How impact investing is going to improve the lives of Africans
Impact investing has gained momentum in West Africa in recent years and is emerging as a promising approach to address social and environmental challenges in West Africa. With a population of over 381 million people, West Africa faces significant challenges such as high levels of poverty and unemployment. According to the World Bank, over 40% of the population in West Africa lives below the poverty line, which is defined as living on less than $1.90 a day. In addition, the youth unemployment rate in West Africa is estimated to be over 50%, one of the highest in the world. These challenges require innovative solutions, and impact investing is emerging as a viable tool to address these issues.
According to the Global Impact Investing Network (GIIN), the total assets under management (AUM) of impact investors in West Africa reached $3.8 billion in 2020. This represents a significant increase from 2016 when AUM was only $1.5 billion. The growth in impact investing in West Africa reflects the increasing recognition of the potential of impact investing to address social and environmental challenges in the region.
Utilising impact investing to promote economic and social development
In West Africa, impact investing has the potential to create jobs, improve access to education and healthcare, and support sustainable agriculture, among other outcomes. Our mission at Brightmore Capital is to utilise impact investing as a tool to promote the economic and social development of the West African region while generating attractive returns for our investors. We are wholeheartedly driven by this mission and see it as the cornerstone of everything we do: the industry sectors that we work in, the companies that we finance, the structuring of operations of our portfolio companies, and the kind of advisory work we engage in.
We believe that not only is venture capital and private equity compatible with economic and social development of the regions we work in, but that it is a key driver in ensuring sustainable growth and long-term economic prosperity of our target countries and communities. Every project that we engage in seeks to be socially beneficial, yet strongly anchored on a for-profit nature and aimed at generating high investment gains.
Agriculture as a key investment area
In addition to creating jobs, impact investing can support sustainable agriculture in West Africa. Agriculture and agribusinesses in Africa are projected to be a US$1 trillion market by 2030 which is a huge opportunity for the continent which has 45% of the world’s arable land.
“With an abundance of labor, land and untapped water, Africa has the resources necessary for a massive expansion of agricultural production. Of the world’s surface area suitable for sustainable production expansion—that is, non-protected, non-forested land, with low population density— Africa has the largest share by far, accounting for roughly 45 percent of the global total.” (Source: World Bank)
However, the agriculture sector faces significant challenges, including low productivity and a lack of access to finance. Impact investors can provide capital to support sustainable agriculture initiatives, such as improving access to irrigation and modernising farming techniques. Brightmore Capital is actively engaged in investing within this sector, helping to support the ambitions of local entrepreneurs and assisting them to break into global markets by backing their projects.
Challenges we face
Impact investing in Francophone West Africa does however face significant challenges including a lack of access to capital, weak governance and corruption. While government funding, aid, and philanthropy have played a role in addressing these issues, they have proven to be insufficient. Governments in West Africa face competing demands for resources, and aid and philanthropy can be unreliable sources of funding.
It is for this reason that we are always seeking investment partners in the form of Limited Partners (LPs) including: DFIs, Foundations, and Family Offices to partner with. One can say that any external investment into a developing economy ultimately promotes its “development” and as such, it can be argued as true from a pure viewpoint of classical economics. However, we believe that some investments ultimately have greater economic benefits for frontier markets such as West Africa. As opposed to purely extractive industries that source raw goods from developing countries, impact investments create local economic value-add, and have the local populations not just as a labour force, but as the recipient of key economic benefits.
Maximizing investment returns
When establishing and running our business ventures, we seek to create “regional champions” – companies that are able to expand beyond a single operating site and ultimately across natural borders in West Africa to capture market share in their industries, or in some cases, create entire new industrial categories in the region.
Our goal is for our investments to grow from small enterprises into medium and large-scale companies. During the course of our investments, we seek to capture the generated value and return the gains to our investors via three key exit vehicles:
When we work with our investors we see ourselves as not only stewards of their capital, but as having a duty to maximize the upside scenario for them and maximize their investment returns. Our operation model is closely aligned to that principle, with most of our own incentives driven by carried interest (a portion of gains on successfully “exited” projects) rather than management fees. Having a shared interest with our investors in selecting deals that generate maximum investment returns, while featuring acceptable levels of risk and net positive economic and social benefits, allows us to engage in management decisions that maximize the net value creation in the projects that we engage in.
Through ensuring that our investors are key “winners” in every project, we are promoting a sustainable development model of a vitreous cycle of continued economic development aided by internal and external capital inflows to new ventures, corporate turnarounds, and growth of existing commercial enterprises.
In conclusion, Impact investing has the potential to address social and environmental challenges in West Africa. With high levels of poverty and unemployment, the region requires innovative solutions that can support sustainable development. Brightmore Capital is looking for investment partners who we can work with to drive forward the possibilities of impact investing to provide an alternative source of funding that can support economic growth, create jobs, and support sustainable agriculture. While impact investing faces challenges, it is gaining momentum in West Africa, and the potential for positive impact is significant.