In 2017, impact investment is arguably still a novel investment vehicle all over the world but most especially in Africa. According to the Global Impact Investment Network (GIIN), impact investment is defined as an investment in a company, organization or fund with the intention to generate measurable social and environmental impact alongside a financial return. Whether it’s an individual making an equity investment in a tech start-up in Yaba, our very own Silicon Valley, or an international organization making a debt investment in the energy sector, impact investment is done with the intent of obtaining returns on investment; a focus on solving social or environmental problems; and the ability to measure the desired positive impact. It can be done across sectors and investment instruments; directly to an enterprise or project, or indirectly through fund managers.
The typical Nigerian is underserved by basic amenities as a result of the country’s epileptic power supply, infrastructure deficit, insufficient banks in rural areas, high incidence of corruption, and high rate of unemployment amongst other problems. These are all opportunities for impact investors. Given the statistics, local impact investment is small relative to the economy. As of 2015, there were only four recognised local impact investors – Alitheia Capital, Sahel Capital, Doreo Partners, and The Tony Elumelu Foundation. Research has shown that most Nigerian investors are unfamiliar with the concept and are still sceptical about impact investing. In their opinion, impact investing means they will have to trade off financial returns for social impact, which is untrue.
Amongst its West African counterparts, Nigeria is leading in impact investment with 28 active impact investors, according to GIIN. 8 are Development Finance Institutions (DFI) and the other 20 are non-Development Finance Institutions (non-DFIs). Since 2005, over US$4 billion has been deployed by these impact investors to key sectors. Compared to Ethiopia which has 58 impact investors, almost three times the number of Nigeria’s impact investors, Nigeria’s impact investment sector holds more opportunities for development. Only 7 out of the 28 impact investors have a presence in Nigeria and most of the non-DFIs rely on international sources of capital.
Unsurprisingly, the energy, manufacturing, and ICT sectors account for 68% of the total capital deployed by DFIs. Advancement in power, commodities and connectivity are set to cause impact across all other sectors and as such attract large investments from DFIs. The financial services, ICT, and agricultural sectors account for 65% of the total capital deployed by non-DFIs. The growth potential in the microfinance sector in serving the 40% of the Nigerian adult population without bank accounts, along with the employment potential in the ICT and agricultural sectors have largely driven non-DFIs to invest in these sectors.
Since no government has the financial backing to tackle all of society’s problems and the private sector is almost always altruistic, the role of impact investors in complementing public spending is significant for economic growth and development. Impact investment is a tool with which Nigeria can achieve the Sustainable Development Goals because of its market-based approach – generating financial and social returns simultaneously. Moreover, with a population of 182 million, Nigeria is a fertile ground for impact investment. During the 2014 World Economic Forum, discussions led to the finding that a social impact bond to combat childhood obesity in America would make America’s healthcare system more secure, twenty years from now. Impact investment creates a better future for all.