In response to ecological, social, and economic crises, the traditional financial model is evolving. Impact investment, combining financial objectives with societal benefits, is garnering increasing interest in Africa. However, its progress remains modest, facing challenges to maximize its potential.
Emergence of impact investment in Africa
Born in the United States and Europe, impact investment is gradually taking hold in emerging countries, particularly in Africa. This model is characterized by intentionality and additionality. These principles ensure a balance between profitability and societal contribution while targeting underfunded sectors. Unlike traditional approaches, impact investors accept limited financial returns if their actions create positive effects for the community.
In Africa, these financings mainly concern small and medium-sized enterprises (SMEs). These play a crucial role in poverty reduction, women’s empowerment, and environmental preservation. However, access to capital remains a major obstacle for these businesses. Their transformational potential remains largely untapped due to a lack of resources and structures to support their growth.
Steady but moderate growth
According to the Global Impact Investing Network, impact investment in Africa has grown by 15 % annually over the past five years. This is encouraging growth but falls short of the 30 % recorded in Europe and the United States. This difference illustrates persistent structural obstacles. Indeed, public and private funds are increasingly active in the Southern continent. However, this type of financing often concentrates on a few major economies such as Kenya, South Africa, and Nigeria.
Limited by their size and means, local impact investors struggle to capture the necessary funding. Meanwhile, large international funds dominate the sector, managing over 80 % of assets. This situation reflects a scale problem, where small players are overshadowed by megafunds. These are the funds with over 1 billion USD in assets, and there are only 18 funds out of 225. Additionally, the lack of reliable data on the sector makes it difficult to assess opportunities and impacts, further hindering the development of targeted investments.
Structural challenges of impact investment
Complex procedures and access to financing
African impact investors face heavy administrative procedures. Despite initiatives like the World Bank’s “Private Sector Window” program, access to funds remains difficult for local actors. This complexity stifles new initiatives.
Moreover, large private investors tend to overlook small local funds, often deemed unprofitable. This dynamic widens the gap between available funds and those who can benefit from them. Better coordination among actors would be essential to overcome this imbalance. The lack of strong partnerships between international institutions and local structures also limits possible synergies.
Currency risk and reduced profitability
One of the major obstacles to investment in Africa lies in currency risk. Funds are often denominated in strong currencies, while investments are made in local currencies. Each depreciation of African currencies reduces the profitability of invested capital. This monetary instability, present in economies like Ghana or Nigeria, complicates investors’ planning.
Furthermore, selling off stakes remains complex due to insufficient demand. This often forces investors to extend their cycles or sell to local leaders with limited resources. This situation limits their ability to reinvest quickly in other promising projects, thus slowing down the sector’s overall momentum.
Urgent need for human skills
Assessing societal impact requires specific skills. In Africa, funds suffer from a shortage of qualified workforce, particularly in specialized areas such as impact measurement or due diligence.
These positions are crucial to ensuring the relevance of investments but are often filled by talents drawn elsewhere, notably by international organizations.
This brain drain limits the professionalization of local funds. Strengthening human capacities through training programs and incentives could transform the landscape of impact investment on the continent. Meanwhile, efforts to encourage collaboration between local universities and investors could foster the emergence of new generations of competent and committed professionals.
Catalyzing growth for an ambitious future
Despite the obstacles, the impact of investment opportunities in Africa remains concrete. With a young population, improving purchasing power, and a dynamic climate transition, the growth potential is real. Initiatives like the “Choose Africa” program or the Mastercard Foundation’s “Africa Growth Fund” provide concrete solutions to catalyze this growth.
Going further, better coordination between public and private actors is essential. Simplifying procedures and supporting local funds must be priorities. By strengthening collaboration networks and developing technological tools, it is possible to improve the effectiveness and impact of initiatives. Through increased efforts in training and retaining talents, Africa can become a global leader in impact investment.
