The Global Partnership for Education (GPE) Financing Conference that took place in Dakar, Senegal in February 2, 2018 sought US$3.1 billion from world leaders to improve and modernise education on the African continent.  Donors pledged a total of US$2.3 billion for the next years.

Funding, however, is only the first step. A consensus is growing around the idea that to equip the next generation with adequate and relevant skills, we must also reform our education systems.

To compliment this, a proliferation of government and donor-funded projects on entrepreneurship have been set up to teach young people to be job creators instead of job seekers.

One cannot really argue with the current approach, but it falls woefully short of truly addressing the structural aspects of youth unemployment on the continent and disregards the economic structures that exist in most African countries.

In the Gambia, my home country, the ILO estimates that over 75 per cent of total non-agricultural employment is informal.  The World Bank estimates youth unemployment at 43.9 per cent and overall unemployment at almost 30 per cent.

These statistics are due to the formal sector’s inability to absorb enough working age Gambians – a problem that cannot be solved with entrepreneurship and education reform alone.

What The Gambia needs is investment in and promotion of labour-intensive manufacturing. According to the McKinsey Global Institute, sectors such as manufacturing and agriculture could “…speed up job creation [in Africa, and]…boost the number of new wage-paying jobs from 54 million on current trends to 72 million by 2020.” The IMF also noted that efforts to spur industrialisation through labour-intensive light manufacturing is showing positive results in Ethiopia. Despite Ethiopia’s success, the share of manufacturing as a percentage of GDP across the continent has stagnated at around 10 per cent.

For almost two decades, sub-Saharan Africa has seen unprecedented economic growth, but as AfDB President Adesina tweeted, “GDP growth is not enough. Growth must be felt in the lives of people!”

His tweet essentially summarises the need for a different approach, one that is more socially inclusive and improves the livelihoods of the masses. As UNIDO consistently argues, there is a “positive correlation between manufacturing and indicators of social inclusiveness.” As a result, industrial policies that centralise mass job creation, through manufacturing and industrialised agriculture must be pursued in order to avoid the “the real Malthusian crisis”.

Aubrey Hubry postulates that “…the need to generate employment for growing numbers of young people [in Africa] is unprecedented in human history.” Donor organisations, especially the European Union and UNFPA, have identified a link between the crisis Hubry describes in his Financial Times piece and the migration crisis. Both organisations have committed themselves to tackling what they call the economic roots of irregular migration across the Mediterranean.

However, their projects – for instance, the Youth Empowerment Project in The Gambia funded by the EU – do not provide enough capital, technical support or expertise, to address the root causes of poverty and youth unemployment in The Gambia and other African countries.

To conclude, we need to shift the paradigm away from the current status quo, to a tailor-made approach. As eluded to above, efforts to encourage entrepreneurship in The Gambia have had some success and they are essential, but as the founder of Taf Africa Global argues, “entrepreneurship cannot exactly be taught.”

Therefore, efforts to include it in curricula in The Gambia and across the continent are misguided – a move towards re-introducing vocational training in schools would be more suitable.

Funding schemes should be developed for large, scalable business ideas that have tangible potential for mass job creation. Realistically, manufacturing requires certain factors of production that are only available through foreign investment. Consequently, African governments should aim to shrewdly attract investment that secures knowledge and technology transfer, stable and decent employment, and stimulates structural transformation.

A holistic approach is needed though – succeeding with industrial policy requires the prioritisation of STEM (science, technology, engineering and mathematics) subjects in secondary and tertiary educational institutions. It also requires strategic investments in infrastructure, healthcare and as previous highlighted, vocational skills training.

This article is part of the #AfricaAtWork series, looking ahead to the 2018 LSE Africa Summit 20 and 21 April. Follow this link to secure your ticket.

Maudo Jallow (@maudojallow) is the founder of New Nation and former Co-Director of the LSE Africa Summit. He holds an MSc in African Development from the London School of Economics and Political Science.

The Business Commission’s global report, first launched in January 2017 ahead of the World Economic Forum in Davos, shows how sustainable business models could open economic opportunities across 60 “hot spots” worth up to US$12 trillion and increase employment by up to 380 million jobs by 2030. More than half of the total value of the opportunities are in developing countries. In Africa alone, sustainable business models could open up an economic prize of at least US$1.1 trillion and create over 85 million new jobs by 2030.

“The world is seeing increasingly that African companies are models for what can be achieved with ingenuity and innovation as they solve difficult social challenges. They are not wedded to old solutions, so here in Kenya we see digital innovators delivering banking, energy and health solutions. The speed of innovation and adoption is astonishing,” said Mark Malloch-Brown, chair of the Business and Sustainable Development Commission. “The Better Business, Better World report launch in Nairobi puts the African private sector squarely in the drivers’ seat on the road to achieving sustainable development, and we welcome more African business leaders to join the Business Commission.”

Hosted by Safaricom, the Better Business, Better World conference, held on 23 February, brings together business leaders to build support for the Sustainable Development Goals (or Global Goals)—17 objectives to eliminate poverty, improve education and health outcomes, create better jobs and tackle our key environmental challenges by 2030. The purpose of the conference is to show how the Global Goals provide the private sector with a new growth strategy that opens valuable market opportunities while creating a world that is both sustainable and inclusive. And the potential rewards for doing so are significant.

Kenya’s top mobile network operator, Safaricom has also been a leader in creating innovations that remove obstacles to financial inclusion through its mobile banking platform M-PESA, and increases sustainable energy access through M-KOPA. “Africa has a real opportunity to lead the way in doing better business for a better world. As a commission we have found that across the continent, there is potential for inclusive, green growth and development which remains untapped,” said Bob Collymore, CEO of Safaricom and member of the Business Commission. “We stand on the cusp of possibilities and we must seize the opportunity now. As the report shows, there have been in the last few years a demonstration of the possibility of leapfrogging development through new technologies and the Internet to bring development in transformative ways that also promote purpose.”

A key message of the report is that digital solutions and entrepreneurs will be critical to unlocking many of these new opportunities. Research from the report has identified 32 ‘development’ unicorns with market caps of more than US$1 billion. In Africa entrepreneurs are bringing new solutions to social and environmental problems in remarkable ways, and the opportunities to do so are compelling. One market hot spot, affordable housing, could create over 13 million of these jobs, while risk pooling, the single largest monetary opportunity in Africa, is valued at US$150 billion.

“We need young entrepreneurs to reimagine solutions that would allow business to participate in joining government to solve issues of poverty and hunger that the SDGs seek to address,” said Vineet Rai, founder, Aavishkaar-Intellecap Group and a member of the Business Commission. “Sankalp Forum and Intellecap are bringing together the best young entrepreneurs from Africa and Asia to find new ideas and solutions that aim to deliver on the ambitious opportunity that the Better Business Better World report outlines as US$12 trillion.”

At the same time, the Commission believes a “new social contract” between business, government and society is essential to defining the role of business in a new, fairer economy. The 2017 Edelman Trust Barometer reinforces this idea. It shows that while CEO credibility is sharply down, 75% of general population respondents agree that “a company can take specific actions that both increase profits and improve the economic and social conditions in the community where it operates.” And they can do so in ways that align with recommendations and actions outlined in Better Business, Better World: rebuilding trust by creating decent jobs, rewarding workers fairly, investing in the local community and paying a fair share of taxes.

Throughout 2017, the Commission will focus on working with companies to strengthen corporate alignment with the Global Goals, including: mentoring the next generation of sustainable development leaders; creating sectorial roadmaps and league tables that rank corporate performance against the Global Goals; and supporting measures to unlock blended finance for sustainable infrastructure investment. “We need to show these ideas work not just in a report but on the business frontline,” said Dr. Amy Jadesimi, CEO of LADOL, a Nigerian logistics and infrastructure development company, and a member of the Commission.

Culled from Business & Sustainable Development Commission.

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.

This crossover is important when it comes to financial arrangements, too. Two of Bridge Academies’ major investors,  LearnCapital and Rethink Education are venture capital funds that focus on edtech investing. In another example of collaborative investing, last year they joined forces with the NewSchools Venture Fund, a venture philanthropy organization, to capitalize Britebytes, a platform that helps educators manage their learning technology.
While none of the three organizations in this deal call themselves impact investors, all are pursuing investment strategies that blend business and social benefit through investing in education.

This deal gives us a glimpse of the investing landscape that surrounds edtech. It’s one that draws investors equally from mainstream finance, philanthropy and government, creating a potentially dynamic market for developing education solutions. Impact investors should take note, since the chances are good that more of these collaborative deals will be coming their way in the near future. By being prepared to work with a range of different co-investors with a range of motives and a variety of appetites for both reward and risk, impact investors can play their part in a growing marketplace.

Getting deeper into student finance

Demand for student finance is exploding in developing countries with growing middle classes and increased demand for higher education, such as Vietnam, South Africa, Brazil, Morocco, and India.

At the same time, in the developed world costs for higher education continue to rise uncontrollably in the face of government cutbacks, leading some students to take on unsustainable levels of debt while others have been priced out of the education market altogether. Default rates for student loans, already high, are rising and despite a growth in student numbers the gap between educational attainment rates for rich versus poor students is widening, notably in the US. At the same time, the value of a degree in real terms has never been higher and the demand for highly skilled workers, driven by the growth in technology businesses, is rising, a trend described in a recent book by Harvard economists Claudia Goldin and Lawrence Katz: “The Race Between Education and Technology”.

For all these reasons, student finance is now being hailed as the “new frontier in impact investing.” It makes sense: impact investing has a track record of success both in providing finance directly and backing institutions who do. Recent studies show there are already some workable models being used by non-banking financial institutions (NBFIs) in the developing world some of which are backed by impact investors: South Africa’s Eduloan and Trustco Finance in Namibia, for instance are using methods including social bonds to raise money to loan to students. Other groups are collaborating with universities or governments, negotiating terms, such as discounts and subsidies, that make the programs more sustainable and secure profits for investors. Still others provide finance directly to educational institutions. There is scope for expanding some of the more successful models globally.

In the developed world, there’s also room for growth. Despite the presence of mainstream lenders, solutions are needed in higher education finance, especially for poorer students. As the cost of higher education continues to rise above the rate of inflation, there are calls for new approaches including using privately-financed Social Impact Bonds, which would raise capital for student loans with repayment tied to performance, and Income Share Agreements (ISAs). In an ISA scheme investors pay the cost of college attendance in return for a percentage of the student’s income after graduation. Higher-earning students pay more, but those who earn less pay less to investors.

These are just some ideas for how impact capital could support access to education for all students. With luck there should be many more such innovative approaches mooted in the years to come—and many opportunities for impact investors to get behind the wave of change. As the demand for global education continues to increase and the urgency of the funding crisis becomes more acute, governments, philanthropies, international aid agencies and the public will ramp up the search for solutions. And, in a new era of openness to market-based approaches, impact investors should be ready to do their part.

By establishing a focus on education as an investable sector—and learning how to work collaboratively with a range of other investors—impact investors can help turn the tide in the global education crisis through supporting sustainable, business-based solutions.

Marta Maretich, Chief Editor, MaxImpact

As we established in Part I of this series, there’s a growing global demand for education — in other words, a huge potential market that could be catalyzed by an influx of impact capital.  Add to this the fact that education is pretty much universally recognized as an effective means to break the cycle of poverty and improve lives — it may be the most powerful single tool we have — and the low level of impact involvement in the sector begins to seem surprising.

Yet that’s the reality: of $2.5 trillion is spent on education worldwide, impact capital accounts for just $3 million. In a recent survey of impact investors, only 3 percent of assets under management were in the education sector as compared to 21 percent in microfinance and 11 percent in energy. Only water and sanitation came in lower, at just 1 percent.

Small deals, few deals

A closer look at deals gives insight into what’s happened to date. According to a recent report from D. Capital and Open Society Foundations (OSF), impact investors have hardly entered the education market and when they do, deal sizes are small with direct investments typically ranging between the $.5 million and $5 million. Investment though intermediaries looks slightly more robust, with technology venture capital funds raising the stakes to $10 million, but it’s still a mere drop in the ocean.

Impact’s role in financing the education sector hasn’t only been small in size, it’s been limited in scope, largely focusing on school infrastructure programs and, to a lesser extent, people (for example teacher training schemes). Impact investors have largely ignored the potential for investment in the wider educational ecosystem and have only very limited involvement in areas such as developing new services, tools and technology. Impact investment has been sharply divided, too, between market-rate investors who target middle and upper class populations and those with an impact-first attitude who target populations at the base of the socio-economic pyramid.

What’s keeping impact investors away?

Several factors help explain this picture. First, impact is still a relatively new sector whose development has been largely uncoordinated and sometimes patchy: in other words, just because a sector is worthy of more impact capital, doesn’t mean it’s received it yet.

Impact investing is beginning to develop a track record in areas like agriculture, clean technology and finance but this is largely thanks to the determination of a few leading proponents like Acción, Root Capital and Acumen, who targeted their investments in specific areas. By contrast, few impact investors have made education their sole priority and few have developed well-defined deal sourcing strategies for education even though quite a few (21 out of the ImpactAssets 50 funds, for example) claim education as one area of focus among several others. This suggests that education is often a sideline for impact investors, with small-scale education investments tacked on to ones in more popular sectors such as finance.

Partly, this may be due to the perception that education investments have little potential to produce returns (an assumption new developments in the sector will challenge). Another reason could be that education, unlike other sectors, has traditionally been the sole preserve of governments and, to a lesser extent, international aid agencies. Until now, non-state investors have claimed a relatively small slice of the education pie with private commercial funding accounting for only $500 billion of the $2.5 trillion spending total. The state monopoly on education has created little incentive for innovation or entrepreneurial activity, with the result that there haven’t been enough education deals out there to engage the growing impact sector.

Such market issues may be contributing to the shortage of investable deals and limiting levels of investment now, but the picture looks set to change. Squeezed public budgets and a new spirit of openness on the part of the development aid community are generating more interest in market-based solutions to the education crisis. This raises the possibility of increased entrepreneurial activity in the education sector with impact investment playing a more important role in its financial profile, especially in the form of collaborative investing arrangement with governments, philanthropic bodies and other private investors. The question now is, what exactly should that role be?

Learning to do more

With opportunities at various points in the market, there’s evidence that impact capital can help education in a number of important ways. “Where government is absent,” write the authors of the D. Capital/OSF report, “impact capital can help fill a basic gap that the state cannot. Where the government provides basic services, there is also ample room to supplement public services through congruent education for at-risk children, vocational training or adult literacy services.”

Beyond this, impact investors can do their part to strengthen the sector by:

•    supporting early-stage experimentation and innovation in education
•    innovating new kinds of financial approaches that support education and the ecosystem around it
•    working in collaboration with governments and nonprofits to back socially motivated education programs with impact capital
•    investing alongside venture capitalists and venture philanthropists in scalable education businesses
•    catalyzing co-investment from other sources, such as mainstream banks, private investors and aid agencies
•    scaling approaches that show promise, adapting them and rolling them out in other contexts and other regions.

Marta Maretich, Chief Editor, MaxImpact

The role of education in improving the people’s lives and encouraging economic development is widely recognized, making it a focus for national governments, philanthropic bodies and international development agencies. Increasingly, it’s viewed as an indispensible tool for easing poverty, reducing inequality and boosting economic sustainability. Research has shown that one year of education can increase wages by five to 15 percent, while each year of secondary school raises them by up to 25 percent.

What’s more, quality education for all—including marginalized groups, women and adult learners—can generate huge economic rewards for a country, increasing its gross domestic product per capita by 23 per cent over 40 years.

More investment is needed—right now

There’s little doubt about the value of education. Yet, despite making commitments to Millennium Development Goals in education, the global community has so far failed to come up with the investment needed to hit education targets. While spending on education by low-income countries has increased by an average of 2.9 percent to 3.8 percent of GDP over the last decade rich countries have not stepped up to the same degree.

In 2010 estimates showed that an additional $16 billion per year would be needed just to provide basic education for children, youths and adults by 2015. However, actual spending has hovered around the $3 billion mark annually. The result is a funding gap that has almost doubled in the intervening years. Today, estimates place the annual financing shortfall at a staggering $26 billion.

It now seems likely that the Millennium Development Goal for education will not be reached by the 2015 deadline and there are concerns on the part organizations like Education for All about what will happen to education development post-2015 and in years to come.

In a further development, low-income countries and poor populations aren’t the only ones facing an education crisis. The education systems in rich countries like the US, the UK and Australia, for instance, are also suffering from the effects of squeezed public budgets and skyrocketing costs, especially in the higher education sector. This has left educational attainment rates dropping, especially among poor people and minority groups, over a number of years.   Many would-be students are priced out of access to higher education just when the need for an educated workforce is on the rise.

Innovative finance solutions

So what can be done to help the poorest attain access to quality education and the better-off optimize their access to higher forms of learning? The key, recent research suggests, is to bring more private capital into the sector and to experiment with new kinds of investments that target specific educational problems and meet the needs of specific groups.

In many parts of the world, education has until now been the sole preserve of governments and development aid agencies, but there is evidence that this is beginning to change as new funding approaches — like impact investing— gain popularity and prove their viability. Though governments and development aid agencies will continue to play a central funding role, the education sector is now actively looking for ways to attract private capital, often in the form of impact investment, as a means to fill that yawning $26 billion funding chasm.

Though it’s early days, there’s already evidence that impact finance can be effective in education.  George Soros’ Open Society Foundations have produced some first findings on impact investing in developing countries’ education systems. The results suggest that workable models are evolving on a small scale, often in collaboration with governments, and some are already showing respectable track records of financial return and demonstrable benefit.

These indications are hopeful, yet impact investing in education is still in its infancy. Education accounted for only 3% of the investments of participants in the GIIN’s recent sector survey, a figure that suggests that impact investors have been hesitant to engage in this sector.

The OSF report confirms this image of tentative, early-stage activity in education by impact investors:  “Most deals remain small, and investments in schools currently dominate deal-making, with more innovative technology and management models just beginning to emerge. As yet, few business models deliver strong immediate financial return while reaching the most vulnerable beneficiaries.”

More worrying perhaps is the fact that impact’s involvement in education investing remains split into two camps, according to the report. On the one hand there are impact investors focused on “reaching the lowest income populations without expectation of any financial return”; on the other are investors who expect market rate returns and place capital into deals that “target middle and upper class populations.”

By now, this is a familiar situation for impact, with well-meaning investors in many sectors still struggling to find ways to engage with the middle ground and find models that meet needs while maintaining profitability. Yet, given the pressing global demand for education, there is enormous potential for innovation, both in terms of finance models and in terms of education delivery methods. With more impact engagement—and a renewed commitment by the education sector to finding new ways to finance and deliver good quality education on all levels—there is scope for significant  positive change in which impact investing can play a significant role.

By deepening its commitment to investing in education, the impact community has the opportunity to help solve one of the world’s greatest challenges.In the next blog in this series, we’ll be looking at the places where impact capital has the potential to be most effective in the education sector. As the need for education continues to grow, so will the range of methods and approaches for private capital, including public-private collaborations, an expanded role for impact intermediaries, and new technologies with the potential to deliver education to underserved communities as never before.

By Marta Maretich

However, if your focus is emerging markets enterprises that can have an impact on people living in poverty, a recent blog by Ceniarth Capital said it best: “Those of us actively allocating capital to fragile enterprises in developing markets recognize that those people who promise comfortable market rate returns while solving global poverty are the equivalent of diet gurus promising that one can lose weight while eating limitless amounts of chocolate cake.”

In a report launched by Oxfam and Sumerian Partners today, we argue that it’s time to look at impact investing differently; to start with a focus on the needs of the businesses working to make a meaningful impact on poverty reduction, rather than on the investors who stand to benefit from their work. Enterprises working in this space are in new territory – continually adapting their business models, earning low and slow returns and operating in markets that are subject to considerable exogenous shocks (e.g., economic instability, weak infrastructure, extreme weather events and poorly developed value chains). These firms will make decisions that can seem irrational if your focus is market return. They may seek out “at risk” populations, such as single moms balancing the demands of work and family, as employees. They may share ownership and decision-making with their workers. They may pay their suppliers not the price that is commonly expected in the market, but a higher price the firm sees as “fair.” The businesses themselves, and the funds that put their money into these firms, organize around the intention to generate a measurable, beneficial social or environmental impact alongside a financial return – and that prioritization is reflected in their structures, processes and activities.

However, to meet the return expectations that have been established by the sector’s push toward the larger mainstream market, we increasingly see conventional emerging markets investments being reclassified as “impact investing.” Arguably, it’s this trend that has transformed TPG’s investment in Apollo Tower, a cellphone tower company in Myanmar, from a standard emerging market foreign direct investment into an impact investment. The impact statement claimed by supporters is that cellphone access has “helped to increase transparency in a country known for tight control of its information, helping the nation take steps toward democracy.” Hmmm. Really? A cell phone company is actually a democracy and governance project in disguise? Seems a bit of a stretch.

As we write in our report, it should not be assumed that an investment in a cell tower, or a wind farm, or any other enterprise in the global south, is inherently socially positive. Rather, it should be incumbent upon the fund to demonstrate how these enterprises are intentionally structured to optimize impact and benefit poor and marginalized groups – rather than only providing implied, incidental or indirect benefits. They should be able to show what difference the fund’s provision of capital and support and engagement has made. Any self-identifying impact investor should be able to demonstrate a clear intentionality to achieve impact.

Furthermore, the research that has set the prevailing “have your cake and eat it too”-sized return expectations has its limitations. Take, for example, the very same GIIN/Cambridge associates “benchmark” report, which included no commentary on the associated impacts achieved and instead used a self-reported intention to generate social impact as the only impact-related criteria for inclusion in the benchmark. The data included a high proportion of funds focused on the theme of financial inclusion, an industry that has depended on decades of subsidies. Finally, the “benchmark” setting was drawn from a small pool of funds, all of which were targeting market rate returns.

Why does any of this matter anyway? Big tent, right? It matters because the rush to the mainstream can pull impact investing away from its original intent and undermine the meaningful role it can and should play in poverty reduction. It matters because high-profile investments such as Apollo Towers shift the goal posts for everyone. It makes philanthropists doing the critical work of providing smart subsidy to funds and enterprises operating in the toughest places ask, as they have of Root Capital, “Am I the dumbest money in the room?” – If everyone else is making tons of money, am I a sucker if I’m giving it away? And it can divert social entrepreneurs from their mission when they are challenged with the trade-off between purpose and profit. As one social entrepreneur told me recently, “Do we really need this money? Is it going to disorganize us from our original idea? The motivating factor will be to meet the profit targets, not looking at the social part. … Maybe the pressure we will feel from the investors will move us to abandon our women’s empowerment mission. We don’t want that to happen.”

We propose six recommendations that we think can provide a more balanced understanding of what is possible in impact investing, letting the sector begin to use money more creatively:

1. We call for a shift of approach in the market; from one in which we tailor funds around the needs of investors to one focused on developing products that serve the needs of enterprises seeking to combat poverty. Specifically, we need wider adoption of alternative fund structures – such as permanent capital vehicles and evergreen funds – and new financial tools that reflect the predominantly “low and slow returns” of most enterprises prioritizing social impact.
2. The sector needs greater transparency around reporting both the impact and financial returns(gross and net) achieved by impact investors.
3. Donors and philanthropists need to deploy smart subsidy and patient capital (return of capital, rather than return on capital) to support enterprises capable of making a meaningful contribution to poverty reduction, and to support hybrid financing models alongside impact investors seeking a net return on capital. Grants, philanthropy and smart subsidy should be seen as part of the impact investing continuum, not its enemy.
4. The industry needs more independent research to understand the enterprise-level experience, and to analyze which structures, approaches and incentives best help businesses to maintain an intentionality to optimize impact.
5. We call on impact investors to agree to a voluntary code of practice that enshrines the intentionality to behave and take decisions in ways that have a primary focus on achieving impact.
6. Impact investors should adopt incentives for optimizing, measuring and reporting impact as well as achieving financial return targets.

We have no problem with financial returns, but let’s not pretend that investors seeking a pure market return can tackle the most complex global challenges in high-risk markets. They cannot. Not in education. Not in health. Not in reducing child labor and forced marriage. Not in water and sanitation. Not even in banking for small enterprises, which continue to be significantly underserved today by markets everywhere, despite SMEs being the biggest generators of jobs and incomes globally. One just needs to look at the history of Silicon Valley or the microfinance industry ­– both completely commercial today – to justify smart subsidy and venture philanthropy. Our memories are simply too short. It’s not about distorting the market – often, there is not much there to distort – it is about catalyzing it.

By Mara Bolis, Oxfam

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.

Many African countries are struggling badly to finance their energy requirements. For example, virtually no African electricity utilities have an “investment-grade” rating which prevents them from raising debt at reasonable rates in order to finance their energy projects.

Projects backed by publicly-owned energy providers also encounter certain limits. Long development lead times together with uncertainty over government commitments to purchase volumes produced – key to any financing project – have led some African countries to entrust energy production to the private sector.

Developing IPPs in Africa

In a bid to leverage the Continent’s vast solar capacities, wind and water resources, many corporations are turning to IPP-type private projects (“Independent power projects”, in industry jargon), primarily to meet their own needs, before transferring any energy left over to the grid. As the authorised production threshold has been raised, the number of such independent projects to produce energy for own-use has grown.

Although the situation varies by country, Africa has enacted a series of sector-based legislation over the past few years, such as Law 13-09 in Morocco 1. This allows programmes to produce energy with an installed capacity of up to 50MW to apply for authorisation from the Moroccan Energy Ministry. Any surplus must be sold exclusively to ONEE (the national electricity and water agency), with whom the independent producer must negotiate a transport agreement and a connection agreement (for the transfer of any surplus energy produced).

Other factors have also contributed to the success of IPPs in Africa: deregulation (albeit partial) of the energy sector, increasing demand for energy and the availability of special purpose financing, all supported by government guarantees to purchase power produced.

Development finance institutions (DFIs) have also played a key role alongside financing from foreign backers, especially Chinese concessional lenders and private investors. It is estimated that energy projects attracted USD 14 billion worth of financing in 2014, the bulk of which came from concessional loans put up by China Exim Bank.

Very welcome structural reforms

Participation in private sector financing is therefore an opportunity not to be missed. However, most African governments continue to regulate their national energy sectors via a single publicly-owned utility. This is still the case in Benin, Burkina Faso, Congo, Gabon, Equatorial Guinea, Mali and Niger, to mention but the countries belonging to the CFA franc zone. Nevertheless, beginning in the 1990s, a number of countries began to introduce structural reforms designed to partially deregulate their vertically-integrated monopolistic utilities. South Africa was the first to do so, followed by Ghana, Nigeria, Uganda and then Kenya. A third category of countries – comprising Angola, Cameroon, Côte d’Ivoire, Madagascar, Morocco, Mauritius, Senegal and Togo – have continued with their monopolies but adopted legislation conducive to IPP-type structures. Indeed, within this category of countries, publicly-owned agencies frequently acquire stakes in dedicated IPP project companies, generating a hybrid market with all sorts of complex governance-related issues. While the existence of an independent regulator may be seen as a safeguard for reassuring investors it does not appear to be an absolute imperative.

Although structural reform has undoubtedly resulted in better governance in the energy sector and an environment that is more conducive to IPPs, widespread financial mismanagement of publicly-owned bodies means that private electricity buyers are becoming more and more common in the industry. Nevertheless, there has to be sufficient industrial demand. Madagascar is a case in point. A number of hydroelectricity projects have been launched by JIRAMA, the public water and electricity utility, however, firm credible commitments to purchase power could not currently be secured for the total cumulative installed capacity of the projects due to the serious financial difficulties of the public energy body. Even by trying to sell to the private sector, there is no guarantee that the shortfall in demand could be made up. Thence the African paradox: a lack of creditworthy customers alongside massive energy requirements!

Adopting and complying with best practices

Nevertheless, the success of IPPs is down to a number of best practices that include more effective coordination between the assessment of requirements and power purchase agreements (or PPAs), setting up a clear, predictable and transparent framework for transferring procurement documentation – even for private initiatives, and coherent decisions regarding project structure and power purchase tariffs.

As regards the first point, too many African countries still suffer from inadequate public policy planning tools in spite of loud media declarations concerning plans or strategies that are supposed to last for a generation. Apart from South Africa, very few governments have actually linked their energy planning requirements to energy procurement strictu sensu. Fragmented structures frequently hamper a coherent public policy capable of ensuring diversity in the energy mix, a network capable of absorbing new projects and consistent arrangements for organising and awarding tenders and concessions.

Procedures for awarding IPPs, even within a private framework, must be clear, comply with  principles of equal treatment of candidates and remain constant over time. This does not mean that they have to be rigid! In a rapidly changing market where technical advances and competitive pressures are tending to push down the cost of equipment and material, investors should be able to enjoy contractual stability and the gains generated from lower market prices should also be split among the different parties. This will ultimately result in lower prices for end consumers, particularly in projects where surplus power is purchased by the national utility.

Lastly, “feed-in tariff ” arrangements (FiT) do not have to be a dogma. While FiTs are attractive because they reassure investors and because they have been successfully used in countries like Kenya, Ghana and Senegal, they curb competition significantly.

The financial strength of “off-takers” (i.e., power buyers), the scalability of their industrial plan and the reliability of their power purchase commitments will all be key to the success of an IPP venture in Africa, especially where the public utility is insufficiently creditworthy to be able to purchase the energy produced over the long term.

By Hugues de La Forge, Partner – Holman Fenwick Willan

More than 35 CEOs and civil society leaders of the Business & Sustainable Development Commission (the Commission) today reveal that sustainable business models could open economic opportunities worth at least US$12 trillion and up to 380 million jobs a year by 2030. Putting the Sustainable Development Goals, or Global Goals, at the heart of the world’s economic strategy could unleash a step-change in growth and productivity, with an investment boom in sustainable infrastructure as a critical driver. However, this will not happen without radical change in the business and investment community. Real leadership is needed for the private sector to become a trusted partner in working with government and civil society to fix the economy.

In its flagship report Better Business, Better World, the Commission recognises that while the last few decades have lifted hundreds of millions out of poverty, they have also led to unequal growth, increasing job insecurity, ever more debt and ever greater environmental risks. This mix has fueled an anti-globalisation reaction in many countries, with business and financial interests seen as central to the problem, and is undermining the long-term economic growth that the world needs. The Commission has spent the last year exploring a central question, “What will it take for business to be central to building a sustainable market economy—one that can help to deliver the Global Goals?” Better Business, Better World—the release of which is timed with the World Economist Forum in Davos and the U.S. presidential inauguration—shows how.

“This report is a call to action to business leaders. We are on the edge and business as usual will drive more political opposition and land us with an economy that simply doesn’t work for enough people. We have to switch tracks to a business model that works for a new kind of inclusive growth,” said Mark Malloch-Brown, chair of the Business & Sustainable Development Commission. “Better Business, Better World shows there is a compelling incentive for why the latter isn’t just good for the environment and society; it makes good business sense.”

At the heart of the Commission’s argument are the Sustainable Development Goals (or Global Goals)—17 objectives to eliminate poverty, improve education and health outcomes, create better jobs and tackle our key environmental challenges by 2030. The Commission believes the Global Goals provide the private sector with a new growth strategy that opens valuable market opportunities while creating a world that is both sustainable and inclusive. And the potential rewards for doing so are significant.

The report reveals 60 sustainable and inclusive market “hotspots” in just four key economic areas could create at least US$12 trillion, worth over 10% of today’s GDP. The breakdown of the four areas and their potential values are: Energy US$4.3 trillion; Cities: US$3.7 trillion; Food & Agriculture US$2.3 trillion; Health & Well-being US$1.8 trillion.

“Global Goals hot spots” identified in the report have the potential to grow 2-3 times faster than average GDP over the next 10-15 years. Beyond the US$12 trillion directly estimated, conservative analysis shows potential for an additional US$8 trillion of value creation across the wider economy if companies embed the Global Goals in their strategies. The report also shows that factoring in the cost of externalities (negative impacts from business activities such as carbon emissions or pollution) increases the overall value of opportunities by almost 40%.

“At a time when our economic model is pushing the limits of our planetary boundaries and condemning many to a future without hope, the Sustainable Development Goals offer us a way out,” said Paul Polman, CEO of Unilever, and a commissioner. “Many are now realizing the enormous opportunities that exist for enlightened businesses willing to stand up and address these urgent challenges. But every day that passes is another lost opportunity for action. We must react quickly, decisively and collectively to ensure a fairer and more prosperous world for all.”

While the opportunities are compelling, the Business Commission makes it clear that two critical conditions must be met to build these new markets. First, innovative financing from both private and public sources will be needed to unlock the US$2.4 trillion required annually to achieve the Global Goals.

“As stewards of long-term capital, the investment industry and its clients can support the achievement of the SDGs by creating simple, standardized sustainability metrics integral to the investment process,” said Hendrik du Toit, CEO, Investec Asset Management, and member of the Commission. “We also need new streamlined partnerships with governments and communities that can reduce risks for everyone and bring more private investment at lower cost into sustainable infrastructure development.” 

At the same time, the Commission believes a “new social contract” between business, government and society is essential to defining the role of business in a new, fairer economy. The recently released 2017 Edelman Trust Barometer reinforces this idea. It shows that while CEO credibility is sharply down, 75% of general population respondents agree that “a company can take specific actions that both increase profits and improve the economic and social conditions in the community where it operates.” And they can do so in ways that align with recommendations and actions outlined in Better Business, Better World: rebuilding trust by creating decent jobs, rewarding workers fairly, investing in the local community and paying a fair share of taxes.

“The promise of the Sustainable Development Goals and the Paris Climate Agreement is a zero-carbon, zero-poverty world,” said Sharan Burrow, General Secretary, International Trade Union Confederation, and commissioner. “To achieve these Global Goals, we need to rebuild trust. A new social contract for business where people, their environment and economic development are rebalanced can ensure that everybody’s sons and daughters are respected with freedom of association, minimum living wages, collective bargaining and safe work assured. Only a new business model based on old principles of human rights and social justice will support a sustainable future.”

Throughout 2017, the Commission will focus on working with companies to strengthen corporate alignment with the Global Goals, including: mentoring the next generation of sustainable development leaders; creating sectorial roadmaps and league tables that rank corporate performance against the Global Goals; and supporting measures to unlock blended finance for sustainable infrastructure investment. “We need to show these ideas work not just in a report but on the business frontline,” said Dr. Amy Jadesimi, CEO of LADOL, a Nigerian logistics and infrastructure development company, and a member of the Commission.

“The Global Goals provide a sustainable, profitable growth model for business, and have the potential to trigger a new competitive ‘race to the top,’” said Jeremy Oppenheim, Programme Director of the Commission. “The faster CEOs and boards make the Global Goals their business goals, the better off the world and their companies will be.”

— ENDS —

The Business and Sustainable Development Commission was launched at the World Economic Forum in Davos in January 2016. It brings together leaders from business, finance, civil society, labour, and international organisations, with the twin aims of mapping the economic prize that could be available to companies if the Global Goals are achieved, and describing how they can contribute to achieving them. To access the report, visit report.businesscommission.org (live on 16 January 2017). Better Business, Better World launch events will be held throughout the week of 16 January, first at the Philanthropreneurship Forum in Vienna, then at the World Economic Forum in Davos. Regional events are also scheduled.

To learn more visit www.businesscommission.org.

To read the full report visit report.businesscommission.org.

Follow us at twitter.com/BizCommission

Media Contact:

Iain Patton, Global & Regional Media

i.patton@businesscommission.org  & +44 (0)7956 430543

OUR COMMISSIONERS

The Business and Sustainable Development Commission was launched in Davos in January 2016. It brings together 36 leaders from business, finance, civil society, labour, and international organisations, with the twin aims of mapping the economic prize that could be available to business if the UN Sustainable Development Goals are achieved, and describing how business can contribute to delivering these goals. The full list of our commissioners includes:

• Amr Al-Dabbagh, Chairman & CEO, The Al-Dabbagh Group

• Laura Alfaro, Professor, Harvard Business School

• Peter Bakker, President, The World Business Council on Sustainable Development (WBCSD)

• Sharan Burrow, General Secretary, International Trade Union Confederation (ITUC)

• Ho Ching, CEO, Temasek Holdings Private Ltd.

• Bob Collymore, CEO, Safaricom Ltd.

• John Danilovich, Secretary General, The International Chamber of Commerce (ICC)

• Begümhan Do?an Faralyal?, Chairwoman, Do?an Holdings

• Hendrik du Toit, CEO, Investec Asset Management

• Richard Edelman, President & CEO, Edelman

• Hans Vestberg/Elaine Weidman Grunewald (acting), Ericsson

• John Fallon, CEO, Pearson plc

• Ken Frazier, Chairman & CEO, Merck & Co Inc. (2016)

• Mats Granryd, Director General, The GSM Association (GSMA)

• Helen Hai, CEO, The Made in Africa Initiative

• Svein-Tore Holsether, President & CEO, Yara International ASA

• Mo Ibrahim, Founder, Celtel & The Mo Ibrahim Foundation

• Mary Ellen Iskenderian, CEO, Women’s World Banking

• Dr. Amy Jadesimi, Managing Director & CEO, Lagos Deep Offshore Logistics Base (LADOL)

• Donald Kaberuka, former President, African Development Bank Group

• Lise Kingo, Executive Director of the United Nations Global Compact

• Jack Ma, Founder and Executive Chairman, The Alibaba Group

• Lord Mark Malloch Brown, former Deputy Secretary-General, United Nations (Chair)

• Andrew Michelmore, CEO, MMG Ltd.

• Sam Mostyn, President, Australian Council for International Development (ACFID)

• Arif Naqvi, Founder & Group CEO, The Abraaj Group

• Mads Nipper, Group President & CEO, The Grundfos Group

• Cherie Nursalim, Vice Chairman, GITI Group

• Ricken Patel, President & Executive Director, Avaaz

• Paul Polman, CEO, Unilever

• Vineet Rai, Co-Founder & Chairman, Aavishkaar Intellecap Group

• Grant Reid, CEO, Mars, Inc.

• Dinara Seijaparova, CFO, ‘Baiterek’

• Sunny Verghese, CEO, Olam International

• Gavin Wilson, CEO, IFC Asset Management Company LLC

• Mark Wilson, CEO, Aviva plc

“To prosper, Africa needs a massive, concerted, ambitious effort to transform our economies,” Akinwumi Adesina, President of the African Development Bank Group, said. “We need growth that benefits everyone. The High 5 priorities will get us there more quickly.”

The High 5s and the Bank’s recent progress are highlighted in the Annual Development Effectiveness Review 2016 — the latest edition of the Bank’s key monitoring and tracking tool — which was released Monday, June 27, 2016.

This year, the Bank has revamped the review to give greater attention to Africa’s fundamental challenges and how the Bank is addressing them.

The Bank is also reorganising itself to become more agile and responsive to the continent’s needs. A new business model has been adopted and three new vice presidencies established: on power, energy and green growth; on agriculture, human and social development; and on the private sector, infrastructure and industrialisation.

To increase its efficiency and carry out its work more quickly, the Bank is moving closer to its clients by establishing five regional integration and business delivery offices.

All these changes will help achieve the structural transformation outlined in the Bank’s Ten Year Strategy. The High 5 priorities are an integral part of that effort:

Light up and power Africa — About 635 million Africans still live without electricity and demand for energy is rising rapidly. Through the New Deal on Energy for Africa, the AfDB is working to unify efforts to achieve universal access to energy. Its new Energy Strategy aims to increase energy production and access, and improve affordability, reliability and energy efficiency.

Feed Africa — More than 70% of Africans depend for their livelihoods on agriculture. If its full potential were unlocked, agriculture could vastly improve the lives of millions. The Bank is framing its agricultural operations within a business-oriented approach, based on a deeper understanding of the obstacles, potential and investment opportunities.

Industrialise Africa — A persistent lack of industrialisation is holding back Africa’s economies. Over the next 10 years, the Bank will invest US $3.5 billion per year through direct financing and leveraging to implement six flagship industrialisation programmes in areas where the AfDB can best leverage its experience, capabilities and finances.

Integrate Africa — Through its Regional Integration Policy and Strategy, the Bank is focusing its integration efforts not just on movement of goods and services but also on mobility of people and investment.

Improve the quality of life for the people of Africa — Africa’s economic growth has not been rapid or inclusive enough to create enough jobs and improve quality of life. The Bank is committed to building up the availability of technical skills so that African economies can realise their full potential in high-technology sectors. Acknowledging the urgent need to address climate change, the Bank will nearly triple its annual climate financing to reach $5 billion a year by 2020.

By AfDB