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The impact investing industry in West Africa may be small, though it is growing, and amounted to US$852-million in 2014.
This is according to a study by the Global Impact Investing Network (GIIN), in partnership with Dalberg Global Development Advisors. The study found that investors seeking “positive impact” have deployed US$894-million in 2012, and more than US$800-million in 2013.
The West African region has a compound annual growth rate of 18% since 2005.
The study revealed that US$6.8-billion direct impact investment has been deployed within the last decade in West Africa. This is small relative to East Africa, which is the only other African region for which impact investment data is currently available. East Africa received a total of US$9.3-billion in impact investment over a similar period.
While West Africa is made up of 15 total countries and roughly 325 million people, more than half (54%) of all impact capital deployed in the region is in Nigeria and Ghana. At the same time, impact investors have deployed at least US$350-million each in Senegal, Cote d’Ivoire, and Togo.
Some of the main challenges for investors were the lack of investment readiness among enterprises as a crucial constraint to investment, the difficulty in sourcing capital, difficulty in exiting equity investments, macroeconomic and political instability, and more.
“West Africa is a diverse and challenging region to work in. Skepticism of impact investing in the region makes it difficult to establish credibility and raise local capital,” said Matthew MacDevette of Dalberg Global Development Advisors.
“Still, impact investors have been bold in entering markets others have ignored and have shown just how much opportunity can be found with a little patience and tenacity,” MacDevette added.
With an average poverty rate of 46% across the countries studied, and lacking infrastructure in key sectors, impact investing is becoming increasingly significant in the region. West Africa is the second fastest growing regional economy in Africa, having experienced Gross Domestic Product (GDP) growth of 6% in 2014.
Having said that, though, the research note that it did find “limited information available on equity exits”. GIIN identified 49 exits from deals worth an original US$684-million, though it’s “likely to be a significant underestimate”.
The report points out some opportunities for impact investment. For instance, as market failures in the provision of public goods, utilities, and financial access remain in the region, there are many opportunities for intervention by impact investors. Energy, financial services, and agriculture are therefore sectors considered low-hanging fruit for entrepreneurs.
For the full report, click here.
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