The Landscape

for Social Investments

in West Africa

 

The Landscape for Social Investment in West Africa

This report maps the landscape of social investments in West Africa with a deep dive focus on Nigeria, Ghana and Ivory Coast, and a high-level assessment of Senegal, Sierra Leone and Liberia. It analyses strategies used by various international and domestic social investment capital providers.

 
 
 

Executive Summary

 

Overview of Key Social Investors in the Region

Key Findings

  • The social investment industry in West Africa has evolved significantly over the last decade – from the establishment of the Africa Grantmakers Network in Ghana in 2009 to the recent launch of the Impact Investors Foundation in 2018.
  • This research identified over 250 diverse social investors operating across the focus countries, with 52% based in Nigeri
  • Supply of social investment capital is not well aligned with demand: the average transaction size by SFMs and DFIs who supply most of the region’s impact capital is much higher than required by most enterprises, which are still in the early stages of growth.
  • The West African entrepreneurship space consists of more local entrepreneurs than expatriates, with most of the funding made into the local enterprises.
  • West African countries lack coherent regulatory frameworks that explicitly define and support social investments and philanthropy. However, Ghana recently established a CSR Policy to motivate corporate giving.

Social Investment Landscape in West Africa

Key Findings:

  • The West Africa region has witnessed an evolution in ‘institutional-based giving and investing’ influenced by the growing wealth in the region over the last two decades.
  • The governments of Ghana and Nigeria are particularly active in supporting the social investment space. Governments in the region are focused on agriculture and SME support.
  • Sustainable corporate social responsibility (CSR) is rising, but remains largely untapped, with mostly extractive industries and financial service companies at the forefront.
  • Over the last decade, the region has witnessed a significant increase in the number of Gender Lens Investing (GLI) focused funds and philanthropic activities geared towards addressing issues facing women.
  • West African countries, particularly Nigeria, receive an enormous amount of diaspora remittances ($34 Bn in 2018) and have begun developing innovative bond structures to leverage these funds for social causes
  • Blended financing mechanisms such as concessional capital, and technical assistance funds are commonly used to catalyze investment in the region.
  • Fundraising through technology-based crowdfunding and peer-to-peer platforms has been increasing over the years.
 

        Number of Social Investors in the Region, by Type

Deep Dive into Social Investors in West Africa

Key Findings:

  • A highly diverse group of social investors is actively deploying capital in West Africa, with over 250 social investors identified by the research
  • Impact investing and venture philanthropy strategies are increasingly gaining traction amongst social investors in the focus countries.
  • DFIs invested US$ 8.4 Bn in 262 deals between 2015 and 2019; US$ 938 Mn of the total capital was indirectly deployed through funds of funds.
  • Sustainability aligned fund managers: while impact consideration is key, the ability to meet the expected financial returns still determines the viability of an investment. Most SFMs in the region expect financial returns of between 15-25% on debt and 2-3X for equity on the dollar value.
  • West Africa Corporate Social Investors provided US$ 396.6 Mn in social capital through 37 transactions between 2010 and 201 Most corporate foundations leverage their own operating foundations to deploy funds (through programmatic interventions) as opposed to making grants to other recipients.
  • Activities by West African family foundations remain relatively limited, with a few active players identified. A total of US$ 267Mn was deployed in 14 transactions between 2010-2019.
  • Structured faith-based giving has been witnessed mainly in the health and education sectors. Close to 40% of primary and secondary health facilities in Nigeria are registered under the Christian Health Association.
 

Demand for Social Capital in West Africa

Type of Financing Requirements for Various Types of Organsiations at Various Stages of Growth

Key Findings:

  • Demand far exceeds supply of capital at the pre-seed, seed and Series C stages. Innovative instruments leveraging catalytic funds to de-risk and attract private investments are needed to close these gaps.
  • Unlike in East Africa, the West African entrepreneurship space consists of more local entrepreneurs compared to expatriates; the region, however, lags behind East Africa in gender diversity.
  • NGOs/CSOs are particularly active in advocacy and implementation of projects in areas such as human rights, democracy, disaster relief, governance, justice, peace and security, health, women, disabled people, and children’s rights, environment, and education.
  • Funding from donors and international foundations for NGOs has been declining, highlighting an emerging need for NGOs to identify alternative and more sustainable funding models.
 

Enabling Environment for Social Investments in West Africa

Key Findings:

  • The overarching legal and regulatory frameworks for social investment in the region are still in the infant stages of development, with significant progress made in some areas:
  • Ghana recently launched a Social Enterprise Policy; the Senegal Start-up Act launched in 2019; the Nigerian government recently signed the Finance Act that exempts start-ups with annual revenues of ~US$ 65,000 (₦25 million) from paying taxes.
  • Ecosystem support is geared mainly towards the incubation of tech-based early-stage enterprises.
  • Non-profits require customized support to improve their business efficiency and transition into more sustainable business models.
  • The region lacks adequate advisory service providers supporting grant makers in their transition towards venture philanthropy and impact investing.

 

 

Recommendations for Fostering the Social Investment Industry in West Africa