Solar energy to the rescue in Zimbabwe

As it increasingly becomes clear that climate change has become a reality in Zimbabwe, many are struggling to come to terms with its effects — especially the blazing heat that now characterises most days. But for people like Tundondeghe Chiraya and her family, the scorching heat spells an uninterrupted 24/7 supply of electricity.

Having recently moved into their new house built on a stand acquired in the new settlement of Budiriro 5B Extension — neighbouring thousands of houses built by banking institution CABS under the Budiriro Housing Scheme — life would have been most unpleasant without any source of power supply, as Zesa-powered electricity is yet to reach the area because getting connected to the utility’s power lines is proving to be a cumbersome process filled with hurdles.

But power problems are slowly becoming a thing of the past as people in the area have been left with no choice but to turn to solar power.

While the investment in a solar panel and battery was initially made sulkily, the Chirayas were soon to realise turning to solar energy was one of the best decisions they could have ever made. While it might have taken sacrifice to fund the initial setting up of the solar connection in their home, the return on investment that immediately followed has left them without any hint of regret.

“I have to admit that before we connected to solar power, I wished Zesa would hasten to connect the area so we would avoid the costs, but I have since changed my mind,” said Chiraya with a beaming smile.

“With our solar panel and battery, we are able to power lighting for the whole house, the entertainment set [television, home theatre system, DStv] and to charge all our cellphones. We use gas to cook and we are planning to invest in another battery so we can also power the fridge and other electrical gadgets.

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The Rise Of Impact Investing In Private Equity

Private equity players typically seek investments that will provide the biggest financial gain, but experts say the recent rise of impact investing, which sees money directed toward companies that are focused on helping advance society at large, has no end in sight.
Impact investing involves private equity and other investors making capital injections that, in addition to generating a profit, will benefit the greater good, with examples including investments in companies focused on climate change, education and affordable housing. Actively seeking out investments that won’t necessarily be the biggest moneymaker seems to contradict the very purpose of private equity, but experts say that isn’t the case.

According to David Fann, president and CEO of alternative assets consulting group TorreyCove Capital Partners LLC, the proliferation of impact investments in the private equity industry is set to soar as firms large and small follow the lead of giants such as KKR & Co. LP, Blackstone Group LP and Apollo Global Management.

“We are in the early innings of the impact investing movement,” Fann said. “More European funds have embraced it, especially its environmental aspects. Most larger U.S. investment firms are beginning to integrate elements of impact investing and in many cases, have undertaken some aspect without realizing it.”

“Usually, when the large PE firms begin talking about it, most of the industry follows,” he added.

The practice has seen significant growth in recent years, as evidenced by the fifth annual impact investor survey, which was released in May 2015 and conducted by The Global Impact Investing Network and JPMorgan. According to the survey, the 146 respondents planned to increase their commitments in 2015 by 16 percent, with an aim of plugging $12.2 billion into impact investments, up from $10.6 billion in 2014.

The intended increase in impact investing is also evidenced by the publicly stated policies of some of the larger private equity firms, such as KKR, which notes on its website that responsible investments are more than just the right thing to do.

“It is also essential for smart investing,” the firm notes in a quote attributed to Henry R. Kravis and George R. Roberts, co-chairmen and co-CEOs of KKR. “Our commitment to creating sustainable value has never been stronger.”

The initial reaction from many may be that financial concessions are necessary to dive deep into the world of impact investing, but that hypothesis doesn’t totally pan out when you look at the data. The impact investment survey showed that 27 percent of respondents reported that their portfolio of impact investments outperformed their expectations, while only 2 percent reported an underperformance against their financial return expectations.

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The importance of SMEs in growing inclusive growth in Africa

Inclusive economic growth is growth that leads to job creation, causing a ripple effect on the purchasing power of the majority of the populace. The private sector, and in particular small and medium enterprises (SMEs), are the drivers of an economy. SMEs are also the largest providers of direct employment and inclusive growth can be achieved through promotion of policies that would drive their development.

According to the Central Bank of Nigeria, 96% of Nigerian businesses are SMEs (US = 53%, EU = 65%). Inclusive growth can be achieved by positioning these SMEs to take advantage of the opportunities in the economy.

Financial services is crucial to SMEs

According to the Small Business Administration of the USA, two of the top 10 reasons why SMEs fail are lack of capital, and poor credit management. It is no different in Nigeria and the rest of Africa. While there are several aggregators/sources of capital including Private Equity (PE) funds, development finance institutions (DFIs) and insurance companies in Africa, the key players in the financial services industry that are optimally positioned to serve SMEs and therefore drive inclusive growth are banks and micro-lenders.

Government macro-economic policies impact SME financing

Lenders operate within the wider macro-economic environment, and government policies regarding inflation and infrastructure are crucial to keeping the cost of funding down. When inflation drives up the cost of funding and ultimately lending costs, it in turn drives up the cost of production, making SMEs less competitive.

Standardisation of physical address systems is another area where African governments can make a meaningful contribution to SME growth. Inconsistent address systems make it difficult for SMEs to establish formal relationships and credit histories with suppliers, customers and transient clients.

What can banks do?

At the credit application and processing stage, banks need to invest in systems that allow more efficient and tailored risk profiling. Such a system rewards diligent entrepreneurs with lower lending rates and greater access to capital.

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Southern Africa fast becoming hotbed for impact investment

Southern Africa is fast becoming a hotbed of impact investment activity, with a total of US$22.53-billion in invested across the region as of mid-2015.

That’s according to a new report released by the Global Impact Investing Network (GIIN), in partnership with Open Capital Advisors.

Published this week, the report includes findings from 12 countries and shows that development finance institutions (DFIs) provided approximately 75% ($16.8 billion) of impact investing capital in the region. That number apparently covers more than 650 deals.

Several other types of investors — including VC/PE funds, foundations, commercial banks, and pension funds — actively invest in the region, with such non-DFI impact investors having deployed nearly US$5.7-billion in the region through more than 500 deals.

Of the countries covered by the report, South Africa benefited the most from impact investment, with more than 65% (US$14.7 billion) of impact investing capital going to the region’s largest and most advance economy.

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Responsible investing is becoming the new normal

Sustainability is attracting ever-greater public attention. The topic already ranks highly on the legislative agendas of most governments, especially since the groundbreaking agreement reached at the Paris climate talks last year. This growing public awareness of sustainability signals an important shift in global priorities. It is pushing consumers, governments and business leaders to pay more attention to environmental, social and governance issues than ever before. This shift will also have a fundamental impact on the way companies are run and perform.

The Volkswagon emissions scandal is just one example of how the management of social and environmental issues can have a deep, bottom-line impact for corporate performance. Although the extent of the financial and strategic ramifications on Volkswagen are still unfolding, the scandal has already led to a $25bn (£17.2bn) loss in market value, the prospect of over $90bn (£62bn) in US fines, and a corporate reputation in tatters. Such examples demonstrate clearly that a company’s management of key ESG topics can have a very direct impact on the firm’s competiveness and long-term profitability. It therefore comes as little surprise that more investors today than ever before are integrating key ESG metrics into their investment analyses.

This growing investor focus is perhaps most evident in the rapid growth in signatories to the United Nations-sponsored Principles of Responsible Investment (PRI). PRI signatories commit to “incorporate ESG issues into their decision-making and ownership practices and so better align their objectives with those of society at large.” Today, over 1,300 asset managers have become signatories, representing over $60tn (£41tn) in assets under management. These asset owners include heavyweight investors like Blackrock, PIMCO, KKR, Partners Group, and Goldman Sachs, suggesting that the integration of ESG analysis into the investment process has already entered the investment mainstream.

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