Investing for Impact: A Strategy of Choice for African Policymakers
Over the last decade, the main driver of economic progress across the African continent has arguably not been Official Development Assistance flows, but growth underpinned by private sector activity. This trend is set to continue, with private capital forecast to be the most important source of long-term finance. At the same time, an increase in the levels of social inequality and environmental degradation in many African countries has underscored the importance of a more inclusive model of progress.
Impact investment is a strategy to align the power of private markets to the social and environmental development needs of society at-large. From 2012-13, the Rockefeller Foundation, through its Impact Investing initiative, funded research in five Sub-Saharan African countries with the aim of understanding the barriers for impact investing across Africa, as well as recommending national policies to encourage the growth of the industry. This report synthesizes the findings of that work, examining the potential of impact investing as a ‘strategy of choice’ for African policymakers.
Three frameworks are presented to help policymakers understand and maximize the potential of impact investment:
First, an impact investing value chain, which illustrates how asset owners, often through financial intermediaries such as fund managers, invest in enterprises, which are delivering both a solution to a social or environmental challenge and a financial return.
Second, a ‘Matrix of Motivation’, which frames where in the value chain the intention to create societal impact can originate—at the level of the enterprise, the investor, the policymaker, or combinations thereof—and the wide variety of ways in which an intention to generate societal value can align with an intention to generate financial value. The resulting Matrix encourages policymakers to view the impact investment landscape in its broadest sense, in order to stimulate as many market-based mechanisms as possible to support their development agenda.
Third, a framework for policy design and analysis is presented, which demonstrates the types of policy actions that can enable impact investments and brings these to life with examples of policies already at-work in different African countries.
Finally, the report draws these frameworks together through a ‘deep dive’ into the pressing issue of food security, exploring how policy can stimulate a very wide variety of enterprise activity and investment flows to address a critical issue for many African regions.
It is hoped that the numerous case studies in the report—all of which are drawn from African countries—will show impact investing as a powerful tool for tackling societal challenges, and as a complement to the more traditional tools of public funding and philanthropy. Ultimately, the authors hope that the actionable recommendations presented will help African policymakers maximize the societal potential of investment in their respective countries.