Impact Investing in Africa: Insights from KPMG IDAS Africa
Impact investor interest in Africa is currently growing faster than the industry’s ability to effectively deploy this capital. To overcome this challenge, investors need to better align their expectations, capabilities and strategies with market realities. Through management of various funds across Africa, KPMG’s International Development Advisory Services (IDAS) has allocated capital to over 200 businesses working on projects that have a social impact, largely in agribusiness, renewable energy, climate change technologies and financial services, along with education, health and sanitation. In this paper, we draw on this experience to highlight practical lessons that may be useful to impact investors.
Africa currently attracts more impact investors by number than any other region in the world, as well as the greatest share of impact investors who planned to increase their allocations in 2014 to the region. As more capital crowds into Africa slated for social impact, investors are finding it increasingly difficult to deploy these funds effectively and earn positive financial returns on the capital already invested. Many impact investors target established companies that can provide a compelling business plan, meet robust accounting and reporting standards, and promise both hearty impact and commercial returns. The number of companies like this simply is not increasing at the same rate as the number of funds, while a select few strong companies are in high demand. Impact investors are responding to this challenge in several ways. Fund managers focused on high-impact businesses are scouting the market and allocating more money to early-stage ventures. Others are softening their impact expectations in favor of commercial performance. (See Box 1 for a discussion of these various strategies.)
As the industry finds its footing, it will be helpful to understand more about the performance of current portfolios. Through management of various funds across Africa 3 , KPMG’s International Development Advisory Services (IDAS) has allocated capital to over 200 businesses working on projects that while aiming to be profitable are also expected to have a social impact. This portfolio can offer insights to impact investors experimenting with early-stage finance or seeking better balance between impact and commercial performance. In this paper we draw on performance data from the portfolio to examine:
• Commercial performance and development impact across key sectors and countries
• Key challenges to growth of high-impact businesses
In a later paper we will also look at performance spotlights for dairy, poultry and livestock, seed companies, pay-as-you-go renewable energy distribution, and contract farming.
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