The ESG reality of private equity investing in Africa

AVCA releases new report on the Untold Story of RI in African investing.

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Four out of five of the fastest growing countries in the world right now are in Africa, with perhaps the most surprising being Libya, and the others being Ethiopia, Ghana, Cote D’Ivoire and Senegal.
By 2050, demographic growth predictions are that the continent’s population will be equal to that of Asia.
In tandem, the private equity industry is growing across the continent financing and developing start-up and growth businesses. Its maturing owes a significant debt to the world’s Development Finance Institutions (DFIs) that paved the way for financing where it was previously difficult or impossible to do so. Many private investors in Africa have partnered or worked with DFIs.
A major, decades-long focus of the work of DFI’s has been on ESG principles as the key to patient, sustainable, environmentally sound capital in African countries that concentrates on broad-based, necessary economic development, which in turn will enable private markets and public goods.
A new report by the African Venture Capital Association (AVCA) – An Untold Story: The Evolution of Responsible Investing in Africa – gives a primer on that history and the evolution of private markets investors following in the DFI’s footsteps.
One such PE/Impact firm is Nigeria’s Alitheia Capital, the venture capital and advisory firm investing in businessesand real estate assets to enhance access to finance, energy and housing for the excluded at the base of the economic pyramid.
Earlier this month, Tokunboh Ishmael, Co-Founder and Managing Director at Alitheia became Chair of the Board of Directors at AVCA. Ziad Oueslati, Managing Director and Co-Founding Partner at AfricInvest Group became Vice Chair. Ishmael told this week’s AVCA conference in Marrakech that it was focusing on themes of social inclusion and gender improvement for clear business opportunities in digital finance and technology: “We want to find great businesses that solve problems. And we are proactively looking for female founders and co-founders. These are interesting, overlooked market segments.”
A successful angel investment for Alitheia has been Paga, a Nigerian mobile phone payment and money transfer platform, which has attracted subsequent finance from investors including Jim O’Neill, the former chairman of Goldman Sachs Asset Management, Acumen, the early stage impact fund and Goodwell Investments, the Amsterdam- and Cape Town-based impact fund. According to the 2017 African Investing for Impact Barometer put together by the Graduate School of Business at the University of Cape Town, $428.29bn, in its definition of impact assets, was

invested in Southern Africa, East Africa and West Africa in the past year. Bigger private equity investors are also now looking for mainstream investments across the continent. Carlyle, the $195bn US buyout firm, is investing a sector-neutral $700m fund in sub-Saharan Africa looking to buy business where it has existing similar portfolio companies where it can use that experience to expand the African firms, both domestically and internationally.
And there is of course, huge interest in renewable energy in Africa, although much of this requires its own infrastructure (water, power, transportation) before it can be fully exploited and contribute to the so-called value chain effect of related secondary and tertiary businesses. Paramount to investments in Africa are issues of land rights, environmental protection, pollution avoidance, labour rights, good health and safety practices, community buy-in, employment, empowerment (especially of women), sound governance, legal structures and due diligence.They lead clearly to business viability and promotion, better social buy-in and enhancement, socio-economic progress and the creation of healthy markets where capital can invest, accumulate and exit. This doesn’t happen by osmosis. It needs to be built via the serious diligence of companies and investors; just as in the patient work of the DFIs in Africa. AVCA members have formed an ESG Practitioners group, to ensure that investors have the tools and advice to be able to replicate best practice, which is especially important now as business and private investment flourishes across Africa. Honourable mention goes to Michael Hall at Development Partners International, the pan African private equity firm, Guy Alexander, E&S Manager at CDC Group, and Enitan Obasanjo-Adeleye as Director, Head of Research at AVCA for their work here. They deserve credit for following on from the work of the DFIs that enabled private markets to grow in Africa. It is important to be reminded and shown that sustainable capital is not a woolly concept. It’s what works.