West Africa needs $65 billion worth of invested capital over the next five years to meet its growth expectations in sectors that have economic, social and environmental impact, a new report has indicated.
According to the report by Dalberg Global Development Advisors, a strategic consulting firm, such sectors include agriculture, which accounts for more than half of the demand for capital, as well as renewable energy and water supply and sanitation.
These sectors stand out in the potential to have more significant impact than most enterprises in the region, beyond the minimum traditional expectations of creating jobs, social impact by improving employees’ livelihoods, and economic impact through increased tax revenues and the multiplier effect from increased consumption by the employees.
However, it proposes that impact investors need to broaden the range of financial products that they supply to include smaller investments in the range of $1,000 to $100,000, besides being more flexible in their investment practices and responsive to the needs of West African entrepreneurs.
“Impact investors should not wait to find an investment ready enterprise, but rather create and nurture business opportunities to help create attractive targets for investment in the future,” says Liesbet Peeters, a principal at D. Capital, the impact investing advisory arm of the Dalberg Group.
The report, which was funded by the Rockefeller Foundation, reveals the crucial role that impact investing can play in the economic future of West Africa.
Impact investing, which includes making investments to generate social and economic benefits beyond a financial return, has reached an annual total of $3.2 billion in West Africa.
At present, roughly 200 impact investors, ranging from private equity and venture capital funds to foundations and development finance institutions, are active in the region.
“Impact investors are making billions of dollars in capital available to West African entrepreneurs, but it’s not enough,” says Madji Sock, a partner at Dalberg and director of the firm’s Dakar office.
The report states that impact investing can help solve major social and environmental problems in West Africa, leveraging new sources of capital in places that lack sufficient government resources and development aid to address development challenges.
It corroborates findings by an earlier report by the Rockefeller Foundation and JP Morgan that was released late last year, and suggested that impact investments are emerging as an alternative asset class that could grow to represent a global market of up to $500 billion in five to 10 years.
It estimates that there are 207 impact investors in West Africa with combined annual investments or commitments of at least $3.2 billion