Tag Archives: impact investments

Social Impact Investing Creates Value

Impact investing can mean a diverse range of investments, ranging from housing development in the US to renewable energy in BRIC countries and agricultural cooperatives in Africa. Investment can be crowded fund or private equity.  The table below shows the spectrum of different impact investment business models and traditional investments.

Impact Investment

Social impact investing is not a new trend; it has been around for several decades through philanthropic investments, in areas like community and social development, infrastructure and gender equality. However, a fairly new type of bond to finance social wellness is the Social Impact Bond, which the Social Finance UK describes as a “public-private partnership which funds effective social services through a performance-based contract.” Unlike social impact bonds, however, social impact investing is a large field that include any social benefit from the underlying business model. The combination of social impact investing and bonds is the new form of business model that is emerging in many developing countries around the world. The HBR wrote several articles about how social entrepreneurs are typically held back by traditional financing processes and structures, but in new markets where risk and opportunity are intertwined, innovative business models are capable of driving new areas of returns for investors with an open mind. This is currently the case with green bonds and has been with impact bonds.

Impact Investing in Different Markets

In the world if impact investing, The impact sector is growing, in a study conducted by the Global Impact Investment network, respondents in impact investing reported they grew their impact assets from USD 25.4 billion to 35.5 billion from 2013 to 2015. The report, found here, shows many trends in the sector by respondent types and tracks the growth of the sector. Some American examples include Goldman Sachs’ investments in community and urban development across the US including New Orleans , Chicago, and NYC.

While globally, Africa is seeing many similar impact investments. One being The Just Shea Program , a program that helps women shea harvesters of Ghana with several areas from providing safety gear that can be repaid through harvest shea nuts, to providing equipment to protect form poisonous snakes, and finally and importantly for economic reasons,  the creation of cooperative silos to increase the price per kilo paid to the harvesters.

In Africa, one of the value creation tools that African private equity can contribute to social impact businesses is the ability to bring their portfolio companies up to above-market standards of compliance and transparency, which in turn raises their value at exit. Investors can also help influence the political climate by investing in areas with strong legal standards and compliance thus creating reasons for government to create more favorable investment climates.

It seems that while impact investing may be difficult for traditional investment, there is a space in portfolios for this type of model, and as data emerges on the results, the potential for ROI is very viable as well as the potential to create positive socially responsible returns.

African and EU Partnership Framework Continues To Bolster Development Work

The recovering African markets are reopening the gateways not only for sustainable investment opportunities but also new impact investment, both for local players, as well as globally. This past July, The EU Africa Partnership  Civil Society Summit took place in Tunis to cover the ongoing priorities of the groups vision and roadmap. Among the top of this list of objectives were the focus on continued economic development, that includes policy and advisory support frameworks to help countries and investors with placements for projects throughout Africa. This can include process to help maintain transparency and identify and advise on financial risk mitigation.

As continued sustainable development assists in potential for commerce and trade, this means a better ability for strong performing sectors in West and East Africa to truly take the reigns of driving the future of their firms. Sidney Yankson, CEO of Ghana Capital Partners , who attended the EU Africa Partnership Summit in previous years, believes the following is true of this summit;

” Part of our firm’s objective is to not only drive investment opportunities, but to contribute to the ecosystem of society where we operate through sustainability activities. As we have seen fluctuations in the growth of markets not only here in West Africa but globally, we find the continued interest of such organizations very important to ensure sound investment and development support to local and foreign partners.”

 

GCP will continue to work with local and European partners in various sectors, in particular  with policy influencers and foundations across the region to share experiences and methods for success in this vital time for investment in renewable and infrastructure in Africa.

Creating Positive Futures and Social Impact

As far as Western Africa has progressed in implementing infrastructure, like many other developing regions, there is much work required ahead. Basic infrastructure in developing nations needs to be improved in many urban and rural regions to allow for economic development. For example, it is estimated that Ghana can save over 33 million USD/annually in already overburdened public sector energy grid-based costs by switching to solar street lights. (1)

 

 

Such innovative solutions not only help in developing nations, but also have come to play important roles in humanitarian crisis zones. Solar lanterns have been used in Syrian communities to provide lighting once grids have been destroyed by military activity. (2)

 

 

 

In a recent New York Times article, The Race to Solar in Africa, (3) the author traveled across rural areas in Africa to see first hand the impact that solar energy can have, and the author relayed the following:

  • Residents of a rural Ghana community could now safely store the vaccine for yellow fever,
  • Charge cell phones at home rather than walking to a bigger town,
  • Cold water was now available – solar enabled running of refrigerators, and so coldness was, for the first time, a possibility,
  • Electric fans which can squelch overwhelming heat.

Such uses can dramatically improve the living conditions as well as economic activities of communities. Farmers in some communities with new solar energy installations could now use advanced mobile phone and weather monitoring applications to help improve crop yield.

GCP and GCP Solar’s initiatives span across many sustianable charitable activities, including solar lanterns distribution. Like GCP, there are many other examples of active and dedicated foundations working in this area, and making excellent progress. Thus our aim is to be part of the shift towards sustainable and impactful investment and development of basic services supporting the growth of the promising economies in Africa.

  1. https://www.voanews.com/a/3938644.html
  2. https://phys.org/news/2017-02-ghana.html
  3. http://www.myjoyonline.com/opinion/2017/january-23rd/solar-street-lights-will-save-ghana-33million-a-year.php
  4. http://www.newyorker.com/magazine/2017/06/26/the-race-to-solar-power-africa

 

Keeping Ghana Alight – New Initiatives for Better Solar Coverage

As many African nations continue to evolve their utility coverage and infrastructure, many struggle to establish sustainable conditions and terms for such projects. Ghana’s

Africa Renewable and Solar Developments

Renewable Solar Projects Installation

recent new President Nana Addo Dankwa Akufo-Addo who came into office earlier in Spring 2017, has made clear a new positive agenda to commit to developing solar in the country. His position in a recent State of the Nation address was that it will resume Ghana’s renewable energy program, as well as implementing new initiatives to attract private sector investment in renewable.

The Ghanaian president has also stated that utility Electricity Company of Ghana (ECG) had signed 43 Power Purchase Agreements (PPA) by the end of 2016, and that over 20 more were under consideration. He added that there will be an attempt to enforce a new procurement law for more fair bidding processes, and that many of the countries existing PPA’s u

nder the last government may be under review for reconsideration.

In addition to these new initiatives, in mid-March the country’s Energy Commission launched a rooftop solar programme, originally conceived in 2015, which provides an initial investment to cover the cost of PV panels up to a maximum of 500 W. The Energy Commission aims at installing 200 MW of rooftop PV capacity in the medium term. The programme is to be expanded to cover non-residential facilities including ministries, departments and agencies across the country.

Sources:

MDAs to be connected to solar energy

Ghana’s new government relaunches solar program

Sidney Yankson (CEO) attends a special presentation by the African Development Bank, the African Economic Outlook 2014, at New York University

Sidney Yankson (CEO) was invited to attend a special presentation by the Africa Development Bank (ADB) on 13 October 2014. The main theme of the evening was the global value chains and Africa’s industrialisation.

The event took place at New York University Africa House an interdisciplinary institute devoted to the study of contemporary Africa, focusing on economic, political, and social issues on the continent. The Africa Development Bank was founded in 1964 and has fifty-three African country shareholders. Their mission is to promote sustainable economic growth and reduce poverty in Africa.

Sidney commented that, “The ADB’s report provides a fantastic overview of the opportunities in Africa today.  Most of the countries they review have projected annual GDP growth in excess of 7%. That is phenomenal.

The ADB suggested that there are challenges to overcome, but in the long term African countries and companies will prevail.

The NYU professor suggested that Africa is resilient and will bounce back from the current Ebola crisis.

Therefore, the future looks bright, but there will be challenges.”

Besides the ADB special presentation, Sidney has attended a few other conferences whilst in New York and Washington. On 15 October Sidney was at a meeting in Washington DC discussing commercially operating minigrid systems with the US State Department, USAID, World Bank and the UN Foundation. The meeting allowed participants to recap on the High Impact Opportunity initiatives, membership and co-ordination. There were discussions about focusing on High Impact Initiatives and the upcoming input from DFID, African Development Bank and the World Bank.

Sidney will attend a further event on the 16-17 October that will comprise of a workshop focusing on proven private sector business models that are already in operation and leading the way in mini-grid development.

Why Impact Investments will ensure a brighter future for Africa

Identifying the worlds most pressing issues can be a challenge. At GCP Solar we focus on providing safe and sustainable light solutions to the 400 million people living in Africa without light. The Head of Impact Investing Initiatives at the World Economic Forum (May 2014), Abigail Noble discussed the challenges of impact investments. Currently the average private equity deal is around US$36m and the average investment impact deal is around US$2m. For private equity firms to fully engage in impact investing it costs more to do. There is the bottom line measuring their fiscal performance financial profit, and then the second bottom line measuring the performance in the terms of positive social impact. Moreover, as the size of the deal is smaller, more consideration is needed in the terms of fee structures and due diligence.

Should impact investors anticipate market returns? Yes – a range of returns can be expected such as patient capital, whereby an investor will be willing to make a financial investment in a business with no expectation of turning a quick profit, substantial rewards will come further down the road. The Acumen Fund, a non-profit global venture fund that uses entrepreneurial approaches to solve the problems of poverty, are cautious about stating that they’re opting for the long-view, some investors only make 0-1% returns. Impact private equity firms like LeapFrog make +20% quartile of returns. Leapfrog invests for the NextBillion, investing in high-growth companies in Africa and Asia, as well as delivering financial services to emerging consumers. These investors need to consider their priorities in the terms of social impact and legacy; are there equity needs in the short-term? Or can a longer perspective be taken?

One could then argue that if impact investments focus more on financial returns, could less profitable investments with strong social impacts be left behind? Noble argues that there is a risk. Given positive selection bias impact investment deals that target the highest returns will receive the most capital and the most effective investors in juxtaposition with those with lower returns. Noble describes how philanthropic capital and development is integral, once investors start to realise that targeting social and environmental returns can actually boost and make more long-run, stable, financial returns. For example, when looking at climate change, the Arab Spring, social unrest, youth unemployment or social inclusion, these can all affect the financial market. By the by, the more stability in social or political institutions, the better the business climate. Noble indicates that the “real way” to create a stable market economy would be to focus on social and financial returns in the long-run. GCP and GCP Solar’s basic focus towards Africa and African investments identifies that investments are long-term opportunities as well as a socially responsible and ethical investments.