Finding New Leaders to Boost Africa’s Sustainable Development

“We must use time wisely and forever realize that the time is always ripe to do right”.

Never in Africa have these words uttered by Nelson Mandela, an African icon, rung as true as they do presently.

We are two years into the implementation of the sustainable development goals (SDG) to achieve food security, combat poverty, create jobs, enhance equality and peace, enhance resource efficiency, combat climate change and protect the environment as critical priorities in Africa.

The writing is on the wall. And just as colonial oppression drove our founding fathers to launch the independence struggle, today the urgent need to accelerate the continent’s socioeconomic transformation beckons us all, as citizens of the current generation, to action. The time to do the right thing and act is now and in so doing, the next generation of continental icons will emerge.

Unlocking the enigma of Africa’s next icons

Three distinctions position clean energy and Ecosystem Based Adaptation (EBA) Driven Agriculture as catalytic sectors in Africa.

First is economic inclusion. Agriculture is the most accessible economic sector that employs the majority of Africa’s work force, at an average of 64 percent across the continent. Maximizing the productivity of this sector means enhancing income and economic opportunities for the majority in the continent.

Secondly, Africa holds a comparative advantage in terms of resources, with 65 percent of the world’s uncultivated arable land and a 300-million-strong middle class demanding more value added and differentiated agro-products and projected to grow a food market worth $150 billion in the next 13 years. This represents a significant domestic consumer market for growth of local value addition agro-industries. On energy, is the abundant renewable energy potential including hydro estimated at 1852TWh annually, 3 times the continent’s current demand, and the best solar resource in the entire planet. By leveraging these resources in complementarity, the region can establish global competitiveness, and create the much needed jobs.

Third, focus on policy and non-policy investment to maximize productivity of these sectors serves the leading socioeconomic development priorities of food security, enhanced income and job opportunities. To maximize this productivity, development in these sectors needs to be considered as complementary and not in silos as classically approached.

This amalgamation will potentially maximize productivity of agriculture by cutting post-harvest losses (PHL) largely driven by lack of value addition. It will incentivize use of EBA and clean energy to offset carbon and enhance ecosystems, thus further cutting crop losses due to climate change and those due to ecosystems degradation. Amalgamation will also maximize productivity of clean energy development by diversifying application beyond domestic use to include productive use in agro-processing and value addition.

For example in Kenya, estimates show that cumulatively, on-farm value addition using solar powered, efficient micro-irrigation is saving farmers over $10,000 annually in operating costs relative to using conventional fossil fuel powered, non-efficient farrow systems. As a result farmers are generating up to $30,000 per acre annually. What is needed for impact across the continent are policy and non-policy incentives and investments to upscale this paradigm. It is in this upscaling that the long-awaited solutions to sustainably accelerate socioeconomic transformation will emerge. And in the process, create the next generation of continental icons.

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Opportunities for Impact Investment in Education

Impact investors are in prime position to put capital behind solutions to the global education crisis. But where are the opportunities for impact in a changing global sector?

Scaling successful models

Impact’s involvement with education has so far been limited, but some success stories have emerged and these can be scaled using further injections of impact finance. One outstanding example is Bridge International Academies, a for-profit whose standardized “academy-in-a-box” model has been highly successful in delivering quality education to poor communities in Kenya.

To date, Bridge has enrolled 95,216 pupils, and counting, with high rates of attainment when compared to traditional forms of schooling. With continued growth in Kenya and plans to extend its reach to other African countries, Bridge shows that it’s possible to come up with scalable models for education delivery.

Bridge represents a new breed of company taking a new approach to education. Cross-sector collaboration has been part of its fabric from the beginning and continues to be central to its development. The company was founded on the partnership between Jay Kimmelman, the entrepreneur behind successful software company Edusoft, and Shannon May, a development specialist. It was established using capital from a wide range of investors including aid agencies like OPIC and DFID, venture capital investors like LearnCapital and Rethink Education and impact investors like Omidyar Network and CDC.

This co-investment approach shows the range of players in the arena and the potential for fruitful collaboration, a theme evident across the whole education investment sector. By using such techniques, it will be possible to generate the capital necessary to bring other promising models to scale, rolling them out across more regions and adapting them to answer local needs.

Exploring the potential of edtech

Impact investors already love cleantech and greentech, but edtech, the new buzzword for education technology, is still largely unexplored ground for the impact sector.

But what is edtech? Edtech involves using information technology—including tablets, smartphones and computers—and working through various media, including social media, to deliver instruction. Its practice involves enhanced learning through computers as well as remote learning and massive online courses, or MOOCs. “Edtechers” in schools, universities and businesses design and produce online classes, tutorials, training programs and exams and then deliver them to students using technology.

Edtech is widely considered to be the new frontier in global education and the momentum behind it is growing. The UK government, long a leader in the development of socially beneficial areas of enterprise, has established an edtech incubator. Meanwhile, mainstream markets and venture capitalists are beginning to get excited about the potential of edtech, with some pundits making bullish predictions about its future The edtech market is projected to grow to $220 billion by 2017, with the US market growing by 47 percent and the EMEA countries (Europe, Middle East and Africa) projected growth standing at around 25 percent.

For impact investors, the rise of edtech, with its potential for delivering returns at both market and below-market rates as well as non-financial benefits, represents another possible entry point into the education marketplace. Education, like clean water, is popularly considered to be a good thing per se and this makes edtech an uncontroversial investment, which in turn should make it attractive to a number of different kinds of socially motivated investors. It’s no coincidence that Bridge founder Jay Kimmelmann was an edtech entrepreneur before he became CEO of Bridge International Academies, a mission-driven education delivery business.

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Paris Agreement on Climate Change: One year later, how is Africa faring?

Since December 2015, when 195 countries signed the Paris Agreement on climate change, several countries in Africa have begun implementing climate resilience activities that will allow them to better absorb and adapt to harsh climatic changes.

However, an assessment of the continent’s progress in combating climate change brings to mind a popular African proverb: “A large chair does not make a king”—in other words, huge implementation challenges remain. Africa’s policy makers, however, are eager to meet these challenges, believing that achieving the objectives of the climate change deal could unlock the continent’s socio-economic potential.

Signed in late 2015, the Paris Agreement entered into force on 5 October 2016. One month later, at the COP22 (Conference of the Parties to the United Nations Framework Convention on Climate Change UNFCCC) in Marrakech, Morocco, world leaders formally adopted the Marrakech Action Proclamation, which recommitted parties to full implementation of the Paris Agreement. And implementation has since started.

As of April 2017, of the 143 countries that have so far ratified the agreement, 33 are in Africa, including Benin, Burkina Faso, Cameroon, Chad, Ethiopia, Gabon, Gambia, Kenya, Nigeria, Somalia, Tunisia, Uganda and Zambia. That is 60% of the total number of African countries.

Beyond the ratifications, many countries have also fulfilled a key requirement in the agreement by formulating their Nationally Determined Contributions (NDCs). The NDCs are the countries’ individual efforts to achieve climate change goals. In their NDCs, the majority of African countries indicated plans to prioritize climate proofing development activities, especially in economic sectors such as agriculture and energy.

An example of climate proofing in the agriculture and energy sectors is the restoration of ecosystems, a development that is already gathering steam on the continent. Agenda 2063—a set of aspirations formulated by the African Union (AU) to point the way to prosperity on the continent—also highlights ecosystem restoration as a way to catalyze socio-economic development.

The AU maintains that by applying ecosystem-based adaptation in the agriculture sector in combination with clean energy, countries can add agro-value chains, spur food security and increase economic opportunities along the value chain, while simultaneously lowering carbon emissions and conserving ecosystems.

Currently, Africa’s development challenges are many. One serious disadvantage is that more than half of its 1.2 billion population lives on less than $1.25 per day—the standard threshold for absolute poverty. Also, about 60% of Africa’s unemployed are youth. Food security is also a problem: a quarter of Africa’s population goes to bed hungry, while more than 200 million Africans suffer from severe malnutrition.

Africa’s strengths

To respond to these challenges while implementing the Paris Agreement, experts say African countries should maximize the potential of key sectors capable of boosting socio-economic development. In other words, the focus should be on agriculture, food production and clean energy, among other sectors.

Africa’s strengths lie in its immense natural resource potential and other ‘sweet spots’, including having 65% of the world’s arable land and 10% of its inland freshwater resources. The continent’s renewable energy potential can be realized through hydro as well as solar power. Harnessing these resources in a sustainable way will boost Africa’s development.

Agro-value chains in Africa, if properly harnessed, can reduce poverty two to four times faster than any other sector, according to the World Bank. The agricultural sector’s projected value by 2030 is $1 trillion, and this sector could potentially provide 17 million jobs, says the Bank.

The Paris Agreement accentuates the opportunities in Africa’s economic sectors; what remains is for countries to implement the agreement with full attention to domestic development needs.

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Social Impact Bonds– an option to address Africa’s most pressing challenges

The number of foreign direct investments (FDI) projects into Africa increased by 6% in 2015, according to the FDI report 2016. Africa also recorded 156 more FDI projects than the Middle East in 2015, a figure that has widened by 98% compared with 2014.

These foreign investors, foundations and trust managers are through their investment addressing significant challenges that Africa faces in respect of poverty, infrastructure development, healthcare, education and transport by supporting companies dealing with these issues on the continent. Initiatives in these sectors are considered to be viable impact investment opportunities, and investors are seeking them out. Impact investments are those investments that provide a measurable social or environmental impact, as well as a financial return.

Much of the work in impact investing markets is starting to look at how money invested in social and environmental good could be allocated in a way that uses data to determine the effectiveness of programmes and institutions. One of the innovative financing mechanisms to emerge from this process is the Social Impact Bond.

A Social Impact Bond (SIB) is a financing contract designed to drive commercially sustainable social outcomes. The bonds work by attracting socially motivated investors to fund social services up front. Repayments to investors are then made by government and/or private funders if pre-agreed outcome targets are achieved. SIBs enable governments and donors to allocate resources more effectively to address societal challenges particularly in the face of fiscal austerity, by way of public-private collaboration.

The use of SIBs stands poised for considerable growth in Africa. The magnitude and speed of this growth depends on the extent to which African governments create an enabling environment through policy. In this regard, South Africa has a relatively established social investment market, albeit small by international standards, facilitated to some extent by Regulation 28 of the Pension Funds Act, an example of how policy can be used to leverage institutional investment towards social outcomes.

Regulation 28 is the prudential investment regulation that governs how and where South African pension funds can invest, and it obliges pension fund trustees to consider environmental, social and governance factors in pursuit of a sustainable returns policy. It expressly incentivises institutional investment into the rest of Africa. Similarly, there are regulations in several African jurisdictions that allow, even compel, domestic pension funds to invest in other African countries.

Larger African institutional investors are quite familiar with other initiatives to strengthen awareness and implementation around ESG and responsible investing, for example, the UN Principles for Responsible Investment (UNPRI), the closely aligned Code for Responsible Investment in South Africa (CRISA) the Responsible Investment Ownership Guide for Pension Funds in Southern Africa published by the Sustainable Returns for Pensions and Society initiative in 2013. Zimbabwe also introduced responsible investment codes recently and Kenya implemented its stewardship codes last year.  The King Code IV has also placed emphasis on corporate social responsibility and has referred to CRISA.

The regulatory environment in South Africa has arguably led to the increased interest from foreign foundations, looking to invest or create investment opportunities in projects in South Africa and to expand them into Africa. These projects involve many industries, (although we have seen particular enthusiasm in the healthcare and agriculture sectors), with the need for legal advice on all levels.  Exchange control rules often have to be adhered to, when the funding initially enters South Africa, and for any subsequent investment abroad. These constraints dictate the structure of the deal and the flow of funds and make legislative advice a pre-requisite.

Foreign investors also frequently look for partnerships with local companies that have the expertise, the location and the know-how to address socioeconomic issues. In South Africa, the obstacles faced by load shedding as a result of energy capacity issues, for example, have given rise to many businesses offering renewable energy and solar energy solutions – which in turn offers more ESG friendly investment opportunities for local institutional investors.

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FinComEco launches in Africa to facilitate smallholder farmers

Delivering an integrated Financial & Commodities Ecosystem efficiently linking supply to demand

FinComEco, a fully integrated Financial & Commodities Ecosystem launches today providing services, financing, capacity building and enablement solutions.   The ecosystem will drive improvements in food security, economic diversity and financial inclusion through a socially responsible commercial delivery partnership. The goal is a sustainable and increasing improvement in the sophistication and living standards of smallholder farmers and their families in developing countries brought about by a venture, which links agriculture to the latest financial technology. It will initially focus on Africa.

“Creating markets, developing infrastructure and providing financing for farmers are key ingredients for transforming agriculture in Africa. These factors were necessary for transforming agriculture into a wealth-creating sector, generating income opportunities for farmers in rural areas .” – The African Development Bank (Note1)

Rt. Hon Mark Simmonds, Chairman of FinComEco, former UK Foreign & Commonwealth office Minister with responsibilities for Africa, the Caribbean, UK Overseas Territories, International Energy and Conflict Prevention, comments, “It is important to recognise each African country is unique with individual economic, political and social drivers.” He added “With FinComEco I believe we have a detailed strategy to support, improve and facilitate the full agricultural value chain improving lives, creating jobs and alleviating poverty.”

FinComEco will encourage growth by connecting the farmer with the exchange, financial infrastructure and national economy. This supply to demand chain also includes small-scale traders, brokers, storage, transportation, shipping, banks and buyers including multinationals. This will enable smallholder farmers to get a better price for their produce, and provide opportunities for further income growth, opening alternative added-value opportunities including e-commerce enabled enterprise.

FinComEco has already successfully proven this concept in Malawi at the Agricultural Commodity Exchange for Africa (ACE) through the GMEX Group. During 2016 substantial benefits were delivered to smallholder farmers with an average 31% increase in income from use of warehouse receipts and better price transparency with 47,000 registered to receive the latest market prices on their mobile phones.

FinComEco will either establish or reinvigorate local commodity exchanges underpinned by trading technology, electronic warehouse receipts and a complete mobile banking solution. It will also enable trade across multiple regions and deliver a holistic secure cloud-enabled financial agri-ecosystem in partnership with development organisations, governments, research bodies and the private sector.

Hirander Misra, Founder and Deputy Chairman of FinComEco and CEO of GMEX Group commented, “The aim of FinComEco is to match exchange trading capability, including derivatives, to physical growers. Also to add value through enabling manufacturing, support services and delivery contributing to additional local employment.” He added, “The initiative will allow smallholder farmers to thrive, enabled by best of breed technology, standards and inputs (including seeds, fertilisers and pesticides). This is coupled with a unique Agri-finance business model to solve credit and financing issues underpinned by improvements in logistics and warehousing.”

Steve Round, Director of FinComEco, CEO at Saescada and Chair at The Big Issue Foundation and Ecology Building Society commented, “There are massive financial inclusion and food security issues across the developing world with not enough being done in a cohesive fashion to address some of them,” he added, “I am delighted that our mobile electronic banking and payments system can add real value, in this unique integrated solution, to many millions of farmers delivering against many of the United Nations Sustainable Development Goals.

FinComEco is currently being syndicated out to strategic investors. Additional announcements on this and further Board and Management appointments will be made in due course.