IIC Africa Review 30th May 2017

The Impact Investor Club convened again in London on May 17th, this time with the subject of impact opportunities in Africa in focus. As a continent, there’s certainly a wealth of potential when it comes to investing for impact – the population is growing apace and infrastructure development means that access especially into the land-locked, sub-Saharan countries is becoming increasingly easy.

25% of the world’s arable land is located on the continent and technology developments mean it’s increasingly easy to cultivate this. Even more impressive is the fact that some 60% of the planet’s undeveloped arable land is in Africa. However when it comes to investors, the big challenge seems to revolve around the distribution of these prospective investments on a risk spectrum – with an inherent bias towards the upper end.

And the risks these propositions come with are certainly tangible– could disease wipe out an entire harvest? Just how reliable and secure are those infrastructure routes? What political risks need to be considered, too?

Social Stock Exchange (SSX) member company Obtala noted how they had evolved in developing a less diversified strategy, focusing on a smaller number of niche areas to produce a more manageable business strategy as a whole. Their CEO, Paul Dolan, explained that one of their lines is in growing melons, which are then sold in the Middle East. In season, they are competing against produce from Australia – and it’s easy to see the competitive advantage here, with delivery times shortened by around two thirds and labour costs far lower, too. So there’s a healthy margin to work with, but the risks noted above cannot be ignored.

Hugh Paton of Mozambique Renewables, another SSX member firm, also spoke, referencing their work in harnessing energy that was otherwise being wasted as farmers burnt off crop residue to get rid of it – cotton stalks, cashew nut shells and the like. They are salvaging this waste energy, converting it into electricity and in turn providing a valuable service for local communities. With projects like this there’s a geographic concentration so you’re eliminating some of the risk, but Mr Paton’s message was clear – ensure you’re engaged with the local community to get that buy-in. Indeed a common theme from across the panel was the benefit of using local talent wherever possible – yes it keeps costs down, but it returns more to the community and again helps with that enfranchisement.

Trying to view impact investing in Africa as able to cover the entire risk/reward spectrum is probably too myopic a view. Look at Africa as an invaluable part of the impact matrix however – and especially if you can take a patient approach with the capital – it’s clear that the continent is rich in opportunity.