The Case for Impact Investment in Africa in 2015
Africa's economy is expected to expand by 50 percent over the next five years, according to a new analysis from Deloitte.footnote 1 This explosive growth is driven, in part, by Africa's emerging middle class. Yet despite this progress, many Africans still lack access to essential services like schools, banks and hospitals.
While governments and philanthropic groups worldwide operate with limited budgets, private industry in 2015 has a significant role to play in helping those left behind by the continent's rapid economic expansion. In Africa, impact investing – targeted capital into businesses working to expand accessibility to essential products and services to those who most need them – is critical to the continent's continued economic growth.
Impact investing isn't philanthropy; it aims to turn a profit. But unlike conventional investing, impact investing is designed to serve a larger social purpose: providing underserved populations with the resources they need to improve their lives. By delivering the products and services that empower the poor to lift themselves out of poverty, impact investing can scale solutions quicker than traditional philanthropy.
Consider the revolution wrought by microfinance. Local entrepreneurs receive small loans to start and grow businesses. For many of the 160 million people who've received such assistance, microfinance has enabled them to build a livelihood and better address the needs of their families.
But the individual dollar amounts involved in microfinance are, more or less by definition, very small. And the needs in Africa are very big.
Take health care. There are only nine hospital beds for every 10,000 people in Africa. That's two-thirds below the global average.footnote 2
There are similar problems in education. Most African students are stuck in overcrowded classrooms with insufficiently trained teachers. In Chad, the average classroom size is 67 students – more than double what one would find in rich countries.footnote 3
And while the number of financial transactions conducted by the average African has rapidly increased over the last decade, the number of banks to support such transactions has not. Less than 25 percent of Sub-Saharan adults have access to any financial services at all.footnote 4
This is where impact investing can make a big difference. International investors – even those in Africa – can step in and support local businesses working to fix the holes in the African economy.
Expanding Access to Insurance
Consider LeapFrog Investments, the specialist private equity investor in emerging markets financial services in Africa and Asia. Through its investments, LeapFrog aims to reach underserved emerging consumers – those who earn between $1.25 and $10 per day.
In 2012, LeapFrog invested in the Ghanaian insurer Express Life. At the time Express Life had just 12,000 customers. LeapFrog helped Express Life expand through streamlining its product offering, and by issuing mobile insurance policies.
In March 2014, LeapFrog successfully exited the company, earning a top-tier financial return. At the same time, it helped expand access to the kinds of services that vastly improve the financial prospects of Express Life's now 425,000 clients, thus reaching over 890,000 people and their families. The vast majority of these are accessing insurance for the first time.
This is hardly uncommon in Africa. In October, LeapFrog announced its exit from Apollo, an East African insurer. Here too, Leapfrog was able to make a strong financial return, while having made financial safety nets more available in countries like Kenya and Tanzania.
Improving access to financial services can only do so much, of course. To improve the lives of low-income Africans, a more strategic effort to invest in complementary businesses throughout the continent is needed.
Improving Education and Health in Africa
It was in this spirit that my firm, J.P. Morgan, invested $5 million in a venture-capital fund managed by Novastar, a company that specializes in supporting East African start-ups with progressive missions.
One of the highlights of Novastar's investment portfolio is Bridge International Academies, which is the world's largest for-profit chain of nursery and primary schools, serving children living on or below $2 a day. Leveraging research, technology, and data analysis in its pupil-centric approach, Bridge is able to optimize learning to achieve superior academic results, keep parent costs incredibly low, and grow quickly. With new academies opening at a rate of one every two days, Bridge now educates more than 100,000 pupils in 359 schools in Kenya, and will expand to Uganda and Nigeria in 2015.
Just one in five residents in Kenya's poorest urban neighborhoods has adequate access to sanitation. So Novastar has also invested in Sanergy, a company that franchises small-scale hygiene centers in Kenya's urban slums, providing a cheap and efficient way to reduce the prevalence of disease. Through more than 600 toilet franchises, Sanergy currently serves 25,000 people and removes more than seven metric tons of human waste from urban slums each day.
Through further demonstration of the ability to deliver scalable impact simultaneous with attractive financial return, impact investing will continue to unleash private capital to improve lives in Africa in 2015.
About the author: Amy Bell is Executive Director and Head of Principal Investments for JPMorgan Chase's Social & Sustainable Finance business unit, which provides financial services to the growing market for impact investments, meaning those investments made with intent to generate impact alongside a financial return. Amy manages the group's principal investment portfolio, which seeks to earn a reasonable rate of return alongside of achieving positive impact on low-income and excluded populations around the world. This activity drives the primary objective of Social & Sustainable Finance to use the firm's capital and expertise to provide clients with unique financing solutions to help them meet social and environmental objectives.
- http://apps.who.int/medicinedocs/documents/s18863en/s18863en.pdf pg 25