Is impact investment the key to fixing Africa’s socio-environmental issues?

As is the case with many emerging markets, South Africa has its fair share of socio-environmental problems. If it’s not unsustainable food supply its lack of clean water or access to power. And while government bodies and non-profits alike have initiatives geared to address some of the most pressing of these issues in the interim, some argue that it’s really up to so-called high-impact entrepreneurs to ultimately implement solutions that are sustainable.

However simple that may sound, as always, the problem is a bit more complex. The ecosystem support structure for social enterprises is yet to mature to a stage where these high-impact entrepreneurs can achieve strong growth and scale their businesses.

Last year we told you about the Green Pioneer startup accelerator — one of the region’s few set out to help environmentally focused companies from Kenya and South Africa to become investment ready and ultimately, grow their businesses.

Committed to the 16-week programme, some of the companies selected for the programme included inspiring startups like Solar Turtle which distributes mobile solar battery-charging stations to off-grid communities. Mellowcabs, on the other hand, manufactures and operates electric mini-cabs for affordable transport in urban areas. Most of these businesses have been around for a couple of years but are struggling to take their operations to the next level.

Read more: Mellowcabs: using tech to disrupt first and last mile transport, the African way

One of the main organisations that headed the Green Pioneer programme, called Impact Amplifier, is a Cape Town-based business incubator and consultancy firm that helps impact investors realise opportunities in Sub-Saharan Africa.

On the back of facilitating two successful investments and settling in the newly launched Workshop17 in Cape Town, Ventureburn recently sat down with the managing partner at the Impact Amplifier, Tanner Methvin (pictured right), and the organisation’s latest addition, Avril Harvey (pictured left), who joined from global consultancy Frost & Sullivan as manager.

Read more: Workshop17 officially launches to celebrate African collaboration, innovation

Asked about why Harvey decided to take a break from her corporate career, she explained that she’s always had an interest in social impact:

In terms of what we were doing at Frost & Sullivan — supporting global corporates and Fortune 500 companies expand is great, but they can really afford to drop R1-million to expand or push their agenda. I was much more interested in working with smaller companies that can’t actually afford to hire six consultants.

It’s not only Harvey’s interest in this field which has grown over the past few years. Impact investments that seek social, environmental and economic returns have “skyrocketed” in the last few years, noted Methvin. In 2011, US$4-billion was deployed into this sector. Three years later, in 2014, that figure has more than tripled, floating at around US$12.7-billion. He added that there’s been a “massive shift” in the way foreign investors place their bets.

As much as 80% of the impact investors come from the Northern Hemisphere, while 70% of the deployment of capital is in emerging markets. “The biggest problem is that there are massive amounts of interests in impact investment, but they have a hard time getting deployed. This is the main reason why we exist,” Methvin explained.

Read more: Why it’s important for SA startups to adopt a social impact mindset

Born in the US with over 20 years of experience working in the field of social innovation, Methvin established the Impact Amplifier together with Max Pichulik and Pascal Fröhlicher, both of whom have strong backgrounds in world-class consulting firms such as PricewaterhouseCoopers, Lloyds and the like.

At its core, the team’s philosophy dictates that the private sector and its entrepreneurs hold the key to cracking a range of social and environmental problems in emerging markets that are yet to mature.

Lady Bonin’s Tea Parlour manufactures and distributes loose-leaf teas from sustainable farming sources and recently secured an investment from a European funder.

Alongside its incubator services — which helps small to medium social enterprises secure capital to grow in exchange for either cash or equity — the Impact Amplifier also acts as a consultancy firm for large clients committed to making a socio-environmental impact. The organisation, for instance, helped the major take-aways franchise, Nandos, source one of its most important ingredients, the African bird’s-eye chilli (peri-peri), from small farmers in various countries in southern Africa. Since last year, 500 small-holder farmers in Zimbabwe and Mozambique have been the franchise’s key suppliers, producing about 300 tons of chilli annually and creating jobs in the process.

In order for initiatives to be really impactful, Methvin argued, we need innovative solutions such as these which people are willing to pay for. He believes that the country’s social paradigm of social grants in terms of free water allocation, free electricity and free housing needs to be broken as the state is incapable of delivering:

If you can create a scenario where people pay the same R70 they would for kerosene for a new lighting solution, that’s fantastic. You take the money away from the big oil companies and put it into the local entrepreneur’s hands and get renewable energy in the process. There are a lot of opportunities sitting at the base of the pyramid for economic solutions to people’s basic needs.

Read more: These 16 inspiring social startups want to change the world for the better

These “meaningful solutions”, the pair believes, can only be realised once those entrepreneurs are in a system in which they can be born, raised, matured, released and funded. In countries like South Africa, this system is far from maturing.

“It’s impossible for the organisations that exist now to cover all those gaps,” added Harvey. “If you had a pipeline developed from the lowest level right through, that maturity could be pushed along.”

Through initiatives like the Green Pioneer programme, the Impact Amplifier is trying to manage the ecosystem’s pain points by playing mentor and matchmaker between high-growth businesses and investors.

The socio-environmental enterprises have to be financially viable while operating in a marketplace that doesn’t have a coherent ecosystem. More specifically, the businesses have to be in their growth stage. The growth stage, Methvin explained, is where social enterprises are at their weakest.

For them to just get out of the gate, grow and mature and now scale actually takes a lot of time for that to happen. It’s very uncommon for us to come across a [fast-growing] business that considers itself a social enterprise that’s five years in.

Case in point being a local waste-oil-to-biodiesel business, called Biogreen, which the Impact Amplifier recently helped secure an investment. While Biogreen has been trading for five years, it’s been struggling to grow. Methvin said that with the guidance and mentorship of the Impact Amplifier, it only took about six months to make the business investment ready.

Another success story includes that of a sustainable tea company, Lady Bonin’s Tea Parlour, which managed to secure an investment with the aid of the Impact Amplifier’s accelerator programme earlier this year.

Besides the inaugural Green Pioneer programme, the firm is gearing up for its self-funded Eco-Innovators programme, which is calling for innovative environmental entrepreneurs for January 2016.