Impact investing is creating great excitement in development circles, with breathtaking figures about its potential size and impact bandied about. At the moment, though, its effect is anticipated rather than actual. Will it achieve its potential? How significant will it become in the next ten years? Alliance asked observers in four different regions to speculate.
FRENCH-SPEAKING AFRICA Strengthening the SME sector Firoz Ladak In recent years, Africa has surfaced on the development map as ‘the new frontier’, with economic expansion over the entire continent forecast at 50 per cent in the next five years. Yet a vast number of Africans continue to live below the poverty line. Poverty, hunger and lack of access to health services and education are huge challenges, while 1 million jobseekers will enter the market every month for the next 15 years. What can impact investing do to meet these challenges?
Until recently, impact investing in Africa has been led primarily by western equity firms that have access to a vast amount of liquidity and are looking for the right investment pipeline in financial services, health, agri-business, energy or even education. Such impact investors are used to practices derived from private equity, including a large ticket size, an ambitious IRR (investment rate of return), management control and an exit strategy. Finding companies that fit such criteria while at the same time answering strict economic, social and governance (ESG) requirements remains challenging. Specialized funds in the field like Leapfrog, Acumen, Abraaj Capital or Root Capital have focused mainly on East or Southern Africa.
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