and official development assistance, by providing private sector capital and skills to reduce African economies’ vulnerability to external shocks, providing a market-based solution to address socio-economic needs. Consequently, public spending can focus on addressing social needs for which there is no viable market-based solution.
According to the Global Impact Investing Network’s 2020 Annual Impact Investor Survey, over 1,720 organisations manage $715 billion in impact investing assets under management. Investors include asset managers, foundations, banks, development finance institutions, family offices, pension funds, insurance companies and others.
Data from Africa Private Equity and Venture Capital Association shows that between 2014 and 2019, 44% of venture capital deals recorded in African tech ecosystems included participation from at least one impact investor.
The COVID-19 pandemic has triggered a slump in venture capital investments across the African tech ecosystems this year. Investors are wary of the global economic slowdown and potentially lower returns in startup investments. The pandemic has brought into prominence the role of impact investment firms and institutions. Impact investors have become a crucial lifeline for companies in Africa’s fledgling startup ecosystems.
The sectors which have seen the highest amount of impact investments since the coronavirus outbreak are:
- Agriculture – where the focus has been to ensure food security.
- Health – to provide additional resources to health workers and facilitate the delivery of medication.
- Financial services – for solutions catering to individuals who don’t have access to traditional credit providers.
Impact investors in Africa have the opportunity to use innovative financing tools to deploy capital that intentionally creates positive social, environmental and financial impact.