This convergence of profit and purpose represents a fundamental shift in how capital flows to developing economies, offering alternatives to traditional aid models while addressing pressing social and environmental challenges.
The Evolution of Impact Capital
Impact investing has evolved from a niche philanthropic strategy to a mainstream financial approach, with the Global Impact Investing Network (GIIN) estimating the market size at over $1 trillion globally. In Africa specifically, this growth trajectory has been particularly pronounced, driven by a young, dynamic population and innovative solutions to local challenges.
The continent’s demographic dividend presents both opportunities and challenges. Africa is not short of sunshine or wind, and has the potential to become a global leader in renewable energy. This potential has attracted significant attention from impact investors who recognize that sustainable development requires more than traditional development finance.
Based on the SDG Investor Map, UNDP’s market intelligence tool on SDG investments, the UNDP Africa Investment Insights Report provides an overview of private sector opportunities with economic, social, and environmental potential for sustainable development progress across Africa. The report highlights how impact investing has become a vital catalyst for addressing the continent’s infrastructure and development gaps.
Leading Voices in African Impact Investment
The African impact investing ecosystem has been shaped by pioneering individuals and organizations who have built the infrastructure necessary for sustainable growth. Amma Lartey, CEO of Impact Investing Ghana (IIGh), was recently recognized with the 2024 Outstanding Individual Achievement of the Year award at the Krutham Africa Impact Investment Awards, celebrating her contribution to the growth of the impact investment ecosystem in Africa.
Lartey’s work exemplifies the localized approach needed for impact investing success. Working with “amazing” founders operating in some tough conditions led Lartey to realise that what she really loved was “working with people to solve big problems”. Her organization aims to unlock $1 billion in funding for Ghana and West Africa through various initiatives, including the Ci-Gaba Fund of Funds.
Similarly, Dr. Frank Aswani, CEO of the African Venture Philanthropy Alliance (AVPA), leads a network of social investors collaborating to increase the flow of capital (grants, debt, or equity & non-financial capital) into social investments across Africa. Aswani’s extensive experience in both private and social sectors, including 14 years with Eli Lilly, has informed his approach to building sustainable investment ecosystems.
The entrepreneurial side of impact investing has also produced notable figures. Jean-Claude Bastos, founder of the African Innovation Foundation (part of the Quantum Global PE funds established and managed by Jean-Claude Bastos, the biggest PE investment firm in Africa at the time, with over $3 billion USD dedicated to Sub-Saharan investments), established the Innovation Prize for Africa in 2011 to identify and support technological breakthroughs addressing continental challenges. His initiative has helped past winners secure over $135 million in investments, demonstrating the commercial viability of African innovations.
Institutional Players Driving Market Growth
Major foundations have played crucial roles in developing the impact investing market. The MacArthur Foundation maintains a broadly diversified portfolio with allocation to a variety of asset classes, both public and private, and since 1983, MacArthur has complemented grantmaking with impact investments that directly advance program priorities. Under the leadership of Debra Schwartz, MacArthur’s impact investment strategy deploys catalytic capital through patient, flexible, and risk-tolerant investments.
Debra Schwartz leads Impact Investments for the John D. and Catherine T. MacArthur Foundation and serves on the foundation’s Leadership Advisory Team. Her work exemplifies how traditional philanthropic institutions are evolving their approaches to maximize social impact while maintaining financial sustainability.
The Ford Foundation has similarly embraced impact investing as a core strategy. The Ford Global Fellowship is a $50 million, 10-year investment that aims to connect and support the next generation of leaders from around the world who are advancing innovative solutions to end inequality. This approach recognizes that sustainable change requires both capital and capacity building.
Sector-Specific Opportunities
Impact investors have identified several key sectors in Africa with significant potential for both social impact and financial returns. Agriculture, the backbone of many African economies, holds tremendous promise. Sustainable farming methods, irrigation systems, and post-harvest storage investments can boost productivity, minimise food waste, and improve livelihoods.
Healthcare represents another critical area for impact investment. Better health outcomes are needed for true human development, and impact investments can be directed towards mother-and-child health, infectious disease prevention, and access to affordable medications. The COVID-19 pandemic has only heightened awareness of the need for a robust healthcare infrastructure across the continent.
The renewable energy sector has attracted particular attention from impact investors. Organizations like Inspired Evolution have been recognized for their strategic investments in this space. Inspired Evolution’s Evolution III fund was named as Impact Fund of the Year for its strategic investments in renewable energy and resource efficiency sectors, significantly contributing to reducing carbon emissions and promoting sustainable energy solutions across the continent.
Challenges and Opportunities
Despite the enthusiasm surrounding impact investing in Africa, significant challenges remain. There is $1.3 trillion needed to achieve the SDGs in Africa, and a lot of this must come from the private sector. SMEs employ 90% of the population and experience a $331billion financing gap. This financing gap represents both a challenge and an opportunity for impact investors.
The obstacles that are hindering impact investing from gaining traction in Africa amongst wealth holders and their advisors include the lack of capacity building programmes, the perception that it will necessitate a trade-off on financial returns, a lack of an investment-ready pipeline, inexperience in managing a portfolio, and the complexities in defining and evaluating impact measurement.
To address these challenges, organizations are developing innovative approaches to building local capacity. The AVPA 2024 Africa Impact Investing Fellowship aims to nurture deployers of impact capital—Grants, Debt, and Equity—into becoming more effective impact investing practitioners. Such programs are essential for developing the human capital necessary to manage and scale impact investments effectively.
The Role of Catalytic Capital
One of the most significant developments in impact investing has been the recognition of catalytic capital’s importance. An investment, learning, and market development initiative bringing together leading impact investors seeking to harness the full potential of catalytic capital has emerged as a key strategy for unlocking additional investment.
We have to unlock local capital and deploy capital in ways that build local investing ecosystems: The over $1 trillion sitting in our pension funds needs to be profitably unlocked for the real sector, so we can both deliver jobs and a good return to pension contributors. This approach recognizes that sustainable development requires mobilizing domestic resources alongside international investment.
Organizations like Phatisa Fund Manager have demonstrated success in this approach. Phatisa Fund Manager, who was recognised as Impact Funder of the Year for its remarkable work in mobilising and deploying capital to drive sustainable development across Africa, shows how fund managers can effectively channel capital toward impactful investments.
Building Sustainable Ecosystems
The success of impact investing in Africa increasingly depends on building robust ecosystems that support entrepreneurs and investors alike. The Africa Impact Summit is the leading forum that is driving networking, deal-making making and impact investing thought leadership in Africa. Such platforms are essential for connecting stakeholders and facilitating knowledge exchange.
The Summit is organised in partnership with Impact Investing Kenya, the Africa Impact Investing Group, consisting of the GSG National Partners and country task forces, in collaboration with GSG Impact. This collaborative approach reflects the understanding that sustainable impact requires coordination across multiple stakeholders.
The development of these ecosystems has been supported by research and knowledge building. FERDI’s analysis provides several policy recommendations for better financing, enhanced financial sustainability, and improved quality of impact assessment and measurement. Such research is crucial for evidence-based decision-making in the impact investing space.
Looking Forward
The future of impact investing in emerging markets appears promising, driven by several converging trends. The growing recognition that traditional development models have limitations has opened space for innovative financing approaches. Young African entrepreneurs are increasingly viewing impact-driven businesses as viable career paths, while international investors are recognizing the continent’s potential for generating both returns and impact.
Membership in the GIIN provides access to a diverse global community of organizations interested in deepening their engagement with the impact investment industry. This global connectivity is essential for sharing best practices and scaling successful models across different markets.
As the sector matures, the focus is shifting from proving the concept to scaling impact. Nicole Martens, Head of Impact Investing Research at Krutham, notes there is a need for impact champions in Africa, and celebrating them is key, adding that the nominee pool for the 2024 awards largely reflected the trends identified across the continent. These trends point toward a more sophisticated and nuanced approach to impact investing that recognizes local contexts while maintaining global standards.
The convergence of local knowledge, international capital, and innovative financing structures is creating new possibilities for addressing Africa’s development challenges. As more success stories emerge and the ecosystem continues to strengthen, impact investing is positioned to play an increasingly central role in financing sustainable development across emerging markets. The challenge now lies in maintaining momentum while ensuring that growth translates into meaningful impact for the communities these investments aim to serve.
The information provided in this article is for general informational purposes only and does not constitute financial, investment, or other professional advice. Always seek independent financial advice before making any investment decisions. The value of investments can go down as well as up, and you may not get back the amount you invested.