OMAI’s Head of ESG Dean Alborough has contributed an op-ed to Infrastructure Investor’s Sustainable Investing report, detailing the shift in the impact investing space across Africa. While considering the positive developments, he also acknowledges there is plenty work ahead and private finance’s growing role in achieving positive outcomes.
The global Covid-19 pandemic has underscored the deficiencies in social infrastructure across Africa, highlighting the level of inequality and degree of progress required. Rolling blackouts, severely stressed healthcare systems and the inability of educational institutions to adapt to online learning have put these shortfalls in context of inadequate deployment of development capital.
Despite illustrating the long road ahead, Covid-19 has also shown us that this gap can be closed. The continued positive performance of funds deploying capital responsibly exhibit the resilience and necessity of investing in a sustainable future – accelerating over the last few months.
In a way, that encapsulates the African impact story of the last decade. Increasing private sector involvement, greater availability of capital and a better understanding of risk profiles depict the steps being taken to supplement the work of development finance and point to increasing opportunities. As countries make themselves more absorbent of private capital, investment strategies are diversifying.
2013 was a landmark year, with sub-Saharan Africa being recognised as the most attractive emerging markets destination for global investors according to E&Y, while witnessing a 20% increase in private equity activity from the previous year, where 60% was deployed to impact projects. Since then it has grown nearly fivefold to USD18.7b through 2019, signifying robust momentum.
Despite the important progress over the last decade, plenty of work remains. A decade ago education and the creation of decent work opportunities were commonly placed as leading priorities, with climate action, healthcare, infrastructure, sustainable agriculture and gender equality as other key challenges facing the continent.
A decade later, digital infrastructure, now recognized as a critical developmental outcome for the continent, and protection of our natural resources through biodiversity-related impact investing have been added to that list. As that list grows, Africa faces an annual funding gap of between USD500b and USD1.2tr to realise the UN SDGs. Despite this, only just less than 13% of impact capital is directed to Africa.
Through the last ten years, the key challenges facing the continent have been known. The question has always been ‘Can we identify practical, implementable solutions and effectively deploy the required capital quickly enough?’ Infrastructure will continue to underpin the development impact in Africa. While the challenges remain, the increased debt levels taken on by countries to fight Covid-19 have significantly increased the role private capital has to play.
According to UNDP analysis, for every dollar spent on resilient infrastructure in low- and middle-income countries, the return is fourfold, making the case for increased investment harder to ignore. Looking forward over the next decade, impact capital needs to be deployed with broader mandates, reflecting a better understanding of the needs of those on the ground and more accurate models of risk perception.
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