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Impact investing: the key to West Africa’s development revolution

In recent years, there’s been much debate about impact investing, particularly in developing countries. It’s been touted as the financing approach that could finally help underdeveloped countries to achieve a more inclusive growth that would lift even more people out of poverty. But, what’s impact investing and how prominent is it in West Africa?

According to the Global Impact Investing Network (GIIN), impact investing is defined as investments made into companies, organizations, and funds with the intention to generate a measurable social and environmental impact alongside a financial return. Whereas traditional investing primarily seeks to maximize value for shareholders, impact investing is mainly concerned with the well-being of people and the environment. Hence, it’s a market-based solution to address socio-economic problems which may not be the priority of conventional financing.

Impact investments are generally more sustainable compared to traditional investments because the primary intent is to improve living conditions of a community or a country in a wide array of aspects. This is reflected in the spectrum of return on investment that impact investors require. Some of them seek below, market, or above-market returns. Still, others simply require a return of invested capital.

The modes of financing are similar to that of conventional investments

Impact Investments differentiate themselves from other forms of investments in mainly three ways. First, there is a precise intent in tackling social and/or environmental issues. Second, there is an expectation of a financial return, just like in any other form of investment. Finally, the investment performance must be measured against the stated objectives to evaluate the impact.

Although the objectives of impact investing are different from that of traditional investing, they are nevertheless investments and they encompass similar investment vehicles to traditional financing. These include bonds, loans, equity, and venture capital financing. Presently however, impact investment deals aren’t as sophisticated and complex as traditional financing.

Globally, impact investing remains a nascent concept

There isn’t an official data on the amounts of capital deployed globally in impact investing, much less in West Africa. This is because besides the reality that it’s a comparatively new concept, there’s still not an authoritative and standardized framework for impact investing. Nevertheless, some organizations have provided valuations based on surveys and estimates of other related markets that are aligned with environment, social, and governance (ESG) principles. What these data reveal is that despite its growth over the past decade, the aggerate amount of funding for impact investments remains small. Globally, over 1,340 organizations currently have about $502 billion AuM in impact investing assets¹. This is a small number given that the total assets under management reached $88.5 trillion in 2018².

Impact investments are even less prevalent in West Africa due to challenging business environments and regulatory systems that don’t yet understand the sector and its potential. Given the development challenges that West Africa faces though, it’s evidently a promising region for impact investing and the numbers illustrate this. The latest survey data by the GIIN reveals that between 2005 and 2015, impact investments made in West Africa totaled $6.8 billion. Although the amount is small, it has increased by double digits during this period.

West Africa lags behind in impact investing, but it offers the greatest potential

Impact investing is less developed in West Africa compared to other regions of the continent, particularly in the francophone countries.

In East and Southern Africa — which are comprised of English-speaking countries with a few exceptions — impact investing is more developed, especially in the financial services sector. According to data, between 2005 to 2015, $9.3 billion in impact investment was deployed in East Africa and $22.5 billion in Southern Africa³. In the West African region, Nigeria having the biggest economy in Africa, only received about $1.86 billion in impact investment during similar period. Kenya on the other hand, with a significantly smaller GDP than Nigeria, managed to attract over $3.6 billion.

Furthermore, fewer impact investors operate in West Africa than in any other region. In 2015, only 46 impact investors were active in West Africa (14 DFIs and 32 non-DFIs) while 107 had a presence in Southern Africa, and 155 operated in East Africa. The statistics underline a rapid progression however. For example, between 2005 to 2014 DFI investments in the region has grown by an annual compound rate of 18%. This indicates a growing interest of investors in West Africa and the region is set to be a top destination for impact investment capital on the continent.

Source: GIIN 2015 West Africa Report

Profile of the West African region

With nearly 380 million people⁴, West Africa is the biggest region in Africa. It’s consisted of 15 countries: Niger, Nigeria, Benin, Togo, Ghana, Burkina Faso, Côte d’Ivoire, Liberia, Guinea, Sierra Leone, Mali, Guinea-Bissau, Senegal, The Gambia, and Cape Verde.

Source: GIIN 2015 West Africa Report

West Africa faces numerous socio-economic problems and it’s the least developed region on the continent. Its challenges include: significant infrastructure deficit; lackluster health provision; underperformance in education attainment; and governance issues in some countries. The region also faces startling poverty rates. An estimated 43% of the population lives below the poverty line⁵. It’s important to note that these numbers are nuanced because there are some outliers in regional economic indicators. Nigeria for example, commends 70% of West Africa’s GDP and as a result, the current instability of the country’s economy is shaping the overall economic outlook of the region.

Despite these setbacks, the economic outlook for the region is strong. In 2014, it was the second fastest growing region on the continent, registering a 6% GDP growth. However, from 2016 growth slowed primarily because of Nigeria’s economic recession. Other countries in the region have displayed a resiliency and a robust performance. In 2018, Côte d’Ivoire, Senegal, and Ghana led the way with 7.4%, 7%, and 6.2% growth rates, respectively. With Nigeria also renewing with economic growth in 2017 and forecast to grow by 2.3% this year⁶, a sustained economic growth is projected for the region.

Another notable factor is that West Africa has a big population (bigger than the United States) and a young and growing middle class which implies a potentially large untapped consumer base. It also has the second biggest regional economy in Africa. In 2018, the GDP in West Africa was almost $600 billion⁷, led by Nigeria. Still, a significant portion of West Africa’s economy lies in the informal sector and as a result, the actual size of the region’s GDP is much bigger. Finally, it’s widely recognized that West Africa is more integrated than the other subregions of the continent. This is an important advantage since businesses can scale more quickly due to the free movement of people and goods.

Evidently, the challenges of West Africa present some of the best investment opportunities on the continent. Impact investors — especially — could fill in the development gap in the region by tackling social and environmental issues while generating a financial return. Furthermore, nowadays, impact investing is increasingly high on the agenda of policy makers, donors, the civil society, and other stakeholders. Many capital providers are also now insisting on aligning their investments to the Sustainable Development Goals (SDGs) and ESGs. This indicates that global decision makers are increasingly leaning towards impact investing as a solution for complex developmental issues. Therefore, investors should begin to allocate their resources to it, particularly in West Africa.

Main players of impact investing in West Africa

Currently, the most important impact investors in West Africa are Development Finance Institutions (DFIs). Between 2005 and 2015, they deployed 97% of impact investing capital in the region. DFIs are development banks that are owned by national governments. Some of the most active DFIs in the region are the African Development Bank (AfDB), the International Finance Corporation (IFC), and the West African Development Bank (BOAD). Together, these three institutions deployed 74% of DFI investment in West Africa⁸.

Non-DFIs provide the rest of the impact investing capital in West Africa and they vary in size and the investment vehicle that they utilize. They are organizations or individuals who make impact investments via funds or directly. They include: private investors, pension funds, foundations, venture capital firms, and banks (excluding DFIs). Private investors could be high-net worth individuals and philanthropists who have decided to channel their resources towards a more sustainable investment. Foundations are increasingly investing in impact investment projects in Africa. Some of the active ones in West Africa include the Tony Elumelu Foundation and the Lundin Foundation. Note that some well-known foundations are not recognized as impact investors if they’re only involved in philanthropic endeavors.

Demand side of impact investing

The funding need for small and medium enterprises (SMEs) in Africa is staggering. The IFC estimates that the finance gap for SMEs in Africa is $331 billion⁹. Businesses struggle to obtain financing from banks due to exorbitant guarantees and collateral demands. Also, a substantial portion of businesses in Africa operate in the informal sector, making them unattractive for banks and other traditional financial institutions. This situation is unfortunate because SMEs constitute 90% of all businesses in the region and they provide up to 90% of job creation in some countries such as Senegal (GIIN 2015).

Consequently, without adequate financing, the private sector remains weak in West Africa and innovative businesses that address social and economic needs, don’t have the necessary funding to scale and bring more value to customers. Note that DFIs tend to focus on large capital-intensive projects in sectors such as energy and infrastructure because it’s not cost-efficient for them to directly invest in smaller projects. This is fine because there’s still a great financing gap in large-scale impact projects in West Africa. According to the ECOWAS Center for Renewable Energy and Energy Efficiency (ECREEE), less than 40% of the population in the region has access to electricity¹⁰. This is an area where DFIs with their wherewithal, could make a positive impact on the environment and people.

Market women in Kigali, Rwanda. Photo by Sarine Arslanian Shutterstock

In West Africa, many SMEs — deliberately or not — make a socio-economic impact given the significant need in basic necessities. Hence, the demand is there however the potential supply in impact investing capital far exceeds the availability of investment-ready deals.

Challenges to impact investing in West Africa

There are a few reasons as to why in Africa, impact investing is the least developed in West Africa. One of them is that most SMEs that operate in the region are not investment ready. Many of them don’t have a formal and complete accounting and corporate records that investors could analyze and rely on for investment considerations. Also, they are unable to clearly formulate their intended impact to investors since the concept of impact investing is still unfamiliar to them.

Another challenge to impact investing in West Africa is that the regulatory systems do not make it easy for impact investors to seize opportunities. The primary cause of this is that authorities have yet to align their business policies and regulations to modern business practices. Many of them simply don’t understand impact investing enough to create regulations that are adapted to the sector.

In addition to making it easier for impact investors to invest, governments are encouraged to provide incentives to the investees in the form of loan guarantees or tax incentives. For example, businesses that are recognized as having a social or environment purpose can benefit from reduced taxes or tax credits. By taking these steps, authorities would make the region more attractive to impact investors.

Finally, there is still not a consistent and standardized approach to measuring and reporting the impact of investments against their stated objectives. This is an important obstacle to address because measuring and reporting impact is central to the concept of impact investing. Without this, capital providers wouldn’t have the assurance that their capital is being channeled towards making a social and environmental impact in the region.

A growing ecosystem to get more SMEs ready for impact investors

The ecosystem surrounding impact investment is also evolving in the region. Multinational firms, governments, and other organizations are creating structures to help entrepreneurs and businesses to develop and to be ready to accept an impact investment. A growing number of incubators and business competitions are designed to help entrepreneurs with early stage investments and technical assistance.

In Côte d’Ivoire for example, in 2014 the French telecom company Orange inaugurated an Orange Fab to promote the growth of startups and many of the firms will be ready for impact investments. Senegal is also building the biggest incubator in West Africa to promote innovation and SME development in the region¹¹. These are all avenues by which more businesses in West Africa will be finally ready to obtain impact investment capital.

Opportunities for impact investing in West Africa

Currently the lion’s share of impact investment capital in West Africa is deployed in few industries which are energy, manufacturing, infrastructure, and financial services. According to the GIIN’s 2015 West Africa report, while DFIs have invested 65% of their portfolios in energy, manufacturing, and infrastructure, non-DFIs have mostly invested in financial services.

While these sectors are all important for the region’s development, this illustrates the disproportionate consolidation of impact investments in a few sectors in West Africa. There are numerous other areas in which impact investment capital could be deployed. They include agriculture, housing, health, and education. In the housing sector for example, there is a substantial deficit for quality and affordable housing units in West Africa. In Côte d’Ivoire, the annual housing deficit is 200,000 units in Abidjan alone¹² due to the ever-increasing urban population. In Nigeria, the deficit is even more staggering. It stands at between 17 to 20 million units¹³ and is increasing annually by 900,000 units. This sector presents a great opportunity for impact investors to deploy capital in order to fill in the gap and generate attractive financial returns.

The healthcare sector is also another area where impact investment capital is critically needed. Access to healthcare in the region is limited for most people. There are a growing number of startups with innovative ideas that are on track to disrupt the healthcare sector, much like how Africa has led the mobile banking revolution.

Examples of successful impact investments

Although West Africa receives noticeably less impact investment capital compared to the other regions of the continent, the investments are rapidly growing, and investors are increasingly interested in the region. There have been numerous landmark impact investments that underline the dynamism in the sector.

In West Africa, Senegal has become a leader in the renewable energy revolution. In January 2018, the country inaugurated a fourth solar power plant, this one in the Thiès region. The €43 million plant has a nominal capacity of 30 megawatts. The facility will supply power to over 200,000 people and save nearly 34,000 tons of CO2 per year¹⁴. It is a great example of an impact investment. The project will contribute to reducing greenhouse gas emissions, an impact that’s aligned with SDG goal 13 which addresses climate change. Also, it has a financial benefit as the electric utility of Senegal (SENELEC) will be purchasing the power produced at the plant, providing a return on investment for the investors involved in the project.

The Ten Merina solar plant. Photo by Meridiam

The perceived risk of West Africa has not stopped firms from investing in the region even in sectors that are considered risky. In April 2019, Zipline, a firm that specializes in the delivery of medical provisions, has begun delivering medical supplies and vaccines across Ghana through its four distribution centers. It’s a much-needed line of services in a sector that’s severely underdeveloped in Ghana and in other countries in the region. In May 2019, the firm raised $190 million from notable investment firms including Google Ventures, TPG Capital, and Baillie Gifford¹⁵.

The caliber of these investors illustrates the increasing risk appetite of investors in West Africa, a region which has traditionally being perceived as risky. It also shows that impact investors are increasingly interested in startup companies which operate in the region. This is compelling because these firms are at the forefront of providing innovative solutions that are adapted to the development challenges of the region.

Impact investing pioneers will benefit the most from the West African market

Although impact investing is much more developed in advanced economies than in West Africa, globally it remains a small market compared to traditional investing. As result, investors could seize the opportunity to capitalize on the current momentum in impact investing and leapfrog other regions of the world. This is what occurred with mobile technology in Africa where the continent has surpassed every other region in the world in the delivery of financial services via cell phones. Companies such as Safaricom and their investors have profited immensely because they were at the forefront of mobile technology services in Africa. West Africa is also on the verge of its own economic revolution and impact investors are in a strong position to accompany the region and its people to thrive, while generating a financial windfall for themselves.

[1] This amount reflects assets currently AuM and not capital deployed. “Sizing the Impact Investing Market,” Global Impact Investing Market (2019). Available at:

[2] “North American asset management in 2018: The New Great Game,” McKinsey & Company. Available at:

[3] Data from GIIN 2015 Impact Investing report on West Africa and Southern Africa

[4] Based on World Bank data on population 2018. Available at: Photo source: GIIN 2015

[5] “West Africa Economic Outlook 2018,” African Development Bank (2018). Available at:

[6] The economic indicators are based on the AfDB’s country “Economic Outlook”. The latest data for each country are available here:

[7] Total GDP was calculated by tallying countries’ individual GDP provided by the World Bank. Data available at:

[8] As reported by the GIIN. “The Landscape for Impact Investing in West Africa,” GINN (2015). Available at:

[9] The SME Finance Forum reports this in October 2018. Available here:

[10] Data provided by the ECREEE in a regional off-grid electrification project proposal. Available at:

[11] Emirates News Agency (2019). Available at:

[12] Estimate by the Ministry of Construction and Housing of Côte d’Ivoire. Data available in “Africa Housing Finance Yearbook 2018,” Centre for Affordable Housing Finance in Africa (2018). Available at:

[13] The deficit data available in “Africa Housing Finance Yearbook 2018,” Centre for Affordable Housing Finance in Africa (2018). Available at:

[14] Project sheet provided by PROPARCO. Available at:

[15] Reported by UAS Vision, a global forum for the Unmanned Aircraft Systems community. Article available at:



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