Impact investing in west africa

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  • 1. Impact investing in West AfricaApril 2011COPENHAGEN | DAKAR | GENEVA | JOHANNESBURG | MUMBAI | NAIROBI | NEW YORK | SANTIAGO | SAN FRANCISCO | WASHINGTON DC

2. Supported by 3. AcknowledgementsThis report was made possible thanks to the generous contributions of time and expert knowledgefrom many individuals and organisations. The Advisory Team provided invaluable insights, guidanceand support throughout the preparation of this report. In addition, special thanks goes to all theindividuals that took part in the interviews and attended the impact investing workshops in Senegal,Ghana and Nigeria in March 2011. Through the interviews and the workshops, a wealth ofexperience, understanding and data was shared on impact investing activities in West Africa. Wewould also like to thank Jenny Everett of the Aspen Network of Development Entrepreneurs, OliverKarius of LGT Venture Philanthropy, and our colleagues at Dalberg, Peter Tynan and Andrew Stern,who also contributed their time and energy. Any errors or omissions in the report are theresponsibility of the Editorial Team.Advisory TeamMargot Brandenburg, The RockefellerGiselle Leung, The Global Impact InvestingFoundation, New YorkNetwork, New YorkJustina Lai, The Rockefeller Foundation,Jacob Samuelson, The Global ImpactNew YorkInvesting Network, New YorkWiebe Boer, The Tony Elumelu Foundation,Laurie Rud, The Global Impact InvestingLagosNetwork, New YorkAmit Bouri, The Global Impact InvestingStephen Nairne, Lundin for Africa,Network, New YorkVancouverSapna Shah, The Global Impact InvestingNetwork, New YorkDalberg Editorial TeamMadjiguene Sock, DakarAngela Hansen, JohannesburgLiesbet Peeters, LondonSusanne Normark Christensen, CopenhagenAfua SarkodieKupka, DakarDaniela Nwaobasi, DakarAbdourahmane Diop, Dakar 4. Table of contentsExecutive summary ...................................................................................................................... 1Chapter 1 Introduction .............................................................................................................. 71.1 Objectives of the report .................................................................................................................... 71.2 The heterogeneity of West Africa ..................................................................................................... 71.3 Data gathering and stakeholder outreach ........................................................................................ 91.4 Defining impact investing ................................................................................................................ 101.5 Structure of the report .................................................................................................................... 12Chapter 2 The need and opportunity: demand side ................................................................. 142.1 Characteristics and needs of impact investing sectors ................................................................... 142.2 Sectors with economic impact: the example of agriculture ............................................................ 162.3 Sectors with social impact: the example of water supply and sanitation ....................................... 182.4 Sectors with environmental impact: the example of renewable energy ........................................ 20Chapter 3 Impact investing in West Africa: supply side ............................................................ 243.1 The impact investor ecosystem in West Africa ............................................................................... 243.2 Private equity and venture capital .................................................................................................. 293.3 Development Finance Institutions .................................................................................................. 333.4 Foundations, high net worth individuals and private family offices ............................................... 363.5 Institutional investors ...................................................................................................................... 383.6 Microfinance institutions ................................................................................................................ 403.7 Other impact investments ............................................................................................................... 42Chapter 4 Barriers to enabling more impact investments ........................................................ 444.1 Match of supply and demand .......................................................................................................... 444.2 Investment infrastructure ............................................................................................................... 464.3 General business environment ........................................................................................................ 484.4 Addressing the challenges ............................................................................................................... 49Chapter 5 Recommended actions to develop West Africas impact investing industry ............. 515.1 Actions specific to the impact investing industry ............................................................................ 525.2 Conclusion ....................................................................................................................................... 59Appendix A List of impact investors in West Africa ..................................................................A1Appendix B List of institutions interviewed ............................................................................. B1Appendix C Case studies .......................................................................................................... C1End notes .................................................................................................................................. D1 5. Table of figuresFigure 1.1: Geographical scope of the research ................................................................................................ 8Figure 1.2: Framework used to identify impact investors in West Africa and set research boundaries ........ 11Figure 2.1: Sectors that lend themselves to economic, social, and environmental impact ............................ 14Figure 2.2: Use of improved sanitation facilities ............................................................................................ 18Figure 2.3: Use of improved drinking water sources ...................................................................................... 18Figure 2.4: Available hydropotential (MW) in West Africa (2006) ................................................................. 20Figure 3.1: Mapping of impact investors based on risk tolerance and deal size ............................................ 28Figure 3.2: IFC cumulative gross commitments for West Africa as of the end of FY2010 (US$ millions) ....... 35Figure 4.1: Challenges for expansion and growth of the impact investing industry ....................................... 44Figure 5.1: Actions required to increase the scale of the impact investing industry in West Africa .............. 51Table of tablesTable 1.1: Overview of key macroeconomic indicators in West African countries ........................................... 9Table 2.1: Overview of enterprise finance needs in the agriculture sector .................................................... 17Table 2.2: Overview of enterprise finance needs in the water supply and sanitation sector ......................... 19Table 2.3: Overview of enterprise finance needs in the renewable energy sector ........................................ 21Table 3.1: Type, number and size of impact investors in West Africa ............................................................ 25Table 3.2: Highlevel summary of the differences between impact investor types ....................................... 26Table 3.3: Examples of funds investing for impact in West Africa .................................................................. 30Table 3.4: PE/VC fund country focus in West Africa ....................................................................................... 32Table 3.5: Examples of DFI activities in the region .......................................................................................... 34Table 3.6: Foundations and private family offices with investment activities in West Africa ........................ 37Table 3.7: Active microfinance funders in West Africa ................................................................................... 41Table 3.8: Microfinance investment vehicles in Ghana and Nigeria ............................................................... 41Table of boxesBox A: Examples of investment approaches Grofin and E+Co ...................................................................... 31Box B: Impact investing tools .......................................................................................................................... 33Box C: Indian Angel Network ........................................................................................................................... 53Box D: The Global Impact Investing Network (GIIN) ....................................................................................... 55Box E: Nigeria IncentiveBased Risk Sharing System for Agricultural Lending (NIRSAL) ................................. 56Box F: Perus MultiFondos scheme ................................................................................................................ 58 6. List of acronymsADEPME lAgence de Dveloppement etdEncadrement des Petites etMoyennes EntreprisesAfDB African Development BankAFIG Advanced Finance and InvestmentGroupAGRA Alliance for a Green Revolution inAfricaANDE Aspen Network of DevelopmentEntrepreneursBCEAO Central Bank of West Africa StatesBIO Belgian Government's DevelopmentFinance InstitutionBOAD West African Development BankCAADP Comprehensive African AgricultureDevelopment ProgrammeCADF China Africa Development FundCDC United Kingdom Government'sDevelopment Finance InstitutionCEO Chief Executive OfficerCFA West African FrancCTF Clean Technology FundDEG German Government'sDevelopment Finance InstitutionDFI Development Finance InstitutionDOTS Development Outcome TrackingSystemECOWAS Economic Community of WestAfrican StatesESG Economic, Social and GovernanceFAST Finance Alliance for SustainableTradeFCPL Fidelity Capital Partners LimitedFinnFund Finnish Government's DevelopmentFinance InstitutionFMO Entrepreneurial Development Bankof the NetherlandsGDP Gross Domestic ProductGIIN Global Impact Investing NetworkGIIRS Global Impact Investing RatingSystemGVEP Global Village Energy PartnershipIFC International Finance CorporationIFU Industrial Fund for DevelopingCountries (Denmark)ILO International Labour OrganisationIPO Initial Public OfferingIRIS Impact Reporting and InvestmentStandardsLFA Lundin for AfricaMFI Microfinance InstitutionNGO NonGovernmental OrganisationNIRSAL Nigerian IncentiveBased RiskSharing System for AgriculturalLendingPE/VC Private Equity/Venture CapitalROE Return on EquityS&L Savings and LoansSIFEM Swiss Investment Fund for EmergingMarketsSME Small and Medium EnterpriseSSA SubSaharan AfricaSSNIT Social Security and NationalInsurance TrustSwedfund Swedish Government'sDevelopment Finance InstitutionTIPA TechnoAgriculture PovertyAlleviationUBA United Bank for AfricaUNFCCC United Nations FrameworkConvention on Climate ChangeVCTF Venture Capital Trust Fund (Ghana)WAEMU West African Economic andMonetary UnionWHO World Health Organisation 7. 1Executive summaryImpact investing can help solve major social and environmental problems in West Africa1, leveraging newsources of capital in places that lack sufficient government resources and development aid to addressdevelopment challenges. A recent report by the Rockefeller Foundation and JP Morgan (2010) suggests thatimpact investments are emerging as an alternative asset class that could grow to represent a global marketof US$ 500 billiona in five to ten years. The implications for West Africa are exciting. Now is the time todeepen our understanding, increase awareness, and foster dialogue on impact investing in the region.Impact investingmaking investments to generate positive impact beyond financial returnis not new toWest Africa. However, few investors in the region identify themselves as impact investors or are familiarwith the concept in those terms. This lack of awareness, coupled with other substantive challenges, couldslow the development of the impact investment industry in the region. This report is the firstcomprehensive analysis ever conducted on the impact investing industry in West Africa. It aims to: (1) mapthe landscape of impact investing supply and demand in West Africa; (2) identify the substantive challengesthat hamper the growth of the industry and recommend solutions for overcoming them; and (3) serve as astarting point for regional dialogue and local network development activities among impact investors.The need and opportunity: demand sideThe scope of the analysis included investment into any enterprise designed with intent to generate positivesocial, economic, or environmental impact, without harming society or the environment. While mostenterprises in the region could conceivably be included in this scope, some sectors were seen as more likelyto have significant impact.At a minimum, companies create jobs, create social impact by improving employees livelihoods, and createeconomic impact through increased tax revenues and the multiplier effect from increased consumption bythe employee. Enterprises in some sectors also generate social impact through the goods and services theyproduce, such as healthcare, education, and agriculture. Enterprises in other sectors, such as renewableenergy and energy efficiency, produce a positive environmental impact in addition to an economic one. Asa proxy for total demand for impact investments in the region, it is instructive to estimate the demand forinvestments in sectors likely to have significant impact. This shows a need for US$ 65 billion of investedcapital over the next five years2.The needs of individual enterprises in West Africa vary significantly depending on their business model, sizeand maturity stage, human resource capacity, and other factors. While larger enterprises may requirefinance of US$ 2 million and above, small to mediumsize enterprises tend to have needs in the US$ 25,000to $2 million range, and microenterprises require less than US$ 25,000. However, the needs go beyondaccessing finance; many enterprises also need business development services to develop their ideas andcreate wellmanaged, financially sustainable...

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