The anatomy of investing for sustainable development in Africa

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Economies Across Africa
Economies Across Africa

As economies across Africa look to recover from the economic devastation wrought by COVID-19 and the global supply chain issues that followed it, investment will be more important than ever. But it’s also becoming increasingly obvious that if the continent is to achieve its true potential, a different kind of investment strategy is needed.

In addition to health and welfare, the last two years have also sharpened an already growing consciousness about the environment and climate. With the world scrambling to limit global warming to 1.5 degrees above pre-industrial averages, parts of Africa are already being hit hard by climate change. In the midst of the hardest parts of the pandemic, for example, some 80% of Nigerian farmers were affected by both flooding and drought. In 2021, meanwhile, Ghana experienced several incidences of flooding which resulted in the loss of both houses and lives.

Another hot-button issue to have emerged through the course of the past couple of years is inequality. Here too, the continent faces a worsening crisis. According to a new report from Oxfam and Development Finance International (DFI), the pandemic pushed more than 40-million Africans into extreme poverty. The same report revealed that the richest one percent of Africans own 33% of the continent’s wealth and that the continent’s six richest billionaires own more wealth than the bottom 50% of Africans combined.

It should be clear then that the continent cannot afford for the investments of the future to be extractive or purely for the sake of growth. Instead, they need to be sustainable, inclusive, and make a tangible positive impact.

Extractive industries lose lustre, tech forges on

In order to imagine what that might look like, it’s important to understand the current African investor framework.

From a sustainability perspective, there is important movement. Research from EY, for example, shows that extractive industries accounted for less than four percent of the continent’s foreign direct investment (FDI) in 2020. It’ll also become increasingly difficult to find funding for projects that are environmentally detrimental. China’s decision to ban investment in overseas coal projects, for example, has impacted several new energy builds across the continent.

That does not, however, mean that those losses are being replaced by sustainable investments at a meaningful scale. As the World Bank notes, it’s difficult to gauge exactly how much sustainable investment is happening across the continent, but that “the market for ‘green investments’ across the region remains small.”

At the other end of the investment wedge, Africa’s technology sector is attracting increasingly large investments. In 2021, African startups raised US$4.65-billion — twice as much as in 2020. Unfortunately, technology companies typically aren’t labour-intensive, meaning that they do little to move the needle on unemployment.

Right principles, right industries

It’s critical therefore that investments looking to be sustainable and inclusive focus on having the right principles and investing in the right industries.

Already, some investors are tipping the scales. For example, Norsad Capital’s distinct focus on the new anatomy of investment has seen a more than US$500-million injection into 150-plus companies across the African continent. The impact investment organisation provides private credit and debt solutions to profitable growth-stage companies that deliver desirable social impact in Africa.

In its quest to do so, it is guided by the United Nations’ Sustainable Development Goals (SDGs). Adopted in 2015, the SDGs are a universal call to action to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity.

“Our purpose as an organisation is to build a better Africa by providing financing to mid-market

growth companies that contribute towards the continent’s economic growth and improvement,” says Norsad Capital CEO, Kenny Nwosu. “The SDGs provide a helpful guiding framework in achieving that goal while contributing to sustainable development across the continent.”

It also focuses on industries that support growth and the goal of building a better Africa.

“We’re particularly focused on financial institutions, the food value chain, soft and social infrastructure, and industrials and manufacturing,” says Nwosu. “Many of these industries also happen to be large-scale creators of employment and are critical to lifting people out of power and reducing inequality.”

Impact matters

While this approach to investing should be widespread (if not universal), the urgency of environmental and social issues across the continent dictates that investors focus on the sectors and organisations that will have the greatest impact.

While investors should play an active role in ensuring that impact, it’s also important that it be consistently measured to drive continually improved performance. That should also include periodic reviews to ensure maintained alignment with global best practices.

It is only by taking this approach, and rejecting an “investment at all costs” mentality that Ghana and Africa will achieve the sustainable development it needs to thrive going forward.

Source:Kenny Nwosu, Norsad Capital CEO

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