The Landscape for Impact Investing in East Africa Acknowledgments

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THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA ACKNOWLEDGMENTS

This project was funded with UK aid from the UK Government though the Department for International Development’s Impact Programme. The Impact Programme aims to catalyse the market for impact investment in sub-Saharan Africa and South Asia. www.theimpactprogramme.org.uk

The Bertha Center at the University of Cape Town contributed to this report by providing their database of active impact investors operating across sub-Saharan Africa.

We would further like to thank the tireless Open Capital Advisors (OCA) research team—Nicole DeMarsh, Rodney Carew, Getrude Okoth, Christine Njuguna, Charles Njugunah, Jerioth Mwaura, and Ann Munyua—for interviewing impact investors, eco-system players, and entrepreneurs, and for conducting rigorous data collection under tight timelines.

We would especially like to thank our interview participants–without their key insights this report would not have been possible. We include a full list of interviewees in the Appendix.

GIIN Advisory Team

Amit Bouri, [email protected] Abhilash Mudaliar, [email protected] Hannah Schiff,[email protected] Laura Gustafson, [email protected]

Open Capital Advisors

Annie Roberts, [email protected] David Loew, [email protected] Neal Desai, [email protected]

AUGUST 2015 ii TABLE OF CONTENTS

EXECUTIVE SUMMARY...... 1 Introduction...... 2 Sector Opportunities Across East Africa...... 11 Challenges and Opportunities for Impact Investors...... 15 Recommendations for Future Study...... 18

Call Out Boxes Country summary: Kenya...... 4 Country summary: Uganda...... 4 Country summary: Tanzania...... 6 Country summary: Ethiopia...... 6 Country summary: Rwanda...... 8 Country summary: Burundi...... 8 Country summary: Sudan...... 10 Country summary: South Sudan...... 10 Country summary: Djibouti...... 12 Country summary: Eritrea...... 12 Country summary: Somalia...... 14

INTRODUCTION & METHODOLOGY...... 19 Focus and Scope...... 20 Methodology...... 23 Report Structure...... 25

EAST AFRICA ...... 26 Introduction...... 27 Regional Context...... 28 Supply of Impact Capital...... 33 Demand and Need for Impact Investing Capital ...... 47 Enabling Impact Investing: The Ecosystem...... 52 Sector Opportunities Across East Africa...... 55 Challenges and Opportunities for Impact Investors...... 56 Background and Methodology...... 60 Incentives and Drivers...... 63 DFI Impact Approach and Influence on Impact Sector...... 65 DFI Direct Investment Activity...... 69

Future Trends...... 74 iii KENYA...... 75 Introduction ...... 76 Country Context...... 77 Supply of Impact Investing Capital ...... 82 Demand and Need for Impact Investing Capital ...... 91 Enabling Impact Investing: The Ecosystem...... 96 Challenges and Opportunities for Impact Investors ...... 101

UGANDA...... 104 Introduction...... 105 Country Context...... 106 Supply of Impact Investing Capital ...... 109 Demand and Need for Impact Investing Capital ...... 118 Enabling Impact Investing: The Ecosystem...... 123 Challenges and Opportunities for Impact Investors ...... 127

TANZANIA...... 131 Introduction...... 132 Country Context...... 133 Supply of Impact Investing Capital ...... 136 Demand and Need for Impact Investing Capital ...... 145 Enabling Impact Investing: The Ecosystem...... 150 Challenges and Opportunities for Impact Investors ...... 155

RWANDA...... 159 Introduction...... 160 Country Context...... 161 Supply of Impact Investing Capital ...... 165 Demand and Need for Impact Investing Capital ...... 174 Challenges and Opportunities for Impact Investors...... 182

ETHIOPIA...... 186 Introduction...... 187 Country Context...... 188 Supply of Impact Capital ...... 192 Demand for Impact Investing Capital ...... 200 Enabling Impact Investing: The Ecosystem...... 204 Challenges and Opportunities for Impact Investors...... 207

iv BURUNDI...... 210 Introduction...... 211 Country Context ...... 212 Supply of Impact Investing Capital ...... 216 Demand for Impact Investing Capital ...... 218 Enabling Impact Investing: The Ecosystem...... 222 Challenges and Opportunities for Impact Investors...... 225

SOUTH SUDAN...... 228 Introduction...... 229 Country Context...... 230 Supply of Impact Investing Capital ...... 235 Demand and Need for Impact Investing Capital ...... 237 Enabling Impact Investing: The Ecosystem...... 240 Challenges and Opportunities for Impact Investors...... 242

SUDAN...... 245 Introduction...... 246 Country Context...... 247 Supply of Impact Investing Capital ...... 252 Demand and Need for Impact Investing Capital ...... 255 Enabling Impact Investing: The Ecosystem...... 260 Challenges and Opportunities for Impact Investors ...... 263

ERITREA...... 265 Introduction...... 266 Country Context...... 267 Supply of Impact Capital...... 271 Demand and Need for Impact Investing Capital...... 274 Enabling Impact Investing: The Ecosystem ...... 279 Challenges and Opportunities for Impact Investors...... 281

DJIBOUTI...... 283 Introduction ...... 284 Supply of Impact Capital...... 289 Demand and Need for Impact Investing Capital...... 291 Enabling Impact Investing: The Ecosystem ...... 296 Challenges and Opportunities for Impact Investors...... 298

v SOMALIA...... 301 Introduction ...... 302 Country Context...... 303 Supply of Impact Investing Capital...... 308 Demand and Need for Impact Investing Capital ...... 310 Enabling Impact Investing: The Ecosystem...... 313 Challenges and Opportunities for Impact Investors...... 315

APPENDICES...... 318 APPENDIX 1: Organizations Interviewed for This Report...... 319 APPENDIX 2: Comprehensive Bibliography...... 320

vi LIST OF COMMON TERMS AND ACRONYMS

Early-stage business | Business that has KES | Kenyan Shilling TZS | Tanzanian Shilling begun operations but has most likely not LP | Limited Partner UGX | Ugandan Shilling began commercial manufacture and sales Mature business | Profitable company with a UN DESA | United Nations - Department of | European Investment Bank EIB developed and recognizable brand Economic and Social Affairs ESG | Environmental, Social, and MDG | Millennium Development Goal UNCTAD | United Nation’s Conference on Governance Trade and Development MFI | Microfinance Institution ETB | Ethiopian Birr USAID | The United States Agency for MSME | Micro, Small and Medium Enterprise FDI | Foreign Direct Investment International Development NGO | Non-Governmental Organization FMCG | Fast-Moving Consumer Goods VAT | Value-Added Tax Non-focus countries | Countries covered in | Nederlandse Financierings- VC | Venture Capital FMO the study but have limited non-DFI impact Maatschappij voor Ontwikkelingslanden investor activity. Namely Burundi, Djibouti, Venture-stage business | Sales have N.V. (Netherlands Development Finance Eritrea, Somalia, South Sudan, and Sudan begun but cannot sustain the company’s Company) operations. The business model is still OFID | OPEC Fund for International | Countries under the being aligned with the realities on the Focus countries Development study where non-DFI impact investors are ground most active in. Namely Ethiopia, Kenya, OPIC | Overseas Private Investment WASH | Water, Sanitation, and Hygiene Rwanda, Tanzania, and Uganda Corporation WHO | World Health Organization GDP | Gross Domestic Product PE | Private Equity

GEMS | Growth Enterprise Market Segment PPA | Power Purchasing Agreement

PPP | Purchasing Power Parity

vii EXECUTIVE SUMMARY INTRODUCTION

East Africa is one of the centers of global impact investing, as activity has grown strongly throughout the region over the past five years. More than USD 9.3 billion has been disbursed in the region through by more than 1,000 direct deals by development finance institutions (DFIs) and other impact investors active in East Africa today (Figure 1).1 In total, 155 impact investors currently manage 203 active investment vehicles in the region, and many more are considering the region for future commitments.2

Kenya and its capital city Nairobi are the regional hub of East African impact investing. At least 48 impact fund managers have staff placed in Nairobi, which is more than three times as many local offices as in any other country in the region.

Almost half of the USD 9.3 billion in impact capital disbursed in East Africa has been in Kenya—more than triple the amount deployed in each of Uganda and Tanzania, the countries with the next highest amounts at around 13% and 12% respectively. Despite having the largest economy in the region (in PPP terms), Ethiopia has received only around 7% of disbursements to date. Rwanda, with an economy just one-eighth the size of Ethiopia’s, has received half as much impact capital, or 4% of all disbursements in the region.

ABOUT THIS REPORT

This report presents a detailed analysis of impact investing SUDAN activity in East Africa, examining the supply of global impact ERITREA investment capital as well as the demand for investment DJIBOUTI resources from small and medium enterprises (SMEs), social enterprises, and others who aim to drive social and environmental impact through the private sector. The report SOUTH covers five “focus countries” in depth: Kenya, Uganda, Tanzania, SUDAN ETHIOPIA Ethiopia, and Rwanda; and six additional countries in the region UGANDA in less depth: Burundi, Sudan, South Sudan, Djibouti, Eritrea, SOMALIA and Somalia. RWANDA BURUNDI For the purpose of this report, impact investors are defined as KENYA those who invest with the intention to generate a beneficial social or environmental impact alongside a financial return—and who TANZANIA seek to measure the social or environmental returns generated Focus countries by their investments. Additional countries studied

1 Open Capital Research. Based on primary and/or secondary research conducted during this study. Please see Introduction and Methodology chapter of this report for details. 2 Throughout the report, DFI investors are analyzed separately from non-DFI investors, to highlight the differences between these two categories. See the Introduction and Methodology section of this report for further information.

2 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Notably, the research team was unable to find any evidence of impact investment activity in Eritrea or Somalia, and only minimal activity in Burundi, Sudan, South Sudan and Djibouti. Though development finance institutions (DFIs) are often active in these countries, the majority of support provided is through bi-lateral or multilateral government loans.

Throughout the region, DFIs have provided the vast majority of impact capital to date, accounting for more than 85% of disbursements. As shown in Figure 1, Kenya receives almost 50% of the regional disbursements for both DFIs and non-DFI impact investors, but DFIs have generally spread investments more evenly throughout the rest of the region. In the focus countries, there are fewer deals made by DFIs than by other impact investors, along with a higher average deal size for DFIs. The regional and country chapters explore the nature of these disbursements in depth.

Most East African impact investors work across the region, and many look beyond East Africa to Sub-Saharan Africa and other regions of the world to deploy capital. In practice, these impact investors do not typically divide their capital to country-specific pools, but rather invest opportunistically across the markets they cover. This means available capital could be deployed elsewhere if sufficient investment opportunities are not found in East Africa, or the funding could grow rapidly if impact investors see more promising opportunities inside East Africa.

FIGURE 1: PROPORTION OF TOTAL DIRECT IMPACT CAPITAL DISBURSED BY COUNTRY

USD 1.4B USD 7.9B 100% 90% Regional/Unspecified 80% Non-focus 70% countries 60% Rwanda 50% Ethiopia 40% Tanzania 30% Uganda 20% Kenya 10% 0% NON-DFI IMPACT DFIs INVESTORS

Source: Open Capital Advisors

EXECUTIVE SUMMARY • 3 COUNTRY SUMMARY: KENYA

Kenya is the heart of East African impact investing. It represents nearly half of impact capital disbursed in East Africa—more than USD 650 million by non-DFI impact investors and more than USD 3 billion by DFIs. Nairobi is the physical hub for impact investing in the region, where 48 impact investors have local offices, and is often the first port of call for impact investors operating in the region, even if they look for opportunities beyond Kenya.

Kenya is so dominant that some impact investors express concern that the Kenyan impact investing landscape is already saturated. However, ongoing security concerns as well as challenges common to the region have kept impact investing activity in Kenya from reaching its potential. Kenya offers the advantage of more readily available human capital compared to other countries in the region. But like other countries in the region, the informal nature of many businesses poses challenges for investors, and there have been few examples of successful exits.

Impact investors expect Kenya to offer strong investment opportunities in the future and to retain its central position in the region. Rapid economic growth, a growing middle class, and an increasingly robust business ecosystem drive this optimism. The Kenyan banking sector has been moving aggressively to expand SME lending, and SMEs increasingly gain access to financing through both impact and conventional sources. Impact investors are actively looking for deals in Kenya’s fast-growing second-tier cities, highlighting opportunities in agricultural aggregation, renewable energy, and mass market consumer goods.

COUNTRY SUMMARY: UGANDA

After Kenya, Uganda is the second most active country in East Africa’s impact investing landscape, attracting approximately 13% of capital disbursed by impact investors. Impact investors appreciate Uganda’s generally favorable business climate and regulatory environment, and do not report any significant country-specific challenges to investment.

Nevertheless, Uganda’s investment climate has not yet reached the maturity of Kenya’s, and investors in Uganda face many challenges common to the region- -difficulties in acquiring talent for middle management, managing informally operated businesses, and few examples of successful exits have kept deal flows below potential.

At the same time, Uganda’s growing economy is expected to offer opportunities to impact investors in the future, particularly those able to draw on technical assistance facilities for pipeline building and able to look for deals outside of the capital city of Kampala. Uganda is one of the most fertile countries in the region, but its agricultural sector lacks organization and technological sophistication. Investors therefore particularly highlight businesses that build agricultural value chain efficiency as attractive opportunities, along with renewable energy and water and sanitation to serve Uganda’s large off-grid and urban populations.

4 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Both DFIs and non-DFI impact investors have disbursed more capital in financial services than in any other sector, accounting for nearly 30% of overall capital disbursed. The sector is attractive to many different impact investors as it offers an opportunity to reach large customer bases through well-established local businesses with many years of operational experience. Preferences between DFI and non- DFI investors diverge for other sectors. DFIs typically favor large deal sizes and government backing available in energy, infrastructure, mining, and manufacturing projects, while non-DFI impact investors have been particularly active in agriculture and affordable housing. Despite their compelling impact narratives, impact disbursements into basic services such as education and healthcare have been relatively limited to date.

FIGURE 2: NON-DFI IMPACT CAPITAL DISBURSED FIGURE 3: DIRECT DFI IMPACT CAPITAL DISBURSED BY SECTOR BY SECTOR USD USD MILLIONS MILLIONS Other 1,400 9,000 Tourism Unknown 187.2 8,000 259.1 1,200 188.2 Consumer goods WASH 181.3 25.7 71.2 7,000 495.4 Construction Other 1,000 207.4 871.5 6,000 Manufacturing ICT 41.4 25.4 Infrastructure 800 138.0 Housing 5,000 2,389.1 59.7 Healthcare Health 4,000 600 Financial services Financial services 322.2 3,000 825.0 Extractive 400 Energy 2,000 Energy 88.3 Education 2,127.1 200 22.1 Education Agriculture 1,000 196.7 62.8 417.8 Agriculture 0 0

Source: Open Capital Advisors Source: Open Capital Advisors

EXECUTIVE SUMMARY • 5 COUNTRY SUMMARY: TANZANIA

Tanzania is an increasingly attractive destination for impact investors active in East Africa, particularly those looking to avoid comparatively competitive markets in Uganda and Kenya. Having received close to 12% of deals and capital disbursed by impact investors, Tanzania has become the third largest market for impact capital in the region.

Despite having a GDP that is approximately 50% higher than Uganda’s, impact investing in Tanzania remains below its potential as investors continue to face several challenges. Tanzania’s large land area, comparatively low population density, and weak road infrastructure hamper efficient distribution and logistics. Government intervention can be severe and unpredictable, triggering sudden changes in the business environment. Investors also face many of the same challenges in Tanzania as in the rest of the region, such as highly informal record- keeping and limited human capital, exacerbated in Tanzania by very low levels of returning diaspora.

Investors with flexible investment criteria, local presence, and technical assistance facilities for pipeline building should be well-positioned to tap Tanzania’s large markets. Investors overwhelmingly highlight agriculture as a high-potential sector, particularly processing and post-harvest infrastructure.

COUNTRY SUMMARY: ETHIOPIA

Despite its position as East Africa’s largest country by population (around 90 million) and largest economy by GDP (over USD 120 billion in PPP terms), Ethiopia has received relatively little capital from impact investors to date. Only 4% of deals completed in the region have been in Ethiopia, accounting for around 7% of impact capital disbursed. Ethiopia’s complex regulatory system severely restricts business ownership and profit repatriation by foreigners, who often struggle to overcome significant linguistic and cultural barriers. As is common in the entire region, low levels of human capital, highly informal record-keeping, and lack of experience with private investment among entrepreneurs have further impeded investment-ready deal flow. Consequently, only three impact investors have offices in Ethiopia, and the number of intermediaries is similarly low.

Nonetheless, Ethiopia’s vast but underdeveloped market presents significant opportunities to impact investors, particularly those able to increase local decision- making, build portfolio company management teams that combine foreign and local talent, draw on technical assistance providers with local experience to provide pre-investment support, and source opportunities outside of Addis Ababa. Investors and entrepreneurs highlight agriculture, renewable energy, and mass-market consumer goods as particularly promising sectors.

6 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA As shown in Figure 5, DFIs prefer large deals; over 50% of DFI capital has been disbursed in deals over USD 50 million, while only 5% of capital has been disbursed in deals under USD 5 million. By contrast, as Figure 4 shows, deals under USD 5 million account for 50% of capital disbursed by non-DFI impact investors, who are able to invest in smaller businesses. Overall, the average deal size for DFIs is USD 17 million, while it is USD 2.4 million for non-DFI impact investors.

FIGURE 4: NON-DFI IMPACT CAPITAL DISBURSED FIGURE 5: DIRECT DFI IMPACT CAPITAL DISBURSED BY DEAL SIZE (NUMBER OF DEALS DENOTED IN BY DEAL SIZE (NUMBER OF DEALS DENOTED IN PARENTHESES) PARENTHESES)

USD USD MILLIONS MILLIONS 1,400 8,000

1,200 428.7 7,000 (20) > USD 50M > USD 10M 4,382.1 1,000 6,000 (43) USD 20-50M USD 5M-10M 238.7 USD 10-20M 800 (32) USD 1M-5M 5,000 USD 5-10M 600 USD 500K-1M 4,000 USD 1-5M USD 250K-500K 1,761.1 567.7 (63) 400 3,000 < USD 1M (180) < USD 250K 892.9 200 2,000 (72) 90.7 (120) 27.9 (80) 472.7 (72) 366.9 (147) 0 13.5 (133) 0 8.7 (32)

Source: Open Capital Advisors Source: Open Capital Advisors

DFIs’ focus on large projects and more mature businesses is also reflected in the investment instruments they use. As shown in Figure 6, the majority of DFI investments are through debt, while non-DFI impact investors invest mainly through equity (for deals where the instrument is known). The large number of deals with unknown instruments, however, prevents definitive conclusions on non-DFI impact investors’ instrument use.

EXECUTIVE SUMMARY • 7 COUNTRY SUMMARY: RWANDA

Rwanda’s favorable business climate and strong governance track record have made it an attractive destination for impact investors. The World Bank, local entrepreneurs and investors view it as the easiest country to do business in across the region, and more than half of investors active in the region include Rwanda in their target geographies. However, deal flow to date has not matched this enthusiasm. Rwanda accounts for around 7% of deals and 4% of disbursements in East Africa, in line with its 4% share of regional GDP. Investors cite small markets, high input costs, a weak culture of entrepreneurship, and government interference as obstacles, along with the lack of human capital and formal record-keeping (as are common in the rest of the region).

Investors able to mitigate these challenges are likely to enjoy significant opportunities in Rwanda. The neighboring countries of Burundi and the eastern DRC in particular offer large but untapped markets for Rwandan businesses. Several investors have successfully addressed Rwanda’s immature investing landscape by taking majority stakes or playing more active roles on investee boards than they might in more developed markets.

COUNTRY SUMMARY: BURUNDI

With a small market and economy, Burundi has seen limited impact investing activity. Few non-DFI impact investors operate in Burundi and there have only been a total of eight known deals worth approximately USD 1.4 million among these investors. DFIs have been more active in the country, closing 15 known deals totaling nearly USD 65 million in agriculture, financial services, and infrastructure.

Burundi’s private sector is small, constrained by numerous factors including unreliable energy provision, political instability, limited human capital, and underdeveloped regulatory frameworks. Investors cite concerns such as corruption and a lack of political stability, though the government of Burundi has begun introducing regulatory reforms in an attempt to foster private sector development. Despite these challenges, Burundi offers an increasingly interesting proposition to impact investors, particularly in agriculture, sanitation, and renewable energy.

8 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA FIGURE 6: DIRECT IMPACT CAPITAL DISBURSED BY INSTRUMENT

USD 1.4B USD 7.9B 100% 90% 80% Unknown 70% Other 60% 50% Guarantee 40% Debt & equity 30% Debt 20% Equity 10% 0% NON-DFI IMPACT DFIs INVESTORS

Source: Open Capital Advisors

As seen in Figure 7, there are a variety of different impact investors for enterprises looking to raise various amounts of impact capital. Depending on the deal size, these investments often have different structures and are appropriate for different sectors, though all investment types and sectors are seen at all sizes.

FIGURE 7: TYPICAL STRUCTURES, SECTORS, AND IMPACT INVESTORS BY DEAL SIZE

Example providers in East Deal size range Typical financial products Typical sectors Africa

Small social VC and debt-finance Less than usd 500k Debt, convertibles ICT, Agriculture, Health, Energy funds targeting early-stage businesses Private equity funds, VC funds Equity, debt, quasi-equity, Agriculture, Financial Services, and foundations targeting social usd 500k - 1m convertibles Health, Energy businesses with some track record

Equity, debt, quasi-equity, Agriculture, Financial Services, Larger impact funds usd 1m - 5m convertibles Health, Energy and foundations

Equity, debt, quasi-equity, Smaller national DFIs and large Financial Services, Energy usd 5m - 10m guarantees impact funds

Equity, debt, quasi-equity, Financial Services, Infrastructure, Regional and national DFIs usd 10m - 50m guarantees Manufacturing

Financial Services, Infrastructure, Debt, guarantees Large regional and national DFIs Over usd 50m Energy

Source: Open Capital, GIIN, interviews

EXECUTIVE SUMMARY • 9 COUNTRY SUMMARY: SUDAN

Although Sudan is East Africa’s second largest economy in PPP terms, the country has received little impact capital. Most has been placed by DFIs into projects in oil, infrastructure, and agricultural processing. Non-DFI investors have been reluctant to invest in Sudan due to sanctions imposed by the United States and the United Nations, as well as Sudan’s history of conflict and a challenging regulatory environment.

Following the loss of oil reserves and revenues with South Sudan’s secession in 2011, Sudan has sought to increase investments into other sectors such as mining and agriculture. To promote investment, the government has offered tax incentives and prioritized access to foreign exchange to investors. Although Sudan’s business environment remains challenging, the country’s economic growth and human development indicators show opportunities to seek social and financial returns.

COUNTRY SUMMARY: SOUTH SUDAN

As the world’s youngest country as of early 2015, South Sudan has seen very little impact investment. Investing and working in South Sudan continue to be challenging due to ongoing conflict, a poor regulatory environment, and economic concentration in oil. Although 50 impact capital vehicles list South Sudan in their list of target geographies, these vehicles typically have broad geographic mandates and are, for the most part, not actively looking for deals in South Sudan. Only one impact investor has staff based in the country. DFIs have deployed significantly more capital, disbursing approximately USD 17 million across six known deals.

The government has acknowledged the importance of private sector development and diversification, and has begun streamlining the regulatory environment and investment process. With continued development of the enabling environment and technical assistance, there are opportunities for impact investors, particularly in agriculture, renewable energy and telecom.

10 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA SECTOR OPPORTUNITIES ACROSS EAST AFRICA

All East African countries share a need for capital to create social and FIGURE 8: UN HDI SCORE BY COUNTRY, 2013 environmental impact, with populations well below global averages for human 0.8 Global average development indicators despite robust 0.7 recent economic growth, averaging 0.6 a combined 7% annual GDP (PPP) 0.5 growth for the last eight years. The following sectors present particularly 0.4 notable opportunities in East Africa: 0.3 0.2 • Agriculture: Throughout East Africa, agriculture contributes more 0.1 than 30% of GDP, employs most of 0.0 the population, and is an important Kenya Sudan Eritrea sector to increase incomes and Uganda Tanzania Ethiopia Rwanda Burundi S. Sudan Djibouti Somalia improve food security. Given the predominance of smallholder Source: UN Human Development Index. Note: South Sudan and Somalia not farming, there are opportunities to included in latest report aggregate production and create consistent, high-quality supply. In addition, there are opportunities to connect directly with export markets. There is also significant potential in agricultural processing across a range of crops and in agricultural sub-sectors such as horticulture, livestock, and dairy.

• Renewable energy: All countries in East Africa are looking to expand power generation capacity in the coming decades, with strong government support. This opens the door for large-scale projects and creates the potential for improved power purchase agreements and cross-border trade. At the same time, there are large segments of the population that lack reliable access to grid power, opening opportunities for micro-grid and off-grid solutions.

• Aquaculture: Fisheries and fish processing also show high potential, with the export of fish and fishmeal becoming an increasingly significant part of the East African economy. Sustainable fisheries can provide a critical source of protein and have the potential to reduce increasing pressure on important coastal areas.

• Tourism: Given the variety of attractions available in East Africa, from beautiful coasts to vibrant safari parks, there is high potential for tourism, although countries will need to be conscious of addressing security concerns to attract tourists. Governments across the region have started encouraging foreign investors and the returning diaspora to invest in the sector with some encouraging results. Tourism presents a particular opportunity for the non-focus countries in this report as a near-term potential employment source.

EXECUTIVE SUMMARY • 11 COUNTRY SUMMARY: DJIBOUTI

The smallest country in East Africa, Djibouti has received no known non-DFI impact capital to date, and DFIs have completed only two recorded investments. Impact investors face a number of challenges, including cumbersome bureaucratic processes, high costs for water and power, corruption, a weak legal system, and unfavorable labor laws. The Djiboutian government is working to improve the country’s business and regulatory environment in order to attract more foreign investment.

With its coastal location, entrepreneurs and investors see high potential in the tourism, logistics, and fishing industries. The country also has an underdeveloped agriculture sector, importing 97% of its food. Supporting the agriculture sector could offer a high-impact opportunity for investors willing to work in Djibouti’s challenging, arid environment.

COUNTRY SUMMARY: ERITREA

Eritrea is one of the world’s most closed economies. Due to its isolation, difficult regulatory environment, and small private sector, there has been no known impact investing to date. The government has established a policy of “self-reliance” that restricts foreign investment and aid from foreign organizations, while operating without a constitution, functioning legislature, independent judiciary, or elections. Eritrea’s private sector is also underdeveloped, meaning there are few investible opportunities. Private sector development has been severely limited by lack of capital, restrictive government policies, and a shortage of talent. Consequently, Eritrea ranks last in the World Bank’s Ease of Doing Business survey.

However, there are signs that the economy is liberalizing. These trends include increasing privatization of state-owned enterprises, a gradual opening of the economy to foreign investors, and an increase in private investment. Although most foreign investment thus far has been in mining, there are opportunities for impact investors as well. Other promising sectors of the Eritrean economy include agriculture, aquaculture, and tourism.

12 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA • Consumer goods for the mass market: With East Africa’s rapidly growing middle class, impact investors report seeing increasingly attractive opportunities to supply goods and services to consumers with rising disposable incomes. These businesses often create substantial employment opportunities, which may align with impact criteria for some impact investors.

• Urban development: Non-DFI impact investors also note rapid urbanization and growing demand for businesses to serve expanding cities as an area of opportunity. Service sectors cited by impact investors include affordable housing, water, and sanitation.

• Basic services distribution: Throughout the region, increasing incomes and populations put growing pressure on the provision of basic services, including healthcare, education, water and sanitation, energy access, and financial services. Across these sectors, social enterprises struggle to distribute products and services across urban, peri-urban, and rural areas. Providing distribution as a basic service could have an exponential effect in driving growth for social enterprises and their investors.

FIGURE 9: SECTOR OPPORTUNITIES ACROSS THE REGION

AGRICULTURE

RENEWABLES

AQUACULTURE

TOURISM

FAST-MOVING CONSUMER GOODS

URBAN DEVELOPMENT

BASIC SERVICES

Kenya Ethiopia Uganda Rwanda Tanzania Non-focus

Some opportunity Medium opportunity Strong opportunity

Source: Open Capital Research

EXECUTIVE SUMMARY • 13 COUNTRY SUMMARY: SOMALIA

No known impact investments have been made in Somalia to date. The country has been plagued by decades of conflict, insecurity, and a lack of central government, leading investors to hesitate. Without a strong government, the country suffers from a weak regulatory environment and lack of investor protection.

Despite these uncertainties, a growing private sector has flourished. In many cases, the private sector has filled roles typically held by public institutions, such as financial services, security, and education. With a new, internationally backed government in power and Al-Shabaab expelled from all urban centers, there is hope for a new era of stability to establish the regulatory and legal systems necessary to encourage foreign investment and formalize the private sector.

If this takes place, Somalia will likely receive increasing attention from impact investors looking to support Somalia’s burgeoning private sector. Entrepreneurs, including members of the diaspora returning to their home country, see high-potential opportunities in agribusiness, fishing, and basic services.

14 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA CHALLENGES AND OPPORTUNITIES FOR IMPACT INVESTORS

Despite dramatically increasing interest in deploying impact capital in East Africa, impact investors face a variety of challenges in raising and deploying capital. These include challenges at both the investor and investee levels, as well as some more broadly present in the ecosystem. On the other hand, these challenges also present opportunities for current impact investors, new entrants, and other eco-system players to support rapidly growing, high-potential enterprises and the development of the regional impact investing industry.

Common Challenges

• Insufficient investment-ready opportunities: Despite robust market activity to date, many non-DFI impact investors still struggle to place the capital they have raised. Though investors acknowledge that there are many businesses with exciting potential, investors encounter few companies that they believe are truly investment ready. Early-stage businesses, which are the primary target for impact investors, face certain common challenges that constrain them from being fully prepared for investment, including unproven operations, an unclear strategy to scale, informal financial and corporate records, and a lack of realistic forward-looking projections.

• Insufficient human capital: Talent is the key constraint for many East African businesses. Companies struggle to find the talented, reliable management needed to plan for and reach scale. Though true for all skilled positions, this shortage is particularly acute for finance professionals with 5-15 years of experience who can serve as a company CFO. Even when talented, experienced professionals can be found, they often command high wages that can be challenging for SMEs or social enterprises to support, especially in their early years.

• International decision makers: Many non-DFI impact investors have investment committees based abroad and whose members may not have on-the-ground experience with investments in East Africa.3 These remote investment committees often interpret risk differently than their investment teams operating on the ground, which can cause due diligence and deal closing timelines to stretch to 12 to 18 months for both debt and equity investments.4 This can frustrate entrepreneurs, and put additional pressure on businesses as they must survive without needed capital.

• Difficulty accessing bank financing: Though entrepreneurs are sometimes able to source capital to begin operations from friends, family, and various community

3 Open Capital interviews with entrepreneurs, intermediaries, and investors. 4 Open Capital interviews with entrepreneurs, intermediaries, and investors.

EXECUTIVE SUMMARY • 15 financing organizations, they struggle to find the next round of capital to test and pilot their ideas in the market. In particular, conventional bank financing is difficult to access for early-stage businesses, as conventional banks in the region are very risk averse. Even if willing to lend, they require high collateral ratios (often in excess of 100% of the loan amount), which few entrepreneurs are able to meet.

• Limited local currency financing: Many impact businesses earn the majority of their revenues in local currencies. However, most impact investors track returns in international hard currencies and have little ability to invest in local currencies. This is especially challenging for long-term debt instruments, which require repayment in hard currencies that can appreciate 5-10% per year. Hedging options are typically prohibitively expensive, though some impact investors with large funds report effectively using fund-level hedges to minimize risk.

• Few exit examples: For new funds looking to raise capital, the relative youth of the impact investment industry means there are few examples of successful exits. As more impact portfolios in East Africa near the end of their tenors, there will be significant pressure on funds to exit investments, though it is not yet clear how this will develop in coming years. Without a successful track record of exits, it can be difficult for impact investors to raise additional funding or a second investment fund. Some fund managers interviewed for this report believe it may be easier for a new impact investor to raise funds than for an experienced one, as the latter are expected to demonstrate a track record before raising a second fund.

Common Opportunities

Each country in East Africa is unique. As a result, impact investors must learn about each country individually; strategies and solutions that are effective in one East African country will not necessarily work in another. Nevertheless, there are some high-level recommendations for investors that apply to the region as a whole:

• Leverage technical assistance (TA) facilities for pre-investment pipeline building: More pre-investment support for businesses is needed to develop a strong pipeline of investible opportunities. Increasingly, TA funders (e.g. USAID, DFID) recognize the importance of pre-investment support to get companies to the point where they can successfully raise capital. Several impact investors have successfully developed TA facilities for portfolio companies. Kenya in particular offers a robust intermediary ecosystem, and many of these players operate across the region. Such support can also significantly reduce diligence timelines if the investor is able to increase familiarity and visibility into the business pre-investment.

• Develop sector expertise: Beyond bringing capital to portfolio companies, impact investors can drive performance by understanding the specific sectors where their portfolio companies operate. For some investors, this sector focus has allowed them to identify exciting, less well-known opportunities earlier, and reduce their diligence timelines by leveraging existing knowledge. Sectors such as agriculture, energy, and financial services present large opportunities where companies often face consistent challenges across portfolio companies.

16 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA • Source opportunities outside capital cities: Many impact investors with staff on the ground in East Africa report finding investments more easily than those based abroad. However, many entrepreneurs operate in rural areas or smaller cities, instead of the capital cities or regional hubs where investment staff are based. For investors who see these entrepreneurs’ businesses as attractive impact investment opportunities, it will be increasingly necessary to build relationships beyond those made in major cities.

• Expand investment instruments: With the variety of early-stage businesses in East Africa, creative investment structures—such as milestone-based conversion and profit-sharing debt—can help to fill a significant gap that straight equity and debt deals do not. Such structures can help entrepreneurs meet ongoing cash flow requirements while delivering long-term returns in line with investor expectations. There is also an opportunity to expand sharia-compliant investments to support Muslim entrepreneurs, using Murabaha and Ijara methods to help align impact investor goals with sharia law in areas with large Muslim populations in the region.

• Increase local decision-making: Impact investors have cited significant improvements in their portfolio from increased local decision-making and local support. This allows investment officers to form meaningful relationships with portfolio companies, where they are empowered to respond to changing realities on the ground. Placing staff and investment committees locally can also reduce diligence timelines, as these individuals are more familiar with local trends and norms. In an environment of increasing competition between impact investors for high-potential deals, designing effective diligence procedures aligned to the region could be a key differentiator for successful impact investors.

EXECUTIVE SUMMARY • 17 RECOMMENDATIONS FOR FUTURE STUDY

This report presents the most comprehensive study of impact investing in East Africa to date. Given its broad mandate, its findings raise several additional questions for future research:

• What types of support effectively prepare businesses for investment? Several organizations in East Africa provide pre-investment and post-investment support. Which are the most effective in developing investment-ready businesses? How does this vary by the stage of businesses? What role can mentoring, acceleration, classroom lectures, tailored business support, outsourcing, and other services play in helping businesses attract the capital they require to grow?

• How can appropriate investment structures catalyze additional impact capital? This report raised a key challenge for Islamic businesses that require sharia- compliant investment structures. But beyond this need, all impact investors face a tension to drive for both social and financial returns. What types of structures can help an impact investor achieve these dual goals, and what protections are required for foundations and others who may have specific impact requirements?

• How can social enterprises and impact investors attract, build, and retain top talent? Talent is one of the most frequently cited challenges in East Africa. What can the social enterprise sector learn from top corporations in attracting, building, and retaining talent at all levels? What monetary and non-monetary compensation is expected by professionals considering a career path in East Africa? How can social enterprises and impact investors leverage non-monetary compensation to compete with top international firms for talent? What value do social enterprises realize when they hire talent to help drive to scale?

• What viable exit mechanisms can impact investors consider in East Africa? Beyond thinking through the impact implications an exit may have, how can impact investors consider exits more broadly in the region? How could a secondary market improve deal flow, and incorporate learnings from prior attempts to create impact exchanges, dedicated secondary markets, and strategic acquisitions?

18 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA INTRODUCTION & METHODOLOGY

INTRODUCTION & METHODOLOGY • 19 FOCUS AND SCOPE

The impact investing industry has grown in prominence over the last decade, and impact investors globally have developed significant interest in sub-Saharan Africa in particular. The most recent global impact investor survey conducted by J.P. Morgan and the Global Impact Investing Network (GIIN) shows that more respondents have allocated a portion of their portfolio to sub-Saharan Africa than to any other geography, and more plan to increase allocations to that region than to any other region.1 Despite strong interest from a growing set of impact investors, there has been relatively little research that examines impact investing markets at the country- by-country level. This type of granular information is essential to investors currently operating in the region or considering investments there in the future.

This is the second regional market landscaping study published by the GIIN in a series that seeks to address the lack of data available on impact investing in specific emerging economies. The first such report examined impact investing in South Asia, with a particular focus on Bangladesh, India, Myanmar, Nepal, Pakistan, and Sri Lanka.2 The present report explores impact investing in East Africa and will be followed by reports on West and Southern Africa, respectively.

FIGURE 1: MAP OF EAST AFRICA

SUDAN ERITREA DJIBOUTI

ETHIOPIA SOUTH SUDAN UGANDA SOMALIA RWANDA

BURUNDI KENYA TANZANIA Focus countries Additional countries studied

As defined for this report, East Africa includes 11 countries: Kenya, Uganda, Tanzania, Rwanda, Ethiopia, Burundi, Somalia, Djibouti, Eritrea, Sudan, and South Sudan. Due to their relatively active impact investing markets, this report places particular attention on Kenya, Uganda, Tanzania, Rwanda, and Ethiopia (referred to as

1 The Global Impact Investing Network & J.P. Morgan, Spotlight on the Market: The Impact Investor Survey (2014), available at http://www.thegiin.org/binary-data/2014MarketSpotlight.PDF. 2 The Global Impact Investing Network & Dalberg Global Development Advisors, The Landscape for Impact Investing in South Asia (2015), available at http://www.thegiin.org/cgi-bin/iowa/resources/ research/642.html

20 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA “focus countries”). For each country, the report examines sources of impact capital, investment instruments, sector focus, investment amounts, and disbursements over time. The report also analyzes key trends in the impact investing industry as well as the challenges and opportunities available for both social enterprises and impact investors in each country.

As defined by the GIIN, impact investments are “investments made into companies, organizations and funds with the intention to generate social and environmental impact alongside a financial return.” A commitment to measure social/environmental performance is also considered a hallmark of impact investing.3 Investors who do not meet this definition have not been included in this report’s analysis.

Development finance institutions (DFIs) are important actors in the impact investing landscape, providing large amounts of capital both through direct impact investments and through impact investing funds. Because of their large size and unique nature, this report presents analyses of DFI activity separately from the activity of other types of impact investors. As discussed in more detail in the Methodology section and the DFI chapter, only international and regional DFIs have been considered in the report’s analysis. Bi-lateral and multi-lateral assistance directly to governments has been excluded from the definition of impact investing for the purposes of this report.

FIGURE 2: DEFINITIONS

DEVELOPMENT FINANCE NON-DFI IMPACT IMPACT CAPITAL INSTITUTION (DFI) INVESTOR VEHICLE Government-backed financial Organizations or individuals A legal entity that holds capital institution that provides actively making impact intended for direct impact finance to the private sector investments directly or through investments. These include for investments that promote funds. This includes family impact funds, foundations, and development. offices, foundations, fund formal entities used by high-net managers, pension funds, worth individuals to hold capital. and banks, but excludes DFIs are not included in this development finance category for this report. institutions.

3 The Global Impact Investing Network website, www.thegiin.org

INTRODUCTION & METHODOLOGY • 21 11 COUNTRIES This report analyzes impact investing activity in eleven countries in East Africa.

KENYA UGANDA TANZANIA RWANDA ETHIOPIA BURUNDI SOUTH SUDAN ERITREA DJIBOUTI SOMALIA SUDAN

20 DFIs 135 NON-DFI IMPACT INVESTORS There are 20 development There are 135 non-DFI impact investors allocating capital in the region. finance institutions (DFIs) making investments in the region.

186 IMPACT CAPITAL VEHICLES The non-DFI investors are making investments through 186 known impact capital vehicles.

The research team identified1,131 TRANSACTIONS for analysis in this report, which are split as follows. DFI INVESTMENTS NON-DFI INVESTMENTS 429 107 546 19 DIRECT INDIRECT DIRECT INDIRECT

The research team identified 49 organizations 49 ECOSYSTEM ORGANIZATIONS offering support services for the impact investing industry in East Africa.

22 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA METHODOLOGY

Data Collection and Analysis Methods

This report presents the first comprehensive landscaping study of the East African impact investing landscape at a country level. To date, there has been limited research that maps impact investing activity in this region at the degree of granularity achieved in this report.

As a result, the report relies heavily on primary research, which includes more than 60 interviews with local and international investors, social enterprises, ecosystem players, DFIs, and government institutions (see the Appendix for a list of organizations interviewed). The research team examined publicly-available primary information— including investor documents, and organization websites, and press releases—to compile a comprehensive database across all 11 countries in East Africa. Where possible, the report draws on the existing body of impact investing research in the region, as well as available data sets, newspaper articles, and summaries of impact investing activity.

Reflecting the variety of data used, the conclusions and findings in this report are drawn from a mix of sources, including qualitative interviews, experience working in the region, publicly available data and information, and existing research, among others. Where applicable and not prohibited by confidentiality requirements, specific sources have been identified and cited.

This report includes data from 20 DFIs and 186 other impact capital vehicles managed by 135 distinct organizations.4 Each organization was evaluated based on its stated goals gathered from organizational materials, as well as interviews to determine if it should be included in the sample. Only active impact investors, i.e. those with existing investments in the countries studied, are included in this report.

Non-DFI Impact Investors

The 186 impact capital vehicles are managed by 135 non-DFI impact investors who have completed 546 direct impact investments across the 11 countries covered. This count excludes 19 indirect investments into impact funds, which are considered separately to avoid double

4 The initial long-list of investment vehicles identified by the research team comprised 665 vehicles operating across the investing ecosystem in East Africa. Of the organizations analyzed, 257 were excluded because they did not meet the definition of impact investing, including commercial investors, government programs or bodies, donor or aid organizations, and ecosystem players, among others. A further 118 were either found to be defunct, inactive, or not currently placing capital in East Africa. Finally, 84 were excluded because there was insufficient public information to determine their status or operations.

INTRODUCTION & METHODOLOGY • 23 counting.5 Information collected on each of these deals includes the target, date, amount invested, the instrument used, the currency disbursed, and other transaction notes. The data includes known transaction sizes for 314 direct investments. For the remaining 232 direct investments, the research team used the average transaction value on a fund-specific basis to avoid systematically underestimating the amount of impact capital disbursed within the region.

Many of the organizations studied, especially impact investors active in East Africa, operate across sub-Saharan Africa or beyond, with many organizations considering investments globally in both developed and emerging markets. For the purposes of this report, capital committed to East Africa is allocated according to each impact capital vehicle’s internal allocation. Where internal allocations were unavailable, the total capital committed was allocated based on the ratio of the vehicle’s historical deal flow to the region or according to general foreign direct investment flows.

Development Finance Institutions

The 20 DFIs active in East Africa have completed 429 disclosed direct investments within the 11 countries covered. Indirect investments into impact funds are considered separately, and excluded from the 429 direct investments. In total, DFIs have made 107 disclosed investments into impact funds operating in East Africa today. This report excludes all bi-lateral and multi-lateral government assistance, which is not included in the definition of impact investing for the purposes of this report.

Demand for Impact Capital and the Broader Ecosystem

Beyond the detail provided on impact investors, this report also includes information on the demand for impact capital as well as the broader ecosystem supporting both impact investors and organizations receiving or seeking impact capital.

On the ecosystem side, the research team examined 49 individual organizations operating across the 11 countries under study, including financial advisors, intermediaries, consultants, professional services firms, incubators, and accelerators.

On the demand side, the team analyzed the types of organizations both seeking and receiving capital from impact investors to better understand both the challenges they face in raising capital and opportunities they present for investors. These include organizations ranging from start-up and small-to-medium enterprises to larger, more

5 To identify the 546 direct investments and 19 indirect investments, the research team considered nearly one thousand total transactions made by investors active in East Africa. The excluded transactions were removed from the sample either because the investor did not meet our definition for impact investing or because the transaction did not occur in East Africa.

24 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA mature companies. They operate across a range of sectors, such as financial inclusion, agriculture, energy, and health.

Information on demand for impact investment and the ecosystem to support it was drawn from interviews with entrepreneurs, impact investors, and ecosystem players, as well as from publicly available data, existing research, and general experience working closely with social businesses in the region.

REPORT STRUCTURE

This report maps the impact investing landscape in 11 countries across East Africa. The Executive Summary provides an overview of key findings across the region and includes comparisons across countries as well as country summaries. The Regional Overview chapter provides additional detail and data on the impact investing landscape in East Africa overall. As many impact investors operate regionally, the Regional Overview chapter draws out many of the trends, opportunities, and challenges shared by all countries in the region.

The report includes a chapter focused specifically on DFI activity. As noted earlier, DFIs remain central to the impact investing landscape both through direct investments as well as the prominent role they play in capitalizing impact investing funds currently active in the region. The DFI chapter focuses on their history, structure, strategy, current operations, and existing investments.

Detailed country chapters for each of the focus countries follow. The focus countries—Kenya, Uganda, Tanzania, Rwanda, and Ethiopia—have seen the vast majority of impact investments in the region and each chapter explores country- specific activity in detail. These chapters examine the broader economy and investing landscape as well as the trends, opportunities, challenges, and demand for impact capital in each country.

The report closes with country chapters for each of the non-focus countries—Burundi, Somalia, Djibouti, Eritrea, Sudan, and South Sudan—where there has been limited impact investing activity to date. These chapters describe the activity that has occurred and analyze the factors that have constrained impact investment, as well as what conditions must change in order to improve the outlook for impact investing.

INTRODUCTION & METHODOLOGY • 25 EAST AFRICA VAST OPPORTUNITIES AND EXPECTATIONS FOR IMPACT DEALS IN COMING YEARS INTRODUCTION

Over the last five years, impact investing has gained strong momentum throughout East Africa. As outlined in the coming chapters, 155 impact investors have made investments in the region, including 20 development finance institutions (DFIs) and 135 other impact investors.1 Due to the unique nature and large size of DFIs, the authors of this report analyzed their activity separately from those of other types of impact investors (“non-DFI”), and present this separate analysis when appropriate. The 135 non-DFI impact investors, overseeing 186 distinct vehicles, have disbursed USD 1.4 billion through more than 550 investments in East Africa.2 In addition, the 20 DFIs have placed USD 7.9 billion directly into East African enterprises and a further USD 700 million into impact funds.3

Non-DFI impact investors appear to have substantial capital, with an estimated USD 3 billion committed to the region. Many of these investors also operate outside of East Africa, including many that place capital globally. In practice, these impact investors usually do not divide their capital into country-specific pools but rather invest opportunistically across the markets they cover. This means available capital could be deployed elsewhere if sufficient investment opportunities are not found in East Africa, or could grow rapidly if impact investors see more promising opportunities in the region.

FIGURE 1: COUNTRIES IN THIS STUDY

SUDAN ERITREA DJIBOUTI

ETHIOPIA SOUTH SUDAN UGANDA SOMALIA RWANDA Focus countries BURUNDI KENYA Additional countries studied TANZANIA

1 For this report, impact investments are those made by investors who meet the GIIN’s definition of impact investing—i.e. an intention to generate a beneficial social or environmental impact alongside a financial return, who measure the impact generated by their investments. See Introduction and Methodology section of this report for more information. 2 The figures used throughout this report represent publicly available information regarding total disbursements from impact investors active in East Africa today. Where impact investors operate across a region larger than East Africa, capital has been allocated according to available internal allocation targets or net foreign direct investment flows to the countries where the fund operates. See the Methodology section for more detail. 3 For a definition of DFI for the purpose of this report, please see the DFI section.

EAST AFRICA REGIONAL OVERVIEW • 27 REGIONAL CONTEXT

Many stakeholders see great opportunities for regional trading blocs, though progress to implement recommended policies has been slow. The East African Community (EAC) includes Burundi, Kenya, Rwanda, Tanzania, and Uganda, and intends to create a single trading bloc with integrated immigration policies, a single currency, and free internal trade.4 Though the EAC has made progress—for example, launching an integrated East Africa tourist visa in 20145—these changes are not well-known, and progress towards a unified currency and free trade proceeds slowly.6

Beyond the EAC, several countries studied for this report participate in the Common Market for Eastern and Southern Africa (COMESA), including Burundi, Djibouti, Eritrea, Ethiopia, Kenya, Rwanda, South Sudan, Sudan, and Uganda. COMESA also aims to create free trade between members and progress towards a unified visa, among other customs and trade treaties.7 Tanzania is also a member of the Southern African Development Community.8

Despite regional trade treaties, countries in East Africa operate and govern largely independently. Each country has a different political context, functions with an independent regulatory system, is culturally unique, and presents different opportunities for investment. Successful operations in one country do not necessarily transfer to another and each new context must be considered separately. At the same time, these 11 unique governments represent a combined 300 million citizens, presenting a large opportunity for social enterprises9 that are able to successfully expand and reach large swaths of the global population.10

4 Korwa G. Adar, Centre for Studies on Federalism, East Africa Community (2011), available at http:// www.internationaldemocracywatch.org/attachments/458_EAC-adar.pdf. 5 Ismail Musa Ladu & Risdel Kasasira, “EAC Single Tourist Visa Launched,” Daily Monitor (Feb. 21, 2014), available at http://www.monitor.co.ug/News/National/EAC-single-tourist-visa- launched/-/688334/2215296/-/usri45z/-/index.html. 6 Masafumi Yabara, The International Monetary Fund, Capital Market Integration: Progress Ahead of the East African Community Monetary Union (2012), available at http://www.imf.org/external/pubs/ft/ wp/2012/wp1218.pdf. 7 “COMESA Strategy,” COMESA, available at http://about.comesa.int/index.php?option=com_ content&view=article&id=78&Itemid=118. 8 “Member States,” Southern African Development Community, available at http://www.sadc.int/ member-states/. 9 For this report, social enterprises are defined to be businesses that seek to measure impact as well as generate a financial return. 10 Population: Total, The World Bank Group, available at http://data.worldbank.org/indicator/SP.POP. TOTL; Note that population estimates are not available for South Sudan or Somalia.

28 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Gross Domestic Product

East Africa has seen strong growth in recent years, averaging a combined 7% GDP (PPP) growth annually for the last seven years (see Figure 2), and the International Monetary Fund (IMF) expects increases to continue. Across the region, total GDP currently stands at approximately USD 500 billion in PPP terms. Ethiopia represents the largest market in both GDP and population, with a GDP of USD 121 billion (PPP) and 90 million citizens (more than 30% of East Africa’s total population). While Eritrea, Djibouti, and South Sudan represent the region’s fastest growth, this is from a small base of GDP.

FIGURE 2: GDP (PPP) IN EAST AFRICA, 2008–2019 (2014–2019 PROJECTED)

USD BILLIONS Today 250 Country CAGR Expect >50% growth in next 5 years across region, with market worth USD 500B today Ethiopia 9% 200 Sudan 4%

150 Kenya 7% Tanzania 8%

100 Uganda 7% Eritrea, Dijbouti, 50 & S. Sudan 14%

Rwanda 8% 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: IMF World Economic Outlook, April 2014

EAST AFRICA REGIONAL OVERVIEW • 29 Across the region, agriculture remains the single largest sector, accounting for more than 30% of GDP and employing the majority of the labor force (Figure 3). Individual sector opportunities differ by market; for example Kenya has a particularly strong services sector.11 Strong telecommunications penetration throughout the region has helped develop the services sector, and most countries in the region have multiple telecom providers with the exception of a few countries such as Ethiopia, Djibouti, and Eritrea, where telecom is still a restricted industry run by the government.12

FIGURE 3: GDP BY SECTOR FOR SELECT COUNTRIES IN EAST AFRICA, 2012

SHARE OF GDP (%) 100%

90%

80%

70% Services

60%

50%

40% Manufacturing

30%

20% Agriculture 10%

0% Ethiopia Sudan Kenya Tanzania Uganda Rwanda GDP (USD B) 109 86 75 73 51 15

Source: World Bank Indicators as of 2012

11 World Development Indicators, The World Bank Group, available at http://data.worldbank.org/ indicator/BG.GSR.NFSV.GD.ZS. 12 Janelle Plummer, The World Bank, Diagnosing Corruption in Ethiopia_Perceptions, Realities and the Way Forward for Key Sectors (2012), available at http://www.ethiomedia.com/addis/diagnosing_ corruption.pdf.

30 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Foreign Direct Investment

Strong GDP growth has been accompanied by increasing foreign direct investment (FDI). In 2013, the region received more than USD 8 billion in total FDI inflows (Figure 4).13 Sudan and Tanzania lead net FDI flows, driven by strong interest in the countries’ oil and gas sectors. Recent discoveries of large oil and gas reserves in Uganda and Kenya have also fueled increases in FDI, which are expected to continue in coming years.14

FIGURE 4: FDI INFLOWS IN EAST AFRICA IN SELECT YEARS, 2004-2013

USD MILLIONS 9,000 Uganda 8,000 Tanzania 7,000 Sudan 6,000 Somalia 5,000 Rwanda 4,000 Kenya

3,000 Ethiopia Eritrea 2,000 Djibouti 1,000 Burundi 0 2004 2007 2010 2013 Source: UNCTAD

13 UNCTAD STAT Data Center, United Nations Conference on Trade and Development, available at http://unctadstat.unctad.org/wds/ReportFolders/reportFolders.aspx?sCS_ChosenLang=en. 14 KPMG, Oil and Gas in Africa_Africa’s Reserves, Potential and Prospects (2013), available at https:// www.kpmg.com/Africa/en/IssuesAndInsights/Articles-Publications/Documents/Oil%20and%20 Gas%20in%20Africa.pdf; Rolake Akinkugbe, “Top Trends to Watch in sub-Saharan Africa’s Extractives Sector (Part I),” African Arguments (Aug. 8, 2013), available at http://africanarguments. org/2013/08/08/top-trends-to-watch-in-sub-saharan-africa%E2%80%99s-extractives-sector-part-i- %E2%80%93-by-rolake-akinkugbe/.

EAST AFRICA REGIONAL OVERVIEW • 31 Inflation and Exchange Rates

Inflation rates have varied substantially across the region, ranging from a low of 2% in Djibouti in 2009 to a high of nearly 45% in Ethiopia in 2008 (see Figure 5). The entire region experienced higher rates of inflation in 2008, though all countries have experienced volatility since 2004. High inflation rates and significant volatility pose substantial challenges to both impact investors and the enterprises they support, as input prices rise and relative incomes decrease.

FIGURE 5: INFLATION RATES BY COUNTRY, 2004-2013

45%

40%

30%

25% 2004

20% 2007 2010 15% 2013 10%

Eritrea Kenya Sudan Burundi Djibouti Ethiopia Rwanda Tanzania Uganda South Sudan Source: World Development Indicators

Concerns about foreign exchange rates complicate impact investors’ ability to disburse local currency debt. Across the region, all countries have struggled to stabilize exchange rates. Figure 6 shows cumulative currency depreciation from 2006 to 2014; however, this cumulative depreciation masks significant fluctuations and corrections within individual years. For example, the Kenyan Shilling was one of the most volatile currencies in the world in 2011, when it lost more than 25% against the dollar in nine months before returning to prior levels.15 This volatility exposes non-DFI impact investors to potentially sudden and significant foreign exchange losses, which in turn limits their ability and interest to lend in local currency. This volatility can also make it difficult for companies to purchase foreign currencies to repay hard currency loans, increasing both the effective interest rate they face for short- and long-term facilities and the likelihood of default for companies that collect revenues primarily in local currencies. Additionally, exchange rate fluctuation poses challenges for businesses operating in the region, especially when they need to import supplies from foreign countries in hard currencies.

15 Luke Mulunda, “Economists Trim Kenya’s Growth Forecast to 4 Percent Over General Election Jitters,” Business Daily (Jan. 25, 2012), available at http://www.businesstoday.co.ke/news/2012/01/25/ economists-trim-kenyas-growth-forecast-4-percent-over-general-election-jitters.

32 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA FIGURE 6: CURRENCY DEPRECIATION BY COUNTRY, 2006-2014

150%

100%

50%

-50%

-100%

Kenya Eritrea Uganda Tanzania Ethiopia Rwanda Somalia Djibouti Burundi

Source: Oanda Historical Currency Rates

SUPPLY OF IMPACT CAPITAL

East Africa has attracted significant attention from impact investors. In total, 186 impact capital vehicles are active across East Africa, managed by 107 fund managers and 28 other impact asset managers including foundations, family offices, banks, and angel networks. In addition, 20 DFIs are active in the region. Most impact investors work in multiple countries in the region. Kenya is a clear leader in terms of investor interest, followed by Uganda, Tanzania, Ethiopia, and Rwanda. It should be noted that many impact investors work across large swaths of the developing world, looking beyond East Africa to Sub-Saharan Africa and globally, as well. Since inception, DFI investors active in the region today have publicly recorded more than USD 7.8 billion across over 410 direct investments, while non-DFI impact investors have disbursed nearly USD 1.4 billion through more than 550 deals.16

Broader Investing Landscape

The volume of impact investing activity in East Africa represents only a small part of the overall investment landscape. Several countries, including Kenya, Rwanda, and Tanzania, have publicly traded companies that have raised substantial funding. Banks in the region lend significant capital to local companies. In Kenya alone, chamas17 and

16 Open Capital Research; see Methodology section for more information. 17 Chamas are informal cooperative savings groups that invest the pooled funds for a return. Chamas are particularly widespread in Kenya and are not regulated.

EAST AFRICA REGIONAL OVERVIEW • 33 SACCOs18 have more capital under management than all non-DFI impact investors in East Africa.

However, there remains a substantial gap in the market that impact investing looks to fill. Public markets have rigid listing requirements and limited liquidity while commercial banks in the region remain risk averse and are often unwilling to lend to early-stage ventures (which represent a large share of businesses in the region, particularly those of interest to impact investors). When willing to lend, commercial banks in East Africa have high collateral requirements, often exceeding 100%, which many early-stage enterprises are unable to meet.

Moreover, even if available, bank financing is expensive. The countries within East Africa vary significantly in average bank lending rates, though all are typically well above developed country rates. Prevailing rates in Kenya, Uganda, Tanzania, Rwanda, and Burundi are all above 15% (Figure 7).19 By comparison, small businesses in the United States find prevailing base interest rates of only 3.25%, and rates are as low as 0.5% in the United Kingdom.20 Banks often charge a premium for lending to small and medium enterprises (SMEs), but the difference between corporate and SME lending is not large in developed markets.21 In East Africa, some SMEs face a risk premium that drives interest rates beyond what is offered to large corporations for both local and hard currency loans from national banks.22 These high interest rates make debt expensive, especially long-term debt. As a result, there remains a gap in the market for earlier-stage investments that may be higher risk.

FIGURE 7: PREVAILING BANK LENDING RATE BY COUNTRY (LATEST AVAILABLE DATA POINT)

25%

20%

15%

10%

Kenya Uganda Tanzania Ethiopia Rwanda Djibouti Burundi Source: World Development Indicators. Note: Rates shown for most recent year available, 2008–2013

18 SACCOs are cooperative savings groups that typically take deposits and offer loans. SACCOs are formally recognized institutions and are subject to government regulation. 19 Lending Interest Rates (%), World Development Indicators, The World Bank Group, available at http://data.worldbank.org/indicator/FR.INR.LEND/countries. 20 Ibid. 21 Deutsche Bank, EU Monitor: Global financial markets (2014), available at https://www.dbresearch.com/ PROD/DBR_INTERNET_EN-PROD/PROD0000000000344173.pdf. 22 Open Capital interviews.

34 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Local banks, chamas, SACCOs, and other conventional sources also do not have any specific impact focus, but rather concentrate only on financial returns, often investing in real estate, deposits, and treasury bonds. Impact investors are the only institutionalized funders who intentionally seek to push development and therefore proactively seek innovative solutions in difficult sectors or circumstances that conventional investors would otherwise overlook or dismiss.

Impact Capital Disbursed

Within the impact investment landscape in East Africa, Kenya plays a prominent role. Most tellingly, almost half of all known non-DFI impact capital disbursed in East Africa has been placed in Kenya. This represents more than USD 650 million of a total USD 1.4 billion disbursed (Figure 8). Kenya has more than double the amount of impact capital deployed compared to Uganda, which has the next highest amount of impact capital deployed. The number of impact deals completed is not quite as skewed, suggesting that Kenya has a slightly larger average deal size than other countries in the region. Notably, the research team was unable to find any evidence of non-DFI impact investments in Eritrea, Sudan, Djibouti, or Somalia, and only minimal activity in Burundi and South Sudan.

FIGURE 8: TOTAL NON-DFI IMPACT INVESTMENTS BY COUNTRY

USD MILLIONS # OF DEALS 800 Capital disbursed 250 700 Deals 200 600 500 150 400 300 100 200 50 100 0 0

Kenya Eritrea Sudan Uganda Tanzania Rwanda Ethiopia Djibouti Somalia Burundi Regional South Sudan

Source: Open Capital Research

DFI direct investments tell a similar story (Figure 9). DFIs have made (and disclosed) nearly USD 7.9 billion in direct investments in East Africa. This excludes 107 indirect investments into funds worth approximately USD 680 million.23 Similar to non- DFI impact investor activity, Kenya represents nearly half of direct disbursements and more than four times the capital deployed in either Uganda or Tanzania, each of which has approximately USD 850 million in known DFI direct disbursements.

23 See DFI chapter for more detail.

EAST AFRICA REGIONAL OVERVIEW • 35 Notably, the research team could not find any evidence of DFI direct investment activity in either Eritrea or Somalia, and found only minimal publicly disclosed activity in Sudan, South Sudan, and Djibouti. That is not to say that DFIs are not active, but rather that the majority of support in these countries is through bi-lateral or multilateral government loans, which are not included in the definition of impact investing for this report (see Introduction and Methodology section for more details).

FIGURE 9: TOTAL DFI IMPACT INVESTMENTS BY COUNTRY

USD MILLIONS # OF DEALS 4,000 Capital disbursed 150 3,500 Deals 3,000 2,500 100 2,000 1,500 50 1,000 500 0 0

Kenya Sudan Uganda Eritrea Burundi Tanzania Rwanda Ethiopia Djibouti Somalia Regional South Sudan

Source: Open Capital Research

36 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Investments Over Time

Non-DFI impact investors have been actively investing in East Africa for more than a decade, but investments only began to pick up after 2010 (Figure 10), though the large number of deals with undisclosed details prevents additional conclusions about non-DFI impact investor activity. Despite the limited data, this trend aligns with impressions from non-DFI impact investors, who report interest in impact investing in East Africa gaining momentum in 2010 and beyond.24

FIGURE 10: NON-DFI IMPACT INVESTMENTS BY YEAR

USD MILLIONS # OF DEALS 180 Capital disbursed 60 160 50 140 Deals 120 40 100 30 80 60 20 40 10 20 0 0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Pre-2004

Source: Open Capital Research. Note: 2014 represents partial data as of October. Also, 274 deals, totaling approx. USD 586 million, with unknown year have been omitted

With the data available (274 deals with unknown year have been omitted), it appears that average deal sizes increased from 2011 onwards, as the amount of capital disbursed increased faster than the number of deals. The decline for 2014 is likely the product of incomplete data reporting at the time of data collection in late 2014, as many try to close final investments before the end of the calendar year.

24 Interviews with non-DFI impact investors conducted for this study.

EAST AFRICA REGIONAL OVERVIEW • 37 The nascent state of the industry is also reflected in DFI direct investment activity (Figure 11). Capital disbursed and deals completed since 2010 have both exceeded activity pre-2010. As with non-DFI impact investments, the decline in deals in 2014 is likely due to incomplete data reporting at the time of data collection.

FIGURE 11: DFI DIRECT INVESTMENTS BY YEAR

USD MILLIONS # OF DEALS 3,000 200 Capital disbursed 180 2,500 Deals 160 2,000 140 120 1,500 100 80 1,000 60 500 40 20 0 0 Pre-2010 2010 2011 2012 2013 2014 Unknown

Source: Open Capital Research. Note: 2014 represents partial data as of October

38 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Sector

The distribution of investments by sector broadly reflects investor interest areas. Agriculture and financial services have received the most deals (approximately 50% of all known deals in East Africa) and have strong interest from multiple non-DFI impact investors (Figure 12). Despite the larger number of deals in agriculture, the large investment sizes possible when placing capital into established banks or MFIs drive a larger total amount of capital to financial services. Similarly, housing projects tend to have larger average deal sizes than other sectors because they often must internally finance mortgages for low-income customers in addition to their own, typically high, construction costs.

FIGURE 12: NON-DFI IMPACT INVESTMENTS AND INTEREST BY SECTOR

USD MILLIONS # OF DEALS 350 Capital disbursed 180 300 Deals 160 140 250 120 200 100 150 80 60 100 40 50 20 0 0 NUMBER OF NON-DFI 79 44 54 81 48 23 32 78 25 22 IMPACT INVESTORS INTERESTED IN SECTOR

ICT Energy Other Housing WASH Financial Services Unknown Agriculture Education Healthcare

Source: Open Capital Research

Despite their prominence as sectors of interest (Figure 12), education and energy have seen relatively few deals. The disconnect between interest in these sectors and the number of deals implies that investors see limited viable, investible opportunities and have difficulty placing capital in these sectors.

EAST AFRICA REGIONAL OVERVIEW • 39 DFI direct investments also favor investments in financial services (nearly 40% of all direct deals). After this, however, DFIs diverge from non-DFI investors. The energy sector has received 25% of capital deployed to date (driven by large energy projects such as dams and wind farms), while infrastructure and mining have also been prominent (Figure 13).

FIGURE 13: DFI DIRECT INVESTMENTS BY SECTOR

USD MILLIONS # OF DEALS 3,000 Capital disbursed 180 160 2,500 Deals 140 2,000 120 100 1,500 80 1,000 60 40 500 20 0 0

Other Energy Tourism Extractive Agriculture Education Healthcare Construction Infrastructure Manufacturing Consumer Goods Financial Services

40 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Deal Size

The majority (almost 60%) of deals by non-DFI impact investors in East Africa have been less than USD 1 million, though this represents only 10% of capital disbursed (Figure 14). More than 90% of deals and 50% of capital disbursed are through deals under USD 5 million. Across the region, just under 25% of deals are for amounts under USD 250,000. Very few non-DFI impact investors place capital over USD 5 million per deal, though a number of DFI direct deals are in this range (Figure 15). Despite the number of funds without stated investment sizes, interviewed non-DFI impact investors interviewed report that most capital is focused on varying degrees of early-stage businesses, often with the intention to tranche larger rounds of capital to multiple disbursements.

FIGURE 14: NON-DFI IMPACT INVESTMENTS AND INTEREST BY DEAL SIZE

USD MILLIONS # OF DEALS 600 Capital disbursed 200 180 Deals 500 160 140 400 120 300 100 80 200 60 40 100 20 0 0 NUMBER OF NON-DFI IMPACT 13 12 12 43 9 10 87 INVESTORS WITH STATED DEAL SIZE IN RANGE

USD 1-5M > USD 10M < USD 250K USD 5-10M UNKNOWN USD 500K-1M USD 250-500K Source: Open Capital Research

FIGURE 15: DFI DIRECT INVESTMENTS BY DEAL SIZE

USD MILLIONS # OF DEALS 5,000 Capital disbursed 160 Deals 140 4,000 120 3,000 100 80 2,000 60 40 1,000 20 0 0

< USD 1M USD 1-5M USD 5-10M > USD 50M USD 10-20M USD 20-50M Source: Open Capital Research

EAST AFRICA REGIONAL OVERVIEW • 41 Despite the interest in early-stage businesses, there is a critical gap for seed-stage investments under USD 100,000, indicating that although impact capital is more risk tolerant than other types of capital, impact investors still need evidence of some success before disbursing capital. This also suggests that there remains a gap in funding for capital-intensive seed-stage businesses, such as those in agriculture or manufacturing, that have funding needs beyond what can be sourced through friends and family. Countries also vary substantially in their average deal sizes; Ethiopia’s average is more than USD 3.5 million while Rwanda’s is just above USD 1 million (Figure 16). Data for the non-focus countries studied is too limited to compare.

By contrast, average deal size for DFI direct investments is more than USD 18 million, nearly eight times the average size of non-DFI impact investors. This is driven primarily by large energy projects and large investments in commercial banks. Though deals under USD 10 million constitute close to 60% of total direct DFI investments, most of these are well over USD 1 million. Among the focus countries, Kenya leads in DFI deal size, followed by Ethiopia (Figure 17). Rwanda is the only focus country with an average DFI direct investment under USD 10 million.

FIGURE 16: AVERAGE DEAL SIZE BY NON-DFI FIGURE 17: AVERAGE DFI DIRECT INVESTMENT SIZE IMPACT INVESTORS BY COUNTRY

USD USD MILLIONS MILLIONS 4 30 3 25 20 2 15 1 10 0 5 0

Kenya Uganda Rwanda Ethiopia Tanzania Kenya Uganda Tanzania Rwanda Ethiopia Source: Open Capital Research Source: Open Capital Research

42 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Instrument

For a large proportion of non-DFI deals, the instrument used is unknown, preventing a definitive understanding of the breakdown these investments by instrument. Deals with disclosed instruments favor traditional debt and equity, as shown in Figure 18. However, investors and other ecosystem players report that in recent years, non-DFI impact investors have begun to adopt more creative investment instruments. They increasingly consider quasi-equity structures such as convertible debt or revenue- participating debt. Reflecting non-DFI impact investors’ focus on smaller deals and earlier stage investments, these structures help balance risk with limited cash flows common for early-stage companies.

FIGURE 18: NON-DFI IMPACT INVESTMENTS BY INSTRUMENT

USD MILLIONS # OF DEALS 800 Capital disbursed 300 700 250 600 Deals 500 200 400 150 300 100 200 100 50 0 0 Equity only Debt only Debt & Quasi-equity Unknown equity & others

Source: Open Capital Research.

Though creative structures are becoming increasingly common among non-DFI investors, DFI direct investments have been overwhelmingly in the form of debt, with a handful of equity deals (Figure 19). Debt investments constitute more than 70% of known capital disbursed as DFI direct investments and nearly 60% of direct DFI transactions. Together, debt and equity investments account for approximately 75% of all direct DFI deals and more than 85% of all direct capital disbursed through DFI direct investments. DFIs also offered a number of loan guarantees, primarily driven by USAID, which account for more than 80% of all guarantees. OPIC and IFC contributed nearly all of the remaining guarantees.

EAST AFRICA REGIONAL OVERVIEW • 43 FIGURE 19: DFI DIRECT INVESTMENTS BY INSTRUMENT

USD MILLIONS # OF DEALS 6,000 Capital disbursed 300 5,000 Deals 250 4,000 200 3,000 150 2,000 100 1,000 50 0 0 Equity Debt Debt & Guarantee Grant Other No info Equity Source: Open Capital Research

Local Presence

Investors making impact investments in East Africa are generally based in Europe or the United States, but FIGURE 20: IMPACT INVESTORS WITH LOCAL OFFICES are increasingly developing a local presence to source and support portfolio companies (Figure 20). Nairobi is the clear hub for local offices, with 48 investors based in Kenya’s capital city. Non-DFI impact investors Sudan 6 offices in Addis in particular increasingly see Nairobi as a gateway to Eritrea reach the entire region; there are now five non-DFI Djibouti impact investors that have chosen to headquarter • their operations there. Meanwhile, even investors South Sudan Ethiopia specifically looking to invest outside of Nairobi will 25 12 offices Somalia often start operations there. Kenya’s position as the in Kampala Uganda Nairobi is heart of the impact investing landscape in East Africa • Kenya regional Rwanda is so pronounced that recently some investors have • • hub with Burundi •• deliberately based their operations outside of Kenya to 48 offices Tanzania avoid what they perceive as a saturated market.26 •

14 offices Though still placing staff in Nairobi, many investors 9 offices in Kigali share the concern that the Kenyan impact investing in Tanzania (Dar, Arusha, & Moshi) landscape, and Nairobi in particular, is saturated. Others argue that this perception results from Source: Open Capital Research insufficient engagement or knowledge of the market, believing that creative investors are able to find ample pipeline. Regardless, more and more impact investors are actively looking for deals in rapidly growing second-tier cities and other countries in the region, particularly Uganda and Tanzania. However, to date, few currently have full-time staff outside Nairobi or the capital cities within the region.

25 See, e.g., Eleos Foundation and Ascent Capital. 26 See, e.g., Mango Fund and HRSV.

44 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Though still placing staff in Nairobi, many investors share the concern that the Kenyan impact investing landscape, and Nairobi in particular, is saturated. Others argue that this perception results from insufficient engagement or knowledge of the market, believing that creative investors are able to find ample pipeline. Regardless, more and more impact investors are actively looking for deals in rapidly growing second-tier cities and other countries in the region, particularly Uganda and Tanzania. However, to date, few currently have full-time staff outside Nairobi or the capital cities within the region.

Impact Tracking Standards

Impact investors’ dual mandate to realize both financial and social or environmental returns requires a strong focus on measuring impact as part of their core activities. Beyond tracking metrics as best practice, many impact asset owners require it. This is particularly true for DFIs, which act as anchor investors in many impact investment funds.

However, developing tools to accurately track impact metrics has proven difficult. Beyond general inexperience designing methodologies for measuring impact accurately over time, tracking metrics is perceived by some as expensive and time- consuming for an early-stage business, potentially diverting resources from enterprise growth. Moreover, impact investors define impact in a wide variety of ways and emphasize different elements, complicating efforts to develop a universal standard or toolbox. In many ways, this is beneficial for SMEs, who do not all fit the same definition.

The majority of fund managers interviewed do not specify a particular language or tool but rather report using flexible structures adapted to each new investment. Though many investors have rigorous and rigid impact guidelines to make an investment, they generally design and track metrics after the investment in an individualized manner to minimize the burden placed on portfolio companies.

Among the few that do specify using a known language or tool, IRIS27 has emerged as the most prominent. Some fund managers select their own set of IRIS metrics; others use an existing tool, such as the Global Impact Investment Rating System (GIIRS), which is built on the IRIS taxonomy.

27 IRIS (formerly known as Impact Reporting and Investment Standards) is a set of standardized metrics for impact measurement managed by the Global Impact Investment Network (www.iris.thegiin.org).

EAST AFRICA REGIONAL OVERVIEW • 45 Indirect Investment into Impact Funds

Beyond placing direct investments, some impact investors have invested in other impact capital vehicles. In total, non-DFI impact investors disbursed USD 50 million into other funds (approximately 3% of known deals and 4% of capital disbursed by such investors) through 19 disclosed deals (Figure 21). By contrast, DFIs have placed nearly USD 700 million via indirect investments into impact funds.

FIGURE 21: NON-DFI IMPACT INVESTORS’ INDIRECT INVESTMENTS

USD MILLIONS # OF DEALS 60 20 18 50 16 14 40 12 30 10 Capital disbursed 8 Deals 20 6 10 4 2 0 0 INVESTMENTS IN OTHER IMPACT FUNDS

Source: Open Capital Research

Non-DFI impact investors interviewed for this report suggest that existing impact fund managers may find it more difficult to raise future funding until they have proven their track record from existing capital due to increasing frustration from asset owners with low disbursement rates. Instead, these investors expect to place more capital directly. DFIs, however, are expected to continue indirect investments through impact fund managers.

46 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA DEMAND AND NEED FOR IMPACT INVESTING CAPITAL

There is strong demand for impact capital among entrepreneurs operating in East Africa. Despite the region’s progress on key development indicators, there remain significant gaps in the provision of key goods and services, which create opportunities for entrepreneurs to build enterprises that fill needs while also realizing financial returns. As noted earlier, most of these businesses are in early stages of development and growth.

Development Context

All countries in East Africa are well below global averages for human development indicators (HDI) as defined by the United Nations. Kenya ranks highest within the region, at 147th out of 187 countries according to the UN HDI index, which is a composite statistic of a number of metrics including health, education, and income indices (Figure 22).28 The other countries studied for this report score even lower.

FIGURE 22: UN HDI SCORE BY COUNTRY, 2008—2013

0.8 Global average 0.7 Kenya 0.6 Rwanda

0.5 Tanzania

0.4 Uganda Sudan 0.3 Dijbouti 0.2 Ethiopia 0.1 Burundi

0.0 2008 2009 2010 2011 2012 2013

Source: UN Human Development Index. Note: 2014 report does not include 2009 HDI scores. 2009 scores show are calculated as an average of 2008 and 2010 scores.

28 The UN HDI aggregates a number of metrics including income, education, and health indicators to produce a holistic development score from 0 to 1. 2014 Human Development Index, The United Nations Development Programme (2014), available at http://hdr.undp.org/en/data; 2010 Human Development Index, The United Nations Development Programme (Apr. 2010), available https:// www.imf.org/external/pubs/ft/weo/2010/01/weodata/download.aspx.

EAST AFRICA REGIONAL OVERVIEW • 47 These low rankings are driven by poor scores in key developmental indicators. For example, across the region, nearly 50% of the population lives on less than USD 1.25 per day, well above the global average of roughly 25%. This burden is not consistent in all countries—more than 80% of Burundians live on less than USD 1.25 while Djibouti performs better than the global average (Figure 23).29

FIGURE 23: POPULATION BELOW USD 1.25 / DAY BY COUNTRY (LATEST AVAILABLE DATA POINT)

100% 80% 60% 40% 20% Global average 0%

Kenya Burundi Tanzania Rwanda Uganda Ethiopia Djibouti

Source: UN Human Development Report 2014

Similarly, all countries studied considerably underperform global averages on key health metrics. Burundi and Somalia in particular face high child mortality and stunting rates. Ethiopia, Eritrea, Rwanda, and Tanzania also face high stunting rates, particularly acute in rural areas for disadvantaged populations (Figure 24).30

FIGURE 24: UNDER-5 MORTALITY AND STUNTING BY COUNTRY (LATEST AVAILABLE DATA POINT)

UNDER-5 DEATH PER 1,000 POP STUNTED (%) 180 80% 160 140 60% 120 100 40% Global averages 80 60 Stunting 40 20% Under-5 20 mortality 0 0%

Eritrea Kenya Sudan Burundi Djibouti Ethiopia Rwanda Somalia Tanzania Uganda South Sudan

Source: UN Human Development Report 2014

29 Ibid. 30 Ibid.

48 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA As with health and poverty metrics, East African countries show varied performance on educational metrics, though all countries are well below global averages (Figure 25). For example, Kenya has approximately 60% gross secondary school enrollment (the highest rate in East Africa) and more than 25% of the population over age 25 has at least some secondary education. By contrast, Burundi has a gross secondary school enrollment rate of less than 30% and just 7.1% of the population over age 25 has some secondary school education. Ethiopia, Rwanda, Tanzania, Sudan, and Somalia all also have particularly low percentages of the population with secondary education.31

FIGURE 25: KEY EDUCATION INDICATORS BY COUNTRY (LATEST AVAILABLE DATA POINT)

Global averages 100% 80% Secondary gross enrollment 60% Pop with some 40% secondary education 20% 0%

Eritrea Kenya Sudan Burundi Djibouti Ethiopia Rwanda Somalia Tanzania Uganda

Source: UN Human Development Report 2014. Note: No data available for population with some secondary education in Somalia or secondary gross enrollment in Sudan.

31 Ibid.

EAST AFRICA REGIONAL OVERVIEW • 49 Educational metrics are an especially important indicator for future development given East Africa’s demographics. The region has a disproportionately young population, where nearly 45% is under the age of 15 and almost 65% is below age 25 (Figure 26).32 Each country in East Africa has a population pyramid that skews heavily towards youth. This has led to high youth unemployment,33 but higher levels of education make it more likely that the youth boom will translate to strong positive economic growth as these youth enter new employment opportunities and begin to create entrepreneurial activity.

FIGURE 26: POPULATION BY AGE AND GENDER, EAST AFRICA (LATEST AVAILABLE DATA POINT)

AGE 100+ 95-99 90-94 85-89 80-84 75-79 70-74 65-69 Male 60-64 Female 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4

30 20 10 0 0 10 20 30 POPULATION (MILLIONS) POPULATION (MILLIONS)

Source: UN ESA, World Population Prospects

32 “The World Factbook,” Central Intelligence Agency, available at https://www.cia.gov/library/ publications/the-world-factbook/wfbExt/region_afr.html. 33 For example, youth unemployment in Rwanda is estimated at 40%. African Development Bank, et al., African Economic Outlook 2012: Rwanda, available at http://www.afdb.org/fileadmin/uploads/afdb/ Documents/Publications/Rwanda%20Full%20PDF%20Country%20Note_01.pdf.

50 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Entrepreneurs

With increasing interest from impact investors, many entrepreneurs in East Africa see an opportunity to start new social enterprises.34 Many of these opportunities include disadvantaged populations and the mass market as suppliers, consumers, or both. Entrepreneurs have launched businesses across sectors of interest to impact investors—education, housing, healthcare, water and sanitation, energy, etc.—and seek capital across the spectrum of funding from start-up needs to SME-size deals to capital for scaling up, though they are primarily concentrated in the start-up and early phases. This focus on earlier-stage businesses aligns with the local landscape, in which there are few mature social enterprises.

Despite growing demand for capital, entrepreneurs across the region face substantial challenges regardless of their stage of development. Though early-stage entrepreneurs are sometimes able to source capital to begin operations from friends, family, and various community financing organizations such as SACCOs or MFIs, they struggle to find the next round of capital to test and pilot their ideas in the market. Many businesses at this stage operate informally—they are unlikely to have clear financial records, access to formal markets, or access to government services. This makes it difficult for investors to disburse capital, even those looking for early- stage deals.

In their early stages of development, formal and informal businesses often face common challenges preventing them from being fully investment ready, including a lack of realistic forward-looking projections, unclear capital use plans, and limited management capacity to scale operations. In addition, entrepreneurs often run several projects simultaneously and have limited attention to devote to a single enterprise.

While these challenges are not as common for more developed businesses, high potential, rapidly scaling companies are more likely to have existing access to credit through strong relationships with local commercial banks. When businesses do seek impact capital, they are typically well-known to investors, leading to competition among impact investors and/or a large number of co-investors.

By and large, impact investors report that the most interesting, sophisticated businesses typically do not market themselves as “social enterprises.” Instead, they present strong commercial cases for investment and have social impact embedded in the success of their business model. Notably, these high-potential businesses typically view impact investors first and foremost as sources of capital, regardless of the investors’ impact intent.

In countries that have less mature impact investing and social enterprise ecosystems, entrepreneurs have few examples of success and limited access to networks to find funding. Burundi, Djibouti, Eritrea, Somalia, South Sudan, and Sudan have very few social entrepreneurs, making it difficult for entrepreneurs to know where to get the support needed to grow and scale. In countries where social enterprises have already succeeded in attracting global attention like Kenya, Uganda, Tanzania, Ethiopia, and Rwanda, there are some existing contacts to help guide new entrepreneurs through

34 Open Capital Research.

EAST AFRICA REGIONAL OVERVIEW • 51 the complicated funding process. However, even in these more active countries, there are only a few successful examples of young, rapidly growing companies. This dearth of successful start-ups can contribute to entrepreneurs viewing their businesses as a way to earn a modest living rather than as a highly-scalable enterprise. Investors across East African countries will need to invest in local networks to understand the landscape and help entrepreneurs translate their ideas into investible plans.

ENABLING IMPACT INVESTING: THE ECOSYSTEM

East Africa is home to many intermediaries and other service providers in the impact investing ecosystem. These players are largely concentrated in Kenya, though there are an increasing number emerging in Uganda, Tanzania, Ethiopia, and Rwanda. While there is considerable country-specific variation, the broader business environment is becoming more supportive and sophisticated in East Africa, providing more options to partner with suppliers, distributors, and other commercial entities.

Regulatory Environment

Overall, East Africa has a reasonably welcoming formal regulatory climate for international investors, though this varies by country (Figure 27). In general, each country has a number of lawyers who can provide local legal advice, but the quality varies by country and price as well as local lawyers’ familiarity with foreign FIGURE 27: WORLD BANK regulations that may apply to foreign-registered EASE OF DOING BUSINESS RANKINGS investors. Despite being in general fairly open, most regulatory environments in East Africa remain RWANDA 46 challenging due to inefficient and large bureaucracies, although this also varies by country. For additional detail TANZANIA 131 on the regulatory landscape, please see each individual ETHIOPIA 132

country chapter. KENYA 136

With the notable exception of Rwanda, all countries in UGANDA 150

East Africa rank poorly in the World Bank’s Ease of Doing BURUNDI 152 Business rankings. South Sudan and Eritrea are at the very bottom of the global rankings, reflecting a young DJIBOUTI 155 regulatory system and a closed economy, respectively. In SUDAN 160

these challenging environments, the private sector may SOUTH SUDAN 186 require more upfront grant support before conventional investors are able to actively engage. These initial ERITREA 189 private sector efforts can have substantial impact by demonstrating to governments what is required to grow Source: World Bank businesses locally, potentially leading to more open policies.

52 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Ecosystem Players

Most of the region’s intermediaries and service providers are based in Kenya and provide support throughout the region. More than 40 different organizations operate to support impact investment and social entrepreneurship within the region (Figure 28). Despite a large number of organizations, impact investors still report gaps in the support available, in particular for organizations that can produce a large number of investment-ready opportunities.

FIGURE 28: SELECTION OF INTERMEDIARIES AND SERVICE PROVIDERS CURRENTLY ACTIVE IN EAST AFRICA

Genesis Consult

Open Capital

Karisimbi Business Partners

kLab bloni BizCorps

Unreasonable East Green Pioneer GVEP Africa Accelerator International

FabLab Nairobi Sinaps Dalberg

GrowthAfrica NaiLab I-Dev

Climate Innovation iHub Outbox Center

KINU KeKoBI @iLab Africa

Kenya Feed the Future @The HUB Africa Angels TANZICT Innovation Engine Kampala Network

Mara Foundation Enablis Hive Colab VC4A BiD Network Africa Assets

INCUBATORS/ACCELERATORS CONSULTANTS/ INVESTOR BUSINESS PLAN RESEARCH TA PROVIDERS NETWORK COMPETITION

Source: Open Capital research, organization websites. Note: chart focuses on those with local presence; many international players active.

EAST AFRICA REGIONAL OVERVIEW • 53 The support ecosystem primarily includes incubators and accelerators. These organizations predominantly provide mentorship, training, and access to financing directly or through a network cultivated by the incubator. Many provide shared office space, which can help young businesses attract talent and business opportunities. There are also consultants, investor networks, and business plan competitions, though many are too new to have demonstrated effectiveness or results.

Incubators tend to focus on seed or very early-stage businesses. The ecosystem’s skew toward incubators implies that there are a significant number of enterprises in these earlier stages. As most impact investors are focused on businesses with key operational structures and track record in place, and correspondingly larger capital requirements compared to seed-stage businesses, a gap may exist for intermediaries and service providers operating with businesses that are slightly more mature. Many incubators have a strong sectoral focus, often in information and communications technologies (ICT) and/or energy. However, many impact investors express an interest in agriculture, health care, and other sectors, which may be more capital intensive and less of a fit for these incubator programs.

Beyond incubators, there are a number of consultants and technical assistance (TA) providers focused on the impact investing ecosystem, including Biz Corps, Dalberg, I-DEV, and Open Capital Advisors. These organizations support SMEs as they grow with intensive, tailored support. They frequently approach impact investors to raise capital for their clients and tend to be sector agnostic, supporting individual businesses on a case-by-case basis. There are also a number of individual business consultants who perform similar services. As individuals, these consultants are typically limited to a smaller number of engagements.

There is a broad gap in the market for detailed market research and data to support both impact investors and social enterprises, despite the strong efforts of organizations such as Africa Assets and the Bertha Center. For example, there is limited data on comparable impact deals or exit multiples for impact investors to benchmark their valuations or financial performance. From an operational standpoint, detailed market data on consumption and purchasing habits often do not exist. This can present a challenge to both impact investors and social enterprises when evaluating growth assumptions and opportunities.

Other Service Providers

In addition, East Africa boasts a wide range of service providers including accountants, lawyers, recruiting firms, and others. Most countries in East Africa require annual audited accounts, and a large industry has developed to serve this requirement. However, the quality of audits varies widely and so does the reliability of any accounts produced. Particularly for small companies or family-owned businesses, developing clear financial documentation can be challenging. Similarly, legal representation of varying quality is widely available. International firms have begun to consider the region, but few have full-time staff on the ground.

In addition to professional firms, there are a wide variety of marketers, talent recruiting firms, and other business service providers, yet there is substantial variation in

54 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA availability across countries. Even when available, they are of substantially varying quality, and few firms operate with local presence in multiple countries.

SECTOR OPPORTUNITIES ACROSS EAST AFRICA

All East African countries share a demand for impact capital with populations well below global averages for human development, despite robust recent economic growth, averaging a combined 7% annual GDP (PPP) growth for the last eight years. As such, there are ample opportunities for investors to support entrepreneurs who will generate both financial and social returns. The following sectors present particularly notable opportunities in East Africa:

• Agriculture: Throughout East Africa, agriculture contributes more than 30% of GDP, employs most of the population, and is an important sector to increase incomes and improve food security. Given the predominance of smallholder farming, there are opportunities to aggregate production and create consistent, high-quality supply. In addition, there are opportunities to connect directly with export markets. There is also significant potential in agricultural processing across a range of crops and in agricultural sub-sectors such as horticulture, livestock, and dairy.

• Consumer goods for the mass market: With East Africa’s rapidly growing middle class, impact investors report seeing increasingly attractive opportunities to supply goods and services to consumers with rising disposable incomes. These businesses often create substantial employment opportunities, which may align with impact criteria for some impact investors.

EAST AFRICA REGIONAL OVERVIEW • 55 • Urban development: Non-DFI impact investors also note rapid urbanization and growing demand for businesses to serve expanding cities as an area of opportunity. Service sectors cited by impact investors include affordable housing, water, and sanitation.

CHALLENGES AND OPPORTUNITIES FOR IMPACT INVESTORS

Common Challenges

35 Open Capital interviews with entrepreneurs, intermediaries, and investors.

56 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA 18 months for both debt and equity investments.36 This can frustrate entrepreneurs, and put additional pressure on businesses as they must survive without needed capital.

• Difficulty accessing bank financing: Though entrepreneurs are sometimes able to source capital to begin operations from friends, family, and various community financing organizations, they struggle to find the next round of capital to test and pilot their ideas in the market. In particular, conventional bank financing is difficult to access for early-stage businesses, as conventional banks in the region are very risk averse. Even if willing to lend, they require high collateral ratios (often in excess of 100% of the loan amount), which few entrepreneurs are able to meet.

Common Opportunities

36 Ibid.

EAST AFRICA REGIONAL OVERVIEW • 57 • Develop sector expertise: Beyond bringing capital to portfolio companies, impact investors can drive performance by understanding the specific sectors where their portfolio companies operate. For some investors, this sector focus has allowed them to identify exciting, less well-known opportunities earlier, and reduce their diligence timelines by leveraging existing knowledge. Sectors such as agriculture, energy, and financial services present large opportunities where companies often face consistent challenges across portfolio companies.

• Source opportunities outside capital cities: Many impact investors with staff on the ground in East Africa report finding investments more easily than those based abroad. However, many entrepreneurs operate in rural areas or smaller cities, instead of the capital cities or regional hubs where investment staff are based. For investors who see these entrepreneurs’ businesses as attractive impact investment opportunities, it will be increasingly necessary to build relationships beyond those made in major cities.

• Expand investment instruments: With the variety of early-stage businesses in East Africa, creative investment structures—such as milestone-based conversion and profit-sharing debt – can help to fill a significant gap that straight equity and debt deals do not. Such structures can help entrepreneurs meet ongoing cash flow requirements while delivering long-term returns in line with investor expectations. There is also an opportunity to expand sharia-compliant investments to support Muslim entrepreneurs, using Murabaha37 and Ijara38 methods to help align impact investor goals with sharia law in areas with large Muslim populations in the region.

37 Murabaha is an Islamic financing system in which an intermediary purchases an asset desired by the customer. The intermediary owns the asset completely and then agrees to sell that asset to the customer for a fixed sale price, paid in installments. 38 Ijara is an Islamic financing system in which an intermediary purchases an asset (e.g. a house) and then rents it to a customer for a fixed payment. In this system, the intermediary retains ownership of the asset, though some variants of Ijara also allow the customer to purchase the asset.

58 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA DEVELOPMENT FINANCE INSTITUTIONS ENGINES FOR IMPACT INVESTMENT IN EAST AFRICA

DEVELOPMENT FINANCE INSTITUTIONS • 59 BACKGROUND AND METHODOLOGY

Development finance institutions (DFIs) are government-funded investment corporations that combine the broad development objectives of traditional multilateral aid agencies with the commercial approach taken by private-sector banks and investors. DFIs are funded in most part by governments (though some also raise capital from conventional investors). As a result, targeted regions, sectors, businesses, and project types can change with the political environment. In many cases, DFIs are expected to sustain their operations and growth from their investment returns, with limited future capital injections.

DFI managers must balance a development focus with fiscal independence, leading many DFIs to prioritize investments that present both attractive financial returns and social/environmental impact. DFIs can therefore be considered the first active impact investors, both globally and in East Africa in particular. In addition, they play other important roles related to impact investing, such as providing capital to other impact investors, catalyzing the flow of private capital into new markets, and working with national governments to reform investment policy.

DFI activity in East Africa began several decades ago. CDC Group, the United Kingdom’s DFI, has been investing in the region since 1948. The International Finance Corporation (IFC) has been active in the region since the 1960s, beginning with investments into the Kenyan tourism sector.1 At the same time, African nations established their own regional DFIs, notably the African Development Bank (founded in 1964),2 the East African Development Bank (1967)3 and, somewhat later, Preferential Trade Area (PTA) Bank established by the Common Market for Eastern and Southern Africa (COMESA) in 1985.4 Deals were initially sparse and sporadic amid political instability and transition from colonial powers over the following decades. Beginning in the late 1980s and 1990s, two sectors came to define DFI activity in East Africa—telecommunications and energy. The IFC has been at the forefront of the telecommunications revolution in many emerging markets over the last thirty years, often supplying loans to establish technological infrastructure. These early telecom investments proved extremely prescient, with substantial financial returns in many cases. Along with telecommunications, the other main sector of DFI activity in East Africa in the 1980s and 1990s was infrastructure, specifically electrification and energy access. As East African economies began to emerge from conflict and political turmoil, power infrastructure became an urgent priority to drive

1 “World Bank Historical Chronology: 1960-1969,” The World Bank, available at http://web.worldbank. org/WBSITE/EXTERNAL/EXTABOUTUS/EXTARCHIVES/0,,contentMDK:20035660~menu PK:56316~pagePK:36726~piPK:437378~theSitePK:29506,00.html. 2 “About Us,” African Development Bank, available at http://www.afdb.org/en/about-us/. 3 “EADB About Us,” East African Development Bank, available at http://eadb.org/about-us/. 4 “PTA Bank Our History,” PTA Bank, Eastern and Southern African Trade and Development Bank, available at, http://www.ptabank.org/index.php/bank-profile/our-background#.VHgpozGUdqU.

60 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA stability and economic independence. DFIs—again, principally the IFC—funded much of Africa’s early electrification. The World Bank further enabled this investment by helping to shape policy around Power Purchase Agreements (PPAs) for many emerging economies.

FIGURE 1: SAMPLE DFIS ACTIVE IN EAST AFRICA

African Development Bank

Finnfund BIO CDC

Swedfund OPIC Proparco

European PTA Bank FMO Investment Bank

Norfund IFC DEG

SAMPLE DFIS

As one of the earliest movers in the region, and the largest impact investor in East Africa, the IFC has set many of the standards and investment patterns for other DFIs. The IFC’s pioneering involvement in telecommunications and energy paved the way for more DFIs to enter the region. These DFIs benefitted from the infrastructure already in place but also from increased familiarity with the financing process and more knowledgeable local counterparts in business and government. From the late 1990s onward, single-government-affiliated DFIs began to enter the region, often carving out niches around the IFC’s activities by targeting smaller deals and underserved sectors such as agriculture. Nonetheless, DFIs generally continue to favor large deals in sectors such as infrastructure, energy, and financial services, which are able to absorb large amounts of capital while still offering a clear and compelling development story. Of the approximately USD 7.9 billion in disclosed capital DFIs have disbursed to the East Africa region since the year 2000,5 approximately USD 5.4 billion has been deployed to these three sectors.

DFI efforts to engage directly with SMEs have seen mixed success, largely due to the high fixed costs DFIs incur through an intensive diligence process and often- substantial investment targets for individual deals. In response to this challenge, DFIs began to increasingly fund both conventional funds and impact funds in the late 1990s and early 2000s. This indirect investing approach allowed DFIs to allocate capital specifically for SMEs and private sector development while maintaining a low- risk, large-deal investment profile. As a result, DFIs have been a major driver in more

5 Data on deals before the year 2000 is extremely limited.

DEVELOPMENT FINANCE INSTITUTIONS • 61 than 50% of impact capital committed to East Africa by impact fund managers, with an average of approximately USD 50 million in disclosed DFI funding entering the sector via impact funds in each of the last five years.

A NOTE ON METHODOLOGY

Definitions of the term “DFI” vary substantially. For the present analysis, a DFI is considered to be any predominantly publicly-funded investor that makes direct investments in private-sector companies or funds through any combination of equity, debt, or guarantees with an explicit goal to achieve social and/or environmental impact alongside a financial return. This definition excludes multilateral aid, direct loans to governments, and development programs. In cases where DFIs make private sector investments and fund governments directly, only their private sector activity is considered. Private sector activity includes parastatals and other corporations wholly or partially owned by governments. This analysis excludes national development banks from East African countries due to limited publicly available data and less explicit impact narratives.

62 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA INCENTIVES AND DRIVERS

The public genesis of DFIs plays a major role in shaping their strategic incentives and investing behavior. Unlike private funds, which typically close at a finite fund size and with specific objectives, DFIs are often open-ended, both in terms of annual funding and shifting investment philosophies. DFIs are development motivated and seek investments in markets where others struggle to invest, but also seek investments with commercial returns. Several factors influence their ongoing behavior, as described below.

Political Influences

Many DFIs are funded in large part—and often entirely—by their respective governments, and are in many cases directly subordinate to national ministries of finance or development agencies. As a result, their investment strategies are strongly influenced by national development agendas.6 This applies equally to multinational DFIs like the IFC or the African Development Bank, whose governing boards are made up of high-ranking member government representatives. At the same time, governments often look to multinational DFIs such as the IFC for standards and guidance for their national DFIs. This serves to shape DFI strategy in the following ways:

• Changing investment objectives: DFI investment strategies are shaped by government agendas and can fluctuate over time. Many DFIs revise their over- arching investment strategies over cycles, typically between 3-10 years. Unexpected strategy changes can also occur when new political leadership is inaugurated, either at a country or group level (e.g. World Bank leadership dictating IFC direction).

• More stringent risk standards: Public scrutiny over government funds means that reputational risk is an important consideration for DFIs. Many DFIs have adopted stringent risk standards and vetting procedures to avoid directly or indirectly channeling funds to politically sensitive recipients.7 This limits DFIs’ ability to work with early-stage businesses, or in sectors such as agribusiness, which often face high market concentration around a few incumbents, and a long tail of smaller, less- established, growth-stage businesses. However, as shall be seen later in this chapter, some DFIs are developing new strategies to channel capital towards smaller organizations.

6 For a review of various DFIs’ ownership and governance structures along with much other valuable information see Christian Kingombe, Isabella Massa and Dirk Willem te Velde, Comparing Development Finance Institutions (2011), available at https://www.gov.uk/government/uploads/system/ uploads/attachment_data/file/67635/comparing-DFIs.pdf. 7 See for instance the conditions on “Politically Exposed Persons” in IFC, Correspondent Account KYC Toolkit, A Guide To Common Documentation Requirements (2009), available at http://www.ifc.org/wps/wcm/connect/dfb227004ec4ea109697bf45b400a808/ CORRESPONDENT+ACCOUNT+KYC+TOOLKIT.pdf?MOD=AJPERES.

DEVELOPMENT FINANCE INSTITUTIONS • 63 Capital Allocation and Investment Targets

DFIs often have very specific investment targets by sector, geography, and time frame. These investment quotas encourage DFI investment officers to look for a smaller number of large investment opportunities—particularly when considering the complicated diligence and structuring costs associated with small deals. In East Africa, this appetite for large deals naturally attracts DFIs to capital-intensive industries such as energy, manufacturing, and infrastructure.

This focus is reinforced by the open-ended nature of DFI portfolios. Political agendas and budget cycles mean governments do not generally re-capitalize DFIs at predictable time intervals or amounts. Many DFIs need to rely on portfolio returns to cover overhead expenses while also investing in sectors that fit with development mandates and that do not distort local markets. This emphasis on profitable impact lends itself to investments in infrastructure, where strong government ties and regulatory controls portend relatively stable income streams, and financial services, where investees are often already well-integrated into local markets.

Additionality and Private Sector Inclusion

DFI parent governments and international organizations recognize the potential for their activity to distort private markets with large amounts of public capital. The DFI response to this concern is to seek “additionality”8—DFIs should only be active in regions, sectors, or segments that are challenging for other private sector capital sources. This has led many DFIs to intensify their focus on frontier, fragile, and conflict markets, and to galvanize the private sector. Examples of this activity include:

• Syndicated loans (example IFC “B-loans”):9 Several DFIs offer syndicated loans that focus on including third-party private sector financial institutions as co-lenders in their investments. Under this structure, when DFIs make loans, they retain a portion of the loan for their own account (the “direct” loan) and sell the remainder (the syndicated loan) to participating financial institutions such as banks. This provides participants with lower default risk through the DFI’s strong creditor status while enlarging the pool of capital available to borrowers. This structure’s main challenge is to incentivize local financial players, particularly in markets where commercial rates are significantly higher than rates on the DFI loans, as is often the case in emerging economies.

• Asset management products (example: IFC Asset Management Company):10 In an effort to mobilize more private sector funding for development finance objectives, the IFC launched an asset management arm in 2009 and has raised

8 See for instance IFC Additionality Primer, available at http://www.ifc.org/wps/wcm/ connect/696f81804b06f2adb09afa888d4159f8/Additionality_Primer.pdf?MOD=AJPERES. 9 “B Loan Structure and Benefits”, available at http://www.ifc.org/wps/wcm/connect/topics_ext_ content/ifc_external_corporate_site/ifc+syndications/overview_benefits_structure/syndications/ b+loan+structure+and+benefits/bloanstructuredefaultcontent. 10 “IFC Asset Management Company”, available at: http://www.ifcamc.org/.

64 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA six funds with over USD 6 billion under management. The model is funded by pension funds, insurance companies, and other private sector actors, in addition to public and quasi-public institutions. Close to USD 4 billion has been disbursed across 57 investments globally, and more than 90% of the assets under management are available for investment in East Africa, although this capital broadly targets emerging markets globally.

• Public-private co-financing: Some DFIs make third party co-financing a condition for investment. The DFI will commit an anchor investment, typically for a minority stake, then use their preferred creditor status and their strong reputations to encourage external, often private-sector investors to join in deals that would not otherwise fit their risk profiles. Conversely, DFIs also will provide debt project financing when private entrepreneurs have committed sufficient equity.

DFI IMPACT APPROACH AND INFLUENCE ON IMPACT SECTOR

DFIs have a direct mandate from governments and intergovernmental organizations to promote international development. Evaluating success requires a formalized impact measurement methodology and all of the DFIs with direct investment activity in East Africa stipulate a minimum impact requirement for their investment targets. Broadly, these methods can be grouped into two categories, but individual DFIs may use varying terminology:11

1. Environmental, Social & Governance (ESG) monitoring: This is the broadest impact framework commonly used by DFIs, and it is also utilized by many of the impact investors interviewed for this report. Investees are required to meet threshold requirements limiting environmental damage, safeguarding human rights, and promoting fair and transparent governance structures. The metrics often vary according to the DFI and target company in question. Companies that do not meet these requirements often receive technical assistance to help build the necessary structures for compliance.

As part of its Sustainability Framework, the IFC formulated a set of eight performance standards that investees are required to meet while they are receiving funding.12 These standards form the basis by which most DFIs set their ESG

11 See for instance DEG’s Corporate-Policy Project Rating (2013), available at https://www.deginvest.de/ DEG-Englische-Dokumente/About-DEG/Our-Mandate/Detailed-GPR-Description.pdf, or OPIC’s Environmental and Social Policy Statement (2010), available at: http://www.opic.gov/sites/default/files/ consolidated_esps.pdf. 12 IFC, IFC Performance Standards on Environmental and Social Sustainability (2012), available at http:// www.ifc.org/wps/wcm/connect/c8f524004a73daeca09afdf998895a12/IFC_Performance_Standards. pdf?MOD=AJPERES.

DEVELOPMENT FINANCE INSTITUTIONS • 65 standards. In addition, many other common standards such as the European Development Finance Institutions’ (EDFI) Environmental and Social Standards are derived from the IFC framework. Specifically, the IFC requires investees to meet minimum requirements across each of these standards:

• Assessment and management of environmental and social risks and impacts • Labor and working conditions • Resource efficiency and pollution prevention • Community health, safety, and security • Land acquisition and involuntary resettlement • Biodiversity conservation and sustainable management of living natural resources • Protection of indigenous peoples • Safeguarding of cultural heritage

2. Specific impact objectives: The purpose of the ESG- or IFC-type frameworks mentioned above is to ensure that financially attractive investments meet minimum social and environmental standards. However, some DFIs have recently begun to allocate funds to proactively achieve specific impact objectives, and the variety of approaches used is broad. One example is FMO, the Dutch government DFI, which has a twin focus on both job creation and reducing greenhouse gas emissions. Another example is the recently launched DFID Impact Fund, a CDC-managed fund-of-funds that aims to invest up to GBP 75 million13 in impact funds across sub-Saharan Africa and South Asia. Another DFI, the US- based Overseas Private Investment Corporation (OPIC), recently conducted a thorough segmentation of its investment portfolio to better understand its impact. While all of its investments have “positive development impact”, investments in “high impact sectors” that have been identified as particularly environmentally and socially beneficial accounted for over two-thirds of investments in 2013. Investments with “impact intent” with the explicit goal to address social and environmental challenges alongside financial return accounted for approximately 5% of OPIC’s investments in 2013.14

13 “DFID Impact Fund,” CDC, available at http://www.cdcgroup.com/dfid-impact-fund.aspx 14 “OPIC in Action: Impact Investing,” OPIC, available at http://www.opic.gov/opic-action/impact- investing

66 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA A critical component of DFIs’ development and impact philosophies is to nurture the private sector by fostering SME growth. However, smaller businesses come with higher relative diligence costs, lack the security and assurances of public sector projects, and may require more flexibility than DFIs are typically able to accept. In response, DFIs have addressed these constraints by funding impact fund managers (Figure 2), particularly those focused on SME investments. Indeed, no single factor has done more to shape the impact investing sector in East Africa than the flow of DFI capital into impact funds. Based on disclosed deals and information provided by fund managers, DFIs account for at least 50% of estimated impact capital currently committed to East Africa via impact funds. This figure presents a conservative estimate of the influence of DFI capital in East Africa’s impact funds, as some of the smaller DFIs do not disclose individual deal sizes, although they are known to invest in impact funds. Nevertheless, these figures roughly align with evidence gathered from interviews with impact fund managers, several of whom report an approximately 50/50 split between DFI funding and private sector investments.

FIGURE 2: DISCLOSED DFI FUNDING OF IMPACT FUNDS IN EAST AFRICA

USD MILLIONS 400

300

200 ~USD 310M SINCE 2010

100

0 pre-2010 2010 2011 2012 2013 2014 Unknown

Source: Open Capital Research. Note: 2014 values as of October 2014.

DFI capital disbursed to impact funds during the last five years accounts for close to 50% of total disclosed funding of impact funds by DFIs. Since 2010, disclosed DFI disbursements to impact funds have remained relatively constant at approximately USD 50 million per year, despite a drop in 2012 amid political uncertainty surrounding the Kenyan presidential elections and fears of this spilling into the region.

The prevalence of DFI funding in East Africa’s impact investing ecosystem has important implications (both positive and negative) for impact fund managers:

• DFI importance: DFIs are a major driver in at least 50% of impact capital committed to East Africa via impact funds. This figure underestimates the true significance of DFI capital as DFIs often provide anchor investments, which allow fund managers to raise the balance from other sources such as commercial or philanthropic funding. This makes the impact fund landscape vulnerable to changing DFI priorities. While there is no reason at present to assume they will discontinue support for East African impact vehicles, DFIs have only recently

DEVELOPMENT FINANCE INSTITUTIONS • 67 started placing capital in this manner. The model has yielded mixed results so far, in contrast to the strong returns often achieved by DFIs through their direct investments.15 Few of the actors interviewed see the reliance on DFIs changing until impact funds are able to demonstrate the kinds of commercial returns that would make the sector attractive to larger institutional investors like pension funds. While DFIs also seek financial returns, their development mandate has facilitated more capital to flow into the sector than a strictly commercial approach might warrant.

• Fund manager homogeneity: While a large number of DFIs have funded impact funds in East Africa, the majority of capital has come from a small group of particularly active players. The five most active DFIs account for over 80% of disclosed capital disbursed to impact fund managers. This concentration of capital and resulting influence exerted by this small group has led several fund managers in the region to observe a homogenization of impact funds, which—dependent on DFI anchor capital—look to align themselves with DFI expectations. The resulting similarity between funds exacerbates the perceived shortage of investment targets as many investors are constructed to pursue similar deals.

• Investment manager proliferation: The relative inexperience of the East African impact investing sector and the mixed results thus far on exits and returns have made reinvesting into existing funds difficult for some DFIs. Investor interviews suggest that first-time fund managers generally find it easier to raise capital from DFIs than do existing funds with more ambivalent records. Indeed, only around 15% of disclosed investments by DFIs into impact funds have been repeat investments into the same fund or fund manager. (At the same time, larger private equity fund managers have successfully attracted multiple rounds of DFI funding for successive funds built from a longer track record.) Of course, the flip side to this is that, with DFI support, a greater number of impact fund managers are able to become active, which strengthens the base of intermediation in the market.

15 For instance, it is generally well known that DFI investments in the telecoms space in the 1980s and 1990s performed very strong financially.

68 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA DFI DIRECT INVESTMENT ACTIVITY

Although DFI funding has come to define East Africa’s impact fund landscape, the bulk of DFI capital in the region has taken the form of direct debt or equity investments into enterprises and public-private partnerships. Total disclosed DFI activity in the region amounts to approximately USD 8.5 billion across 536 recorded deals, of which approximately USD 700 million has flowed to impact funds. The remaining USD 7.8 billion has been predominantly invested into energy, financial services, infrastructure companies, and projects, which make up close to 65% of disbursed capital combined (Figure 3). The combination of scale, low risk, ticket size, and large-scale approach to impact, along with government access, has made these sectors particularly attractive to DFIs. This is reflected in average DFI deal sizes, which are almost three times higher for direct investments than for impact fund capitalization (Figure 4, next page).

FIGURE 3: DFI DIRECT INVESTMENTS BY SECTOR

USD MILLIONS # OF DEALS 3,000 180 Capital disbursed 160 2,500 140 2,000 Deals 120 100 1,500 80 1,000 60 40 500 20 0 0

Other Energy Tourism Extractive Agriculture Education Healthcare Construction Infrastructure Manufacturing Consumer Goods Financial Services

Source: Open Capital Research

DEVELOPMENT FINANCE INSTITUTIONS • 69 FIGURE 4: AVERAGE DFI INVESTMENT SIZE

USD MILLIONS 20 18 16 14 12 10 8 6 4 2 0 Investments into Direct impact funds investments

The regional distribution of direct DFI investments mirrors that of non-DFI impact investors. Investments in Kenya make up nearly 50% of capital disbursed, while Kenya, Rwanda, Tanzania, Uganda and Ethiopia together account for almost 80% (Figure 5). This number rises to nearly 98% once investments spanning multiple countries within the region at once (“regional”) are taken into account. Despite their pioneering role in entering new markets, activity outside these five countries has been extremely limited even for DFIs, with only a handful of investments in Burundi, Djibouti, Sudan, and South Sudan, and none observed in Eritrea and Somalia. Note that “regional” direct investments have not been allocated specifically to East Africa, though the number of DFI investees operating across both East Africa and other African regions is still relatively limited today. Investments in regions outside East Africa are excluded.

FIGURE 5: DFI DIRECT INVESTMENTS BY COUNTRY

USD MILLIONS # OF DEALS 4,000 160 3,500 Capital disbursed 140 3,000 120 Deals 2,500 100 2,000 800 1,500 600 1,000 400 500 200 0 0

Kenya Eritrea Sudan Uganda Tanzania Rwanda Ethiopia Burundi Djibouti Somalia Regional South Sudan

Source: Open Capital Research

70 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Unsurprisingly, average deal size by country closely mirrors capital disbursed, as countries with more investment opportunities and more welcoming investor climates are able to build larger businesses, which need larger capital injections (Figure 6). Ethiopia is a notable exception, having seen relatively little capital disbursed by DFIs except in a few large deals in oil and gas, and Ethiopian Airlines’ fleet expansion. Similarly, the limited DFI funding that has been disbursed to Sudan has typically occurred in the form of large investments, mostly into the country’s sugar industry.

FIGURE 6: AVERAGE DFI DIRECT DEAL SIZE BY COUNTRY

USD MILLIONS 35 30 25 20 15 10 5 0

Kenya Sudan Uganda Rwanda Eritrea Tanzania Ethiopia Burundi Djibouti SomaliaRegional South Sudan Source: Open Capital Research. Note: 2014 values as of October 2014.

Across the region, the majority of capital—well over 50%—has been disbursed in deals worth over USD 50 million (Figure 7). This trend is driven primarily by investments into large infrastructure and energy projects that can easily exceed USD 100 million, many of which have gone to fund geothermal, wind, and other renewables projects in Kenya’s booming power sector. Despite these large volume deals, most DFI investments are still in the USD 1-10 million range, though many outlays are in the form of credit guarantees to local banks.

FIGURE 7: DFI DIRECT INVESTMENTS BY DEAL SIZE

USD MILLIONS # OF DEALS 5,000 Capital disbursed 200 Deals 4,000 150 3,000 100 2,000

50 1,000

0 0 < USD 1M USD 1-5M USD 5-10M USD 10-20M USD 20-50M >USD 50M

Source: Open Capital Research

DEVELOPMENT FINANCE INSTITUTIONS • 71 DFIs have shown an overwhelming preference for debt financing for direct investments. More than 70% of DFI capital deployed in East Africa as direct investments has been invested as debt (Figure 8). In many cases this reflects the nature of the project; project finance for infrastructure, for instance, typically requires an upfront equity investment by an independent entrepreneur supplemented by DFI debt. In addition, many DFIs lack the organizational structure to provide the heavy-touch oversight that successful equity investments in local businesses might require. Nonetheless, some DFIs have successfully carved out a niche for themselves by taking minority stakes—typically in medium-sized businesses—providing expertise, market knowledge, and technical assistance in addition to capital. In some instances DFIs have placed both debt and equity into the same investee. A very small amount of direct DFI investment has occurred in the form of grants, though these have only been included in this report if they accompany other forms of financing. These grants are typically made for technical assistance alongside investment capital.

FIGURE 8: DFI DIRECT INVESTMENTS BY INSTRUMENT

USD MILLIONS # OF DEALS 6,000 300 Capital disbursed 5,000 250 Deals 4,000 200 3,000 150 2,000 100 1,000 50 0 0 Equity Debt Debt & Guarantee Grant No info Equity Source: Open Capital Research

72 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Even though 17 DFIs have publicized direct investments in East Africa, the industry is remarkably concentrated. Two DFIs account for over 50% of capital disbursed as direct investments since 2000. The top five DFIs have between them placed over 80% of all DFI disbursements (see Figure 9). This concentration reflects the breadth of institutions active in the space, with smaller national investment corporations operating alongside major international organizations.

FIGURE 9: DFIS ARRANGED BY CAPITAL DISBURSED IN EAST AFRICA (ANONYMIZED)

USD MILLIONS 3,500 3,000 2,500 2,000 1,500 1,000 500 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Source: Open Capital Research

DEVELOPMENT FINANCE INSTITUTIONS • 73 FUTURE TRENDS

DFIs are likely to remain central actors in East Africa’s impact investing landscape. DFI impact funding to the region—both in the form of direct investments and capital placed into impact funds—shows few signs of ebbing and DFIs have publicly expressed their intentions to redouble their impact investing activities in Africa’s emerging markets. In its 2014-2016 Road Map, for instance, the IFC lists its main strategic priorities as strengthening its focus on frontier markets, addressing climate change and social sustainability, addressing private sector infrastructure constraints, and developing local financial markets, focusing particularly on access to finance for SMEs.16 Impact fund managers and ecosystem players anticipate little shift in DFI sectoral or geographic focus, though, as economies like Ethiopia continue to develop their budding private sectors, it seems likely that increased DFI funding will follow. Rather, the key trend is DFIs’ increased efforts to deploy capital more effectively by preparing businesses and impact funds for investment.

Some DFIs such as Belgium’s Belgische Investeringsmaatschappij voor Ontwikkelingslanden (BIO) have begun to provide grants for technical assistance along with their debt and equity investments. These grants typically fund external consultants to provide pre-investment or post-investment support directly to portfolio companies. DFIs are increasingly exploring the possibility of adding specifically earmarked technical assistance capital to their fund investing activity. This additional capital, most often in the form of grants, would be used to fund intermediaries and build investment-readiness for their potential direct investments. A specific example of this trend is DFID’s recently launched GBP 75 million Impact Fund, managed by CDC. The fund will not invest directly but will deploy capital through impact funds, non-profit organizations, and holding companies, and is supported by a separate GBP 7.5 million technical assistance facility. There is great potential value for these facilities in markets characterized by successful but often highly informal businesses. At the same time, DFI representatives caution that appropriate incentives need to be in place for technical assistance funds to be managed effectively. Having investees contribute to the costs of technical assistance, for instance, signals commitment and ensures buy-in on the part of businesses. Additionally, fund managers will need to devote sufficient resources to selecting consultants—ideally together with businesses—and appropriately scoping and monitoring technical assistance projects.

16 IFC, IFC ROAD MAP FY14-16 Leveraging the Private Sector to Eradicate Extreme Poverty and Pursue Shared Prosperity(2013), available at http://www.ifc.org/wps/wcm/ connect/1d30b9004028f151b28fff23ff966f85/Road+Map+FY14-16+redacted.pdf?MOD=AJPERES

74 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA KENYA TRADITIONAL LEADER, REGIONAL POWERHOUSE

KENYA • 75 INTRODUCTION

Kenya and its capital city Nairobi are the center of East African impact investing. As the economic and financial capital of East Africa, Kenya boasts the largest concentration of impact investors and the most impact capital disbursed. Nairobi is often the first port of call for both impact and conventional investors operating in the region, even if they look for opportunities beyond Kenya. Indeed, when comparing the countries in the region, Kenya comes out on top for virtually every metric measured for impact investing in this study.

Beyond activities in impact investing, the Nairobi Stock Exchange launched the Growth Enterprise Market Segment (GEMS), specifically designed to provide a way to publicly list smaller companies. Though GEMS has seen limited uptake to date, the platform represents a broader market commitment to small and medium enterprise (SME) support.1 The Kenyan banking sector has also been expanding their SME lending. This includes expanded product ranges with new structures like trade financing as well as extensive marketing and outreach efforts. While hurdles like high collateral requirements remain, small and medium enterprises (SMEs) increasingly gain access to financing through both impact and conventional sources.

The greatest threat to Kenya’s central role in East African impact investing relates to ongoing concerns around the country’s security and political stability. Kenya has suffered numerous terrorist attacks from the Somali terrorist group Al-Shabaab, the most visible of which was an attack the Westgate shopping mall attack in September 2013. In addition to these attacks, Kenya’s overall political stability has been fragile since the dramatic post-election violence in 2007-2008. Nevertheless, concerns over the security and political situations appear to have subsided as of this writing in early 2015.2

FIGURE 1: MAP OF KENYA

KENYA

1 Most of the non-DFI impact investors active in Kenya focus on early-stage businesses that have some track record and operational structures in place. For more detail on this early-stage focus, please see the East Africa regional chapter of this report. 2 Information for this report was gathered prior to the April 2015 attack at Garissa University College. The insights presented here do not reflect possible changes in the perception of stability following that event.

76 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA COUNTRY CONTEXT

With the exception of post-election violence in 2007-2008, Kenya is generally considered to be one of the strongest and most stable countries in the region. This is reflected across economic indicators, though the country still requires support to improve human development indicators and increase linkages between disadvantaged populations and the rapidly growing national economy.

Gross Domestic Product

Kenya has seen strong growth in recent years, averaging 6% GDP purchasing power parity (PPP) growth year-on-year for the last ten years (see Figure 2). GDP currently stands at approximately USD 87 billion in PPP terms, and USD 52 billion in current price terms, making it a strong regional player and the largest economy in the East African Community trading block, which includes Kenya, Uganda, Rwanda, Tanzania, and Burundi.3

FIGURE 2: GDP (PPP), 2004–2013

USD BILLIONS 100

Kenya averaged ~6% annual 80 GDP growth for last 10 years

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: IMF World Bank Economic Outlook, April 2014

Estimated GDP jumped 25% in September 2014, when Kenya re-based its GDP currency calculation by changing the base year from 2001 to 2009.4 The higher figure improved Kenya’s debt-to-GDP ratio, which may help the government borrow money at more favorable rates in international markets. However, re-basing increased Kenya’s GDP per capita to just over USD 1,200 and moved it from “low-income” country

3 Farai Gundan, “Kenya Joins Africa’s Top 10 Economies After Rebasing of Its Gross Domestic Product (GDP),” Forbes (Oct. 1, 2014), available at http://www.forbes.com/sites/faraigundan/2014/10/01/ kenya-joins-africas-top-10-economies-after-rebasing-of-its-gross-domestic-product. 4 Ibid.

KENYA • 77 status to “middle income,” which could reduce access to low-interest foreign debt available through the World Bank and International Monetary Fund.5

Re-basing improved the 2013 GDP growth rate from an estimated 4.7% to 5.7%.6 Regardless of re-basing, Kenya has enjoyed strong GDP growth over the last decade, interrupted only in 2008/2009 in response to both the post-election violence and the global financial crisis.7 This follows inconsistent growth in the 1990s, with GDP growth ranging from negative figures to 4%.8

In addition, the industrial sector is expected to grow in the next few years in response to Kenya’s strong push to expand power generation, which is ongoing. The government has committed USD 1.8 billion to add 5,000 MW in power supply capacity by 2017, building on its 1,664 MW of current capacity in an attempt to reduce inconsistent supply and planned blackouts, which currently pose challenges for the manufacturing and processing industries.9

5 Farai Gundan, “Kenya Joins Africa’s Top 10 Economies After Rebasing of Its Gross Domestic Product (GDP),” Forbes (Oct. 1, 2014), available at http://www.forbes.com/sites/faraigundan/2014/10/01/ kenya-joins-africas-top-10-economies-after-rebasing-of-its-gross-domestic-product; David Malingha, “Kenya Overtakes Ghana, Tunisia as Data Revision Boosts GDP,” Bloomberg Business (Sep. 30, 2014), available at http://www.bloomberg.com/news/articles/2014-09-30/kenya-overtakes- ghana-tunisia-as-size-of-economy-climbs-by-25-. 6 Ibid. 7 World Economic Outlook: Gross Domestic Product, International Monetary Fund (Apr. 2014), available at http://www.imf.org/external/pubs/ft/weo/2014/01/weodata/download.aspx. 8 “Economy,” Denmark in Kenya: Ministry of Foreign Affairs of Denmark, available at http://kenya. um.dk/en/about-kenya-new/economy-new/. 9 George Obulutsa, “Kenya Power to Invest $1.8 B in % 5 years to Expand Network,” Reuters (Oct. 11, 2013), available at http://www.reuters.com/article/2013/10/11/kenya-power-idUSL6N0I11RQ20131011.

78 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Foreign Direct Investment (FDI)

Strong GDP growth has been accompanied by increasing FDI. In 2013, there were more than USD 500 million in FDI inflows (see Figure 3).10 Despite these robust absolute FDI inflows, a strong local economy means that Kenya has the second lowest FDI as a percentage of GDP of any country in the region.

FIGURE 3: FDI FLOWS, 2004–2013

USD MILLIONS

800 Spike in 2007 due to privatization of Telkom Kenya & entry of new telcom provider 600

400

200

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: UNCTAD

10 Inward and Outward Foreign Direct Investment Flows: Annual 1970-2013, United Nations Conference on Trade and Development, available at http://unctadstat.unctad.org/wds/TableViewer/tableView. aspx?ReportId=88.

KENYA • 79 The single largest source of FDI remains the United Kingdom, of which Kenya was formerly a colony. Together with Mauritius and the Netherlands, these three countries originate more than 50% of all Kenyan FDI inflows, predominately through equity vehicles (see Figures 4 and 5).11 Strong FDI inflows are also expected in the future, given recent oil discoveries near Lake Turkana and continuing plans to develop the Lamu corridor pipeline and port.

FIGURE 4: FDI INFLOWS, BY COUNTRY OF ORIGIN, 2012 FIGURE 5: FDI INFLOWS, BY INSTRUMENT, 2012

100% Others 100% Debt instruments South Africa Equity positions 80% France 80% Netherlands

60% Mauritius 60% UK

40% 40% 3 countries accounted >75% of direct for >50% of total inflows investments 20% 20% were equity

0% 0%

Source: US Department of State Source: US Department of State

11 After the UK, Mauritius and the Netherlands constitute the next two largest sources of FDI into Kenya. Despite these two countries’ relatively small size, they represent a large source of FDI because many private equity and venture capital funds base themselves in these jurisdictions to benefit from favorable tax regimes.

80 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Inflation and Exchange Rates

Kenyan inflation has been extremely volatile, fluctuating from around 4% to more than 15% (Figure 6). In addition, concerns about foreign exchange rates complicate impact investors’ ability to disburse local currency debt. The Kenyan Shilling has steadily depreciated against the US dollar since 2008, reaching approximately 90- to-1 in late 2014, reducing the hard currency value of any local currency debt that international investors disburse in Kenya.

FIGURE 6: INFLATION AND USD/KES EXCHANGE RATE, 2004 - 2013

USD/KES 16% 120 USD/KES exchange rate 14% Inflation 100 12% 80 10%

8% 60

6% 40 4% 20 2%

0% 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: World Bank Indicators

However, impact investors are most concerned by the sudden spike in foreign exchange rates in 2011, when the Kenyan Shilling depreciated sharply against the dollar and then rapidly returned to prior levels. In that year, the Kenyan Shilling was one of the most volatile currencies in the world. Multiple potential reasons for this volatility have been given, including policy changes made by the Central Bank of Kenya in 2010 and the increasing macro-economic imbalance of Kenya’s economy.12 Regardless of the cause, such rapid swings expose investors to potentially sudden and significant foreign exchange losses, which in turn limit their ability and interest to lend in local currency. Please see the East Africa regional chapter for additional discussion of local currency dynamics.

12 Wolfgang Fengler, “Why has the Kenyan Shilling declined so sharply?” The World Bank Group (Oct. 17, 2011), available at http://blogs.worldbank.org/africacan/why-has-the-kenyan-shilling- declined-so-sharply; AfDB, OECD, UNDP, UNECA, Kenya (2012), available at http://www. africaneconomicoutlook.org/fileadmin/uploads/aeo/PDF/Kenya%20Full%20PDF%20Country%20 Note.pdf.

KENYA • 81 SUPPLY OF IMPACT INVESTING CAPITAL

Excluding DFIs,13 at least 136 impact capital vehicles are active in Kenya, managed by some 95 impact investors. Most non-DFI impact investors in Kenya work in multiple countries, but at least USD 240 million has been committed specifically to investments in Kenya (Figure 7). Beyond these dedicated funds, there is nearly USD 2.5 billion in capital committed regionally that could be deployed in Kenya and, following historical deal flow, is more likely to be deployed in Kenya than in any other country.

FIGURE 7: TOTAL CAPITAL COMMITTED BY NON-DFI IMPACT INVESTORS

USD MILLIONS 2,500

2,000

1,500

1,000

500

0 MULTIPLE COUNTRIES, ONLY KENYA INCLUDING KENYA

Source: Open Capital Research

13 Due to the unique nature and large size of development finance institutions (DFIs), the authors of this report analyzed their activity separately from those of other types of impact investors (“non- DFI”), and present this separate analysis when appropriate. See the Introduction and Methodology section of this report for more details.

82 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Broader Investing Landscape

Despite the volume of impact investing activity in Kenya, it represents a small part of the overall investment picture. For example, banks, SACCOs,14 and chamas15 together have almost USD 39 billion in total assets under management and there are other sources of capital, such as commercial private equity funds, hedge funds, and others, that even further increase assets under management (Figure 8). Banks had more than USD 17 billion in loans outstanding in 2013 alone, which is almost 27 times the disbursements made by non-DFI impact investors and more than 4 times more than disbursements made by all impact investors over the same period.16

FIGURE 8: IMPACT CAPITAL RELATIVE TO OTHER FINANCIAL ASSETS

USD BILLIONS

35 31.5 30 Banking sector total assets

25 SACCOs total assets

20 Chamas total assets

15 Non-DFI impact investors total capital committed

10 3.9 3.5 5 2.7

0 TOTAL ASSETS

Source: Central Bank of Kenya, SACCO Societies Regulatory Authority, Kenya Association of Investment Groups, Open Capital Research

Impact investing fills an important gap in the market for early-stage financing, even though it only represents a small portion of total investment activity to date. Though more willing to lend than banks in much of the region, Kenyan banks remain risk averse and are usually unwilling to invest in start-up or early-stage enterprises. When willing to lend, banks typically require extremely high collateral ratios, occasionally higher than 100% of the loan amount. Many early stage businesses are unable to satisfy these requirements. Kenyan banks are improving access, offering creative structures like trade financing or crop cycle-based repayments, but there still remains a large gap in the market for early-stage investments that may be higher risk. Even if a business can post required collateral, Kenyan bank interest rates are high and have steadily increased over the past decade, rising from 12.5% in 2004 to 17.3% in 2013.

14 SACCOs are cooperative savings groups that typically take deposits and offer loans. SACCOs are formally recognized institutions and are subject to government regulation. 15 Chamas are informal lending associations set up voluntarily. Though similar in function to SACCOs, they are not legally recognized. Nevertheless, chamas are extremely common and most Kenyans belong to at least one chama. 16 Central Bank of Kenya, Bank Supervision Annual Report (2013), available at https://www.centralbank. go.ke/images/docs/Bank%20Supervision%20Reports/Annual%20Reports/2013BSD.pdf; Open Capital interviews.

KENYA • 83 Indeed, in 2012 interest rates spiked to nearly 20%, more than four times higher than the average bank interest rate in the United States over the last ten years, which stood at over 4%.17

These high interest rates limit the practical availability of bank financing. For example, despite strong demand for new housing, there are less than 14,000 mortgages in Kenya,18 due in part to the high cost of debt. This limited availability for conventional financing structures provides a market opportunity for private investors who are able to provide equity capital, cheaper debt options, or who require less collateral for lending to both consumers and companies.

Impact investors fill an important role to identify innovative solutions that address difficult sectors and circumstances that conventional investors may overlook or dismiss, providing needed capital to businesses that would otherwise struggle to access finance. By contrast, most local banks, chamas, SACCOs, and conventional sources do not have an impact focus and therefore do not look to invest in social enterprises. Chamas, for example, are an excellent source of local capital, but tend to focus on financial returns, investing in real estate, deposits, and treasury bonds, rather than the innovative new businesses that impact investors often seek.

Impact Capital Disbursed

Kenya’s pre-eminent position in East African impact investing is illustrated in the numbers. Most tellingly, almost half of all impact capital disbursed in East Africa has been placed in Kenya—this represents more than USD 650 million of non-DFI capital and more than USD 3.6 billion of DFI capital (Figure 9). This is more than double the amount deployed in the next most active country in East Africa (Uganda) for non- DFI investments.

FIGURE 9: IMPACT INVESTMENTS IN KENYA

Deals Capital disbursed made

DFI usd 3.6 Billion 136

NON-DFI usd 650 Million 221

Source: Open Capital Research

17 World Development Indicators: Lending Interest Rates (%), The World Bank Group (2014), available at http://data.worldbank.org/indicator/FR.INR.LEND?page=2. 18 Simon Walley, The World Bank, Developing Kenya’s Mortgage Market (2011), available at http:// siteresources.worldbank.org/FINANCIALSECTOR/Resources/Kenya_Expanding_Mortgage_ Finance_May_2011.pdf.

84 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA In addition, Kenya boasts the largest number of non-DFI impact capital vehicles (136) and the most non-DFI impact capital committed, with over USD 240 million committed specifically to Kenya and a further USD 2.5 billion committed to multiple countries, including Kenya. These figures are similar to most East African countries, as most impact capital vehicles have a wide geographic focus spanning multiple countries in East Africa and often Sub-Saharan Africa. However, despite the fact that about 90% of the capital committed to Kenya could be deployed elsewhere, Kenya is more likely to receive regionally committed capital if the pattern of historical deal flow continues.

Investments over Time

Impact investing remains a relatively young sector. Non-DFI impact investors have been present and investing in Kenya for more than a decade, but the limited data available with specific dates for non-DFI impact investments prevents more definitive conclusions. Nevertheless, non-DFI impact investors almost universally report that impact investing activity began to pick up after 2008. Given this timeline, many non-DFI impact portfolios in Kenya are beginning to seek exits from their earlier investments. There are still few examples of successful exits and it will be interesting to see what exit examples emerge over the next 5-10 years.

The industry’s youth is also reflected through DFI direct investments, which have grown over the last four years, especially since 2010 (Figure 10). In addition to an increasing number of deals, the average deal size has also increased, driven in part by large energy projects such as the Lake Turkana Wind project and larger disbursements into commercial banks. The slight decline in deals for 2014 in Figure 11 is likely the product of incomplete data reporting at the time of data collection in late 2014, as many investors attempt to close final deals before the end of the year.

FIGURE 10: DFI DIRECT INVESTMENTS BY YEAR

USD MILLIONS Capital disbursed Deals # OF DEALS 900 60 800 700 50 600 40 500 30 400 300 20 200 10 100 0 0 Pre 2010 2010 2011 2012 2013 2014 Unknown

Source: Open Capital Research

KENYA • 85 Sector

The distribution of investments by sector broadly reflects impact investor interest areas (Figure 11). Most non-DFI impact investors have expressed interest in agriculture and financial services as target sectors, while these two sectors have also received the most deals (more than 40% of all deals in Kenya). Despite a slightly larger number of deals in agriculture, the large investment sizes possible when placing capital into established banks and MFIs drives a larger total amount of capital to financial services. Similarly, housing projects tend to have larger average deal sizes than other sectors as these projects must often internally finance mortgages for low- income customers in addition to funding typically large construction costs.

FIGURE 11: NON-DFI IMPACT INVESTMENTS BY SECTOR

USD MILLIONS Capital disbursed # OF DEALS 200 70 Deals 160 60 50 120 40 80 30 20 40 10 0 0

NUMBER OF NON-DFI 62 34 43 62 37 18 26 62 20 12 IMPACT INVESTORS INTERESTED IN SECTOR

ICT Energy Other WASH Housing Unknown Agriculture Education Healthcare

Financial services

Source: Open Capital Research

Despite their prominence as interest sectors for non-DFI impact investors, education and energy have seen significantly fewer deals. The disconnect between interest in these sectors and the number of deals implies that impact investors see fewer viable, investible opportunities and have difficulty placing capital.

86 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA By contrast, DFIs overwhelmingly favor direct investments in financial services (more than 38% of all investments) and energy (roughly 14% of all investments). These two sectors have received more than 70% of the total capital disbursed directly by DFIs, driven by large energy projects such as a dams and wind farms as well as significant investments in local commercial banks (Figure 12).

FIGURE 12: DFI DIRECT INVESTMENTS BY SECTOR

USD MILLIONS Capital disbursed # OF DEALS 1,600 60 1,400 Deals 50 1,200 1,000 40 800 30 600 20 400 200 10 0 0

Other Energy Tourism Extractive Agriculture Education Healthcare Construction Infrastructure Manufacturing Consumer goods Financial services

Source: Open Capital Research

KENYA • 87 Deal Size

Examining the size of deals disbursed reveals that almost two-thirds of non-DFI impact investments in Kenya are between USD 500,000 and USD 5 million, with the average deal size at just over USD 3 million (Figure 13). Around 11% of deals are below USD 250,000, though interviews suggest that many of these transactions anticipate placing larger amounts of capital through later tranches. In particular, non-DFI impact investors tend to look for businesses that are young but have at least some key operational structures and track record in place.

FIGURE 13: NON-DFI IMPACT INVESTMENTS BY DEAL SIZE

USD MILLIONS # OF DEALS 100 300 Capital disbursed 250 Deals 80 200 60 150 40 100 50 20 0 0

USD 1-5M > USD 10M < USD 250K USD 5-10M USD 500K-1M USD 250-500K

Source: Open Capital Research

By contrast, DFI direct investments are typically significantly larger. The overall average deal size for DFI direct investments stands at more than USD 26 million, nearly nine times the average size of non-DFI impact investor deals (Figure 14). This large ticket size is driven primarily by large investments in energy projects as well several large placements in commercial banks. Moreover, though deals under USD 10 million constitute roughly 50% of the total direct DFI investments, just 3% of direct DFI deals were under USD 1 million, compared to more than 50% of deals made by non-DFI impact investors.

FIGURE 14: DFI DIRECT INVESTMENTS BY DEAL SIZE

USD MILLIONS # OF DEALS 3,000 Capital disbursed 50 2,500 Deals 40 2,000 30 1,500 20 1,000 500 10 0 0 < USD 1M USD 1-5M USD 5-10M USD 10-20M USD20-50M > USD 50M

Source: Open Capital Research

88 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Instrument

Due to lack of available data at the time of writing, this report is unable to provide a definitive break-down of non-DFI direct investments by instrument in Kenya. However, investors interviewed report that in recent years they have begun to adopt more creative investment instruments beyond the traditional debt and equity used in most of the known deals. In Kenya, more than anywhere else in East Africa, non-DFI impact investors report increasingly using quasi-equity structures such as convertible debt or revenue-participating debt. Reflecting their focus on earlier stage investments, these structures help balance investor risk and return expectations with the typically limited cash flows common to early-stage companies.

Though creative structures have become increasingly common among non-DFI impact investors, DFI direct investments have been overwhelmingly in the form of debt, with some additional equity deals (Figure 15). Debt investments constitute nearly 75% of all capital disbursed by DFI direct investments and more than 60% of all direct DFI deals. Together, debt and equity investments account for more than 75% of all direct DFI deals and more than 85% of capital disbursed through DFI direct investments.

FIGURE 15: DFI DIRECT INVESTMENTS BY INSTRUMENT

USD MILLIONS # OF DEALS 3,000 Capital disbursed 100 2,500 80 Deals 2,000 60 1,500 40 1,000 20 500 10 0 0

Debt Grant Equity No info Guarantee Debt & equity Source: Open Capital Research

KENYA • 89 Local Presence

In addition to the intensity of investing activity in Kenya itself, impact investors increasingly place local FIGURE 16: IMPACT INVESTORS WITH LOCAL OFFICES staff in Kenya as a gateway to reach the entire region; there are now five impact investors that have chosen to headquarter their operations in Nairobi and 43 more have local offices (see Figure 16). In addition to Sudan 6 offices in Addis the staff on the ground, Nairobi is the most common Eritrea destination when impact investors based abroad visit Djibouti the region. • This concentration of impact investor presence does S. Sudan Ethiopia 12 offices Somalia not extend beyond the capital. However, an increasing Uganda number of impact investors are actively looking for in Kampala Nairobi is • Kenya regional deals in Kenya’s rapidly growing second-tier cities, as Rwanda • • hub with Burundi •• well as in the other countries in the region (particularly 48 offices Tanzania Uganda and Tanzania). Nairobi is so central to the • impact investing industry in East Africa that some impact investors have begun to voice concerns that the 9 offices in Kigali 14 offices Nairobi market may be saturated. In fact, some impact in Tanzania (Dar, Arusha, & Moshi) investors have deliberately based their staff outside of Kenya to avoid the perceived saturated market.19 Source: Open Capital Research This proposition is contested, however, as some impact investors argue that creative, locally-connected investors are able to source high-quality deals without competition.

Beyond pipeline development, impact investors see significant value in strong local networks as they evaluate opportunities. Investing in this market, with limited legal recourse, requires implicit trust between the impact investor and the entrepreneur. Particularly if an enterprise has been operating informally, it can be difficult to evaluate its history. As such, being embedded in local social networks that can evaluate the trustworthiness of the entrepreneur is extremely important. Deep social and professional networks that extend beyond the impact investing sector will be difficult to develop without long-term local presence.

Impact Tracking Standards

Impact investors’ dual mandate to realize both financial and social/environmental returns requires a strong focus on measuring impact as part of their core activities. As in the rest of East Africa, most impact investors in Kenya create tailored metrics for each portfolio company to accurately capture individual impact and reduce administrative burdens. For more detail on impact measurement in East Africa, see the East Africa regional chapter of this report.

19 See, e.g., Mango Fund and HRSV.

90 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA DEMAND AND NEED FOR IMPACT INVESTING CAPITAL

There is strong demand for impact capital from entrepreneurs operating in Kenya. Despite Kenya’s progress and relative development compared to other countries in the region, significant gaps remain in the provision of key goods and services, creating opportunities for entrepreneurs to build enterprises that fill these needs while also realizing financial returns.

Development Context

Despite robust economic growth and official recognition as a middle-income country in 2014, Kenya remains well below global averages for human development indicators (HDI) as defined by the United Nations (see Figure 17). Overall, Kenya ranks 147th out of 187 countries according to the UN HDI Index, which is a composite statistic of a number of metrics, including health, education, and income indices.20

FIGURE 17: UN HDI SCORES, 2008-2013

UN HDI 0.8 0.7 0.6 Global average 0.5 Kenya 0.4 0.3 0.2 0.1 0.0 2008 2009 2010 2011 2012 2013

Source: United Nations Human Development Report 2014. Note: 2014 report does not include 2009 HDI scores. 2009 scores shown are calculated as an average of 2008 and 2010 scores

20 2014 Human Development Index, United Nations Development Programme (2014), available at http://hdr.undp.org/en/data.

KENYA • 91 This low ranking is driven by Kenya’s performance in key developmental indicators. For example, more than 43% of Kenyans live on less than USD 1.25 per day, well above the global average of roughly 25% (Figure 18). Similarly, more than 45% of Kenyans live below the Kenyan national poverty line, compared with roughly 35% on average globally. Notably, however, less than 16% of Kenyans live in extreme poverty as compared with 18% globally.21

Kenya also considerably underperforms global averages on key health metrics. Kenya’s indicator for under-five mortality is more than 50% higher than the global average, reflecting unequal access to healthcare between wealthy and low-income populations. Under-five stunting, an effective proxy for childhood health and long-term prosperity, is roughly 30% higher than global averages (Figure 19).22

FIGURE 18: POPULATION BELOW USD 1.25 / DAY FIGURE 19: UNDER-5 MORTALITY AND STUNTING (LATEST AVAILABLE DATA POINT) (LATEST AVAILABLE DATA POINT)

UNDER-5 60% DEATHS PER POP 1,000 BIRTHS STUNTED 40% 90 40% Global averages Global 20% 60 Stunting average 20% Under-5 0% 30 mortality KENYA 0 0% KENYA

Source: UN Human Development Report 2014 Source: UN Human Development Report 2014

21 2014 Human Development Index, United Nations Development Programme (2014), available at http://hdr.undp.org/en/data. 22 Ibid.

92 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA On both health and poverty metrics, Kenya broadly resembles the rest of East Africa, though tends to be higher than regional averages. However, on some educational metrics, Kenya significantly outperforms the region, though it still remains well below global norms. For example, nearly 30% of Kenyans age 25 and above have at least some secondary education, which is nearly twice the East African average but only half the global average. Approximately 60% of appropriately aged Kenyans are currently enrolled in secondary education, which is also nearly twice the East African average but less than the global average of 74% (Figure 20). However, Kenya remains close to East African averages along other educational metrics, such as literacy rates and gross enrollment in tertiary education.23

FIGURE 20: KEY EDUCATION INDICATORS (LATEST AVAILABLE DATA POINT)

100% Global averages 80% Secondary 60% gross enrollment

40% Pop with some 20% secondary education

0% KENYA

Source: UN Human Development Report 2014

23 2014 Human Development Index, United Nations Development Programme (2014), available at http://hdr.undp.org/en/data.

KENYA • 93 Educational metrics are a particularly important barometer for future progress because of Kenya’s demographics. Like other East African countries, Kenya has a disproportionately young population, where almost 45% is under the age of 15 and more than 60% is under age 25 (Figure 21).24 This has led to high youth unemployment, but higher levels of education make it more likely that the youth boom will translate to positive economic growth as these youth enter new employment opportunities and begin to create entrepreneurial activity.

FIGURE 21: POPULATION BY AGE AND GENDER

AGE 100+ 95-99 90-94 85-89 80-84 75-79 70-74 65-69 Male 60-64 Female 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4

4 3 2 1 0 0 1 2 3 4

POPULATION POPULATION (MILLIONS) (MILLIONS)

Source: UN ESA, World Population Prospects

24 “The World Factbook: Kenya,” Central Intelligence Agency (Jun. 20, 2014), available at https://www. cia.gov/library/publications/the-world-factbook/geos/ke.html.

94 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Entrepreneurs

Kenyans are generally strongly entrepreneurial, and both entrepreneurs and impact investors see opportunities for new businesses across sectors including education, housing, healthcare, water and sanitation, energy, etc. Correspondingly, social enterprises seek capital across the spectrum of funding from start-up and SME-size deals to capital for scaling up, though they are primarily start-up and early-stage businesses. This matches the focus for many non-DFI impact investors, who primarily target earlier-stage businesses, and also aligns with the local landscape. As with the rest of East Africa, there are few mature social enterprises.

However, despite Kenya’s relatively developed business environment compared to the rest of East Africa, entrepreneurs still face substantial challenges, including difficulty accessing capital to test their ideas in the market, limited management capacity, informal operations, a lack of realistic forward-looking projections, and limited detail describing ways they would use capital raised. For more detail about the challenges facing early-stage entrepreneurs, see the East Africa regional chapter of this report.

Though these challenges are less common in growth-stage companies, high- potential, rapidly scaling companies are rare even in Kenya. Those who have reached this stage are generally well known. When these businesses seek capital from impact investors, they are generally highly desirable investments and generate competition among impact investors and/or a large number of co-investors.

KENYA • 95 ENABLING IMPACT INVESTING: THE ECOSYSTEM

Kenya is home to almost 50% more intermediaries, service providers, and other ecosystem players than any other East African country. The broader business environment is becoming more supportive and sophisticated, providing more options to partner with suppliers, distributors, and other commercial entities. It is expected that Kenya’s strong growth will continue as it garners more attention and support.

Regulatory Environment

Overall, Kenya has a welcoming regulatory climate with few distinctions between foreign and local investors. According to the World Bank’s Ease of Doing Business rankings, it is one of the easier places to do business in East Africa, ranking 4th of the 11 countries in the region, and 12th in Sub-Saharan Africa overall.25

The primary regulatory risk in the near future is Kenya’s ongoing devolution process, designed to provide increasing autonomy to local county governments. The new 2010 Kenyan Constitution devolved significant powers from the central government to 47 newly created county governments. The exact division of responsibilities between the national government and the counties is still unclear and is only outlined in broad strokes in the constitution, leading to uncertainty about which level of government to approach for regulation. Devolution has also expanded the number of organizations with regulatory power, opening the door to inconsistent regulations and enforcement in different counties and correspondingly complex compliance requirements.

Despite this, the overall regulatory climate in Kenya supports foreign investment across a number of dimensions:

• Repatriation of profits and dividends: Kenyan law actively protects foreign investor exits, guaranteeing capital repatriation and remittance of both dividends and interest. Foreign investors can convert and repatriate profits without difficulty, including un-capitalized retained earnings. The only salient difference between local and foreign investors in this regard is that the withholding tax on dividends distributed to residents and East African Community citizens is 5% compared to 10% for foreign nationals.

• Foreign exchange controls: Kenya has open foreign exchange rules. Foreign exchange is freely available from commercial banks and can be acquired at similar rates by locals and foreign nationals. Exchange across East Africa still poses a significant risk, as hedging tertiary global currencies can be prohibitively expensive, especially for smaller transactions. Since 2011, when the Kenyan Shilling lost and recovered more than 25% in the course of a year, Kenya has successfully managed

25 “Economy Rankings,” The World Bank Group (Jun. 2014), available at http://www.doingbusiness.org/ rankings.

96 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA foreign exchange risk, with the Kenyan Shilling depreciating less than 4% on an annual basis using a free-floating exchange.26

• Leasehold structure for foreign land ownership: The most prominent regulatory restriction in Kenya is on foreign ownership of land, particularly agricultural land. Land is a charged issue in Kenya and the basis for considerable ongoing political dispute. Land use, management, and ownership were among the key issues that led to the new constitution in 2010. The new constitution mandated that non- citizens can only hold land in 99-year leases directly from the government and automatically converted all previous foreign ownership interests to leases. These leases have no rent, but the leasehold structure permits the government to reclaim the land later if desired.

• Agricultural land: Agricultural land is defined as land that is outside the municipality jurisdiction and which has not been approved for another purpose.27 All transactions involving agricultural land must be approved by the Land Control Board, which will not approve transactions to non-citizens. To circumvent this sweeping restriction, some non-citizens have formed companies owned entirely by Kenyan citizens while retaining control by appointing non-citizen directors and requiring the shareholders to sign agreements giving the non-citizens control of the shares, if not legal ownership. This allows the formal requirements of the law to be met while enabling non-citizens the use and control of agricultural lands.28

• Local ownership requirements: By and large, Kenya does not restrict foreign investors from owning shares in a company except in a few specific industries. These industries include insurance (wherein foreign ownership is capped at 66.7%), telecommunications (80%), mining (65%), shipping (49%), fisheries (49%), and publicly listed companies (75%).29 In addition, foreign brokerage companies and fund management firms are only allowed to participate in the local capital market through locally registered companies, which must have Kenyan ownership of 30% and 51% respectively.30 This regulation pertains specifically to public markets, and does not apply to private placements common for impact investors. Similarly, there are no prohibitions on the acquisition of Kenyan firms by foreign-owned firms or on joint venture arrangements between Kenyans and foreigners.

26 “Historical Exchange Rates,” OANDA, available at http://www.oanda.com/currency/historical-rates/. 27 “Foreign Ownership of Shares and Land Protection of Foreign Investors,” International Law Office (Mar. 12, 2007), available at http://www.internationallawoffice.com/newsletters/detail. aspx?g=7bb56275-1bcb-db11-adf6-001143e35d55. 28 James Makau,”Foreigners Form Dummy Firms to Keep Kenyan Land,” Business Daily (Aug. 4, 2010), available at http://www.businessdailyafrica.com/Corporate-News/Foreigners-form-dummy- firms-to-keep-Kenyan-land/-/539550/970374/-/11inr7x/-/index.html; Hogan Lovells, Kenyan Land Act: Questions (2012), available at http://www.hoganlovells.com/files/Publication/218e0b4a- 79f1-4a92-8c34-b6cad0af48b3/Presentation/PublicationAttachment/c079f758-aca3-438c-8260- e5813cab485d/Africa_September_2012_newsletter_-_Kenya_Land_Act_questions_article.pdf. 29 “Foreign Ownership of Shares and Land Protection of Foreign Investors,” International Law Office (Mar. 12, 2007), available at http://www.internationallawoffice.com/newsletters/detail. aspx?g=7bb56275-1bcb-db11-adf6-001143e35d55; U.S. Department of State, Department of State: 2014 Investment Climate Statement (2014), available at http://www.state.gov/documents/ organization/229096.pdf. 30 The Africa Asia Business Forum, Kenya Investment Guide, available at http://www.aabf.org/kenya_ inv_guide.htm.

KENYA • 97 • Government enterprises: Once occupying a prominent place in the economy, the Kenyan government has largely exited the private sector except in certain key industries, like energy. To the extent that parastatals are still active, they largely compete on a level playing field with the private sector.31

Kenya’s Companies Act makes it clear that enterprises intending to profit from their activities must incorporate using traditional company structures. In addition, it can take significant time and compliance to register a local nonprofit. Many social enterprises have responded by incorporating local for-profit companies that partner closely with international nonprofit affiliates that provide broad support for the activities undertaken by the local company.

31 U.S. Department of State, Department of State: 2014 Investment Climate Statement (2014), available at http://www.state.gov/documents/organization/229096.pdf.

98 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Ecosystem Players

As the center of impact investing in East Africa, Kenya boasts the largest supporting ecosystem in the region. More than 30 different organizations operate to support impact investment and social entrepreneurship in Kenya (Figure 22). Besides having more active organizations in-country, these same organizations tend to focus more on Kenya despite the fact that many operate regionally. Nevertheless, impact investors still believe there are gaps in the support available, in particular for organizations that can produce a large number of investment-ready opportunities.

FIGURE 22: SELECTION OF CURRENTLY ACTIVE INTERMEDIARIES AND SERVICE PROVIDERS

Climate Innovation Impact Amplifier Center Kenya

Enablis KeKoBI

FabLab Nairobi Kenya BizCorps Feed the Future Innovation Green Pioneer Engine Accelerator Dalberg

GVEP Africa Angels GrowthAfrica Mara Foundation International Network

iHub Nailab I-DEV Genesis Consult

iLab Africa Sinapis Open Capital VC4Africa BiD Network Africa Assets

INCUBATORS/ACCELERATORS CONSULTANTS/ INVESTOR BUSINESS PLAN RESEARCH TA PROVIDERS NETWORK COMPETITION

Source: Open Capital research, organization websites. Note: chart focuses on those with local presence; many international players active

As elsewhere in East Africa, the support ecosystem is primarily comprised of incubators and accelerators. There are also a number of business consultants, such as Open Capital Advisors, I-DEV International, Dalberg, and Biz Corps, as well as several investor networks and business plan competitions available locally in Nairobi. As many of these players work throughout the region, the same services are generally offered across countries. As in the rest of East Africa, there is a broad gap in the market organizations that can produce detailed market research and data for both impact investors and social enterprises. For more detail on active ecosystem players, their operations, and gaps in the market, please see the East Africa regional chapter.

KENYA • 99 Other Service Providers

In addition to intermediaries and service providers specifically targeting social enterprises and impact investors, Kenya boasts a wide range of general service providers including accountants, lawyers, recruitment firms, and others. Every company in Kenya must produce annual audited accounts and many providers have developed to serve this requirement. However, quality varies widely and so does the reliability of any accounts produced. Particularly for small companies or family-owned businesses, developing clear financial documentation can be challenging. Similarly, legal representation is widely available, though also of varying quality. There are a few widely known and respected firms that are well-suited for high-quality legal due diligence on larger deals, but they are often too expensive for smaller investments.

Beyond these professional firms, there are a wide variety of marketers, talent recruiting firms, and other business service providers that are available to companies operating in Kenya. Alongside the expanding number of reliable suppliers, distributors, and other commercial partners, these service providers increasingly contribute to a supportive business environment.

100 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA CHALLENGES AND OPPORTUNITIES FOR IMPACT INVESTORS

Challenges

Despite dramatically increasing interest in raising capital to deploy in Kenya and the increasing number of deals completed each year, impact investors face a variety of challenges. These challenges present opportunities for current impact investors, new impact investors, and other eco-system players to support rapidly growing, high- potential SMEs that drive impact across sectors in Kenya and beyond. The following challenges are commonly faced in Kenya:

• Insufficient investment-ready opportunities: Despite robust activity to date, many non-DFI impact investors struggle to place the capital they have raised. This is particularly frustrating in Kenya, where there are a host of entrepreneurs seeking capital with a social purpose, but few who are genuinely investment-ready when they attempt to raise capital. However, many investors believe that active local presence can address this gap (see the opportunities section below).

• International decision makers: Many non-DFI impact investors have investment committees based abroad and whose members may not have on-the-ground experience with investments in Kenya and East Africa.32 These remote investment committees often interpret risk differently than their investment teams operating on the ground, which can result in misalignment between the investment officers forming relationships with entrepreneurs and the investment committees making the ultimate investment decisions.

• Long diligence process: Correlated to the lack of investment-ready deal flow and the international decision making common to many impact investors, the diligence process can often stretch 12-18 months for both debt and equity investments.33 This can frustrate entrepreneurs and put additional pressure on the business, reducing long-term returns as companies must survive without needed capital.

32 Based on primary and/or secondary research conducted during this study; see “Introduction and Methodology” chapter of this report for details. 33 Based on primary and/or secondary research conducted during this study; see “Introduction and Methodology” chapter of this report for details.

KENYA • 101 interviewed for this report believe it may be easier for a new impact investor to raise new funds than for an experienced one, as the latter are expected to demonstrate a track record before raising a second fund.

• Insufficient human capital: Talent is the key constraint for many East African businesses. Companies struggle to find the talented, reliable management needed to plan for and reach scale. Though true for all skilled positions, this challenge is particularly acute for finance professionals with 5-15 years of experience who can serve as a company CFO. Even when a talented, experienced professional can be found, s/he often commands high wages that can be challenging for SMEs or social enterprises to support, especially in their early years.

• Limited local currency financing: Many impact businesses engage with disadvantaged populations, often earning the majority of their revenues in local currencies. However, most impact investors track returns in international hard currencies and have little ability to invest in local currencies. This is especially challenging for long-term debt instruments which require repayment in hard currencies that can appreciate 5-10% per year. Hedging options are typically prohibitively expensive, though some impact investors with large funds report effectively using fund level hedges to minimize risk.

Opportunities

Despite challenges, there are many opportunities for impact investors to operate in Kenya and leverage return-seeking investments to drive job creation, economic development, and opportunities for disadvantaged populations. Opportunities for impact investors include the following:

• Leverage technical assistance (TA) facilities for pre-investment pipeline building: More pre-investment support for businesses is needed to develop a strong pipeline of investible opportunities. Increasingly, TA funders (e.g. USAID, DFID) recognize the importance of pre-investment support to get companies to the point where they can successfully raise capital. Several impact investors have successfully developed TA facilities for portfolio companies. Kenya, in particular, offers a robust intermediary ecosystem, and many of these players operate across the region. Targeted, tailored support requires an upfront commitment of resources, but has proven effective in preparing potential targets for investment and building high-quality deal flow. This process can also dramatically reduce diligence timelines if the investor is able to increase familiarity and visibility into the business pre-investment.

• Develop sector expertise: Beyond bringing capital to portfolio companies, impact investors can drive growth, returns, and impact by understanding the specific sectors where their portfolio companies operate. For some investors, this sector focus has allowed them to identify exciting, less well-known opportunities earlier and reduce their diligence timelines by leveraging existing knowledge. Sectors such as agriculture, energy, and financial services present large opportunities where companies often face similar challenges—these learnings can be shared across portfolio companies.

102 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA • Increase local decision-making: Impact investors have cited significant improvements in their portfolio from increasing local decision-making and local support where possible. This allows investment officers to form meaningful relationships with portfolio companies, where they are empowered to respond to changing realities on the ground. Placing staff and investment committees locally can also reduce diligence timelines, as these individuals are more familiar with local trends and norms. In an environment of increasing competition between impact investors for high-potential deals, designing effective diligence procedures aligned to the region could be a key differentiator for successful impact investors.

• Source opportunities outside capital cities: While non-DFI impact investors with staff on the ground in major cities like Nairobi report having an easier time finding investments than do those based abroad, many entrepreneurs operating in rural areas do not spend much time in Nairobi. For non-DFI impact investors who see these types of businesses as highly impactful, it will be increasingly necessary to build relationships beyond those made in the capital city.

In addition, impact investors report seeing opportunities across the following sectors:

• Agriculture: In Kenya, average smallholder plot sizes are often smaller than one acre, creating an opportunity to consolidate production and significantly increase yields. Given the smallholder landscape, there are also opportunities to aggregate production and create consistent, high-quality supply. This type of aggregation may allow farmers to connect directly with export markets, especially attractive regionally. There is also significant potential in agricultural processing across a range of crops.

• Renewable energy: Non-DFI impact investors noted a number of opportunities for renewable energy as Kenya looks to expand power generation capacity. Strong government support for new businesses and approaches opens the door for large-scale projects and improved power purchase agreements. At the same time, there are large segments of the population that lack reliable access to grid power, creating opportunities for micro-grid and off-grid solutions.

• Consumer goods for the mass market: With Kenya’s growing middle class, impact investors believe there are increasingly attractive opportunities to supply goods and services to consumers with rapidly increasing disposable incomes. These businesses often create substantial employment opportunities, which may fit impact criteria for some impact investors.

KENYA • 103 UGANDA SECOND TO KENYA; CATCHING UP

104 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA INTRODUCTION

Uganda is the second largest impact investing market in East Africa, after Kenya. Within East Africa, Uganda boasts the second highest number of deals and second largest amount of capital disbursed in support of social and environmental impact— and the market is expected to continue to grow. Most impact investors interviewed noted there were no significant country-specific impediments to impact investing in Uganda but rather that the primary challenge was a less favorable business environment than they perceive in Kenya. Impact investors see considerable potential, and as the country continues to grow, they expect the general business environment to improve, presenting more opportunities to drive social change through sustainable social enterprises.

Despite these positive trends, many adverse conditions persist. Acquiring talent, particularly middle management employees, remains extremely difficult. Many businesses operate informally with multiple sets of accounts, which can compromise impact investors’ ability to place capital. Nevertheless, Uganda has a growing economy and is a primary target for impact investors. Most impact investors active in the region work in Uganda, and as impact investors diversify beyond Kenya, Uganda will be a primary destination.

FIGURE 1: MAP OF UGANDA

UGANDA

UGANDA • 105 COUNTRY CONTEXT

Uganda has a rapidly growing economy and has been comparatively stable for decades.1 This is reflected across economic indicators, although the country requires support to improve human development indicators and increase linkages between disadvantaged populations and the rapidly growing national economy.

Gross Domestic Product

Uganda, like most countries in the region, has seen strong GDP growth over the last decade (Figure 2). The economy has expanded at nearly 8% at purchasing power parity (PPP) per year, reaching approximately USD 54 billion GDP in PPP terms in 2013. This growth is expected to continue; the World Bank predicts that by 2019, Uganda’s GDP (PPP) will have grown to more than USD 91 billion or roughly 170% its 2013 size.

FIGURE 2: GDP (PPP), 2004–2013

USD BILLIONS

60 Uganda averaged ~8% annual GDP growth for last 10 years 50

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: IMF World Bank Economic Indicators, April 2014

Despite growth, enterprises continue to face challenges with high infrastructure costs, lack of financing, and limited access to skilled workers. With most imports coming through Kenya by truck, input costs can be high. This difficulty importing and transporting goods, however, opens new opportunities for local manufacturing.

1 US Department of State—http://www.state.gov/r/pa/ei/bgn/2963.htm.

106 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Foreign Direct Investment (FDI)

The growing economy has been matched by rapidly expanding foreign direct investment. FDI flows have grown by a compounded annual growth rate of nearly 15% in the past decade and are the third highest in the region (Figure 3).2

FIGURE 3: FDI FLOWS, 2004-2013

USD MILLIONS

1,400 1,200 1,000 800 600 400 200 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: UNCTAD

These large FDI flows are driven primarily by oil and gas exploration, where the mining and quarrying sector attracted 42% of all FDI inflows in 2012. Real estate comprised another 18% and manufacturing a further 15%.3,4, Foreign oil and gas investment is expected to increase as the government of Uganda awards additional exploration licenses in 2015.5 At present, only three companies have active operations in Ugandan oil—China National Offshore Oil Corporation, Tullow Oil, and Total.6

2 Inward and Outward Foreign Direct Investment Flows: Annual 1970-2013, United Nations Conference on Trade and Development, available at http://unctadstat.unctad.org/wds/TableViewer/ tableView.aspx?ReportId=88. 3 Bank of Uganda, Private Sector Investment Survey 2013 Report, available at https://www.bou.or.ug/ bou/bou-downloads/publications/PrivateSectorCapital/PSIS/2013/All/PSIS-2013---REPORT.pdf. 4 Nicholas Bariyo, “Uganda Set to Award New Exploration Licenses in 2015,” The Wall Street Journal (Jun. 3, 2014), available at http://online.wsj.com/articles/uganda-set-to-award-new-oil-exploration- licenses-in-2015-1401793334. 5 Ibid. 6 Ibid.

UGANDA • 107 Inflation and Exchange Rates

High and volatile local inflation rates, reaching greater than 18% in 20117 (Figure 4), and concerns about depreciating foreign exchange rates complicate some international impact investors’ ability to disburse local currency debt. The Ugandan Shilling has depreciated by an average of 8% annually against the US dollar since 2008, reducing the hard currency value of any local currency debt.

FIGURE 4: INFLATION AND USD/UGX EXCHANGE RATE, 2004-2013

USD/UGX

20% 3,000 USD/UGX exchange rate 18% 2,500 16% Inflation 14% 2,000 12% 10% 1,500 8% 6% 1,000 4% 500 2% 0% 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: IMF World Bank Indicators, Oanda Historical Currency Rates

7 World Bank Indicators.

108 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA SUPPLY OF IMPACT INVESTING CAPITAL

Non-DFI8 impact investors view Uganda as the country with the second highest potential in the region after Kenya, and expect it to grow in size and importance, following the same trajectory Kenya did several years ago.

There are at least 119 impact capital vehicles active in Uganda, managed by some 82 non-DFI impact investors—nearly as many as in Kenya. Most of these impact capital vehicles are active across the region, but at least USD 54 million has been committed specifically to investments in Uganda (Figure 5). There is an additional USD 2.5 billion in capital committed regionally that could be deployed in Uganda and, if historical deal flows persist, it is the country most likely to receive regional capital after Kenya. Most of these non-DFI impact investors focus on early-stage businesses that have some track record and operational structures in place. Excluding DFI activity, there have been at least 139 impact deals in Uganda, resulting in more than USD 300 million disbursed, more than 20% of all investment activity in East Africa overall.

FIGURE 5: TOTAL CAPITAL COMMITTED BY NON-DFI IMPACT INVESTORS

USD MILLIONS 3,000

2,500

2,000

1,500

1,000

500

0 MULTIPLE COUNTRIES, ONLY UGANDA INCLUDING UGANDA Source: Open Capital Research

8 Due to the unique nature and large size of development finance institutions (DFIs), the authors of this report analyzed their activity separately from those of other types of impact investors (“non-DFI”), and present this separate analysis when appropriate.

UGANDA • 109 Broader Investing Landscape

Despite the volume of impact investing activity in Uganda, it represents a small portion of the overall Ugandan investment landscape. For example, local banks have nearly USD 6.9 billion in total assets under management, which is significantly more than the USD 2.5 billion in total non-DFI impact assets allocated to the region that could be deployed in Uganda (Figure 6). Indeed, banks lent approximately USD 3.3 billion in 2013, almost three times the disbursements made by both DFIs and non-DFI impact investors in Uganda to date.

FIGURE 6: IMPACT CAPITAL RELATIVE TO OTHER FINANCIAL ASSETS

USD BILLIONS 8

6 5 Banking sector total assets 4 Non-DFI impact investors total capital committed 3

0 TOTAL ASSETS

Source: Bank of Uganda, Open Capital Research

In addition, there is a large informal financing sector in Uganda that is not regulated. The dearth of reporting makes it impossible to estimate the total assets available through informal financing, but anecdotal evidence indicates the amount is substantial in the Ugandan financing landscape. Loan sharks run large operations that can provide significant amounts of financing quickly and with limited due diligence. However, they charge extremely high interest rates, which limits their attractiveness, particularly for longer-term financing.

Although impact investing represents a small portion of total investment activity in Uganda, it fills an important gap in the market for earlier-stage enterprises. Access to financing from commercial banks remains limited, with only approximately 20% of Ugandan adults having a formal bank account.9 This is due in part to an absence of physical bank branches—commercial banks have offices in most urban centers but limited penetration in rural areas. Even for those with physical access to formal financing, commercial banks remain risk averse and are unwilling to invest in early stage enterprises (which represent a large share of businesses in the region, particularly those of interest to non-DFI impact investors). When willing to lend, they

9 Economic Policy Research Centre, Uganda 2013: FinScope III Survey Key Findings: Unlocking Barriers to Financial Inclusion (2013), available at http://www.score.or.ug/uploads/FINSCOPE_%20III_%20 Survey_%202013_%20findings.pdf.

110 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA require extremely high collateral ratios which often exceed 100% of the loan amount. Many early-stage businesses are unable to satisfy these requirements.10

Even if they are able to meet these stringent requirements, businesses must still face the highest lending rates in East Africa, which reached a record high of more than 26% in 2012 and still stood at more than 23% in 2013. These extremely high rates—roughly six times higher than average bank rates in the United States, which have been under 5% on averageover the last 10 years—prompted a protest by most shop-owners in the capital city of Kampala, who closed shop for three days in January 2012.11

The collateral requirements and high interest rates from both banks and informal financers make debt investments extremely expensive and limit the practical availability of financing for enterprises. This limited availability in conventional settings provides a market opportunity for private investors who are able to provideequity and/or cheaper or less collateralized debt, particularly for early stage, longer-term investments that may be higher risk.

This gap is filled at times by non-commercial grant financing, which is available from donors active in Uganda such as charitable foundations, international aid agencies, and private individuals. Non-DFI impact investors report that they occasionally compete with donor funding for high potential deals, as those entrepreneurs who seek capital from impact investors are typically also aware of donors. Donor presence can complicate negotiations for impact investors because entrepreneurs may view donor funding as an opportunity to raise free capital and to avoid investors’ comparatively high return expectations. Many donor agencies, however, are unwilling to lend to commercial enterprises and often have stringent reporting or operational requirements that are less attractive for businesses. This opens up an opportunity for impact investors.

10 Emmanuel Akika Othieno, Makerere University, Bank Lending, Information Asymmetry, Credit Accessibility and Performance of Farmers: The Case of Tororo District (2010), available at http://www. mubs.ac.ug/docs/masters/mba/Bank%20lending,%20information%20asymmetry,%20credit%20 accessibility%20and%20performance%20of%20farmers.pdf; Open Capital Advisors research. 11 World Development Indicators: Lending Interest Rates (%), The World Bank Group (2014), available at http://data.worldbank.org/indicator/FR.INR.LEND?page=2; “Kampala Shops Shut Over Uganda Interest Rates,” BBC News (Jan. 11, 2012), available at http://www.bbc.co.uk/news/world- africa-16508825.

UGANDA • 111 Impact Capital Disbursed

Uganda boasts the second largest deal flow in the region, around half the activity in Kenya. In total, non-DFI impact investors have disbursed more than USD 300 million to date (Figure 7), or over 20% of disbursements in East Africa. The country has received a smaller proportion of DFI direct investments (approximately 11%), or just over USD 875 million (Figure 7).

FIGURE 7: IMPACT INVESTMENTS IN UGANDA

Capital disbursed Deals

DFI usd 879 millions 79

NON-DFI usd 306 millions 139

Source: Open Capital Research

Investments Over Time

Impact investing remains a young sector. As in Kenya, non-DFI impact investors have been present and investing in Uganda for more than a decade, but the large number of deals with undisclosed details prevents additional conclusions about non-DFI impact investor activity over time. Nevertheless, anecdotal reports from investors suggest that impact investing activity began to consistently pick up in 2010 and beyond.

Unlike the rest of East Africa, DFI activity in Uganda has not shown any clear growth trend (Figure 8). Though the level of DFI direct disbursements is high relative to the rest of East Africa—Uganda has the second highest amount of DFI direct capital disbursed in the region—the country has not seen the increasing attention characteristic of the other focus countries.

FIGURE 8: DFI DIRECT INVESTMENTS BY YEAR

USD MILLIONS # OF DEALS 600 40 Capital disbursed 500 35 30 400 Deals 25 300 20 200 15 10 100 5 0 0 Pre 2010 2010 2011 2012 2013 2014 Unknown Source: Open Capital Research

112 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Sector

The distribution of investments by sector broadly reflects non-DFI impact investor interest areas (Figure 9). Agriculture and financial services have received the most attention from non-DFI investors (roughly 40% of their deals in Uganda) and have the greatest expressed interest from investors.

FIGURE 9: NON-DFI IMPACT INVESTMENTS BY SECTOR

USD MILLIONS Capital disbursed # OF DEALS 70 60 Deals 60 50 50 40 40 30 30 20 20 10 10 0 0

NUMBER OF NON-DFI 55 32 41 57 39 16 21 49 17 9 IMPACT INVESTORS INTERESTED IN SECTOR

ICT Energy Other WASH Housing Unknown Agriculture Education Healthcare

Financial services

Source: Open Capital Research. Note: Chart shows total number of non-DFI impact investors interested in sector; may be multiple sectors

Unlike the rest of East Africa, Uganda saw significant capital disbursed into energy deals. This exceptional activity was driven by a single large transaction accounting for nearly 60% of the total capital disbursed in the sector. Uganda, unlike much of East Africa, has significant amounts of capital disbursed in the health sector. As with the energy sector, this is driven by a single large investment amounting to nearly 70% of the capital disbursed in the health sector. Correspondingly, both the energy and health sectors have high average ticket sizes, though the median deal size is significantly lower.

UGANDA • 113 DFI direct investments favor investments in financial services, which make up 50% of direct deals and more than 25% of capital disbursed directly (Figure 10). The energy sector has the highest total capital disbursed (more than 40% of DFI direct capital disbursed), reflecting the large ticket size for many DFI-funded energy projects, but relatively few deals—less than 10%.

FIGURE 10: DFI DIRECT INVESTMENTS BY SECTOR

USD MILLIONS Capital disbursed # OF DEALS 400 45 350 Deals 40 300 35 250 30 25 200 20 150 15 100 10 50 5 0 0

Other Energy Tourism Agriculture Education Extractive Healthcare Construction Infrastructure Manufacturing Financial services

Source: Open Capital Research

Deal Size

As shown in Figure 11, nearly 50% of capital disbursed by non-DFI impact investors in Uganda has been through deals larger than USD 1 million in size; however, more than 60% of the individual deals are under USD 1 million. Deals under USD 250,000 represent nearly 30% of all known non-DFI impact deals in Uganda. This proliferation of small deals contrasts with Kenya, where only 11% of non-DFI impact deals are below USD 250,000, and suggests that impact investors in Uganda find interesting businesses to be comparatively small.

FIGURE 11: NON-DFI IMPACT INVESTMENTS BY DEAL SIZE

USD MILLIONS # OF DEALS 160 Capital disbursed Deals 50 140 40 120 100 30 80 60 20 40 10 20 0 0

USD 1-5M > USD 10M < USD 250K USD 5-10M USD 500K-1M USD 250-500K Source: Open Capital Research

114 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA By contrast, the average deal size for known DFI direct investments in Uganda is more than USD 11 million, greater than five times the average for non-DFI impact investors (Figure 12). This high average deal size is driven by three large investments in energy projects, which accounted for nearly 40% of DFI capital disbursed. Moreover, though deals under USD 10 million make up more than 75% of DFI direct investments, only approximately 10% of direct DFI deals were under USD 1 million compared to about 60% of non-DFI impact investor deals.

FIGURE 12: DFI DIRECT INVESTMENTS BY DEAL SIZE

USD MILLIONS # OF DEALS 500 40 Capital disbursed 35 400 Deals 30 300 25 20 200 15 100 10 5 0 0

< USD 1M USD 1-5M > USD50M USD 5-10M UNKNOWN USD 10-20M USD 20-50M Source: Open Capital Research

Instrument

Traditional debt and equity investments remain most common in Uganda, though this report is unable to provide a definitive break-down of non-DFI investment instruments due to insufficient available data at the time of writing. However, the preponderance of debt investments in the available data (debt investments were almost twice as common as equity investments among non-DFI impact investors), aligns with investor perceptions that it is sometimes challenging to explain equity investments to entrepreneurs in Uganda.

Though traditional debt and equity instruments are most common, non-DFI impact investors report that, as in much of the rest of East Africa, they increasingly consider quasi-equity structures such as convertible debt or revenue-participating debt. Especially given non-DFI impact investors’ focus on smaller deals and earlier-stage investments, these structures balance the limited cash flows common for earlier-stage companies with the return expectations and risk mitigation required by investors.

UGANDA • 115 As elsewhere in the region, DFIs’ direct investments are overwhelmingly debt (Figure 13). Debt investments constitute more than 80% of all capital disbursed by DFIs directly and nearly two-thirds of known direct DFI deals. However, in contrast to the rest of East Africa (except Ethiopia), Uganda also attracted a number of debt guarantees, driven almost exclusively by a single DFI’s activity.

FIGURE 13: DFI DIRECT INVESTMENTS BY INSTRUMENT

USD MILLIONS # OF DEALS 800 Capital disbursed 60 700 50 600 Deals 500 40 400 30 300 20 200 100 10 0 0

Debt Grant Equity No info Guarantee Debt & equity Source: Open Capital Research

Local Presence

A number of impact investors have chosen to place staff on the ground in Uganda, primarily in the capital FIGURE 14: IMPACT INVESTORS WITH LOCAL OFFICES city, Kampala (Figure 14). Uganda is home to the third largest number of impact investors in the region and two impact investors have their headquarters there. Sudan 6 offices in Addis Nevertheless, the impact investing community in Eritrea Uganda remains small compared to that in Kenya and there are only a few local impact investor offices. Djibouti Those based in Uganda noted that they knew all of • the other players active in the ecosystem and consider S. Sudan Ethiopia this familiarity a strength, as it creates a friendly 12 offices Somalia in Kampala Uganda environment to share information about entrepreneurs 48 offices • Kenya in Nairobi and potential investments. This collegiality is an Rwanda• • important source of pipeline and a valuable asset Burundi •• Tanzania during due diligence. Several interviewed believe it • would be unlikely for any investment to occur without their knowledge and that almost all high-potential 9 offices in Kigali 14 offices in Tanzania entrepreneurs are quickly known to the entire space. (Dar, Arusha, & Moshi)

Source: Open Capital Research

116 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Impact Tracking Standards

Impact investors’ dual mandate to realize both financial and social or environmental returns requires a strong focus on measuring impact as part of their core activities. Beyond tracking metrics as best practice, impact asset owners require it. This is particularly true for DFIs, which act as anchor investors to many non-DFI impact investors.

As is true across the region, most impact investors in Uganda do not apply a specific pre-defined framework or system for measuring the impact of their investments. Instead, they typically choose metrics that suit each investment. Investors believe this customization reduces the administrative burden for their portfolio businesses and enables a focus on the metrics that are most meaningful. For more detail on impact measurement in East Africa, see the East Africa regional overview chapter of this report.

UGANDA • 117 DEMAND AND NEED FOR IMPACT INVESTING CAPITAL

There is strong demand for impact capital from entrepreneurs operating in Uganda. There are significant gaps in the provision of key goods and services, which create opportunities for entrepreneurs to build enterprises that fill key needs while also realizing financial returns.

Development Context

Uganda has seen slight recent improvement in human development indicators, but still remains well below global averages. Overall, Uganda ranked 164th out of 187 countries in the United Nation’s Human Development Index, scoring below the Sub-Saharan Africa average (Figure 15).12 This low ranking is reflected in poor performance across a variety of individual development indicators, including poverty, health, and education.13

FIGURE 15: UN HDI SCORES, 2008-2013

UN HDI 0.8 0.7 0.6 Global average 0.5 Uganda 0.4 0.3 0.2 0.1 0.0 2008 2009 2010 2011 2012 2013

Source: United Nations Human Development Report 2014. Note: 2014 report does not include 2009 HDI scores. 2009 scores shown are calculated as an average of 2008 and 2010 scores

12 The UN HDI score aggregates income, education, and health indicators to produce a holistic development score from 0 to 1. 2014 Human Development Index, The United Nations Development Programme (2014), available at http://hdr.undp.org/en/data. 13 2014 Human Development Index, The United Nations Development Programme (2014), available at http://hdr.undp.org/en/data.

118 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA More than a third of Ugandans live on less than USD 1.25 per day, which is more than 50% higher than the global average (Figure 16). Nevertheless, the country has achieved its Millennium Development Goal to reduce poverty, raising a large proportion of the population above the national poverty line. More than 55% were living below the national poverty line in 1992/93, compared to less than 25% in 2009/10.14

Uganda’s health metrics are also well below global averages (Figure 17). For example, under-five mortality stands at 69 for every 1,000 live births, compared to 47 globally.15 Similarly, approximately 33% of Ugandans under five suffer from moderate or severe stunting, compared to a global average of just over 25%.16 Uganda has made only modest progress on other health metrics. For example, maternal mortality decreased only slightly from 506 for every 1,000 live births in 1990 to 438 in 2011.17 Also, HIV/AIDS prevalence rates among the population aged 15-24 increased from 2.9% in 2004/05 to 3.7% in 2011.18

FIGURE 16: POPULATION BELOW USD 1.25/DAY FIGURE 17: UNDER-5 MORTALITY AND STUNTING

UNDER-5 40% DEATHS PER POP 1,000 BIRTHS STUNTED Global 90 40% Global averages 20% average 60 Stunting 20% Under-5 0% 30 UGANDA mortality 0 0% UGANDA

Source: UN Human Development Report 2014 Source: UN Human Development Report 2014

14 The World Bank, Poverty Trends in Uganda: Who gained and who was left behind?, available at http:// siteresources.worldbank.org/INTUGANDA/Resources/uganda-poverty-and-inequality-trends-full- policy-note.pdf. 15 The United Nations Development Programme, Human Development Report 2014, available at http:// hdr.undp.org/sites/all/themes/hdr_theme/country-notes/UGA.pdf.http://hdr.undp.org/sites/all/ themes/hdr_theme/country-notes/UGA.pdf. 16 Ibid. 17 Ministry of Finance, Planning and Economic Development, Millennium Development Goals Report for Uganda (2013), available at http://planipolis.iiep.unesco.org/upload/Uganda/Uganda%20 MDG%20Report-Oct%202013.pdf. 18 Ibid.

UGANDA • 119 Like the rest of the region, Uganda’s performance on educational metrics is poor relative to global averages (Figure 18). Uganda’s gross secondary enrollment of 28% is less than half the global average and among the worst in East Africa, above only Somalia and approximately equal to Burundi. Its population aged 25 and above with at least some secondary education is less than half the global average, although it leads East Africa.

FIGURE 18: KEY EDUCATION INDICATORS (LATEST AVAILABLE DATA POINT)

100% Global averages 80% Secondary 60% gross enrollment

40% Pop with some 20% secondary education

0% UGANDA

Source: UN Human Development Report 2014

120 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Educational metrics are an especially important indicator for future development given Uganda’s demographics. Like other East African countries, Uganda has a disproportionately young population, where over 48% is under the age of 15 and nearly 70% is below age 25 (Figure 19). This youth boom has led to high unemployment among young people which, when compounded with low levels of education, poses a challenge to economic growth.

FIGURE 19: POPULATION BY AGE AND GENDER

AGE 100+ 95-99 90-94 85-89 80-84 75-79 70-74 65-69 Male 60-64 Female 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4

4 3 2 1 0 0 1 2 3 4

POPULATION (MILLIONS) POPULATION (MILLIONS)

Source: UN ESA, World Population Prospects

Entrepreneurs

There is optimism from both entrepreneurs and impact investors predicting ample opportunity for growth in Uganda.19 Many of these opportunities are social businesses in sectors of interest to impact investors—education, housing, healthcare, water and sanitation, energy, etc. These entrepreneurs seek capital across the spectrum of funding, from start-up and SME-size deals to capital for scaling up, although they are primarily start-up and early-stage businesses. This concentration in earlier stages aligns with the local landscape, in which there are few mature social enterprises, as with the rest of East Africa.

19 Open Capital Research.

UGANDA • 121 However, despite growing demand for capital from enterprises in these sectors, entrepreneurs face substantial challenges. Encouragingly, interviewees did not identify any significant country-specific impediments to growth in Uganda. Rather, the primary challenge is seen to be a general lack of development of the broader business environment, as is common throughout the region. For more detail on the challenges facing both early- and growth-stage companies in East Africa—which include limited human capital, informal operations, sourcing capital beyond family and friends, and a strong need for local relationships—see the East Africa regional chapter of this report.

122 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA ENABLING IMPACT INVESTING: THE ECOSYSTEM

The impact investing ecosystem in Uganda remains challenging and is a key constraint on the growth of the sector. The lack of a well-developed business environment affects potential investees as well as impact investors.

Regulatory Environment

Today, Uganda is relatively politically stable and has a generally welcoming regulatory landscape for investors. For example, investors are able to access foreign currency easily, repatriate profits, and own local companies. The country has been relatively free of armed conflict since the Lord’s Resistance Army was expelled in 2006, though there has been some instability on the borders as a result of continuing conflict in South Sudan and the Democratic Republic of Congo.

Despite the welcoming formal environment, Uganda remains one of the more difficult countries to do business in, ranking 150th of 189 countries in the World Bank’s Ease of Doing Business rankings and 5th out of the 11 countries in East Africa.20 While the underlying regulations and investment environment are open to foreign investment, interacting with the Ugandan state to pay taxes or apply for licenses, for example, can be complicated due to inefficient bureaucracies.

• Government incentives: Uganda provides a number of incentives for foreign and local investors to place capital. For example, Uganda offers a 10-year tax holiday to investments in export-oriented production and concessionary import duties on some capital goods that meet certain criteria, which for foreign investors is reserved for capital goods in excess of USD 500,000.21 Beyond tax incentives, Uganda offers free access to industrial parks to investors in priority sectors including information and communications technology (ICT), tourism, value- added agriculture, and value-added investments in mineral extraction.22

• Repatriation of profits and dividends: In general, Uganda does not restrict capital transfers, though it does require a tax clearance certificate for repatriations

20 “Economy Rankings,” The World Bank Group (Jun. 2014), available at http://www.doingbusiness.org/ rankings. 21 The Government of Uganda, The Investment Code, available at https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CCY- QFjAA&url=http%3A%2F%2Fwww.ilo.org%2Fdyn%2Flegosh%2Fen%2Ff%3Fp%3DLEGPOL%3A50 3%3A3192607443802%3A%3A%3A503%3AP503_REFERENCE_ID%3A140160&ei=7_1iVMqAO- Im3PNmugSA&usg=AFQjCNH3fPh3SF_bv3M26VNU0J-zOUI6Aw&bvm=bv.79189006,d.d2s. 22 “2012 Investment Climate: Uganda,” U.S. Department of State (Jun. 2012), available at http://www. state.gov/e/eb/rls/othr/ics/2012/191256.htm.

UGANDA • 123 in excess of UGX 50 million (about USD 20,000).23 In addition, Uganda must authorize repatriation for foreign investors who take advantage of investment incentives under the Ugandan Investment Code Act, which governs investing activity in Uganda.24

• Foreign exchange controls: Uganda has open foreign exchange rules. Foreign exchange is freely available from commercial banks and can be acquired and held equally by locals and foreign nationals.25

• Land ownership: The formal land system is complex, with four different land tenure systems. Foreigners may only lease land in Uganda and must seek approval from the Ugandan Investment Authority before leasing more than 50 acres for agriculture or livestock.26 Though each plot is governed by a single system, neighboring plots may be held under a different system. Freehold land may be owned permanently by Ugandan citizens and leased by foreigners. Leasehold land may be leased by nationals and foreigners alike. Customary land and Mailo land pose more challenges—customary land is governed by the traditions of the area, and typically does not have a title deed. Mailo land use must be approved by lawful residents, which includes many squatters. Freehold land makes up 22% of all land in Uganda, with customary land making up the majority of the rest.27 Despite complicated regulations, local impact investors report that most land of interest to them is governed by the more favorable land tenure systems.

• Local ownership requirements: Foreign investors may own up to 100% of any local company except in the petroleum industry, in which foreign investors may supply goods and services not available in Uganda only via a joint venture with a Ugandan company. In such a joint venture, the Ugandan company must own at least 48% of the shares.28

• Government enterprises: Since 1993, the state has been privatizing Uganda’s state-owned enterprises. Major divestitures include the Uganda Commercial Bank to Stanbic Bank, the Sheraton Kampala to MIDROC, and the Uganda Electricity Distribution Company concession to Umeme Uganda.29 The government still has interests in the mining, housing, electricity, and transport sectors, though it is open to private competition.30

23 Deloitte Touche Tohmatsu Limited, International Tax: Uganda Highlights 2014, available at http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax- ugandahighlights-2014.pdf. 24 United States Department of State, 2014 Uganda Investment Climate Statement, available at http:// photos.state.gov/libraries/adana/766947/public/2014_uganda_investment_climate_statement.pdf. 25 KPMG, Uganda country profile (2012), available at https://www.kpmg.com/Africa/en/KPMG-in- Africa/Documents/Uganda.pdf. 26 United States Department of State, 2014 Uganda Investment Climate Statement, available at http:// photos.state.gov/libraries/adana/766947/public/2014_uganda_investment_climate_statement.pdf. 27 Land Deal Politics Initiative, Governance of Large-Scale Land Acquisitions in Uganda (2012), available at http://www.cornell-landproject.org/download/landgrab2012papers/stickler.pdf. 28 United States Department of State, 2014 Investment Climate Statement: Uganda, available at http:// www.state.gov/documents/organization/229298.pdf. 29 Muriisa Roberts, The Privatisation Experience in Uganda (2005), available at http://www.codesria.org/ IMG/pdf/9-_Roberts.pdf; http://www.uedcl.co.ug/. 30 KPMG, Uganda country profile (2012), available at https://www.kpmg.com/Africa/en/KPMG-in- 124 • THE LANDSCAPEAfrica/Documents/Uganda.pdf. FOR IMPACT INVESTING IN EAST AFRICA Ecosystem Players

There are few ecosystem players active in Uganda (Figure 20). With around twenty identified organizations supporting impact investing, Uganda has roughly two-thirds the number of Kenya. Many of these organizations operate regionally. As in most of the rest of East Africa, the support ecosystem primarily comprises incubators and accelerators, which tend to focus on seed or very early venture stage businesses in specific sectors, leaving a gap for service providers to support businesses more appropriate for non-DFI impact investors across a range of sectors. For more detail on intermediaries and service providers in East Africa, see the East Africa regional chapter of this report.

FIGURE 20: SELECTION OF CURRENTLY ACTIVE INTERMEDIARIES AND SERVICE PROVIDERS

@The HUB Kampala

Enablis Impact Amplifier

Global Social Mara Foundation Benefit Incubator

Mentor Capital GrowthAfrica I-DEV Network

Open Capital Hive Colab Outbox VC4Africa BiD Network Africa Assets Advisors

INCUBATORS/ACCELERATORS CONSULTANTS/ INVESTOR BUSINESS PLAN RESEARCH TA PROVIDERS NETWORK COMPETITION

Source: Open Capital research, organization websites. Note: chart focuses on those with local presence; many international players active

Beyond incubators, there are a number of consultants and technical assistance providers focused on the impact investing ecosystem, including Open Capital Advisors, I-DEV International, and Global Village Energy Partnership (GVEP). Despite consultants and technical assistance providers operating in Uganda, there remains a lack of detailed market research and data to support both non-DFI impact investors and social enterprises. This market gap is consistent with the rest of the region, and is discussed in more detail in the East Africa regional overview chapter.

Few of the impact investors and entrepreneurs interviewed report using intermediaries or service providers. Impact investors noted that even when interested, entrepreneurs struggled to identify high-quality service providers and that ecosystem players often struggle to adequately explain their services to entrepreneurs. Nonetheless, the challenges facing entrepreneurs clearly indicate there is a need for greater investment preparedness, human resources, and financial sophistication, which present

UGANDA • 125 opportunities that intermediaries and service providers could address. One impact investor interviewed proposed that, if given significantly more capital, they would use it to establish an intensive pre-investment support program to supplement the management team for interesting businesses in order to build the business in-house. As investors and entrepreneurs become increasingly active in Uganda, the ecosystem appears ready to grow accordingly.

In line with the general impact investing ecosystem in Uganda, there are gaps in the availability of more general business service providers. Every company in Uganda must produce annual audited accounts, and a large industry has developed to serve this requirement. However, quality varies and so does the reliability of any accounts produced. Developing clear financial documentation can be challenging, particularly for small companies or family-owned businesses, even if they are operating formally. Similarly, legal representation is available, but of varying quality. Impact investors report that reliable legal advice is difficult to find, even from expensive providers.

126 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA CHALLENGES AND OPPORTUNITIES FOR IMPACT INVESTORS

Impact investors based in Uganda stress that there are many opportunities and that, while the business environment remains challenging, it is improving. That said, they also note that the pipeline of businesses with strong performance and sophistication is thin. As a result, most opportunities remain risky and require significant support before being investment ready. The difficult business environment presents a range of challenges for impact investors seeking to place capital in Uganda. These challenges include:

• Insufficient investment-ready opportunities: Despite robust activity to date, many impact investors struggle to place the capital they have raised. Although there are many businesses with exciting potential, investors encounter few companies that are truly investment ready. Early stage businesses, which are the primary target for non-DFI impact investors, typically face certain common challenges that keep them from being fully prepared, including inefficient or unproven operations, an unclear or ineffective strategy to scale, poor financial management, a lack of realistic forward looking projections, and unsupported capital asks.

• Insufficient human capital: Talent is the key constraint for many Ugandan businesses. Companies struggle to find the talented, reliable management needed to plan for and reach scale. This challenge is particularly acute for finance professionals with 5-15 years of experience who can serve as a company CFO. Even when a talented, experienced professional can be found, they often command high wages that can be challenging for impact businesses or impact investors to support, especially in their early years.

• Lack of local presence: Even though interest in Uganda is growing, only a handful of impact investors have staff on the ground, and then only in Kampala. Investing in this market, with limited legal recourse, requires implicit trust between investor and entrepreneur. Entrepreneurs remain wary of investors, particularly those seeking equity, and if an entrepreneur has been operating informally, it can be difficult to evaluate their history and trustworthiness without a strong personal relationship, which is hard to build from abroad. Local social networks can provide insight on a potential target that is extremely important to an investment decision.

• International decision makers: Many impact investors have investment committees that are based abroad and include international decision-makers who may not have experience with on-the-ground investments in Uganda or East Africa.31 These remote investment committees interpret risk differently than do their investment teams operating locally, creating friction between investment

31 Based on primary and/or secondary research conducted during this study; see “Introduction and Methodology” chapter of this report for details.

127 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA UGANDA • 127 officers forming relationships with entrepreneurs and investment committees making the ultimate investment decisions.

• Competition with donor funding: Grant financing is widely available from donors active in Uganda. At times, non-DFI impact investors compete with this grant capital as entrepreneurs looking for funding from impact investors are typically also aware of donors. The presence of donor funding can complicate negotiations for commercial capital as entrepreneurs may believe that donors can provide them cheaper capital and that investor return expectations are comparatively too high.

• Long diligence processes: Correlated with the lack of investment-ready deal flow and international decision-making, the diligence process for impact investors can often stretch from 12 to 18 months for both debt and equity investments.32 This lengthy process can damage relationships with entrepreneurs, who often view it as indicating a lack of trust. It puts additional pressure on the business and can lower long-term returns as companies must survive without needed capital, creating a significant opportunity cost as management teams spend time courting investors.

• Few exit examples: For new funds looking to raise capital, the relative youth of the impact investment industry means there are few examples of successful exits. Without a successful track record, it can be difficult for fund managers to raise a second fund—some interviewed for this report believe it may be easier for a new fund manager to raise funds than it can be for an experienced one to do so.

At present, investees typically bear the resulting currency risk, which can place a substantial burden on the business if the local currency depreciates, and may endanger the ability of the company to achieve the desired growth and repay the loan.

Opportunities

Despite these challenges, there are many opportunities for impact investors to leverage return-seeking investments to drive job creation, economic development, and opportunities for disadvantaged populations. Opportunities for impact investors in Uganda include:

32 Based on primary and/or secondary research conducted during this study; see “Introduction and Methodology” chapter of this report for details.

128 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA the importance of pre-investment support to get companies to the point where they can pass rigorous investment committee requirements. One impact investor interviewed proposed that, if given sufficient capital, they would establish an intensive pre-investment support program to strengthen management teams and build the business in-house.

Targeted, tailored support, whether from the impact investor or a third party, requires an upfront commitment of resources but impact investors report that it has proven effective in preparing potential targets for investment and building high quality deal flow. This can dramatically reduce diligence timelines if the investor is able to increase familiarity and visibility during pre-investment support.

• Increase local decision-making: Where possible, impact investors have cited significant improvements in their portfolio through local decision-making and local support. This allows investment officers to form meaningful relationships with portfolio companies, where they are empowered to respond to the realities on the ground as things often change in emerging markets. Placing staff and investment committees locally can also reduce diligence timelines, as these individuals are more familiar with local trends and realities. In an environment of increasing competition between impact investors for high potential deals, designing effective diligence procedures aligned to the region could be a key differentiator for successful impact investors.

• Source opportunities outside major cities like Kampala: Many impact investors with staff on the ground in East Africa report finding investments more easily than those based abroad. However, many entrepreneurs operate in rural areas or smaller cities, rather than in Kampala. For impact investors who see these types of businesses as highly impactful, it will be increasingly necessary to build relationships beyond those made in economic centers.

129 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA UGANDA • 129 In addition, impact investors in Uganda see specific opportunities in the following sectors:

• Agriculture: Overwhelmingly, impact investors identify agriculture as a key opportunity sector. Uganda has ample arable land, favorable weather conditions, and fertile soil. While plot sizes are already considerably larger than in Kenya, impact investors see opportunity to aggregate smallholder plots into even larger plots and significantly increase yields. In addition, there is a rapidly expanding extractives industry in Uganda whose large, concentrated labor force will require significant amounts of high-quality agricultural produce. Impact investors also noted opportunities for entrepreneurs in agricultural sub-sectors, such as dairy.

• Renewable energy: Impact investors identify strong government support for new businesses and approaches in energy, as Uganda looks to expand its power generation capacity. This opens the door for large scale projects as the government has been willing to allocate tracts of land for energy projects in particular. At the same time, there are large segments of the population that lack reliable access to grid power, opening opportunities for micro-grid and off-grid solutions.

• Urbanization: Impact investors also noted that Uganda is rapidly urbanizing and demand for services to support these expanding cities is expected to grow strongly. This includes affordable housing, infrastructure development, water, healthcare, and sanitation.

130 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA TANZANIA INCREASINGLY POPULAR DESTINATION FOR IMPACT CAPITAL

TANZANIA • 131 INTRODUCTION

Tanzania is a core part of the East African impact investing landscape, and most impact investors active in East Africa operate in Tanzania. Although Kenya remains the primary target for impact capital, Tanzania is an increasingly popular destination.

Despite positive trends, many adverse conditions persist in Tanzania. Sourcing talent, particularly for middle management, remains extremely difficult. Many businesses operate informally with multiple sets of accounts, which can compromise impact investors’ ability to place capital. There are few investment-ready businesses, due in part to the lack of high-quality pre-investment support for promising enterprises. In addition, the nature and timing of government involvement in the private sector is unpredictable and can have severe economic consequences.

Nevertheless, Tanzania has a growing economy and is an area of focus for impact investors. Most impact investors active in the region work in Tanzania, and it has the third largest number of impact investments in East Africa. Moreover, as impact investors diversify beyond Kenya, Tanzania will be a primary beneficiary, and the amount of capital deployed is expected to increase accordingly.

FIGURE 1: MAP OF TANZANIA

TANZANIA

132 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA COUNTRY CONTEXT

Tanzania is one of the most politically stable countries in East Africa and has seen strong growth in recent years. This is reflected across economic indicators, though the country requires support to improve human development indicators and increase linkages between disadvantaged populations and the rapidly growing national economy.

Notably, Tanzania is a member of both the East African Community (EAC) and the Southern African Development Community (SADC). This dual membership expands Tanzania’s trade options and has resulted in many South African companies being active in Tanzania, despite them being much less active in other East African countries.

Gross Domestic Product

Tanzania’s GDP has grown approximately 8% year-on-year in PPP terms between 2004 and 2013 (Figure 2). GDP stands at USD 86 billion in PPP terms, though only USD 36 billion in current price terms. With a population slightly larger than Kenya’s (roughly 49 million), Tanzania has a similar GDP in PPP terms, but a much lower GDP in current price terms. This demonstrates the significantly lower price levels for common goods and services in Tanzania compared to Kenya.

FIGURE 2: GDP (PPP), 2004–2013

USD BILLIONS

100 Tanzania averaged ~8% annual GDP growth for last 10 years 80

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: IMF World Bank Economic Indicators, April 2014

TANZANIA • 133 Foreign Direct Investment

Strong GDP growth has been accompanied by even stronger foreign direct investment (FDI) inflows, increasing at nearly 19% year-on-year over the last decade.1 Tanzania realized more than USD 1.8 billion in FDI inflows in 2013, the second highest FDI inflow in East Africa.2 This large and growing FDI is primarily driven by oil and gas exploration, with the mining and quarrying sector accounting for more than 43% of all FDI inflows between 2008 and 2011.3 The primary sources of this FDI have been the United Kingdom, South Africa, and Canada, which together account for more than 70% of all FDI to Tanzania from 2008 to 2011.4

FIGURE 3: FDI FLOWS, 2004–2013

USD MILLIONS

2,000

1,500

1,000

500

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: UNCTAD

1 Inward and Outward Foreign Direct Investment Flows, annual, 1970-2013, United Nations Conference on Trade and Development, available at http://unctadstat.unctad.org/wds/TableViewer/tableView. aspx?ReportId=88. 2 Ibid. 3 G. Mwakibolwa, et al., Tanzania Investment Centre, et al., Tanzania Investment Report 2012: Foreign Private Investment and Investor Perception (2013), available at http://www.tic.co.tz/media/TIR2012%20 Main%20Report%20for%20Web.pdf. 4 Ibid.

134 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Inflation and Exchange Rates

Over the past decade, Tanzania has experienced high and volatile local inflation rates reaching as high as 16%. In addition, the Tanzanian Shilling has depreciated by approximately 6% per year against the US dollar since the beginning of 2008, reducing the hard currency value of local currency debt that international investors disburse in Tanzania. For additional information on the impact of exchange rates on debt instruments, see the East Africa regional chapter.

FIGURE 4: INFLATION AND USD/TZS EXCHANGE RATE, 2004-2013

Since 2008, TZ Shilling has weakened ~6% year-on-year against the USD USD/TZS 18% 2,000 USD/TZS exchange rate 16% 1,800 14% Inflation 1,600 12% 1,400 1,200 10% 1,000 8% 800 6% 600 4% 400 2% 200 0% 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: IMF World Bank Economic Indicators, Oanda Historical Currency Rates

TANZANIA • 135 SUPPLY OF IMPACT INVESTING CAPITAL

Tanzania is typically considered the third country of focus for impact investing in the region, after Kenya and Uganda, and will likely see increased activity as impact investors expand their focus beyond Kenya. That said, the gap in impact investing activity between Tanzania and Kenya and Uganda is large. There have been at least 109 non-DFI5 impact deals in Tanzania, disbursing approximately USD 227 million in capital—roughly half the number of deals and a third of the capital disbursed in Kenya.

There are 129 impact capital vehicles managed by 92 non-DFI impact investors that actively consider Tanzania—nearly as many as consider Kenya. Most of these impact capital vehicles are active across the region, where more than USD 2.5 billion in capital committed regionally could be deployed in Tanzania (Figure 5). Tanzania, however, is likely to capture only a small share of this capital if historical deal flows persist. There is less than USD 35 million that has been committed exclusively to Tanzania. Most of the non-DFI impact investors active in Tanzania focus on early-stage businesses that have some track record and operational structures in place.

FIGURE 5: TOTAL CAPITAL COMMITTED BY NON-DFI IMPACT INVESTORS

USD MILLIONS 3,000

2,500

2,000

1,500

1,000

500

0 MULTIPLE COUNTRIES, ONLY TANZANIA INCLUDING TANZANIA

Source: Open Capital Research

5 Due to the unique nature and large size of development finance institutions (DFIs), the authors of this report analyzed their activity separately from those of other types of impact investors (“non-DFI”), and present this separate analysis when appropriate. See the Introduction and Methodology section of this report for more details.

136 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Broader Investing Landscape

Impact investment assets represent a small part of the overall investment picture in the country. For example, local banks had more than USD 11 billion in assets under management in 2011 (Figure 6) while additional sources of capital—such as commercial private equity funds, hedge funds, savings and credit cooperatives (SACCOs), and microfinance institutions (MFIs)—further increase this number.6 Indeed, banks had more than USD 4.5 billion of outstanding loans in 2011, or nearly 20 times the known disbursements made by non-DFI impact investors in Tanzania to date and more than four times more than known disbursements made by all impact investors in Tanzania.7

FIGURE 6: IMPACT CAPITAL RELATIVE TO OTHER FINANCIAL ASSETS

USD BILLIONS 12 11.3

8. Banking sector total assets 6 Impact capital relative to other financial assets 4

2 1.6

0 TOTAL ASSETS

Source: Bank of Tanzania, Tanzania Chamber of Commerce, Open Capital Research

Although impact investing represents a small portion of total investment activity, it fills an important gap in the market for the early-stage businesses of interest to most non-DFI impact investors. Tanzanian banks remain risk averse, even more so than in other East African countries, and are often unwilling to invest in start-up or early- stage enterprises. When willing to lend, they require extremely high collateral ratios, frequently more than 100% of the loan amount.

Entrepreneurs face high interest rates, even if they are able to meet collateral requirements. Over the last ten years, Tanzanian bank rates have fluctuated between 14% and 16%.8 This compares favorably with Kenya, which has experienced larger volatility and where, as of 2013, rates stood 1.5% higher. Nevertheless, Tanzania’s interest rates remain high by international standards, often more than three times

6 Serengeti Advisors, Tanzania Banking Survey 2012 (2012), available at http://www.tccia.com/tccia/wp- content/uploads/2011/07/Tanzania-Banking-Survey-2012-FINAL-July-2012.pdf. 7 Ibid. 8 World Development Indicators: Lending Interest Rates (%), The World Bank Group (2014), available at http://data.worldbank.org/indicator/FR.INR.LEND?page=2.

TANZANIA • 137 higher than the average bank interest rate in the United States, which stood below 5% between 2004 and 2013.9

Stringent collateral requirements and high interest rates limit the practical availability of bank financing for enterprises. The limited availability provides a market opportunity for private investors who are able to provide equity and/or debt that is cheaper or has lower collateral requirements.

This gap is at times filled by grants, which are widely available from donors active in Tanzania. Non-DFI impact investors report that they frequently compete with donor funding for high potential deals, as social entrepreneurs speaking with impact investors are often aware of donor opportunities. Even if an entrepreneur is not directly sourcing capital from donors, their presence in the market can complicate negotiations for impact capital as entrepreneurs may view donor funding as an opportunity to raise free capital and to avoid investors’ comparatively high return expectations. Many grant-making institutions, however, are unwilling to lend to commercial enterprises and often have stringent reporting or operational requirements that are less attractive for businesses.

Impact Capital Disbursed

Tanzania boasts one of the most robust deal flows in the region, although it remains well below the level of activity in Kenya. In total, non-DFI impact investors have disbursed at least USD 227 million to date, or about 17% of known non-DFI impact capital disbursed in East Africa (Figure 7). The country has received a similar proportion of known DFI direct investments (about 11%), with nearly USD 850 million disbursed (Figure 7).

FIGURE 7: IMPACT INVESTMENTS IN TANZANIA

Capital disbursed Deals

DFI usd 846 Millions 65

NON-DFI usd 227 Millions 109

Source: Open Capital Research

9 Ibid.

138 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Tanzania boasts significantly more impact investing activity than the next most active country, Ethiopia—about 2.5 times the known amount of non-DFI impact capital disbursed and more than four times the number of known non-DFI impact deals.10 This aligns with the view of most non-DFI impact investors that Kenya, Uganda, and Tanzania are the core impact investing markets in East Africa.

Investments Over Time

With a large number of deals with undisclosed details, few definitive conclusions can be drawn about the timing of non-DFI impact investing in Tanzania. It is likely that most of these deals occurred after 2010, if consistent with the general trend in impact investing in East Africa.

DFI direct investments in Tanzania have grown over the last four years (Figure 8). The decline for 2014 is likely due to incomplete data at the time of data collection in late 2014, as many attempt to close final investments before the end of the calendar year.

FIGURE 8: DFI DIRECT INVESTMENTS BY YEAR

USD MILLIONS # OF DEALS 300 30 Capital disbursed 250 25 Deals 200 20 150 15 100 10 50 5 0 0 Pre 2010 2010 2011 2012 2013 2014 Unknown

Source: Open Capital Research

10 Rwanda has more known deals than Ethiopia—38 compared to 25. Tanzania has nearly three times the number of deals as Rwanda.

TANZANIA • 139 Sector

The distribution of investments by sector broadly reflects impact investor interest. Agriculture and financial services have received the most deals from non-DFI impact investors (over 55%) and have strong interest from several investors (Figure 9). Despite the larger number of deals in agriculture, the large investment sizes possible when placing capital into established banks or MFIs drives a greater total amount of capital to financial services. Similarly, the housing sector has seen significant capital disbursed despite relatively few deals. These projects tend to have larger average deal sizes than other sectors due to substantial construction costs and the frequent need to internally finance mortgages for low-income borrowers. The energy sector in Tanzania has also received significant capital disbursed, driven primarily by three large deals by a single non-DFI impact investor.

FIGURE 9: NON-DFI IMPACT INVESTMENTS BY SECTOR

USD MILLIONS Capital disbursed # OF DEALS 60 70 Deals 50 60 40 50 40 30 30 20 20 10 10 0 0

NUMBER OF NON-DFI 62 31 40 61 34 17 22 55 17 9 IMPACT INVESTORS INTERESTED IN SECTOR

ICT Energy Other WASH Housing Unknown Agriculture Education Healthcare

Financial services

Source: Open Capital Research. Note: Chart shows total number of non-DFI impact investors interested in sector; may be multiple sectors

Despite their prominence as interest sectors for non-DFI impact investors, education and health have seen relatively few deals. The disconnect between interest in these sectors and the number of deals implies that impact investors see limited viable, investible opportunities and have particular difficulty placing capital.

140 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA As can be seen in Figure 10, known DFI direct investments also favor investments in agriculture (20% of deals and approximately 17% of capital disbursed) and financial services (more than 25% of all deals and approximately 16% of all capital disbursed). The energy sector received the most capital (more than 25% of total DFI capital disbursed in Tanzania), although more than half was due to a single large investment.

FIGURE 10: DFI DIRECT INVESTMENTS BY SECTOR

USD MILLIONS Capital disbursed # OF DEALS 250 18 Deals 16 200 14 150 12 10 100 6 50 4 2 0 0

Other Energy Tourism Extractive Agriculture Education Healthcare Construction Infrastructure Manufacturing Consumer goods Financial services

Source: Open Capital Research

TANZANIA • 141 Deal Size

As shown in Figure 11, the vast majority of capital disbursed by non-DFI impact investors has been in amounts above USD 1 million, although two-thirds of known impact deals in Tanzania are less than USD 1 million in size. Deals under USD 250,000 represent a full third of all impact deals in Tanzania. These small deals contrast with Kenya, where only about 11% of deals are below USD 250,000, suggesting that non-DFI impact investors are finding that most interesting businesses in Tanzania are still relatively small.

FIGURE 11: NON-DFI IMPACT INVESTMENTS BY DEAL SIZE

USD MILLIONS Capital disbursed # OF DEALS 100 40 Deals 80 30 60 20 40 10 20

0 0

USD 1-5M < USD 250K USD 5-10M > USD 10M USD 250-500KUSD 500K-1M

Source: Open Capital Research

By contrast, the average deal size for known DFI direct investments in Tanzania is above USD 13 million (Figure 12), more than six times the average deal size of non- DFI impact investors. This is driven by investments in sizeable energy projects as well as large placements in sectors like energy, extractives, and infrastructure. Even though deals under USD 10 million constitute more than half of the total direct DFI investments, approximately 13% of direct DFI deals were under USD 1 million compared to 67% of non-DFI impact investor deals.

FIGURE 12: DFI DIRECT INVESTMENTS BY DEAL SIZE

USD MILLIONS Capital disbursed Deals # OF DEALS 300 18 250 16 14 200 12 150 10 8 100 6 4 50 2 0 0 < USD 1M USD 1-5M USD 5-10M USD 10-20M USD 20-50M > USD 50M

Source: Open Capital Research

142 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Instrument

The large number of deals with undisclosed details prevents a definitive breakdown of non-DFI investment instruments; however, known deals indicate that traditional debt and equity are the most common instruments (Figure 13). Of these known deals, non- DFI impact investors have made nearly twice as many debt investments as equity, aligning with interview findings from investors that it can be challenging to explain equity investments to entrepreneurs. Unlike their counterparts in Kenya or Uganda, non-DFI impact investors in Tanzania reported that they have not begun to use non- traditional structures such as convertible debt or revenue-participating debt.

FIGURE 13: NON-DFI DIRECT INVESTMENTS BY INSTRUMENT

USD MILLIONS # OF DEALS 180 Capital disbursed 70 160 60 150 Deals 120 50 100 40 80 30 60 40 20 20 10 0 0

Equity Debt Unknown and others Debt & equityQuasi-equity

Source: Open Capital Research

As elsewhere in the region, DFI direct investments are overwhelmingly debt, with a handful of equity deals (Figure 14). Debt investments constitute more than 70% of all capital disbursed and nearly two-thirds of deals made by DFIs directly. Together, debt and equity investments are nearly 90% of direct DFI deals and capital disbursed.

FIGURE 14: DFI DIRECT INVESTMENTS BY INSTRUMENT

USD MILLIONS # OF DEALS 700 Capital disbursed 45 600 40 Deals 35 500 30 400 25 300 20 200 15 10 100 5 0 0

Equity Debt Grant Other Guarantee Unknown Debt & equity

Source: Open Capital Research

TANZANIA • 143 Local Presence

A number of impact investors have chosen to place staff on the ground in Tanzania, predominantly in FIGURE 15: IMPACT INVESTORS WITH LOCAL OFFICES Dar es Salaam, but also in Arusha and Moshi (Figure 15). Indeed, Tanzania is home to more impact capital vehicles than any other country except Kenya, and two impact investors have their headquarters there. Sudan 6 offices in Addis Eritrea The impact investing community in Tanzania remains small, but because it is dispersed across multiple cities, Djibouti more businesses have access to a local impact investor. • Impact investors interviewed noted that they know each S. Sudan Ethiopia 12 offices Somalia other well and have close, collegial relationships. These Uganda connections allow free sharing of information about in Kampala Nairobi is • Kenya regional entrepreneurs and potential investments, which assists Rwanda • • hub with Burundi •• investors to develop pipeline and more effectively 48 offices Tanzania conduct due diligence on potential investments. •

Fluency in Kiswahili is critical to leverage local presence 9 offices in Kigali 14 offices in Tanzania. To a much greater extent than Kenya, in Tanzania Tanzanians do not use English, which can complicate (Dar, Arusha, & Moshi) efforts to form relationships. Without Kiswahili, impact Source: Open Capital Research investors limit the number of strong relationships they can form and their ability to source new deals.

Impact Tracking Standards

Impact investors’ dual mandate to realize both financial and social returns requires a strong focus on measuring impact as a part of their core activities. Beyond tracking metrics as best practice, many of their supporters require it, including DFIs, which act as anchor investors to most impact funds.

Most impact investors in Tanzania do not specify a standardized approach for measuring the impact of their investments across their portfolio. Instead, they typically use flexible structures adapted to each new investment. Many impact investors have rigorous and rigid impact guidelines to make an investment, but they design and track metrics after the investment in an individualized manner to minimize the burden placed on their portfolio companies. Further information on challenges in impact measurement is provided in the East Africa regional chapter of this report.

144 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA DEMAND AND NEED FOR IMPACT INVESTING CAPITAL

There is strong demand for impact capital from entrepreneurs operating in Tanzania. Despite recent progress, there remain significant gaps in the provision of key goods and services, which create opportunities for entrepreneurs to build enterprises that fill key needs while also realizing financial returns.

Development Context

Tanzania has seen recent improvement in human development indicators, but still remains well below global averages (Figure 16). Overall, Tanzania is ranked 159th of 187 countries evaluated in the United Nation’s Human Development Index.11 This low ranking is reflected in poor performance across a number of individual development indicators covering poverty, health, and education.

FIGURE 16: UN HDI SCORES, 2008-2013

UN HDI 0.8 0.7 0.6 Global average 0.5 Tanzania 0.4 0.3 0.2 0.1 0.0 2008 2009 2010 2011 2012 2013

Source: United Nations Human Development Report 2014. Note: 2014 report does not include 2009 HDI scores. 2009 scores shown are calculated as an average of 2008 and 2010 scores

11 2014 Human Development Index, United Nations Development Programme (2014), available at http://hdr.undp.org/en/data.

TANZANIA • 145 More than two-thirds of Tanzania’s population, or more than 30 million people, live on less than USD 1.25 per day (Figure 17), nearly three times the global average. This is the second worst poverty level in East Africa, after Burundi.

Tanzania also has poor health indicators, significantly underperforming global averages. Tanzania’s under-five and infant mortality rates are both somewhat above global averages.12 Despite being well above global averages, Tanzania’s under-five mortality rate is the second lowest in East Africa, behind only Eritrea’s. By contrast, its rate of under-five stunting, an effective proxy for childhood and later health in general, is slightly worse than the East African average and is more than 50% greater than the global average (Figure 18).13

FIGURE 17: POPULATION BELOW USD 1.25/DAY FIGURE 18: UNDER-5 MORTALITY AND STUNTING (LATEST AVAILABLE DATA POINT) (LATEST AVAILABLE DATA POINT)

UNDER-5 DEATHS PER 80% POP 1,000 BIRTHS STUNTED 60% 60 60% Global averages 40% Under-5 Global 40% 20% mortality average 30 0% 20% Stunting TANZANIA 0 0% TANZANIA

Source: UN Human Development Report 2014 Source: UN Human Development Report 2014

12 Tanzania’s infant mortality rate was 38 per 1,000 live births in 2012, compared to a global average of 34 in 2013. UNICEF Statistics: http://www.unicef.org/infobycountry/tanzania_statistics.html. 13 2014 Human Development Index, United Nations Development Programme (2014), available at http://hdr.undp.org/en/data.

146 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA On the other hand, Tanzania’s gross secondary education enrollment is slightly above East African average. Nevertheless, it remains below half of the global average—less than 8% of the Tanzanian population age 25 and above has attended some secondary school, which is less than 15% of the global average (Figure 19).14

FIGURE 19: KEY EDUCATION INDICATORS (LATEST AVAILABLE DATA POINT)

100% Global averages 80% Secondary 60% gross enrollment

40% Pop with some 20% secondary education

0% TANZANIA

Source: UN Human Development Report 2014

14 Ibid.

TANZANIA • 147 Educational metrics are an especially important indicator for future development given Tanzania’s demographics. Like other East African countries, Tanzania has a disproportionately young population, where nearly 45% is under the age of 15 and more than 60% is below age 25 (Figure 20). This youth boom has led to high unemployment among young people which, when compounded with low levels of education, poses a challenge to economic growth.

FIGURE 20: POPULATION BY AGE AND GENDER

AGE 100+ 95-99 90-94 85-89 80-84 75-79 70-74 65-69 Male 60-64 Female 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4

5 4 3 2 1 0 0 1 2 3 4 5

POPULATION POPULATION (MILLIONS) (MILLIONS) Source: UN ESA, World Population Prospects

Entrepreneurs

As is the case across the region, Tanzania has many early-stage businesses that operate across a range of impactful sectors, including education, housing, healthcare, water and sanitation, energy, etc. These businesses seek capital across the spectrum of funding from start-up and SME-size deals to capital for scaling up, although they are primarily start-up and early-stage businesses. Similarly, non-DFI impact investors focus on early-stage opportunities that have some track record and operational structures in place.

Despite growing interest in placing capital in Tanzania, entrepreneurs face substantial challenges to become investment-ready and struggle to find financing beyond friends and family. Bank financing can be particularly difficult and expensive. As in much of the region, collateral requirements are high. However, this hurdle can be even more restrictive in Tanzania, as impact investors report that banks in Tanzania often do not accept land as collateral because of difficulties arising from community

148 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA land ownership. Without land as security, many entrepreneurs, particularly those in agriculture, find it impossible to access bank financing. Non-DFI impact investors note that banks also rarely have products or processes suited to agricultural investments and that they prefer to place capital in government bonds. There have been new entrants to the banking sector from Kenya, but these new banks have yet to significantly expand access to financing.

Impact investors note that many potentially interesting early-stage businesses and even some large businesses operate informally. They often have different sets of accounts for different audiences (e.g., one for the revenue authority, one for their family, and one that is accurate). In such cases, it is difficult for impact investors to build confidence in a business’s operations or trust in the entrepreneur. This makes it hard for investors to disburse capital. Beyond the lack of transparency, informal businesses often do not comply with relevant laws, which is a threshold condition for some impact investors. More generally, informal businesses are significantly less likely to have clear financial records, access to formal markets, or access to government services, making them less likely to be an attractive target for impact capital.

Early-stage businesses face significant challenges arising from Tanzania’s geographic size and poor infrastructure. Low population density implies that growing businesses must expand their geographic reach rapidly, which is challenging. New markets are far from headquarters and must be operated largely as a separate endeavor. For example, inventory, sourcing, and distribution must often be re-created and run independently.

Sourcing adequate human capital to manage these dynamics is one of the most prominent challenges businesses face. As with much of East Africa, there is a limited pool of talented middle and senior management talent and, when available at all, capable managers are costly. This problem is particularly acute in Tanzania because the country does not have a large returning diaspora to supplement in-country talent. Impact investors note that many exciting small businesses have some foreign management, despite many impact investors’ desire to find local entrepreneurs. In some cases, these are managers from the region. Alternatively, some strategic investors have supplied management talent as part of their investment offering. This model overcomes initial management challenges while the fixed timeline requires training of and transition to local management after a short time.

In addition to these challenges, early-stage businesses often suffer from similar challenges as early-stage businesses across the region, such as insufficient human capital and lack of access to bank financing (see the Regional Overview chapter of this report for more detail). Though such challenges are not as common with growth- stage businesses, high potential, rapidly scaling growth companies are significantly rarer. For more detail on the challenges facing both early- and growth-stage companies in East Africa, see the East Africa regional chapter of this report.

TANZANIA • 149 ENABLING IMPACT INVESTING: THE ECOSYSTEM

The impact investing ecosystem in Tanzania remains challenging and is a key constraint for investors. Government intervention can be extensive and unpredictable. Impact investors interviewed consider sectors with a history of government involvement broadly unsuitable and report being wary of the government imposing new regulatory burdens on any rapidly growing sectors.

The broader business environment is not yet as developed as it is in other East African countries. There are few active intermediaries or service providers to provide needed pre-investment support and facilitate deal flow. Even though there are a number of accountants and law firms, there is substantial variation in quality. While good advisors are available, they are generally expensive; impact investors estimate legal costs to be twice as high in Tanzania as in Kenya.

Regulatory Environment

Tanzania is one of the most politically stable countries in East Africa and has a generally welcoming regulatory landscape for investors. It is one of the easier countries to conduct business in in East Africa, ranking second in the region in the World Bank’s Ease of Doing Business rankings.15 Other than land ownership, there are few differences in regulation for foreign and domestic investors. Investors are able to access foreign currency easily, repatriate profits, and own local companies.

Nonetheless, impact investors report uncertainty around government policies as a major impediment to placing capital. In addition, interacting with the Tanzanian state to pay taxes or apply for licenses can be complicated due to inefficient bureaucracies. Some key features of Tanzania’s regulatory landscape are described below:

• Repatriation of profits and dividends:Tanzania does not restrict foreign investors from repatriating returns; profits, dividends, and capital can be easily repatriated after tax.16 These repatriations may generally occur in any currency.17

• Foreign exchange controls: Tanzania has open foreign exchange rules. Foreign exchange is freely available from commercial banks and can be acquired and held equally by locals and foreign nationals. Any person may open a foreign currency account with an authorized bank. Recently, the Tanzanian government required all

15 “Economy Rankings,” The World Bank (Jun. 2014), available at http://www.doingbusiness.org/ rankings. 16 U.S. Department of State, Department of State: 2014 Investment Climate Statement (2014), available at http://www.state.gov/e/eb/rls/othr/ics/2013/204744.htm; Deloitte, International tax: Tanzania Highlights 2014 (2014), available at http://www2.deloitte.com/content/dam/Deloitte/global/ Documents/Tax/dttl-tax-tanzaniahighlights-2014.pdf. 17 Deloitte, International tax: Tanzania Highlights 2014 (2014), available at http://www2.deloitte.com/ content/dam/Deloitte/global/Documents/Tax/dttl-tax-tanzaniahighlights-2014.pdf.

150 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA foreign source loans to be registered with the Bank of Tanzania.18 The reporting obligation lies with the local bank, though individual businesses and impact investors seeking to place capital may be required to share additional information in response to this reporting requirement.19

• Land ownership: All land in Tanzania is public—the country does not recognize absolute private ownership of land. At most, it may be leased from the government for 99 years. Foreigners are only permitted to lease land through the Tanzania Investment Center (TIC).20 The TIC has allocated specific plots for foreign investors, although the process to allocate new land can be lengthy.21 Less than 10% of land has been surveyed and title deed registration is completed manually at the local level, further complicating matters.22 The TIC maintains a bank of land for investment purposes, but restrictions on foreign land ownership can significantly delay investment.

Foreign investors may form joint ventures with Tanzanians to own land. In these joint ventures, the Tanzanian retains the leasehold and provides use to the foreign investor.23 In order to be considered a Tanzanian company, a company must be majority owned by Tanzanian citizens.24

• Local ownership requirements: Foreign investors may purchase up to 100% of any local company except in telecommunications (65% foreign shareholding maximum), shipping (50%), or mining (variable) sectors. Local shareholders are defined as Tanzanian citizens or companies where at least 51% of the shares are held by Tanzanian citizens.25

• Government intervention: The Tanzanian government remains heavily involved in the economy and can impose difficult regulatory burdens unpredictably. For example, Tanzania has a history of ad hoc decisions to ban exports of certain

18 KPMG International Executive Series, Thinking Beyond Borders: Tanzania (2012), available at http://www.kpmg.com/global/en/issuesandinsights/articlespublications/thinking-beyond- borders/documents/tanzania.pdf; Deloitte, International tax: Tanzania Highlights 2014 (2014), available at http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax- tanzaniahighlights-2014.pdf. 19 Clyde & Co, Registration of Private Sector Foreign Loans with the Bank of Tanzania (2014), available at http://www.inhousecommunity.com/upload/pdf/40c8a62e649214db564b636b23bb961e.pdf. 20 US Department of State, 2013 Investment Climate Statement: Tanzania (2013), available at http:// www.state.gov/e/eb/rls/othr/ics/2013/204744.htm. 21 Ibid. 22 Ibid. 23 Ibid. 24 Hogan Lovells, Foreigners’ Land Rights in Tanzania - are they there? (2014), available at http:// www.hoganlovells.com/files/Publication/cf5c8bf2-cc64-46b7-9182-395020bcb732/Presentation/ PublicationAttachment/c02e06e1-de0e-4dd5-991b-3cbe3f8f9922/Foreigners_Land_Rights_in_ Tanzania_are_they_there_May_2014.pdf. 25 Jeffrey Delmon & Victoria Rigby, Kluwer Law International, International Project Finance & Public Private Partnerships (2010), available at http://books.google.co.ke/ books?id=V4RuM_1kPhAC&pg=RA10-PA19&lpg=RA10-PA19&dq=Tanzania++%2B+Required+local+ shareholding+participation&source=bl&ots=C7I7G_tiAG&sig=4lDHaahtOgeFJmgT1LeUw1Newv4& hl=en&sa=X&ei=JHpYVIXpEcOUar-MgUA&redir_esc=y#v=onepage&q=Tanzania%20%20%2B%20 Required%20local%20shareholding%20participation&f=false. TANZANIA • 151 foods and at one point banned grain exports.26 The government also sets prices in some sectors, such as coffee and cashew. In some cases, government prices have been set above the international market, meaning local producers are unable to sell through formal channels.27 Beyond price setting, impact investors believe the government may look to growing sectors for opportunities to raise tax revenue. For example, impact investors expressed concern over a proposal to remove the VAT exception for solar products, but this proposal was later shelved.28 The government continues to operate state-owned enterprises in large-scale energy, telecommunications, banking, rail, and mining that receive government subsidies and other preferential treatment.29

26 Bernard Kagira, USAID, The Case Study: Tanzania Drops Export Ban on Grains (2011), available at http://www.competeafrica.org/Files/Case_Study_-_Tanzania_Export_Bans_02122011.pdf. 27 Shenoy Karun, “Tanzania Floor Price Zaps Cashew Imports,” The Times of India (Mar. 6, 2012), available at http://timesofindia.indiatimes.com/city/kochi/Tanzania-floor-price-zaps-cashew-imports/ articleshow/12155687.cms. 28 Finnigan wa Simbeye, “Treasury: No Plans for VAT on Solar Panels,” Daily News (Nov. 14, 2014), available at http://www.dailynews.co.tz/index.php/biz/38256-treasury-no-plans-for-vat-on-solar- panels. 29 US Department of State, 2013 Investment Climate Statement: Tanzania (2013), available at http:// www.state.gov/e/eb/rls/othr/ics/2013/204744.htm.

152 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Ecosystem Players

There are a growing number of ecosystem players active in Tanzania. The research team identified 22 active organizations, primarily comprised of consultants and incubators/accelerators. Despite the number of ecosystem players formally active in the market, few impact investors and entrepreneurs interviewed report working with local ecosystem players.

FIGURE 21: SELECTION OF CURRENTLY ACTIVE INTERMEDIARIES AND SERVICE PROVIDERS

Technoserve

Open Capital Tanzict GrowthAfrica Advisors

Mentor Capital Global Social I-DEV Network Benefit Institute

GVEP Land O’Lakes Enablis International

Kinu DTBi Enclude

Impact Amplifier Bloji Dalberg VC4Africa BiD Network Africa Assets

INCUBATORS/ACCELERATORS CONSULTANTS/ INVESTOR BUSINESS PLAN RESEARCH TA PROVIDERS NETWORK COMPETITION

Source: Open Capital research, organization websites. Note: chart focuses on those with local presence; many international players active

Although there are a number of regional incubators and accelerators, most are based elsewhere in the region. Encouragingly, several new technology hubs have opened in Dar es Salaam. Impact investors think these new hubs are indicative of increasing interest in incubating technology ventures in Tanzania, although they are not able to meet demand today.

These ecosystem players offer similar services as their counterparts across East Africa. As in the rest of the region, the skew towards incubators and accelerators, which tend to focus on seed or very early venture-stage businesses in specific sectors, leaves a gap for service providers to support growth-stage businesses across a range of sectors. For more detail on active players’ service offerings and gaps in the ecosystem, please see the East Africa regional chapter.

TANZANIA • 153 Other Ecosystem Players

In line with the general impact investing ecosystem in Tanzania, social enterprises often struggle to access needed services. Every company must produce annual audited accounts and, while there are several high-quality auditors that are well- known in the market, they tend to be prohibitively expensive for small businesses. Outside of these few providers, quality varies widely, as does the reliability of accounts produced. Particularly for small companies, developing clear financial documentation can be challenging, even if they are operating formally.

Legal representation is also available but of varying quality. There are a handful of respected firms that are well suited for high-quality legal due diligence, but they are often too expensive for smaller investments. In general, the lack of broad, high-quality legal representation increases transaction costs for new transactions; impact investors estimate that legal diligence costs in Tanzania are twice as high as in Kenya.

154 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA CHALLENGES AND OPPORTUNITIES FOR IMPACT INVESTORS

Impact investors based in Tanzania stress that there are many opportunities, but that to be successful, investors need to be flexible in their investment criteria. Rigid criteria around sector, impact, or stage of business can be counterproductive and prevent completing investments. This emphasis on flexibility implies an underlying sentiment that there are still few high-potential entrepreneurs in Tanzania. Without the depth of talent and potential investments present in other countries such as Kenya, there is less room for impact investors to focus only on a sub-set of opportunities.

Challenges

There are, however, a variety of challenges for current impact investors, new impact investors, and other eco-system players in Tanzania. Challenges commonly faced in Tanzania include:

• Insufficient investment-ready deal flow: As elsewhere in the region, many impact investors struggle to disburse capital in Tanzania. Efforts are complicated by a substantial informal sector where many businesses, even large ones, have multiple sets of accounts. Even if a clear financial history can be determined, informal businesses are seldom fully compliant with applicable regulations. Like companies in the rest of the region, businesses in Tanzania also suffer from inefficient operations, a lack of realistic strategies and projections, and a limited plan to use capital invested.

• Government intervention: The government of Tanzania remains actively involved in the economy, and its involvement in specific sectors can be unpredictable. Sudden changes with strong effects on the business environment for a sector are possible and uncertainty about government policies can be a major impediment to placing capital.

• Competition with donor funding: Grant financing is widely available from donors active in Tanzania. At times, impact investors compete with grant capital as entrepreneurs who seek capital are typically also aware of donors. Donor presence in the market can complicate negotiations for commercial capital as entrepreneurs may believe they can raise free capital or may believe investor return expectations are too high.

TANZANIA • 155 • International decision makers: Many impact investors have investment committees based abroad that include international decision-makers who may not have experience with investments in East Africa. These remote investment committees interpret risk differently than do their investment teams operating on the ground, creating friction between investment officers forming relationships with entrepreneurs and investment committees making the ultimate investment decisions.30

• Long diligence process: Correlated with the lack of investment-ready deal flow and international decision making, the diligence process for impact investors can often stretch 12-18 months for both debt and equity investments.31 This lengthy process can damage relationships with entrepreneurs, who often view it as reflecting a lack of trust. It can put additional pressure on businesses and lower long-term returns as companies must survive without needed capital, creating a significant opportunity cost as management teams spend time courting investors.

• Few exit examples: For new funds looking to raise capital, the youth of the industry means there are few successful exit examples. Without a successful track record, it can be difficult for impact fund managers to raise a second fund—some interviewed for this report believe it may be easier for a new fund manager to raise funds than for an experienced one to do so.

• Limited experienced local talent: Impact investors struggle to find experienced local staff to support both their own investment teams and management teams within growing portfolio companies. This challenge is particularly acute for finance professionals with 5-15 years of experience who can serve as a company CFO, investment officer, or portfolio manager for an impact investor, despite the large number of students graduating each year with degrees in accounting and finance. Even when a talented, experienced professional can be found, they often command high wages that can be challenging for SMEs or social enterprises to support, especially in their early years. Similarly, lean impact investors, particularly those operating small funds, find it difficult to pay high wages. This shortage is particularly acute in Tanzania, as the diaspora has not yet begun to return to the country.

• Difficulty accessing local currency instruments: Many social businesses engage with disadvantaged populations, often earning the majority of their revenues in local currencies. However, most impact investors track returns in international hard currencies and have little ability to invest in local currencies. This is especially challenging for long-term debt instruments, which require repayment in hard currencies that can appreciate 5-10% per year. Hedging options are expensive at both the individual investment level and at the fund level, although some impact investors report effectively using fund level hedges to minimize risk. Please see the East Africa regional chapter for additional detail on the dynamics of local currency investments.

30 Based on primary and/or secondary research conducted during this study; see “Introduction and Methodology” chapter of this report for details. 31 Based on primary and/or secondary research conducted during this study; see “Introduction and Methodology” chapter of this report for details.

156 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Opportunities

Despite these challenges, there are many opportunities for non-DFI impact investors to operate in Tanzania effectively and leverage return-seeking investments to drive job creation, economic development, and opportunities for disadvantaged populations. Opportunities for impact investors in Tanzania include the following:

• Leverage TA facilities for pre-investment pipeline building: Many impact investors have successfully raised technical assistance facilities for portfolio companies. Increasingly, TA funders such as USAID and DFID recognize the importance of pre-investment support to get companies to the point where they can pass rigorous investment committee requirements. Targeted, tailored support requires an upfront commitment of resources but impact investors report that it has proven effective in preparing targets for investment and building high quality deal flow. This support can dramatically reduce diligence timelines if the investor is able to increase familiarity and visibility into the business pre-investment in order to assess the company’s operations and ability to execute.

• Ease rigid investment criteria: Impact investors in Tanzania repeatedly stressed the need for more flexible non-financial investment criteria. Rigid criteria around sector, impact, and stage of business are generally seen as impediments to investing in the few investment-ready opportunities that arise. Without the volume of high-potential entrepreneurs and opportunities in Tanzania as in, for example, Kenya, impact investors benefit from being able to place capital where opportunities arise, rather than focusing on a sub-set of opportunities.

• Increase local decision-making: Where possible, impact investors cited significant improvements in their portfolios through local decision-making and in-country support. This allows investment officers to form meaningful relationships with portfolio companies, where they are empowered to quickly respond to realities on the ground.

• Source opportunities outside major cities, like Dar-es-Salaam: Though impact investors with staff on the ground in major cities already report an easier time finding investments than those based abroad, many entrepreneurs operating in rural areas do not spend much time in Dar-es-Salaam. For impact investors who see these types of businesses as highly impactful, it will be increasingly necessary to build relationships beyond those made in economic centers.

• Innovate with new models of investment vehicles: The Tanzanian impact investing community is innovating and experimenting with interesting new models. For example, DFID recently established an impact capital vehicle focused specifically on agricultural companies in the Southern Agricultural Corridor of Tanzania (SAGCOT) that is currently raising capital. This narrow geographic and sector focus will create detailed market awareness and push concentrated capital into this challenging region with a high potential for impact.

TANZANIA • 157 In addition, impact investors in Tanzania see specific opportunities in the following sectors:

• Agriculture: Overwhelmingly, impact investors identify agriculture as a key opportunity. Tanzania is the third largest country by area in the region and there is ample arable land. Impact investors note that working directly with smallholders can be difficult given their willingness to change crops or side-sell, and they see significant opportunity in agricultural processing and post-harvest marketing and infrastructure, including warehousing, cold storage, and transport.

• Renewable energy: Large segments of the Tanzanian population lack reliable access to grid power, opening opportunities for micro-grid and off-grid solutions. However, entrepreneurs must be wary of potential government regulation. For example, the government at one point considered lifting VAT exemptions on solar products, but it has since confirmed the exemption.32

32 Finnigan wa Simbeye, “Treasury: No plans for VAT on solar panels,” Daily News (Nov. 14, 2014), available at http://www.dailynews.co.tz/index.php/biz/38256-treasury-no-plans-for-vat-on-solar- panels.

158 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA RWANDA SMALL MARKET, PROMISING REGIONAL EXPORTS

RWANDA • 159 INTRODUCTION

Rwanda has experienced an impressive era of rapid economic growth. Its Asian Tiger-like model of state-led development helped the nation recover quickly from one of the most horrific chapters in recent African history, and set Rwanda on course for two decades of unprecedented growth and modernization. Starting in the early 2000s, international donors began to view bilateral aid to the Rwandan government— untied to any specific program or purpose—as one of the best deals in development. However, relations with foreign governments and investors weakened after a 2012 United Nations (UN) report accused key Rwandan government figures of supporting rebel forces in the Democratic Republic of the Congo (DRC),1 further destabilizing one of Africa’s most volatile regions. International aid flows—which made up around 40% of the Rwandan government’s budget—diminished in response to the UN report; in the future, these flows will depend on Rwanda’s ability to convince donors that it has not played a role in regional political and ethnic issues. Nonetheless, many consider Rwanda to have the most efficient and least corrupt government in East Africa, with the strongest rule of law.

Impact investors have responded to Rwanda’s relatively favorable business environment. Although Rwanda’s small population and young markets have restrained deal flow to date, most investors active in East Africa list Rwanda as one of their target countries. The Rwandan government has made a point of creating a business environment friendly to foreign and local entrepreneurs that increasingly look to establish headquarters in its capital city, Kigali.

Allegations over Rwanda’s relations with paramilitary groups in the eastern DRC remain a concern for the country, as well as a threat to its future as a market for impact investing.2 Ethnic hostilities involving Rwanda are ongoing in the eastern DRC, and it is unclear when this situation will be fully resolved.3

FIGURE 1: MAP OF RWANDA

RWANDA

1 Hege, Alusala, de Koning, Serralta and Spittaels, UN Security Council briefing S/2012/843 available at http://www.securitycouncilreport.org/atf/cf/%7B65BFCF9B-6D27-4E9C-8CD3- CF6E4FF96FF9%7D/s_2012_843.pdf. 2 “Eastern Congo: The hills are alive again.” The Economist (May 29, 2013), available at: http://www. economist.com/blogs/baobab/2013/05/eastern-congo?zid=304&ah=e5690753dc78ce91909083042a d12e30. 3 Louis Charbonneau. “Congo tells UN its offensive against Rwanda rebels going well,” Reuters Africa (May 16, 2015), available at: http://af.reuters.com/article/topNews/ idAFKBN0O106Y20150516?pageNumber=1&virtualBrandChannel=0.

160 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA COUNTRY CONTEXT

Despite its turbulent past and recent UN allegations, Rwanda is today considered one of the most stable and promising economies in the region. This is reflected across economic indicators, though there is still substantial need to improve human development indicators and increase linkages between disadvantaged populations and the rapidly growing national economy.

Gross domestic product (GDP) in Rwanda has seen strong growth in recent years, averaging approximately 10% GDP (PPP) growth for the last eight years (see Figure 2). GDP currently stands at over USD 16 billion in PPP terms, and USD 7.4 billion in current prices, making it the smallest economy of this report’s focus countries4 and the second smallest economy—ahead of Burundi—in the East African Community (EAC) trade bloc.5

FIGURE 2: GDP (PPP), 2004–2013

USD BILLIONS

20 Rwanda averaged ~10% annual GDP growth for last 10 years 15

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: IMF World Bank Economic Indicators, April 2014

Although GDP growth slowed from around 15% ten years ago to closer to 7% in 2013, Rwanda has seen some of the strongest growth in East Africa over the past decade, trailing only Ethiopia. This is partly due to increasing population—it is the most densely populated country in sub-Saharan Africa—but much of this growth is attributable to productivity gains. GDP per capita more than doubled over the last 10 years, overtaking Uganda for the first time in 2012.

The makeup of Rwanda’s economy has remained relatively stable over the last decade. Services account for the bulk of GDP, though booming telecommunications

4 Focus countries for this report are Ethiopia, Kenya, Rwanda, Tanzania, and Uganda. Detailed chapters are provided for these countries, while brief overviews are provided for Burundi, Djibouti, Eritrea, Somalia, South Sudan, and Sudan. 5 World Economic Outlook: Gross Domestic Product, International Monetary Fund (Apr. 2014), available at http://www.imf.org/external/pubs/ft/weo/2014/01/weodata/download.aspx.

RWANDA • 161 and tourism sectors have increased this share from 48% to 53%, the highest in the region. Agriculture remains the single strongest sector, making up more than 30% of GDP. Substantial public and private investment in major construction and real estate projects have maintained the share of industry at just below 15%. Overall, Rwanda has one of the smallest manufacturing sectors relative to GDP in the region, ahead of only Ethiopia. Industrial sectors are likely to benefit from Rwanda’s strong push to expand power generation, in which the government plans to spend close to USD 5 billion to increase electrification from 20% today to 70% in 2017, adding 1,000 MW of generating capacity from hydro, methane gas, geothermal, and peat energy sources.6

Foreign Direct Investment

Strong GDP growth has been accompanied by increasing foreign direct investment (FDI) in Rwanda. In 2013, there was approximately USD 110 million in FDI inflows to Rwanda, up from only USD 8 million ten years ago (see Figure 3).7 Nevertheless, in absolute terms, Rwanda remains among the lowest recipients of foreign investment in East Africa, with FDI making up less than 1% of GDP in 2013.

FIGURE 3: FDI FLOWS, 2004–2013

USD MILLIONS

200

150

100

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: UNCTAD

6 “70% of Rwandans to Have Access to Electricity By 2017,” Republic of Rwanda (Jan. 10, 2013), available at http://www.gov.rw/newsdetails2/?tx_ttnews%5Btt_ news%5D=896&cHash=316d0869ab5ddfe36ce5424a011fca18. 7 Inward and Outward Foreign Direct Investment Flows: Annual 1970-2013, United Nations Conference on Trade and Development, available at http://unctadstat.unctad.org/wds/TableViewer/tableView. aspx?ReportId=88.

162 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Mauritius, South Africa, and Luxembourg together originated more than 50% of all FDI into Rwanda in 2013 (Figure 4), predominately through equity vehicles (Figure 5).8 Kenya and Libya also provided a large share of FDI at a little below 10% each. Strong FDI inflows are expected in the future, particularly as Chinese loans begin to increasingly complement Western aid as a source of government funding.9

FIGURE 4: FDI INFLOWS, BY COUNTRY OF ORIGIN, 2013 FIGURE 5: FDI INFLOWS, BY INSTRUMENT, 2013

100% 100% Others Debt instruments 90% 90% Netherlands Equity positions 80% 80% Kenya 70% 70% Libya 60% 60% Luxembourg 50% 50% South Africa 40% 40% >71% of direct Mauritius investments 30% 30% were equity 20% 20% 10% 10% 0% 0%

Source: US Department of State Source: US Department of State

8 Mauritius and Luxembourg constitute the largest and third largest sources of FDI into Rwanda. Despite these two countries’ relatively small size, they represent a large source of FDI because many private equity and venture capital funds base themselves in these jurisdictions to benefit from favorable tax regimes. 9 “The President Tightens His Grip,” The Economist (Sep. 19, 2013), available at http://www.economist. com/news/middle-east-and-africa/21586597-president-tightens-his-grip-safe-and-sorry?zid=304&ah= e5690753dc78ce91909083042ad12e30.

RWANDA • 163 Inflation and Exchange Rates

Rwandan inflation has been volatile, dropping from 15% in 2008 to just 2% two years later, although inflation rates have stabilized since (Figure 6). Stable prices have resulted in a stable currency. Although the Rwandan Franc has steadily depreciated against the US dollar since 2006, depreciation has been uncommonly smooth and much less pronounced than that experienced by other EAC currencies. The Franc’s stability greatly benefits Rwanda’s investment climate, as it reduces foreign exchange risk.

FIGURE 6: INFLATION AND USD/RWF EXCHANGE RATE, 2004 - 2013

USD/RWF exchange rate USD/RWF 18% 800 Inflation 16% 700 14% 600 12% 500 10% 8% 400 6% 300 4% 200 2% 100 0% 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: IMF World Bank Economic Indicators, Oanda Historical Currency Rates

While the Franc has remained more stable than other currencies, long-term political uncertainty has prompted some investors to seek hedging protection or implement exchange rate bounds for repayments in loan agreements. Please see the East Africa regional chapter of this report for additional detail on common investor approaches to mitigating currency risk.

164 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA SUPPLY OF IMPACT INVESTING CAPITAL

To date, non-DFI impact investors10 have made at least 38 investments in Rwanda, disbursing more than USD 44 million in capital, though this represents only 3% of all non-DFI impact investment activity in East Africa overall. Many investors would like to deploy capital in Rwanda: there are 94 active non-DFI impact investing vehicles managed by 69 investors that would consider investing in Rwanda, 17 of whom have already deployed capital. Currently there is less than USD 1 million in capital committed (but not yet deployed) by non-DFI impact investors to investments specifically in Rwanda. However, most of these investors take a regional approach; there is a further USD 1.8 billion in capital committed regionally that is available to be invested in Rwanda amongst other countries (Figure 7). While much of this is likely to be deployed in Kenya, Tanzania, or Uganda, some will also make its way to Rwanda.

FIGURE 7: TOTAL CAPITAL COMMITTED BY NON-DFI IMPACT INVESTORS

USD MILLIONS 2,000

1,500

1,000

500 0.3 0 MULTIPLE COUNTRIES, ONLY RWANDA INCLUDING RWANDA

Source: Open Capital Research

10 Due to the unique nature and large size of development finance institutions (DFIs), the authors of this report analyzed their activity separately from those of other types of impact investors (“non- DFI”), and present this separate analysis when appropriate. See the Introduction and Methodology section of this report for more details.

RWANDA • 165 Broader Investing Landscape

Despite strong growth in recent years, Rwanda’s banking sector remains small compared to those in some of the more financially developed economies in the region. In total, its banks hold close to USD 2.5 billion in assets,11 much less than banks in Kenya, which has a population four times greater but a banking sector over ten times larger. Similarly, Rwandan banks lent just under USD 1.4 billion in 2013, compared to USD 15 billion by banks in Kenya. As is true for the entire region, non-DFI impact investing represents a very small share of overall financial activity in Rwanda; bank loans in 2013 amounted to nearly 30 times the disbursements made by non-DFI impact investors over the same period.

Rwandan bank lending rates available to the private sector have been among the highest in the region over the past decade, consistently above 16% between 2004 and 2010. This is around four times higher than the average bank lending rate in the United States over the same period, which stood at just over 4%.12 IMF data is not available beyond 2010, but research and interviews conducted for this report suggest that rates have remained comparable since. These continuing high rates limit the practical availability of bank financing. This provides a market opportunity for private investors who are able to provide equity capital, cheaper debt options, or require less collateral for lending to both consumers and companies.

While impact investing represents a small portion of total investment activity, it fills an important gap in the market. As with commercial banks throughout the region, Rwandan banks remain extremely risk-averse and often require extremely high collateral ratios (please see East Africa chapter for more detail on access to commercial debt).

11 Development Bank of Rwanda, Annual Report 2013, available at https://www.brd.rw/IMG/pdf/BRD_ ANNUAL_REPORT_2013.pdf. 12 World Development Indicators: Lending Interest Rates (%), The World Bank Group (2014), available at http://data.worldbank.org/indicator/FR.INR.LEND?page=2.

166 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Impact Capital Disbursed

Rwanda’s small market size is reflected in the amount of impact investment activity to date. Only around 3% of all non-DFI impact capital disbursed in East Africa has been placed in Rwanda, amounting to approximately USD 44 million (Figure 8), the lowest of this report’s five focus countries. A similar percentage of all direct investment by DFIs in the region has been placed in Rwanda, totaling a little over USD 370 million disbursed through 43 direct investments (Figure 8).

FIGURE 8: IMPACT INVESTMENTS IN RWANDA

Capital disbursed Deals

DFI usd 371 Million 43

NON-DFI usd 44 Million 38

Source: Open Capital Research

However, compared to other countries in the region, Rwanda’s openness to investors has led a large number of non-DFI impact investors to target Rwanda. Of 186 non- DFI impact investment vehicles active in East Africa, 94 are interested in investing in Rwanda, almost double the number targeting neighboring Burundi, which has a similar population. Ethiopia, with an economy more than ten times larger than Rwanda’s, is only targeted by 80 non-DFI impact investing vehicles. Nonetheless, the difference between the amount of capital available to Rwanda and the amount of capital actually disbursed is larger than in any other East African country.

RWANDA • 167 Investments Over Time

One of the reasons for Rwanda’s low conversion rate on impact investments is the youth of its impact investing market. Impact investing is a recent phenomenon in the country, with the first investments by non-DFI impact investors starting in 2004 and significant growth in investments picking up in 2012, though it should be noted that the year of investment is unknown for a high proportion of deals (Figure 9).

FIGURE 9: NON-DFI IMPACT INVESTMENTS BY YEAR

USD MILLIONS # OF DEALS 25 14 Capital disbursed 12 20 Deals 10 15 8

10 6 4 5 2 0 0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Pre 2004 Unknown

Source: Open Capital Research

While non-DFI impact investments have increased in recent years, DFI direct investments have declined since 2010 (Figure 10). DFI activity dropped dramatically in 2012 as foreign governments began to distance themselves from Rwanda after UN allegations of political interference in the DRC. Notably, this did not appear to have deterred private investors. DFI direct investments rebounded in 2013 as diplomatic relations improved. The decline in 2014 is likely a result of incomplete data collected through Q3 2014. See the Introduction and Methodology chapter of this report for additional detail.

FIGURE 10: DFI DIRECT INVESTMENTS BY YEAR

USD MILLIONS # OF DEALS 140 Capital disbursed 16 120 14 Deals 100 12 10 80 8 60 6 40 4 20 2 0 0 Pre 2010 2010 2011 2012 2013 2014 Unknown

Source: Open Capital Research

168 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Sector

Of the sectors targeted by non-DFI impact investors, agriculture has received by far the most deals (65% of all deals in Rwanda) (Figure 11). Multiple investors are interested in investing across the agricultural value chain. As is common with non- DFI impact investments across the region, financial services has represented a large share of absolute investment, due to the larger ticket sizes possible when placing capital into established banks or microfinance institutions (MFIs). A small number of investments into real estate make up most of the capital disbursed in the “Other” category. As is the case across the region, investors see few viable opportunities in education and renewable energy, with very few deals in Rwanda in these sectors, despite their common perception as having a high potential for impact. In general, however, the small number of deals recorded in Rwanda compared to the country’s great potential means data by sector may not represent future trends.

FIGURE 11: NON-DFI IMPACT INVESTMENTS BY SECTOR

USD MILLIONS Capital disbursed # OF DEALS 25 25 Deals 20 20 15 15 10 10 5 5 0 0

NUMBER OF NON-DFI 47 25 29 46 25 12 17 41 12 5 IMPACT INVESTORS INTERESTED IN SECTOR

ICT Energy Other WASH Housing Unknown Agriculture Education Healthcare

Financial services

Source: Open Capital Research. Note: Chart shows total number of non-DFI impact investors interested in sector; may be multiple sectors

RWANDA • 169 A large proportion of DFI direct investments are in financial services (nearly 30% of all investments) and energy (13% of all investments). Infrastructure, financial services, and manufacturing absorb more than 50% of total capital disbursed directly by DFIs, driven by investments into air transport, commercial banks, and production of building materials (Figure 12).

FIGURE 12: DFI DIRECT INVESTMENTS BY SECTOR

USD MILLIONS # OF DEALS 90 16 80 Capital disbursed 14 70 Deals 12 60 10 50 40 8 30 6 20 4 10 2 0 0

Other Energy Tourism Extractive Agriculture Education Healthcare Construction Infrastructure Manufacturing Financial services

Source: Open Capital Research

170 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Deal Size

As mentioned in the East Africa chapter, most non-DFI impact deals in East Africa are less than USD 1 million (Figure 13). In Rwanda, more than 70% of deals completed are below USD 1 million. Non-DFI impact investors report that most high-growth businesses—in Rwanda and elsewhere in the region—require smaller amounts of capital to achieve early growth, but these businesses often lack the track record and sophistication required by investors. Please see the East Africa Regional Overview chapter of this report for more detail on investor expectations.

FIGURE 13: NON-DFI IMPACT INVESTMENTS BY DEAL SIZE

USD MILLIONS Capital disbursed # OF DEALS 35 Deals 20 30 25 15 20 10 15 10 5 5 0 0

USD 1-5M > USD 10M < USD 250K USD 5-10M USD 500K-1M USD 250-500K

Source: Open Capital Research. Note: Assigns non-DFI impact investor based on average deal size where possible

DFI direct investments in Rwanda are often significantly larger, averaging almost USD 9 million, nearly ten times the average size of non-DFI impact investor deals (Figure 14). This difference is primarily due to investments in energy and infrastructure projects, as well as several large placements in commercial banks. As in other countries in the region, DFI deals under USD 1 million are not common, accounting for only 9% of deals.

FIGURE 14: DFI DIRECT INVESTMENTS BY DEAL SIZE

USD MILLIONS Capital disbursed Deals # OF DEALS 140 20 120 16 100 80 12 60 8 40 4 20 0 0 < USD 1M USD 1-5M USD 5-10M USD 10-20M USD 20-50M > USD 50M

Source: Open Capital Research

RWANDA • 171 Instrument

Non-DFI impact investors in Rwanda follow the regional trend to adopt more creative instruments, though traditional debt and equity instruments are by far the most common (Figure 15). Despite the large number of private deals made with unknown instruments, the small average deal size for known debt investments stands out. Rather than being indicative of any trend, however, this mostly reflects high activity of one particular fund that specializes in small debt investments in Rwanda.

FIGURE 15: NON-DFI DIRECT INVESTMENTS BY INSTRUMENT

USD MILLIONS # OF DEALS 25 Capital disbursed 16 14 20 Deals 12 15 10 8 10 6 5 4 2 0 0

Equity Debt Other & others Unknown Debt & equity Quasi-equity

Source: Open Capital Research

The prominence of debt over other instruments is also seen among DFIs, which have overwhelmingly used loans as their preferred instrument for direct investments in Rwanda, in some cases offering a combination of debt and equity. Pure debt investments constitute close to 90% of all capital disbursed by DFI direct investments and close to 70% of direct DFI deals (Figure 16). No disclosed equity investments by DFIs are recorded for Rwanda.

FIGURE 16: DFI DIRECT INVESTMENTS BY INSTRUMENT

USD MILLIONS # OF DEALS 350 Capital disbursed 35 300 30 250 Deals 25 200 20 150 15 100 10 50 5 0 0

Equity Debt Grant Other Guarantee Unknown Debt & equity Source: Open Capital Research

172 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Local Presence

The ease of setting up an investment company in Rwanda is reflected in the number of investors with local presence. Kigali boasts more impact investor offices (9) than Addis (6), and is not far behind Kampala (12), despite Uganda’s population and economy being over three times larger than Rwanda’s (Figure 17). An additional 39 impact investors interested in Rwanda have offices in the region—primarily in Nairobi—while the remaining 48 are based outside the region, mainly in Europe and North America. To date, no impact investors have headquartered in Rwanda.

FIGURE 17: IMPACT INVESTORS WITH LOCAL OFFICES

Sudan 6 offices in Addis Eritrea

Djibouti • S. Sudan Ethiopia 12 offices Somalia in Kampala Uganda Nairobi is • Kenya regional Rwanda • • hub with Burundi •• 48 offices Tanzania •

9 offices in Kigali 14 offices in Tanzania (Dar, Arusha, & Moshi) Source: Open Capital Research

Impact Tracking Standards

Across the region, most impact investors do not specify a specific standard for measuring the impact of their investments. This is also true in Rwanda. Instead, investors typically report using flexible structures that are customized for each new investment. This customization allows investors to reduce the administrative burden for their portfolio businesses and focus on the metrics that are most meaningful. For more detail on impact measurement in East Africa, please see the East Africa regional chapter of this report.

RWANDA • 173 DEMAND AND NEED FOR IMPACT INVESTING CAPITAL

Rwanda’s small economy naturally limits the number of active social entrepreneurs, but the existing demand for impact capital appears to be strong. Despite Rwanda’s progress and development compared to other countries in the region, there remain significant gaps in the provision of key goods and services which create opportunities for entrepreneurs to fill these needs while also realizing financial returns.

Development Context

Despite robust economic growth and rapid modernization, Rwanda remains well below global averages for human development indicators as defined by the United Nations (Figure 18). Overall, Rwanda ranks 151st out of 187 countries on the UN Human Development Index, a composite statistic of life expectancy, education, and income indices.13

FIGURE 18: UN HDI SCORES, 2008-2013

UN HDI 0.8 0.7 0.6 Global average 0.5 Rwanda 0.4 0.3 0.2 0.1 0.0 2008 2009 2010 2011 2012 2013

Source: United Nations Human Development Report 2014. Note: 2014 report does not include 2009 HDI scores. 2009 scores shown are calculated as an average of 2008 and 2010 scores

13 2014 Human Development Index, United Nations Development Programme (2014), available at http://hdr.undp.org/en/data ; 2010 Human Development Index, United Nations Development Programme (Apr. 2010), available https://www.imf.org/external/pubs/ft/weo/2010/01/weodata/ download.aspx.

174 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Rwanda performs below global averages on almost all key development indicators. For example, more than 60% of Rwandans live on less than USD 1.25 per day, well above the global average of around 25% (Figure 19). Similarly, almost 45% of Rwandans live below the Rwandan national poverty line, compared with 30% globally.

Rwanda also performs considerably below global averages on key health metrics. Its ratios for under-five mortality and infant mortality are significantly higher than global averages. These low rankings reflect the unequal access to healthcare for wealthy and low-income populations that is endemic to the region. Under-five stunting, for instance, is nearly 50% higher than global averages (Figure 20).14

FIGURE 19: POPULATION BELOW USD 1.25/DAY FIGURE 20: UNDER-5 MORTALITY AND STUNTING (LATEST AVAILABLE DATA POINT) (LATEST AVAILABLE DATA POINT)

UNDER-5 DEATHS PER 80% POP 1,000 BIRTHS STUNTED 60% 60 60% Global averages 40% Under-5 Global 40% 20% mortality average 30 0% 20% Stunting RWANDA 0 0% RWANDA

Source: UN Human Development Report 2014 Source: UN Human Development Report 2014

14 2014 Human Development Index, United Nations Development Programme (2014), available at http://hdr.undp.org/en/data.

RWANDA • 175 Rwanda significantly underperforms compared to the regional average on some education metrics (Figure 21). For example, only 7% of Rwandans have at least some secondary education, less than half the East African average. Approximately 32% of appropriately aged Rwandans are currently enrolled in secondary education, close to the East African average of 33%, but only around half of Kenyan enrollment rates.15

FIGURE 21: KEY EDUCATION INDICATORS (LATEST AVAILABLE DATA POINT)

100% Global averages 80% Secondary 60% gross enrollment

40% Pop with some 20% secondary education

0% RWANDA

Source: UN Human Development Report 2014

15 2014 Human Development Index, United Nations Development Programme (2014), available at http://hdr.undp.org/en/data.

176 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Like other East African countries, Rwanda has a disproportionately young population, where 45% is under the age of 15 and more than 60% is below age 25 (Figure 22).16 This has led to high youth unemployment and underemployment—over 40% according to the African Development Bank17—that could in future undermine Rwanda’s strong economic performance to date.

FIGURE 22: POPULATION BY AGE AND GENDER

AGE 100+ 95-99 90-94 85-89 80-84 75-79 70-74 65-69 Male 60-64 Female 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4 1,000 500 0 0 500 1,000

POPULATION POPULATION (THOUSANDS) (THOUSANDS)

Source: UN ESA, World Population Prospects

Entrepreneurs

As in the rest of East Africa, entrepreneurs in Rwanda are responding to increasing interest from investors—many of whom perceive Rwanda to have the friendliest business climate in the region—by starting new social enterprises. At the same time, social entrepreneurs in Rwanda who are seeking impact capital face many of the same challenges as their counterparts across the region. Please see the Entrepreneur section of the East Africa regional chapter of this report for details.

16 “The World Factbook: Rwanda,” Central Intelligence Agency (Jun. 20, 2014), available at https://www. cia.gov/library/publications/the-world-factbook/geos/rw.html. 17 African Development Bank, et al., African Economic Outlook 2012: Rwanda, available at http:// www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/Rwanda%20Full%20PDF%20 Country%20Note_01.pdf.

RWANDA • 177 Enabling Impact Investing: The Ecosystem

Rwanda is home to relatively few intermediaries and service providers, which is perhaps unsurprising given its small market and low volume of impact investing activity to date. At the same time, several regional service providers based elsewhere in East Africa, especially consultants, regularly provide support to local businesses and investors. Setting up a business in Rwanda is easy, and its business environment provides fertile ground for new intermediaries and service providers as the economy continues to grow and more impact investors search for deals. Large multilateral aid institutions have begun to directly enter Rwanda’s impact ecosystem, as well. For example, GIZ—the German governmental development agency—launched its EcoEmploi program in 2013, providing incubator-type services such as training and counseling for SMEs.18

Regulatory Environment

Rwanda has successfully built a reputation as the most welcoming business environment in the region. The World Bank’s Ease of Doing Business rankings reflect these efforts: At 46th globally, Rwanda ranks first in East Africa and third in sub- Saharan Africa, behind only Mauritius and South Africa.19

Investors and entrepreneurs generally echo the World Bank’s conclusions. The Rwanda Development Board (RDB) has set up a one-stop center that processes incorporation, immigration and certification requirements in a matter of days. Moreover, several of those interviewed for this report praise the government’s efficiency and transparency, as well as its receptiveness to listen to and act on complaints, particularly if lodged by businesses or investors bringing larger amounts of capital. Government is seen to successfully promote exports, for instance by introducing quality seals and certification standards to mark agricultural produce as import-grade for the European Union.

Although registering a business in Rwanda is remarkably easy, several interviewees also note that the regulatory landscape grows more complicated after registration. Various offices and ministries do not always coordinate, so instructions or advice given to a business by one government agency may directly contradict advice from another. For instance, some entrepreneurs experienced difficulties in obtaining approved work permits due to imperfect communication between the Rwandan Development Board and the immigration authorities.

18 “Promotion of Economy and Employment”, GIZ, (Oct, 2013), available at http://www.giz.de/de/downloads/giz2013-en-factsheet-ecoemploi.pdf. 19 “Economy Rankings,” The World Bank Group (Jun. 2014), available at http://www.doingbusiness.org/rankings.

178 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Despite this, the overall regulatory climate in Rwanda supports foreign investment across a number of dimensions:

• Repatriation of profits and dividends: The Rwandan constitution protects tax- free repatriation of principal and dividends.20 However, certain restrictions apply: export earnings must be repatriated within three months of goods crossing the border and sold on domestic foreign exchange markets or kept in foreign currency accounts at licensed commercial banks.21 In general though, investors report very few complications with repatriating capital.

• Foreign exchange controls: Rwanda has open foreign exchange rules. Foreign exchange is freely available from commercial banks and can be acquired at similar rates by locals and foreign nationals. Exchange across East Africa still poses a significant risk, as hedging tertiary global currencies can be prohibitively expensive.

• Leasehold structure for foreign land ownership: Rwandans and foreigners are freely able to acquire land both from the government and private persons. Land leases are limited to 49 years for foreign investors, though these leases are freely renewable, and freeholds are granted to businesses if ownership is over 51% Rwandan or if they are located in Special Economic Zones. Government land leases are “emphyteutic”, meaning that acquiring land can be conditional on putting it to certain uses (cultivating specific crops, for instance).22 Indeed, some investors expressed frustration that the government would mandate planting specific crops on leased land. Similarly, the government is known to repossess land from investors that fail to implement planned projects. In 2011, the government reclaimed 100 hectares from an American investor after a manufacturing project stalled.23

• Local ownership requirements: By and large, Rwanda does not restrict foreign investors from owning shares in a company, though the government strongly encourages local participation. Similarly, there are no prohibitions on foreign firms acquiring Rwandan firms or on joint venture arrangements between Rwandans and foreigners.

• Government enterprises: Though the government has increasingly made an effort to privatize, state interests still pervade the private sector. The state holds minority interests in many major businesses in telecommunications, tourism, and financial services.24 For instance, Crystal Ventures, a Rwandan investment company that owns some of the largest businesses in the country, is owned by the Rwandan

20 “Investment Incentives & Tax Codes,” Rwanda High Commission United Kingdom, available at http:// www.rwandahc.org/trade-and-investment/investment-incentives-and-tax-codes/. 21 Imani Development International Ltd, 2007 Survey of Non-Tariff Barriers to Trade: Rwanda (2007), available at http://www.tradebarriers.org/documents/survey-reports. 22 “Land Acquisition for Investment,” Rwanda Natural Resources Authority, available at http://rnra.rw/ index.php?id=67. 23 Rodrigue Rwirahira, “Rwanda Seeks Land Reforms,” The EastAfrican (Jan. 18, 2013), available at http://www.theeastafrican.co.ke/Rwanda/News/Rwanda-seeks-land-reforms/-/1433218/1669604/-/ pl3f76/-/index.html. 24 KPMG Services Proprietary Services Limited in South Africa, Rwanda: Country Profile (2012), available at https://www.kpmg.com/Africa/en/KPMG-in-Africa/Documents/RWanda.pdf. RWANDA • 179 Patriotic Front, Rwanda’s ruling party.25 Although overt corruption is extremely low in Rwanda, there is still the perception among investors and entrepreneurs that state-run companies receive preferential treatment, which in turn undermines free- market competition.

Ecosystem Players

As one of the smaller markets in the region, Rwanda’s impact ecosystem remains relatively undeveloped. While there are more than 30 different organizations supporting impact investment and social entrepreneurship in Kenya, far fewer are based in Rwanda (Figure 23). There are clear gaps in the support available, in particular for organizations that can produce a larger number of investment-ready opportunities.

FIGURE 23: SELECTION OF CURRENTLY ACTIVE INTERMEDIARIES AND SERVICE PROVIDERS

K Lab

Enablis

Rwanda Karisimbi Media Hub Business Partners

GVEP Think BiD Network Laterite International

INCUBATORS/ CONSULTANTS/ INVESTOR BUSINESS PLAN RESEARCH ACCELERATORS TA PROVIDERS NETWORK COMPETITION

Source: Open Capital research, organization websites. Note: chart focuses on those with local presence; many international players active

25 William Wallis, “Rwandan Patriotic Front: Party Builds A Formidable Business Group,” Financial Times (Sep. 24, 2012), available at http://www.ft.com/intl/cms/s/0/7fcab78c-ff1b-11e1-a4be-00144feabdc0. html#axzz3LiDQdDST.

180 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA The support ecosystem includes many players common to the region. As in other countries in East Africa, support is skewed toward seed-stage ventures, leaving a gap for intermediaries and service providers operating with business more appropriate for non-DFI impact investors—please see the ecosystem players section of the East Africa Regional Overview chapter of this report for more detail. A small number of consultants have local offices in Kigali and specialize in serving the Rwandan market. A greater number operate in Rwanda but are based abroad, predominantly in Nairobi. To date, few investor networks and business plan competitions have been available in Kigali, reflecting Rwanda’s emerging entrepreneurship scene. Some investors based in Kigali address the lack of support for early-stage businesses by providing their own incubators, which then serve as the primary source of pipeline for subsequent investments.

Other Service Providers

In addition to intermediaries, a number of accountants, lawyers, and other service providers are active in Rwanda, though several investors interviewed are skeptical of the quality of professional services. Particularly for small companies or family-owned businesses, developing clear financial documentation and obtaining high-quality legal representation can be challenging. Several of the major global professional services firms have local offices in Kigali, but these are rarely affordable for the stage of business typically targeted by impact investors.

RWANDA • 181 CHALLENGES AND OPPORTUNITIES FOR IMPACT INVESTORS

Challenges

Despite Rwanda’s reputation for business friendliness and government efficiency, impact investors face a variety of challenges:

• Small markets: With only a little over 10 million inhabitants, Rwanda’s population is a third of Uganda’s, a quarter of Tanzania’s and Kenya’s, and an eighth of Ethiopia’s. Even the most promising businesses will have relatively few customers. This problem is particularly acute for businesses that do not directly serve base of the pyramid consumers, given the infancy of Rwanda’s middle class. In response, several entrepreneurs and investors are considering Rwanda as a launching point for concurrent operations in Burundi and the eastern DRC (see below).

• Import and transportation costs: As a landlocked country with nascent extraction, power, and manufacturing industries, Rwanda faces high production and logistics costs. In theory this creates opportunities to fill these needs, but at present costs can be prohibitive for investors and entrepreneurs. Goods imported by sea must travel through Kenya and Uganda before reaching Kigali. As a result, transport often comprises up to 40% of the total value of both imports and exports, compared to an average of 17% in developed countries.26 Rwanda’s hilly terrain and heavy rainfall complicate road construction and maintenance. Distribution infrastructure remains poor, particularly from neighboring countries into Rwanda, though the government hopes the USD 13.5 billion Mombasa- Kampala-Kigali railway, expected in 2018, will alleviate some of these issues.27

• Weak entrepreneurial culture: Several investors noted that Rwanda’s base of talented entrepreneurs is considerably weaker than in some other East African countries, even on a per-capita basis. Some attributed this to the legacy of donor aid money over the last decades. There is a perception among local investors that Rwandan entrepreneurs lag regional counterparts in embracing and applying basic business concepts such as bulk discounts.28 Government-run entrepreneurship training has sought to tackle this gap, though some investors wondered whether these efforts are sufficiently focused on individuals with signs of entrepreneurial talent.

26 “Rwanda,” IFRTD, available at http://www.ifrtd.org/en/regions/country_pages/Rwanda.php. 27 Mark Tran, “Rwanda Rail Project on Track to Bridge Africa’s Economic Divide,” The Guardian (Sep. 30, 2014), available at http://www.theguardian.com/global-development/2013/sep/30/rwanda-rail- project-bridge-economic-divide. 28 “Business in Rwanda: Africa’s Singapore?” The Economist (Feb. 23, 2012), available at http://www. economist.com/node/21548263?zid=304&ah=e5690753dc78ce91909083042ad12e30.

182 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA • Limited pool of experienced, local staff: Based on interviews conducted for this report, impact investors struggle to find experienced local staff to support both their own investment teams and their portfolio companies’ management teams. On the one hand, entrepreneurs note that Rwanda’s tertiary education system does not adequately prepare graduates for professional jobs; on the other hand, the government’s replacing French with English as the official language of education led to what some view as a lost linguistic generation—a generation who lack the French skills to engage with Rwanda’s mostly francophone rural areas, but also lack the English skills to connect to international markets. As a result, many middle and senior managers are drawn from Uganda, Kenya, or even India. Even when a talented, experienced professional can be found, they often command high wages that can be challenging for SMEs or impact businesses to support, especially in their early years.

• Government involvement: Investors and entrepreneurs almost unanimously praise Rwanda’s government for its transparency and lack of corruption. At the same time they are quick to point out that no deal happens without government involvement, regardless of sector. Typically this involves relatively benign intervention to ensure that individual projects tie in with official growth policies. Nevertheless, local investors caution that, despite the Rwandan government’s reputation for being business friendly, investors still need to pay careful attention to meeting various government requirements.

• Immature investment markets: Most Rwandan SMEs operate informally and lack the financial records and account-keeping standards that impact investors often require. Entrepreneurs frequently keep multiple sets of financial records and merge business and personal banking. Local entrepreneurs have limited experience with private equity-type investment deals and often wildly overvalue their companies. As a result, the number of deals to date, and the number of investible companies, are highly limited, as are the number of successful exits. This lack of exits has made it difficult for impact investors to prove their track records.

• Long diligence processes: Due to limited market research and a lack of strong local service providers, investor diligence can often stretch 12 months or more. This lengthy process can damage relationships with entrepreneurs, who often view it as indicative of a lack of trust. It also puts additional pressure on the business and can lower long-term returns as companies must survive without needed growth capital, creating a significant opportunity cost as management teams spend time courting investors.

RWANDA • 183 Opportunities

While these challenges are significant, they present many opportunities for impact investors to respond and strengthen their operations in Rwanda. Specific opportunities for impact investors are as follows:

• Expand to neighboring markets: Burundi and the DRC provide strong expansion opportunities for businesses and investors based in Rwanda. Affluent Burundians and Congolese already make routine trips to Kigali for medical treatment and banking. Both Burundi and the DRC are less than four hours’ drive from Kigali along safe, well-paved roads, and both hold large, underserved markets. Together, the two countries add another 30 million potential consumers. These markets are challenging; Burundi has some of the weakest institutions in the region and the Eastern DRC has limited rule of law. At the same time, the Rwandan government is actively encouraging cross-border trade, for instance through new bonded warehouses in Rusizi and Rubavu, near the Congolese border.29

• Develop sector expertise: Beyond bringing capital to portfolio companies, impact investors can drive growth, returns, and impact by understanding the specific sectors where their portfolio companies operate. For some investors, this sector focus has allowed them to identify exciting, less well-known opportunities earlier and reduce their diligence timelines by leveraging existing knowledge. Sectors such as agriculture, energy, and financial services present large opportunities where companies often face similar pre-competitive challenges—these learnings can be shared across portfolio companies.

• Increase local decision-making: Where possible, impact fund managers have cited significant improvements in their portfolio through local decision-making and local support. This allows investment officers to form meaningful relationships with portfolio companies, where they are empowered to quickly respond to changing realities on the ground.

• Take active oversight roles: Impact investors in Rwanda have increasingly sought to mitigate the challenges above through more direct participation than might be necessary in more mature East African markets. Some investors have shifted to a majority-stake model after experiencing difficulties in getting entrepreneurs to execute agreed strategies. This type of structure could also allow for a management buy-back of majority ownership as an exit strategy.

Impact investors also highlight opportunities across the following sectors:

• Agriculture: Rwanda is extremely fertile and widely recognized as a prime grower of tea and coffee, among other crops, presenting significant opportunities for export to developed markets. However, these industries lack modernization, particularly in terms of inputs and storage, and yields are still well below international benchmarks. Exports are also more costly due to Rwanda’s land-locked geography. The agriculture sector not only lacks technological

29 Republic of Rwanda: Ministry of Trade and Ministry, Rwanda Integrated Trade Logistics Facilities Project: Bonded Warehouse at Rusizi and Rubavu (2014), available at http://www.rdb.rw/fileadmin/ user_upload/Documents/tender/2014/RFQ_Bonded_Warehouse_Rusizi_and_Rubavu.pdf.

184 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA sophistication, but is inadequately financed by local banks. Many interviewees identify opportunities for agriculture-tailored financing products that take into account the cyclicality and uncertainty of commodities markets.

• Renewable energy: Rwanda’s power generating capacity is still well below what is needed to power its growing economy. Much of Rwanda’s energy is imported, making electricity costs among the highest in the region at an estimated USD 0.22 per KWh, more than double the regional average.30 The government is devoting significant resources to increasing local generation and rural electrification, but there is still room for private sector energy products in a country where 80% of the population does not have access to the grid.

• Manufacturing inputs: Along with the high cost of power, one of the key constraints for Rwanda’s manufacturing sector is the lack of raw materials and inputs. Most of these are imported at high cost from Kenya and Uganda, as well as India and China in some cases. For instance, an agricultural processing business interviewed noted that there are no Rwandan producers of flour storage sacks. Though the manufacturing sector will likely benefit from the government’s investment in local extractive industries, key inputs will remain undersupplied without private sector initiative.

30 Ambassade de le République du Rwanda à Bruxelles, A Transformative Power (Mar. 12, 2012), available at http://www.ambarwanda.be/pdf/Rwanda%20Flash%20News%2092-EN%20.pdf.

RWANDA • 185 ETHIOPIA EAST AFRICA’S RISING GIANT

186 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA INTRODUCTION

With a population of more than 90 million, Ethiopia represents the largest single market by population in all of East Africa (Figure 1). Unlike the other countries profiled in this report, Ethiopia retained sovereignty throughout the 18th and 19th centuries, and maintains a strong spirit of independence. This translates to a vibrant entrepreneurial landscape, with a number of enterprises looking to serve a rapidly growing market.

Ethiopia’s financial services sector—and particularly the financing options available to small and medium enterprises (SMEs)—lags that of other major East African economies. Despite heavy governmental influence in the banking and lending industry, a number of new banks have expanded their offerings beyond those available from the Commercial Bank of Ethiopia (CBE). CBE held a monopoly position as recently as the 1990s, but due to loosening of government restrictions, CBE held less than 50% of banking sector assets by 2008.1 Though hurdles like high collateral requirements and high interest rates remain, SMEs are increasingly able to access financing through both impact and conventional sources. In 2008, Ethiopia introduced one of the most successful commodities exchanges in Africa, managing more than USD 1.1 billion in trades. Price data is transmitted real-time to 32 outdoor ticker boards in rural areas, and is available through an automated phone system, which receives more than 1 one million calls per month, 70% from rural areas.2 Together, these positive trends signal an increasingly friendly environment for impact and conventional investments.

FIGURE 1: MAP OF ETHIOPIA

ETHIOPIA

1 Eleni Gabre-Madhin, A Market for Abdu: Creating a Commodity Exchange in Ethiopia, International Food Policy Research Institute, 2012 available at http://www.ifpri.org/sites/default/files/publications/ oc70.pdf. 2 Eshete, Tesome and Abebe, Competition in Ethiopian Banking Industry, African Journal of Economics Vol. 1 (5), December 2013 available at http://internationalscholarsjournals.org/download. php?id=974147144939569119.pdf&type=application/pdf&op=1.

ETHIOPIA • 187 COUNTRY CONTEXT

After decades of authoritarianism, Ethiopia’s economy is on the rise. Exceptional growth rates, spurred by a wave of privatization and robust foreign direct investment (FDI) flows, have fueled rapid modernization, especially in the past decade. Nonetheless, Ethiopia’s living standards lag behind those of its peer countries; the economy is still overwhelmingly agriculture-based, and linkages between urban affluence and rural populations are weak.

Gross Domestic Product

Ethiopia has seen exceptional growth in recent years, averaging around 13% GDP (PPP) annual growth for the last ten years (Figure 2), making it the fastest growing non-oil driven economy in Africa.3 Fueled by substantial government investment into Ethiopia’s manufacturing sector, GDP currently stands at close to USD 121 billion in PPP terms, making it the largest economy in the region, approximately 30% larger than the second largest, Sudan. Although growth has slowed from record levels of 16% in 2004, the IMF expects growth to remain high at just under 10% over the next five years.4

FIGURE 2: GDP (PPP), 2004–2013

USD BILLIONS 140

120 Ethiopia averaged ~13% annual GDP growth for last 10 years 100

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: IMF World Economic Outlook, April 2014

3 “A New Fund Attests to the Country’s Allure—and to the Value of Connections,” The Economist (May 12, 2014), available at http://www.economist.com/ node/21554547?zid=304&ah=e5690753dc78ce91909083042ad12e30. 4 World Economic Outlook: Gross Domestic Product, International Monetary Fund (Apr. 2014), available at http://www.imf.org/external/pubs/ft/weo/2014/01/weodata/download.aspx.

188 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Standards of living, however, remain low. With a population of around 90 million—the second largest in Africa behind Nigeria—Ethiopia’s GDP (PPP) per capita is only USD 1,400 which ranks ahead of only Burundi, Eritrea, and South Sudan regionally (no data for Somalia). The share of GDP from agriculture is close to 50%, by far the highest in the region, and agriculture employs 80% of Ethiopians, compared to only 50% in neighboring Kenya.5 While the government’s efforts to promote industry have done much to boost growth, industry is still a small share of GDP compared to agriculture. Most non-agricultural economic activity takes place in Addis Ababa, resulting in a concentration of wealth in the country’s capital. Nonetheless, pressure on farmers is likely to rise as increasing population growth pushes down land availability and reduces average plot size.

Elsewhere, large-scale industrial projects are likely to absorb substantial government spending. The Grand Millennium Dam—already 30% complete—will add 6 GW of electrical capacity to Ethiopia’s grid with a construction cost of nearly USD 5 billion.6

Foreign Direct Investment

While GDP growth has been strong, foreign direct investment (FDI) flows have fluctuated significantly over the past decade (Figure 3). There was a particularly marked jump in FDI in 2013, with approximately USD 1 billion in inflows. However, Ethiopia’s large economy has meant that FDI inflows have been relatively low as a percentage of GDP, at less than 1%.

FIGURE 3: FDI INFLOWS, 2004-2013

USD MILLIONS 1,200

1,000

800

600

400

200

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: UNCTAD

5 “An Ideological Competition Between Two Diametrically Opposed Economic Models,” The Economist (Mar. 2, 2013), available at http://www.economist.com/news/special-report/21572379- ideological-competition-between-two-diametrically-opposed-economic-models-doing-it-my?zid=30 4&ah=e5690753dc78ce91909083042ad12e30. 6 Emmanuel Igunza, “Will Ethiopia’s Grand Renaissance Dam Dry the Nile in Egypt?” BBC News Africa (Mar. 22, 2014), available at http://www.bbc.com/news/world-africa-26679225.

ETHIOPIA • 189 The single largest source of FDI in the last fiscal year with available data was Turkey, which accounted for over 40% of inflows (Figure 4). China, Saudi Arabia, India, and Sudan each account for a further 7%-10%. Most FDI flows into manufacturing, construction, mining, and other labor-intensive industries. Further, most investment has taken place through equity vehicles (Figure 5), typically over an eight to ten year investment horizon.

FIGURE 4: FDI FLOWS BY COUNTRY OF ORIGIN FIGURE 5: 2012 FDI INFLOWS BY INSTRUMENT

100% 100% Others Debt instruments Sudan Equity positions 80% 80% India Saudi Arabia 60% 60% China Turkey 40% 40% Equity makes up ~72% of 2012 FDI 40% of total positions 20% inflows from 20% Turkey

0% 0%

Source: US State Department Data Source: IMF Data

190 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Inflation and Exchange Rates

Ethiopia’s state-funded development has led to record growth rates over the past decade, but has occasionally led to high inflation, peaking at over 40% in 2008 and reaching 30% again in 2011 (Figure 6). While inflation has slowed since, continued government spending and vulnerability to commodity supply shocks mean Ethiopian price levels remain volatile. The Ethiopian National Bank has worked to depreciate the Ethiopian Birr gradually, but sometimes stepwise as occurred in 2010. Many stakeholders believe the Birr is still overvalued and expect further depreciation. Exchange rate and price uncertainty have made investors hesitant to issue loans, especially in local currency.

FIGURE 6: INFLATION AND USD EXCHANGE RATE, 2004-2013

ETB / USD 50% ETB / USD exchange rate 25 45% Inflation 40% 20 35% 15 25% 20% 10 15% 10% 5 5% 0% 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: World Bank Indicators

ETHIOPIA • 191 SUPPLY OF IMPACT CAPITAL

Despite having the largest population and the leading economy (in PPP terms) in the region, Ethiopia has been at the periphery of impact investing in East Africa until recently. Economic activity has been dominated by the government for decades, and while privatization began as early as 1995, a truly independent private sector has only slowly begun to emerge in recent years. Impact investors increasingly see enormous opportunities and untapped markets, but the legacy of socialism and government control continue to prove challenging.

Despite these challenges, research indicates that close to USD 100 million of non- DFI impact capital has been disbursed to Ethiopia alone and a further USD 1.6 billion of regional non-DFI impact capital would consider investments in Ethiopia should they identify attractive opportunities there (Figure 7).7

FIGURE 7: TOTAL CAPITAL COMMITTED BY NON-DFI IMPACT INVESTORS

USD MILLIONS

2,000

1,500

1,000

500

0 MULTIPLE COUNTRIES, ONLY ETHIOPIA INCLUDING ETHIOPIA

Source: Open Capital Research

Broader Investing Landscape

There is a significant need for impact capital in Ethiopia, as local financial institutions remain markedly underdeveloped compared to other countries in the region. With approximately USD 1 billion under management8, Ethiopia’s banking sector is orders of magnitude smaller than those in other large East African countries such as Kenya, which boasts more than USD 30 billion in assets held by banks.9 Savings clubs and

7 Based on primary and/or secondary research conducted during this study; see “Introduction and Methodology” chapter of this report for details. Due to the unique nature and large size of development finance institutions (DFIs), the authors of this report analyzed their activity separately from those of other types of impact investors (“non-DFI”), and present this separate analysis when appropriate. 8 The National Bank of Ethiopia, Annual Report 2012/13, available at http://www.nbe.gov.et/pdf/ annualbulletin/Annual%20Report%202012-2013/Annual%20Report%202012-2013.pdf. 9 Kenyan Banking Sector Registers Improved Performance,” Central Bank of Kenya (Mar. 31, 2013), available at https://www.centralbank.go.ke/index.php/news/296-kenyan-banking-sector-registers- improved-performance.

192 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA other sources of communal lending are also much less common in Ethiopia than in other countries in the region. Unlike other countries, impact investors are a large source of potential capital as a proportion of the overall national capital market.

Bank lending rates have been remarkably constant over the last decade due to heavy banking regulation—much more constant than in other countries in the region. Bank lending rates stand at around 12%, approximately triple the average interest rate in the United States over the last 10 years10, but lower than rates in other major East African economies. While low rates facilitate government borrowing for infrastructure projects, they discourage saving, limiting the overall size of the banking sector. Ethiopia’s banking sector remains weak, and access to debt can be difficult.

Similar to banks in other East African countries, Ethiopian banks remain extremely risk averse and are largely unwilling to invest in start-up or early-stage enterprises. When they are willing to lend, banks often require large amounts of collateral that can be greater than 100% of the loan amount. Many early-stage businesses are unable to satisfy these requirements. Even large real estate projects often need to be 50% complete before commercial banks will consider project financing. Local banks lack the sophistication to offer creative structures like trade financing or crop cycle-based repayments. As a result, there remains a large gap in the market for early-stage investments that offer risk capital to high-potential businesses. In this capital-scarce environment, Ethiopia’s 31 microfinance institutions (MFIs) play an important role; in 2012, MFIs reached nearly 3 million Ethiopians and held USD 500 million in loans and USD 300 million in savings.11

Beyond access to capital, Ethiopian firms face restrictions in accessing the foreign currency they need to import goods and services often used as inputs. Ethiopia maintains several foreign exchange restrictions that diverge from international standards. The government limits foreign currency trade as well as the amounts that individuals and corporations can hold.12 This can create significant shortages of foreign currency reserves.

Impact Capital Disbursed

Impact investors seem to have a growing interest in Ethiopia, despite limited activity to date. Overall, 80 non-DFI impact vehicles are able to place capital in Ethiopia, managed by 58 non-DFI impact investors, although barely any have made investments or set up local offices, and only 7% of all non-DFI impact capital disbursed in East Africa has been placed in Ethiopia. This represents over USD 90

10 World Development Indicators: Lending Interest rates (%), The World Bank Group, available at http:// data.worldbank.org/indicator/FR.INR.LEND?page=2. 11 Admit Wondifraw Zerihun, Haile Kibret & James Wakiaga, African Development Bank, The Organization for Economic Co-operation and Development & The United Nations Development Programme, African Economic Outlook: Ethiopia 2014 (2014), available at http://www. africaneconomicoutlook.org/fileadmin/uploads/aeo/2014/PDF/CN_Long_EN/Ethiopie_EN.pdf. 12 Tom Keatinge, Growing an Economy: Impact of Foreign Exchange and Remittances on Ethiopian Development, Global Center on Cooperative Security, September 2014, available at http://www. globalcenter.org/wp-content/uploads/2014/09/14Sept26_Growing-an-Economy_PB.pdf.

ETHIOPIA • 193 million in 25 disclosed non-DFI impact deals (Figure 8), far behind Kenya, Tanzania, and Uganda, despite a significantly larger economy. A similar percentage of DFI direct investments have been placed in Ethiopia, totaling over USD 400 million across 17 deals (Figure 8).

FIGURE 8: IMPACT INVESTMENTS IN ETHIOPIA

Capital disbursed Deals

DFI usd 423 Million 17

NON-DFI usd 91 Million 25

Source: Open Capital Research. Note: DFI direct investments exclude 16 USAID credit guarantees to local banks worth ~USD 90M

Investments Over Time

Impact investing is a young sector in East Africa, and particularly in Ethiopia. While the large number of deals with undisclosed details prevents additional conclusions about non-DFI impact investor activity, interviews with investors suggest that deals were extremely scarce until 2012 or 2013.

This nascent stage of the industry is also reflected in DFI direct investments (Figure 9), which have begun to pick up again following a decline that reached a low in 2012. The high capital disbursed figure for 2014 is primarily driven by one large DFI investment in an Ethiopian petroleum business. Overall, 2014 values are likely underestimated due to incomplete data at the time of this report in early 2015.

FIGURE 9: DFI DIRECT INVESTMENTS BY YEAR

USD MILLIONS # OF DEALS Capital disbursed Deals 160 6 140 5 120 100 4 80 3 60 2 40 20 1 0 0 pre 2010 2010 2011 2012 2013 2014 Unknown

Source: Open Capital Research. Note: excludes 16 USAID credit guarantees to local banks worth ~USD 90M

194 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Sector

Ethiopia’s distribution of investments by sector is unique within the region and reflects the government’s restrictions on investors (Figure 10). Foreign investors are restricted from investing in financial services, although several investors active in Ethiopia target financial services in other countries. Agriculture has received the most deals and capital (approximately 40% of all deals in Ethiopia) and has strong interest from many non-DFI impact investors. Despite the smaller number of deals, the large investment sizes possible in manufacturing and food processing—which make up most of the “Other” column in Figure 10—drive a larger total amount of non-DFI impact capital into these sectors.

FIGURE 10: NON-DFI IMPACT INVESTMENTS BY SECTOR

USD MILLIONS Capital disbursed # OF DEALS 45 45 40 Deals 40 35 35 30 30 25 25 20 20 15 15 10 10 5 5 0 0

NUMBER OF NON-DFI 40 24 24 40 22 12 12 37 9 3 IMPACT INVESTORS INTERESTED IN SECTOR

ICT Energy Other WASH Housing Unknown Agriculture Education Healthcare

Financial services

Source: Open Capital Research. Note: Chart shows total # of non-DFI impact investors interested in sector; may be multiple sectors

Energy, housing, information and communications technologies (ICT), and water, sanitation, and hygiene (WASH) have seen relatively few deals, despite their prominence as sectors of interest for non-DFI impact investors. The disconnect between interest in these sectors and the number of deals implies that impact fund managers see limited viable, investible opportunities and have particular difficulty placing capital.

ETHIOPIA • 195 By contrast, DFI direct investments overwhelmingly favor extractive industries, infrastructure, and manufacturing (Figure 11). These three sectors absorb over 90% of the capital disbursed directly by DFIs in Ethiopia. DFIs face the same restrictions on investments in the financial services sector, with only one recorded deal (of undisclosed size).

FIGURE 11: DFI DIRECT INVESTMENTS BY SECTOR

USD MILLIONS Capital disbursed # OF DEALS 300 6 Deals 250 5 200 4 150 3 100 2 50 1 0 0

Other Energy Tourism Extractive Agriculture Education Healthcare Infrastructure Manufacturing Consumer goods Financial services

Source: Open Capital Research. Note: excludes 16 USAID credit guarantees to local banks worth ~USD 90M

196 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Deal Size

Across East Africa, the majority of non-DFI impact deals are less than USD 1 million in size. The picture is similar in Ethiopia (Figure 12); however, several larger investments in manufacturing and processing skew deal sizes upwards. Among non-DFI impact investors, close to 50% invest between USD 1 million and USD 5 million per deal, although most impact deals are less than USD 1 million. To date, the majority of capital has been disbursed in the USD 1 million to USD 5 million range, reflecting opportunities in Ethiopia’s rapidly growing manufacturing sector.

FIGURE 12: NON-DFI IMPACT INVESTMENTS BY DEAL SIZE

USD MILLIONS Capital disbursed # OF DEALS 50 Deals 8 45 7 40 6 35 30 5 25 4 20 3 15 10 2 5 1 0 0

USD 1-5M > USD 10M < USD 250K USD 5-10M USD 250-500KUSD 500K-$1M

Source: Open Capital Research

By contrast, DFI direct investments are often significantly larger (Figure 13). The average deal size for DFI direct investments in Ethiopia is approximately USD 25 million, more than six times the average size of non-DFI deals. This is driven by large infrastructure and oil and gas projects. While deals under USD 10 million constitute close to 50% of the direct DFI investments, none were under USD 1 million, compared to 50% of non-DFI impact investor deals.

FIGURE 13: DFI DIRECT INVESTMENTS BY DEAL SIZE

USD MILLIONS Capital disbursed # OF DEALS 300 8 Deals 250 7 6 200 5 150 4 100 3 2 50 1 0 0 < USD 5M USD 5-10M USD 10-20M USD 20-50M > USD 50M

Source: Open Capital Research. Note: excludes 16 USAID credit guarantees to local banks worth ~USD 90M

ETHIOPIA • 197 Instrument

Due to lack of available data, this report is unable to provide a definitive breakdown of non-DFI direct investments by instrument. Available evidence suggests that though impact investors are increasingly using more creative investment structures in East Africa, they have not yet done the same in Ethiopia. While investors in Kenya, for instance, increasingly consider quasi-equity structures such as convertible debt or revenue-participating debt to help balance risk with limited cash flows, the vast majority of disclosed deals by non-DFI investors in Ethiopia used traditional equity instruments. Ethiopia’s private investment market is young, and investors interviewed believe entrepreneurs have insufficient knowledge of more complicated structures to permit their use.

DFIs have invested both debt and equity, though debt investments constituted more than 70% of all capital disbursed (Figure 14). Credit guarantees to Ethiopian banks make up the bulk of DFI transactions, though much of this capital has not actually been disbursed.

FIGURE 14: DFI DIRECT INVESTMENTS BY INSTRUMENT

USD MILLIONS Capital disbursed # OF DEALS 400 18 350 Deals 16 300 14 250 12 10 200 8 150 6 100 4 50 2 0 0

Equity Debt Guarantee Unknown Debt & equity

Source: Open Capital Research. Note: For guarantees, “disbursed” column denotes maximum disbursements should guarantee payments come into effect

198 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Local Presence FIGURE 15: IMPACT INVESTORS WITH LOCAL OFFICES Few impact investors have opened offices in Ethiopia. Only six impact investors have established a presence in Addis (Figure 15), one of which is headquartered 6 offices in Addis there and three of which are DFIs. Ethiopia requires Sudan Eritrea specialized market knowledge and experience that does not easily transfer from other countries in the region, Djibouti making it more difficult to expand to Ethiopia than to • other East African countries from an existing hub (like S. Sudan Ethiopia Nairobi). The five-year Growth and Transformation 12 offices Somalia Plan (GTP) released in 2010 (described in more detail in Kampala Uganda 48 offices Kenya later in the “Regulatory Environment” section in this • in Nairobi Rwanda• • chapter), provides added incentives for investors Burundi •• to establish a local presence, as close ties with the Tanzania • Ethiopian Investment Authority are essential to take advantage of the GTP, and easier to establish in person. 9 offices in Kigali 14 offices in Tanzania (Dar, Arusha, & Moshi) Source: Open Capital Research Impact Tracking Standards

Impact investors’ dual mandate to realize both financial and social returns requires a strong focus on measuring impact as a part of their core activities. Beyond tracking metrics as best practice, many impact asset owners require it. This is particularly true for DFIs, which act as anchor investors to most impact funds.

Across East Africa, most impact investors do not specify a specific standard for measuring the impact of their investments. This is also true in Ethiopia. Instead, investors typically report using flexible structures that are customized for each new investment. This customization allows investors to reduce administrative burden for their portfolio businesses and focus on the metrics that are most meaningful. For more detail on the challenges in impact measurement in East Africa, see the regional chapter of this report.

ETHIOPIA • 199 DEMAND FOR IMPACT INVESTING CAPITAL

Despite record growth over the past decade, Ethiopia lags other countries in the region in the provision of key goods and services. This creates opportunities for entrepreneurs to build enterprises that fill these needs while also realizing financial returns. As the private sector continues to grow and entrepreneurs take advantage of these opportunities, they will increasingly look beyond banks and family savings to finance business growth. This is likely to translate into demand for impact capital and private equity more generally (despite currently variable and often low levels of familiarity with these concepts).

Development Context

Ethiopia remains well below global and regional averages for human development indicators (Figure 16). Ethiopia ranks 173 out of 187 countries according to the UN Human Development Index, the lowest in the region except for Eritrea, which is in 182 place.13

FIGURE 16: UN HDI SCORES, 2008-2013

UN HDI

0.8 0.7 0.6 Global average 0.5 Ethiopia 0.4 0.3 0.2 0.1 0.0 2008 2009 2010 2011 2012 2013

Source: United Nations Human Development Report 2014

13 2014 Human Development Index, United Nations Development Programme (2014), available at http://hdr.undp.org/en/data; 2010 Human Development Index, United Nations Development Programme (Apr. 2010), available at https://www.imf.org/external/pubs/ft/weo/2010/01/weodata/ download.aspx.

200 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA This low ranking is driven by Ethiopia’s performance across a range of key developmental indicators. For example, more than 30% of Ethiopians live on less than USD 1.25 per day, above the global average of 25% (Figure 17). Similarly, Ethiopia underperforms global averages on key health metrics. Ethiopia faces under- five mortality and infant mortality well above global averages (Figure 18), reflecting unequal access to healthcare for wealthy and low-income populations. Under-five stunting, an effective proxy for childhood health and long-term prosperity, is around 50% higher than the global average.14

FIGURE 17: POPULATION BELOW USD 1.25/DAY FIGURE 18: UNDER-5 MORTALITY AND STUNTING (LATEST AVAILABLE DATA POINT) (LATEST AVAILABLE DATA POINT)

UNDER-5 60% DEATHS PER POP 1,000 BIRTHS STUNTED 40% 90 60% Global 20% 60 Global averages average 40% Under-5 0% 30 20% mortality ETHIOPIA 0 0% Stunting ETHIOPIA

Source: UN Human Development Report 2014 Source: UN Human Development Report 2014

The picture is similarly bleak for education (Figure 19). Only 15% of Ethiopians have at least some secondary education, just a quarter of the global average, while only 40% of appropriately aged Ethiopians are currently enrolled in secondary education, half the global average.

FIGURE 19: KEY EDUCATION INDICATORS (LATEST AVAILABLE DATA POINT)

100% Global averages 80% Secondary 60% gross enrollment 40% Pop with some secondary education 20%

0% ETHIOPIA

Source: UN Human Development Report 2014

14 2014 Human Development Index, United Nations Development Programme (2014), available at http://hdr.undp.org/en/data.

ETHIOPIA • 201 Like other East African countries, Ethiopia has a disproportionately young population, where more than 40% is under the age of 15 and more than 60% is below age 25 (Figure 20).15 This has resulted in high youth unemployment, which coupled with low levels of education could undermine Ethiopia’s strong economic performance over the coming decades.

FIGURE 20: POPULATION BY AGE AND GENDER

AGE 100+ 95-99 90-94 85-89 80-84 75-79 70-74 65-69 Male 60-64 Female 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4

8 7 6 5 4 3 2 1 0 0 1 2 3 4 5 6 7 8

POPULATION (MILLIONS) POPULATION (MILLIONS) Source: UN ESA, World Population Prospects

Entrepreneurs

As is the case in much of East Africa, increasing investor interest in Ethiopia is encouraging entrepreneurs to start new social enterprises. In Ethiopia, these opportunities are numerous, given the large disadvantaged populations and the limited supply of locally produced goods and services. Entrepreneurs have begun launching businesses particularly in healthcare and manufacturing for import substitution. Given the youth of Ethiopia’s private sector, these are mainly concentrated in the start-up and early phases.

Entrepreneurs in Ethiopia face many of the same challenges as their counterparts across the rest of East Africa (see the Entrepreneurs section of the East Africa regional chapter of this report for more detail), along with other challenges that appear more pronounced in Ethiopia. Specifically, Ethiopian entrepreneurs expressed

15 “The World Factbook: Ethiopia,” Central Intelligence Agency (Jun. 22, 2014), available at https://www.cia.gov/library/publications/the-world-factbook/geos/et.html.

202 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA frustration over impact investors’ hesitancy to provide local currency loans. With the exception of the Ethiopian Development Bank, DFIs typically denominate loans in Euro or USD, as do private-sector impact investors. At the same time, Ethiopia’s stringent foreign currency controls mean that entrepreneurs primarily have to run operations in Ethiopian Birr, leaving them exposed to currency risk. Entrepreneurs stress the positive impact that could be achieved if larger international institutions offered foreign exchange risk-sharing mechanisms for SMEs.

Investors, for their part, also face a range of challenges. As in the rest of East Africa, entrepreneurs in Ethiopia commonly struggle to create realistic forward- looking strategies and projections, a plan to use capital, and efficient operations. Entrepreneurs often run several projects simultaneously and have limited attention to devote to a single enterprise. Growth-stage companies are far fewer in Ethiopia than early-stage companies or startups. Furthermore, many of the most interesting businesses do not explicitly present themselves as social businesses, even when their potential for impact is high (see the Entrepreneurs section of the East Africa regional chapter for more detail).

Beyond pipeline development, impact investors see significant value in strong local networks to evaluate opportunities. Investing in this market, with limited legal recourse, requires trust between the impact investor and the entrepreneur. Particularly if an enterprise has been operating informally, it can be difficult to evaluate its history and trustworthiness without local social networks to provide insight on the entrepreneur. This is particularly true in Ethiopia where high linguistic and cultural barriers often present challenges to international impact investors. Deep social and professional networks that extend beyond the impact investing sector will be difficult to develop without long-term local presence.

ETHIOPIA • 203 ENABLING IMPACT INVESTING: THE ECOSYSTEM

Like impact investor activity, the broader ecosystem for impact investing in Ethiopia is still developing. Ethiopia’s rapid growth presents an attractive picture for intermediaries and service providers as well as investors, but a challenging regulatory environment means ecosystem development progress may be slow.

Regulatory Environment

Today, Ethiopia is relatively stable politically. Though the current Prime Minister has shown guarded enthusiasm for liberalization and free-market reform,16 most government institutions are hesitant to fully engage in the private sector. Investors and entrepreneurs interviewed generally regard Ethiopia’s government as one of the more functional and benevolent in the region. Both foreign and local interviewees highlight the low levels of corruption, echoed by the World Bank’s Ease of Doing Business rankings, placing Ethiopia third in the region, just ahead of Kenya.17

Further, even though Ethiopia has a reputation for opaque government regulations and a challenging business environment, the government is reportedly growing more welcoming to private equity investments. In 2010, the Ethiopian government released its five-year Growth and Transformation Plan (GTP), which specifically emphasizes foreign investment as a key component of Ethiopia’s growth strategy. Investors active in sectors prioritized by the GTP—large-scale agriculture and manufacturing for export in particular—will receive particularly favorable incentives.

Despite these positive developments, the government retains tight control over the country’s economy and certain restrictions present challenges for investors:

• Restrictions on foreign investment: Ethiopia’s Investment Code lays out foreign investment regulations reserving the following occupations for Ethiopian nationals: banking, broadcasting, attorney and legal consultancies, indigenous medicine preparation, advertisement, domestic air transport, and packaging.18 Several sectors are further reserved for domestic investors, including several agricultural sectors, manufacturing, some consumer goods, construction, pre-secondary education, diagnostic services, capital goods leasing, and printing. The government reserves exclusive rights to postal services, grid energy transmission, passenger air transport, weapons, and telecommunications. In general, investors find it essential to build close relationships with various government bodies before placing capital, to

16 “Hailemariam Desalegn,” The Economist (Nov. 12, 2012), available at http://www.economist.com/ news/21566482-hailemariam-desalegn. 17 “Economy Rankings,” The World Bank Group (Jun. 2014), available at http://www.doingbusiness.org/ rankings. 18 Ethiopian Investment Agency, Ethiopian Investment Guide 2013, available at http://ethiopianembassy. be/wp-content/uploads/2014/05/Investment_Guide_2013.pdf.

204 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA ensure regulations are understood and interpreted correctly. The minimum capital requirement for foreign investors is USD 100,000 unless accompanied by a domestic partner, in which case the minimum capital requirement is USD 60,000.

• Repatriation of profits and dividends: Although the government of Ethiopia officially allows repatriation of profits and dividends, in practice this requires careful structuring and complicated official registration of all investments with the Ethiopian Investment Authority. This remains one of the greatest hurdles cited by impact investors.

• Foreign exchange controls: The National Bank of Ethiopia (NBE) actively manages foreign currency reserves and exchange rates. The Ethiopian Birr is not freely convertible and all foreign currency transactions must be approved by the NBE.19 As a result, foreign exchange shortages are common, particularly among smaller businesses whose currency needs are typically subordinate to those of larger corporations.20

• Land ownership: All land in Ethiopia is owned directly by the state, which provides leaseholds for up to 99 years. The precise lease terms vary according to location, type of investment, and class of land.21 Investors and businesses negotiate leases with local governments, which can increase the administrative burden on cross- regional projects. The government has attempted to limit land speculation and fluctuations in leasehold prices and, with an urban land lease proclamation in 2011, it has the right to revalue any land involved in transfers of leasehold rights.22

Ecosystem Players

Intermediaries and service providers are underrepresented in Ethiopia relative to its size and economic potential. With around a dozen identified organizations (Figure 21), Ethiopia has the fewest active intermediaries and service providers of any of the five focus countries, and a small fraction of the number in Kenya. The relatively early stage of Ethiopia’s private sector has limited the overall market for service providers. Unlike in the rest of East Africa, the impact ecosystem in Ethiopia primarily comprises consultants and technical assistance (TA) providers. There are only a few incubators active in Ethiopia, despite the need for more. Some of the larger professional services firms, such as Deloitte, Ernst & Young and Grant Thornton offer regional expertise on accounting, strategy consulting, tax, and other intermediary services from their offices in Addis. However, these firms’ services are almost always more expensive than SMEs can afford. In addition to locally based consultants, there are a number of regional consulting firms that routinely support investors and entrepreneurs.

19 U.S. Department of State, Department of State: 2014 Investment Climate Statement (2014), available at http://www.state.gov/documents/organization/228594.pdf. 20 Office of the United States Trade Representative, Foreign Trade Barriers-Ethiopia, available at http:// www.ustr.gov/sites/default/files/Ethiopia_0.pdf. 21 “About Ethiopia,” Federal Democratic Republic of Ethiopia: Ministry of Foreign Affairs, available at http://www.mfa.gov.et/aboutethiopia.php?pg=3&page=3. 22 U.S. Department of State, Department of State: 2014 Investment Climate Statement (2014), available at http://www.state.gov/documents/organization/228594.pdf.

ETHIOPIA • 205 FIGURE 21: SELECTION OF CURRENTLY ACTIVE INTERMEDIARIES AND SERVICE PROVIDERS

Precise Consult International

Renew

TechnoServe

Addis Ababa Chamber iceaddis xHub Open Capital VC4A of Commerce

INCUBATORS/ACCELERATORS CONSULTANTS/ INVESTOR BUSINESS PLAN RESEARCH TA PROVIDERS NETWORK COMPETITION

Source: Open Capital research, organization websites. Note: chart focuses on those with local presence; many international players active

Currently, the intermediary landscape is relatively small, but research indicates that it is growing rapidly. Most intermediaries and service providers entered the market recently, including two interviewees who set up businesses in late 2014. At present the market still remains untested. Few of the impact investors and entrepreneurs interviewed report using intermediaries or service providers, and there is uncertainty around the value provided beyond facilitating introductions to government officials. Nonetheless, the challenges both investors and entrepreneurs face in Ethiopia clearly indicate a large gap in investment preparedness, human capital, and financial sophistication. Additionally, as with other countries in the region, there is limited data available on comparable impact deals or exit multiples for impact funds to use to benchmark their valuations or financial performance. As investors and entrepreneurs become increasingly active in Ethiopia, the need for service providers will only intensify.

206 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA CHALLENGES AND OPPORTUNITIES FOR IMPACT INVESTORS

Challenges

Ethiopia’s complex business environment has made it difficult for East African impact investors to effectively navigate its markets and find investable deals. The early stage of the private sector and the subsequent lack of mature businesses have further limited investor pipeline. These challenges are described in further detail below:

• Insufficient investment-ready deal flow: Many impact investors struggle to disburse capital raised, similar to elsewhere in the region. In Ethiopia, efforts to disburse capital are complicated by a large informal sector. Businesses in Ethiopia suffer from the same weaknesses seen across the region, where companies struggle to develop efficient operations, build strong strategic plans, create realistic forward-looking projections, and present a plan to use desired capital.

• Lack of understanding of private investment: Ethiopia has attracted large inflows of donor funding from multilateral aid agencies and foundations. Investors report that decades of grant funding have considerably diluted Ethiopian entrepreneurship and understanding of investment. Seeking grants remains the default for many companies, which often specifically position themselves to be attractive to grant money. Impact investors need to ensure that businesses are sufficiently educated on the private investment process and the value it can provide.

• Informal record keeping: Investors unanimously lament the informality of financial record keeping, especially in smaller businesses. Corporate bank accounts and personal bank accounts are often mingled, even for larger businesses. Most businesses are family-owned and struggle with transfer pricing between sister companies. Many observers note that investors—particularly foreign investors—are unrealistic in their expectations of financial sophistication.

• Limited experienced local talent: Impact investors struggle to find experienced local staff to support both their own investment teams and management teams within growing portfolio companies. This challenge is particularly acute when seeking finance professionals with 5-15 years of experience to serve as a company CFO or portfolio manager, despite the large number of Ethiopian university students graduating each year with degrees in accounting and finance. Even when a talented, experienced professional can be found, they often command high wages that can be challenging for impact businesses to support, especially in their early years.

• Restrictions on foreign investment: As described above, several sectors are restricted for foreign investment. This includes access to foreign currency, which can be difficult unless investments are properly registered, requiring close

ETHIOPIA • 207 collaboration with the Ethiopian Investment Authority. Although working with the government has made some investors hesitant, the general perception seems to be that working closely with the government results in successful investments and clear expectations for foreign currency availability, repatriation of profits and dividends, and ability to enter specific sectors that are government priorities.

Opportunities

Nonetheless, Ethiopia’s enormous but largely undeveloped market presents significant opportunities to impact investors, particularly those that are willing to take on earlier- stage risk. Opportunities that could generate measurable social and environmental impact for investors in Ethiopia are described below:

• Leverage technical assistance facilities for pre-investment pipeline building: Many impact investors have successfully raised technical assistance facilities for portfolio companies. Increasingly, TA funders recognize the importance of pre- investment support to get companies to the point where they can pass rigorous investment committee requirements. Targeted, tailored support, whether from the impact investor or a third party, requires an upfront commitment of resources, but in Ethiopia it has reportedly proven effective in preparing potential targets for investment and building high quality deal flow. This can reduce diligence timelines if the investor is able to increase familiarity and visibility pre-investment in order to assess the company’s operations and ability to execute.

• Source opportunities outside major cities such as Addis Ababa: Impact investors with staff on the ground in major cities report that it is easier for them to find investments than those investors based abroad, but many entrepreneurs operating in rural areas do not even spend much time in Addis Ababa, so even being based in major cities may not be sufficient. For impact investors who see these types of businesses as highly impactful, it will be increasingly necessary to build relationships beyond those made in economic centers.

Non-DFI impact investors see particularly strong opportunities in Ethiopia in the following sectors:

• Agriculture: Ethiopian smallholders have larger plot sizes than do farmers in other countries in the region, but there are still opportunities to consolidate production and significantly increase yields. Given the smallholder landscape, there are also opportunities to aggregate harvests and create consistent, high-quality supply. Aggregation could allow farmers to connect directly with export markets, which are especially attractive regionally. There is also significant potential in agricultural processing across a range of crops and considerable opportunity to advance basic farming practices which are poor, even compared to East African standards.

208 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA • Renewable energy: Only 23% of Ethiopia’s population has access to electricity23. As a result, impact investors identify strong government support for new businesses and approaches, as Ethiopia looks to dramatically expand power generation capacity. This opens the door for large-scale projects and seems promising to improve power purchase agreements. At the same time, there are large segments of the population that lack reliable access to grid power, opening opportunities for micro-grid and off-grid solutions.

• Consumer goods for the mass market: At 20% of the population, Ethiopia’s middle-class is robust compared to many other countries in the region24. With rapid growth, impact investors believe there are increasingly attractive opportunities to supply goods and services to these consumers. These businesses often create substantial employment opportunities, which may fit impact criteria for some impact investors and often require investments in manufacturing, which align with the government’s priority sectors within the Growth and Transformation Plan.

23 World Development Indicators: Access to electricity (% of population), The World Bank Group, available at http://data.worldbank.org/indicator/EG.ELC.ACCS.ZS. 24 The Middle of the Pyramid, African Development Bank, available at: http://www.afdb.org/fileadmin/ uploads/afdb/Documents/Publications/The%20Middle%20of%20the%20Pyramid_The%20 Middle%20of%20the%20Pyramid.pdf.

ETHIOPIA • 209 BURUNDI SMALL MARKET, GROWING OPPORTUNITY

210 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA INTRODUCTION

Burundi is a small, landlocked country with a population of just over 10 million people. Bordering Rwanda, PLEASE NOTE the Democratic Republic of Congo, and Tanzania, Burundi is strategically situated between the East Africa As with the rest of the Landscape for Impact Investing in Community and the Economic Community of Central East Africa report, research and writing for this chapter were largely conducted in the fourth quarter of 2014, several African States (Figure 1). months before the attempted military coup on May 13, 2015. Ongoing unrest and uncertainty is expected through Burundi has a nascent private sector with approximately Burundi’s scheduled elections in June 2015, which may also 3,000 registered companies, most of which are small and be contested. Those interested in Burundi are cautioned to re- medium enterprises, providing employment to a total of view the latest news reports on the rapidly developing political situation. approximately 37,000 people. While the government of Burundi (GoB) has introduced reforms to foster private sector development and investment, the sector remains constrained by numerous factors including inadequate road networks, unreliable energy, political instability, corruption, limited qualified human capital, underdeveloped regulatory frameworks, and insufficient access to finance.

To date, Burundi has seen limited impact investing activity. Few non-DFI1 impact investors operate in Burundi; however, DFIs have been more active, deploying more than 30 times the amount of capital that other types of impact investors have deployed in known deals.

FIGURE 1: MAP OF BURUNDI

BURUNDI

1 Due to the unique nature and large size of development finance institutions (DFIs), the authors of this report analyzed their activity separately from those of other types of impact investors (“non- DFI”), and present this separate analysis when appropriate. See the Introduction and Methodology section of this report for more details.

BURUNDI • 211 COUNTRY CONTEXT

Burundi has experienced periods of sustained internal conflict since independence in 1962, often due to ethnic tensions. During the 1980s, more than 100,000 Hutus were killed by Tutsis, forcing thousands to flee the country. In 1993, a full-scale civil war was triggered by the assassination of then President Melchior Ndadaye. Despite peace talks in the intervening years—including talks facilitated by then South African President Nelson Mandela—Burundi’s conflict continued for more than a decade.

In 2003, Pierre Nkurunziza, leader of the Hutu rebel group Forces for Defense of Democracy (FDD), signed a peace agreement with President Domitien Ndayizeye, ending fighting by one of the major rebel groups. In 2005, the FDD triumphed in parliamentary elections, leading to the election of Nkurunziza as president by parliament. Despite his election, clashes continued until a peace agreement was signed in 2008.2

Since his election and re-election in an uncontested poll in 2010, Nkurunziza has implemented various economic measures intended to stabilize the country. Notable efforts include integration into the East Africa Community and revitalization of the Economic Community of the Great Lakes Countries (CEPGL) with Rwanda and the Democratic Republic of Congo (DRC).3

At the time of writing, internal tensions continued in the run-up to presidential elections in May 2015. Meanwhile, there is continuing concern that ongoing conflicts in eastern DRC and northwestern Uganda could spill over into Burundi.4

2 “Burundi Profile,” BBC News Africa (Nov. 26, 2014), available at http://www.bbc.com/news/world- africa-13085064. 3 Ibid. 4 Sherman Hollar, “Pierre Nkurunziza,” Encyclopaedia Britannica, (Jun. 3, 2013), available at http://www. britannica.com/EBchecked/topic/1090732/Pierre-Nkurunziza.

212 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Gross Domestic Product

Burundi has experienced steady economic growth over the past decade, averaging approximately 6% annual GDP growth between 2004 and 2013 (Figure 2). In 2013, Burundi’s GDP stood at USD 5.76 billion (PPP), making Burundi one of the smallest economies in the region, outranking only Eritrea and Djibouti in size. GDP growth slowed somewhat in 2009 as Burundi felt the impact of the global financial crisis; however, growth has since increased in recent years.5

FIGURE 2: GDP (PPP), 2004–2013

USD BILLIONS ~6% average annual GDP growth over last 10 years 6

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: IMF World Bank Economic Indicators, April 2014

As is the case in much of East Africa, agriculture employs a significant majority of Burundi’s population. Coffee is the most important agricultural product, grown on approximately 60,000 hectares of land.6 Together with tea, it also accounts for around 90% of foreign exchange earnings.7 However, both coffee and tea are susceptible to volatile global prices and past production challenges in Burundi have limited their contribution to Burundi’s growth. Other major crops grown in Burundi include cotton, corn, sorghum, and bananas.

5 Sherman Hollar, “Pierre Nkurunziza,” Encyclopaedia Britannica, (Jun. 3, 2013), available at http://www. britannica.com/EBchecked/topic/1090732/Pierre-Nkurunziza. 6 COMESA, Burundi Investment Guide (2012), available at http://www.investburundi.com/ attachments/article/267/BURUNDI%20Investment%20Guide%202012.pdf. 7 “Burundi-Financial sector profile,” Making Finance Work for Africa, available at http://www.mfw4a.org/ burundi/financial-sector-profile.html#c10566.

BURUNDI • 213 Foreign Direct Investment

On average, FDI inflows to Burundi grew 65% annually between 2004 and 2013, although there has been significant variation year to year (Figure 3). Burundi’s 2013 FDI of USD 6.8 million is almost twice as high as any other point in the last decade. Nevertheless, this remains the lowest FDI inflow in East Africa. By comparison, Eritrea received close to USD 44 million, the second-lowest in East Africa.8

FIGURE 3: FDI FLOWS, 2004–2013

USD MILLIONS 8

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: UNCTAD

A comprehensive breakdown of Burundi’s FDI inflows is not readily available. The Burundian Investment and Promotion Authority (known by its French acronym API) does not distinguish between FDI and domestic investment in its statistics. However, according to their data, 193 investment projects worth BIF 824 billion (approximately USD 588 million) have been approved since 2011, primarily in tourism, energy, agribusiness, transportation, and manufacturing.9

Foreign direct investment in Burundi has come from a variety of international sources including Kenya, Switzerland, India, Uganda, and the United States.10 Burundi’s recovery from civil war has helped to increase both bilateral and multilateral foreign aid. Aid sources currently account for 42% of Burundi’s national income, the second-highest rate in Sub-Saharan Africa.11 Burundi will likely continue to rely on foreign aid in coming years as it continues to reduce high poverty rates and improve education, as well as build its underdeveloped infrastructure, weak legal system, and administrative capacity.12

8 World Economic Outlook: Gross Domestic Product, International Monetary Fund (Apr. 2014), available at http://www.imf.org/external/pubs/ft/weo/2014/01/weodata/download.aspx. 9 COMESA, Burundi Investment Guide (2012), available at http://www.investburundi.com/ attachments/article/267/BURUNDI%20Investment%20Guide%202012.pdf. 10 Ibid. 11 US Department of State, 2014 Investment Climate Statement-Burundi, available at http://www.state. gov/e/eb/rls/othr/ics/2014/228482.htm. 12 “FDI in Burundi,” Burundi Investment Promotion Authority, available at http://www.investburundi.com/ en/fdi-in-burundi.

214 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Inflation and Exchange Rates

Over the last decade, inflation in Burundi has been erratic—swinging from as low as 1% in 2005 to a peak of 26% in 2008 (Figure 4). It has declined since 2011 and was estimated at 9% in 2013. Meanwhile, the Burundian Franc has gradually depreciated against the dollar since 2006. In early 2013, the government attempted to stabilize the Burundian Franc through a managed float,13 which has served to keep it relatively stable against the US Dollar, with an average exchange rate of BIF 1,550 to the dollar.14 If the float is revoked, Burundi runs the risk of a further depreciation of the Burundian Franc.

FIGURE 4: INFLATION AND USD/BIF EXCHANGE RATE, 2004-2013

USD/BIF

30% 1,750 USD/BIF exchange rate 1,500 25% Inflation 1,250 20% 1,000 15% 750 10% 500 5% 250

0% 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: World Bank Indicators, IMF World Bank Economic Outlook, April 2014

13 Jiska Gietema & Katelijne Blom, Ministry of Foreign Affairs of the Netherlands, Private Sector Development in Burundi_Overview of Dutch efforts 2005-2011 (2012), available at http:// psosamenwerken.files.wordpress.com/2012/03/country-report-psd-burundi-final-march-2012.pdf. 14 “Burundi Economic Profile 2014,” Index Mundi (Aug. 23, 2014), available at http://www.indexmundi. com/burundi/economy_profile.html.

BURUNDI • 215 SUPPLY OF IMPACT INVESTING CAPITAL

With the end of the civil war, Burundi is experiencing increased stability that may be suitably attractive to investors. However, with a small total market size and limited economy, investors are less attracted to Burundi than to other countries in the region, as evidenced by limited FDI inflows. As such, only 23 known impact investment transactions have occurred in Burundi, 15 by DFIs and eight by non-DFI impact investors.

Broader Investing Landscape

Burundi has a relatively small financial sector with only seven commercial banks as of 2012.15 Burundi’s banks represent nearly 75% of the country’s available financial assets, demonstrating a lack of diversity in the financial sector.16 Burundi’s three largest commercial banks—Interbank Burundi, Burundi Credit Bank, and Burundi Commercial Bank—have total assets of USD 481.7 million combined.17

The financial sector does not yet reach the vast majority of the population. Only 2% of the total population has a formal bank account and less than 0.5% can access credit.18 Similarly, microfinance institutions, though growing, still have limited reach. There are fewer than 30 licensed MFIs in Burundi, which have a penetration rate of just 7% for credit and 26% for savings.19 Those who can access formal credit have seen interest rates in Burundi decline over the past decade as the country has recovered from civil war. Interest rates have fluctuated from a high of 18% in 2004, to a low of 12% in 2010, but have since risen to 15%.20

15 World Development Indicators: Lending interest rate, World Bank (2014), available at http://databank. worldbank.org/data/views/variableselection/selectvariables.aspx?source=world-development- indicators. 16 US Department of State, 2014 Investment Climate Statement-Burundi, available at http://www.state. gov/e/eb/rls/othr/ics/2014/228482.htm. 17 Ibid. 18 “Burundi-Financial sector profile,” Making Finance Work for Africa, available at http://www.mfw4a.org/ burundi/financial-sector-profile.html#c10566. 19 C. Baumont-Keita, et al., AfDB-ADF, Burundi Country Strategic Paper 2012-2016 (2011), available at http://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/Burundi%20-%20 CSP%202012-16.pdf. 20 “Burundi Economic Profile 2014,” Index Mundi (Aug. 23, 2014), available at http://www.indexmundi. com/burundi/economy_profile.html.

216 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Impact Capital Disbursed

Burundi has seen very little impact investing activity. Excluding DFIs, only a known USD 1.4 million has been invested through eight deals (Figure 5). The majority of this capital was placed in a single agriculture deal, with the others largely in financial services. Overall, this represents less than 0.1% of all impact investing activity in East Africa.

There are 57 known impact funds that list Burundi as part of their target geography. However, the majority of those funds have large geographic reaches—often global or including all of sub-Saharan African—and Burundi is likely to be a low-priority target.

There is no known additional impact capital committed (and not yet deployed) specifically to investments in Burundi. Although at least USD 679 million in regional impact capital could be deployed in Burundi, it remains unlikely that any notable fraction will actually be invested in the country. However, the potential availability implies that substantial pools of capital could be shifted to investments in Burundi as the climate improves.

Meanwhile, DFIs have deployed significantly more capital in Burundi, with 15 known deals totaling nearly USD 65 million—the highest concentration of DFI capital in the non-focus countries considered for this report (Figure 5). These deals cover a variety of sectors including agriculture, financial services, and infrastructure.

FIGURE 5: IMPACT INVESTMENTS IN BURUNDI

Capital disbursed Deals

DFI USD 64.4 Million 15

NON-DFI usd 1.35 Million 8

Source: Open Capital Research

Instrument

The limited number of impact investments in Burundi provides little concrete information on the instruments most commonly used by impact investors. Of the eight non-DFI deals, 50% were equity while the rest did not disclose details on the instrument used. In contrast, 80% of deals by DFIs were debt in addition to two guarantees and one equity investment.

BURUNDI • 217 DEMAND FOR IMPACT INVESTING CAPITAL

With continuing growth and significant developmental needs, Burundi offers an increasingly interesting proposition to impact investors.

Development Context

Despite recent economic growth, Burundi’s Human Development Indicators (HDI) have remained relatively constant and lag well behind global standards. With a 2013 HDI score of 0.39, Burundi is one of the lowest performers in the world, ranking 180th out of 187 countries on the United Nation’s Human Development Index.21 Over the past six years, Burundi’s average score of 0.36 lags the regional average of 0.43 and is far behind the global average of 0.67 (Figure 6).22

FIGURE 6: UN HDI SCORES, 2008-2013

UN HDI 0.8 0.7 0.6 Global average 0.5 Burundi 0.4 0.3 0.2 0.1 0.0 2008 2009 2010 2011 2012 2013

Source: UN Human Development Report 2014.Note: 2014 report does not include 2009 HDI scores. 2009 scores shown are calculated as an average of 2008 and 2010 scores

21 Human Development Statistics Tables, United Nations Development Programme (2014), available at http://hdr.undp.org/sites/default/files/hdr14_statisticaltables.xls. 22 Ibid.

218 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Burundi’s lack of socioeconomic progress has been punctuated by high poverty rates and driven by factors such as limited arable land, few natural resources, and overpopulation23—in 2013, Burundi’s population density of 396 people per square kilometer was the third-highest in Africa.24 Approximately 80% of Burundi’s population lives on less than USD 1.25 per day, more than three times the global average of 25% and nearly 70% higher than the East African average (Figure 7).25

Most of Burundi’s population lives on small plots of land and struggles to produce enough food for subsistence. As a result, many people are undernourished and stunting rates are nearly 60%, more than twice the global average (Figure 8).26

Access to health services is improving but still insufficient. Burundi averages one doctor per 19,231 inhabitants, almost that recommended by the World Health Organization (WHO) of one doctor per 10,000 inhabitants.27 Under-5 mortality stands at 104 per 1,000 births, much higher than the regional average of 80 and 120% higher than the global average of 47 (Figure 8).28

FIGURE 7: POPULATION BELOW USD 1.25/DAY FIGURE 8: UNDER-5 MORTALITY AND STUNTING (LATEST AVAILABLE DATA POINT) (LATEST AVAILABLE DATA POINT)

UNDER-5 DEATHS PER 100% POP 1,000 BIRTHS STUNTED 80% 120 80% 60% 40% Global 90 60% Global averages average 20% 60 40% Under-5 0% 30 20% mortality BURUNDI 0 0% Stunting BURUNDI

Source: UN Human Development Report 2014 Source: UN Human Development Report 2014

23 Bertelsmann Stiftung, BTI 2014 | Burundi Country Report (2014), available at http://www.bti-project. org/reports/country-reports/esa/bdi/index.nc. 24 Population density (people per sq. km of land area), The World Bank, available at http://data. worldbank.org/indicator/EN.POP.DNST?order=wbapi_data_value_2013+wbapi_data_value+wbapi_ data_value-last&sort=desc. 25 Human Development Statistics Tables, United Nations Development Programme (2014), available at http://hdr.undp.org/sites/default/files/hdr14_statisticaltables.xls. 26 Ibid. 27 Bertelsmann Stiftung, BTI 2014 | Burundi Country Report (2014), available at http://www.bti-project. org/reports/country-reports/esa/bdi/index.nc. 28 Human Development Statistics Tables, United Nations Development Programme (2014), available at http://hdr.undp.org/sites/default/files/hdr14_statisticaltables.xls.

BURUNDI • 219 Burundi’s education system has been severely affected by its civil war. Not only were many rural schools closed, but the conflict created a large population of vulnerable persons who did not have adequate access to education, such as widows, orphans, and the internally displaced. As a result, Burundi has low literacy rates and limited school enrollment. For example, only 7% of Burundians aged 25 and above have received some form of secondary education, well below the regional average of 15% and more than eight times below the global average of 59% (Figure 9).29 A dearth of qualified teachers, appropriate materials, adequate infrastructure, and needed investment in education continues to contribute to poor educational outcomes among Burundi’s population.

FIGURE 9: KEY EDUCATION INDICATORS (LATEST AVAILABLE DATA POINT)

90% Global averages 70% Secondary 50% gross enrollment Pop with some 30% secondary education 10%

-10% BURUNDI

Source: UN Human Development Report 2014

29 Human Development Statistics Tables, United Nations Development Programme (2014), available at http://hdr.undp.org/sites/default/files/hdr14_statisticaltables.xls.

220 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Burundi has a population of 10 million and is growing at an estimated 3.3% annually.30 Similar to that of its East African neighbors, Burundi’s population is heavily skewed toward the young, with 55% of the population below age 20 (Figure 10).31 Approximately 52% of the country is of working age, classified as 15-60 years, providing a relatively large labor force.32 However, low levels of education and limited private sector development provide inadequate employment opportunities. As Burundi continues to grow, investment in education, health, and social services— especially for its large segment of youth—will be vital for economic prosperity.

FIGURE 10: POPULATION BY AGE AND GENDER

AGE 100+ 95-99 90-94 85-89 80-84 75-79 70-74 65-69 Male 60-64 Female 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4

1,000 500 0 0 500 1,000

POPULATION POPULATION (THOUSANDS) (THOUSANDS) Source: UN ESA, World Population Prospects

30 “Population Growth Rate,” Central Intelligence Agency available at https://www.cia.gov/library/ publications/the-world-factbook/fields/2002.html. 31 2012 World Population Prospects, United Nations Department of Economic and Social Affairs (2012), available at http://esa.un.org/wpp/Excel-Data/EXCEL_FILES/1_Population/WPP2012_POP_ F07_1_POPULATION_BY_AGE_BOTH_SEXES.XLS. 32 Ibid.

BURUNDI • 221 Entrepreneurs

Burundi’s business environment still poses many challenges for those seeking to start a company. One of the primary challenges is access to finance, as Burundi’s financial sector has limited reach in the country, especially in non-urban areas. Even entrepreneurs who can access capital from financial institutions often fail to meet commercial banks’ high collateral requirements. In particular, Burundian banks prefer to secure loans with land, but much of the land in the country is unregistered and lacks title deed to use as security. As a result, entrepreneurs are left without the means to secure a loan.33

ENABLING IMPACT INVESTING: THE ECOSYSTEM

Burundi’s government actively seeks to support business development. Among other measures, this includes the creation of the Investment Promotion Agency (API using the French abbreviation) in 2009. API’s mandate is to develop and promote investment in Burundi by enforcing laws pertaining to investors, providing resources for potential investors, and encouraging reforms that help develop the business environment, including making it easier to start new enterprises and clarifying regulations for businesses.

Regulatory Environment

By and large, Burundi provides foreign investors with the same status as domestic investors, except in matters related to the military, weapons, or munitions, where Burundi’s government limits private investment.34 API’s work has helped improve Burundi’s general regulatory framework for entrepreneurs and investors, reflected in Burundi’s improvement in the World Bank’s 2014 Ease of Doing Business report. The country was ranked 152nd out of 189 nations in 2013, an improvement of 19 positions from the previous year—one of the largest one-year advancements across Sub- Saharan Africa.35 Burundi supports foreign investment in many areas:

• Investment incentives: Burundi’s government actively works to attract foreign investment, offering a variety of tax incentives with the intention to spur investment. These tax incentives vary, and to qualify investors must meet specific criteria related to size of the investment, jobs created, and location. For example,

33 USAID, USAID Country Profile Property Rights and Resource Governance - Burundi, available at http://usaidlandtenure.net/sites/default/files/countryprofiles/fullreports/USAID_Land_Tenure_ Burundi_Profile.pdf. 34 US Department of State, 2014 Investment Climate Statement-Burundi, available at http://www.state. gov/e/eb/rls/othr/ics/2014/228482.htm. 35 Ibid.

222 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA in 2008, the government passed the Investment Code, which provides tax exemptions for investors creating and distributing goods and services. These include tax exemptions on assets purchased for new investments, reduced tax on profits for any investor who employs 50 or more Burundians, and a tax exemption of up to 5% if a company employs more than 200 Burundians.36

While Burundi uses factors such as location and employment of nationals to evaluate tax incentives awarded to a business, the government does not restrict investments based on these factors.37 In addition, Burundi’s government has established a Free Economic Zone (FEZ), which provides a variety of tax incentives for businesses. As a condition of operating in the FEZ, export companies must purchase inputs and other goods from Burundi whenever possible.

• Opening a business in Burundi: Starting a business in Burundi takes just over one month and requires 11 procedures, which compares favorably to other East African nations. In general, Burundi does not require entrepreneurs to have a minimum amount of capital to register a company except38 in banking, financial institutions, petroleum import and export, and insurance.39

• Local ownership requirements: Burundian law allows foreigners to hold 100% equity stakes in any venture. The government does not require that Burundian ownership in a foreign investment increase over time nor does it require that businesses owned by foreigners transfer any proprietary technology to Burundian firms. Burundian regulations, however, do mandate that investors who are issued permits in oil and mining stipulate Burundi as their elected domicile and function as a local company.40

36 US Department of State, 2014 Investment Climate Statement-Burundi, available at http://www.state. gov/e/eb/rls/othr/ics/2014/228482.htm. 37 “Incentives,” Burundi Investment Promotion Authority, available at http://www.investburundi.com/en/ incentives. 38 As of 2009, minimum requirements vary by industry ranging from USD 647 thousand in petroleum import/export to USD 3 million in banking. 39 “Establishing a Business in Burundi,” Burundi Investment Promotion Authority, available at http://www.investburundi.com/en/establishing-a-business-in-burundi. 40 International Business Publications USA, Burundi Mineral, Mining Sector Investment and Business Guide Volume 1, available at http://books.google.co.ke/books?id=q6MYk4NbPGIC&pg=PA159 &lpg=PA159&dq=Burundi+domicile+requirements&source=bl&ots=590vnIsVxy&sig= Pt8O4gNhZ08c37A2QEeEbphbLTM&hl=en&sa=X&ei=SadgVOmYPMGP7AaIkoCQAg &redir_esc=y#v=onepage&q=Burundi%20domicile%20requirements&f=false.

BURUNDI • 223 • Foreign exchange controls/repatriation of profits: Burundi’s Investment Code places no restrictions on access to foreign exchange for the purpose of repatriating profits. However, as a practical matter, access is limited due to the Central Bank’s constraints. Burundi’s Central Bank holds, on average, a foreign currency reserve equal to four months of imports while importers of key staple goods such as medicines and agricultural inputs often have priority access to these reserves. Due to limited amounts of foreign currency and limited experience with such transactions, it is not uncommon for foreign investors to experience delays in obtaining foreign currency.41

• Expropriation and compensation: The government is legally allowed to expropriate private property in exceptional circumstances, but it must provide adequate compensation to the property owner in such cases. This general rule varies somewhat for the mining sector, where the government is permitted to require mining operators to cease operations without compensation or indemnity if they are found to be in violation of the mining code. The code is unclear regarding how significant violations must be to merit forced withdrawal.42

• Government enterprises: The government maintains state-run enterprises in the telecommunications and utility industries, including ONATEL, a state-owned telecommunications carrier offering landline, mobile, and internet services and REGIDESO, Burundi’s only producer and distributor of electricity and potable water.43 Though previously state controlled, Burundi’s coffee industry was privatized in 2009.44

Ecosystem Players

Burundi lacks a comprehensive ecosystem to support private enterprise development. A few international intermediaries and service providers are active in Burundi, but most do not have local presence, limiting their practical availability. Intermediaries and service providers with prior experience in Burundi include BiD Network and the Global Social Benefit Incubator, which offer training, mentorship, advisory, linkages to investors, and networking between entrepreneurs. The Africa Enterprise Challenge Fund and Global Social Venture Competition provide entrepreneurs with funding and exposure through annual competitions. Other types of intermediaries and service providers include networks linking start-ups and angel investors such as VC4 Africa.

41 US Department of State, 2014 Investment Climate Statement-Burundi, available at http://www.state. gov/e/eb/rls/othr/ics/2014/228482.htm. 42 Ibid. 43 Ibid. 44 Ibid. 224 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA CHALLENGES AND OPPORTUNITIES FOR IMPACT INVESTORS

Challenges

Despite local and international efforts to build the economy in Burundi, there are several constraints that hamper the development of impact investing. These include:

• Inadequate infrastructure: Years of conflict in Burundi have destroyed important infrastructure throughout the country. Lack of an adequate road network and unreliable access to power make it challenging to do business in Burundi and increase costs for entrepreneurs.

• Corruption: Corruption is a major hindrance to investment and business in general in Burundi. Corruption is widespread, and evident in issues such as upholding contracts.45 Cabinet members, parliamentarians, and anyone appointed by presidential decree have immunity from prosecution for corruption, further perpetuating a lack of accountability. In 2013, Burundi ranked 157th out of 177 countries on the Transparency International corruption index.46

• Lack of stable political institutions: Burundi’s underdeveloped political framework struggles to provide the support and stability required for private sector growth. Independent assessments show that the legal system lacks transparency and the capacity to efficiently resolve cases, leading to a large backlog.47 In addition, international partners assert that corruption and Burundi’s neopatrimonial political system hinder the government’s ability to manage public resources efficiently.48,49

45 US Department of State, 2014 Investment Climate Statement-Burundi, available at http://www.state. gov/e/eb/rls/othr/ics/2014/228482.htm. 46 Ibid. 47 Ibid. 48 Embassy of the Kingdom of the Netherlands, Multi-Annual Strategic Plan (2014), available at file:///C:/Users/Business%20Analyst/Downloads/burundi-multi-annual-strategic-plan-2014-2017%20 (1).pdf. 49 Ministry of Foreign Affairs of the Netherlands, Private Sector Development in Burundi (2012), available at https://psosamenwerken.files.wordpress.com/2012/03/country-report-psd-burundi-final- march-2012.pdf.

BURUNDI • 225 Opportunities

Although Burundi presents numerous challenges, opportunities exist for impact investors to support businesses that drive social change while creating jobs, stimulating economic growth, and providing financial returns:

• Develop local presence: As Burundi’s economy continues to grow and entrepreneurs develop businesses to meet local needs, an increasing number of impact investment opportunities will arise in Burundi. Investors with staff on the ground to identify and build relationships with promising entrepreneurs will have a distinct advantage in developing a robust pipeline in the country.50

• Increase renewable energy production: With a 10% rate of electrification, much of Burundi’s population does not have reliable access to electricity. The government aims to increase the electrification rate to 20% by 2020. While approximately 85% of Burundi’s current capacity of 36MW is provided by hydropower, there remain significant hydropower and renewable energy resources that could be developed. Burundi has identified 156 potential hydropower sites beyond the 29 existing ones, with more than 80% yet to be explored. Opportunities also exist in solar, geothermal, and biomass.51

Despite the challenges described above, entrepreneurs increasingly recognize opportunities to provide goods and services to fill gaps in the market. Many of these enterprises have the potential for social impact by incorporating disadvantaged populations as suppliers, consumers, or both. Specific sector opportunities include the following:

• Agriculture: Agriculture drives Burundi’s economy and provides an important source of income and subsistence for the majority of the population. However, there is a shortage of agricultural land as the population grows in this geographically small country. Decreasing average plot sizes could create an opportunity to consolidate production and significantly increase yields by shifting to modern farming methods. Investing in agri-businesses to support smallholder and commercial farms through improved inputs, best practices, mechanization, credit, and other services could reduce the country’s dependency on food imports and improve long-term nutritional outcomes.

• Water and sanitation: Access to water and sanitation continues to be a problem throughout Burundi, especially in rural areas. In the nation’s capital of Bujumbura, 85% of the population has access to potable water, while only 55% of the rural population does. Private enterprises, potentially in collaboration with the government, could fill this gap and help improve Burundi’s water and sanitation infrastructure.

50 Jiska Gietema and Katelijne Blom, Ministry of Foreign Affairs of the Netherlands, Private Sector Development in Burundi_Overview of Dutch efforts 2005-2011 (2012), available at http:// psosamenwerken.files.wordpress.com/2012/03/country-report-psd-burundi-final-march-2012.pdf. 51 Minister for Energy and Mines, Investment Opportunities in Renewable Energy Burundi (2012), available at http://www.bi.undp.org/content/dam/burundi/docs/publications/Investment%20 opportunities%20in%20renewable%20energy%20Burundi.pdf.

226 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA • Social services: Burundi’s social services, such as education and health care, were decimated by the country’s long civil war. Effects on the education system were especially pronounced as many schools closed and educators fled or were exiled.52 The system is slowly recovering, but numerous challenges persist, including poor teacher training, insufficient resources, and unequal access to education in secondary and tertiary institutions. Burundi receives foreign aid designated for education and health, and many NGOs and development partners currently work in the space. Businesses add to this ongoing work and help provide sustainable solutions to many of these needs.

52 Bertelsmann Stiftung, BTI 2014 | Burundi Country Report (2014), available at http://www.bti-project. org/reports/country-reports/esa/bdi/index.nc.

BURUNDI • 227 SOUTH SUDAN THE CONTINENT’S NEWEST COUNTRY

228 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA INTRODUCTION

Following decades of conflict with Sudan, South Sudan declared independence in a referendum in 2011. At the end of 2013, civil war broke out in the country following a political struggle between the president and former vice-president.

The South Sudanese economy is heavily reliant on oil, which comprises the vast majority of GDP, exports, and government revenue. Foreign investment has been highly concentrated in the oil sector. However, the government has acknowledged the importance of private sector development and diversification for the future of the country, and has begun streamlining the regulatory environment and investment process to facilitate this growth.

To date, South Sudan has seen very little impact investment, but it could play an important role as the country begins to develop independently. Impact investors face a number of challenges in South Sudan that have hindered them from entering the market and deploying capital. These challenges include ongoing conflict, a difficult regulatory environment, and a limited talent pool available to South Sudanese businesses.

FIGURE 1: MAP OF SOUTH SUDAN

SOUTH SUDAN

SOUTH SUDAN • 229 COUNTRY CONTEXT

South Sudan is the world’s newest state at the publication of this report and remains a fragile, underdeveloped country wracked by conflict. The nation was founded on July 9, 2011 when South Sudan gained independence from Sudan following decades of conflict between the Southern rebels and Sudan’s Khartoum-based government.

South Sudan was initially established as a semi-autonomous region in 1972 as part of the peace agreement that ended the country’s first civil war. The removal of this autonomy in 1983 led the Sudanese People’s Liberation Movement (SPLM) to take up arms against the central government, prompting a second civil war. This conflict lasted until 2005 with the formation of a power-sharing government and restoration of South Sudanese autonomy.

Following independence in 2011, South Sudan and Sudan remain at odds on a variety of issues including status and rights of nationals in each country, oil fees, and Abyei, a disputed region with significant oil resources. Punctuated by ongoing skirmishes and clashes between their armed forces, the ongoing conflict has killed thousands of people and displaced more than one million.1

1 “South Sudan Profile”,BBC (6 August, 2014), available at http://www.bbc.com/news/world- africa-14019202.

230 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Gross Domestic Product

South Sudan’s economy has struggled recently due to civil unrest and ongoing disagreements with the government of Sudan over oil rights, as well as other disruptions to economic activity. In 2012, a dispute over oil fees led Sudan to shut down South Sudan’s oil export pipelines, only resuming shipments in 2013.2 As a result, South Sudan’s GDP declined approximately 50%—from nearly USD 22 billion in 2011 to just under USD 12 billion in 2012 (Figure 2). While GDP grew about 25% to almost USD 15 billion between 2012 and 2013, South Sudan’s recovery has been hampered by the civil war. Despite the country’s abundant oil resources, South Sudan’s GDP per capita was only USD 1,350 in 2013,3 approximately 50% of the sub-Saharan average of USD 2,673 per capita.4

FIGURE 2: GDP (PPP), 2011–2013

USD BILLIONS

25 GDP growth plummeted by 20 50% during oil shutdown

0 2011 2012 2013

Source: IMF World Bank Economic Indicators, April 2014

Oil is the driving factor of the economy and is estimated to account for up to 80% of GDP and almost all exports, making South Sudan the most heavily oil-dependent nation in the world.5 The government of the Republic of South Sudan (GoSS) is also deeply dependent on these exports as nearly 98% of its revenues in recent years have been generated by the oil industry.6

South Sudan’s 2012 oil shutdown demonstrated the importance of oil to the economy. In January 2012, the government was forced to halt production and export of oil due to ongoing disagreements with Sudan, primarily around fees to use Sudan’s infrastructure. These disagreements stem from uneven distribution of oil reserves

2 “South Sudan Profile”,BBC (6 August, 2014), available at http://www.bbc.com/news/world- africa-14019202. 3 World Economic Outlook: South Sudan gross domestic product based on purchasing-power-parity (PPP) per capita GDP, International Monetary Fund (Apr. 2014), available at http://www.imf.org/ external/pubs/ft/weo/2014/01/weodata/download.aspx. 4 Ibid. 5 The World Bank, South Sudan Overview, available at http://www.worldbank.org/en/country/ southsudan/overview. 6 Ibid.

SOUTH SUDAN • 231 and infrastructure dating back to pre-independence; as of 2014, Sudan possesses 1.5 billion barrels in oil reserves while South Sudan has more than twice that number—3.5 billion barrels.7 While almost 70% of unified Sudan’s oil reserves were in the south, the majority of export infrastructure was developed in the north. Therefore, independent South Sudan lacks the necessary infrastructure to export its oil, forcing it to rely on Sudan and making it vulnerable to conditions imposed by the Sudanese government.

Without revenues generated by oil production and export, the GoSS was forced to implement significant austerity measures, reducing its 2012 spending by approximately 45% from 2011 levels followed by additional spending cuts in its 2012/2013 budget. These cuts included reductions in operating costs, capital expenditure, and transfers to South Sudanese states, leading to GDP decline and economic challenges. With the resumption of oil flows, the economy rebounded in the second half of 2013, despite production levels nearly 40% lower than 2011.8

While oil is the key driver of South Sudan’s economy, agriculture is the primary economic activity for most South Sudanese citizens. Agriculture is still primarily subsistence farming as almost 80% of South Sudanese households rely on crop farming or animal husbandry as their primary source of income.9 The reliance on subsistence agriculture makes the country susceptible to natural disasters such as floods, droughts, and crop diseases. Such disasters disproportionately impact South Sudan’s most vulnerable; among Sudan’s bottom quintile by income, more than 80% rely on agriculture for their primary source of income.10

7 U.S. Energy Information Administration, “Sudan and South Sudan,” U.S. Energy Information Administration (September 3, 2014), available at http://www.eia.gov/countries/cab.cfm?fips=SU. 8 CIA, The World Factbook – South Sudan, available at https://www.cia.gov/library/publications/the- world-factbook/geos/od.html. 9 HumanIPO, “Top network operators see South Sudan as next big mobile-money zone,” HumanIPO (Jul. 20, 2012), available at http://www.humanipo.com/news/965/top-network-operators-see-southsudan-as-next-big-mobile-money-zone/. 10 Bertelsmann Stiftung, BTI 2014 — South Sudan Country Report, available at http://www.bti-project.de/ uploads/tx_itao_download/BTI_2014_South_Sudan.pdf.

232 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Foreign Direct Investment

With South Sudan’s weak private sector and history of conflict, there have been limited international investments in the country. Although FDI statistics for South Sudan as a nation are unavailable, the oil sector receives the majority of foreign investments given its role in the economy. These are primarily from large foreign oil companies including China’s National Petroleum Company, Malaysia’s Petroliam Nasional Berhad (PETRONAS), and India’s Oil and Natural Gas Corporation (ONGC). Other countries with business interests in South Sudan’s oil industry include the U.S., Russia, France, and Kuwait. Other than oil investments, international companies that operate in South Sudan include South African brewer SABMiller, telecommunications operators MTN, Vivacell, and Zain, airlines such as Air Uganda and East Africa Airlines, as well as insurance and banking institutions from Kenya, South Africa, and Ethiopia.11

South Sudan continues to receive a substantial amount of foreign aid, primarily from the United States and Europe (Figure 3). Since 2005, aid agencies have sent more than USD 4 billion in foreign aid to South Sudan12 primarily for health, infrastructure, and social and humanitarian affairs.

FIGURE 3: FOREIGN AID INFLOWS BY COUNTRY OF ORIGIN, 2010

Other donors Germany Spain Global fund Sweden Japan Denmark Canada Norway Donor capital mainly Netherlands from USA & Europe UK EU (ECHO) USA

0 100 200 300 400 500

USD MILLIONS

11 US Department of State, 2013 Investment Climate Statement-South Sudan, available at http://www. state.gov/e/eb/rls/othr/ics/2013/204855.htm. 12 Economy watch, “South Sudan Economic Statistics and Indicators,” Economy watch, available at http:// www.economywatch.com/economic-statistics/country/South-Sudan/.

SOUTH SUDAN • 233 Inflation and Exchange Rates

South Sudan’s Central Bank was established shortly after independence in 2011, and there is limited reliable data available on the bank’s operations and lending rates to date. Inflation in South Sudan has been erratic due to the economic uncertainty that has plagued the country since independence (Figure 4). Starting at 45% in 2012, the inflation rate peaked at almost 80% in mid-2012 due to rising fuel prices and exchange rate pressure.13 The inflation rate then plunged to just slightly negative in 2013 before rising to an estimated 11% in 2014. The International Monetary Fund (IMF) expects inflation in South Sudan to gradually decline and stabilize at approximately 5% over the next few years, but continued unrest may drive inflation higher than expected.14

FIGURE 4: INFLATION AND USD/SSP EXCHANGE RATE, 2012-2014

SSP/USD 50% USD/SSP exchange rate 6 45% Inflation 40% 5 35% 30% 4 25% 3 20% 15% 2 10% 5% 1 0% -5% 0 2012 2013 2014

Meanwhile South Sudan’s currency, the South Sudanese Pound (SSP), has remained fairly stable, averaging an official exchange of 4 SSP to the dollar between 2012 and 2014, although investors interviewed for this report suggest that black market exchange rates fluctuate significantly. It is heavily supported by the country’s foreign exchange reserves from oil. As a result, the 2012 oil shutdown led to a slight devaluation of the SSP as the government was forced to spend foreign exchange reserves. 15

13 CIA, The World Factbook – South Sudan, available at https://www.cia.gov/library/publications/the- world-factbook/geos/od.html. 14 World Economic Outlook: South Sudan inflation, average consumer prices,International Monetary Fund (Apr. 2014), available at http://www.imf.org/external/pubs/ft/weo/2014/01/ weodata/download.aspx; African Economic Outlook, South Sudan (2014), available at http://www. africaneconomicoutlook.org/fileadmin/uploads/aeo/2014/PDF/CN_Long_EN/SoudanDuSUd_ ENG.pdf. 15 South Sudan National Bureau of Statistics, The South Sudan Millennium Development Goals Status Report (2012), available at http://www.undp.org/content/dam/southsudan/library/Reports/MDG%20 Report%202012.pdf.

234 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA SUPPLY OF IMPACT INVESTING CAPITAL

There has been minimal impact investing activity in South Sudan to date. Investing and working in South Sudan continues to be challenging due to a variety of factors, including ongoing conflict, a poor regulatory environment, and a limited talent pool available to South Sudanese businesses. This is reflected in South Sudan’s place in the World Bank’s Ease of Doing Business rankings where the country is recognized as one of the poorest environments for business, ranking 186th out of 189 countries.16

Broader Investing Landscape

Impact capital represents only a small part of the overall investing landscape, with limited evidence of activity to date. Access to conventional capital continues to be a challenge for both local and foreign businesses due to the country’s newly independent financial sector. South Sudan has fewer than 20 banks and just 70 foreign exchange bureaus country-wide. Foreign exchange is strictly controlled, with the four largest bureaus controlling almost 70% of the sector’s total assets.17 In addition, South Sudan’s banks are risk averse and unwilling to lend to early stage ventures as the nascent regulatory environment does not offer sufficient protection to lenders. Most banks are centered in urban areas such as Juba and Wau and have limited presence in rural areas; even MFIs have limited reach due to the country’s poor infrastructure.18

Investments in the oil sector remain the largest area of investment in the country, with little investment in other sectors. However, the government acknowledges the importance of private sector development and diversification for the future of the country, and has begun streamlining the investment process to facilitate this growth. They established the One Stop Shop Investment Centre (OSSIC) to act as a central contact point for investors to apply for all required approvals and permits.19

After years of conflict, the country is in desperate need of infrastructure investments. Plans for infrastructure development had begun to be laid out, but ongoing civil unrest has largely halted these projects.20

16 Economy Rankings, World Bank Group, available at http://www.doingbusiness.org/rankings. 17 US Department of State, 2013 Investment Climate Statement-South Sudan, available at http://www. state.gov/e/eb/rls/othr/ics/2013/204855.htm. 18 Ibid. 19 African Economic Outlook, South Sudan (2014), available at http://www.africaneconomicoutlook.org/ fileadmin/uploads/aeo/2014/PDF/CN_Long_EN/SoudanDuSUd_ENG.pdf. 20 Ibid.

SOUTH SUDAN • 235 Impact Capital Disbursed

There are 50 known impact funds (excluding DFIs)21 that list South Sudan as part of their target geography. These non-DFI impact investors have deployed USD 748,000 in impact investments in the country to date (Figure 5). These vehicles have very large geographic reaches—often global or sub-Saharan African wide—and most do not prioritize investments in South Sudan, resulting in the small amount deployed so far. It is unclear whether many of these non-DFI impact investors would be willing to seriously consider an investment in South Sudan despite its formal inclusion as a target country. Indeed, only one non-DFI impact investor has placed staff locally in Juba.

Reflecting this lack of focus on South Sudan, only USD 4.5 million is committed specifically to impact investments in the country from non-DFI investors. Beyond this, there is at least a further USD 611 million in capital committed regionally that could be deployed in South Sudan. However, it remains highly unlikely that any notable fraction of this capital will be deployed in the country. Still, this availability does imply that if the investment environment improves, there are substantial pools of capital that could rapidly shift to investments in South Sudan.

By contrast, DFIs have been much more active deploying capital in South Sudan with approximately USD 17 million disbursed across six known investments in 2012 and 2013 (Figure 5). These investments were concentrated in financial services—four USAID-funded investments provided guarantees totaling approximately USD 7 million to financial institutions such as KCB Sudan and Equity Bank South Sudan. The remaining capital was provided by IFC and Norfund to companies in construction and real estate.

FIGURE 5: IMPACT INVESTMENTS IN SOUTH SUDAN

Capital disbursed Deals

NON-DFI usd 748,000 3

DFI usd 17 Million 6

Source: Open Capital Research

21 Due to the unique nature and large size of development finance institutions (DFIs), the authors of this report analyzed their activity separately from those of other types of impact investors (“non- DFI”), and present this separate analysis when appropriate. See the Introduction and Methodology section of this report for more details.

236 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA DEMAND AND NEED FOR IMPACT INVESTING CAPITAL

South Sudan struggles with a weak private sector and minimal entrepreneurship by the local population. Northern Sudanese dominate most businesses and trade in the country, while Kenyans and Ugandans provide most imports. Of the few businesses started by South Sudanese nationals, South Sudanese repatriates are responsible for a larger portion than “indigenous” South Sudanese. Local entrepreneurs tend to focus on the informal sector in areas such as retail, livestock, vehicle repair, transportation, and equipment maintenance. 22

Without significant entrepreneurial activity, most of South Sudan’s industries have little competition to drive growth and innovation. While this can make it challenging to find proficient and dependable local business partners and suppliers, it also represents an opportunity for investors and entrepreneurs to start new businesses in a variety of sectors.23

Development Context

After years of conflict, South Sudan is understood to have strong development needs, but due to its relative infancy, there are few reliable measures to objectively understand South Sudan’s socioeconomic conditions or to compare the country to regional and global indicators; for example, the United Nations has yet to rank South Sudan on its Human Development Index.

The country has little socioeconomic development in non-urban areas and is plagued by high poverty rates. As of 2009, more than 50% of South Sudan’s population lived on less than USD 1.00 a day (Figure 6).24

South Sudan also suffers from a shortage of basic health services, and those that do exist are of poor quality. The maternal mortality rate is 730 deaths per 100,000 live births, making it the seventh worst country in the world for maternal health.25 Meanwhile, only 17% of South Sudanese children are fully immunized,26 and nearly 40% of children in South Sudan die before their fifth birthday, as the under-five mortality rate is 381 deaths per 1,000 births, far worse than in nearby countries. This

22 Peace Security and Development Network, Public Private Cooperation in Fragile States Country report: Southern Sudan (2009), available at http://www.clingendael.nl/sites/default/files/20090900_ report_cru_southern_sudan.pdf. 23 Ibid. 24 Bertelsmann Stiftung, BTI 2014 — South Sudan Country Report, available at http://www.bti-project.de/ uploads/tx_itao_download/BTI_2014_South_Sudan.pdf. 25 “Maternal mortality has declined steadily since 1990, but not quickly enough to meet the MDG target,” UNICEF (Jul 2014), available at http://data.unicef.org/maternal-health/maternal-mortality. 26 “South Sudan Overview,” The World Bank (Nov. 13 2014), available at http://www.worldbank.org/en/ country/southsudan/overview#1.

SOUTH SUDAN • 237 rate is more than 2.5 times greater than in Somalia and nearly six times greater than in neighboring Ethiopia.27

South Sudan has similar challenges along educational metrics. Approximately 75% of South Sudanese heads of household have not completed any formal education28 and the literacy rate among those aged 15 years and older is only 27% (Figure 7) with a significant disparity in male literacy (40%) and female literacy (16%), a reflection of boys receiving better educational opportunities.29 Moreover, just 4% of students of secondary school age are enrolled in secondary school, less than one-eighth the East African average of approximately 33%, and nearly 20 times lower than the global average of 74%.30 South Sudan continues to rely on NGOs, churches, and other charitable organizations to provide public goods such as healthcare and education.31

FIGURE 6: POPULATION BELOW USD 1/DAY FIGURE 7: SECONDARY SCHOOL (LATEST AVAILABLE DATA POINT) GROSS ENROLLMENT

100% 60% Global 80% average 40% 60% Literacy rates of Global pop. over 15 years 20% average 40% 20% Secondary 0% gross enrollment SOUTH SUDAN 0% SOUTH SUDAN

Source: UN Human Development Report 2014; Bertelsmann Stiftung, BTI 2014 - South Sudan Country Report. Note: Chart shows population below USD 1/day, but global average refers to population below USD 1.25/day from the UN Human Develop- Source: UN Human Development Report 2014; Bertelsmann ment Index Stiftung, BTI 2014—South Sudan Country Report

27 Bertelsmann Stiftung, BTI 2014 — South Sudan Country Report, available at http://www.bti-project.de/ uploads/tx_itao_download/BTI_2014_South_Sudan.pdf. 28 Ibid. 29 “South Sudan Overview,” The World Bank (Nov. 13 2014), available at http://www.worldbank.org/en/ country/southsudan/overview#1. 30 Bertelsmann Stiftung, BTI 2014 — South Sudan Country Report, available at http://www.bti-project.de/ uploads/tx_itao_download/BTI_2014_South_Sudan.pdf. 31 Ibid.

238 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Educational metrics are an especially important indicator for future development given South Sudan’s demographics. Like other East African countries, South Sudan has a disproportionately young population, where 63% of the population is below the age of 25 and more than 40% below the age of 15 (Figure 8). This has led to high youth unemployment. Low levels of education make it more challenging to translate the youth boom into positive economic growth as these youth begin to seek employment opportunities.

FIGURE 8: POPULATION BY AGE AND GENDER

AGE 100+ 95-99 90-94 85-89 80-84 75-79 70-74 65-69 Male 60-64 Female 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4 1,000 500 0 0 500 1,000

POPULATION POPULATION (THOUSANDS) (THOUSANDS)

Source: UN ESA, World Population Prospects

Entrepreneurs

It is challenging to start a new business or transition a business from the informal to the formal sector due to numerous regulatory requirements. As recently as 2011, the high cost of setting up a business in South Sudan made Juba the second most expensive commercial capital in the world. An entrepreneur registering a business in South Sudan must go through 11 procedures and pay USD 3,077, almost three times the annual income per capita.32

As mentioned earlier, non-South Sudanese such as Ugandans, Kenyans, and northern Sudanese dominate most business ventures. Development of home-grown businesses in South Sudan will require investing in an enabling environment and in local entrepreneurs.

32 Ease of Doing Business, South Sudan, available at http://www.doingbusiness.org/data/ exploreeconomies/south-sudan.

SOUTH SUDAN • 239 ENABLING IMPACT INVESTING: THE ECOSYSTEM

As a new country, South Sudan is still building an ecosystem capable of encouraging private sector growth. This is evident across the regulatory and service provider market as well as the general business environment.

Regulatory Environment

After independence, the government of South Sudan was forced to develop the new country’s regulatory framework while maintaining continuity with previous systems. The country still uses some laws enacted during its period of semi-autonomy from 2005 to 2009, and it has also passed several new acts, including the 2012 Imports and Exports Act and the 2012 Companies Act. Nevertheless, its regulatory framework remains underdeveloped.

• Repatriation of profits and dividends: South Sudan’s Investment Promotion Act guarantees the right to transfer profits into and out of the country; however, as a practical matter, many companies have trouble repatriating profits. The supply of foreign currency is in short supply, and the Central Bank regulates which businesses are given US dollars, which can complicate efforts by foreign investors to repatriate profits.33

• Foreign exchange controls: The Central Bank uses foreign exchange rationing as a monetary instrument—banks are required to report significant foreign exchange transactions to the Central Bank, which caps the supply of foreign currency to businesses and private citizens.34

• Land ownership: Under South Sudan’s 2009 Land Act, foreigners may not own land but are permitted to lease land for up to 99 years. Leases for mining or quarrying are limited to the life of the mine or quarry.35 Though inadequate land regulation has made access to land a challenge, various foreign entities have successfully acquired leases to substantial land holdings, including 2.28 million hectares in Boma National Park leased by an Emirati company and 600,000 hectares leased by US-based Nile Trading and Development. It is estimated that as of the 2011 independence vote, non-South Sudanese entities in various sectors such as ecotourism and agriculture had acquired approximately 5 million hectares in the country.36

33 US Department of State, 2014 Investment Climate Statement-South Sudan, available at http://www.state.gov/e/eb/rls/othr/ics/2013/204855.htm. 34 African Economic Outlook, South Sudan (2014), available at http://www.africaneconomicoutlook.org/ fileadmin/uploads/aeo/2014/PDF/CN_Long_EN/SoudanDuSUd_ENG.pdf. 35 US Department of State, 2013 Investment Climate Statement-South Sudan, available at http://www.state.gov/e/eb/rls/othr/ics/2013/204855.htm. 36 USAID, USAID Country Profile-Property Rights and Resource Governance – South Sudan, available at http://usaidlandtenure.net/sites/default/files/country-profiles/full-reports/USAID_Land_Tenure_ South_Sudan_Profile.pdf. 240 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA • Local ownership requirements: Foreigners are allowed to own or control businesses in any sector, but the Board of Directors of South Sudan’s Investment Authority Board has the authority to enact or change regulations that limit the sectors in which foreigners may invest.37 Medium and large companies must have at least 31% South Sudanese shareholding, though there is a common misperception that this rule applies to all businesses.38 Small businesses— specifically companies that employ fewer than seven people and meet certain other financial requirements—may only be operated by South Sudanese citizens.39

• Government enterprises: Given the importance of oil to the economy, it is apt that an oil company is the GoSS’ only enterprise. Nilepet, operated by the Ministry of Mining and Petroleum, manages South Sudan’s oil reserves. In instances of public-private partnership, the GoSS will enter into joint ownership of a company with a foreign investor often with a controlling stake of 51% equity. The GoSS requires that investors in such enterprises be registered in South Sudan and typically enters into public-private partnerships in oil exploration, timber development, water, and mining.40

• Taxation: South Sudan’s corporate tax rates vary by company size. The government levies 10%, 15%, or 20% taxes on small, medium, and large companies respectively. Companies must pay an additional 10% withholding tax on dividends, royalties, interest, and rent.41 Regulations state that both foreign- and locally- owned businesses should receive tax exemptions on machinery and equipment, agricultural imports, and capital investments, although as of the publication of this report they fail to specify the size or length of exemptions.42

Ecosystem Players

Along with a poorly developed private sector, South Sudan has a limited ecosystem to support private development. International organizations such as Technoserve and VC4Africa cover South Sudan but do not have a local presence. The Africa Enterprise Challenge Fund has awarded several grants to companies operating in South Sudan. Beyond these few activities, there are few intermediaries and service providers active in country.

37 US Department of State, 2013 Investment Climate Statement-South Sudan, available at http://www. state.gov/e/eb/rls/othr/ics/2013/204855.htm. 38 Ibid. 39 Ibid. 40 World Bank Group, The Republic of South Sudan- Regulatory Reform Status, available at https://www. wbginvestmentclimate.org/advisory-services/regulatory-simplification/business-regulation/upload/ Country-Presentations-South-Sudan.pdf. 41 Deloitte, International tax – South Sudan Highlights 2014, available at http://www2.deloitte.com/ content/dam/Deloitte/global/Documents/Tax/dttl-tax-southsudanhighlights-2014.pdf. 42 US Department of State, 2013 Investment Climate Statement-South Sudan, available at http://www. state.gov/e/eb/rls/othr/ics/2013/204855.htm.

SOUTH SUDAN • 241 CHALLENGES AND OPPORTUNITIES FOR IMPACT INVESTORS

Challenges

Current and potential impact investors in South Sudan face many challenges entering the market and sourcing high potential opportunities:

• Political risk and insecurity: Given ongoing civil conflict and recurring disagreements with Sudan, South Sudan continues to have high insecurity and instability, limiting the ability of investors to deploy capital.43 Beyond the direct threat of violence and difficulty operating in an insecure environment, the significant internal displacement—more than one million people have been displaced44—makes it difficult for businesses to establish reliable consumer bases and scale operations in order to be attractive for investors, whether conventional or impact.

• Underdeveloped financial and regulatory structures: South Sudan’s poorly developed institutions and regulations make it challenging for impact investors to operate in the country. Constraints include limited government data, poorly enforced regulations, lack of a credit reference bureau, and minimal documentation to prove land ownership. South Sudan’s government has not yet instituted regulations to provide sufficient protection for lenders, making financiers reluctant to extend loans. Not only does South Sudan have an insufficient regulatory framework to support the private sector, it is also often challenging for entrepreneurs and investors to develop a full understanding of current legislation.45

• Limited talent pool: The lack of human capital is a consistent challenge throughout East Africa, and it is particularly acute in South Sudan. After decades of conflict and instability, South Sudan’s education system has noticeably suffered. The country has one of the lowest literacy rates in the world, making it difficult to source qualified staff to scale. In addition, businesses’ access to foreign talent is limited due to an unofficial expectation that 70-90% of positions in all companies be held by South Sudanese citizens.46

43 Peace security and Development Network, Public Private Cooperation in Fragile States Country report: Southern Sudan (2009), available at http://www.clingendael.nl/sites/default/files/20090900_ report_cru_southern_sudan.pdf. 44 “South Sudan Profile,” BBC (6 August, 2014), available at http://www.bbc.com/news/world-africa-14019202. 45 US Department of State, 2013 Investment Climate Statement-South Sudan, available at h ttp://www.state.gov/e/eb/rls/othr/ics/2013/204855.htm. 46 Ibid.

242 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Opportunities

While hurdles exist for impact investors interested in Sudan, there are also opportunities for investors to deploy capital to provide financial returns while driving economic growth and long-term development:

• Leverage technical assistance (TA) facilities for pre-investment pipeline building: Given South Sudan’s economic challenges, impact investors will continue to struggle to find businesses suitable for investment. Several impact investors have successfully developed TA facilities for portfolio companies within the region, and this will be especially important to address the lack of talent in South Sudan.

• Infrastructure development: As recently as 2011, South Sudan had approximately 60 miles of paved roads, severely limiting the ability to move goods and human capital through the country.47 Investors could partner with DFIs and other stakeholders to support infrastructure development efforts in roads, electricity, and other sectors, which will lead to long-term economic growth and the introduction of new businesses.

In addition, several sectors are ripe for the development of new businesses and could present viable opportunities for investment:

• Agriculture: Agriculture remains an underdeveloped sector in South Sudan with considerable potential. Roughly half of the country’s land is arable (approximately 41 million hectares), but the effects of war and minimal investment have left crop yields vulnerable to climate conditions and natural disasters. Most agriculture is subsistence farming with little commercial activity; these crops could benefit significantly from modern technologies and crop management practices. Investments in commercial agriculture, mechanization, input supply, technical assistance, and outgrower schemes would help develop the industry and provide greater food security.48

• Telecommunications: As South Sudan develops, a strong telecommunications sector is increasingly important for industry and government. Between 2010 and 2013, the number of mobile subscribers grew approximately 24% annually, nearly doubling from 1.5 million to 2.5 million over the period. Despite this strong growth, South Sudan currently lacks the infrastructure to reach the 80% of the population that lives outside major urban areas. Zain, a Kuwaiti company and one of South Sudan’s leading mobile providers, estimates that the percentage of South Sudanese with mobile phones will grow from 13% to 36% over the next four years. With limited access to the formal financing sector, increasing use of mobile phones may facilitate access to mobile money, with important consequences for

47 “South Sudan Faces Hurdles as World’s Newest Country,” International Monetary Fund (July 18, 2011), available at http://www.imf.org/external/pubs/ft/survey/so/2011/car071811a.htm. 48 Peace security and Development Network, Public Private Cooperation in Fragile States Country report: Southern Sudan (2009), available at http://www.clingendael.nl/sites/default/files/20090900_ report_cru_southern_sudan.pdf.

SOUTH SUDAN • 243 commerce.49 Multiple phone companies currently operate in South Sudan, but none currently offer mobile money services.

• Renewable energy: With the lowest per capita electricity consumption in Africa, South Sudan’s energy industry is sorely in need of development and investment. South Sudan’s electricity grid reaches only 1% of the population. Firewood and charcoal serve as the primary means to heat and cook for 96% of the population, presenting an opportunity for solar energy and other low-cost renewables. South Sudan has plans to dramatically increase power generation capacity (20 MW at time of writing), including a 38 MW hydropower plant to be completed in 2016, and the 540 MW Bedden Dam hydropower plant expected to cost USD 1.4 billion. South Sudan also received a USD 26 million grant from the African Development Bank (AfDB) in 2013 to expand the country’s electricity distribution infrastructure.50

• Industrial diversification: Despite its importance to the economy, South Sudan has a limited reserve of oil. The World Bank estimates that the country’s oil reserves will steadily decline until exhausted in 2035.51 Other promising sectors include forestry, infrastructure, transportation, tourism and hospitality, health, manufacturing services, and mining.52

49 HumanIPO, “Top network operators see South Sudan as next big mobile-money zone,” HumanIPO (Jul. 20, 2012), available at http://www.humanipo.com/news/965/top-network-operators-see-southsudan-as-next-big-mobile-money-zone/. 50 U.S. Energy Information Administration, “Sudan and South Sudan,” U.S. Energy Information Administration (September 3, 2014), available at http://www.eia.gov/countries/cab.cfm?fips=SU. 51 The World Bank, “South Sudan Overview,” The World Bank (Oct. 10, 2014), available at http://www. worldbank.org/en/country/southsudan/overview#1. 52 Peace security and Development Network, Public Private Cooperation in Fragile States Country report: Southern Sudan (2009), available at http://www.clingendael.nl/sites/default/files/20090900_ report_cru_southern_sudan.pdf.

244 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA SUDAN DIVERSIFYING BEYOND OIL, BUT STILL CHALLENGING FOR INVESTORS

SUDAN • 245 INTRODUCTION

Sudan is East Africa’s second biggest economy, rich in natural resources, such as gold, that have fueled growth. However, its history is marked by internal conflict, culminating in the secession of South Sudan in 2011. Sudan lost the majority of its oil reserves in the split, and is still recovering from economic shock, which precipitated an increased fiscal deficit, high inflation, and depreciation of the Sudanese Pound.

Like many frontier economies in the region, there has been little recorded impact investment by private investors in Sudan to date. Most impact capital has been placed by development finance institutions (DFIs),1 which have funded a number of projects in oil, infrastructure, and agricultural processing. Sudan’s financial sector is poorly developed by regional standards. Banks are the primary source of financing, yet most are small, risk-averse, undercapitalized, and concentrated in major cities.

FIGURE 1: MAP OF SUDAN

SUDAN

246 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA COUNTRY CONTEXT

Sudan gained independence in January 1956. The country has been at war internally for the better part of its existence, rooted in the cultural and religious divide between the Islamic North and Christian South.2 Between 1983 and 2005, Sudan was embroiled in a civil war that left two million people dead and four million displaced. The conflict was primarily between the Khartoum-based government in the north and the Sudanese People’s Liberation Army (SPLA), which sought control of oil-rich southern Sudan. The war culminated in South Sudan’s secession in July 2011—the final stage of a six-year peace agreement that ended decades of civil war.3

Despite popular support for secession,4 relations between the two countries have remained tense due to disputes over border demarcation, security arrangements, and oil resources. Secession severely affected Sudan’s economy, as 75% of the country’s oil resources were lost to South Sudan. Sudan also lost 36% of its budget revenue, more than 65% of foreign exchange earnings, and 80% of total exports.5

Despite the government’s best efforts, the threat of terrorism throughout Sudan remains high—particularly in the Darfur region. Clashes between militia groups and Sudanese military forces occur sporadically along the border with Chad. There are also hostilities between Sudanese forces and armed opposition groups in Blue Nile and Southern Kordofan states, as well as in Abyei, a disputed oil rich region to which South Sudan also lays claim.6

2 “The History of Sudan,” Fact Rover, available at http://www.factrover.com/history/Sudan_history. html. 3 “Sudan: Conflict Profile,” Insight on Conflict (March, 2014) available at http://www.insightonconflict. org/conflicts/sudan/conflict-profile/. 4 “South Sudan Profile,” BBC News (Aug. 6, 2014), available at, http://www.bbc.com/news/world- africa-14069082. 5 “Struggling Sudanese economy,” CMR Michelsen Institute (Jan. 29, 2014), available at http://www.cmi. no/news/?1137=struggling-sudanese-economy. 6 “2013 Investment Climate Statement: Sudan,” U.S. Department of State (April, 2013), available at http://www.state.gov/e/eb/rls/othr/ics/2013/204736.htm.

SUDAN • 247 Gross Domestic Product

In spite of ongoing conflict and other challenges, Sudan’s economy has grown consistently, averaging approximately 5% annual GDP growth over the past decade (Figure 2). In 2013, the Sudanese economy recorded GDP of USD 90.5 billion at purchasing power parity (PPP), making Sudan’s economy second in size only to Ethiopia’s in East Africa in PPP terms, and first in current price terms. Sudan’s GDP per capita of USD 2,631 is about 60% higher than the Sub-Saharan average of USD 1,615 per capita,7 and has earned it the World Bank’s “lower-middle-income” classification.8

FIGURE 2: GDP (PPP), 2004–2013

USD BILLIONS Sudan averaged ~5% annual 100 GDP growth for last 10 years.

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: IMF World Bank Economic Indicators, April 2014

Agriculture is the primary source of income and employment for most Sudanese people, with 80% of the population engaged in agriculture.9 Sudan’s primary agricultural outputs include sugarcane, sorghum, onions, groundnuts, and milk (both cow and goat). With 6.8 million metric tons of sugarcane produced in 2013, Sudan is the third largest sugar cane producer in Africa behind South Africa and Egypt.10 Many large investments by development finance institutions (DFIs) in Sudan have aimed to support its growing sugar industry. The nation also produced 4.5 million metric tons of sorghum in 2013, second only to Nigeria in Africa. Sudan’s major agricultural exports include sesame seed, cotton lint, mutton, vegetable produce, and sorghum.11 Major export markets for Sudanese goods include the United Arab Emirates, China, Japan, India, and Canada.12

7 “Sub-Saharan Africa-developing only,” The World Bank Group (2014), available at http://data. worldbank.org/region/SSA. 8 World Economic Outlook Database, International Monetary Fund (Oct. 2014) available at http://www. imf.org/external/pubs/ft/weo/2014/02/weodata/WEOOct2014all.xls. 9 “Economy,” Sudan Hub Group, available at http://www.sudanhub.co.uk/sudan-overview/economy/. 10 FAOSTAT, Food and Agriculture Organization of the United Nations (2011), available at http://faostat3. fao.org/download/Q/QC/E. 11 FAOSTAT, Food and Agriculture Organization of the United Nations (2011), available at http://faostat. fao.org/site/339/default.aspx. 12 “Sudan Profile of Exports, Imports and Trade partners,” Observatory of Economic Complexity, available at http://atlas.media.mit.edu/profile/country/sdn/.

248 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Foreign Direct Investment (FDI)

Sudan has been subject to comprehensive United States-led economic, trade, and financial sanctions since 1997, limiting aid and investment from the West.13 These sanctions were imposed as a result of the government’s links to international terrorist organizations. Subsequent sanctions were imposed in May 2007 in response to ethnic violence in the Darfur region.14

Despite international sanctions, FDI in Sudan has steadily grown over the last ten years, doubling from USD 1.5 billion in 2004 to USD 3.1 billion in 2013 (Figure 3), the most FDI received by any country in the region.15 These large inflows equal 3.4% of GDP, the second highest FDI to GDP ratio in the region after Djibouti’s (11.4%).16

FIGURE 3: FDI FLOWS, 2004–2013

USD BILLIONS 4

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: UNCTAD

Foreign investors have mainly been drawn to Sudan’s extractive industries, with oil and mining attracting 74% of FDI between 2000 and 2010. Asian countries, namely China, Malaysia, and India, are the biggest investors in Sudan’s oil sector, and account for more than 95% of FDI oil inflows.17

13 “Sudan, US-Sudan relations”, Embassy of the United States – Khartoum, available at http://sudan. usembassy.gov/ussudan_relations.html. 14 UC Regent, Understanding Sudan: The Sanctions Regime (2009), available at http:// understandingsudan.org/Oil/OilResources/L2FS4-SanctionsRegime.pdf. 15 Inward and Outward Foreign Direct Investment Flows: Annual 1970-2013, United Nations Conference on Trade and Development, available at http://unctadstat.unctad.org/wds/TableViewer/tableView. aspx?ReportId=88. 16 Open Capital Advisors analysis. 17 Hassan Ali Gadkarim, CMR Michelsen Institute, Will the Sudanese Paradox Continue? (2012), available at http://www.cmi.no/publications/file/4595-will-the-sudanese-paradox-continue.pdf.

SUDAN • 249 With most Western countries barred from investing in Sudan, foreign investment in Sudan’s non-oil sectors has primarily come from the Arab Gulf. Sudan’s biggest sources of non-oil FDI are Kuwait, Saudi Arabia, and the United Arab Emirates (Figure 4).18 Of Sudan’s non-oil sectors, services (17% of FDI inflows) have been most attractive to foreign capital, followed by industry (8%) and agriculture (1%). In the services sector, banking and telecommunications have received the most FDI, followed by construction and contracting, tourism, and transport.19

FIGURE 4: FDI INFLOWS TO NON-OIL SECTORS BY COUNTRY OF ORIGIN

100% Others 90% Jordan 80% South Africa 70% United Arab Emirates 60% Saudia Arabia 50% Kuwait 40% 30% 20% 10% 0%

Source: Ministry of Investment, Sudan

18 Hassan Ali Gadkarim, CMR Michelsen Institute, Will the Sudanese Paradox Continue? (2012), available at http://www.cmi.no/publications/file/4595-will-the-sudanese-paradox-continue.pdf. 19 Ibid.

250 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Inflation and Exchange Rates

The loss of oil revenues dealt a significant blow to Sudan’s economy and state revenues. The government implemented a variety of austerity measures to curb the increasing fiscal deficit—which rose from 2.7% of GDP in 2010 to 5.0% in 201120— including the removal of fuel subsidies and a devaluation of the Sudanese Pound, which cut the fiscal deficit to 1.7% of GDP in 2013.21 In spite of this reduction, inflation continues to remain high (Figure 5). In 2010, inflation averaged 13%, yet by 2013 the annual average rate was as high as 37%.22 The high rate in 2013 was driven by high debt, high fuel prices, and the devaluation of the Sudanese Pound. Ongoing disinflation efforts are expected to lower the inflation rate, with the 2015 forecast set at 23.2%.23

FIGURE 5: INFLATION AND USD/SDG EXCHANGE RATE, 2004-2013

USD/SDG 40% USD/SDG exchange rate 6 35% Inflation 30% Loss of oil revenue after South 5 Sudan secession severely affected inflation and exchange rates 25% 4 20% 3 15%

10% 2 5% 1 0% 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: IMF World Bank Economic Indicators, April 2014

A USD shortage in 2012 led the government to devalue the Sudanese Pound in an effort to stabilize the exchange rate and curb black market trading of the dollar. This further increased inflation and import prices.24 Government intervention in Sudan’s foreign exchange markets generally creates uncertainty for investors who seek to import inputs or repatriate profits.

20 AfDB, OECD, UNDP and UNECA, African Economic Outlook 2012: Sudan (2012), available at http://www.youthpolicy.org/national/Sudan_2012_Youth_Unemployment_Briefing.pdf. 21 Yousif M.A. Bashir Eltahir, Suwareh Darbo & Kabbashi M. Suliman, African Development Bank, African Economic Outlook: Sudan (2014), available at http://www.africaneconomicoutlook.org/ fileadmin/uploads/aeo/2014/PDF/CN_Long_EN/Soudan_EN.pdf. 22 International Monetary Fund, IMF Country Report: Sudan (Oct. 2013), available at https://www.imf. org/external/pubs/ft/scr/2013/cr13317.pdf. 23 Yousif M.A. Bashir Eltahir, Suwareh Darbo & Kabbashi M. Suliman, African Development Bank, African Economic Outlook: Sudan (2014), available at http://www.africaneconomicoutlook.org/ fileadmin/uploads/aeo/2014/PDF/CN_Long_EN/Soudan_EN.pdf. 24 Mohamed Nureldin Abdallah, “Sudan Pound Again Under Pressure After Devaluation,” Reuters (May. 30, 2012), available at http://www.reuters.com/article/2012/05/30/ozabs-sudan-currency- idAFJOE84T08Z20120530.

SUDAN • 251 SUPPLY OF IMPACT INVESTING CAPITAL

There have been no recorded private impact investments in Sudan to date. However, funds that include Sudan in their geographical mandate have approximately USD 565 million of capital committed to the region, which could potentially be disbursed to Sudanese businesses. However, given historical impact capital flows, it is unlikely that much of this will reach Sudan in the near future. Sanctions imposed by the United States and the United Nations, along with Sudan’s history of conflict, have generally prevented Western investors from engaging in the country.

Broader Investing Landscape

Banks dominate Sudan’s financial sector and have more than USD 17 billion in outstanding loans and advances (Figure 6).25 Sudan’s banking system follows Islamic sharia law, which prohibits interest on debt. Instead, the banking sector relies on partnership and risk sharing. Frequently used financial products include Mudarabah (passive partnership), Musharakah (active partnership), Murabaha (sale contract at a profit markup), and Salam (forward sale contract).26

FIGURE 6: IMPACT CAPITAL RELATIVE TO OTHER FINANCIAL ASSETS

USD BILLIONS 20 17.2

15 Banking sector total assets Non-DFI impact investors 10 total capital committed

5 0.6 0 TOTAL ASSETS

Source: Central Bank of Sudan, Open Capital Research

25 Bank Audi, Sudan Economic Report (2010), available at https://www.google.com/url?sa=t&rct =j&q=&esrc=s&source=web&cd=4&cad=rja&uact=8&ved=0CDUQFjAD&url=http%3A%2F%2F www.banqueaudi.com%2FGroupWebsite%2FopenAudiFile.aspx%3Fid%3D1980&ei=QLmGVN WWBYq8UffXg5gK&usg=AFQjCNE7lQviz-EoMJO26pB-qCjss1zxBg&bvm=bv.81449611,d.d24. 26 Al Siddig Talha Mohamed Rahma, The National Ribat University: Sudan, The Sudanese Islamic Banking Experience (2011), available at http://www.slideshare.net/alhudacibe/the-sudanese-islamic- banking-by-al-siddig-talha-mohamed.

252 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA In 2013, 23 MFIs active in Sudan reached more than 700,000 people. While this was a 43% increase from 2012, it represents less than 2% of Sudan’s population.27 Access to microfinance has grown steadily, though Sudan still lags behind other countries in the region. The government sees microfinance as a poverty alleviation tool and currently requires commercial banks to allocate 12% of their capital for microfinance loans. Overall, there is a strong demand for microfinance services, as most Sudanese lack access to formal and informal credit; this could potentially be a large untapped market for impact investors.28

Following the loss of large oil reserves and oil revenues in 2011, the government has sought to increase investments in other sectors, such as mining and agriculture, to expand its revenue sources.29 In agriculture, the government has identified several commodities—including sugar, leather, and edible oils—to promote through tax breaks and foreign exchange allocations. As a result, the country’s agricultural sector has attracted USD 230 million in greenfield investments30 from Saudi and Qatari investors since 2013.31

27 Suna,”SDG 2 billion Allocated to Microfinance,”Sudan Vision Daily (Mar. 17, 2014), available at http:// news.sudanvisiondaily.com/details.html?rsnpid=233421. 28 “Doing Business for Sudan’s Poorest,” The World Bank Group (Apr. 4, 2013), available at http://www. worldbank.org/en/news/feature/2013/04/04/building-businesses-for-sudan-s-poorest. 29 KPMG Africa, Country Profile: Sudan (2014), available at http://www.kpmg.com/Africa/en/KPMG- in-Africa/Documents/2012-2013%20Country%20Profiles/Sudan%20Country%20Profile_2012-2013. pdf. 30 A greenfield investment is one in which the investor starts a new venture in a foreign country by constructing new facilities from the ground up, rather than investing in an existing company. 31 Yousif M.A. Bashir Eltahir, Suwareh Darbo & Kabbashi M. Suliman, The African Development Bank, African Economic Outlook: Sudan (2014), available at http://www.africaneconomicoutlook.org/ fileadmin/uploads/aeo/2014/PDF/CN_Long_EN/Soudan_EN.pdf.

SUDAN • 253 Impact Capital Disbursed

At least 48 impact funds operating in the region list Sudan as one of their geographical focus countries. While there is no record of impact funds disbursing capital in Sudan, development finance institutions (DFIs) have disbursed at least USD 61 million to projects in Sudan despite the difficult investment climate.32 With their strong relationships to governments and global brands, DFIs seem to be more able to engage in difficult environments such as Sudan. However, there have been limited investments to date; the USD 61 million disbursed to date has been by one DFI across three investments in the sugar processing industry.

FIGURE 7: TOTAL DFI DIRECT INVESTMENTS

Capital disbursed Deals

DFI usd 61 Million 3

Source: Open Capital Research

Instrument

The three aforementioned DFI investments were all via debt, but with so few data points it is difficult to reach any conclusions about preferred investment instruments. It is worth noting that Sudan has stringent laws in place which make foreign equity ownership difficult and may lead investors to opt for debt instruments, as long as these are compatible with Islamic financing laws.33

32 Due to the unique nature and large size of development finance institutions (DFIs), the authors of this report analyzed their activity separately from those of other types of impact investors (“non- DFI”), and present this separate analysis when appropriate. See the Introduction and Methodology section of this report for more details. 33 “Starting a Foreign Business in Sudan,” Afribiz (Sep. 1, 2010), available at http://www.afribiz.info/ content/2010/starting-a-foreign-business-in-sudan.

254 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA DEMAND AND NEED FOR IMPACT INVESTING CAPITAL

Sudan’s oil wealth has not reached the vast majority of its population. Many Sudanese lack access to basic goods and services and functioning infrastructure. Provided the government can stabilize the country, minimize conflict, and foster a stable business environment, these gaps represent opportunities for the development of a variety of businesses.

Development Context

Although Sudan has experienced constant economic growth in the last decade, social conditions, as represented by the country’s human development indicators, have stagnated. Sudan’s UN Human Development Index (HDI) score of 0.47 in 2013 is on par with the regional average of 0.46, but well below the global average of 0.69 (Figure 8).34 With this score, Sudan ranks 166th out of 187 countries and falls in the low human development category despite Sudan’s high GDP per capita, nearly 60% higher than the average in sub-Saharan Africa.35

FIGURE 8: UN HDI SCORES, 2008-2013

UN HDI 0.8 0.7 0.6 Global average 0.5 Sudan 0.4 0.3 0.2 0.1 0.0 2008 2009 2010 2011 2012 2013

Source: UN Human Development Report 2014. Note: 2014 report does not include 2009 HDI scores. 2009 scores shown are calculated as an average of 2008 and 2010 scores

34 Human Development Statistics Tables, United Nations Development Programme (2014), available at http://hdr.undp.org/sites/default/files/hdr14_statisticaltables.xls. 35 Sub-Saharan Africa (Developing Only), The World Bank Group, available at http://data.worldbank. org/region/SSA.

SUDAN • 255 This low ranking is reflected in key development indicators such as poverty, health, and education. Approximately 47% of the population lives on less than USD 1.25 per day, on par with the East African average of 49% yet more than twice the global average (Figure 9).36 Poverty rates are substantially higher in Sudan’s rural areas, with 58% of households living below the poverty line compared to 27% in urban areas.37

Sudan’s health indicators are also far behind global standards. Sudan’s under-5 mortality rate is 73 per 1,000 births, more than twice the global average of 30 but slightly better than the regional average of 80 (Figure 10).38 Sudan’s rate of stunting is more favorable at 35%, which is lower than the East Africa average of 40%.39

FIGURE 9: POPULATION BELOW USD 1.25/DAY FIGURE 10: UNDER-5 MORTALITY AND STUNTING (LATEST AVAILABLE DATA POINT) (LATEST AVAILABLE DATA POINT)

UNDER-5 DEATHS PER 60% POP 1,000 BIRTHS STUNTED 40% 90 40% Global Global averages 20% 60 average 20% Under-5 0% 30 mortality SUDAN 0 0% Stunting SUDAN

Source: UN Human Development Report 2014 Source: UN Human Development Report 2014

36 Human Development Statistics Tables, United Nations Development Programme (2014), available at http://hdr.undp.org/sites/default/files/hdr14_statisticaltables.xls. 37 International Monetary Fund, Sudan: Interim Poverty Reduction Strategy Paper (2013), available at http://www.imf.org/external/pubs/ft/scr/2013/cr13318.pdf. 38 Human Development Statistics Tables, United Nations Development Programme (2014), available at http://hdr.undp.org/sites/default/files/hdr14_statisticaltables.xls. 39 Ibid.

256 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Education indicators are similarly discouraging. Only 16% of the population has received some form of secondary education, three times less than the global average, though on par with the regional average of 15% (Figure 11).40 Of those who are of secondary school age, only 37% are currently enrolled in secondary school, which is slightly above the East African average of 33% but much less than half the global average of 80%.41

FIGURE 11: KEY EDUCATION INDICATORS (LATEST AVAILABLE DATA POINT)

100% Global averages 80% Secondary 60% gross enrollment Pop with some 40% secondary education 20%

0 SUDAN

Source: UN Human Development Report 2014

40 Human Development Statistics Tables, United Nations Development Programme (2014), available at http://hdr.undp.org/sites/default/files/hdr14_statisticaltables.xls. 41 Ibid. SUDAN • 257 Like most countries in the region, Sudan’s population is very young: around 62% of the population is aged 24 years and below (Figure 12).42 With low levels of education and ongoing conflict, Sudan’s youth have struggled to find employment, resulting in a youth unemployment rate of approximately 24% since 2010.43 However, with adequate investment in education, health, and social services, this group could drive future economic growth in Sudan.

FIGURE 12: POPULATION BY AGE AND GENDER

AGE 100+ 95-99 90-94 85-89 80-84 75-79 70-74 65-69 Male 60-64 Female 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4

3 2 1 0 0 1 2 3

POPULATION POPULATION (MILLIONS) (MILLIONS)

Source: UN ESA, World Population Prospects

42 2012 World Population Prospects, United Nations Department of Economic and Social Affairs (2012), available at http://esa.un.org/wpp/Excel-Data/EXCEL_FILES/1_Population/WPP2012_POP_ F07_1_POPULATION_BY_AGE_BOTH_SEXES.XLS. 43 “Unemployment, Youth Total (% of Total Labor Force Ages 15-24)”, The World Bank Group, available at http://data.worldbank.org/indicator/SL.UEM.1524.ZS.

258 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA A challenging demographic trend is Sudan’s ongoing migration. More than 94,000 workers left Sudan in 2012, up from 10,000 workers in 2008. The majority are seeking employment abroad in medical and technical fields.44 Common destinations for migrants include Saudi Arabia, Kuwait, United Arab Emirates, and Qatar. Many of these migrant workers send remittances back to Sudan, totaling USD 1.1 billion in 2012, which helped offset the country’s widening trade deficit.45 Nevertheless, prolonged migration of skilled workers could present a serious problem for investors and entrepreneurs in Sudan as it limits the availability of skilled and educated talent.46

Entrepreneurs

Sudan is a challenging environment for entrepreneurs. It ranks 160th out of 189 countries in the 2015 World Bank’s Ease of Doing Business rankings, a decline from 153rd in 2014. Access to credit in Sudan can be especially challenging for entrepreneurs and others as Sudan’s bankruptcy and collateral laws do not generally favor borrowers. Sudan has, however, made some improvements that may enhance access to credit, including the establishment of a private credit bureau.47

Increasing costs for inputs, labor, and distribution present additional challenges for Sudanese enterprises. Imported inputs are particularly expensive due to rising exchange rates and high import duties of up to 40%.48 In 2012, the government raised the minimum wage by almost a factor of three, which has increased labor costs for businesses.49,50 Poor infrastructure throughout the country further increases the cost of doing business, especially outside Sudan’s main urban areas.

44 “Thousands Flee Crisis-Hit Sudan In ‘Brain Drain’,” Gulf News (Mar. 7, 2013), available at http:// gulfnews.com/news/region/sudan/thousands-flee-crisis-hit-sudan-in-brain-drain-1.1155315. 45 “Remittance Flows Worldwide in 2012,” Pew Research Center’s Social & Demographic Trends Project (Feb. 20, 2014), available at http://www.pewsocialtrends.org/2014/02/20/remittance-map/. 46 Ulf Laessing, “Tired of Economic Crisis, Sudanese Try Luck Abroad,” Reuters (May. 15,2013), available at http://in.reuters.com/article/2013/05/15/us-sudan-emigration-idINBRE94E0OY20130515. 47 The World Bank, Doing Business 2015: Going Beyond Efficiency: Economy profile 2015 (2014), available at http://www.doingbusiness.org/data/exploreeconomies/sudan/~/media/giawb/doing%20 business/documents/profiles/country/SDN.pdf?ver=2. 48 Yousif M.A. Bashir Eltahir, Suwareh Darbo & Kabbashi M. Suliman, The African Development Bank, African Economic Outlook: Sudan (2014), available at http://www.africaneconomicoutlook.org/ fileadmin/uploads/aeo/2014/PDF/CN_Long_EN/Soudan_EN.pdf. 49 “Cash-starved Sudan to double minimum wage,” (Dec. 30, 2012), available at http://www.dailystar. com.lb/News/International/2012/Dec-30/200394-cash-starved-sudan-to-double-minimum-wage. ashx#axzz3KFVwiq4y. 50 “Sudanese president officially signs off on increasing minimum wage,” Sudan Tribune (Oct. 3, 2013), available at http://www.sudantribune.com/spip.php?article48307.

SUDAN • 259 ENABLING IMPACT INVESTING: THE ECOSYSTEM

Even though Sudan has a challenging regulatory environment, the rapidly growing economy may begin to support an active ecosystem over time.

Regulatory Environment

The Sudanese government has attempted to develop a regulatory framework to support the development of trade and enterprise. However, numerous regulations still limit foreign investment, including restrictions on foreign exchange and foreign entry into certain sectors:

• Sanctions: Sudan remains subject to economic, trade, and financial sanctions imposed by the United States and the UN. While not all countries have complied with the sanctions—for instance, Sudan has increased trade with Asia and borrowing from Gulf States51—they nevertheless limit opportunities for investors and entrepreneurs.

• Repatriation of profits and dividends: Sudan’s 2013 Investment Act permits foreign and domestic entities to repatriate capital and profits from business operations in Sudan. However, the law requires that investors open investment accounts at the Central Bank of Sudan (CBOS) before they enter into business. The CBOS must subsequently approve transfer of foreign currency from Sudan. In some instances, the government has restricted repatriation of profits as a means to manage foreign exchange deficits, thus posing a risk for international investors.52 Some foreign investors working on large projects have attempted to mitigate this by establishing preemptive contracts with the government clearly defining capital repatriation terms.53

• Foreign exchange controls: Given the importance of oil to Sudan’s economy and government revenues, reductions in the price of crude oil coupled with the effects of the global financial crisis of 2008 have led to shortages of public foreign exchange reserves. As a result, the government has significantly tightened conversion and transfer policies. 54 Even though foreigners are permitted to hold foreign currency accounts in commercial banks, access to foreign currency can often be delayed or limited. It is not unusual for the government to abruptly

51 Katrina Manson, “US Sanctions take toll on Khartoum,” Financial Times (Jul. 23, 2014), available at http://www.ft.com/intl/cms/s/0/96af3278-d1a5-11e1-bbbc-00144feabdc0.html#axzz3K49aEbbL. 52 “Zain Sudan repatriated part of its profit abroad in 2012,” Sudan Tribune (Mar. 21, 2013), available at http://www.sudantribune.com/spip.php?article45919. 53 “Lebanese firm to invest $800M in Sudan agriculture project,” Al Arabiya (May 23, 2013), available at http://english.alarabiya.net/en/business/economy/2013/05/23/Lebanese-firm-invests-800m-in- Sudan.html. 54 KPMG, Country Profile: Sudan (2014), available at http://www.kpmg.com/Africa/en/KPMG-in- Africa/Documents/2012-2013%20Country%20Profiles/Sudan%20Country%20Profile_2012-2013.pdf.

260 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA change policies on currency access and conversion, creating uncertainty and risk for investors.55

• Land ownership: While Sudan permits the purchase of privately or publicly held land, sales have been rare to date. Sudan’s policies governing land lease place no restrictions on the amount or duration; however, any transfers of a lease must receive government approval.56 Sudan’s government has tried to attract foreign investors by providing access to land while retaining ownership. These allocations include 25,000 hectares to Jordan and 690,000 hectares to South Korea for wheat farming in 2008.

• Local ownership requirements: Foreign investors do not need a local partner or sponsor,57 and companies operating in Sudan may be 100% foreign owned.

• Restrictions by sector and instrument: Although Sudan’s government has attempted to open the economy to foreigners and has no local ownership requirements, it maintains restrictions on foreign equity ownership in certain sectors. Foreigners are not permitted to invest in railway freight transportation, airport operation, television broadcasting, and newspaper publishing. Other sectors such as telecommunications, electricity, and financial services also have restrictions on foreign ownership.58

• Government enterprises: Sudan’s government operates enterprises across several sectors, which can distort markets and impede market entry of new businesses. The government announced a privatization campaign in 2011 but has yet to enact this in practice.59 Examples of state-owned businesses can be found in financial services,60 air travel,61 rail travel,62 television,63 and print media.64

• Government control of the internet: While internet use and penetration have increased in Sudan, the Sudanese government has instituted controls on internet

55 US Department of State, 2013 Investment Climate Statement-Sudan (2013), available at http://www. state.gov/e/eb/rls/othr/ics/2013/204736.htm. 56 KPMG, Country Profile: Sudan (2014), available at http://www.kpmg.com/Africa/en/KPMG-in- Africa/Documents/2012-2013%20Country%20Profiles/Sudan%20Country%20Profile_2012-2013.pdf. 57 “African Empowerment Policies Compared,” Lex Africa (Aug. 2010), available at http://www.lexafrica. com/news-african-empowerment-policies-compared. 58 “Starting a Foreign Business in Sudan,” Afribiz (Sep. 1, 2010), available at http://www.afribiz.info/ content/2010/starting-a-foreign-business-in-sudan. 59 US Department of State, 2013 Investment Climate Statement: Sudan (2013), available at http://www. state.gov/e/eb/rls/othr/ics/2013/204736.htm. 60 “Sudan Names New Central Bank Governor,” Islamic Finance (Dec. 16, 2013), available at http://www. islamicfinance.de/?q=node/5872. 61 Ulf Laessin, “Sudan Dreams Big With New Airports Despite Crashes,” The Globe and Mail (Oct. 31, 2012), available at http://www.theglobeandmail.com/report-on-business/international-business/ african-and-mideast-business/sudan-dreams-big-with-new-airports-despite-crashes/article4801520/. 62 “Sudan Railways Corporation,” Institute of Developing Economies, available at http://www.ide.go.jp/ English/Data/Africa_file/Company/sudan05.html. 63 IREX, Media Sustainability Index (2008), available at http://www.irex.org/system/files/2-Africa_08_ sudan.pdf. 64 Stanhope Centre for Communication Policy and Research, Sudan Media Brief, available at http:// www.stanhopecentre.org/training/EA/Sudan.doc.

SUDAN • 261 access and content. These include an Internet Service Control division within the National Telecommunication Corporation whose function is to censor internet content. For instance, it responded to protests in September 2013 by disabling the internet for a day across the country.65

Ecosystem Players

There are very few intermediaries and service providers with offices in Sudan. Most have regional offices and include Sudan as one of the countries they cover. Competitions such as Africa Enterprise Challenge Fund and Global Social Venture Competition will often consider enterprises that are based in Sudan. There are also a mix of accelerators and incubators outside Sudan that consider Sudanese businesses. There are a number of international NGOs with programs in Sudan, including AMREF, World Vision International, Save the Children UK, and Oxfam. All run a wide variety of impact programs in health, education, water, nutrition, and gender issues,66 but do not make investments in Sudanese businesses.

65 Freedom House, Freedom on the Net - Sudan (2013), available at https://freedomhouse.org/report/ freedom-net/2013/sudan. 66 “Profiles of NGOs Operating in Sudan,” Partners and Food in Emergency and Development Aid, available at http://pfeda.univ-lille1.fr/Ethiop/ngopro_su.htm.

262 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA CHALLENGES AND OPPORTUNITIES FOR IMPACT INVESTORS

Challenges

Sudan is a challenging market for private investors and has seen very little impact investing activity as a result. Impact investors considering placing capital in Sudan should be particularly aware of the following constraints:

• Sanctions: As long as Sudan is still subject to economic, trade, and financial sanctions, investors will have limited ability to deploy capital. Growth prospects and return expectations must be tempered for those who do invest in Sudan as sanctions will continue to limit the country’s long-term economic development.

• Limited talent: As the country has been wracked by decades of civil war, much of the population has received inadequate access to education. Without these opportunities, there are a limited number of people with the skills and background required to develop dynamic businesses with the potential to scale and have impact. Many of those with these skills have left Sudan to escape conflict and seek opportunities elsewhere.

• Poor regulatory system: Sudan’s unfavorable regulatory environment makes it challenging to start and grow businesses in the country. Numerous factors, including government restrictions on private entry into certain sectors, insufficient protection for lenders, and endemic corruption need to be resolved to make Sudan a more suitable environment for entrepreneurs and investors.

Opportunities

Even though Sudan’s business environment is challenging, the country’s steady economic growth demonstrates there are opportunities for investors to seek social and financial returns, including:

• Economic diversification: While South Sudan’s secession had a negative impact on the Sudanese economy with the loss of 75% of oil resources and 36% of government revenue, it also presents an opportunity for economic diversification. With reduced oil resources, the government has begun to stimulate other sectors of the economy, which could develop new businesses and investment opportunities for impact investors.

• Investing in technical assistance to build pre-investment pipeline: Sudan has very few intermediaries and service providers providing advisory and business development services to local enterprises. Impact investors could replicate models

SUDAN • 263 in other countries in the region where pre-investment technical assistance has helped businesses grow to investment readiness.

While economic diversification and development of technical assistance in South Sudan are promising for the broader economy as a whole, several sectors present possible opportunities for social enterprise:

• Basic health and education: Sudan’s poor ranking in health, education, and poverty indicators demonstrate that the government has struggled to provide adequate public services, a gap that could be filled by private enterprise. With the right policies in place, these are sectors that could yield double-bottom line returns by improving healthcare outcomes and increasing educational attainment.67

• Agribusiness: Agriculture in Sudan, especially at small scale, remains highly undeveloped. Most agricultural technology deployed in Sudan is focused on industrial crops, neglecting the needs of small-scale farmers. The absence of modern technologies and mechanization is a limiting factor even for commercial agriculture. Businesses providing improved agricultural technology, inputs, and access to credit could help boost productivity and improve economic and nutritional outcomes.68

• Mobile and e-commerce: Mobile and internet penetration in Sudan have grown rapidly over the last decade. The number of mobile phone subscribers grew by approximately 44% annually from 1 million in 2004 to nearly 28 million by 2013. Similarly, more than 22% of Sudan’s population now has internet access, up from less than 1% in 2004. Sudan’s internet penetration rate is now second only to Kenya’s in the region. Entrepreneurs with the right skill sets could capitalize on this growth in connectivity while achieving substantial social impact, for instance with mobile money, mobile insurance, or mobile education products.

67 Human development statistics tables, United Nations Development Programme (2014), available at http://hdr.undp.org/sites/default/files/hdr14_statisticaltables.xls. 68 Abdelrazig Elbashir, et al., Food and Agriculture Organization, Sudan-Poverty Reduction & Programs in Agriculture (2004), available at http://coin.fao.org/coin-static/cms/media/5/12825482911700/ sudan-_poverty_strategy_paper-_agricultural_sector.doc.

264 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA ERITREA A CLOSED ECONOMY, SLOWLY OPENING

ERITREA • 265 INTRODUCTION

Eritrea is one of the world’s most closed economies. It has no constitution, functioning legislature, independent judiciary, elections, independent press, or non-governmental organizations. Eritrea gained independence from Ethiopia in 1993, and has since been ruled by the People’s Front for Democracy and Justice (PFDJ). All power is concentrated in the hands of the government. The PFDJ established a policy of “self- reliance” that restricts foreign investment and aid from foreign organizations on the grounds that these have too many conditions and infringe on national sovereignty.

Due to Eritrea’s closed economy, difficult regulatory environment, and small private sector, there has been no known impact investing in the country to date. Although there are some indicators that the economy is liberalizing and the regulatory environment is improving, Eritrea is still a challenging market for investors.

Eritrean businesses need support to grow and create wealth. The most promising investment areas for future impact investors are agriculture, aquaculture, and tourism. Given the lack of development and sophistication of the private sector, however, investors will likely need to invest in significant technical assistance for their portfolio.

FIGURE 1: MAP OF ERITREA

ERITREA

266 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA COUNTRY CONTEXT

Since gaining independence from Ethiopia in 1993, Eritrea has faced intense economic challenges stemming from a volatile political situation and restrictive economic policies. A former Italian and British colony, Eritrea was established by the United Nations (UN) as an autonomous entity federated within Ethiopia in 1952. A decade later the government of Ethiopia dissolved the Eritrean parliament and annexed the country, triggering a 32-year struggle for independence.

Eritrea declared independence from Ethiopia in 1993 through a UN-sponsored referendum, in which more than 99% of the population voted for independence.1 All power is concentrated in the hands of President Afwerki,2 who has been in power since independence. His party, the PFDJ, is the sole legal political party.3

Relations between Eritrea and Ethiopia were tense in the years following independence, culminating in a border war between the two countries in 1998.4 After several years of mediated efforts to provide an agreeable ruling on the border dispute, a peace agreement was eventually brokered at the end of 2009. However, the two countries disagree on the implementation of the peace plan, and recently both countries remilitarized their borders.5 In 2008, there were clashes along the Eritrea-Djibouti border, and Eritrea was condemned by the international community for initiating hostilities.6 Eritrea has also been accused of supporting armed militant groups in Somalia.

The international community has condemned these conflicts. Shortly after independence in 1992, the UN imposed an arms embargo on Eritrea, and in 2009 the UN Security Council imposed new sanctions against the ruling party’s elites, including an arms embargo, a travel ban, and an asset freeze.7 The sanctions were a result of Eritrea’s support for armed insurgents in Somalia and its refusal to release Djiboutian prisoners of war captured during a 2008 invasion of Djiboutian territory.8

1 Crisis Group Africa, Eritrea: The Siege State (2010), available at http://www.crisisgroup.org/~/media/ Files/africa/horn-of-africa/ethiopia-eritrea/163%20Eritrea%20The%20Siege%20State.pdf. 2 “World Report: Eritrea (2014),” Human Rights Watch, available at http://www.hrw.org/world- report/2014/country-chapters/eritrea. 3 Crisis Group Africa, Eritrea: The Siege State (2010), available at http://www.crisisgroup.org/~/media/ Files/africa/horn-of-africa/ethiopia-eritrea/163%20Eritrea%20The%20Siege%20State.pdf. 4 US Department of State, “A Brief History of Eritrea-Part 1,” about education, available at http:// africanhistory.about.com/od/eritrea/p/EritreaHist1.htm. 5 Habtemicael Weldegiorgis, International Federation of Surveyors, The Cadastral System in Eritrea: Practice, Constraints and Prospects (2009), available at https://www.fig.net/pub/monthly_articles/ september_2009/september_2009_weldegiorgis.pdf. 6 UNSC, “Security Council Committee pursuant to resolutions 751 (1992) and 1907 (2009) concerning Somalia and Eritrea,” UN Site, available at http://www.un.org/sc/committees/751/. 7 Ibid. 8 “World Report: Eritrea (2014),” Human Rights Watch, available at http://www.hrw.org/world- report/2014/country-chapters/eritrea.

ERITREA • 267 Gross Domestic Product

GDP growth in Eritrea has been irregular over the past decade, averaging 3% annually (Figure 2). In 2011, Eritrea recorded an 11% GDP growth rate, making it one of the fastest growing economies in the world.9 This sharp increase in GDP resulted from the commencement of gold production in the country. However, Eritrea’s economic growth rate fell sharply to 1.1% in 2013 following a decline in economic activity in most sectors except mining, as well as a decline in remittances into the country.10 GDP was expected to grow at 1.9% in 2014 from 2013 levels of USD 4.5 billion (PPP).11

FIGURE 2: GDP (PPP), 2004–2013

USD BILLIONS Eritrea has averaged ~3% GDP growth annually for last 10 years 5

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: IMF World Bank Economic Indicators, April 2014

9 “Eritrea Overview (2012),” The World Bank, available at http://www.worldbank.org/en/country/eritrea/ overview#1. 10 Magidu Nyende & Luka Okumu, UNDP, African Economic Outlook (2014), available at http://www. er.undp.org/content/dam/eritrea/docs/MDGs/AfricanEconomicOutlookEritrea2014.pdf. 11 “Eritrea Economic Outlook,” African Development Bank Group (2014), available at http://www.afdb. org/en/countries/east-africa/eritrea/eritrea-economic-outlook/.

268 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Foreign Direct Investment

Mineral production has also boosted foreign direct investment (FDI) inflows into the economy. Between 2011 and 2013, FDI in Eritrea grew by 13% (Figure 3), and FDI inflow is projected to increase again in 2014, with growing interest in the country’s mining sector expected to be the main driver.12 Nevertheless, Eritrea has the second lowest FDI inflows in East Africa, largely due to the country’s isolation from the global community and unstable economy.

FIGURE 3: FDI FLOWS, 2004–2013

USD MILLIONS

100

80 FDI not broad based; mainly channeled to mining industry 60

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: UNCTAD

Historically, diaspora remittances have been an important source of capital. The government has a 2% “recovery and development tax” (or “diaspora tax”) that all Eritreans living abroad are required to pay. In the mid-2000s, these remittances were estimated to account for 20% of GDP.13 However, recent UN sanctions restrict the transfer of this tax due to concerns that the diaspora tax is being used in efforts to destabilize the region (e.g., to purchase arms for opposition groups).14 As a result, remittances declined to 10% of GDP in 2012 and are expected to continue to decline. Effects of the sanctions include a sharp decline in flow of hard currency to the country and a weakening of the country’s overall financial position.15

12 COMESA, Foreign Direct Investment and small and medium enterprise linkages in COMESA (2013), available at http://investmentpolicyhub.unctad.org/Upload/Documents/2013%20COMESA%20 Investment%20Report.pdf. 13 US Department of State, Department of State: 2014 Investment Climate Statement (2014), available at http://www.state.gov/documents/organization/227167.pdf. 14 United Nations, Security Council, by Vote of 13 in Favour, Adopts Resolution Reinforcing Sanctions Regime against Eritrea ‘Calibrated’ to Halt All Activities Destabilizing Region, (2011) available at http:// www.un.org/press/en/2011/sc10471.doc.htm. 15 Magindu Nyende & Luka Okumu, AFDB, African Economic Outlook: Eritrea (2014), available at http://www.africaneconomicoutlook.org/fileadmin/uploads/aeo/2014/PDF/CN_Long_EN/ Erithr%C3%A9e_EN.pdf.

ERITREA • 269 Inflation and Exchange Rates

Inflation is an ongoing problem in Eritrea as the country has averaged double-digit inflation over the past decade. Estimated inflation for 2013 was over 12% and is expected to remain at similar rates in upcoming years.16 The main drivers of inflation have been scarcity-induced rising food prices and ongoing defense expenditures.17

The Central Bank of Eritrea (CBE) was formed in 1994 and is the sole institution in the country providing retail and commercial banking services.18 The bank also controls the state’s foreign exchange policy. For the past decade, Eritrea’s currency, the Nafka, has been pegged at 15 Nafka to the USD, but given inflation, the Nafka is generally believed to be substantially overvalued.19

16 “World Economic Outlook Database,” International Monetary Fund (2013), available at http://www.imf. org/external/pubs/ft/weo/2013/02/weodata/index.aspx. 17 “Eritrea Economic Outlook,” African Development Bank Group (2014), available at http://www.afdb. org/en/countries/east-africa/eritrea/eritrea-economic-outlook/. 18 Bekezela Ncube, Wharton, Eritrea, available at http://fic.wharton.upenn.edu/fic/africa/Eritrea%20Final. pdf. 19 AfDB, OECD, UNDP, UNECA, African Economic Outlook: Eritrea 2012(2012), available at http:// www.youthpolicy.org/national/Eritrea_2012_Youth_Employment_Briefing.pdf.

270 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA SUPPLY OF IMPACT CAPITAL

To date, there has been no known impact investing in Eritrea. This is predominantly due to the same factors that limit general foreign investment in the country: a closed and centrally planned economy, restrictive government policies, and few desirable investment opportunities.

Broader Investing Landscape ERITREA’S SELF-RELIANCE POLICY Eritrea is an incredibly challenging environment for investors, in large part due to its self-reliance Beginning with independence, the government of policy (see text box). Eritrea stopped requesting Eritrea established a policy of strict self-reliance, financial aid from the United States in 2005 and in turning away foreign aid and expelling the UN from 2006 blocked aid from third-party NGOs funded the country. The government has said that it is best by western nations.20 The government, however, qualified to look after the interests of its citizens. The appears to be softening its stance on this in recent government has also accused the UN and the West of years.21 In 2013, the government of Eritrea and failing to resolve the border dispute with Ethiopia. the UN agreed on a four-year USD 188 million cooperation framework for capacity building, food security, environmental improvements, and social services. Under the framework, the UN will provide USD 50 million in grant funding and attempt to raise the remaining money from donor countries.22 Other recent evidence of efforts to drive development include:

• The Global Health Fund provided a government grant to improve basic services.

• The International Fund for Agricultural Development (IFAD) supported the national agriculture project through a USD 17.8 million grant to the national government.

• The Abu Dhabi Fund for Development (ADFD) extended an AED 183.6 million concessionary loan to the government to help meet its budgetary deficit.

• The African Development Bank (AfDB) Group loaned USD 19.2 million to the government to improve equitable access to vocational education and training.

Recent trends in the general investment sector show signs of the economy beginning to liberalize, which may enable impact investors to move into the country. These trends include increasing privatization of state-owned enterprises, gradual opening to foreign investors, and a softening of the government’s self-reliance policy, as well as an increase in private investment, particularly in the mining sector.

20 Mawuna Remarque Koutonin, “We Don’t Want Aid. Please Keep it for Your Local Poor!,” Eritrea- Ministry of Information, (April 18, 2014), available at http://www.shabait.com/categoryblog/16773-we- dont-want-aid-please-keep-it-for-your-local-poor. 21 Edmund Sanders, “Eritrea Aspires To Be Self-Reliant, Rejecting Foreign Aid,” Los Angeles Times (Oct. 2, 2007), available at http://www.latimes.com/world/la-fg-eritrea2oct02-story.html#page=1. 22 “World Report: Eritrea (2014),” Human Rights Watch, available at http://www.hrw.org/world- report/2014/country-chapters/eritrea.

ERITREA • 271 Since 2013, the government has begun privatizing state-owned firms in a plan to encourage private sector participation in the country. In total, 13 large- and medium-sized enterprises were identified for privatization including the Eritrean Telecommunication Company, Asmara Breweries, and the National Insurance Corporation of Eritrea.23 South Africa Breweries is currently in negotiations to acquire Asmara Breweries,24 while the government has already sold part of its stake in the telecommunications business to domestic investors.25

To attract foreign investors, the Eritrean government has developed free trade zones in the port cities of Massawa and Assab. Investors operating in these zones are exempt from paying taxes on profits or dividends. Eritrea also provides relief from duties and taxes on imports that receive value-added processing prior to export.26 The zones allow 100% foreign ownership and repatriation of profits. However, very few foreign companies operate in the zones, which are marred by corruption and alleged smuggling of consumer goods across the border to Sudan.27 Most companies that have expressed interest have been Chinese firms.28

Eritrea is also investing in infrastructure and expanding its road network, particularly to mines and free trade zones.29 The government is strongly encouraging companies and individuals to invest in infrastructure projects, particularly in building residential housing, roads, airports, ports, and hospitals.30

Despite the liberalizing of the economy, accessing capital remains difficult. The central bank controls all retail and commercial activities in the country. The bank holds 90% of the country’s deposits and 80% of private sector claims.31 Collateral requirements can reach 100% of the loan value, which severely limits borrowers. The CBE prefers lending to large state-owned and private manufacturing firms, which are considered low risk, and controls interest rates to meet the country’s development objectives.32

23 “Eritrea to Re-start Aggressive Privatization Program,“ Tefsanews (Dec. 27, 2013), available at http:// www.tesfanews.net/eritrea-to-re-start-aggressive-privatization-program/. 24 “More Foreign Companies are Seeking Business with Eritrea,” Madote (Nov. 23, 2013), available at http://www.madote.com/2013/11/more-foreign-companies-are-seeking.html. 25 “Eritrea Offers Stake in EriTel to Domestic Buyers Only,” Telecompaper (Jan 7, 2013), available at http://www.telecompaper.com/news/eritrea-offers-stake-in-eritel-to-domestic-buyers-only--917220. 26 Eritrea Investment Center, Investment Policies and Opportunities of the State of Eritrea (2003), available at http://www.eritreaembassy-japan.org/data/Investment_Policy_and_Opportunities_of_ the_state_of_Eritrea.pdf. 27 “2012 Investment Climate Statement: Eritrea,” US Department of State, available at http://www.state. gov/e/eb/rls/othr/ics/2012/191144.htm. 28 “2014 Investment Climate Statement: Eritrea”, US Department of State, available at http://www.state. gov/documents/organization/227167.pdf. 29 Magindu Nyende & Luka Okumu, UNDP, African Economic Outlook: Eritrea (2014), available at http://www.er.undp.org/content/dam/eritrea/docs/MDGs/AfricanEconomicOutlookEritrea2014.pdf. 30 Ibid. 31 Bekezela Ncube, Wharton, Eritrea, available at http://fic.wharton.upenn.edu/fic/africa/Eritrea%20 Final.pdf. 32 AfDB, OECD, UNDP, UNECA, African Economic Outlook: Eritrea 2012(2012), available at http:// www.youthpolicy.org/national/Eritrea_2012_Youth_Employment_Briefing.pdf.

272 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Impact Capital Disbursed

Despite the government relaxing its self-reliance policy and an increase in general investment activity, to date there are no documented examples of impact funds investing in Eritrea. There is approximately USD 840 million in committed impact capital from regional investors who consider the entire region, but based on historical deal flow it seems unlikely that much of this capital will flow to Eritrea.

To date, all DFI33 capital disbursed has been to government agencies and programs (as outlined in the ‘Broader investing landscape’ section above) rather than to private sector players. Please see the Introduction and Methodology chapter for more detail on the definition of impact investing used throughout this report.

33 Due to the unique nature and large size of development finance institutions (DFIs), the authors of this report analyzed their activity separately from those of other types of impact investors (“non- DFI”), and present this separate analysis when appropriate. See the Introduction and Methodology section of this report for more details.

ERITREA • 273 DEMAND AND NEED FOR IMPACT INVESTING CAPITAL

Given the poverty levels in the country, many Eritrean businesses implicitly have a social impact by targeting base of pyramid (BoP) consumers, addressing a social need and/or having an impact within the communities in which they operate. Such businesses may be of interest to impact investors.

Development Context

Eritrea is one of the least developed countries in the world, ranked 181st out of 187 countries on the UN’s Human Development Index. It struggles to provide important social services for its population, which is reflected in the country’s HDI score. Although data is only available since 2010, Eritrea’s aggregate HDI score in that time has been no higher than 0.38 (Figure 4), lower than the regional average of 0.43 and far behind the global average of 0.68. It is estimated that more than 53% of Eritreans live under the poverty line, earning less than USD 1.25 per day (Figure 5), while 37% of the rural population lives in extreme poverty.34

FIGURE 4: UN HDI SCORES, 2010-2013

UN HDI

0.8 0.7 0.6 0.5 0.4 0.3 Global average 0.2 Eritrea 0.1 0.0 2010 2011 2012 2013

Source: United Nations Human Development Report 2014

34 WHO, Health Action in Crises: Eritrea (2008), available at http://www.who.int/hac/crises/eri/eritrea_ oct08.pdf.

274 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Eritrea has invested in education since independence and, as a result, literacy rates compare favorably with other East African countries. Gross enrollment in secondary school was 32% in 2010 (Figure 6) compared to 36% in Ethiopia and 28% in Uganda.35

FIGURE 5: POPULATION BELOW USD 1.25/DAY FIGURE 6: SECONDARY SCHOOL (LATEST AVAILABLE DATA POINT) GROSS ENROLLMENT

100%

80% Global 60% 60% average 40% 40% 20% Global average 20% 0% 0% ERITREA ERITREA

Source: World Health Organization Source: UN Human Development Report 2014

35 UNESCO, Education For All Global Monitoring Report, Regional Fact Sheet, Education in Eastern Africa (2013), available at http://unesdoc.unesco.org/images/0021/002193/219351e.pdf. ERITREA • 275 Like the rest of East Africa, Eritrea has a disproportionately young population (Figure 7). Half of its youth are unemployed36 and skills are not being developed to match the demands of the labor market. In addition, the absence of data on youth and labor limits the government’s ability to make informed policy decisions.

FIGURE 7: POPULATION BY AGE AND GENDER

AGE 100+ 95-99 90-94 85-89 80-84 75-79 70-74 65-69 Male 60-64 Female 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4 600 400 200 0 0 200 400 600 POPULATION (MILLIONS) POPULATION (MILLIONS)

Source: UN ESA, World Population Prospects

Eritrea’s mandatory military conscription policy has exacerbated the shortage of young talent. Due to the long-standing conflict with Ethiopia, as well as recent border skirmishes with Djibouti, all Eritrean men and unmarried women under the age of 50 must complete compulsory military service, and are enlisted for indefinite periods. Hundreds of thousands of Eritrea’s most productive workers are employed by the army, with an estimated one in 20 Eritreans living in army barracks.37 As a result, a significant share of the most productive section of Eritrea’s population is committed to compulsory military service, greatly limiting the labor force and weakening the private sector.38

There has been a mass exodus of Eritreans fleeing forced conscription and other human rights violations in the country, further decreasing available labor. Human Rights Watch characterizes human rights conditions in Eritrea as “dismal,” citing

36 AfDB, OECD, UNDP, UNECA, African Economic Outlook: Eritrea 2012, available at http://www.youthpolicy.org/national/Eritrea_2012_Youth_Employment_Briefing.pdf. 37 “National Service in Eritrea, Miserable and Useless,” The Economist, (Mar. 10, 2014), available at http://www.economist.com/blogs/baobab/2014/03/national-service-eritrea. 38 Sally Healy, Chatham House et. al, Eritrea’s Economic Survival (2007), available at https://www.chathamhouse.org/sites/files/chathamhouse/public/Research/Africa/200407eritrea.pdf.

276 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA indefinite military service, extreme restrictions on freedoms of expression and religion, torture, and arbitrary detention as some of the worst offences.39 Since independence, an estimated 6% of the Eritrean population has fled the country and thousands more flee every month—a continuous “brain drain.”40 Among those citizens not in the army or not fleeing the country, there is a dearth of readily apparent entrepreneurs. More than 75% of the population lives in rural villages and there are few support programs or policies that enable citizens to successfully launch a business.41

Entrepreneurs

Ranked last out of 189 countries in the World Bank’s Ease of Doing Business report, Eritrea is not an easy country in which to start or run an enterprise.42 Private sector development has been severely limited by lack of capital, restrictive government policies, and a shortage of talent. As a result, the private sector, including the capital market, is underdeveloped and small.

Access to capital is a major constraint plaguing Eritrea’s private sector. The Eritrean financial services industry is significantly underdeveloped and uncompetitive. The state has a majority stake in the country’s five financial institutions—Central Bank of Eritrea, the Commercial Bank of Eritrea, the Housing and Commerce Bank of Eritrea, the Eritrean Development and Investment Bank, and the National Insurance Corporation of Eritrea—which limits private sector participation.43 The lack of competition means that businesses struggle with low access to credit. Credit supply to the private sector has grown slowly, between 1% and 4% annually over 2009 to 2011.44 Eritrea’s banking sector has stringent collateral requirements and high interest rates, which are administered by the government and typically prohibitively high—often exceeding 30% per annum.45

Currently the Central Bank of Eritrea (CBE) deploys only 29% of the funds collected from its depositors.46 The CBE lends mainly to large state-owned and private- owned manufacturing businesses, which results in a lack of finance for small firms and restricts growth of these companies. Collateral requirements are a significant hindrance as the CBE requires that businesses provide up to 100% of the loan value

39 World Report: Eritrea (2014), Human Rights Watch, available at http://www.hrw.org/world- report/2014/country-chapters/eritrea. 40 Ibid. 41 Ravinder Rena, “Eritrea: Rural Enterprises to Catalyze Economy (Opinion),” Norwegian Counsel for Africa (June 15, 2007), available at http://www.afrika.no/Detailed/14379.html. 42 Economy Rankings,” Ease of Doing Business Index (2014), available at http://data.worldbank.org/ indicator/IC.BUS.EASE.XQ. 43 Magindu Nyende & Luka Okumu, AFDB, African Economic Outlook: Eritrea (2014), available at http://www.africaneconomicoutlook.org/fileadmin/uploads/aeo/2014/PDF/CN_Long_EN/ Erithr%C3%A9e_EN.pdf. 44 Ibid. 45 Ibid. 46 Henk von Eije, Michael Fishazion and Clemens Lutz, Journal of Eritrean Studies, Accessing Bank Credit in Eritrea: Bottlenecks for Small Firms and for the Commercial Bank of Eritrea, available at http:// arts.eldoc.ub.rug.nl/FILES/publications/general/other/2002/eije.h.von_costs/accessing.pdf.

ERITREA • 277 in collateral, which is impossible for many small firms. The bank also often asks to see financial statements and feasibility studies.

Without capital to support small businesses, the Eritrean economy relies heavily on remittances from the diaspora for its survival. Studies show migrants send home an average of USD 300-400 per year. Remittances form nearly a third of the value of GDP (USD 1.2 billion)47 and are proportionately the highest in the world.48

Businesses in Eritrea also face many infrastructure challenges, such as high fuel prices and inconsistent provision of electricity and water.49 Eritrea’s electricity generation capacity per capita is 61 kWh, which is far below the country’s energy needs. In comparison, per capita electricity generation capacity is 4,301 kWh in South Africa, 694 kWh in Zimbabwe and 129 kWh in Kenya.50 Recent developments in the mining sector and free-trade zones have further increased pressure on the grid.

47 Berhane Tewolde, Journal of Middle Eastern Geopolitics, Remittances As a Tool For Economic Development and Reconstruction in Eritrea, available at http://ojs.uniroma1.it/index.php/JMEG/ article/viewFile/3123/3107. 48 Sally Healy, Chatham House et. al, Eritrea’s Economic Survival (2007), available at https://www. chathamhouse.org/sites/files/chathamhouse/public/Research/Africa/200407eritrea.pdf. 49 US Department of State, Department of State: 2014 Investment Climate Statement (2014), available at http://www.state.gov/documents/organization/227167.pdf. 50 Eritrean Embassy-Japan, Investment Opportunities in the Energy Sector of Eritrea, available at http:// www.eritreaembassy-japan.org/data/Investment%20Opportunities%20in%20the%20Energy%20 Sector%20of%20Eritrea.pdf.

278 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA ENABLING IMPACT INVESTING: THE ECOSYSTEM

In response to the regulatory, legal, and infrastructure challenges facing both businesses and investors, the government of Eritrea has begun to work on reform to improve the business environment. With the softening of its self-reliance policy, more NGOs and DFIs are being allowed back into the country and have started to improve the investment ecosystem in Eritrea.

Regulatory Environment

Eritrea lacks an organized regulatory system. The country does not have a sitting parliament and laws governing the country are issued by proclamation from the executive arm of government.51 The country’s regulatory framework is opaque and inconsistently enforced, but the following are particularly relevant to potential investors:

• Repatriation of profits and dividends: The Foreign Financed Special Investment (FFSI) policy makes allowances for the remittance of net profit, dividends accrued from investments, debt service payments, savings from expatriate salaries, and proceeds from the sale or transfer of shares. However, the government’s strict control of foreign currency makes repatriation of profits difficult and discourages investors.52

• Foreign exchange controls: The government controls all foreign exchange in the country. Only state-owned entities are authorized to manage foreign exchange activities.53 The black market is pervasive, where the Eritrean Nafka trades for less than a third of its nominal value.54

• Leasehold structure for foreign land ownership: All land in Eritrea is owned by the state but the government issues lifetime usufruct rights. Nevertheless, the government also has a history of withdrawing usufruct rights on land without notice or compensation, including housing and commercial property, which is a considerable risk for both investors and entrepreneurs interested in developing businesses in the country.55 Despite state ownership, traditional land tenure systems persist in rural areas, where communities allocate land.

51 US Department of State, Department of State: 2014 Investment Climate Statement (2014), available at http://www.state.gov/documents/organization/227167.pdf. 52 Ibid. 53 Ibid. 54 Ibid. 55 Ibid.

ERITREA • 279 • Local ownership requirements: The FFSI proclamation restricts foreign investment in certain sectors of the Eritrean economy, including financial services, domestic wholesale trade, domestic retail trade, and commission agencies. However, foreign investment in other sectors is permitted.56

• Government enterprises: Almost all medium and large enterprises in Eritrea are controlled by the government.

Ecosystem Players

With a small formal private sector and no impact investing activity, there are very few ecosystem players operating in Eritrea at this time.

56 US Department of State, Department of State: 2014 Investment Climate Statement (2014), available at http://www.state.gov/documents/organization/227167.pdf.

280 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA CHALLENGES AND OPPORTUNITIES FOR IMPACT INVESTORS

Challenges

As evidenced by the lack of impact investing in Eritrea, investors face a number of challenges in investing in the country:

• Weak legal system: Eritrea’s inconsistent legal system makes it difficult for investors to enact and enforce legal contracts.

• Challenging regulatory system and corruption: Regulation and government policy-making are highly opaque. The government often does not announce new or amended regulations prior to implementing them, and they may be subject to abrupt change.57 Sudden changes in regulation and uneven implementation of laws have led to uncertainty and rising corruption in the country. In Transparency International’s 2013 Corruption Index, Eritrea ranked 160th out of 177 countries.58

• Expropriation risk: In theory, the law guarantees against confiscation of investment without just cause or compensation but the risk of expropriation is high regardless. The government has nationalized private businesses in the past without notice or compensation. For example, in 2008 the government terminated the Intercontinental Hotel’s management contract for a government-owned hotel in Asmara and later reopened the hotel as a government-operated establishment.59

• Profit repatriation risk: There is generally a hard currency shortage in Eritrea. Some airlines, for instance, report deposits of hundreds of millions of unconvertible Nakfa held in local banks. These conditions prompted Lufthansa to cease operations to Eritrea in 2013, while its competitors are now charging fares directly in hard currency.60

• Lack of investment options: As a result of Eritrea’s restrictive regulations and policies, there is minimal private sector participation in the country and consequently there are very few desirable businesses for impact investors to consider for investment.

57 US Department of State, Department of State: 2014 Investment Climate Statement (2014), available at http://www.state.gov/documents/organization/227167.pdf. 58 “Corruption Perceptions Index,” Transparency International (2013), available at http://www. transparency.org/cpi2013/results. 59 “2013 Investment Climate Statement: Eritrea,” US Department of State, available at http://www.state. gov/e/eb/rls/othr/ics/2013/204637.htm. 60 Ravinder Rena, “Eritrea: Rural Enterprises to Catalyze Economy (Opinion),” Norwegian Counsel for Africa (June 15, 2007), available at http://www.afrika.no/Detailed/14379.html.

ERITREA • 281 Opportunities

Despite challenges, there are opportunities in Eritrea. The most promising sectors of the Eritrean economy include agriculture, aquaculture, tourism, and mining. As impact investors do not typically operate in extractive industries, the following sectors present the greatest opportunities for impact capital:

• Agriculture: Eritrea possesses abundant arable land, and 80% of the population is engaged in agricultural activities. However, frequent drought, famine, and poor climatic conditions and unsophisticated production practices have hampered agricultural growth in the past. Nevertheless, with investments in training, irrigation, and equipment, the country has considerable potential to generate growth in agricultural production, agro-processing, and livestock production.61 Eritrea’s ecological environment is ideal for growing a wide range of crops, and the economy could benefit from developing high-value horticultural ventures.

• Aquaculture: Fisheries and fish processing also show high potential, with the export of fish and fishmeal becoming an increasingly significant part of the Eritrean economy. Eritrea’s coast is abutted by over 52,000 square kilometers of prime fishing waters, rich in a wide variety of fish species.62

• Tourism: Given Eritrea’s coastal location, there is high potential for tourism which has not been realized to date. The government has started encouraging both foreign investors and the returning diaspora to invest in the sector with some encouraging results, as a Qatari firm has begun construction on a multimillion- dollar resort complex on Dahlak Kabir Island in Eritrea.

61 Magindu Nyende & Luka Okumu, AFDB, African Economic Outlook: Eritrea (2014), available at http://www.africaneconomicoutlook.org/fileadmin/uploads/aeo/2014/PDF/CN_Long_EN/ Erithr%C3%A9e_EN.pdf. 62 Eritrea Investment Center, Investment Policies and Opportunities of the State of Eritrea (2003), available at http://www.eritreaembassy-japan.org/data/Investment_Policy_and_Opportunities_of_ the_state_of_Eritrea.pdf.

282 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA DJIBOUTI CAPITALIZING ON A STRATEGIC LOCATION

DJIBOUTI • 283 INTRODUCTION

With a population of less than a million people and an approximate area of 23,000 km2, Djibouti is the smallest country in East Africa by both population and size. The country has few natural resources or available land but is in a prime strategic location on the maritime crossroads of Africa, Europe, Asia, and the Middle East (Figure 1). As a result, the economy is primarily service-based and focused on income from port services and foreign military bases.

FIGURE 1: MAP OF DJIBOUTI

DJIBOUTI

Given its limited natural resources, the Djiboutian government understands the importance of foreign investment in driving economic development. In recent years, the government has worked to improve Djibouti’s business and regulatory environment in an effort to attract investment. The government has also started major projects in a USD 6 billion investment to expand infrastructure and enhance electricity and water access, further enabling private sector development.

Djibouti suffers from high unemployment and poverty rates, and a more robust private sector could offer opportunities for wealth and job creation. However, businesses are constrained by a conservative financial sector that does not provide sufficient capital, a gap impact investors could help fill. Despite the demand for capital and the improving business environment, only USD 18 million in impact capital has been disbursed in Djibouti to date and this has been entirely by DFIs.1 Impact investors face a number of challenges in investing in Djibouti, including a cumbersome bureaucracy, corruption, a weak legal system, unfavorable labor laws, and high costs for basic inputs such as water and power.

284 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Country Context

Djibouti, originally referred to as French Somaliland, gained independence from France in 1977. It has a population of approximately 860,000, with nearly 80% residing in urban areas.2 Djibouti is inhabited by two major ethnic groups: the Issaa (60% of the population) and the Afars (35%).3 Though Djibouti experienced some internal conflict in its initial post-independence years, it has maintained relative stability over the past decade despite conflict in neighboring countries.

Hassan Gouled Aptidon was Djibouti’s first president in 1977. He led an Issa- dominated government under a one-party system. Discontent with this system led to civil war between Aptidon’s regime and Afar rebels in 1992. Two peace treaties were eventually signed in 1994 and 2000, leading to the country’s first multiparty elections. Ismael Omar Guelleh won the elections and has served as president of Djibouti since.4 After amending the constitution to allow presidents to serve three terms, Guelleh was re-elected for a third term in 2011.

Djibouti is primarily a service-based economy dependent on foreign military bases and port services. The country has capitalized on its strategic position as the deepest port in one of the world’s busiest trade routes.5 Djibouti is also the main import-export route serving landlocked Ethiopia, which is its largest trade partner and accounts for 70% of port activity.6

Because of its strategic position on the Gulf of Aden, Djibouti is also a key location for many foreign militaries. It hosts US, French, and Japanese military bases and the European anti-piracy force, Operation Atalanta.7

2 World Bank, “Djibouti at a glance,” available at http://devdata.worldbank.org/AAG/dji_aag.pdf. 3 Central Intelligence Agency, “Djibouti”, CIA World Factbook, available at https://www.cia.gov/library/ publications/the-world-factbook/geos/dj.html. 4 Culture Grams, “Republic of Djibouti (2009),” available at http://www.aasd.k12.wi.us/Staff/ hendrickjohn/Africa/Djibouti.pdf. 5 US Department of State, Investment climate statement- Djibouti (2014) available at http://www.state.gov/documents/organization/227156.pdf. 6 EPRI, “Djibouti,” available at http://epri.org.za/wp-content/uploads/2011/03/14-Djibouti.pdf. 7 African Economic Outlook, Djibouti 2014, available at http://www.africaneconomicoutlook.org/ fileadmin/uploads/aeo/2014/PDF/CN_Long_EN/Djiouti_EN.pdf.

DJIBOUTI • 285 Gross Domestic Product

Djibouti’s GDP has grown steadily over the past decade, increasing at an average annual rate of 6% to approximately USD 2.5 billion (PPP) in 2013 (Figure 2). This growth has been driven by foreign direct investment (FDI) and port activity. FDI reached a record USD 286 million in 2013, accounting for 11.4% of GDP.8 Some examples of FDI in Djibouti include China Merchants Holdings International‘s acquisition of a 23.5% stake in the recently privatized Port of Djibouti (PAID) and continuing infrastructure investment.9

FIGURE 2: GDP (PPP), 2004–2013

USD BILLIONS

3.0

2.5

2.0

1.5

1.0

0.5

0.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: IMF World Bank Economic Indicators, April 2014

With the implementation of new investment programs and infrastructure projects, such as a new Djibouti-Addis railway expected to be completed in mid-2015, the government’s recurrent expenditure is set to increase. Infrastructure projects such as the railway require heavy borrowing by the Djiboutian government, leading to an increase in the budget deficit, which has been relatively stable at 2% of GDP.10 However, the expense has been justified with the projected increase in tax revenues and boost to the service sector that the railway project is expected to bring.

8 African Economic Outlook, Djibouti 2014, available at http://www.africaneconomicoutlook.org/ fileadmin/uploads/aeo/2014/PDF/CN_Long_EN/Djiouti_EN.pdf. 9 Ibid. 10 Ibid.

286 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Foreign Direct Investment

The marked increase in FDI into Djibouti since 2010 (Figure 3) is largely attributable to China. Other than China, major sources of FDI in Djibouti include Yemen, Ethiopia, the U.S., and France.11 Much of Djibouti’s FDI has been used to develop port and shipping infrastructure. This includes USD 80 million received since 2012 from the Saudi Fund for Development and the Arab Fund for Social and Economic Development for the expansion of the port of Doraleh and construction of a facility in Tadjaurah designed to ship potash from Ethiopia. Similarly, Djibouti secured USD 64 million from the China Export Import Bank in 2012 to construct a port that will facilitate salt and gypsum exports. There are also plans to build an oil refinery and pipeline from South Sudan that have attracted interest from Brazilian and Russian investors.12

FIGURE 3: FDI FLOWS, 2004–2013

USD MILLIONS Djibouti FDI inflow as a % of GDP— 54%—is the highest in the region 350 300 250 200 150 100 50 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: UNCTAD

Increasing foreign investment is a key priority of the Government of Djibouti. To improve the investment landscape, the government instituted a new commercial code in 2012 and established free trade zones, which stimulate economic growth by offering office space, light industry units, and tax incentives to investors. There are currently 160 businesses from 39 different countries operating in the free trade zone. Djibouti also opened the DAM commercial zone in the southern region in 2013 and plans to open two more free trade zones, the Khor Ambado Free Zone and Jabanas Free Zone, in the coming years.13

11 Santander Trade, “Djibouti: Foreign Investment,” available at https://en.santandertrade.com/establish- overseas/djibouti/investing-3. 12 Maria Levitov, Bloomberg, Djibouti to raise $5.9B from investors for infrastructure (May 8, 2013), available at http://www.bloomberg.com/news/2013-05-08/djibouti-to-raise-5-9-billion-from- investors-for-infrastructure.html. 13 U.S. Department of State, Investment climate statement- Djibouti (2014) available at http://www.state.gov/documents/organization/227156.pdf.

DJIBOUTI • 287 Inflation and Exchange Rates

Inflation in Djibouti depends primarily on its two main imports: food and oil.14 The country has, however, maintained a low inflation rate generally ranging from 3-5%, aside from a spike to 12% in 2008 due to a surge in food and fuel prices that drove up inflation across East Africa (Figure 4). Given that Djibouti imports almost 97% of its food, the rising food prices between 2005 and 2008 are estimated to have contributed to an increase in extreme poverty from 40% to 54%.15 Djibouti is still vulnerable to such fluctuations, as the country has made very little investment in agriculture to secure its food supply.

FIGURE 4: INFLATION IN DJIBOUTI, 2004 - 2013

14%

12%

10%

0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: World Bank

Djibouti’s currency, the Djibouti Franc, has been pegged to the US dollar since 1973, and no change in policy is expected in the short- to medium- term.16 The government maintains parity by holding 105% coverage of foreign exchange against currency in circulation.17

14 African Economic Outlook “Djibouti,” available at http://www.africaneconomicoutlook.org/fileadmin/ uploads/aeo/2013/PDF/Djibouti%20-%20African%20Economic%20Outlook.pdf. 15 FAO, “High Food Prices: Causes and Possible Actions,” available at http://www.ima.kth.se/utb/ MJ1501/pdf/Engfeldt.pdf. 16 African Economic Outlook “Djibouti,” available at http://www.africaneconomicoutlook.org/fileadmin/ uploads/aeo/2013/PDF/Djibouti%20-%20African%20Economic%20Outlook.pdf. 17 Ibid.

288 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA SUPPLY OF IMPACT CAPITAL

This study was unable to find evidence of any non-DFI impact investment in Djibouti in recent years. Although there has been a recent increase of foreign investment in logistics and infrastructure projects, this has not translated to corresponding growth in impact investment.

Broader Investing Landscape

The Djiboutian government is well aware that foreign investment is a key driver of economic development in the country and continues to make conscious efforts to improve Djibouti’s business environment, thereby increasing foreign investment. Djibouti’s efforts to attract investors include revisions of its regulations, creation of Free Trade Zones, adoption of a new commercial code, and increased investment in infrastructure. Djibouti also offers significant incentives to private sector individuals and corporate investors. For example, investments greater than USD 280,000 that create permanent jobs are exempted from registration and license fees, property taxes, and taxes on profits.18

These efforts have made it easier to conduct business in Djibouti, leading to a substantial improvement in the World Bank’s Ease of Doing Business ranking, from 171st out of 189 countries in 2013 to 154th in 2014.19

The government has primarily concentrated on expanding Djibouti’s services sector to further capitalize on the country’s access to Africa, Europe, Asia, and the Middle East by positioning Djibouti as a transit hub for neighboring, landlocked countries.20 Government investments have sought to increase the country’s trade profile and serve as a regional hub for trade, handling, and financial services.

The government created a new USD 6 billion investment program with a particular focus on infrastructure. The program is predominantly funded by Chinese investors and the international aid community,21 with the goal of expanding infrastructure and enhancing access to electricity and water. Projects in the program include the previously mentioned ports as well as the Djibouti-Addis Ababa railway line, an aqueduct to transport water from Ethiopia, a desalination plant, an electricity line from Ethiopia, and a geo-thermal power station.22 It is expected that the investment program will catalyze growth in private sector investment in the near future.

18 Profit, “Country Profile: Djibouti,” available at http://www.bk-conseil.com/espaceinformation/ documentation/tourism/Djibouti_Country_Profile.pdf. 19 World Bank Group, Ease of Doing Business in Djibouti, available at http://www.doingbusiness.org/ data/exploreeconomies/djibouti/. 20 Adaptation Fund, “Developing Agro-Pastoral Shade Gardens As An Adaptation Strategy For Poor Rural Communities,” available at http://www.undp.org/content/dam/undp/documents/projects/DJI/ GB.pdf. 21 African Economic Outlook, “Djibouti,” available at http://www.africaneconomicoutlook.org/ fileadmin/uploads/aeo/2014/PDF/CN_Long_EN/Djiouti_EN.pdf. 22 Ibid.

DJIBOUTI • 289 Although the majority of investment has been in large, commercial enterprises, the government has begun to support small and medium enterprise (SME) development through Djibouti’s Economic Development Fund. This USD 3 million fund was started specifically to provide financial support to SMEs with the overall goal of fighting unemployment, reducing poverty, and boosting economic growth.23 The fund offers affordable loans,24 primarily targeting agriculture, services, tourism, transportation, and logistics.

In recent years, interest rates in Djibouti have fluctuated between 9% and 12%.25 The entry of eight new banks between 2006 and 2012 increased competition and reduced interest rates, which are low compared to those in other East African countries, though still quite high relative to rates found in more developed economies. As of 2013, unsecured loans were offered at a 12% interest rate, while overdrafts and housing loans received rates of 15% and 10% respectively.26

Impact Capital Disbursed

Excluding DFIs, no known impact capital has been disbursed in Djibouti. Despite the lack of deals in the country, at least 45 impact capital vehicles operating regionally include Djibouti in their investment mandates, though none of these are exclusively dedicated to Djibouti. As a result, there is approximately USD 522 million in available capital committed that could be invested in Djiboutian businesses, but it remains unlikely that Djibouti will capture a significant portion of that capital.

DFI activity has also been minimal in the country, with disbursement of about USD 18 million across two projects in Djibouti. With an improving business environment, and increased focus by the government on SME development, both the pipeline of viable investment opportunities and the interest of impact investors are expected to increase in the coming years.

23 OFID, “Investing in Djibouti’s small entrepreneurs,” available at http://www.ofid.org/Portals/0/ Documents/ImpactStories/AR_2012_Djibouti.pdf. 24 No data is available on interest rates for these loans. 25 AUHF, Djibouti launches a housing bank, available at http://www.auhf.co.za/wordpress/assets/ AUHF-Newsletter-February.pdf. 26 African Economic Outlook “Djibouti,” available at http://www.africaneconomicoutlook.org/fileadmin/ uploads/aeo/2013/PDF/Djibouti%20-%20African%20Economic%20Outlook.pdf.

290 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA DEMAND AND NEED FOR IMPACT INVESTING CAPITAL

Although there is currently very limited impact investment activity in Djibouti, high poverty rates, the underdevelopment of key sectors like agriculture, health, and education, and insufficient access to finance indicate that there is need for impact capital and nascent opportunities for investment.

Development Context

Despite economic growth and foreign investment over the past decade, economic gains have been highly concentrated in the hands of a few while overall poverty levels have risen. More than 40% of the population lives in extreme poverty.27 This problem is even greater in rural areas, where nearly 97% of the population lives in poverty.28

Though Djibouti has made recent investments in basic services, like health and education, it still performs poorly on human development indicators, ranking 164th out of 187 countries on the UN’s Human Development Index in 2013.

The Djiboutian government’s recent investments in health include programs to support maternal and child health, including drug availability and medical service provider trainings, as well as improvements in general delivery of health services. Indeed, Djibouti has a stunting ratio only slightly below the global average and nearly 25% better than the East Africa average. Despite these efforts, Djibouti’s under-5 mortality rate of 81 deaths per 1,000 live births and infant mortality rates remain among the highest in the region (Figure 5, following page) while its general health indicators remain amongst the worst in the world.29

Djibouti has made some progress in improving its education system, and thus expanding its available workforce. The country has raised primary enrollment levels from 53% in 2002 to 83% in 2012. It has also managed to achieve approximate gender parity in primary school enrollment with female enrollment rising to 81% against male enrollment of 85% in 2012.30

27 World Bank, Djibouti, available at http://www.worldbank.org/en/country/djibouti. 28 IMF, Djibouti: Poverty Reduction Strategy Paper, available at http://planipolis.iiep.unesco.org/upload/ Djibouti/PRSP/Djibouti%20PRSP.pdf. 29 The World Bank, Country Partnership Strategy for The Republic of Djibouti, available at http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2014/03/12/ 000333037_20140312152815/Rendered/PDF/838740REVISED0010Box382156B00OUO090.pdf. 30 African Economic Outlook, Djibouti (2014), available at http://www.africaneconomicoutlook.org/ fileadmin/uploads/aeo/2014/PDF/CN_Long_EN/Djiouti_EN.pdf.

DJIBOUTI • 291 Nevertheless, the quality of education in Djibouti is still relatively poor, with overcrowded classrooms and high teacher absenteeism. Most youth in Djibouti are not receiving a full education; only 44% of eligible students are enrolled in secondary school—well below the global average of 74% (Figure 6), although marginally above the 43% average across sub-Saharan Africa.

FIGURE 5: UNDER-5 MORTALITY AND STUNTING FIGURE 6: SECONDARY SCHOOL (LATEST AVAILABLE DATA POINT) GROSS ENROLLMENT

UNDER-5 100% DEATHS PER POP 1,000 BIRTHS STUNTED 80% Global 90 40% Global averages 60% average

60 Stunting 40% 20% Under-5 20% 30 mortality 0% 0 0% DJIBOUTI DJIBOUTI

Source: UN Human Development Report 2014 Source: UN Human Development Report 2014

292 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA A vibrant education system is particularly important in a country with Djibouti’s demographics. Djibouti has a very youthful population; only an estimated 3% of the population is older than 65 while 55% of the population is younger than 25 (Figure 7).31

FIGURE 7: POPULATION BY AGE AND GENDER, 2010

AGE 100+ 95-99 90-94 85-89 80-84 75-79 70-74 65-69 Male 60-64 Female 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4

60 40 20 0 0 20 40 60

POPULATION (MILLIONS) POPULATION (MILLIONS)

Source: UN ESA, World Population Prospects

Djibouti is unable to provide employment opportunities for its large youth population. Unemployment rates for those younger than 30 are estimated to be as high as 70%,32 which is nearly 50% higher than the 2012 estimate of 48% unemployment for the general population.33

Unemployment stems from several factors, such as inadequate levels of economic activity, an under-qualified human capital pool, high immigration, and ineffective stabilization policies.34 Further, the unemployment trend is forecasted to continue as the population increases. With a growing young population, the pace of job

31 CIA, World fact book(2014), available at https://www.cia.gov/library/publications/ the-world-factbook/geos/dj.html. 32 World Bank Group, Country Partnership Strategy For The Republic Of Djibouti Fy2014-2017, available at http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2014/03/12/0003 33037_20140312152815/Rendered/PDF/838740REVISED0010Box382156B00OUO090.pdf. 33 Ibid. 34 IMF, Djibouti: Poverty Reduction Strategy Paper, available at http://planipolis.iiep.unesco.org/upload/ Djibouti/PRSP/Djibouti%20PRSP.pdf.

DJIBOUTI • 293 creation will need to double in order to begin to decrease unemployment levels in the country.35

The Port of Djibouti, the US Naval Base, and the public sector are the primary employers for most households.36 The government is the largest single employer, employing more than 44% of those working in the formal sector.37 As a result, wages comprise approximately a third of the government’s annual budget.38 Nevertheless, as many as a third of households subsist on informal trade and casual labor.39

Entrepreneurs

The concept of impact investing is relatively unknown to Djiboutian entrepreneurs. However, access to capital in the country remains low and private sector businesses, particularly SMEs, are increasingly looking to alternate sources of capital to fund growth. However, private sector development is currently hindered by a number of factors, including limited access to finance, high infrastructure costs, high labor costs, and a lack of skilled human capital.

Accessing financing is difficult in Djibouti—in the World Bank’s Ease of Doing Business rankings, the nation ranks 180th of 186 countries for “Obtaining Credit.”40 As recently as 2012, a mere 12% of the population had access to banking services.41 Similarly, Djibouti’s SMEs have limited access to bank financing, and those that do have access struggle to meet bank requirements. Djiboutian banks are highly risk averse, and typically lend only to well-established businesses who can meet high collateral requirements.42 As a result, the country has a low rate of non-performing loans (~6%), but banks are unwilling to finance start-ups or early-stage ventures;43 SMEs receive only about 5% of capital allocated to enterprises.44

35 World Bank Group, Country Partnership Strategy For The Republic Of Djibouti Fy2014-2017, available at http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2014/03/12/0003 33037_20140312152815/Rendered/PDF/838740REVISED0010Box382156B00OUO090.pdf. 36 US Department of State, 2014 Investment Climate Statement-Djibouti (2014), available at http://www.state.gov/e/eb/rls/othr/ics/2014/226946.htm. 37 World Bank Group, Country Partnership Strategy For The Republic Of Djibouti Fy2014-2017, available at http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2014/03/12/0003 33037_20140312152815/Rendered/PDF/838740REVISED0010Box382156B00OUO090.pdf. 38 Wharton, “Djibouti,” available at http://fic.wharton.upenn.edu/fic/africa/Djibouti%20Final.pdf. 39 USAID, Djibouti Livelihood Profiles October 2004. 40 World Bank Group, Ease of Doing Business in Djibouti, available at http://www.doingbusiness.org/ data/exploreeconomies/djibouti/. 41 US Department of State, “2014 Investment Climate Statement – Djibouti,” available at http://www. state.gov/e/eb/rls/othr/ics/2014/226946.htm. 42 World Bank, High-Level Development Exchange Launch of Vision Djibouti 2035, available at http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2014/10/24/ 000469252_20141024103322/Rendered/PDF/916950WP0DJIBO0x385342B00300PUBLIC0.pdf. 43 AFDB, Djibouti - Country Strategy Paper 2011-2015, available at http://www.afdb.org/fileadmin/ uploads/afdb/Documents/Project-and-Operations/Djibouti%20-%20CSP%202011-15.pdf. 44 Ibid.

294 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Djibouti’s microfinance sector has grown in recent years, increasing access to credit for the population typically excluded from the mainstream banking system.45 However, MFIs’ reach is limited where only 4% of the population currently benefits from microcredit.46

Infrastructure access and cost is another major constraint for Djiboutian businesses. The cost of electricity in Djibouti is among the highest in the world, despite poor quality and availability—costing an average of USD 0.20 per kWh, compared to a regional average of USD 0.07 per kWh.47 In an effort to reduce the cost of electricity, Djibouti connected to Ethiopia’s electricity grid in 2011.48 This reduced electricity tariffs by 30% for more than 50% of consumers and reduced fuel imports by the state- owned power company.49 Ongoing investments in renewable energy are expected to further reduce the cost of electricity for consumers and entrepreneurs.

Djibouti is also plagued by chronic water shortages and high water prices as it produces only half of the estimated 30 million cubic meters required for annual consumption.50 The average price for water is USD 1.10 per cubic meter, compared to USD 0.28 per cubic meter across the region.51 Similar to electricity access, ongoing projects in aqueducts and desalination plants are expected to lower costs and increase water access in the future.

Labor costs in Djibouti are also very high relative to the region. For example, a laborer earns an average monthly wage of USD 300 in Djibouti, compared to USD 70 in Ethiopia or USD 100 in Egypt.52 Despite the high cost, labor productivity remains low due to a lack of skills and frequent mismatches in skill sets offered by labor compared to those needed by enterprises.53

45 African Economic Outlook, “Djibouti 2014,” available at http://www.africaneconomicoutlook.org/ fileadmin/uploads/aeo/2014/PDF/CN_Long_EN/Djiouti_EN.pdf. 46 Governor, Central Bank of Djibouti Ahmed Osman Ali, “Djibouti’s Financial Sector,” available at https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=5&cad=rja&uact=8&ved= 0CDUQFjAE&url=http%3A%2F%2Fwww.firstmagazine.com%2FDownloadSpecialReportDetail.3519. ashx&ei=CuZuVObDLseBywO2lIGQDw&usg=AFQjCNE-tHjljE4jjXt5YhLwdND_4f1- 6g&bvm=bv.80185997,d.d2s. 47 US Department of State, “Djibouti,” available at http://www.state.gov/r/pa/ei/bgn/5482.htm. 48 Chatham, ” Djibouti: Changing Influence in the Horn’s Strategic Hub,”available at http://www. chathamhouse.org/sites/files/chathamhouse/public/Research/Africa/0413bp_djibouti.pdf. 49 IMF, “Djibouti: Sixth Review Under the Extended Credit Facility Arrangement and Request for Waivers of Nonobservance of Performance Criteria,” available at http://www.imf.org/external/pubs/ ft/scr/2013/cr1378.pdf. 50 AFDB, Djibouti - Country Strategy Paper 2011-2015, available at http://www.afdb.org/fileadmin/ uploads/afdb/Documents/Project-and-Operations/Djibouti%20-%20CSP%202011-15.pdf. 51 US Department of State, “Djibouti,” available at http://www.state.gov/r/pa/ei/bgn/5482.htm. 52 World Bank Group, Country Partnership Strategy For The Republic Of Djibouti Fy2014-2017, available at http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2014/0 3/12/000333037_20140312152815/Rendered/PDF/838740REVISED0010Box382156B00OUO090. pdf. 53 African Development Bank Group, Djibouti, Country Strategy Paper 2011-2015, available at http:// www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/Djibouti%20-%20 CSP%202011-15.pdf.

DJIBOUTI • 295 ENABLING IMPACT INVESTING: THE ECOSYSTEM

The Djiboutian ecosystem is not especially conducive to impact investing. The government has been working to improve the regulatory and legal environment, but investors must still navigate complex and lengthy bureaucratic systems. Despite the increase in investment in recent years, many foreign investors are still discouraged by Djibouti’s bureaucratic systems, reputation for corruption, and high labor and living costs.54

Regulatory Environment

To attract investment, the government has been working to improve Djibouti’s regulatory and legal systems. In 2001, the government established the National Investment Promotion Agency (NIPA) to promote private sector investment, facilitate investment operations, and modernize the country’s regulatory framework.55 Despite improvements, the business environment in Djibouti still requires significant reforms, including simplification of the tax code and streamlining investment procedures.

• Repatriation of profits and dividends: Djibouti does not have foreign exchange restrictions, so foreign businesses are free to repatriate profits.56

• Foreign exchange controls: Djibouti has free movement of capital, without limitations on transferring money or in- and out-flows of cash. There are also no restrictions on conversion of the Djibouti franc into any currency.57 The Djibouti franc is pegged to the US dollar, and thus remains a relatively stable currency.

• Local ownership requirements: Foreign companies are not required to have a local partner, with the exception of the insurance industry.58,59

54 Santander Trade, “Djibouti: Foreign Investment,” available at https://en.santandertrade.com/establish- overseas/djibouti/investing-3. 55 SantaFe Associates International, “Legal Market Overview,” available at http://www.santafe- associates.com/archivos/pdf/legal-market-overview-investment-climate-SFAI.pdf. 56 US Department of State, 2014 Investment Climate Statement-Djibouti (2014), available at http://www. state.gov/e/eb/rls/othr/ics/2014/226946.htm. 57 African Economic Outlook Djibouti, available at http://www.africaneconomicoutlook.org/fileadmin/ uploads/aeo/2013/PDF/Djibouti%20-%20African%20Economic%20Outlook.pdf. 58 Insurance companies that are registered as local companies, as opposed to a branch of an existing foreign company, must have a local business partner. 59 US Department of State, 2014 Investment Climate Statement-Djibouti (2014), available at http://www.state.gov/e/eb/rls/othr/ics/2014/226946.htm.

296 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA • Government enterprises: State-owned enterprises comprise a large portion of the Djiboutian economy. The government controls telecommunication, water, and electrical distribution in Djibouti. Other services, such as media, garbage collection, and real estate are not legal monopolies, but government-backed enterprises have advantages relative to private sector competitors through programs such as government-backed loan guarantees. Legally, private businesses are afforded the same access to markets, land, and credit as state-owned enterprises, but such government programs impact fair competition.60 This constrains both existing businesses and the potential for aspiring entrepreneurs to develop new businesses in these sectors.

Ecosystem Players

Along with a lack of impact investment activity in Djibouti, the ecosystem of intermediaries supporting investors and businesses is also underdeveloped. There are very few examples of accelerators, incubators, or other business development service providers in the country.

One exception is the Global Innovation through Science & Technology (GIST) initiative, which works across 86 emerging markets, including Djibouti. GIST supports promising entrepreneurs working in technology through global networking, entrepreneurship skill building, in-depth mentorship, and strategic seed funding.61

In early 2014, The World Bank and partners committed USD 2 million to provide business development services (BDS) to SMEs in Djibouti through a matching grant program.62 Although no specific BDS providers are cited in the program plan, by increasing access to funding for technical assistance this program is expected to foster development of intermediaries available to Djiboutian SMEs.

60 US Department of State, 2014 Investment Climate Statement-Djibouti (2014), available at http://www.state.gov/e/eb/rls/othr/ics/2014/226946.htm. 61 GIST, About, available at http://gist.crdfglobal.org/about-gist. 62 The World Bank, Concept stage: P146250, available at http://www-wds.worldbank.org/external/ default/WDSContentServer/WDSP/IB/2014/01/30/000333037_20140130122423/Rendered/ PDF/843600ISDS0P140Box382138B00PUBLIC0.pdf.

DJIBOUTI • 297 CHALLENGES AND OPPORTUNITIES FOR IMPACT INVESTORS

Challenges

Despite government efforts, there are still many challenges that discourage foreign investment, including impact investment:

• Small market: Djibouti is the smallest country in East Africa both by population and geography. With less than a million people, there is limited potential for scale in-country and new businesses seeking to grow and generate attractive returns will quickly need to expand regionally. This expansion to new markets creates challenges for new businesses, which must learn a new operating environment as well as have sufficient human capital to manage operations in multiple markets.

• Bureaucracy: Improvements to the regulatory framework have somewhat eased the process of investing in Djibouti, but investors still frequently struggle to practically navigate the bureaucracy, which can lead to challenges such as a slow release of funds by relevant government agencies.63

• High cost of operations: In addition to the high cost of water, electricity, and labor, Djibouti City is also one of the most expensive cities in the world. The high cost of living is largely a result of rapidly increasing housing expenses.64

• Weak legal system: The World Bank scores Djibouti poorly on the rule of law governance indicator, which is particularly poor when applied to foreign businesses. Foreign investors have reported delayed court deliberations and legal decisions biased against foreign companies.65

• Unfavorable labor laws: Djibouti’s labor laws are another barrier to foreign investment as they tend to favor employees, particularly in cases of disputes and termination. Further, because skilled labor is in short supply relative to unskilled labor, the government has instituted measures to replace foreign workers with locals and have correspondingly increased the cost of obtaining a work permit.66

63 World Bank Group, Country Partnership Strategy For The Republic Of Djibouti Fy2014-2017, available at http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2014/03/12/0003 33037_20140312152815/Rendered/PDF/838740REVISED0010Box382156B00OUO090.pdf. 64 Hiiran Online, “Djibouti, Arab World’s Most Expensive City,” (July 25. 2011) available at http://hiiraan. com/news2/2011/July/djibouti_arab_world_s_most_expensive_city.aspx. 65 US Department of State, 2013 Investment climate statement- Djibouti, available at http://www.state. gov/e/eb/rls/othr/ics/2013/204631.htm. 66 Ibid.

298 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Opportunities

Despite the many challenges investors face, Djibouti’s investment climate is relatively friendly compared to those in neighboring countries such as Eritrea and Ethiopia. With its high poverty and unemployment rates there is great need for impact investment and private sector development. The country’s improving business environment is paving the way for impact investors to enter the market. Some opportunities include the following:

• Developing talent pool: Given the high unemployment rate, lack of available skilled talent in Djibouti, and the high cost of living for expatriates, impact investors could invest in talent development initiatives, such as training programs or business development services, to increase the pool of high-potential entrepreneurs and businesses for investment.

• Investing in SMEs: To date, the majority of foreign investment into Djibouti has been into large infrastructure and transportation projects, with little focus on start- ups or other SMEs. There is an opportunity for impact investors to focus their attention on this latent investment market to source businesses with high potential for impact that have yet to be discovered.

There are a number of high-potential sectors for entrepreneurs to launch or grow businesses with the support of impact capital:

• Tourism: Most visitors to Djibouti are business travelers affiliated with the country’s military bases. However, due to its coastal location, there are untapped opportunities in ecotourism and dive tourism.67 The World Bank projects that tourism is one of the most promising sectors for job creation—expecting that Djibouti could grow tourism from 50,000 visitors annually today to 500,000 tourists by 2030, generating up to 30,000 direct jobs.68

• Transport and logistics: This sector is the backbone of the economy, employing approximately 10% of the actively employed population.69 As the government continues to invest in new ports, railways, and airports, there will be a corresponding need for businesses that offer support services in the sector.

67 US Department of State, 2013 Investment Climate Statement – Djibouti, available at http://www.state.gov/e/eb/rls/othr/ics/2013/204631.htm. 68 Ibid. 69 World Bank Group, Country Partnership Strategy For The Republic Of Djibouti Fy2014-2017, available at http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2014/03/12/0003 33037_20140312152815/Rendered/PDF/838740REVISED0010Box382156B00OUO090.pdf.

DJIBOUTI • 299 • Fishing: Although Djibouti is a coastal nation, its fisheries sector remains underdeveloped. The country’s annual catch is estimated at only 1,800 metric tons, compared to 157,000 in Kenya or 30,000 in Somalia;70 however, with additional investment in equipment, training, and exploration, the sector could increase significantly in the next decade.71

• Energy: In 2012, President Guelleh pledged to make a full transition to renewable energy by 2020.72 With this strong government support, there are opportunities for impact investors to develop Djibouti’s renewable energy resources (e.g. geothermal, wind, and solar).

• Agriculture: Djibouti currently produces approximately 3% of its food and imports the rest, leaving the country highly exposed to external market risks such as sudden surges in food prices.73 Agriculture in Djibouti is particularly difficult because of the arid climate, which opens opportunities to invest in businesses that are able to transition to drought-resistant crop technologies, and to invest in needed water mobilization and irrigation to increase yields.74

70 FAO, Statistical Query Report: Capture, available at http://www.fao.org/figis/servlet/ SQServlet?ds=Capture&k1=COUNTRY&k1v=1&k1s=&outtype=html. 71 World Bank Group, Country Partnership Strategy For The Republic Of Djibouti Fy2014-2017, available at http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2014/03/12/0003 33037_20140312152815/Rendered/PDF/838740REVISED0010Box382156B00OUO090.pdf. 72 US Department of State, 2013 Investment Climate Statement – Djibouti, available at http://www.state. gov/e/eb/rls/othr/ics/2013/204631.htm. 73 Economy Watch, “Djibouti Economy,” available at http://www.economywatch.com/world_economy/ djibouti. 74 Adaptation Fund, “Developing Agro-Pastoral Shade Gardens As An Adaptation Strategy For Poor Rural Communities,” available at http://www.undp.org/content/dam/undp/documents/projects/DJI/ GB.pdf.

300 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA SOMALIA A VIBRANT PRIVATE SECTOR SUSTAINED BY DIASPORA

SOMALIA • 301 INTRODUCTION

Over the past few decades, Somalia has experienced conflict and insecurity, and has witnessed the disintegration of its central government. Despite these uncertainties, the country has maintained a growing private sector. In many cases, the private sector has filled roles typically held by public institutions such as financial services, security, and education. With a new, internationally backed government now in power and the militant Islamist group Al-Shabaab expelled from all urban centers, there is hope for a new era of stability. Sufficient peace could allow the government to establish regulatory and legal systems to encourage foreign investment and the formalization of the private sector.

Despite these improvements, no impact capital has been disbursed in Somalia to date, including by development finance institutions (DFIs).1 Impact investors face serious challenges to investing in Somalia, including high political uncertainty, no formal banking or foreign exchange mechanisms, a weak legal system, and insufficient regulatory protection. However, many impact investors include the entire East Africa region in their geographic mandates, representing approximately USD 500 million in impact capital. Given the lack of investing activity to date, however, it seems unlikely that much or any of this will be placed in Somalia in the near future.

FIGURE 1: MAP OF SOMALIA

SOMALIA

302 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA COUNTRY CONTEXT

Somalia has experienced prolonged periods of conflict and instability, accompanied by intense fighting, population displacement, food insecurity, and a lack of centralized governance structures.

After the collapse of President Siad Barre’s regime in 1991, the country went more than two decades without a formal parliament. It was not until 2012 that a new, internationally backed government came into power. In the intervening years under transitional governments, the country suffered from clan warfare and the rise of Islamist militant groups, most notably Al-Shabaab.

By the middle of 2012, a coordinated operation between the Somali Army and international forces re-captured most of the territory held by Al-Shabaab, including Mogadishu, the capital, and other major urban centers. Al-Shabaab still controls many rural areas of the country.

During many years of conflict, Somalia fragmented into three de-facto autonomous regions: South Central Somalia, which contains Mogadishu; Puntland in the north-east; and Somaliland in the north (Figure 2).2 After President Barre’s fall in 1991, Somaliland declared itself a sovereign state and has since been seeking the international community’s recognition as such.3 Puntland declared its autonomy in 1998, although it seeks only recognition as an autonomous region within Somalia, not as an independent state.4

FIGURE 2: REGIONS OF SOMALIA

SOMALILAND

PUNTLAND

SOMALIA

Disputed territory

2 African Development Bank Group, Somalia: Country Brief 2013-2013 (2013) available at, http:// www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/2013-2015%20-%20 Somalia%20-%20Country%20Brief.pdf. 3 Ibid. 4 “Puntland Profile,”BBC News (Jan. 8, 2014), available at http://www.bbc.com/news/world- africa-14114727.

SOMALIA • 303 Although the term “Somalia” is often used to refer to only South Central Somalia, for the purpose of this study the three political entities are referred to as South Central Somalia, Puntland, and Somaliland, while Somalia refers to all three entities collectively.

Gross Domestic Product

After years of conflict without a central government or state institutions, Somalia lacks reliable economic and social statistics, making it difficult to accurately monitor economic and social development.

Nonetheless, Somalia’s GDP was estimated at USD 5.8 billion in 2010, the last year in which official data was available, while GDP per capita was estimated at USD 600.5 At these figures, Somalia is the fourth smallest market in the region. The economy is predominantly informal and dominated by agriculture, which accounts for approximately 65% of GDP and employment.6

5 Ahmed Dualeh, African Development Bank Group, African Economic Outlook Somalia 2014 (2014), available at http://www.africaneconomicoutlook.org/fileadmin/uploads/aeo/2014/PDF/CN_Long_ EN/Somalia_EN.pdf. 6 African Development Bank Group, Somalia: Country Brief 2013-2015 (2013), available at, http:// www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/2013-2015%20-%20 Somalia%20-%20Country%20Brief.pdf.

304 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Within agriculture, livestock production is the biggest sub-industry. Somalia has a large pastoral population that is dependent on livestock for its livelihood and, in aggregate, livestock accounts for 40% of GDP and more than 50% of export earnings.7 This is even higher in Somaliland, where livestock is estimated to make up 65% of GDP.8 The export of cattle is also an important and growing sector in the Somaliland economy—in 2012 an estimated 4 million cattle were exported from the region (see Figure 3).

FIGURE 3: CATTLE EXPORTS, SOMALILAND, 2002-2012

LIVESTOCK HEADS (THOUSANDS) 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: Somali Ministry of Trade and Investment

Driven largely by the diaspora, remittances are a large source of revenue in Somalia and the largest source of foreign currency.9 It is estimated that remittances add up to USD 1-2 billion annually, more than 25% of GDP.10 Almost 40% of households rely on diaspora funds to cover basic needs like food, clothing, education, and medical care. North America and Europe are the largest sources of remittances.

7 “The World Factbook Somalia,” Central Intelligence Agency (Jun. 23, 2014), available at https://www. cia.gov/library/publications/the-world-factbook/geos/so.html. 8 African Development Bank Group, Somalia: Country Brief 2013-2015 (2013), available at, http:// www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/2013-2015%20-%20 Somalia%20-%20Country%20Brief.pdf. 9 Manuel Orozco & Julia Yansura, Oxfam America, Africa Development Solutions & Inter-American Dialogue, Keeping the lifeline open: Remittances and markets in Somalia(2013), available at http:// www.oxfamamerica.org/static/media/files/somalia-remittance-report-web.pdf. 10 African Development Bank Group, Somalia: Country Brief 2013-2015 (2013), available at, http:// www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/2013-2015%20-%20 Somalia%20-%20Country%20Brief.pdf.

SOMALIA • 305 Foreign Direct Investment (FDI)

With increased stability, foreign direct investment in Somalia is expected to grow in the coming years, yet current levels remain low, with USD 107 million in estimated inflows in 2013 (Figure 4). The Somali government views foreign investment as a key component of rebuilding the economy, and actively encourages new investors. They have released multiple statements to this effect and hosted conferences to promote Somalia as an attractive investment opportunity. For example, the government co-hosted the Somalia Trade and Investment Event with the UK Department for International Development (DfID) in May 2013 and another conference in Dubai in May 2014 with the Dubai Chamber of Commerce.

FIGURE 4: FDI FLOWS, 2004–2013

USD MILLIONS

150

100

-50 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: UNCTAD

In South Central Somalia, food processing has historically attracted the most FDI, although the telecommunications sector has recently superseded it. The primary sources of FDI reaching South Central Somalia are United Arab Emirates, Yemen, and Oman.11 Somaliland FDI is estimated to have significantly increased in recent years with key investments from Kuwait, China, and France in the transport and service sectors.12 At present, remittances still far outweigh FDI as a source of foreign capital.

11 Somalia: “Foreign Investment” Santander trade (Oct. 2014), available at https://en.santandertrade.com/ establish-overseas/somalia/investing-3. 12 African Development Bank Group, Somalia: Country Brief 2013-2015 (2013), available at, http:// www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/2013-2015%20-%20 Somalia%20-%20Country%20Brief.pdf.

306 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Inflation and Exchange Rates

The US Dollar and the Somali Shilling are both widely accepted currencies in Somalia; however, Somaliland also has its own currency, the Somaliland Shilling. The exchange rate is informally set by black-market traders rather than financial markets or the Central Bank. Over the past year, the Somali Shilling has been the world’s strongest performing currency, rising more than 60% relative to the USD (Figure 5).13 This has been attributed to a shortage of shillings due to high volumes of remittances, inflows of donor aid, and growing FDI.14 The rising value of the Shilling has had a destabilizing effect on the economy—the majority of Somali families rely on remittances, and the falling value of foreign currencies relative to the Shilling has caused their purchasing power to fall.

FIGURE 5: USD/SOS EXCHANGE RATE, 2008-2014

1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2008 2009 2010 2011 2012 2013 2014

Source: Oanda

Inflation is also a serious challenge. Although reliable figures are unavailable, current estimates put inflation near 300% per year,15 caused largely by uncontrolled foreign currency inflows. Inflation is expected to abate somewhat as the Central Bank begins to take greater control of monetary policy.

13 Financial Times, “The curious tale of the world-beating Somali shilling”, http://blogs.ft.com/ beyond-brics/2014/03/20/the-curious-tale-of-the-world-beating-somali-shilling/. 14 Ibid. 15 African Development Bank Group, Somalia: Country Brief 2013-2015 (2013), available at, http:// www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/2013-2015%20-%20 Somalia%20-%20Country%20Brief.pdf.

SOMALIA • 307 SUPPLY OF IMPACT INVESTING CAPITAL

There have been no known impact investments to date in Somalia. Persistent conflict has discouraged investors—including impact investors—from placing capital in the country.

Broader Investing Landscape

With increasing stability, the government has declared Somalia “open for business.”16 In conjunction with its marketing message, the government is investing resources to improve Somalia’s legal and regulatory systems to further encourage investment. Parts of Somalia have experienced a wave of new businesses and capital inflows. At present these largely originate with the Somali diaspora, who have played a significant role in fostering economic regeneration, but there are also opportunities for non-Somali investors. International companies are opening or re-opening offices in Somalia. After ending operations in 2006, Coca-Cola, often one of the first foreign businesses in frontier markets, is re-opening its factory in Mogadishu, while a conglomerate of Djiboutian investors have invested USD 15 million to open a second Coca-Cola factory in Somaliland.17 The Coca-Cola factory is the largest single foreign direct investment in Somaliland since its formation. Other international companies in Somalia include Turkish Airlines, Africa Oil, and Range Resources.18 There has also been a recent emergence of diaspora groups geared toward promoting micro, small, and medium enterprise growth and private sector development such as Shuraako and the Somaliland Business Fund in Somaliland.

Despite this investment activity, most of the money channeled into Somalia is from international donor agencies. These funds are directed towards the infrastructure, agriculture, and livestock sectors aimed at rebuilding Somalia’s economy.

The Somali financial sector is weak and underdeveloped. In 2009, the transitional government re-opened the Central Bank of Somalia, but the bank is still setting up formal systems and currently has no foreign currency reserves or a coherent monetary policy.19 In Somaliland, the Bank of Somaliland (a regional arm of the Central Bank) is involved in elementary treasury activities, government payment functions, and basic commercial banking activities, mainly offering national remittance services through its network of 14 branches. The bank offers savings and current accounts to a limited

16 See for instance http://www.telegraph.co.uk/news/worldnews/africaandindianocean/ somalia/10040710/Somalia-is-open-for-business-says-president.html. 17 The Guardian, “Somaliland bottles its hopes on Coca-Cola”, available at http://www.theguardian.com/ global-development/2012/jul/20/somaliland-bottles-hopes-coca-cola-plant. 18 The East African (9/02/2013) http://www.theeastafrican.co.ke/news/With-improved-security- investors-eyeing-Somalia/-/2558/1689618/-/f9iwpuz/-/index.html. 19 Financial Times, “The curious tale of the world-beating Somali shilling”, http://blogs.ft.com/beyond- brics/2014/03/20/the-curious-tale-of-the-world-beating-somali-shilling/.

308 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA number of clients, typically government bodies. To date, the Somaliland Government has not instituted a legal framework for commercial or Islamic banks.20 In Puntland, Puntland State Bank and Dayax Islamic Bank are the only banking institutions present, and Puntland State Bank also serves as the government treasury.21

Apart from banks, whose reach remains limited, the main actors in Somalia’s financial sector are Somali remittance companies, which have extensive networks of agents that serve all towns and villages in the country, as well as major international cities with significant Somali diaspora presence.22

Impact Capital Disbursed

Impact investors face many challenges in the region and, as a result, no known impact capital has been disbursed in Somalia to date—by either DFIs or other impact investors. However, many impact investors have regional investment mandates that include Somalia, amounting to about USD 500 million in capital committed to the region, including Somalia. A growing pipeline of viable businesses, especially in Puntland and Somaliland, could increase the attractiveness of Somalia to impact investors and stimulate impact capital flows into the country; however, based on historical investment flows, it is unlikely this would account for a significant portion of the capital committed.

20 Istanbul Conference “Banking, remittances, and the role of the central bank in promoting financial and private sector development in Somalia (2010),” available at http://www.somalitalk.com/2010/ may/istambul/banking.pdf. 21 UNHABITAT, “Municipal Finance and Public Service Delivery in the Puntland State Of Somalia,” available at http://www.isgi.cnr.it/wp-content/uploads/2012/07/Operational-study-entire.pdf. 22 Istanbul Conference “Banking, remittances, and the role of the central bank in promoting financial and private sector development in Somalia (2010),” available at http://www.somalitalk.com/2010/ may/istambul/banking.pdf.

SOMALIA • 309 DEMAND AND NEED FOR IMPACT INVESTING CAPITAL

Somalia lacks consistent government rule and lags global development indicators across the board. The combination of the development needs and a surprisingly vibrant private sector could present interesting opportunities for businesses to generate social impact.

Development Context

Somalia ranked 165th in the United Nation’s 2010 Global Human Development Report, with an HDI score of 0.285. Of the three key dimensions used to measure a country’s development, Somalia ranks lowest in education, followed by income and health.23

Approximately 73% of Somalis live on less than USD 2 per day.24 The divide between urban and rural populations is significant—whereas 61% of urban residents are below the poverty line, the poverty rate rises to 94% in rural areas. Poverty rates reach 89% in South Central Somalia, 75% in Puntland, and 72% in Somaliland.

23 UNDP “Somalia Human Development Report 2012 Empowering Youth for Peace and Development,” (2012) available at, http://www.undp.org/content/dam/undp/library/corporate/HDR/ Arab%20States/HDR-Somalia-Factsheet-2012-E.pdf. 24 UN HDI Data.

310 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Somalia’s health indicators are among the worst in Africa. Years of conflict resulted in the near total destruction of most health facilities and infrastructure. The public health sector is slowly recovering but still remains highly reliant on the UN and donor agencies. Somalis have an estimated life expectancy of 49.7 years. Infant and child mortality rates stand at 108.4 and 178 per 1,000 live births, respectively (Figure 6). Maternal mortality rates are similarly high at 1,400 per 100,000 live births, compared with 683 on average for Africa. Nationally, only 29% of the population has access to improved water sources, and 23% to improved sanitation facilities, while these values fall to 9% and 6% respectively in rural areas.25

Somalia also underperforms on education metrics relative to the region. Only 22% of children aged 6-17 are in formal schooling, with boys’ enrollment at 24% higher than girls’ at 19%.26 Seven percent of the secondary school-age population is enrolled in school (Figure 7).

FIGURE 6: UNDER-5 MORTALITY AND STUNTING FIGURE 7: SECONDARY SCHOOL (LATEST AVAILABLE DATA POINT) GROSS ENROLLMENT

UNDER-5 100% DEATHS PER POP 80% 1,000 BIRTHS STUNTED Global 180 60% Global averages 60% average

120 Stunting 40% 30% Under-5 20% 60 mortality 0% 0 0% SOMALIA SOMALIA

Source: UN Human Development Report 2014 Source: UN Human Development Report 2014

25 African Development Bank Group, Somalia: Country Brief 2013-2015 (2013), available at, http:// www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/2013-2015%20-%20 Somalia%20-%20Country%20Brief.pdf. 26 UNESCO, Education Sector Strategic Plan, available at http://planipolis.iiep.unesco.org/upload/ Somalia/Somalia-Puntland-Education-Sector-Plan-2012-2016.pdf.

SOMALIA • 311 Somalia’s youth (14-29 years) comprise 42% of the population (Figure 8).27 Somalia has one of the highest youth unemployment rates in the world at 67%. Unemployment, conflict, and poverty have left many youth frustrated, fueling both piracy and terrorism. More women than men are unemployed, with female unemployment rates as high as 74% compared to men at 61%.28

FIGURE 8: POPULATION BY AGE AND GENDER

AGE 100+ 95-99 90-94 85-89 80-84 75-79 70-74 65-69 Male 60-64 Female 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4

1,000 500 0 0 500 1,000

POPULATION POPULATION (MILLIONS) (MILLIONS) Source: UN ESA, World Population Prospects

27 The survey conducted for the Somalia Human Development Report used 14-29 years as a parameter for youth following consultations with various Somali stakeholders, including young Somali men and women, http://www.undp.org/content/dam/undp/library/corporate/HDR/Arab%20States/HDR- Somalia-Factsheet-2012-E.pdf. 28 UNDP “Somalia Human Development Report 2012 Empowering Youth for Peace and Development,” (2012) available at, http://www.undp.org/content/dam/undp/library/corporate/HDR/ Arab%20States/HDR-Somalia-Factsheet-2012-E.pdf.

312 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Entrepreneurs

Despite the relative success of the private sector in the face of instability and the many opportunities for businesses to contribute, entrepreneurs still face many challenges that limit the growth of the sector, including access to finance. The Somali financial sector remains underdeveloped, informal, and unsupervised, with limited access to credit and savings. Somalia’s few existing banks provide only limited services, and local entrepreneurs are forced to largely rely on savings or remittances to finance their businesses.29 Further private sector growth will require additional sources of finance.

ENABLING IMPACT INVESTING: THE ECOSYSTEM

The Somali ecosystem is not especially conducive to investing. The current administration is working to improve the regulatory and legal environment, but it still offers little protection for investors. There are also few intermediaries or other third parties to support emerging social enterprises or impact investors.

Regulatory Environment

After the fall of Barre in 1991, Somalia underwent a prolonged period without a central administration. In its absence, the country established what academics term “governance without government.”30 Communities cobbled together alternate governance structures, borrowing from customary systems and foreign regulatory systems that were overseen by a combination of local authorities, civic groups, and private businesses.

Under the new regime, the new Federal Government of Somalia (FGS) has committed to establishing stability and building regulatory institutions. Under the Somalia New Deal Compact, the government has laid out its five peace- and statebuilding goals. It has also committed to adopting a constitution by the end of 2015 and holding elections in 2016.31 Despite these promising improvements, the regulatory and legal environment is still weak and limits Somalia’s appeal to investors:

29 Istanbul Conference “Banking, remittances, and the role of the central bank in promoting financial and private sector development in Somalia (2010),” available at http://www.somalitalk.com/2010/ may/istambul/banking.pdf. 30 Humanitarian Futures Program, “Prospects for an alternative approach? The private sector in Somalia’s new statebuilding agenda”, available at http://www.humanitarianfutures.org/wp-content/ uploads/2014/01/SOMALIA-REPORT-FINAL.pdf. 31 AFDB Somalia Country Brief 2013-2013 available at, http://www.afdb.org/fileadmin/uploads/afdb/ Documents/Project-and-Operations/2013-2015%20-%20Somalia%20-%20Country%20Brief.pdf.

SOMALIA • 313 • Foreign exchange controls: Somalia does not have a central foreign exchange market. The system is controlled by private sector Hawala money transfer institutions dealing primarily in expatriate remittances.32,33 Exchange rates pose a significant risk to investors, given the instability of the Somali Shilling.

• Land ownership: The current land tenure system in Somalia is a mixture of secular, sharia, and Xeer law (customary Somali law).34 The new federal constitution in South Central Somalia states that “every person has the right to own, use, enjoy, sell, and transfer property” and that property will not be expropriated unreasonably.35 With the exception of this clause, there is little formal legislation regarding land at the federal level. The Constitution of Somaliland stipulates that, “land is a public property commonly owned by the nation, and the state is responsible for it.” Both foreigners and Somalilanders are freely able to purchase and sell property.36 Investors should, however, be aware that land record systems are still being developed, so title searches can be challenging. In Puntland, all land belongs to the state, and the government is the only body able to allocate land.

• Government enterprises: Without a central administration, Somalia’s public entities disintegrated during years of war. The private sector noticed the void created by failed public institutions and moved to capitalize on this. Today, the private sector offers essential services such as health and education and is involved in court services such as dispute resolution, contract enforcement, property rights protection, and law and order.

Ecosystem Players

There are very few intermediaries operating to support social enterprises or impact investors. One example of an emerging organization is the Iftiin Foundation, a social enterprise established in 2012 to bring members of the diaspora and locals together by teaching leadership skills to young people in Mogadishu and connecting entrepreneurs to funders.37 Similarly, the Shuraako Initiative is a non-profit that helps micro, small, and medium enterprises connect with capital by providing pro-bono support in writing business plans and conducting initial due diligence on potential investments. The initiative’s goal is to encourage investment in Somalia by sourcing

32 Wharton “ Somalia,” available at http://fic.wharton.upenn.edu/fic/africa/Somalia%20Final.pdf. 33 Hawala is an informal money transfer system of a large number of money brokers operating outside of the formal financial sector. 34 Shuraako, “Land Tenure in Somalia,” available at http://shuraako.org/sites/shuraako.org/files/ documents/Land%20Tenure%20in%20Somalia%20A%20Potential%20Foundation%20for%20 Security%20and%20Prosperity.pdf. 35 The Federal Republic of Somalia. Provisional Constitution. August 1, 2012. Article 26, available at http://unpos.unmissions.org/LinkClick.aspx?fileticket=RkJTOSpoMME. 36 Ministry of Trade and Investment “An Investment Guide to Somaliland Opportunities & Conditions,” available at http://somalilandinvest.net/somaliland_investment_guide.pdf. 37 The National, “Back to the future: the challenges facing Somalia’s returning diaspora”, available at http://www.thenational.ae/arts-lifestyle/the-review/back-to-the-future-the-challenges-facing- somalias-returning-diaspora#ixzz3KHM6xw9i.

314 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA investment opportunities.38 Finally, the Somaliland Business Fund offers matching grants to eligible small businesses to enable them to purchase physical assets and/or acquire business development services.39 As the investment landscape matures, it is expected that an increasing number of intermediaries will enter the Somalian ecosystem to support promising social enterprises.

CHALLENGES AND OPPORTUNITIES FOR IMPACT INVESTORS

Challenges

Potential impact investors face several significant challenges:

• Political uncertainty: Arguably the largest barrier to investing in Somalia is political uncertainty. The country has often been referred to as the world’s “most failed state,”40 and decades of conflict and repeated failed interventions have left investors wary. In addition, Somalia’s weak regulatory and legal systems leave both investors and entrepreneurs vulnerable.

• Foreign exchange: In the absence of banks or a formal foreign exchange market, it is difficult for investors to obtain local currency or adequately hedge against currency risk. Foreign investors use three main systems to get money into Somalia: Hawala, investment-in-kind, and cross-border currency systems. Hawala is heavily used by the diaspora to remit money back to family in Somalia. Investment-in-kind is popular with international NGOs. This form of support entails the delivery of materials, goods, or labor from other countries because the equivalent does not exist in sufficient quantity in Somalia.41 Cross-border currency is normally used by investors mainly in the more unstable regions of Somalia like Mogadishu. Some investors may also move money through small airports like the Wilson and Garissa airports in Kenya. Both methods are, however, extremely risky.

38 Shuraako, “For Investors”, available at http://shuraako.org/investors. 39 Somaliland Business Fund, “Frequently Asked Questions”, available at http://www.somalilandbusinessfund.com/index.php/faq. 40 The Fund for Peace, “The failed states index, 2013”, available at http://ffp.statesindex.org/rankings- 2013-sortable. 41 Shuraako, “Somalia Banking: Transfers, Challenges And Opportunities,” available at http://shuraako. org/sites/shuraako.org/files/documents/Somalia%20Banking%20Transfers,%20Challenges%20 And%20Opportunities.pdf.

SOMALIA • 315 Opportunities

Despite these challenges, members of Somalia’s large, global diaspora are beginning to invest and/or return to the country with active encouragement from the government. 42 Generally, they are motivated by a combination of a desire to help their homeland and an understanding of the potential prospects. A number of opportunities are beginning to emerge for impact investors:

• Invest in technical assistance to build pre-investment pipeline: Somalia has very few intermediaries providing any advisory and business development services to local enterprises. Impact investors could replicate models in other countries in the region (e.g., Kenya) where pre-investment technical assistance has helped businesses grow to investment readiness.

• Develop a regional focus: Levels of conflict and instability vary across Somalia. Somaliland and Puntland have been essentially operating as relatively stable independent states in recent years, and most likely offer the most amenable environments for impact investment at present.

• Partner with returning diaspora members: Over one million Somalis live outside the country, often having acquired valuable skills and experience abroad. The government has recognized the diaspora’s potential to help rebuild the economy and is actively encouraging their return by promoting the opportunities to rebuild the country and make money. Returning diaspora benefit from both an understanding of local markets as well as foreign expertise, and could provide a rich source of entrepreneurs, intermediaries, or investment partners.

Somalia’s poverty levels and low human development indicators demonstrate that there is great need for investment to provide basic services, create employment, and drive economic growth. There are opportunities for entrepreneurs to launch businesses across a variety of sectors:

• Agribusiness: Somalia is heavily dependent on imported food. Years of conflict have displaced farmers from their land and destroyed productive assets such as irrigation systems. Along with frequent droughts, this has led to a decline in agricultural production.43 Investing in agribusinesses and supporting farmers with inputs, credit, and productivity-enhancing measures could reduce the country’s dependency on food aid and imports while also improving nutrition.

• Fishing: The Somali coast is among the richest fishing grounds in Africa, and holds great potential for development.44 The sector has struggled to develop due to lack of skills and equipment and insufficient regulatory frameworks. Investments in the fisheries sector could dramatically improve the welfare of coastal communities.

42 The National, “Back to the future: the challenges facing Somalia’s returning diaspora”, available at http://www.thenational.ae/arts-lifestyle/the-review/back-to-the-future-the-challenges-facing-somalias- returning-diaspora#ixzz3KHM6xw9i. 43 AFDB w available at, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and- Operations/2013-2015%20-%20Somalia%20-%20Country%20Brief.pdf. 44 Relief Web, “EU boosts the Somali fishing industry”,available at http://reliefweb.int/report/somalia/eu- boosts-somali-fishing-industry.

316 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA • Water and sanitation: Somalia suffers from poor access to water and sanitation services. Although Somaliland and Puntland have invested some resources in these sectors, South Central Somalia has very little in the way of centralized sanitation systems, and there has been little government investment. Improvements will require private sector investment and public-private partnerships.

• Basic health and education: Social services like health and education have suffered greatly in Somalia in the absence of a central administration. Although NGOs and development partners are investing in the sector, there may be additional opportunities for private players to enter the market.

SOMALIA • 317 APPENDICES

APPENDICES • 318 APPENDIX 1: ORGANIZATIONS INTERVIEWED FOR THIS REPORT

We extend our sincerest thanks to the following organizations who contributed their time and expertise for this report:

• 46 Parallels • Eleos Foundation • Mara Foundation

• Acumen Fund • Entoto Advisors • Montpelier Foundation

• Adam Smith International • Eric Casubutare • National Agriculture Export Development Board • Africa Enterprise Challenge • Ethiopian Agricultural Fund Transformation Agency • Novastar Ventures

• Africa Assets • Flow Equity • Pearl Capital Partners

• Africa Group • Fusion Capital • Persistent Energy Partners

• AfriCap Microfinance • Gatsby Charitable Foundation • Raha Investment Company • Grassroots Business Fund • RENEW • Argidius Foundation • Grameen Foundation • responsAbility • Arrow Ventures • Grassroots Business Fund • Schultze Global Investments • BBOXX • Hooge Raedt Social Venture • Sidai • Bertha Centre, University of Cape Town Graduate School of • ICCO • SolarNow Business • IDP Foundation • Spark

• BID Network • International Finance • Tanzania Investment • Bill & Melinda Gates Corporation Corporation Foundation • Intellecap • Tanzania Private Sector Foundation • Biogreen Investments Ltd • Jibu • Technoserve • Blue Haven Initaitive • Juhudi Kilimo • BRAC • United Nations Development • Karisimbi Partners Programme • Bridge 2 Rwanda • Khosla Impact Fund • Unreasonable Institute • Crystal Ventures • KZ Noir • Verdant Frontiers • East African Development • Laterite Bank • Veritas • LGT Venture Philanthropy • EcoFuels Kenya • VestedWorld • Mango Fund • ELEA Foundation • Village Capital

319 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA APPENDIX 2: COMPREHENSIVE BIBLIOGRAPHY

“2012 Investment Climate Statement: Eritrea,” The United States Department of State, available at http://www.state.gov/e/eb/rls/othr/ics/2012/191144.htm.

“2012 Investment Climate: Uganda,” The United States Department of State (Jun. 2012), available at http://www.state.gov/e/eb/rls/othr/ics/2012/191256.htm.

“2013 Investment Climate Statement: Djibouti,” U. S. Department of State (Apr. 2013), available at http://www.state.gov/e/eb/rls/othr/ics/2013/204631.htm.

“2013 Investment Climate Statement: Eritrea,” The United States Department of State (Apr. 2013), available at http://www.state.gov/e/eb/rls/othr/ics/2013/204637.htm.

“2013 Investment Climate Statement: South Sudan,” The United States Department of State (Apr. 2013), available at http://www.state.gov/e/eb/rls/othr/ics/2013/204855. htm.

“2013 Investment Climate Statement: Sudan,” The United States Department of State (Apr. 2013), available at http://.www.state.gov/e/eb/rls/othr/ics/2013/204736.htm.

“2014 Investment Climate Statement: Djibouti,” U. S. Department of State (Jun. 2014), available at http://www.state.gov/e/eb/rls/othr/ics/2014/226946.htm.

“2014 Investment Climate Statement: Eritrea,” The United States Department of State (Jun. 2014), available at http://www.state.gov/documents/organization/227167.pdf.

“70% of Rwandans to Have Access to Electricity By 2017,” Republic of Rwanda (Jan. 10, 2013), available at http://www.gov.rw/newsdetails2/?tx_ttnews%5Btt_ news%5D=896&cHash=316d0869ab5ddfe36ce5424a011fca18.

“A Brief History of Eritrea-Part 1,” about education, available at http://africanhistory. about.com/od/eritrea/p/EritreaHist1.htm.

“A New Fund Attests to the Country’s Allure—and to the Value of Connections,” The Economist (May 12, 2014), available at http://www.economist.com/node/21554547?zid =304&ah=e5690753dc78ce91909083042ad12e30.

“Abacus Parenteral Drugs,” Commonwealth Development Corporation (CDC) (Jul. 22, 2013), available at http://www.cdcgroup.com/Templates/Pages/CaseStudyDetail- Page.aspx?id=435.

“About Ethiopia,” Federal Democratic Republic of Ethiopia: Ministry of Foreign Affairs, available at http://www.mfa.gov.et/aboutethiopia.php?pg=3&page=3.

“About GIST,” GIST, available at http://gist.crdfglobal.org/about-gist.

APPENDICES • 320 “About Us,” African Development Bank, available at http://www.afdb.org/en/about-us/.

“Addressing Youth Employment through Micro- and Small-Enterprise Development in Ethiopia,” IDRC/CRDI, available at http://www.idrc.ca/EN/Regions/Sub_Saha- ran_Africa/Pages/ProjectDetails.aspx?ProjectNumber=10764.

“Africa Juice,” Agri-Vie, available at http://agrivie.com/investors-list/#investor-205/.

“African Empowerment Policies Compared,” Lex Africa (Aug., 2010), available at http://www.lexafrica.com/news-african-empowerment-policies-compared.

“African Minerals Limited,” Belgian Investment Company for Developing Countries (BIO), available at http://www.bio-invest.be/en/portfolio/africa/details/80.htm- l?mn=19.

“Against Eritrea ‘Calibrated’ to Halt All Activities Destabilizing Region,” United Na- tions (Dec. 5, 2011) available at http://www.un.org/press/en/2011/sc10471.doc.htm.

“AGRA Celebrates Launch of African Agricultural Capital Fund (AACF),” Re- liefweb (Jun. 27, 2012), available at http://reliefweb.int/report/kenya/agra-celebrates-launch-african-agricultural-capital-fund-aacf.

“AGRA, Standard Bank Partnership Opens Up Millions in Affordable Loans to African Farmers and Entrepreneurs,” The Global Impact Investing Network (Aug. 3, 2009), available at http://www.thegiin.org/cgi-bin/iowa/resources/clipping/34.html.

“Agrica,” Norfund, available at http://www.norfund.no/eastern-africa/agrica-arti- cle312-319.html.

“Akiba Commercial Bank,” ACCION, available at http://www.accion.org/our-impact/ akiba-commercial-bank.

“An Ideological Competition Between Two Diametrically Opposed Economic Models,” The Economist (Mar. 2, 2013), available at http://www.economist.com/news/ special-report/21572379-ideological-competition-between-two-diametrically-opposed-economic-models-doing-it-my?zid=304&ah=e5690753dc78ce9190908304- 2ad12e30.

“Announcing a New Investment: Mekelle Farms,” Acumen Blog (Mar. 13, 2014), available at http://acumen.org/blog/announcing-a-new-investment-mekelle-farms/.

“Appropriate Energy Saving Technologies: Increasing Access to Affordable Clean Energy Solutions in Uganda,” Santa Clara University (Jan. 5, 2014), available at http:// www.scu.edu/socialbenefit/entrepreneurship/gsbi/library.cfm?id=001F000000peXLh.

“Articulating a “Dubai Model” of Development: The Case of Djibouti,” Mohammed Bin Rashid School of Government (Sept. 2010), available at http://www.mbrsg.ae/ HOME/PUBLICATIONS/Reports-(1)/Articulating-a-Dubai-Model-of-Develop- ment-The-Case.aspx.

“Aureos Investee Company Safepak Joins Coca Cola and Highlands Water to Launch East Africa’s …,” The Abraaj Group (Sep. 13, 2010), available at http://www.abraaj.com/ news-and-insight/news/aureos-investee-company-safepak-joins-coca-cola-and-highlands-water-to-laun.

321 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA “Brookside Dairy,” The Abraaj Group, available at http://www.abraaj.com/search/results/b342c62ff3adf86c9b334f92234327df/.

“BTI 2014: Burundi Country Report,” Bertelsmann Stiftung, available at http://www. bti-project.org/reports/country-reports/esa/bdi/index.nc.

“Building Better Futures for Women in Rwanda,” Root Capital, available at http://www. rootcapital.org/portfolio/stories/building-better-futures-women-rwanda.

“Burundi Economic Profile 2014,” Index Mundi (Aug. 23, 2014), available at http:// www.indexmundi.com/burundi/economy_profile.html.

“Burundi Profile,”BBC News Africa (Nov. 26, 2014), available at http://www.bbc.com/ news/world-africa-13085064.

“Burundi: Financial Sector Profile,” Making Finance Work for Africa, available at http:// www.mfw4a.org/burundi/financial-sector-profile.html#c10566.

“Business in Rwanda: Africa’s Singapore?” The Economist (Feb. 23, 2012), available at http://www.economist.com/node/21548263?zid=304&ah=e5690753dc- 78ce91909083042ad12e30.

“Cable Holdings Limited – East African Cables,” The Abraaj Group, available at http:// www.abraaj.com/search/results/08425c5b679c5f0285a6f13717d9f5df/.

“Canada–Tanzania relations,” High Commission of Canada to Tanzania (Nov. 13, 2014), available at http://www.canadainternational.gc.ca/tanzania-tanzanie/bilateral_rela- tions_bilaterales/canada_tanzania-tanzanie.aspx?menu_id=7&lang=eng.

“Capital Properties,” Actis, available at http://www.act.is/portfolio/capitalproperties.

“Cash-Starved Sudan to Double Minimum Wage,” The Daily Star (Dec. 30, 2012), available at http://www.dailystar.com.lb/News/International/2012/Dec-30/200394- cash-starved-sudan-to-double-minimum-wage.ashx#axzz3KFVwiq4y.

“CDC Invests in First Ever Ethiopia-Focused Fund,” Commonwealth Development corporation (CDC) (May 9, 2012), available at http://www.cdcgroup.com/Media/ News/CDC-invests-in-first-ever-Ethiopia-focused-fund/.

“CERF Allocates US$3 Million in Eritrea,” United Nations Central Emergency Resource Fund (2013), available at http://www.unocha.org/cerf/cerf-worldwide/where-we-work/ eri-2013.

“COMESA Strategy,” COMESA, available at http://about.comesa.int/index.php?option=com_content&view=article&id=78&Itemid=118.

“Cordaid Investment Portfolio: Cordaid Investments Footprint,” Cordaid (Apr. 7, 2014), available at https://www.cordaid.org/en/publications/cordaid-investments-portfolio/.

“Corruption Perceptions Index,” Transparency International (2013), available at http:// www.transparency.org/cpi2013/results.

APPENDICES • 322 “Creating Opportunity through Ownership by Kick-Starting Financial Independence for Ugandan Motorcycle Taxi Drivers (Boda-Bodas),” Tugende, available at http:// www.tugendedriven.com/.

“D. Light Continues to Shine, Raises $11 million,” Social Enterprise Buzz (Feb. 25, 2010), available at http://www.socialenterprisebuzz.com/2014/02/25/d-light-continues-to-shine-raises-11-million/.

“DFID Impact Fund,” Commonwealth Development Corporation (CDC), available at http://www.cdcgroup.com/dfid-impact-fund.aspx.

“Djibouti at a glance,” World Bank Group, available at http://www.worldbank.org/en/ country/djibouti.

“Djibouti Economy,” Economy Watch (Jun. 29, 2010), available at http://www.economywatch.com/world_economy/djibouti.

“Djibouti Political Roundup: Parliament, Opposition, and A,” Scoop Independent News (Oct. 8, 2009), available at http://www.scoop.co.nz/stories/WL0910/S02191/ cablegate-djibouti-political-roundup-parliament-opposition-and-a.htm.

“Djibouti: Foreign Investment,” Banco Santander, S.A, available at https://en.santandertrade.com/establish-overseas/djibouti/investing-3.

“Doing Business for Sudan’s Poorest,” The World Bank Group (Apr. 4, 2013), available at http://www.worldbank.org/en/news/feature/2013/04/04/building-businesses-for-sudan-s-poorest.

“Ease of Doing Business in Djibouti,” The World Bank Group, available at http://www. doingbusiness.org/data/exploreeconomies/djibouti/.

“Ease of Doing Business in South Sudan,” The World Bank Group, available at http:// www.doingbusiness.org/data/exploreeconomies/south-sudan.

“Economy Rankings,” Ease of Doing Business Index (2014), available at http://data. worldbank.org/indicator/IC.BUS.EASE.XQ.

“Economy,” Ministry of Foreign Affairs of Denmark in Kenya, available at http://kenya. um.dk/en/about-kenya-new/economy-new/.

“Economy,” Sudan Hub Group, available at http://www.sudanhub.co.uk/sudan-overview/economy/.

“Eritrea Economic Outlook,” The African Development Bank Group (2014), available at http://www.afdb.org/en/countries/east-africa/eritrea/eritrea-economic-outlook/.

“Eritrea Offers Stake in EriTel to Domestic Buyers Only,” Telecompaper (Jan. 7, 2013), available at http://www.telecompaper.com/news/eritrea-offers-stake-in-eritel-to-domestic-buyers-only--917220.

“Eritrea Overview,” The World Bank (Sep. 2012), available at http://www.worldbank. org/en/country/eritrea/overview#1.

323 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA “Eritrea Project Portfolio: Cumulative Activities as of 12/3/2014,” The OPEC Fund for International Development (Mar. 12, 2014), available at http://www.ofid.org/COUN- TRIES/Africa/Eritrea.aspx.

“Eritrea to Re-start Aggressive Privatization Program,“ Tefsanews (Dec. 27, 2013), available at http://www.tesfanews.net/eritrea-to-re-start-aggressive-privatization-program/.

“Establishing a Business in Burundi,” Burundi Investment Promotion Authority, available at http://www.investburundi.com/en/establishing-a-business-in-burundi.

“Ethiopia,” Foreign Affairs, Trade and Development: Canada, available at http://www. international.gc.ca/development-developpement/countries-pays/ethiopia-ethiopie. aspx?lang=eng.

“Ethiopia: An Irresistible Brew for Foreign Investment,” Ventures Africa (Oct. 25, 2013), available at http://www.ventures-africa.com/2013/10/growing-business-ethiopia-irresistible-brew-foreign-investors/.

“Ethiopia: Project Portfolio,” The OPEC Fund for International Development (Dec. 15, 2014), available at http://www.ofid.org/COUNTRIES/Africa/Ethiopia.aspx.

“EU Boosts the Somali Fishing Industry,” Relief Web (Jun. 10, 2014), available at http://reliefweb.int/report/somalia/eu-boosts-somali-fishing-industry.

“Export Trading Group, Tanzania,” CDC (Jul. 23, 2013), available at http://www.cdcgroup.com/The-difference-we-make/Case-Studies/Export-Trading-Group/.

“FDI in Burundi,” Burundi Investment Promotion Authority, available at http://www. investburundi.com/en/fdi-in-burundi.

“Financial Sector Deepening Trust,” The Rockefeller Foundation, available at http:// www.rockefellerfoundation.org/grants/grants-and-grantees/d3403e2a-de8a-4f37- beb3-de190ca30f24.

“For Investors,” Shuraako, available at http://shuraako.org/investors.

“Foreign Ownership of Shares and Land Protection of Foreign Investors,” International Law Office (Mar. 12, 2007), available at http://www.internationallawoffice.com/newsletters/detail.aspx?g=7bb56275-1bcb-db11-adf6-001143e35d55.

“Freedom on the Net - Sudan (2013),” Freedom House, available at https://freedomhouse.org/report/freedom-net/2013/sudan.

“Frequently Asked Questions,” Somaliland Business Fund, available at http://www. somalilandbusinessfund.com/index.php/faq.

“Frontier Mentality: A New Fund Attests to the Country’s Allure-and to the Value of Connections,” The Economist (May 12, 2014), available at http://www.economist.com/ node/21554547?zid=304&ah=e5690753dc78ce91909083042ad12e30.

“Green Bio Energy Ltd: Empowering Communities with Cost-Saving Safe, and Eco-Friendly Energy Solutions,” Santa Clara University (Jun. 15, 2014), available at http://www.scu.edu/socialbenefit/entrepreneurship/gsbi/library.cfm?id=- 001F000000uv9JX. APPENDICES • 324 “Hailemariam Desalegn,” The Economist (Nov. 12, 2012), available at http://www. economist.com/news/21566482-hailemariam-desalegn.

“Historical Exchange Rates,” OANDA, available at http://www.oanda.com/currency/ historical-rates/.

“IFC Asset Management Company: Home,” IFC Asset Management Company, available at http://www.ifcamc.org/.

“IFC Results Show High Development Impact, Record Investments in Sub Saharan Africa in FY12 Investments Hit $4 billion in SSA; Activities Support Infrastructure, Farmers, Entrepreneurs,” The International Finance Corporation: World Bank Group (Aug. 28, 2012), available at http://ifcext.ifc.org/ifcext/pressroom/IFCPressRoom. nsf/0/D7615F8D27262E4342257A68003D0B11.

“Impact Investing News,” African Capital Market News, available at http://www.african- capitalmarketsnews.com/news-stories/impact-investing-news/.

“Incentives,” Burundi Investment Promotion Authority, available at http://www.investburundi.com/en/incentives.

“Inflation, consumer prices (annual %),”The World Bank Group (2014), available at http://data.worldbank.org/indicator/FP.CPI.TOTL.ZG.

“Investment Incentives & Tax Codes,” Rwanda High Commission United Kingdom, available at http://www.rwandahc.org/trade-and-investment/investment-incentives-and-tax-codes/.

“Investment Opportunities: Housing,” NIPA-Invest in Djibouti, available at http://www. djiboutinvest.com/index.php?option=com_content&view=article&id=252&Itemid=616.

“Investor Spotlight: SNS Impact Investing: Dr. Harry Hummels, Co-Managing Direc- tor of SNS Impact Investing, Shares His Perspective with the GIIN Community,” The Global Impact Investing Network (Jan. 26, 2011), available at http://www.thegiin.org/ cgi-bin/iowa/resources/spotlight/190.html.

“Kampala Shops Shut over Uganda Interest Rates,” BBC News (Jan. 11, 2012), available at http://www.bbc.co.uk/news/world-africa-16508825.

“Kenyan Banking Sector Registers Improved Performance,” Central Bank of Kenya (Mar. 31, 2013), available at https://www.centralbank.go.ke/index.php/news/296-kenyan-banking-sector-registers-improved-performance.

“KPMG: Business Environment Survey,” Slideshare (Jun. 19, 2014), available at http:// www.slideshare.net/eastafricatop100/pre-budget-business-environment-survey-2014.

“KZ Noir: Increasing Yield and Quality of Premium Coffee in Rwanda,”Acumen , available at http://acumen.org/investment/kznoir/.

“Land Acquisition for Investment,” Rwanda Natural Resources Authority, available at http://rnra.rw/index.php?id=67.

325 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA “Lebanese Firm to Invest $800M in Sudan Agriculture Project,” Al Arabiya (May 23, 2013), available at http://english.alarabiya.net/en/business/economy/2013/05/23/Leb- anese-firm-invests-800m-in-Sudan.html.

“Mango Entrepreneurs,” Mango Fund, available at http://mangofund.org/Entrepre- neurs.html.

“Maternal Mortality has Declined Steadily Since 1990, But Not Quickly Enough to Meet the MDG Target,” The United Nations International Children’s Emergency Fund (Jul. 2014), available at http://data.unicef.org/maternal-health/maternal-mortality.

“Meet Our GSBI Online Spring 2014 Social Entrepreneurs: Wana Energy Solutions Uganda,” Santa Clara University, available at http://www.scu.edu/socialbenefit/entrepreneurship/gsbi/alumni/Current-Online-Class.cfm.

“Member States,” Southern African Development Community, available at http://www. sadc.int/member-states/.

“Modernizing Rwanda’s Coffee Industry and Supporting Its Small Farmers: Westrock Coffee Holdings,”OPIC (2014), available at http://www.opic.gov/projects/westrock.

“More Foreign Companies are Seeking Business with Eritrea,” Madote (Nov. 23, 2013), available at http://www.madote.com/2013/11/more-foreign-companies-are-seeking. html.

“National Service in Eritrea, Miserable and Useless,” The Economist (Mar. 10, 2014), available at http://www.economist.com/blogs/baobab/2014/03/national-service-eritrea.

“New Forest Company, Asilia & Mtanga Foods,” Agri-Vie, available at http://agrivie. com/investors-list/#investor-205.

“NIC Bank Completes Drawdown of USD 21.4m (Kshs 1.8 billion) Line of Credit from PROPARCO,”NIC Bank (Jun. 6, 2012), available at http://www.nic-bank.com/main/ proparco-facility/.

“Nyirefami: Growing Food Security in Tanzania,” Root Capital, available at http://www. rootcapital.org/portfolio/stories/nyirefami-growing-food-security-tanzania.

“Operation Listings,” Arab Bank for Economic Development in Africa, available at http://www.badea.org/operation-listing.htm?countryId=17.

“OPIC in Action: Impact Investing,” Overseas Private Investment Corporation (OPIC), available at http://www.opic.gov/opic-action/impact-investing.

“Our Portfolio,” Swedfund International AB, available at http://www.swedfund.se/en/ investments/.

“Pan African Housing Fund,” Commonwealth Development Corporation (CDC) (Jul. 23, 2013), available at http://www.cdcgroup.com/Templates/Pages/Case- StudyDetailPage.aspx?id=453.

APPENDICES • 326 “Partnership for Economic Growth,” The United States Agency for International Development (Dec. 15, 2014), available at http://www.usaid.gov/somalia/fact-sheets/ partnership-economic-growth.

“Pearl Capital Partners Invests US$ 1.2M in Northern Uganda Agricultural Centre,” Farm Land Grap (Jul. 16, 2012), available at http://farmlandgrab.org/post/view/22568- pearl-capital-partners-invests-us-1-2m-in-northern-uganda-agricultural-centre.

“Population density (people per sq. km of land area),” The World Bank Group, available at http://data.worldbank.org/indicator/EN.POP.DNST?order=wbapi_data_val- ue_2013+wbapi_data_value+wbapi_data_value-last&sort=desc.

“Population Growth Rate,” Central Intelligence Agency, available at https://www.cia. gov/library/publications/the-world-factbook/fields/2002.html.

“Profiles of NGOs Operating in Sudan,” Partners and Food in Emergency and Devel- opment Aid, available at http://pfeda.univ-lille1.fr/Ethiop/ngopro_su.htm.

“Project Nurture: Sustainable Mango Production in East Africa,” Sustainable Agricul- ture Initiative Platform, available at http://www.saiplatform.org/projects/70/98/Proj- ect-Nurture-Sustainable-Mango-Production-in-East-Africa.

“Project Portfolio: Tanzania,” The OPEC Fund for International Development (Dec. 11, 2014), available at http://www.ofid.org/COUNTRIES/Africa/Tanzania.aspx.

“PTA Bank: Our History,” PTA Bank, Eastern and Southern African Trade and Devel- opment Bank, available at, http://www.ptabank.org/index.php/bank-profile/our-background#.VHgpozGUdqU.

“Puntland Profile,”BBC News (Jan. 8, 2014), available at http://www.bbc.com/news/ world-africa-14114727.

“Remittance Flows Worldwide in 2012,” Pew Research Center’s Social & Demo- graphic Trends Project (Feb. 20, 2014), available at http://www.pewsocialtrends. org/2014/02/20/remittance-map/.

“Revital Healthcare,” The Abraaj Group, available at http://www.abraaj.com/search/ results/14d34014e941a2ac00eeb69f18809376/.

“Rwanda,” IFRTD, available at http://www.ifrtd.org/en/regions/country_pages/Rwan- da.php.

“Security Council Committee Pursuant to Resolutions 751 (1992) and 1907 (2009) Concerning Somalia and Eritrea,” UN Site, available at http://www.un.org/sc/committees/751/.

“Small Chilies Bring Big Impact to Rural Uganda,” Root Capital, available at http:// www.rootcapital.org/portfolio/stories/small-chilies-bring-big-impact-rural-uganda.

“Somalia is Open for Business, Says President,” The Telegraph (May 7, 2013), available at http://www.telegraph.co.uk/news/worldnews/africaandindianocean/somalia/10040710/Somalia-is-open-for-business-says-president.html.

327 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA “Somalia: Foreign Investment,” Banco Santander Trade (Oct. 2014), available at https:// en.santandertrade.com/establish-overseas/somalia/investing-3.

“Somaliland Business Fund-Private Sector Re-Engagement Program Launched,” So- maliland Business Fund (2014), available at http://somalilandbusinessfund.com/index. php/news-a-events/17-somaliland-business-fund-private-sector-re-engagement-program-launched.

“Songas,” Actis, available at http://www.act.is/portfolio/songas.

“South Sudan Economic Statistics and Indicators,” Economy Watch, available at http:// www.economywatch.com/economic-statistics/country/South-Sudan/.

“South Sudan Faces Hurdles as World’s Newest Country,” The International Monetary Fund (July 18, 2011), available at http://www.imf.org/external/pubs/ft/survey/so/2011/ car071811a.htm.

“South Sudan Overview,” The World Bank Group (Nov. 13, 2014), available at http:// www.worldbank.org/en/country/southsudan/overview#1.

“South Sudan Profile,”BBC (Aug. 6, 2014), available at http://www.bbc.com/news/ world-africa-14019202.

“Start Up! Support for Early Stage Firms,” Devex, available at https://www.devex.com/ projects/tenders/start-up-support-for-early-stage-firms/138155.

“Starting a Foreign Business in Sudan,” Afribiz (Sep. 1, 2010), available at http://www. afribiz.info/content/2010/starting-a-foreign-business-in-sudan.

“Struggling Sudanese Economy,” CHR. Michelsen Institute (Jan. 29, 2014), available at http://www.cmi.no/news/?1137=struggling-sudanese-economy.

“Sub-Saharan Africa: Developing Only,” The World Bank Group (2014), available at http://data.worldbank.org/region/SSA.

“Sudan and South Sudan,” The United States Energy Information Administration (Sep. 3, 2014), available at http://www.eia.gov/countries/cab.cfm?fips=SU.

“Sudan Economic Structure,” Economy Watch (Apr. 8, 2010), available at http://www. economywatch.com/world_economy/sudan/structure-of-economy.html.

“Sudan Names New Central Bank Governor,” Islamic Finance (Dec. 16, 2013), available at http://www.islamicfinance.de/?q=node/5872.

“Sudan Railways Corporation,” Institute of Developing Economies, available at http:// www.ide.go.jp/English/Data/Africa_file/Company/sudan05.html.

“Sudan: Conflict Profile,”Insight on Conflict (Mar. 2014), available at http://www. insightonconflict.org/conflicts/sudan/conflict-profile/.

“Sudanese President Officially Signs Off on Increasing Minimum Wage,”Sudan Tri- bune (Oct. 3, 2013), available at http://www.sudantribune.com/spip.php?article48307.

“Support to Higher Education Development,” The African Development Fund Group, available at http://www.afdb.org/en/projects-and-operations/project-portfolio/project/p-er-iad-001/. APPENDICES • 328 “Swedish Development Cooperation with Kenya,” Embassy of Sweden in Nairobi, available at http://www.swedenabroad.com/en-GB/Embassies/Nairobi/Development-Co- operation/Development-Cooperation-Kenya/.

“Syndicated Loans Management: B Loan Structure and Benefits,” International Fi- nance Corporation, available at http://www.ifc.org/wps/wcm/connect/topics_ext_con- tent/ifc_external_corporate_site/ifc+syndications/overview_benefits_structure/syndications/b+loan+structure+and+benefits/bloanstructuredefaultcontent.

“Tanga Fresh, Tanzania,” DOB Equity, available at http://www.dobequity.nl/east-africa-fund/tanga-fresh-tanzania/.

“Tanzania Significantly Increases FDI Inflow in 2012,” Tanzania Invest (Jul. 16, 2013), available at http://www.tanzaniainvest.com/economy/news/780-tanzania-significantly-increases-fdi-inflow-in-2012.

“Tanzania Tea Packers,” Actis, available at http://www.act.is/portfolio/tanzaniateapack- ers.

“Telecommunication in Somaliland and Puntland,” BiD Network, available at http:// www.bidnetwork.org/en/plan/182281/company.

“The Economist: Private Healthcare in Africa - A middle way?” The Abraaj Group (Oct. 11, 2013), available at http://www.abraaj.com/news-and-insight/news/the-econo- mistprivate-healthcare-in-africa-a-middle-way/.

“The Gatsby Charitable Foundation,” The Global Impact Investing Network, available at http://www.thegiin.org/cgi-bin/iowa/council/member/index.html#30.

“The History of Sudan,” Fact Rover, available at http://www.factrover.com/history/ Sudan_history.html.

“The Kenya Agricultural Research Institute,” Ford Foundation (2014), available at http://www.fordfoundation.org/grants/grantdetails?grantid=115819.

“The President Tightens his Grip,” The Economist (Sep. 19, 2013), available at http:// www.economist.com/news/middle-east-and-africa/21586597-president-tightens-his- grip-safe-and-sorry?zid=304&ah=e5690753dc78ce91909083042ad12e30.

“The World Factbook,” Central Intelligence Agency, available at https://www.cia.gov/ library/publications/the-world-factbook/wfbExt/region_afr.html.

“Thousands Flee Crisis-Hit Sudan In ‘Brain Drain’,” Gulf News (Mar. 7, 2013), available at http://gulfnews.com/news/region/sudan/thousands-flee-crisis-hit-sudan-in-brain- drain-1.1155315.

“Top Network Operators See South Sudan as Next Big Mobile-Money Zone,” Human IPO (Jul. 20, 2012), available at http://www.humanipo.com/news/965/top-network- operators-see-south-sudan-as-next-big-mobile-money-zone/.

“U.S. Relations with Djibouti,” U. S. Department of State (Aug. 21, 2013), available at http://www.state.gov/r/pa/ei/bgn/5482.htm.

329 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA “UAP Holdings: Insurance 2012,” Kinyeti Venture Capital, available at http://kinyeti- capital.com/index.php/pages/portfolio.

“Uganda: Project Portfolio,” The OPEC Fund for International Development (Nov. 12, 2014), available at http://www.ofid.org/COUNTRIES/Africa/Uganda.aspx.

“UK Billionaire Set to Launch East Africa-Focused High-Impact Investment Ve- hicle,” Homestrings (May 23, 2014), available at https://www.homestrings.com/ news-and-analysis/2014/may/23/uk-billionaire-set-to-launch-east-africa-focused- high-impact-investment-vehicle/.

“Unemployment: Youth Total: % of Total Labor Force Ages 15-24,” The World Bank Group, available at http://data.worldbank.org/indicator/SL.UEM.1524.ZS.

“US-Sudan relations,” Embassy of the United States, Khartoum, Sudan, available at http://sudan.usembassy.gov/ussudan_relations.html.

“Welcome to the FSDT,” Financial Sector Deepening Trust, available at http://www. fsdt.or.tz/home/.

“With Improved Security, Investors Eyeing Somalia,” The East African (Feb. 9, 2013), available at http://www.theeastafrican.co.ke/news/With-improved-security-investors-eyeing-Somalia/-/2558/1689618/-/f9iwpuz/-/index.html.

“Wood Family Trust Invests £7.5m in Rwandan Tea Factories,” Philanthropy Impact (Feb. 11, 2013), available at http://www.philanthropy-impact.org/news/wood-family- trust-invests-%C2%A375m-rwandan-tea-factories.

“World Economic Outlook Database,” The International Monetary Fund (2013), available at http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/index.aspx.

“World Report 2014: Eritrea,” Human Rights Watch, available at http://www.hrw.org/ world-report/2014/country-chapters/eritrea.

“Zain Sudan Repatriated Part of Its Profit Abroad In 2012,”Sudan Tribune (Mar. 21, 2013), available at http://www.sudantribune.com/spip.php?article45919.

2010 Human Development Index, The United Nations Development Programme (Apr., 2010), available at http://hdr.undp.org/sites/default/files/reports/270/ hdr_2010_en_complete_reprint.pdf.

2012 World Population Prospects, United Nations Department of Economic and Social Affairs (2012), available at http://esa.un.org/wpp/Excel-Data/EXCEL_FILES/1_Population/ WPP2012_POP_F07_1_POPULATION_BY_AGE_BOTH_SEXES.XLS.

2013 Investment Climate Statement: Ethiopia, The United States Department of State (Apr. 2013), available at http://www.state.gov/e/eb/rls/othr/ics/2013/204639.htm.

2014 Human Development Index, The United Nations Development Pro- gramme (2014), available at http://hdr.undp.org/en/data.

Abdelrazig Elbashir, et al., The Food and Agriculture Organization of the United Na- tions, Sudan-Poverty Reduction & Programs in Agriculture (2004), available at http:// coin.fao.org/coin-static/cms/media/5/12825482911700/sudan-_poverty_strategy_pa- per-_agricultural_sector.doc. APPENDICES • 330 Abdirisak Hussein Aden & Abdisalam Abdirahman Mohamed, The United Nations Development Programme, Capacity Assessment of Economic Actors in Puntland (2011), available at http://www.somali-rsl.net/project/studies_reviews/Final%20Assess- ment%20Report%20of%20Economic%20Actors%20in%20PL.pdf.

Abdullahi Jamaa, “Djibouti: Arab World’s Most Expensive City,” Hiiran Online (July 25. 2011), available at http://hiiraan.com/news2/2011/July/djibouti_arab_world_s_ most_expensive_city.aspx.

Absolute Return for Kids (ARK), Absolute Return for Kids: Trustee’s Annual Report and Accounts (2013), available at http://www.arkonline.org/media/71819/Signed%20 Account%2020131218.pdf.

Abu Dhabi Fund for Development, Projects Map (2008), available at http://www. adfd.ae/projects/projectsmap/default.aspx.

Adam Spence, “Twelve Ventures Hit the Impact Investing Market with SVX,” MaRS Dicovery District (Sep. 19, 2013), available at http://www.marsdd.com/news-and-insights/twelve-ventures-hit-impact-investing-market/.

Admit Wondifraw Zerihun, Haile Kibret, & James Wakiaga, The African Develop- ment Bank, The Organization for Economic Co-operation and Development, & The United Nations Development Programme, African Economic Outlook: Ethiopia 2014 (2014), available at http://www.africaneconomicoutlook.org/fileadmin/uploads/ aeo/2014/PDF/CN_Long_EN/Ethiopie_EN.pdf.

African Development Bank Group, et al., African Economic Outlook 2012: Eritrea 2012 (2012), available athttp://www.afdb.org/fileadmin/uploads/afdb/Documents/Publica- tions/Eritrea%20Full%20PDF%20Country%20Note.pdf.

African Development Bank Group, Somalia: Country Brief 2013-2013 (2013) available at, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Opera- tions/2013-2015%20-%20Somalia%20-%20Country%20Brief.pdf.

African Development Bank, et al., African Economic Outlook 2012: Rwanda, available at http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/Rwan- da%20Full%20PDF%20Country%20Note_01.pdf.

African Development Bank, Organization for Economic Co-operation and Develop- ment, United Nations Development Program, United Nations Economic Commission for Africa, African Economic Outlook: Eritrea 2012 (2012), available at http://www. youthpolicy.org/national/Eritrea_2012_Youth_Employment_Briefing.pdf.

African Union for Housing Finance, Djibouti Launches a Housing Bank (2014), available at http://www.auhf.co.za/wordpress/assets/AUHF-Newsletter-February.pdf.

Afrique, “Sudan: Scoring High on Censorship,” Enemies of the Internet (Mar. 10, 2014), available at http://12mars.rsf.org/2014-en/2014/03/10/29/.

AgDevCo, Developing Sustainable Agriculture in Africa, available at http://www. agdevco.com/userfiles/file/2012%20AgDevCo%20Brochure.pdf.

331 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Agence Française de Développement, AFD and Uganda: A Growing Partnership (2013), available at http://www.afd.fr/jahia/webdav/site/afd/shared/PORTAILS/PUB- LICATIONS/PLAQUETTES/Couverture/AFD-ouganda-VA.pdf.

Agency for International Business Cooperation, et al., Public Private Cooperation in Fragile States Country report: Southern Sudan (2009), available at http://www.clingendael.nl/sites/default/files/20090900_report_cru_southern_sudan.pdf.

Agricultural Cooperative Development International/ Volunteers in Overseas Co- operative Assistance, From Crop-to-Cup: USAID Supports Investment in Ethiopia’s Specialty Coffee Industry, available at http://www.acdivoca.org/site/Lookup/Ethiopia- AMDe-from-crop-to-cup/$file/Ethiopia-AMDe-from-crop-to-cup.pdf. (The slash is present because the name of the organization is ACDI/VOCA).

Ahmed Dualeh, The African Development Bank Group, The Organisation for Economic Co-operation and Development, & The United Nations Development Programme, African Economic Outlook: Somalia 2014 (2014), available at http://www. africaneconomicoutlook.org/fileadmin/uploads/aeo/2014/PDF/CN_Long_EN/So- malia_EN.pdf.

Ahmed Osman Ali, The Central Bank of Djibouti, Djibouti’s Financial Sector, available at https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=5&cad=r- ja&uact=8&ved=0CDUQFjAE&url=http%3A%2F%2Fwww.firstmagazine.com%2F- DownloadSpecialReportDetail.3519.ashx&ei=CuZuVObDLseBywO2lIGQDw&us- g=AFQjCNE-tHjljE4jjXt5YhLwdND_4f1-6g&bvm=bv.80185997,d.d2s.

AIMSs consulting: The United States Agency for International Development, So- maliland Livestock End Market Study (2013), available at http://somalilandinvest.net/ wp-content/uploads/2013/08/USAID-Somaliland-Livestock-End-Market-Study_July- 2013.pdf.

Akin Iwayemi, et al., The OPEC Fund for International Development, Energy Poverty in Africa: Proceedings of a Workshop held by OFID in Abuja, Nigeria (2008), available at http://www.ofid.org/LinkClick.aspx?fileticket=xNKy_XeYw7g%3D&tabid=109.

Al Siddig Talha Mohamed Rahma, The National Ribat University: Sudan, The Suda- nese Islamic Banking Experience (2011), available at http://www.slideshare.net/alhudacibe/the-sudanese-islamic-banking-by-al-siddig-talha-mohamed.

Alan Gelb, Christian J. Meyer, & Vijaya Ramachandran, Center for Global Develop- ment, Development as Diffusion: Manufacturing Productivity and Sub-Saharan Africa’s Missing Middle (2014), available at http://www.cgdev.org/sites/default/files/development-diffusion-market-productivity_final.pdf.

Alemayehu Geda & Atnafu G. Meskel, Institute of African Economic Studies, Impact of China-Africa Investment Relations: Case Study of Ethiopia (2011), available at http:// www.alemayehu.com/On%20Going%20Research/IAES%20WP_04_2011_Alem&At- enafu.pdf.

Alexander Simeos, “Sudan Profile of Exports, Imports and Trade Partners,”Observa - tory of Economic Complexity, available at http://atlas.media.mit.edu/profile/country/ sdn/.

APPENDICES • 332 Ambassade de le République du Rwanda à Bruxelles, A Transformative Power (Mar. 12, 2012), available at http://www.ambarwanda.be/pdf/Rwanda%20Flash%20News%20 92-EN%20.pdf.

Amit Bouri, et al., GIIN, IRIS Data Brief (2014), available at http://www.thegiin.org/ binary-data/IRISData_Brief_Beneficiaries_2014.pdf.

Amit Bouri, et al., The Global Impact Investing Network, Improving Livelihoods, Re- moving Barriers: Investing for Impact in Mtanga Farms (2011), available at http://www. thegiin.org/binary-data/RESOURCE/download_file/000/000/328-1.pdf.

André Dellevoet, Africa Enterprise Challenge Fund, available at https://agrifinfacility. org/sites/agrifinfacility.org/files/12%20-%203.28%20-%20Plenary%202%20-%20 AECF%20-%20Dellevoet.pdf.

Anna Lyudvig, DEG, 50-Year Footprint, available at https://www.deginvest.de/ DEG-Documents-in-English/Download-Center/Africa-AM_50-years-DEG-Foot- print_Weinfurtner_201401.pdf.

Annie Wallace, Population, Health and Environment Ethiopia Consortium, Reflections on Population, Health and Environment Projects in Ethiopia: The Packard Foundation’s First 3 Years Investing in PHE in Ethiopia (2010), available at http://www.phe-ethiopia. org/pdf/Packard%20PHE%20Reflections.pdf.

Ann-Kristin Achleitner, et al., Technical University Munich, Schwab Foundation Com- munity of Social Entrepreneurs, & Schwab Foundation for Social Entrepreneurship, Social Investment Manual: An Introduction for Social Entrepreneurs (2011), available at http://www.weforum.org/pdf/schwabfound/SocialInvestmentManual.pdf.

Arab Bank for Economic Development in Africa, BADEA signs six loan agreements (2012), available at http://www.badea.org/Portal/Document_Reposito- ry/162/1_%D8%AA%D9%88%D9%82%D9%8A%D8%B9%D8%A7%D8%AA%20 %D8%A5%D9%86%D8%AC%D9%84%D9%8A%D8%B2%D9%8A.pdf.

Arab Bank for Economic Development in Africa, Notification of Arab Contractors and Consultants with Projects and Technical Assistance Operations Financed by The Arab Bank For Economic Development in Africa (BADEA) (2012), available at https://www. google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0C- DEQFjAB&url=http%3A%2F%2Fwww.badea.org%2FPortal%2FDocument_Re- pository%2F156%2F1_Notification%2520june%25202012%2520-%2520en. doc&ei=Bw0IVNatCumAywPnzYKoBw&usg=AFQjCNGGnfPjX_U2514qk00dl- TI2v3fdNw&bvm=bv.74649129,d.bGQ.

Areef Suleman & Isma’eel Ibrahim Na’iya, The Islamic Development Bank, Fostering Intra- OIC FDI in the Agriculture Sector (2009), available at http://www.isdb.org/irj/ go/km/docs/documents/IDBDevelopments/Internet/English/IDB/CM/Publica- tions/Intra-OIC-FDI.pdf.

Aspen Network of Development Entrepreneurs, Engines of Prosperity: Impact Report 2012 Executive Summary (2013), available at http://www.aspeninstitute.org/sites/default/files/content/docs/ande/Executive%20Summary_English.pdf.

333 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Audrey Emmanuelle Vergnes, The African Development Bank, The Organisation for Economic Co-operation and Development, & The United Nations Development Programme, African Economic Outlook: Djibouti 2014 (2014), available at http://www. africaneconomicoutlook.org/fileadmin/uploads/aeo/2014/PDF/CN_Long_EN/ Djiouti_EN.pdf.

Bahar Bayraktar, Statistical Economic and Social Research and Training Centre for Islamic Countries, The Role of Private Sector Investments in the Economic Performance of OIC Countries (2003), available at http://www.sesrtcic.org/files/article/128.pdf.

Bamboo Finance, Impact Report (2013), available at http://www.bamboofinance.com/ bamboo%20finance%20-%20impact%20report%202013.pdf.

Bangladesh Rural Advancement Committee, Uganda: 2012 Annual Report, available at http://www.brac.net/sites/default/files/ar2012/BRAC%20Uganda%20high%20res.pdf.

Bank Audi, Sudan Economic Report (2010), available at https://www.google. com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&cad=rja&uact=8&ved=0C- DUQFjAD&url=http%3A%2F%2Fwww.banqueaudi.com%2FGroupWebsite%- 2FopenAudiFile.aspx%3Fid%3D1980&ei=QLmGVNWWBYq8UffXg5gK&usg=AFQ- jCNE7lQviz-EoMJO26pB-qCjss1zxBg&bvm=bv.81449611,d.d24.

Bank of South Sudan, South Sudan’s Financial Sector (2013), available at http://www. mzv.cz/file/1100295/All_SSIC_2013_powerpoints_in_pdf_format_II.pdf.

Bank of Tanzania, Financial Stability Report (2010), available at http://www.bot-tz.org/ Publications/Fin-stability/financial%20Stability%20Report.pdf.

Bank of Uganda, Private Sector Investment Survey 2013 Report, available at https:// www.bou.or.ug/bou/bou-downloads/publications/PrivateSectorCapital/PSIS/2013/ All/PSIS-2013---REPORT.pdf.

Bekezela Ncuba, Wharton, Djibouti, available at http://fic.wharton.upenn.edu/fic/africa/Djibouti%20Final.pdf.

Bekezela Ncube, Wharton, Eritrea, available at http://fic.wharton.upenn.edu/fic/africa/Eritrea%20Final.pdf.

Ben Thornley, et al., Insight at Pacific Community Ventures & The Initiative for Re- sponsible Investment at Harvard University, Impact Investing: A Framework for Policy Design and Analysis (2011), available at http://www.pacificcommunityventures.org/ uploads/reports-and-publications/Impact_Investing_Policy_Full_Report.pdf.

Berhane Tewolde, Journal of Middle Eastern Geopolitics, Remittances As a Tool For Economic Development and Reconstruction in Eritrea, available at http://ojs.uniroma1. it/index.php/JMEG/article/viewFile/3123/3107.

Bernard Kagira, USAID, The Case Study: Tanzania Drops Export Ban on Grains (2011), available at http://www.competeafrica.org/Files/Case_Study_-_Tanzania_Export_ Bans_02122011.pdf.

Bertelsmann Stiftung, BTI 2014: Eritrea Country Report (2014), available at http://www. bti-project.de/uploads/tx_itao_download/BTI_2014_Eritrea.pdf.

APPENDICES • 334 Bertelsmann Stiftung, BTI 2014: South Sudan Country Report, available at http://www. bti-project.de/uploads/tx_itao_download/BTI_2014_South_Sudan.pdf.

Beth Jenkins & Lorin Fries, Harvard Kennedy School, Project Nurture: Partnering for Business Opportunity and Development Impact (2013), available at http://www. technoserve.org/files/downloads/project-nurture-partnering-for-business-opportunity-and-development-impact.pdf.

Betty Achan Ogwaro, Ministry of Agriculture, Forestry, Cooperatives, and Rural De- velopment, Agriculture: Untapped Abundance and Investment Opportunities in South Sudan’s Agricultural Sector (2013), available at http://www.southsudanembassydc.org/ PDFs/Invesment/South%20Sudan%20Investment%20Forum%20Agriculture%20Pre- sentation.pdf.

Big Society Capital, Social Investment Compendium: Portfolio of Research and Intel- ligence on The Social Investment Market (2013), available at http://www.bigsociety- capital.com/sites/default/files/pdf/Social%20Investment%20Market%20Compendi- um%20Oct%202013%20small_0.pdf.

Bureau of Economic and Business Affairs, US Department of State,2012 Investment Climate Statement-Djibouti (2012), available at http://www.state.gov/e/eb/rls/othr/ ics/2012/191138.htm.

C. Baumont-Keita, et al., African Development Bank & African Development Fund, Burundi: Country Strategy Paper 2012-2016 (2011), available at http://www.afdb.org/ fileadmin/uploads/afdb/Documents/Project-and-Operations/Burundi%20-%20 CSP%202012-16.pdf.

Caitlin Mazzilli, Rehana Ahmed, & Austen Davis, The United Nations International Children’s Emergency Fund, The Private Sector and Health: A survey of Somaliland Private Pharmacies, available at http://www.unicef.org/somalia/SOM_resources_rep- 11privsectorhealth.pdf.

Calvin Miller, et al., The Food and Agricultural Organization of the United Nations, Agricultural Investment Funds for Developing Countries (2010), available at http://www. fao.org/fileadmin/user_upload/ags/publications/investment_funds.pdf.

Capgemini and Merrill Lynch Global Wealth Management, World Wealth Report (2009), available at http://www.capgemini.com/resource-file-access/resource/pdf/ tl_Asset_Allocation.pdf.

Cathy Clark, Jed Emerson, & Ben Thornley, Insight at Pacific Community Ventures, CASE at Duke University’s Fuqua School of Business, & Impact Assets, A Market Emerges: The Six Dynamics of Impact Investing (2012), available at http://www.pacificcommunityventures.org/uploads/reports-and publications/The_Six_Dynamics_of_ Impact_Investing_October_2012_PCV_CASE_at_Duke_ImpactAssets.pdf.

Cathy Clark, Jed Emerson, & Ben Thornley, The Impact Investor, et al., The Need for Evidence and Engagement (2012), available at http://www.caseatduke.org/documents/ Articles-Research/The-Need-for-Evidence&Engagement_Mar2012.pdf.

335 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Cecilia Bjerborn, et al., The International Finance Corporation, SinCo & RisCura, Sustainable Investment in Sub-Saharan Africa: Investment Practitioner Views of Sus- tainable Investment in Private Equity and Asset Management in South Africa, Nigeria and Kenya (2011), available at http://www.google.com/url?q=http%3A%2F%2Fwww.ifc. org%2Fwps%2Fwcm%2Fconnect%2F65c3300048865905b7faf76a6515bb18%2FIFC_ Sustainable_Investment_in_Sub-Saharan_Africa.pdf%3FMOD%3DAJPERES%- 26CACHEID%3D65c3300048865905b7faf76a6515bb18&sa=D&sntz=1&usg=AFQ- jCNGS6I717VXNGhNxArJo0S4JkTC5sA.

CeesPieter Boender, et al., Stichting AFRIpads Foundation, AFRIpads: A Month- ly Challenge, A Sustainable Solution (2013), available at http://afripads.com/blog/ wp-content/uploads/2014/07/Jaarverslag-AFRIpads-Foundation-2013-1.pdf.

Christian Kingombe, Isabella Massa, & Dirk Willem te Velde, Oversees Development Institute, Comparing Development Finance Institutions (2011), available at https://www. gov.uk/government/uploads/system/uploads/attachment_data/file/67635/comparing-DFIs.pdf.

Christine Kapkusum, Acumen Fund, Impact Investing (2011), available at http://www. unicef.org/supply/files/14_-_Christine_Kapkusum_-_Acumen_-Impact_Investing_. pdf.

Clara Barby, et al., Bridges Ventures & African Private Equity and Venture Capital Association, Investing for Impact: A strategy of Choice for African Policymakers (2014), available at http://www.rockefellerfoundation.org/uploads/files/4bcf3d14-5243-42fd- 8001-14687cb5dd94.pdf.

Clyde & Co, Registration of Private Sector Foreign Loans with the Bank of Tan- zania (2014), available at http://www.inhousecommunity.com/upload/pdf/ 40c8a62e649214db564b636b23bb961e.pdf.

Common Market for Eastern and Southern Africa (COMESA), Foreign Direct Investment and small and medium enterprise linkages in COMESA (2013), available at http://investmentpolicyhub.unctad.org/Upload/Documents/2013%20COMESA%20 Investment%20Report.pdf.

Commonwealth Development Corporation, “Commonwealth Development Corpo- ration, Department for International Development and JP Morgan Chase combine to commit US$20m to impact investing in East Africa” (Apr. 7, 2014), available at http:// www.cdcgroup.com/Media/News/-CDC-and-JP-Morgan-Chase-combine-to-commit-US20m-to-impact-investing-in-East-Africa/.

Cosmas Butunyi, “Impact Investors Give Pearl $25m,” The EastAfrican (July 7, 2012), available at http://www.theeastafrican.co.ke/business/Impact+investors+give+Pearl++2 5m/-/2560/1447822/-/100uvtjz/-/index.html.

Cosmas Butunyi, “Investors Attracted more to Funds with Impact Investment Rat- ings,” The EastAfrican (Oct. 2, 2011), available at http://www.theeastafrican.co.ke/ business/Investors+attracted+to+funds++with+impact+ratings++/-/2560/1246558/-/10 cw1g5/-/.

APPENDICES • 336 Costancia Peter Rugumamu, “Empowering Smallholder Rice Farmers in Tanzania to Increase Productivity for Promoting Food Security in Eastern and Southern Africa,” Agriculture & Food Security (Apr. 21, 2014), available at http://www.agricultureand- foodsecurity.com/content/3/1/7#B2.

Credit Suisse & Schwab Foundation for Social Entrepreneurship, Investing for Impact (2012), available at http://www.weforum.org/pdf/schwabfound/Investing_for_Impact. pdf.

Crisis Group Africa, Eritrea: The Siege State (2010), available at http://www.crisisgroup.org/~/media/Files/africa/horn-of-africa/ethiopia-eritrea/163%20Eritrea%20 The%20Siege%20State.pdf.

Cross-border Information, Africa Assets & The Infrastructure Consortium for Africa, Private Equity Investment in 2013 (2013), available at http://www.crossborderinforma- tion.com/sites/default/files/AIO%20Map-Mar14.pdf.

Culture Grams, Republic of Djibouti (2009), available at http://www.aasd.k12.wi.us/ Staff/hendrickjohn/Africa/Djibouti.pdf.

D. Capital Partners, Open Society Foundations, Impact Investing in Education: An Overview of the Current Landscape (2013), available at http://www.opensocietyfoun- dations.org/sites/default/files/impact-investing-education-overview-current-landscape-20140106_0.pdf.

Dalberg Global Development Advisors, The Growing Role of the Development Finance Institutions in International Development Policy (2010), available at http://www. norfund.no/getfile.php/Documents/Homepage/Reports%20and%20presentations/ Studies%20for%20Norfund/Dalberg%20-%20The%20growing%20role%20of%20 DFIs%20%5BFINAL%5D.pdf.

Dalberg Global Development Advisors, et al., Assessment of Impact Investing Policy in Senegal (2012), available at http://www.gsb.uct.ac.za/files/the_south_africa_im- pact_barometer_2013.pdf.

Dalberg Global Development Advisors, Report on Support to SMEs in Developing Countries through Financial Intermediaries (2011), available at http://www.eib.org/attachments/dalberg_sme-briefing-paper.pdf.

Daniel S. Ntwari, “Rwanda: FLDR Behind Kigali Grenade Attacks,” All Africa (Aug. 5, 2013), available at http://allafrica.com/stories/201308060782.html.

Daniel T. Cook, “Eritrea: Africa’s Hidden Gem?” The Motley Fool (Nov. 12, 2013), available at http://www.fool.com/investing/general/2013/11/12/eritrea-africas-hidden-gem.aspx.

David Andersson, et al., Swedish International Development Cooperation Agency, Supporting Ownership: Swedish Development Cooperation with Kenya, Tanzania, and Uganda (2002), available at http://www.oecd.org/countries/kenya/35203817.pdf.

David Badham, et al., The Financial Times Limited, et al., Investing for Global Impact 2014 (2013), available at http://www.socialventurefund.com/file_upload/1392636791_ ft_investing_for_global_impact_2014_report-1.pdf.

337 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA David Deng & Anuradha Mittal, The Oakland Institute, Understanding Land Invest- ment Deals In Africa: South Sudan (2011), available at http://www.rtfn-watch.org/uploads/media/OI_-_Country_report_South_Sudan.pdf.

David Malingha, “Kenya Overtakes Ghana, Tunisia as Data Revision Boosts GDP,” Bloomberg Business (Sep. 30, 2014), available at http://www.bloomberg.com/news/articles/2014-09-30/kenya-overtakes-ghana-tunisia-as-size-of-economy-climbs-by-25-.

David Snyder, Financial Sector Deepening: Kenya, The Potential for Credit Scoring for SME Lending in Kenya (2008), available at http://www.fsdkenya.org/pdf_docu- ments/08-11-24_Credit_Scoring_for_SME_lending.pdf.

David Styan, Chatham, Djibouti: Changing Influence in the Horn’s Strategic Hub (2013), available at http://www.chathamhouse.org/sites/files/chathamhouse/public/ Research/Africa/0413bp_djibouti.pdf.

Dedo N. Baranshamaje, “Social Impact Incubator Promotes Local Innovation in Bu- rundi,” Huffington Post Impact (May 18, 2014), available at http://www.huffingtonpost. com/barry-segal/social-impact-incubator-p_b_4984145.html.

Deloitte & Africa Assets, 2014 East Africa Private Equity Confidence Survey: Clar- ity and Distinction (2014), available at http://finnpartnership.fi/__kehitysmaatie- to__/2466/Private%20Equity%20Confidence%20Survey%202014.pdf.

Deloitte Central Europe, Hitting the Right Notes: Central Europe Private Equity Con- fidence Survey (2014), available at http://www2.deloitte.com/content/dam/Deloitte/ global/Documents/About-Deloitte/CE_PE_Survey_May_2014.pdf.

Deloitte Touche Tohmatsu Limited, International Tax: South Sudan Highlights 2014, available at http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/ dttl-tax-southsudanhighlights-2014.pdf.

Deloitte Touche Tohmatsu Limited, International Tax: Uganda Highlights 2014, available at http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/ dttl-tax-ugandahighlights-2014.pdf.

Deloitte Touche’ Tohmatsu Limited, International Tax: Tanzania Highlights 2014 (2014), available at http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/ dttl-tax-tanzaniahighlights-2014.pdf.

Derk Bienen, et al., Precise Consult International, BKP Development Research, & Consulting & The Africa Group, Business Landscape 2013: Precise Insights, available at http://preciseethiopia.com/download/publication/pci_research_&_publications/ Business%20Landscape%20Study%202013%20.pdf.

Deutsche Bank, EU Monitor: Global financial markets (2014), available at https://www. dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000344173. pdf.

Deutsche Gesellschaft für Internationale Zusammenarbeit (Giz) & NL Agency: Min- istry of Foreign Affairs Netherlands,Empowering People: With the Support of EnDev, More Than Ten Million People have Gained Access to Modern Energy Services (2013), available at http://www.giz.de/fachexpertise/downloads/giz2013-en-empowering-people.pdf. APPENDICES • 338 Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), Promotion of Econ- omy and Employment (2013), available at http://www.giz.de/de/downloads/giz2013- en-factsheet-ecoemploi.pdf.

Development Bank of Rwanda, Annual Report 2013, available at https://www.brd.rw/ IMG/pdf/BRD_ANNUAL_REPORT_2013.pdf.

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Duncan Kayiira, Isaac Sekitoleko, & Kenyi Spencer, The African Development Bank Group, South Sudan: A Study on Competitiveness and Cross-Border Trade with Neigh- bouring Countries (2013), available at http://www.afdb.org/fileadmin/uploads/afdb/ Documents/Project-and-Operations/South_Sudan_-_A_Study_on_Competitive- ness_and_Cross_Border_Trade_With_Neighbouring_Countries.pdf.

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Edmund Sanders, “Eritrea Aspires To Be Self-Reliant, Rejecting Foreign Aid,” Los Angeles Times (Oct. 2, 2007), available at http://www.latimes.com/world/la-fg-eritrea- 2oct02-story.html#page=1.

Eleni Gabre-Madhin, The International Food Policy Research Institute, A Market for Abdu: Creating a Commodity Exchange in Ethiopia (2012), available at http://www.ifpri. org/sites/default/files/publications/oc70.pdf.

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Elizabeth Littlefield, Mitchell Strauss, & Astri Cimball, “Creating a Future Impact In- vesting Strategy: From 2008-2012 the US government’s Overseas Private Investment Corporation (OPIC) Supported $2.4 billion in Impact Investments,” Stanford Social Innovation Review (Jan. 20. 2014), available at http://www.ssireview.org/blog/entry/ creating_a_future_impact_investing_strategy.

339 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Embassy of Denmark in Tanzania, DANIDA Business Partnerships Programme: Busi- ness Development Profile of Tanzania (2011), available at http://um.dk/en/~/media/ UM/English-site/Documents/Danida/Activities/Business/DB%20Partnerships/Busi- ness%20Development%20Profiles/Tanzania%20-%20BOP%20-%202011.pdf.

Embassy of the Federal Democratic Republic of Ethiopia in the United Kingdom, Ethiopia Trade and Investment: Investing in Ethiopia: A guide for New Investors, available at http://www.ethioembassy.org.uk/trade_and_investment/General%20report-final.pdf.

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Emily Emerson-Le Moing, The European Times, The European Times Burundi, available at http://www.european-times.com/publications/burundi.pdf.

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Emmanuel Igunza, “Will Ethiopia’s Grand Renaissance Dam Dry the Nile in Egypt?” BBC News Africa (Mar. 22, 2014), available at http://www.bbc.com/news/world-africa-26679225.

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Ergo, Risk and Reward in South Sudan: Investment Potential in the World’s Newest Country, available at http://www.ergo.net/South_Sudan.pdf.

Eritrea Investment Center, Investment Policies and Opportunities of the State of Eritrea (2003), available at http://www.eritreaembassy-japan.org/data/Investment_Policy_ and_Opportunities_of_the_state_of_Eritrea.pdf.

Eritrean Embassy in Japan, Investment Opportunities in the Energy Sector of Eritrea, available at http://www.eritreaembassy-japan.org/data/Investment%20Opportuni- ties%20in%20the%20Energy%20Sector%20of%20Eritrea.pdf.

Eritrean Youth Collective, 2012 Identify ‘N’ Impact Investment Program: Project Summaries (2012), available at http://www.toronto.ca/legdocs/mmis/2012/cd/bgrd/ backgroundfile-51804.pdf.

APPENDICES • 340 Ernst & Young, East African Community: Provision of Consultancy Services for the Study on the Promotion of Small and Medium Enterprises in the East African Region (2009), available at https://www.google.com/url?sa=t&rct=- j&q=&esrc=s&source=web&cd=18&cad=rja&uact=8&ved=0CEcQFjA- HOAo&url=http%3A%2F%2Fwww.eac.int%2Frmo%2Findex.php%3Foption%3D- com_docman%26task%3Ddoc_download%26gid%3D120%26Itemid%3D238& ei=jd0GVPLWMsLuaLz4gegP&usg=AFQjCNG-3mDsh047z0gB2hfKjgeGuWC- q7A&bvm=bv.74115972,d.d2s.

Ernst & Young, Private Equity Roundup: Africa (2013), available at http://www.ey.com/ Publication/vwLUAssets/EY_-_Private_equity_roundup_-_Africa/$FILE/PE%20 roundup%20Africa%202014_FR0117.pdf.

Ernst & Young, Provision of Consultancy Services for the Study on the Pro- motion of Small and Medium Enterprises (SME) in the East Africa Region: Consolidated Regional Report (2009), available at https://www.google.com/ url?sa=t&rct=j&q=&esrc=s&source=web&cd=18&cad=rja&uact=8&ved=0CEcQFjA- HOAo&url=http%3A%2F%2Fwww.eac.int%2Frmo%2Findex.php%3Foption%3D- com_docman%26task%3Ddoc_download%26gid%3D120%26Itemid%3D238& ei=jd0GVPLWMsLuaLz4gegP&usg=AFQjCNG-3mDsh047z0gB2hfKjgeGuWC- q7A&bvm=bv.74115972,d.d2s.

Ernst & Young, Tanzania Banking Sector Performance Review: Year Ended 31 December 2011 (2012), available at http://monfinance.files.wordpress.com/2012/07/2011-tanzania-banking-sector-performance-review-final.pdf.

Ethan Chorin, “The Promise of Healthcare Innovation in Djibouti,” The World Post (Oct. 16, 2013), available at http://www.huffingtonpost.com/ethan-chorin/health-care- in-djibouti_b_3751929.html.

Ethiopian Investment Agency, Invest in Ethiopia: An investment guide to Ethiopia: Opportunities and Conditions 2013, available at http://ethemb.se/wp-content/uploads/2013/07/Investment_Guide-2013.pdf.

Etienne Viard, Promotion et Participation Pour La Cooperation Economique, Private Sector & Development (2011), available at http://www.proparco.fr/jahia/webdav/site/ proparco/shared/PORTAILS/Secteur_prive_developpement/PDF/SPD12/Re- vueSPD12_private_equity_Africa_UK.pdf.

European Development Finance Institutions, Newsletter of the EDFI (2014), available at https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=10&cad=r- ja&uact=8&ved=0CFwQFjAJ&url=http%3A%2F%2Fwww.edfi.be%2Fcomponent%2F- downloads%2Fdownloads%2F99.html&ei=KQoHVI6MC6qf0QWSzoHIBw&us- g=AFQjCNEb08AqyBzwIFMgdW3x1JuAQ5fdig&bvm=bv.74115972,d.bGQ.

European Development Finance Institutions, Norfund and FMO Invest in First Utility Scale Solar Project in Rwanda (2014), available at https://www.google. com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0C- CUQFjAB&url=http%3A%2F%2Fwww.edfi.be%2Fcomponent%2Fdownloads%2F- downloads%2F101.html&ei=qoUAVKW2JuS8ygOb1YLgCg&usg=AFQjCNGcS5N- BUhTt0xlOM9OXhw3DJbUN7g&bvm=bv.74115972,d.bGQ.

341 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Evelyn Ganzglass, Kevin Murphy, & Magda Chaher, The United States Agency for International Development & Global Workforce in Transition, Report on Djibouti Workforce Development and Competitiveness Study (2004), available at http://pdf. usaid.gov/pdf_docs/PNADK003.pdf.

Evelyn Situma, “Pearl Capital Invests in Poultry Feed Processor,” The EastAfrican (Oct. 19, 2013), available at http://www.theeastafrican.co.ke/business/Pearl-Capital- invests-in-poultry-feed-processor/-/2560/2039210/-/15u6404z/-/index.html.

Farai Gundan, “Kenya Joins Africa’s Top 10 Economies After Rebasing of Its Gross Domestic Product (GDP),” Forbes (Oct. 1, 2014), available at http://www.forbes.com/ sites/faraigundan/2014/10/01/kenya-joins-africas-top-10-economies-after-rebasing- of-its-gross-domestic-product.

Felix Horne, et al., The Oakland Institute & The Solidarity Movement for a New Ethiopia, Understanding Land Investment Deals in Africa: Ethiopia (2011), available at http://www.oaklandinstitute.org/sites/oaklandinstitute.org/files/OI_Ethiopa_Land_In- vestment_report.pdf.

Felix Omondi Osok, University of Oslo, Barriers to the Development and Deploy- ment of Renewable Energy Technologies in Kenya: The Role of Social Capital in Over- coming These Barriers (2010), available at https://www.duo.uio.no/bitstream/handle/10852/12983/Masterxthesisxinxpoliticalxsciencex2010.mht.pdf?sequence=1.

Ferrand David Vaughan, Durham University, Discontinuity in Development: Ken- ya’s Middle-Scale Manufacturing Industry (1999), available at http://etheses.dur. ac.uk/4568/1/4568_2032.PDF.

Finnigan wa Simbeye, “Treasury: No Plans for VAT on Solar Panels,” Daily News (Nov. 14, 2014), available at http://www.dailynews.co.tz/index.php/biz/38256-treasury-no- plans-for-vat-on-solar-panels.

Finnish Fund for Industrial Cooperation Ltd, FINNFUND Annual Report 2013 (2013), available at http://annualreport.finnfund.fi/2013/filebank/402-Investments.pdf.

Fintrac Inc., Bellmon Estimation Studies for Title II (BEST) Analysis: Burundi (2012), available at http://www.usaidbest.org/docs/BurundiBellmon2012.pdf.

Ford Foundation, Eastern Africa (2012), available at http://www.fordfoundation.org/ pdfs/library/Eastern-Africa-brochure-2012.pdf.

Foreign Investment Advisory Service, Sudan: Review of administrative barriers to investment (2006), available at https://www.wbginvestmentclimate.org/uploads/Su- dan_Review+of+administrative+barriersfinalversionMarch07.pdf.

Fran Seegull, Jewish Funders Network, & Impact Assets, Impact Investing 101 (2013), available at http://www.jfunders.org/sites/default/files/docs/resources/final_seeg- ull-jfn_presentation_w__resources.pdf.

Franklin Amoo, Wharton, Somalia, available at http://fic.wharton.upenn.edu/fic/africa/ Somalia%20Final.pdf.

APPENDICES • 342 FSG, Ethiopia: Background, available at http://www.fsg.org/Portals/0/Uploads/Doc- uments/PDF/Ethiopia.pdf?cpgn=WP%20DL%20-%20Smallholder%20Donor%20 (Ethiopia).

G. Mwakibolwa, et al., Tanzania Investment Centre, et al., Tanzania Investment Report 2012: Foreign Private Investment and Investor Perception (2013), available at http:// www.tic.co.tz/media/TIR2012%20Main%20Report%20for%20Web.pdf.

G:ENESIS, Financial Education Fund &Citi Foundation, Comparing Evaluation Methods for Financial Education Interventions in Africa (2012), available at http://www. youtheconomicopportunities.org/sites/default/files/uploads/resource/Comparing%20 Evaluation%20Methods%20for%20Financial%20Education%20Interventions%20Pre- sentation.pdf.

G8UK, G8 Social Impact Investment Forum: Outputs and Agreed Actions (2013), available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/ file/225547/G8_Social_Impact_Investment_Forum_-_Outputs_and_Agreed_Ac- tions.pdf.

Gavin Power, et al., The United Nations Global Impact & Rockefeller Foundation, A Framework for Action: Social Enterprise & Impact Investing (2012), available at https:// www.unglobalcompact.org/docs/issues_doc/development/Framework_Social_Enter- prise_Impact_Investing.pdf.

Geoff Mulgan, et al., The Young Foundation,Social Impact Investment: The Chal- lenge and Opportunity of Social Impact Bonds (2010), available at http://evpa.eu.com/ wp-content/uploads/2011/06/11-04-11_Social_Impact_Investment_Paper_2.pdf.

George Obulutsa, “Kenya Power to Invest $1.8 B in 5 years to Expand Network,” Reu- ters (Oct. 11, 2013), available at http://www.reuters.com/article/2013/10/11/kenya-power-idUSL6N0I11RQ20131011.

German Investment Corporation (DEG), Corporate: Policy Project Rating (2013), available at https://www.deginvest.de/DEG-Englische-Dokumente/About-DEG/ Our-Mandate/Detailed-GPR-Description.pdf.

Gianluca Serra, Amita Joshi, & Gianluca Latino, Italian National Research Council: Institute for International Legal Studies Section of Naples, Municipal Finance and Public Service Delivery in the Puntland State of Somalia (2010), available at http://www. isgi.cnr.it/wp-content/uploads/2012/07/Operational-study-entire.pdf.

Global Facility for Disaster Reduction and Recovery, GFDRR on Leveraging, available at http://www.gfdrr.org/sites/gfdrr.org/files/documents/GFDRR_Leveraging.pdf.

Global Giving Foundation, Investing in Education: A Strategic Plan for Development in South Sudan, available at http://www.globalgiving.org/pfil/16278/projdoc.pdf.

Global Impact Investing Rating System, Impact Investing: Challenges and Opportunities to Scale (2011), available at https://www.bcorporation.net/sites/all/ themes/adaptivetheme/bcorp/pdfs/GIIRS_2011-Progress-Report.pdf.

343 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Global Village Energy Partnership International, Annual Review 2011-12 (2012), available at http://www.gvepinternational.org/sites/default/files/gvep_annual_re- view_11-12_final.pdf.

Godeke, et al., Rockefeller Philanthropy Advisors, Solutions for Impact Investors: From Strategy to Implementation (2010), available at http://correlationconsulting.com/ wp-content/uploads/2013/11/MONO-SolutionForImpactInvestors2.pdf.

Grassroots Business Fund, Grassroots Business Fund 2014 Impact Report (2014), available at http://www.gbfund.org/sites/default/files/GBF%202014%20Impact%20 Report%20LS.pdf.

GroFin, GroFin-Model for Sustainable SME Risk Finance & Development (2007), available at http://archives.entreprendre-mediterranee.com/documents/colloque-acim-tu- nis-2007/docs/10-GROFIN-Eng-Willemse.pdf.

GroFin, Sustainable Development Report (2012), available at http://www.grofin.com/ SiteResources/documents/GroFin%20Sustainability%20Report_v4.pdf.

H.P.B. Moshi & A.A.L. Kilindo, African Economic Research Consortium, The Impact of Government Policy on Macroeconomic Variables: A Case Study of Private Invest- ment in Tanzania (1999), available at http://www.tanzaniagateway.org/docs/The_im- pact_of_government_policy_on_macroeconomic_variables.pdf.

Habtemicael Weldegiorgis, International Federation of Surveyors, The Cadastral Sys- tem in Eritrea: Practice, Constraints and Prospects (2009), available at https://www.fig. net/pub/monthly_articles/september_2009/september_2009_weldegiorgis.pdf.

Harry Hare, InfoDev, Survey of ICT and Education in Africa: ICT in Education in Dji- bouti (2007), available at http://www.infodev.org/infodev-files/resource/InfodevDoc- uments_398.pdf.

Harvey Koh, Ashish Karamchandani, & Robert Katz, Monitor Group & Acumen Fund, From Blueprint to Scale: The Case for Philanthropy in Impact Investing (2012), available at http://www.mim.monitor.com/downloads/Blueprint_To_Scale/From%20 Blueprint%20to%20Scale%20-%20Case%20for%20Philanthropy%20in%20Impact%20 Investing_Full%20report.pdf.

Harvey Koh, Nidhi Hegde, & Ashish Karamchandani, Deloitte Touche Tohmatsu India Private Limited, Beyond the Pioneer: Getting Inclusive Industries to Scale (2014), available at http://www.beyondthepioneer.org/wp-content/themes/monitor/Be- yond-the-Pioneer-Report.pdf.

Hassan Ali Gadkarim, CHR. Michelsen Institute, Will The Sudanese Paradox Con- tinue? Insecure Investment Climate And Substantial Foreign Direct Investment Inflows (2012), available at http://www.cmi.no/publications/file/4595-will-the-sudanese-paradox-continue.pdf.

Heather Kipnis, The QED Group LLC, Financing Women-Owned SMES: A Case Study in Ethiopia (2013), available at http://www.usaid.gov/sites/default/files/documents/1860/Financing%20Women-Owned%20SMEs.pdf.

APPENDICES • 344 Heikki Noro, Government of Eritrea, The United Nations Development Programme & Global Environment Facility, Wind Energy Applications in Eritrea: Mid-term Re- view (2007), available at https://www.climate-eval.org/sites/default/files/evalua- tions/349%20Wind%20Energy%20Applications%20in%20Eritrea.pdf.

Helen Castell, “Equity Foundation Targets “Missing Middle” with Agri Business Skills: Mid-sized Farmers Fall through Net of Smallholder Programmes but Can’t Afford to Farm All Their Land,” Trade & Export Finance (Jul. 15, 2014), available at http:// www.txfnews.com/News/Article/2986/Equity-Foundation-targets-missing-middle-with-agri-business-skills.

Henk von Eije, Michael Fishazion, & Clemens Lutz, Accessing Bank Credit in Eritrea: Bottlenecks for Small Firms and for the Commercial Bank of Eritrea, available at http:// arts.eldoc.ub.rug.nl/FILES/publications/general/other/2002/eije.h.von_costs/accessing.pdf.

Henok Assefa, Derk Bienen, & Dan Ciuriak, African Centre for Economics and Fi- nance, Ethiopia’s Investment Prospects: A Sectoral Overview (2013), available at http:// www.african-review.com/Vol.%204%20(2)/Ethiopia’s%20Investment%20Prospects. pdf.

Hio Kyeng Lee, “FINA Bank Rwanda (FBR) and KfW Development Bank (KfW) To Invest RWF 490.4m ($860,000) in Rwanda’s Microfinance Sector,”MicroCapital (Dec. 23, 2009), available at http://www.microcapital.org/microcapital-brief-fina-bank- rwanda-fbr-and-kfw-development-bank-kfw-to-invest-rwf-4904m-860000-in-rwan- das-microfinance-sector/.

Hogan Lovells, Foreigners’ Land Rights in Tanzania - Are They There? (2014), available at http://www.hoganlovells.com/files/Publication/cf5c8bf2-cc64-46b7-9182- 395020bcb732/Presentation/PublicationAttachment/c02e06e1-de0e-4dd5-991b- 3cbe3f8f9922/Foreigners_Land_Rights_in_Tanzania_are_they_there_May_2014.pdf.

Hogan Lovells, Kenyan Land Act: Questions (2012), available at http://www.hoganlovells.com/files/Publication/218e0b4a-79f1-4a92-8c34-b6cad0af48b3/Presentation/ PublicationAttachment/c079f758-aca3-438c-8260-e5813cab485d/Africa_Septem- ber_2012_newsletter_-_Kenya_Land_Act_questions_article.pdf.

Homa-Zahra Fotouhi, et al., The World Bank Group, Country Partnership Strategy for The Republic of Djibouti Fy 2014-2017, available at http://www-wds.worldbank.org/ external/default/WDSContentServer/WDSP/IB/2014/03/12/000333037_2014031215 2815/Rendered/PDF/838740REVISED0010Box382156B00OUO090.pdf.

Honest Prosper Ngowi, Research on Poverty Alleviation, Foreign Direct Investments (FDIs) Roles in Economic Transformation for Poverty Reduction: What Does it Take in a Tanzanian-type Economy? (2012), available at http://www.repoa.or.tz/documents/S3B. pdf.

House of Commons International Development Committee, The Closure of DFID’s Bilateral Aid Programme in Burundi: Government Response to the Committee’s Tenth Report of Session 2010–12 (2012), available at http://www.publications.parliament.uk/ pa/cm201012/cmselect/cmintdev/1730/1730.pdf.

345 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Human Development Statistics Tables, The United Nations Development Programme (2014), available at http://hdr.undp.org/sites/default/files/hdr14_statisticaltables.xls.

Humanitarian Futures Program, Prospects for an Alternative Approach? The Private Sector in Somalia’s New Statebuilding Agenda (2014), available at http://www.humanitarianfutures.org/wp-content/uploads/2014/01/SOMALIA-REPORT-FINAL.pdf.

Ifeatu Nnaobi, “Impact Investing: Poverty Alleviation or Trendy Buzzword?” Business Because (Feb. 12, 2013), available at http://www.businessbecause.com/news/mba-ca- reers/1854/impact-investing-poverty-alleviation-buzzword.

Imani Development International Ltd, 2007 Survey of Non-Tariff Barriers to Trade: Rwanda (2007), available at http://www.tradebarriers.org/documents/survey-reports.

Independent Commission for Aid Impact, et al., DFID’s Contribution to the Reduction of Child Mortality in Kenya (2014), available at http://icai.independent.gov.uk/wp-content/uploads/2014/03/ICAI-Child-Mortality-FINAL-120714.pdf.

InfoDev & The World Bank, Crowdfunding in Developing Nations: Scaling Global Inno- vation and Entrepreneurship (2012), available at http://crowdfundcapitaladvisors.com/ images/Documents/crowdfunding_infographic_high_res.pdf.

Innocent Rutamu, “Investment Opportunities Dairy Sub-sector of Rwanda,” Stichting Nederlandse Vrijwilligers (SNV) (2008), available at http://www.snvworld.org/en/publications/investment-opportunities-dairy-sub-sector-of-rwanda.

International Business Publications USA, Burundi Mineral, Mining Sector In- vestment and Business Guide Volume 1, available at http://books.google.co.ke/ books?id=q6MYk4NbPGIC&pg=PA159&lpg=PA159&dq=Burundi+domicile+requirements&source=bl&ots=590vnIsVxy&sig=Pt8O4gNhZ08c37A2QEeEbphbLT- M&hl=en&sa=X&ei=SadgVOmYPMGP7AaIkoCQAg&redir_esc=y#v=onepage&q=Burundi%20domicile%20requirements&f=false.

International Research and Exchanges Board, Media Sustainability Index (2008), available at http://www.irex.org/system/files/2-Africa_08_sudan.pdf.

Invested Development, “Invested Development Invests in SolarNow to Provide Affordable Solar Home Systems in Uganda” (Feb. 25, 2013),available at http:// investeddevelopment.com/wp-content/uploads/2011/12/Invested-Development-In- vests-in-SolarNow-to-Provide-Affordable-Solar-Home-Systems-in-Uganda.pdf.

Investisseurs & Partenaires & IVA, Crowdfunding for more Impacts in African SMEs (2014), available at http://www.ietp.com/sites/default/files/14%2003%2026%20part- nerhsip%20IP%20Kiva_0.pdf.

Investisseurs & Partenaires, A new impact investment strategy for African entrepreneurship, available at http://www.ietp.com/sites/default/files/Booklet%20IPDEV%20 scales%20up_0.pdf.

Investors against Genocide, Genocide-free Investing: How and Why Investment Firms Should Avoid Ties to Genocide (2014), available at http://www.investorsagainstgeno- cide.org/iag/files/2014-0716-White-Paper-on-genocide-free-investing.pdf.

APPENDICES • 346 Inward and Outward Foreign Direct Investment Flows: Annual 1970-2013, United Nations Conference on Trade and Development, available at http://unctadstat.unctad. org/wds/TableViewer/tableView.aspx?ReportId=88.

Isaac Woja Enoch & Justin Miteng, Stichting Nederlandse Vrijwilligers (SNV) Neth- erlands Development Organisation, Case Studies: The Case of Cooperatives “Awak- ening” in South Sudan (2012), available at http://www.snvworld.org/en/download/ publications/relief_to_business_-_the_case_of_cooperatives_awakening_in_south_ sudan.pdf.

Islamic Corporation for the Development of the Private Sector, ICD: The Private Sec- tor Arm of the Islamic Development Bank Group, available at http://www.comcec.org/ UserFiles/File/IDB%20-%20Report%20by%20ICD%20on%20its%20Activities.pdf.

Islamic Development Bank, et al., Islamic Development Bank, available at http://idbgbf. org/assets/2012/6/15/pdf/9ca10e8f-1285-4366-bba5-587428d82022.pdf.

Ismail Musa Ladu & Risdel Kasasira, “EAC Single Tourist Visa Launched,” Daily Monitor (Feb. 21, 2014), available at http://www.monitor.co.ug/News/National/EAC- single-tourist-visa-launched/-/688334/2215296/-/usri45z/-/index.html.

J.P. Morgan Chase & Co., “USAID and Impact Investors Capitalize new Equity Fund for East African Agribusinesses” (Sep. 28, 2011), available at http://investor.sharehold- er.com/jpmorganchase/releasedetail.cfm?ReleaseID=609172.

J.P. Morgan Chase & Co., The Promise of Impact Investing (2014), available at http:// www.theimpactprogramme.org.uk/resources/.

Jacob Ravn, et al., DI International Business Development, Financing your business model in developing markets: A guide to funding and cash flow enablers in low income markets (2012), available at http://www.access2innovation.com/download/financing_ your_business_model_in_developing_markets.pdf.

Jacqueline Foelster, “Microcapital Brief: Promotion et Participation Pour La Coopera- tion Economique (PROPARCO), Grameen Credit Agricole Microfinance (GCAMF) Loan $10m to Microfinance Institution (MFI) Kenya Women Finance Trust (KWFT),” MicroCapital (Mar. 21, 2011), available at http://www.microcapital.org/microcapital-brief-promotion-et-participation-pour-la-cooperation-economique-proparco-grameen-credit-agricole-microfinance-gcamf-loan-10m-to-microfinance-institution-mfi-kenya-women-finance-t/.

Jacques Diouf, The Food and Agriculture Organization of the United Nations, High Food Prices: Causes and Possible Actions, available at http://www.ima.kth.se/utb/ MJ1501/pdf/Engfeldt.pdf.

James Burman, Anna Bowden & Abdikarim Gole, Shuraako, Land Tenure in Somalia: A potential Foundation for Security and Prosperity (2014), available at http://shuraako. org/sites/shuraako.org/files/documents/Land%20Tenure%20in%20Somalia%20A%20 Potential%20Foundation%20for%20Security%20and%20Prosperity.pdf.

347 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA James Gavin, Ian Lewis, & Paul Melly, The Gatsby Charitable Foundation, Gatsby in Africa: Building Local Capacity for Enterprise and Income Generation, available at http://www.gatsby.org.uk/~/media/Files/Africa/Gatsby%20Africa%20Local%20Ca- pacity%20Occasional%20Paper%202007.ashx.

James Makau, ”Foreigners Form Dummy Firms to Keep Kenyan Land,” Business Daily (Aug. 4, 2010), available at http://www.businessdailyafrica.com/Corporate-News/For- eigners-form-dummy-firms-to-keep-Kenyan-land/-/539550/970374/-/11inr7x/-/index. html.

James Manyika, et al., “Lions Go Digital: The Internet’s Transformative Potential in Africa,” McKinsey & Company (Nov. 2013), available at http://www.mckinsey.com/ insights/high_tech_telecoms_internet/lions_go_digital_the_internets_transforma- tive_potential_in_africa.

Janelle Plummer, The World Bank, Diagnosing Corruption in Ethiopia_Perceptions, Re- alities and the Way Forward for Key Sectors (2012), available at http://www.ethiomedia. com/addis/diagnosing_corruption.pdf.

Jason Best, Sherwood Neiss, & Richard Swart, InfoDev, Crowdfunding’s Potential for the Developing World (2013), available at http://www.infodev.org/infodev-files/ wb_crowdfundingreport-v12.pdf.

Jason Mosley, Chatham House: The Royal Institute of International Affairs,Eritrea and Ethiopia: Beyond the Impasse (2014), available at http://www.chathamhouse.org/ sites/files/chathamhouse/home/chatham/public_html/sites/default/files/20140410Er- itreaEthiopiaMosley.pdf.

Jeffrey Delmon & Victoria Rigby, Kluwer Law International,International Proj- ect Finance & Public Private Partnerships (2010), available at http://books.google. co.ke/books?id=V4RuM_1kPhAC&pg=RA10-PA19&lpg=RA10-PA19&dq=Tanza- nia++%2B+Required+local+shareholding+participation&source=bl&ots=C7I7G_ti- AG&sig=4lDHaahtOgeFJmgT1LeUw1Newv4&hl=en&sa=X&ei=JHpYVIX- pEcOUar-MgUA&redir_esc=y#v=onepage&q=Tanzania%20%20%2B%20 Required%20local%20shareholding%20participation&f=false.

Jeffrey L. Sturchio, “The Business of Health in Africa: Current Status and Future Prospects”, The Africa E Journal: The monthly newsletter of The Corporate Council of Africa (Sept. 2012), available at http://www.africacncl.org/www/default/ckfinder/userfiles/1080/files/September2012_CCA_ejournal.pdf.

Jeni Klugman, et al., The United Nations Development Programme, Human De- velopment Report 2010 (2010), available at http://hdr.undp.org/sites/default/files/ reports/270/hdr_2010_en_complete_reprint.pdf.

Jeniffer Mickel, “Lending at the margins in Africa,” D. Blog (Apr. 5, 2013), available at http://dalberg.com/blog/?p=1773.

Jeroen Barker & Stephanie Giamporcaro, Bertha Centre for Social Innovation and Entrepreneurship & University of Cape Town: Graduate School of Business, The South Africa Investing for Impact Barometer, available at http://www.gsb.uct.ac.za/files/ the_south_africa_impact_barometer_2013.pdf.

APPENDICES • 348 Jessica Freireich & Katherine Fulton kfulton, Monitor Institute, Investing for Social and Environmental Impact (2009), available at http://monitorinstitute.com/downloads/ what-we-think/impact-investing/Impact_Investing_Exec_Summary.pdf.

John Mathew Mnali, Tanzania Country Level Knowledge network, The Contribution of Foreign Direct Investment to Local Economy in Tanzania: Achievements, Challenges and Prospects (2012), available at http://www.tgdlc.go.tz/includes/REPORT_THE%20 CONTRIBUTION.pdf.

John Prendergast, International Crisis Group, Statement before the Sub-committee on Domestic and International Monetary Policy, Trade, and Technology (2007), available at http://www.enoughproject.org/files/press_kit/action/advocacy_activism/Testimony/ John-Prendergast-Subcommittee-on-Domestic-and-International-Monetary-Poli- cy-Trade-and-Technology-3.20.07.pdf.

John Randa, et al., The World Bank, Kenya Economic Update: Time to Shift Gears: Accelerating Growth and Poverty Reduction in the New Kenya (2013), available at http://www.worldbank.org/content/dam/Worldbank/document/Africa/Kenya/kenya-economic-update-june-2013.pdf.

John Simon & Julia Barmeier, Centre for Global Development, More than Mon- ey: Impact Investing for Development (2010), available at http://www.cgdev.org/ files/1424593_file_More_than_Money_FINAL_web.pdf.

Jon Entine, Ethical Corporation, The Contrarian: Be careful What You Wish for in Darfur (2007), available at http://www.jonentine.com/ethical_corporation/2007_09_Darfur.pdf.

Jonas Ewald, et al., Swedish International Development Cooperation Agency, A Stra- tegic Conflict Analysis for the Great Lakes Region (2004), available at http://www.sida. se/contentassets/608c2b513ef44b7cbbfd7685b10702c2/a-strategic-conflict-analysis-f or-the-great-lakes-region_437.pdf.

Joseph Muvawala & Frederick Mugisha, The African Development Bank, The Organisation for Economic Co-operation and Development, & The United Nations Development Programme, African Economic Outlook: South Sudan 2014 (2014), available at http://www.africaneconomicoutlook.org/fileadmin/uploads/aeo/2014/PDF/ CN_Long_EN/SoudanDuSUd_ENG.pdf.

Julie Moksim, “MicroCapital Brief: International Finance Corporation (IFC), Eu- ropean Donors, USAID Partner for Development of South Sudan Private Sector,” MicroCapital (Mar. 4, 2011), available at http://www.microcapital.org/microcapital-brief-international-finance-corporation-ifc-european-donors-usaid-partner-for-development-of-south-sudan-private-sector/.

Justus Macharia, “Kenya’s First Social Investment Exchange Launched,” Kenya Social Investment Exchange (May 27, 2011), available at http://ksix.co.ke/admin/upload- files/5d703a33a430b162343e7f0e82323e52.pdf.

Kaori Kuroda, Tokyo International Conference on African Development, The Poten- tial of Impact Investing for African Development (2013), available at http://www.fasid. or.jp/_files/seminar_info/fasid_ticadv_presentationmaterial_csonetwork_130531.pdf.

349 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Karanja Kinyanjui, “Diagnostic Review Finds that Eritrea has used Grant Funds Constructively to Strengthen Health Systems,” Aidspan: Independent Observer of the Global Fund (Oct. 17, 2012), available at http://www.aidspan.org/gfo_article/diagnostic-review-finds-eritrea-has-used-grant-funds-constructively-strengthen-health-sy.

Karim Harji & Edward T. Jackson, Rockefeller Foundation & E. T. Jackson & Associ- ates Ltd, Accelerating Impact: Achievements, Challenges and What’s Next in Building the Impact Investing Industry (2012), available at http://www.rockefellerfoundation.org/ uploads/images/fda23ba9-ab7e-4c83-9218-24fdd79289cc.pdf.

Katelijne Blom & Jiska Gietema, Ministry of Foreign Affairs of the Netherlands, Private Sector Development in Burundi: Overview of Dutch efforts 2005-2011 (2012), available at http://psosamenwerken.files.wordpress.com/2012/03/country-report-psd-burundi-final-march-2012.pdf.

Katrina Manson, “US Sanctions Take Toll on Khartoum,” Financial Times (Jul. 23, 2014), available at http://www.ft.com/intl/cms/s/0/96af3278-d1a5-11e1-bbbc-00144fe- abdc0.html#axzz3K49aEbbL.

Katy Lankester & Min Pease, The Global Impact Investing Network, et al., Collect- ing Impact Data Using Mobile Technology: A Pilot Project Measuring Client Poverty Levels, available at http://www.thegiin.org/binary-data/RESOURCE/download_ file/000/000/528-1.pdf.

Kehinde Adaramola, “Chase Bank, PROPARCO Sign $39mn Credit Facility Deal,” Ventures (Dec. 19, 2013), available at http://www.ventures-africa.com/2013/12/chase- bank-proparco-sign-39mn-credit-facility-deal/.

Ken Menkhaus, United Nations University, Aid and Institution-Building in Frag- ile States: The Case of Somali-Inhabited Eastern Horn of Africa (2014), available at https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&c- d=2&cad=rja&uact=8&ved=0CCcQFjAB&url=http%3A%2F%2Fwww. wider.unu.edu%2Fpublications%2Fworking-papers%2F2014%2Fen_GB%2F- wp2014-002%2F_files%2F91035991080240762%2Fdefault%2Fwp2014-002. pdf&ei=iY63VJm9HYqN7QbijYC4CQ&usg=AFQjCNFxsyZ3Zs2fTn4OHyN- 9QlZ9RRWUkg&bvm=bv.83640239,d.ZGU.

Kene Ezemenari, Ephraim Kebede, & Sajal Lahiri, The World Bank, The Fiscal Impact of Foreign Aid in Rwanda: A Theoretical and Empirical Analysis (2008), available at http://elibrary.worldbank.org/doi/pdf/10.1596/1813-9450-4541.

Kevin Doyle Jones, et al., Massachusetts Institute of Technology, Innovations (2011), available at http://www.ignia.com.mx/bop/uploads/media/Taking_a_Realistic_Ap- proach_to_Impact_Investing_MIT_Innovations.pdf.

Khalid Mohamed Hassan Drras & Azrai Abdullah, Universiti Teknologi Petronas: Malaysia, Assessment of the Impact of Foreign Direct Investment (FDI) in the Produc- tive Sectors of the Economy of Sudan (2014), available at http://ajbasweb.com/old/ ajbas/2014/Special%202/273-278.pdf.

Kilimo Trust, Invitation to Social Impact Investors (2009), available at http://www.eaag. org/dmdocuments/Invitation%20to%20Investors%20(2).pdf.

APPENDICES • 350 Kishor Nagula, “Peace Dividend’s P2P Model for Financing Entrepreneurs in Post-Conflict Sudan,”Next Billion (Dec. 2, 2010), available at http://nextbillion.net/ blogpost.aspx?blogid=2033.

Kjell Magne Bondevik, et al., Nordic Development Finance Institutions, New Roads to Development (2011), available at http://www.norfund.no/getfile.php/Documents/ Homepage/Reports%20and%20presentations/Studies%20for%20Norfund/New%20 roads%20to%20development.pdf.

Korwa G. Adar, Centre for Studies on Federalism, East Africa Community (2011), available at http://www.internationaldemocracywatch.org/attachments/458_EAC- adar.pdf.

KPMG & Association of the Luxembourg Fund Industry, European Responsible Invest- ing Fund Survey 2013 (2013), available at http://www.kpmg.no/arch/_img/9834869. pdf.

KPMG Africa Limited in Cayman Islands, Monitoring African Sovereign Risk: Ethiopi- an Snapshot (2013), available at https://www.kpmg.com/Africa/en/KPMG-in-Africa/ Documents/2013%20African%20Country%20Reports/KPMG_Ethiopia%202013Q1. pdf.

KPMG Africa, 2013 Quarter 2 report (2013), available at https://www.kpmg.com/ Africa/en/KPMG-in-Africa/Documents/2013%20African%20Country%20Reports/ KPMG_Sudan%202013Q2.pdf.

KPMG Africa, Country Profile: Sudan(2014), available at http://www.kpmg.com/Af- rica/en/KPMG-in-Africa/Documents/2012-2013%20Country%20Profiles/Sudan%20 Country%20Profile_2012-2013.pdf.

KPMG International, Thinking Beyond Borders: Tanzania (2012), available at http:// www.kpmg.com/global/en/issuesandinsights/articlespublications/thinking-beyond-borders/documents/tanzania.pdf.

KPMG LLP, Social Investment Report: A Look at Women for Women International (2012), available at http://novofoundation.org/wp-content/uploads/2012/10/Wom- en-Social-Investment-Report.pdf.

KPMG Services Proprietary Limited in South Africa, Kenya: Country Profile (2014), available at https://www.kpmg.com/Africa/en/KPMG-in-Africa/Documents/Kenya. pdf.

KPMG Services Proprietary Limited in South Africa, Rwanda: Country Profile (2012), available at https://www.kpmg.com/Africa/en/KPMG-in-Africa/Documents/RWan- da.pdf.

KPMG, Oil and Gas in Africa_Africa’s Reserves, Potential and Prospects (2013), available at https://www.kpmg.com/Africa/en/IssuesAndInsights/Articles-Publications/ Documents/Oil%20and%20Gas%20in%20Africa.pdf.

351 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA KPMG, Risky Business: Promoting Private Sector Development in Post-Conflict States (2013), available at http://www.kpmg.com/eastafrica/en/services/Advisory/Develop- ment-Advisory-Services/Thought_Leadership_at_DAS/Documents/Risky%20Busi- ness%20-%20Promoting%20Private%20Sector%20Development%20in%20Post-Con- flict%20States.pdf.

KPMG, Uganda country profile (2012), available at https://www.kpmg.com/Africa/en/ KPMG-in-Africa/Documents/Uganda.pdf.

Kurt Davis Jr., “Djibouti: Top 5 Opportunities for Investment,” Africa.com Blog, available at http://www.africa.com/blog/djibouti-top-5-opportunities-for-investment/.

Kylie Charlton, et al., The University of Sydney, et al., Impact Investments: Per- spectives for Australian Superannuation Funds (2013), available at http://sydney.edu. au/business/__data/assets/pdf_file/0005/186863/bus10006_superannuation_re- port_2013_WEB.pdf.

Land Deal Politics Initiative, Governance of Large-Scale Land Acquisitions in Uganda (2012), available at http://www.cornell-landproject.org/download/landgrab2012pa- pers/stickler.pdf.

Laura Hammond et al., The United Nations Development Programme, Cash and Compassion: The Role of the Somali Diaspora in Relief, Development and Peace-building (2011), available at http://eprints.soas.ac.uk/11710/1/Cash_and_Compassion_ Draft_for_comments.pdf.

Leia Michele Toovey, “Gold mining in Eritrea,” Investing Network News (Jun. 13, 2011), available at http://goldinvestingnews.com/15171/gold-mining-in-eritrea.html.

LGT-The Bank of the Princely House of Liechtenstein, Impact Investing in Africa, available at https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&- cad=rja&uact=8&ved=0CC0QFjAC&url=http%3A%2F%2Fum.dk%2Fen%2F~%2F- media%2FUM%2FEnglish-site%2FDocuments%2FDanida%2FActivi- ties%2FTAS%2FDanida%2520Development%2520Days%2F2011%2FPresenterKarius. ashx&ei=CkkNVP_4HNLG7AbXuYHgDw&usg=AFQjCNFd7FKhLNSHGxz_z_ kSqb2hJ1a3Dg&bvm=bv.74649129,d.d2s.

Life Net International, LN Burundi: June 2013 KPI Report, available at http://www. lninternational.org/wp-content/uploads/2013/10/1307080-LN-Burundi-June-KPI-report.pdf.

Linda Cotton, et al., Regional Program on Enterprise Development: Africa Private Sector Group, The World Bank, & The International Finance Corporation, Pilot Investment Climate Assessment: Obstacles to the Expansion of Eritrea’s Manufacturing Sector (2002), available at http://siteresources.worldbank.org/INTPSD/Resourc- es/336195-1092412588749/eritrea_proof_5.pdf.

Lisa Hehenberger, Anna-Marie Harling, & Peter Scholten, European Venture Philan- thropy Association, A practical guide to Measuring and Managing Impact (2013), available at http://www.theimpactprogramme.org.uk/resources/.

Liz Patterson, “Building the Impact Investing Market in Sub-Saharan Africa and South Asia,” Thomson Reuters Foundation (Apr. 8, 2014), available at http://www.trust.org/ item/20140408111517-zqns7/. APPENDICES • 352 Lois Stevenson & Annette St-Onge, International Labour Office-Geneva, Private Sector Development, & The African Development Bank, Support for Growth-Ori- ented Women Entrepreneurs in Kenya (2005), available at http://www.ilo.org/wcm- sp5/groups/public/---ed_emp/---emp_ent/---ifp_seed/documents/publication/ wcms_220023.pdf.

Lucie Weissleder, Heinrich-BöllStiftung, & Misereor, Foreign Direct Investment in the Agricultural Sector in Ethiopia (2009), available at http://www.ecofair-trade.org/sites/ ecofair-trade.org/files/downloads/11/06/fdis_ethiopia_15_10_09_c.pdf.

Lucy Carmody, et al., Responsible Research & Willow Tree Impact Investors, Issues for Responsible Investors: Impact Investing in Emerging Markets (2011), available at http:// www.sustainalytics.com/sites/default/files/impact_investing_in_emerging_markets-is- sues_for_responsible_investors.pdf.

Lucy Hoffman, et al., Impact Trust,Creating the Nexus for Impact Investing: A Case Study (2013), available at http://www.impacttrust.org.za/nexii/wp-content/uploads/ Nexii-Case-Study.pdf.

Luke Mulunda, “Economists Trim Kenya’s Growth Forecast to 4 Percent Over Gener- al Election Jitters,” Business Daily (Jan. 25, 2012), available at http://www.businesstoday.co.ke/news/2012/01/25/economists-trim-kenyas-growth-forecast-4-percent-over- general-election-jitters.

Lundin for Africa, Lundin for Africa: 2010 Annual Report (2010), available at http:// www.lundinfoundation.org/i/pdf/reports/LFA_2010_AR.pdf.

Lundin Foundation, Annual Report 2012 (2012), available at http://www.lundinfoundation.org/i/pdf/ppt/2012-AR.pdf.

M.A. Bashir Eltahir, Suwareh Darbo, & Kabbashi M. Suliman, The African Devel- opment Bank, The Organisation for Economic Co-operation and Development, & The United Nations Development Programme, African Economic Outlook: Soudan 2014 (2014), available at http://www.africaneconomicoutlook.org/fileadmin/uploads/ aeo/2014/PDF/CN_Long_EN/Soudan_EN.pdf.

Madjiguene Sock, et al., Dalberg, Impact Investing in West Africa (2011), available at http://evpa.eu.com/wp-content/uploads/2012/07/Impact-Investing-in-West-Africa. pdf.

Magidu Nyende & Luka Okumu, The African Development Bank, The Organization for Economic Co-operation and Development, & The United Nations Development Programme, African Economic Outlook: Eritrea 2014 (2014), available at http://www. africaneconomicoutlook.org/fileadmin/uploads/aeo/2014/PDF/CN_Long_EN/Eri- thr%C3%A9e_EN.pdf.

Manuel Orozco & Julia Yansura, Oxfam America, Africa Development Solutions, & Inter- American Dialogue, Keeping The Lifeline Open: Remittances and Markets in Somalia (2013), available at http://www.oxfamamerica.org/static/media/files/somalia-remittance-report-web.pdf.

353 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Marco Arosio, Responsible Research & Willow Tree Impact Investors, Impact Investing in Emerging Markets (2011), available at http://www.sustainalytics.com/sites/default/ files/impact_investing_in_emerging_markets-issues_for_responsible_investors.pdf.

Maria Levitov, “Djibouti to Raise $5.9B From Investors for Infrastructure,” Bloomberg (May 8, 2013), available at http://www.bloomberg.com/news/2013-05-08/djibouti-to- raise-5-9-billion-from-investors-for-infrastructure.html.

Mark Lawrence & Hadija Mohiddin, Famine Early Warning System Network, Djibouti Livelihood Profiles: October 2004, available at http://www.fao.org/elearning/course/ F6/en/pdf/Djibouti_Profile_and_Baseline.pdf.

Mark Tran, “Rwanda Rail Project on Track to Bridge Africa’s Economic Divide,” The Guardian (Sep. 30, 2014), available at http://www.theguardian.com/global-development/2013/sep/30/rwanda-rail-project-bridge-economic-divide.

Mark Tran, “Somaliland Bottles Its Hopes in Coca-Cola Plant”, The Guardian (Jul. 20, 2012), available at http://www.theguardian.com/global-development/2012/jul/20/ somaliland-bottles-hopes-coca-cola-plant.

Martin Webber, et al., J.E. Austin Associates, Inc., Using Value Chain Approaches in Agribusiness and Agriculture in Sub-Saharan Africa, available at http://www.technoserve.org/files/downloads/vcguidenov12-2007.pdf.

Masafumi Yabara, The International Monetary Fund, Capital Market Integration: Prog- ress Ahead of the East African Community Monetary Union (2012), available at http:// www.imf.org/external/pubs/ft/wp/2012/wp1218.pdf.

Mawuna Remarque Koutonin, “We Don’t Want Aid. Please Keep it for Your Local Poor!,” Eritrea: Ministry of Information, (Apr. 18, 2014), available at http://www.shabait. com/categoryblog/16773-we-dont-want-aid-please-keep-it-for-your-local-poor.

Maximilian Martin, Impact Economy, Making Impact Investible (2013), available at http://www.impacteconomy.com/download/Impact%20Economy%20-%202013%20 -%20Making%20Impact%20Investible.pdf.

Maximilian Martin, Impact Economy, Status of the Social Impact Investing Market: A Primer Prepared for the UK Cabinet Office(2013), available at https://www.gov.uk/ government/uploads/system/uploads/attachment_data/file/212511/Status_of_the_ Social_Impact_Investing_Market_-_A_Primer.pdf.

Maximilian Martin, “Impact Investing: Ethiopia’s Hidden Opportunity,” Addis Fortune (Jul. 6, 2014), available at http://addisfortune.net/columns/impact-investing-ethio- pias-hidden-opportunity/.

Mayada El-Zoghbi & Henry Gonzalez, The Consultative Group to Assist the Poor, Where Do Impact Investing and Microfinance Meet?(2013), available at https://www. cgap.org/sites/default/files/Brief-Where-Do-Impact-Investing-and-Microfinance- Meet-June-2013.pdf.

Melissa Ip, “Acumen and The Dow Chemical Company Partner Up,” Social Enterprise Buzz (Aug. 5, 2013), available at http://www.socialenterprisebuzz.com/2013/08/05/ acumen-and-the-dow-chemical-company-partner-up/.

APPENDICES • 354 Melissa Ip, “Acumen Fund Invests in Rwanda in 2012,” Social Buzz Enterprise (Dec. 31, 2011), available at http://www.socialenterprisebuzz.com/2011/12/31/acumen-fund-invests-in-rwanda-in-2012/.

Melissa Ip, “Acumen’s Latest Investment in Coffee, Women, and Rwanda,”So - cial Buzz Enterprise (Jan. 30, 2014), available at http://www.socialenterprisebuzz. com/2014/01/30/acumens-latest-investment-in-coffee-women-and-rwanda/.

Melissa Ip, “An Update from the James Lee Sorenson Global Impact Investing Cen- ter,” Social Enterprise Buzz (Sep. 3, 2013), available at http://www.socialenterprisebuzz. com/2013/09/03/an-update-from-the-james-lee-sorenson-global-impact-investing- center/.

Melissa Ip, “Banking on Solar: A Win-Win Opportunity Yet to Be Fully Tapped,” Social Enterprise Buzz (Nov. 19, 2013), available at http://www.socialenterprisebuzz. com/2013/11/19/banking-on-solar-a-win-win-opportunity-yet-to-be-fully-tapped/.

Melissa Ip, “Impact Investing in Africa,” Social Enterprise Buzz (Jun. 17, 2013), available at http://www.socialenterprisebuzz.com/2013/06/17/impact-investing-in-africa/.

Melissa Ip, “Samasource Gets a $7.5 Million Boost,” Social Enterprise Buzz (Oct. 16, 2012), available at http://www.socialenterprisebuzz.com/2012/10/16/samasource-gets- a-7-5-million-boost/.

Melissa Ip, “Sproxil Uses Mobile Phones to Combat Counterfeit Drugs,” So- cial Enterprise Buzz (Oct. 24, 2012), available at http://www.socialenterprisebuzz. com/2012/10/24/sproxil-uses-mobile-phones-to-combat-counterfeit-drugs/.

Melissa Ip, “Telecom Giant Tigo Invests in Social Entrepreneurs with Kinnevik’s Reach for Change,” Social Buzz Enterprise (Aug. 22, 2012), available at http://www.socialenterprisebuzz.com/2012/08/22/telecom-giant-tigo-invests-in-social-entrepreneurs- with-kinneviks-reach-for-change/.

Mengsteab Negash, Investment Laws in Eritrea (2001), available at http://www1.chr. up.ac.za/chr_old/indigenous/documents/Eritrea/Themes/General/Investment%20 Law%20in%20Eritrea.pdf.

Mercedes Stickler, Florence Landsberg, & Norbert Henninger, The Natural Re- source Management Programme & The Danish International Development Agency, Green Growth in Kenya: Engaging the Private Sector (2011), available at http://kenya. um.dk/~/media/Kenya/Documents/Green%20Growth%20in%20Kenya%20-%20 Conference%20Report.pdf.

Messele Fisseha, International Land Commission & Centre de Coopération Inter- nationale en Recherche Agronomique pour le Développement (CIRAD), A Case Study of the Bechera Agricultural Development Project: Ethiopia (2011), available at http://www.landcoalition.org/sites/default/files/publication/1021/EDC_Ethiopia_ web_11.03.11.pdf.

Messrs. Dramé Mouhamadou, et al., The African Development Bank & The Afri- can Development Fund, Djibouti Results-Based Country Strategy Paper 2007-2010 (2007), available at http://www.afdb.org/fileadmin/uploads/afdb/Documents/Proj- ect-and-Operations/ADB-BD-WP-2007-127-EN-DJIBOUTI-CSP-2007-2010.PDF.

355 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Mfonobong Nsehe, “KKR Invests in Ethiopian Flower Company,” Forbes (Jan. 7, 2014), available at http://www.forbes.com/sites/mfonobongnsehe/2014/07/01/kkr-invests-in-ethiopian-flower-company/.

MGoth, “Somaliland: Putting Out; Djibouti Is Investing to Retain Business as Compe- tition Intensifies,”Somalilandpress (Aug. 13, 2014), available at http://www.somalilandpress.com/somaliland-putting-outdjibouti-is-investing-to-retain-business-as-competition-intensifies/.

Michael Drexler, Abigail Noble, & Joel Bryce, World Economic Forum & Deloitte Touche Tohmatsu, From the Margins to the Mainstream Assessment of the Impact In- vestment Sector and Opportunities to Engage Mainstream Investors (2013), available at http://www3.weforum.org/docs/WEF_II_FromMarginsMainstream_Report_2013.pdf.

Michael Kubzansky, Ansulie Cooper, & Victoria Barbary, Monitor Group, Promise and Progress Market-Based Solutions to Poverty in Africa (2011), available at http://web.mit. edu/idi/idi/Africa-%20PromiseAndProgress-MIM.pdf.

Michael Rahija, Iyassu Fesha, & Gert-Jan Stads, Agricultural Science & Technology Innovators & The National Agricultural Research Institute, Eritrea: Recent Develop- ments in Agricultural Research (2010), available at http://www.ifpri.org/sites/default/ files/publications/eritrea-note.pdf.

Michiel Arnoldus, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) & Royal Tropical Institute, Investing for Social and Environmental Impact: A Guide to the World of Impact Investment Funds in the Agricultural Sector in Developing Countries (2013), available at http://www.dobequity.nl/2013/wp-content/uploads/2014/01/A- Guide-to-impact-investing.pdf.

Millicent Omukaga, Proparco, Kenya Women Finance Trust, & Grameen Credit Ag- ricole, “Focus on the Underbanked Rural Kenya- KWFT & Proparco/GCAMF Sign €7m Credit Facility” (Dec. 6, 2010), available at http://www.kwftdtm.com/documents/ Press%20Release%20Proparco-%20KWFTvf.pdf.

Ministry of Finance and Economic Planning: Republic of Rwanda, Rwanda: A Long- Term Investment Framework (2006), available at http://minecofin.guv.rw/devpart- ners2/fileadmin/templates/docs/Frameworks/Local/Long_Term_Investment_Frame- work.pdf.

Ministry of Finance, Planning and Economic Development, Millennium Development Goals Report for Uganda (2013), available at http://planipolis.iiep.unesco.org/upload/ Uganda/Uganda%20MDG%20Report-Oct%202013.pdf.

Ministry of Foreign Affairs Denmark: Embassy in Addis Ababa,Greening Agricultural Transformation in Ethiopia (GATE) 2014-2017 (2013), available at http://um.dk/en/~/ media/UM/English-site/Documents/Danida/About-Danida/Danida%20transpar- ency/Consultations/Del%202%202013/Greening%20Agricultural%20Transforma- tion%20in%20Ethiopia.pdf.

Mohamed Nureldin Abdallah, “Sudan Pound Again under Pressure after Devalua- tion,” Reuters (May 30, 2012), available at http://www.reuters.com/article/2012/05/30/ ozabs-sudan-currency-idAFJOE84T08Z20120530.

APPENDICES • 356 Muaz Shabandri, “Djibouti making strides,” Khaleej Times Business (Apr. 29, 2013), available at http://www.khaleejtimes.com/biz/inside.asp?section=uaebusiness&xfile=/ data/uaebusiness/2013/April/uaebusiness_April501.xml.

Multilateral Investment Guarantee Agency, “MIGA and South Sudan Commit to Further Collaboration: Agreements will Facilitate Critical Investment into the Country” (Apr. 15, 2014), available at http://www.miga.org/news/index.cfm?aid=3678.

Multilateral Investment Guarantee Agency, Development Impact, available at http:// www.miga.org/documents/06ar_Development_Impact.pdf.

Muriisa Roberts, The Privatisation Experience in Uganda (2005), available at http:// www.codesria.org/IMG/pdf/9-_Roberts.pdf.

MYC4, Impact Investing: Utilizing MYC4 as an Investment Vehicle for Socially Respon- sible Investing (2013), available at http://myc4.files.wordpress.com/2012/03/investment-vehicle-for-sri-in-africa.pdf.

Myles Lutheran, “Village Capital Case Study: Eco Fuels Kenya,” Village Capital (Jun. 4, 2013), available at http://www.vilcap.com/village-capital-case-study-eco-fuels-kenya.

Nate Haken, et al., The Failed States Index 2013, The Fund for Peace (2013), available at http://ffp.statesindex.org/rankings-2013-sortable.

National Bank of Commerce Uganda, Description of Norfund Investments: East Africa Community, available at http://www.nbcuganda.com/forms/20131220_Norfund%20 East%20Africa%20Dec%202013.pdf.

National Bank of Rwanda, Foreign Private Investment and Investor’s Perspective Report 2010, available at www.statistics.gov.rw/system/files/user_uploads/files/.../RFPIR2010. pdf.

New Partnership for Africa’s Development, The Food and Agricultural Organization of the United Nations, & The Government of Eritrea, Support to New Partnership for Africa’s Development–Comprehensive Africa Agriculture Development Programme Implementation: Tsilima Plains Integrated Development Project (2005), available at ftp:// ftp.fao.org/docrep/fao/008/ae744e/ae744e00.pdf.

Nicholas Bariyo, “Uganda Set to Award New Exploration Licenses in 2015,” The Wall Street Journal (Jun. 3, 2014), available at http://online.wsj.com/articles/uganda-set-to- award-new-oil-exploration-licenses-in-2015-1401793334.

Nina Röhrbein, Positive impact in Africa: A local Presence and a Tilt towards Impact Investing is the Way to Succeed on the Final Frontier (2011), available at http://www. ariyacapital.com/uploads/Investing%20in%20Africa%20Jan%202011.pdf.

Nixon Bugo, Eastern Metropolitan Regional Council, PricewaterhouseCoopers, & Alliance for a Green Revolution in Africa, Alliance for a Green Revolution in Africa & Partners: Facilitation of the Impact Investing Fund for African Agriculture (IIFFAA) (2010), available at http://www.emrc.be/documents/document/20101012162640-ses- sion_iii-ii_nixon_bugo_-_agra.pdf.

Norwegian Agency for Development Cooperation, Energy for Sustainable Devel-

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Norwegian Investment Fund for Developing Countries, “Scatec Solar and Norfund Begin Construction on East Africa’s First Utility Scale Solar Plant” (Feb. 2014), available at http://www.norfund.no/getfile.php/Documents/Homepage/Press%20releas- es/2014.02.18%20%20Scatec%20Solar%20-%20Norfund%20sign%20agreement%20 to%20build%208.5MW%20in%20Rwanda%20-%20final.pdf.

Norwegian Investment Fund for Developing Countries, NORFUND Annual Report 2011 (2012), available at http://www.norfund.no/getfile.php/Documents/Homepage/ Reports%20and%20presentations/Annual%20and%20operational%20reports/Nor- fund_Annual_Report_2011.pdf.

Norwegian Investment Fund for Developing Countries, NORFUND Annual Report 2012 (2013), available at http://www.norfund.no/getfile.php/Documents/Homepage/ Reports%20and%20presentations/Annual%20and%20operational%20reports/A%C- C%8Arsrapport_engelsk_web.pdf.

Norwegian Investment Fund for Developing Countries, NORFUND Report on Oper- ations 2013, available at http://www.norfund.no/getfile.php/Documents/Homepage/ Reports%20and%20presentations/Annual%20and%20operational%20reports/Virk- somhetsrapport_2013_nett.pdf.

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Office of the United States Trade Representative, Foreign Trade Barriers: Ethiopia, available at http://www.ustr.gov/sites/default/files/Ethiopia_0.pdf.

Olivier Basdevant, The International Monetary Fund, How Can Burundi Raise Its Growth Rate? The Impact of Civil Conflict and State Intervention on Burundi’s Growth Performance (2009), available at https://www.imf.org/external/pubs/ft/wp/2009/ wp0911.pdf.

One Acre Fund, One Acre Fund: 2013 Annual Performance Report, available at http:// www.oneacrefund.org/uploads/all-files/One_Acre_Fund_Annual_Performance_Re- port_2013.pdf.

Overseas Private Investment Corporation, Investing with Impact for 40 years: 2011 Annual Report (2011), available at http://www.opic.gov/sites/default/files/ docs/051912-annualreport-FINAL.pdf.

Owen Barder, et al., Center for Global Development, et al., Development Impact Bond Working Group Report (2013), available at http://www.cgdev.org/sites/default/ files/DIB_WG_REPORT.pdf.

Oxfam Novib, Fair Future for All Oxfam Novib’s Corporate Plan 2011 – 2015 (2011), available at http://www.oxfamnovib.nl/Redactie/Downloads/Jaarverslagen/Oxfam- NovibsCorporatePlan%202011-2015-jun11.pdf.

Oxford Analytica, Agribusiness in Sub-Saharan Africa: Political, Economic, Financial

APPENDICES • 358 and Regulatory Risks (2011), available at http://www.norfund.no/getfile.php/Docu- ments/Homepage/Reports%20and%20presentations/Studies%20for%20Norfund/ Public-Norfund_Agribusiness%20SSA_Executive%20Summary.pdf.

Pacific Community Ventures,Impact Investing 2.0: Business Partners limited (2014), available at http://www.pacificcommunityventures.org/impinv2/wp-content/uploads/2014/02/casestudy_bpl.pdf.

Paddy Partridge, et al., This is Africa & The Rockefeller Foundation, Impact In- vesting, available at http://www.thegiin.org/binary-data/RESOURCE/download_ file/000/000/154-1.pdf.

Patrick Tandoh, et al., Ghana Institute of Management and Public Administration & Venture Capital Trust Fund, Impact Investing in Ghana: Opportunities, Prospects and Challenges (2013), available at http://www.forms.gimpa.edu.gh/Impact_Baseline_Re- search_II_%20Jul_2013.pdf.

Paul Budde, “Eritrea - Telecoms, Mobile and Broadband- Market Insights and Sta- tistics,” BuddeComm, available at http://www.budde.com.au/Research/Eritrea-Tele- coms-Mobile-and-Broadband-Market-Insights-and-Statistics.html.

Paul Fletcher, The Gatsby Charitable Foundation & Pearl Capital Partners, Impact Investment: Understanding Financial and Social Impact of Investments in East African Agricultural Businesses, available at http://www.gatsby.org.uk/~/media/Files/Africa/ Gatsby%20Africa%20AAC%20Impact%20Investment%20Study%202011.ashx.

Paula San Pedro, Oxfam International, Investing in Agriculture in Burundi: Improving Food Security and Conditions for Women Farmers (2011), available at http://www. oxfam.org/sites/www.oxfam.org/files/file_attachments/rr-investing-agriculture-burundi-051211-summ-en_4.pdf.

Pearl Capital Partners, “Pearl Capital Partners invests US$ 1,500,000 in KK Fresh Produce Exporters Limited (“KK Foods”)” (Jan. 23, 2014), available at http://www. pearlcapital.net/pdf/Press%20Release,%20KK%20Foods,%2023%20Jan%202014.pdf.

Pedro Arias, et al., The Food and Agriculture Organization of the United Nations, Trends and Impacts of Foreign Investment in Developing Country Agriculture: Evidence from Case Studies (2012), available at http://www.maff.go.jp/j/kokusai/kokkyo/toushi/ pdf/faoeibun1.pdf.

Philip J. Riddell, Terragua Group: GIIN, Impact Investing in Commercial African Agriculture (2009), available at http://www.thegiin.org/binary-data/RESOURCE/ download_file/000/000/113-1.pdf.

Planipolis, Education Sector Strategic Plan,2012-2016, (2012),available at http:// planipolis.iiep.unesco.org/upload/Somalia/Somalia-Puntland-Education-Sec- tor-Plan-2012-2016.pdf.

Population: Total, The World Bank Group, available at http://data.worldbank.org/indicator/SP.POP.TOTL.

359 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA PricewaterhouseCoopers, Africa Gearing Up: Kenya, available at http://www.pwc.com/ gx/en/transportation-logistics/publications/africa-infrastructure-investment/assets/ kenya.pdf.

Production: Crops, The Food and Agriculture Organization of the United Nations: Statistics Division (2013), available at http://faostat3.fao.org/download/Q/QC/E.

Programme for Biomass Energy Conservation in Southern Africa & Eco Ltd, Over- view of Potential Donors / Funds for Biomass Energy Conservation Projects with a Focus on Africa (2003), available at https://energypedia.info/images/b/b4/Probec_fund_ catalogue-2003.pdf.

Promoting Equality in African Schools (PEAS), Promoting Equality in African Schools: Report and Audited Accounts (2012), available at http://www.peas.org.uk/sites/default/ files/users/u4/PEAS%2031%20January%202012%20signed%20accounts.pdf.

Promotion et Participation Pour La Cooperation Economique, Annual Report 2012, available at http://www.proparco.fr/jahia/webdav/site/proparco/shared/ELEMENTS_ COMMUNS/PDF/Rapports-annuels/Rapport_annuel_2012/Proparco_RA2012_EN- .pdf.

Public-Private Infrastructure Advisory Facility, PPIAF Support to Private Sector Partici- pation in the Irrigation Sector in Ethiopia (2012), available at http://www.ppiaf.org/sites/ ppiaf.org/files/publication/PPIAF-Impact-Stories-PSP-in-Irrigation-in-Ethiopia.pdf.

Puntland Chamber of Commerce and Industries, Puntland Investment Guide (2013), available at http://www.puntlandchamber.com/Final%20Puntland%20Investment%20 Guide.pdf.

Rachel Keele, et al., KPMG Kenya, Trialling Client-Focused Climate Finance in Ethiopia: Innovations in Fund Management (2014), available at http://www.kpmg.com/ eastafrica/en/services/Advisory/Development-Advisory-Services/Thought_Leader- ship_at_DAS/Documents/Trialling_Client-Focused_Climate_Finance_in_Ethiopia. pdf.

Ralph Roothaert & Gilbert Muhanji, Kilimo Trust, Maendeleo Agricultural Technology Fund, & Farm Africa, Profit Making for Smallholder Farmers (2009), available at http:// www.farmafrica.org/downloads/resources/MATFGrantholders-Report.5.pdf.

Ravinder Rena, “Eritrea: Rural Enterprises to Catalyze Economy (Opinion),” Nor- wegian Counsel for Africa (June 15, 2007), available at http://www.afrika.no/De- tailed/14379.html.

Regional Health Systems Observatory- Eastern Mediterranean Regional Office, Health System Profile: Somalia (2006), available at http://apps.who.int/medicinedocs/ documents/s17309e/s17309e.pdf.

Renee Parker, et al., J.P. Morgan et al., Impact Investments: An Emerging Asset Class (2010), available at http://ventureatlanta.org/wp-content/uploads/2011/11/JP-Mor- gan-impact_investments_nov2010.pdf.

APPENDICES • 360 Republic of Rwanda: Ministry of Trade and Ministry, Rwanda Integrated Trade Logistics Facilities Project: Bonded Warehouse at Rusizi and Rubavu (2014), available at http:// www.rdb.rw/fileadmin/user_upload/Documents/tender/2014/RFQ_Bonded_Ware- house_Rusizi_and_Rubavu.pdf.

Reuters, “Eritrea Offers Stake in State Telco, But Not To Foreigners,”TestaNews.net (Jan. 6, 2013), available at http://www.tesfanews.net/eritrea-offers-stake-in-state-telco-but-not-to-foreigners/.

Richard A. Schroeder, South African Capital in the Land of Ujamaa (2008), available at http://www.codesria.org/IMG/pdf/Richard_A-_Schroeder.pdf.

Richard Carter & Dr. Kerstin Danert, Food and Agricultural Research Management Africa, FARM-Africa Ethiopia: Planning for Small-Scale Irrigation Intervention (2006), available at http://www.farmafrica.org/downloads/resources/WP4%20Planning%20 for%20Small%20Scale%20Irrigation%20in%20Ethiopia.pdf.

Robert Stone, Susan Johnson, & Janet Hayes, Financial Sector Deepening Kenya, FSD Kenya Impact Assessment: Summary Report (2010), available at http://www.fsdkenya.org/pdf_documents/10-03-15_FSD_Impact_assessment_public_report.pdf.

Rodrigue Rwirahira, “Rwanda Seeks Land Reforms,” The EastAfrican (Jan. 18, 2013), available at http://www.theeastafrican.co.ke/Rwanda/News/Rwanda-seeks-land-reforms/-/1433218/1669604/-/pl3f76/-/index.html.

Rolake Akinkugbe, “Top Trends to Watch in sub-Saharan Africa’s Extractives Sec- tor (Part I),” African Arguments (Aug. 8, 2013), available at http://africanarguments. org/2013/08/08/top-trends-to-watch-in-sub-saharan-africa%E2%80%99s-extractives- sector-part-i-%E2%80%93-by-rolake-akinkugbe/.

Ron Derby, “The Curious Tale of The World-Beating Somali Shilling,” Financial Times (Mar. 20, 2014), available at http://blogs.ft.com/beyond-brics/2014/03/20/the-curious-tale-of-the-world-beating-somali-shilling/.

Root Capital, 2009 - 2013 Private Offering Memorandum, available at http://nonprofit- financefund.org/files/docs/RootCapital.pdf.

Root Capital, A Roadmap for Impact, available at http://www.rootcapital.org/sites/default/files/downloads/rootcapital_impactroadmap.pdf.

Root Capital, Performance Report: Q1 2014 (2014), available at http://www.rootcapital. org/sites/default/files/performance_reports/QPR/rootcapital_q1_2014_perfor- mancereport-v2.pdf.

Ruth N. Kihara, Margaret Kobia, & Allan M. Katwalo, Strathmore University, The Kenya School of Government, & Kabarak University, Micro, Small and Medium En- terprise Growth and Innovation in Kenya: A Case Study on the Women Enterprise Fund (2013), available at http://www.strathmore.edu/pdf/Final-Research-Report-TA-11-056. pdf.

S. Kone, et al., The African Development Bank Group, Djibouti: Country Strategy Paper 2011-2015 (2011), available at http://www.afdb.org/fileadmin/uploads/afdb/ Documents/Project-and-Operations/Djibouti%20-%20CSP%202011-15.pdf.

361 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Sally Healy, Chatham House et. al, Eritrea’s Economic Survival (2007), available at https://www.chathamhouse.org/sites/files/chathamhouse/public/Research/Af- rica/200407eritrea.pdf.

Samira Shackle, “Back to the Future: The Challenges Facing Somalia’s Returning Diaspora,” The National (Sep. 4, 2014), available at http://www.thenational.ae/arts-lifestyle/the-review/back-to-the-future-the-challenges-facing-somalias-returning-diaspora#ixzz3KHM6xw9i.

Samuel Imende, “Impact Investing: Ecosystems for Impact in Africa,” Selamta Maga- zine, available at http://www.selamtamagazine.com/stories/impact-investing.

SantaFe Associates International, Legal Market Overview: Investment Climate Where SantaFe Associates Has Offices, available at http://www.santafe-associates.com/archivos/pdf/legal-market-overview-investment-climate-SFAI.pdf.

Sara Wallace, “The Burgeoning Opportunity in Ethiopia’s Factories,” D. Blog (Apr. 4, 2014), available at http://dalberg.com/blog/?tag=ethiopia.

Scriptoria Sustainable Development Communications, Islamic Development Bank, IsDB Success Story Series no.10: New Container Port Raises Djibouti’s International Logistics Profile(2013), available at http://www.isdb.org/irj/go/km/docs/documents/ IDBDevelopments/Attachments/Projects/10_IDB_SuccessStory10_Djibouti_New_ Container_Port.pdf.

Security Council, by Vote of 13 in Favour, Adopts Resolution Reinforcing Sanctions Regime.

SEGURA/IP3 Partners LLC, Rwanda Bank of Kigali DCA Guarantee: Evaluation (2009), available at http://www.usaid.gov/sites/default/files/documents/2155/DCA_ Rwanda_Report_6_23_10.pdf.

Serengeti Advisors, Tanzania Banking Survey 2012 (2012), available at http://www.tccia. com/tccia/wp-content/uploads/2011/07/Tanzania-Banking-Survey-2012-FINAL-Ju- ly-2012.pdf.

Shawn Tully, Dick Parsons and Ronald Lauder Bring Impact Investing to Sub-Saharan Africa (2013), available at http://picinvest.com/data/uploads/news/dick_parsons_and_ ronald_lauder_bring_impact_investing_to_sub.pdf.

Shelagh Whitley & Godber Tumushabe, The Overseas Development Institute, Map- ping Current Incentives and Investment in Uganda’s Energy Sector: Lessons for Private Climate Finance (2014), available at http://www.acode-u.org/documents/8891.pdf.

Shelagh Whitley, Emily Darko, & Grace Howels, Overseas Development Institute, Impact Investing and beyond: Mapping Support to Social enterprises in Emerging Markets (2013), available at http://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/8488.pdf.

Shell Foundation, This is What Shell Foundation is All About!, available at http://www. commdev.org/files/1136_file_TU08_a_and_b.pdf.

APPENDICES • 362 Shenoy Karun, “Tanzania Floor Price Zaps Cashew Imports,” The Times of India (Mar. 6, 2012), available at http://timesofindia.indiatimes.com/city/kochi/Tanzania-floor- price-zaps-cashew-imports/articleshow/12155687.cms.

Sherman Hollar, “Pierre Nkurunziza,” Encyclopaedia Britannica (Jun. 3, 2013), available at http://www.britannica.com/EBchecked/topic/1090732/Pierre-Nkurunziza.

Sherwood Neiss, “Crowdfunding and Climate Innovation: The Next Steps are in Funding Impact Investing,” CrowdFund Insider (Dec. 17, 2013), available at http://www.crowdfundinsider.com/2013/12/28560-crowdfunding-climate-innovation-next-steps-funding-impact-investing/.

Simon Muller, Adam Brown, & Samantha Olz, International Energy Agency, Re- newable Energy: Policy Considerations for Deploying Renewables (2011), available at https://www.iea.org/publications/freepublications/publication/Renew_Policies.pdf.

Simon Walley, The International Bank for Reconstruction and Development: The World Bank, Developing Kenya’s Mortgage Market (2011), available at http://siteresources.worldbank.org/FINANCIALSECTOR/Resources/Kenya_Expanding_Mort- gage_Finance_May_2011.pdf.

Smita Nakhooda, et al., Climate Funds Update & Heinrich Boll Stiftung: North America, Climate Finance Policy Brief: Confronting the Challenges of Climate Change (2012), available at http://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/7921.pdf.

Somali Talk, Banking, Remittances, and The Role of the Central Bank in Promoting Financial and Private Sector Development in Somalia (2010), available at http://www. somalitalk.com/2010/may/istambul/banking.pdf.

Soud Hyder, “Impact Investing; Challenges & Opportunities in the East African ICT Sector,” Scribd., available at http://www.scribd.com/doc/49583439/Impact-Invest- ing-Challenges-Opportunities-In-The-East-African-ICT-Sector.

South African Impact Investing Network, Opportunities for Impact Investing in South Africa: Preliminary Findings (2009), available at http://www.greatergoodsa.co.za/files/ SAIIN-A4-FINAL.pdf.

South Sudan National Bureau of Statistics, The South Sudan Millennium Development Goals Status Report (2012), available at http://www.undp.org/content/dam/southsudan/library/Reports/MDG%20Report%202012.pdf.

Standard Chartered, Case Study: Doraleh Container Terminal Djibouti (2010), available at http://www.icafrica.org/fileadmin/documents/ICA_sponsored_events/IFC_PPP_ Ports_Cairo_2010/Case%20Study%20Doraleh%20Port%20Djibouti.pdf.

Stanford Graduate School of Business, Impact Investing, available at http://csi.gsb. stanford.edu/sites/csi.gsb.stanford.edu/files/Impact%20Investing%20Spreadsheet%20 -%20Advanced%205_0.pdf.

Stanhope Centre for Communication Policy and Research, Sudan Media Brief, available at http://www.stanhopecentre.org/training/EA/Sudan.doc.

363 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA Steinbeis Consulting for Impact Investing, Technology Transfer: Impact Investment Fund I (2012), available at http://www.steinbeis impact.com/fileadmin/content/website/fonds/Technology_Transfer_Fund_Teaser_2012.pdf.

Sterling Capital Limited, Investments & Mortgages (I&M Bank) Holdings Ltd: Diamond in the Rough (2011), available at https://www.google.com/url?sa=t&rct=j&q=&esrc=s&- source=web&cd=2&cad=rja&uact=8&ved=0CCMQFjAB&url=http%3A%2F%2Fwww. sterlingib.com%2Findex.php%2Fcomponent%2Fdocman%2Fdoc_download%2F8-im- hl-diamond-in-the-rough%3FItemid%3D&ei=2tEGVNfRKdGv7Abl8oGYCA&us- g=AFQjCNHpWWnuvj5hidZ7_rrU42TrYC-MfQ.

Steven B. Rogers, et al., Centre for International Private Enterprise, Twenty-Five Year Impact Evaluation: 25 years of Strengthening Democracy Through Market-Ori- ented Reform (2010), available at http://www.cipe.org/sites/default/files/publication-docs/25%20Year%20Evaluation.pdf.

Steven Hege et al., The United Nations Security Council, United Nations Security Council Briefing S/2012/843 (2012), available at http://www.securitycouncilreport.org/ atf/cf/%7B65BFCF9B-6D27-4E9C-8CD3-CF6E4FF96FF9%7D/s_2012_843.pdf.

Stichting Nederlandse Vrijwilligers (SNV) Netherlands Development Organisation, SNV in Africa: Case Studies 2012 (2013), available at http://www.snvworld.org/en/ download/publications/snv_people_partnership_progress_2013.pdf.

Sudan-Arab British Chamber of Commerce, Sudan Profile (2012), available at http:// www.abcc.org.uk/Pages/DocumentManager/Country%20Profiles/2012/Sudan%20 -%202012.pdf.

Suna,”SDG 2 billion Allocated to Microfinance,”Sudan Vision Daily (Mar. 17, 2014), available at http://news.sudanvisiondaily.com/details.html?rsnpid=233421.

Sustainable Investment Consulting & RisCua, “IFC-SinCo Reports US$125 billion in Sustainable Investment in Sub-Saharan Africa” (July 19, 2011), available at http://www. riscura.com/sites/default/files/case_study_docs/IFC%20Press%20Aug2011.pdf.

Sveinung Fjose, Leo A. Grunfeld, & Chris Green, MENON Business Economics, SMEs and Growth in Sub-Saharan Africa: Identifying SME Roles And Obstacles to SME Growth (2010), available at http://www.norfund.no/getfile.php/Documents/Homep- age/Reports%20and%20presentations/Studies%20for%20Norfund/SME%20and%20 growth%20MENON%20%5BFINAL%5D.pdf.

Swedish International Development Cooperation Agency, Sida Country Re- port 2006: Burundi (2007), available at http://www.sida.se/contentassets/631b- 4f4a2125452ab999038bf1348ea3/burundi_374.pdf.

Tasnim Anwar, “Social Stock Exchanges: A Global Perspective,” Social Buzz Enter- prise (Sep. 10, 2013), available at http://www.socialenterprisebuzz.com/2013/09/10/ social-stock-exchanges-a-global-perspective/.

TechnoServe, The Coca-Cola Company & Bill & Melinda Gates Foundation, Project Nurture Case Study: WTO/World Bank ‘Aid for Trade,’ available at http://www.oecd. org/aidfortrade/48367101.pdf.

APPENDICES • 364 Teferi Michael, et al., Swedish International Development Cooperation, Managing Aid Exit and Transformation: Eritrea Country Case Study (2008), available at http:// www.sida.se/contentassets/68c1ad795b3b4d6e9e9be3938907334c/managing-aid-exit-and-transformation-eritrea-country-case-study_2550.pdf.

The Abraaj Group, Optimism, Impact and Performance: Engagement in Africa (2013), available at http://www.abraaj.com/images/uploads/newspdfs/Engagement_in_Afri- ca_Report_(10Jun2013).pdf.

The Africa Asia Business Forum, Kenya Investment Guide, available at http://www. aabf.org/kenya_inv_guide.htm.

The Africa Enterprise Challenge Fund, Century Seed Company, available at http:// www.aecfafrica.org/sites/default/files/project_files/Century%20Seed%20Company. pdf.

The Africa Enterprise Challenge Fund, Garden of Eden, available at http://www.aecfafrica.org/sites/default/files/project_files/Garden%20Of%20Eden%20Company%20 Limited.pdf.

The Africa Enterprise Challenge Fund, Honey Care Africa Limited, available at http:// www.aecfafrica.org/sites/default/files/project_files/Honey%20Care%20Africa%20Ltd. pdf.

The Africa Enterprise Challenge Fund, South Farmers Company Limited, available at http://www.aecfafrica.org/sites/default/files/project_files/South%20Farmers%20 Company%20Limited.pdf.

The African Development Bank & The African Development Fund, Projet De Bitumage De La Rn 18, available at http://www.afdb.org/fileadmin/uploads/afdb/ Documents/Environmental-and-Social-Assessments/Burundi_-_Projet_de_bitum- age_de_la_RN_18_-_R%C3%A9sum%C3%A9_PGES.pdf.

The African Development Bank & The African Development Fund, Somalia Country Brief (2010), available at http://www.afdb.org/fileadmin/uploads/afdb/Documents/ Project-and-Operations/SOMALIA%20-%20Country%20Brief.pdf.

The African Development Bank & The Eastern Metropolitan Regional Council, AfDB-EMRC SME Forum: Bridging the Missing Middle Gap in Africa (2011), available at http://www.emrc.be/documents/document/20120322175350-def_afdb_confer- encereport_2011_en_final2_lr.pdf.

The African Development Bank & The Organisation for Economic Co-operation and Development, African Economic Outlook: Rwanda (2007), available at http://www. oecd.org/countries/rwanda/38562991.pdf.

The African Development Bank Group, Somalia Country Brief 2013-2015 (2013), available at http://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Opera- tions/2013-2015%20-%20Somalia%20-%20Country%20Brief.pdf.

365 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA The African Development Bank Group, South Sudan: An Infrastructure Action Plan (2013), available at http://www.afdb.org/fileadmin/uploads/afdb/Documents/Gener- ic-Documents/South%20Sudan%20Infrastructure%20Action%20Plan%20-%20%20 A%20Program%20for%20Sustained%20Strong%20Economic%20Growth%20-%20 Full%20Report.pdf.

The African Development Bank, EAC Payment and Settlement Systems Integration Project (EAC-PSSIP), available at http://www.afdb.org/fileadmin/uploads/afdb/ Documents/Procurement/Project-related-Procurement/East_African_Communi- ty__EAC__Payment_and_Settlement_Systems_Integration_Project__EAC-PS- SIP__-_GPN.pdf.

The African Development Bank, et al., African Economic Outlook 2012: Sudan (2012), available at http://www.youthpolicy.org/national/Sudan_2012_Youth_Unemploy- ment_Briefing.pdf.

The African Development Bank, et al., African Economic Outlook: Eritrea 2012(2012), available at http://www.youthpolicy.org/national/Eritrea_2012_Youth_Employment_ Briefing.pdf.

The African Development Bank, et al., African Economic Outlook: Rwanda 2012, available at http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/ Rwanda%20Full%20PDF%20Country%20Note_01.pdf.

The African Development Bank, et al., Kenya (2012), available at http://www.africaneconomicoutlook.org/fileadmin/uploads/aeo/PDF/Kenya%20Full%20PDF%20Coun- try%20Note.pdf.

The African Development Bank, Proposition Visant L’octroi D’un Don De 1 000 000 Dollars Eu Au Titre De L’aide D’urgence Aux Victimes Des Inondations De La Ville De Bujumbura (2012), available at http://www.afdb.org/fileadmin/uploads/afdb/Docu- ments/Project-and-Operations/Burundi_-_Aide_d%E2%80%99urgence_aux_vic- times_des_inondations_de_la_ville_de_Bujumbura.pdf.

The African Development Bank, The Organisation for Economic Co-operation and Development, & The United Nations Development Programme, African Economic Outlook: Djibouti (2013), available at http://www.africaneconomicoutlook.org/fileadmin/uploads/aeo/2013/PDF/Djibouti%20-%20African%20Economic%20Outlook.pdf.

The African Training and Management Services, et al., ATMS Project Report - Tan- zania (2012), available at http://www.amsco.org/publications/country-reports/reports/2012/Tanzania.pdf.

The Arab Bank for Economic Development in Africa, Annual Report 2013, available at http://www.badea.org/Portal/Document_Repository/309/1_Annual%20Report%20 2013%20-%20English.pdf.

The Arab Bank for Economic Development in Africa, US $ 10 Million from BADEA to Ethiopia (2013), available at http://www.badea.org/Portal/Docu- ment_Repository/173/1_%D8%AA%D9%88%D9%82%D9%8A%D8%B9%20 %D8%A7%D8%AF%D9%8A%D8%B3%20%D8%A7%D9%86%D8%AC%D9%84%D 9%8A%D8%B2%D9%8A%20%D9%84%D9%84%D9%86%D8%AA.pdf.

APPENDICES • 366 The Belgian Investment Company for Developing Countries, Annual Report 2009 (2010), available at http://www.bio-invest.be/es/component/downloads/downloads/20. html.

The Catholic Organisation for Relief and Development Aid, Investing in Fragile States: Maximizing Social Impact, Balancing Return (2014), available at https://www.cordaid. org/media/publications/PosPap-Investing_in_Fragile_States-MAY14-DEF-HR-NEW. pdf.

The Central Bank of Kenya, Bank Supervision Annual Report (2013), available at https://www.centralbank.go.ke/images/docs/Bank%20Supervision%20Reports/Annu- al%20Reports/2013BSD.pdf.

The Common Market for Eastern and Southern Africa Regional Investment Agency, l’Agence Burundaise de Promotion des Investissements, & Burundi Investment Promo- tion Agency, Investor’s Guide to Burundi (2012), available at http://www.investburundi. com/attachments/article/267/BURUNDI%20Investment%20Guide%202012.pdf.

The Common Market for Eastern and Southern Africa, Foreign Direct Investment and Small and Medium Enterprise Linkages in COMESA (2013), available at http:// investmentpolicyhub.unctad.org/Upload/Documents/2013%20COMESA%20Invest- ment%20Report.pdf.

The Commonwealth Development Corporation (CDC Group), The DFID Impact Fund, available at http://www.cdcgroup.com/Documents/Impact%20Fund/Impact_ Fund_FAQs.pdf.

The Department for International Development & The United Kingdom Aid, Depart- ment for International Development Annual Report and Accounts 2012–13 (2013), available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/ file/209330/DFID_Annual_Report.pdf.

The Department for International Development, DFID Rwanda: Growth and Poverty Reduction Grant to the Government of Rwanda (2012/13-2014/15) (2012), available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/ file/67320/DFID-Rwanda-business-case.pdf.

The Department for International Development, Operational Plan 2011-2015: DFID Rwanda (2012), available at https://www.gov.uk/government/uploads/system/uploads/ attachment_data/file/67358/rwanda-2011.pdf.

The Department for International Development, Operational Plan 2011-2015: DFID Somalia (2012), available at https://www.gov.uk/government/uploads/system/uploads/ attachment_data/file/67414/somalia-2011.pdf.

The Department for International Development, Somalia Monitoring Programme: Business Case, available at https://www.google.com/url?sa=t&rct=j&q=&esrc=s&- source=web&cd=2&cad=rja&uact=8&ved=0CDEQFjAB&url=http%3A%2F%2Fwww. wider.unu.edu%2Fpublications%2Fworking-papers%2F2014%2Fen_GB%2F- wp2014-002%2F_files%2F91035991080240762%2Fdefault%2Fwp2014-002.pdf&ei=Y- qOSVPPANMyBaY29gIgK&usg=AFQjCNFxsyZ3Zs2fTn4OHyN9QlZ9RRWUk- g&bvm=bv.82001339,d.d2s.

367 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA The Economic Policy Research Institute, Country Profile: Djibouti(2011), available at http://epri.org.za/wp-content/uploads/2011/03/14-Djibouti.pdf.

The Federal Republic of Somalia, Provisional Constitution: Article 26 (2012), available at http://unpos.unmissions.org/LinkClick.aspx?fileticket=RkJTOSpoMME=.

The Food and Agricultural Organization of the United Nations, Foreign Agricultural Investment Country Profile: Ethiopia (2011), available at http://www.fao.org/fileadmin/ user_upload/tcsp/docs/ETHIOPIA_COUNTRY_PROFILE.pdf.

The Food and Agricultural Organization of the United Nations, Statistical Query Re- sults, available at http://www.fao.org/figis/servlet/SQServlet?ds=Capture&k1=COUN- TRY&k1v=1&k1s=&outtype=html.

The Gatsby Charitable Foundation, Impact Investing: Understanding Financial and So- cial Impact Investments in East African Agricultural Businesses (2011), available at http:// www.gatsby.org.uk/~/media/Files/Africa/Gatsby%20Africa%20AAC%20Impact%20 Investment%20Study%202011.ashx.

The Government of Southern Sudan, Laws of Southern Sudan: The Investment Promo- tion Act 2009, available at http://www.wipo.int/edocs/lexdocs/laws/en/ss/ss015en.pdf.

The Government of Uganda, The Investment Code, available at https://www.google. com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CCY- QFjAA&url=http%3A%2F%2Fwww.ilo.org%2Fdyn%2Flegosh%2Fen%2Ff%3F- p%3DLEGPOL%3A503%3A3192607443802%3A%3A%3A503%3 AP503_REFERENCE_ID%3A140160&ei=7_1iVMqAOIm3PNmugSA&usg=AFQ- jCNH3fPh3SF_bv3M26VNU0J-zOUI6Aw&bvm=bv.79189006,d.d2s.

The Independent Commission for Aid Impact, DFID’s Education Programmes in Three East African Countries (2012), available at http://www.oecd.org/countries/rwanda/50360183.pdf.

The International Bank for Reconstruction and Development, Doing Business 2015: Going Beyond Efficiency: South Sudan (2014), available at http://www.doingbusiness. org/data/exploreeconomies/~/media/giawb/doing%20business/documents/profiles/ country/SSD.pdf?ver=2.

The International Finance Corporation, Additionality: A Primer (2010), available at http://www.ifc.org/wps/wcm/connect/696f81804b06f2adb09afa888d4159f8/Addition- ality_Primer.pdf?MOD=AJPERES.

The International Finance Corporation, Correspondent Account KYC Toolkit: A Guide to Common Documentation Requirements (2009), available at http://www.ifc.org/wps/ wcm/connect/dfb227004ec4ea109697bf45b400a808/CORRESPONDENT+AC- COUNT+KYC+TOOLKIT.pdf?MOD=AJPERES.

The International Finance Corporation, Doing Our Part in Africa: Innovative IFC Solutions Expanding Access to Finance, available at http://www.ifc.org/wps/wcm/connect/7817a50048917e35b3c1f781dd77ebd3/IFC_Doing+Our+Part+in+Africa.pdf?- MOD=AJPERES.

APPENDICES • 368 The International Finance Corporation, IFC Advisory Services in Sub-Saharan Af- rica: Development Impact Report 2013, available at http://www.ifc.org/wps/wcm/ connect/1b27bf00414ed6e5b450b79e78015671/AS+SSA+2013+Development+Im- pact+Report.pdf?MOD=AJPERES.

The International Finance Corporation, IFC Performance Standards on Environmental and Social Sustainability (2012), available at http://www.ifc.org/wps/wcm/connect/ c8f524004a73daeca09afdf998895a12/IFC_Performance_Standards.pdf?MOD=A- JPERES.

The International Finance Corporation, IFC Road Map FY14-16: Leveraging the Pri- vate Sector to Eradicate Extreme Poverty and Pursue Shared Prosperity (2013), available at http://www.ifc.org/wps/wcm/connect/1d30b9004028f151b28fff23ff966f85/ Road+Map+FY14-16+redacted.pdf?MOD=AJPERES.

The International Finance Corporation, International Finance Institutions and De- velopment through the Private Sector (2011), available at http://www.norfund.no/ getfile.php/Documents/Homepage/Reports%20and%20presentations/External%20 reports_flyers/International_Finance_Institutions_and_Development_Through_Pri- vate_Sector%5B1%5D.pdf.

The International Fund for Agricultural Development, Diaspora Investment in Agricul- ture (DIA) Initiative, available at http://www.ifad.org/remittances/pub/dia.pdf.

The International Fund for Agricultural Development, Enabling Poor Rural People to Overcome Poverty in Burundi (2012), available at http://www.ifad.org/operations/projects/regions/Pf/factsheets/burundi.pdf.

The International Fund for Agricultural Development, Eritrea: Country Strategic Op- portunities Paper (2006), available at http://www.ifad.org/gbdocs/eb/88/e/EB-2006- 88-R-10.pdf.

The International Monetary Fund, Djibouti: Poverty Reduction Strategy Paper (2014), available at http://planipolis.iiep.unesco.org/upload/Djibouti/PRSP/Djibouti%20 PRSP.pdf.

The International Monetary Fund, Djibouti: Sixth Review under the Extended Credit Facility Arrangement and Request for Waivers of Nonobservance of Performance Crite- ria, available at http://www.imf.org/external/pubs/ft/scr/2013/cr1378.pdf.

The International Monetary Fund, IMF Country Report: Sudan (2013), available at https://www.imf.org/external/pubs/ft/scr/2013/cr13317.pdf.

The International Monetary Fund, Sudan: Interim Poverty Reduction Strategy Paper (2013), available at http://www.imf.org/external/pubs/ft/scr/2013/cr13318.pdf.

The International Renewable Energy Agency, Renewable Power Generation Costs in 2012: An Overview (2013), available at http://costing.irena.org/media/2769/Over- view_Renewable-Power-Generation-Costs-in-2012.pdf.

The Middle of the Pyramid, African Development Bank, available at: http://www.afdb. org/fileadmin/uploads/afdb/Documents/Publications/The%20Middle%20of%20 the%20Pyramid_The%20Middle%20of%20the%20Pyramid.pdf.

369 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA The Ministry of Energy and Mining in the Republic of Burundi, Investment Oppor- tunities in Renewable Energy Burundi (2012), available at http://www.bi.undp.org/ content/dam/burundi/docs/publications/Investment%20opportunities%20in%20 renewable%20energy%20Burundi.pdf.

The Ministry of Trade and Investment, Somaliland: An Investment Guide to Somaliland Opportunities & Conditions 2013 – 2014 (2013), available at http://somalilandinvest. net/somaliland_investment_guide.pdf.

The National Bank of Ethiopia, Annual Report 2012/13(2013), available at http:// www.nbe.gov.et/pdf/annualbulletin/Annual%20Report%202012-2013/Annual%20Re- port%202012-2013.pdf.

The OPEC Fund for International Development, Investing in Djibouti’s Small Entre- preneurs (2012), available at http://www.ofid.org/Portals/0/Documents/ImpactSto- ries/AR_2012_Djibouti.pdf.

The Overseas Development Institute, et al., Investing in Hotels and Demonstrating Development Impact: Case Study of IFC’s Investment in the Serena Kigali Hotel, Rwanda (2011), available at http://www.ifc.org/wps/wcm/connect/2e8ac3004b- 885faebb8ffbbbd578891b/Serena+Kigali+CS.pdf?MOD=AJPERES.

The Overseas Private Investment Corporation), Environmental and Social Policy Statement (2010), available at http://www.opic.gov/sites/default/files/consolidat- ed_esps.pdf.

The Overseas Private Investment Corporation, OPIC 2012 Annual Report, available at http://www.opic.gov/sites/default/files/files/OPIC_2012_Final.pdf.

The Overseas Private Investment Corporation, OPIC 2012 Annual Report: Building for Growth, innovating for Change (2012), available at http://www.opic.gov/sites/default/ files/files/OPIC_2012_Final.pdf.

The Republic of Sudan, South Sudan Investors Guide (2013), available at http://www. southsudanembassydc.org/PDFs/Invesment/South%20Sudan%20Investment%20 Forum%20Guide.pdf.

The Royal Danish Embassy in Nairobi, Kenya Business Development Profile: DANIDA Business Partnerships Programme (2011), available at http://um.dk/en/~/media/UM/ English-site/Documents/Danida/Activities/Business/DB%20Partnerships/Busi- ness%20Development%20Profiles/Kenya%20-%20BOP%20-%202012.pdf.

The Rwanda Working Group on Foreign Private Capital, National Bank of Rwanda, et al., Foreign Private Investment in Rwanda 2011 (2011), available at http://www.bnr.rw/ uploads/media/Foreign_private_Investment_in_Rwanda_2011_Booklet_.pdf.

The United Kingdom Aid, Department for International Development: Annual Report and Accounts 2012–13 (2013), available at https://www.gov.uk/government/uploads/ system/uploads/attachment_data/file/208445/annual-report-accounts2013-13.pdf.

The United Kingdom Aid, DFID Impact Fund: Investments: Novastar Ventures (2014), available at http://www.theimpactprogramme.org.uk/investments/.

APPENDICES • 370 The United Kingdom Aid, The Impact Programme: Annual Report 2013 (2014), available at http://www.theimpactprogramme.org.uk/wp-content/uploads/2014/04/ Impact_AR.pdf.

The United Nations Capital Development Fund, Joint Programme Document 2008- 2012: Somalia (2008), available at http://www.uncdf.org/sites/default/files/Docu- ments/lg-dsd_50723_prodoc_0.pdf.

The United Nations Conference on Trade and Development, Division on Investment and Enterprise: Results and Impact Report 2013 (2013), available at http://unctad.org/ en/PublicationsLibrary/diae2013d2_en.pdf.

The United Nations Conference on Trade and Development, UNCTAD WID Coun- try Profile: Eritrea(2006), available at http://unctad.org/sections/dite_fdistat/docs/ wid_cp_er_en.pdf.

The United Nations Conference on Trade and Development, World Investment Re- port 2013: Global Value Chains: Investment and Trade for Development (2013), available at http://www.tanzaniainvest.com/downloads/UNCTAD-WIR2013-Tanzania.pdf.

The United Nations Development Programme, Adaptation Fund, available at http:// www.undp.org/content/dam/undp/documents/projects/DJI/GB.pdf.

The United Nations Development Programme, Human Development Report 2014, available at http://hdr.undp.org/sites/all/themes/hdr_theme/country-notes/UGA.pdf. http://hdr.undp.org/sites/all/themes/hdr_theme/country-notes/UGA.pdf.

The United Nations Development Programme, Somalia Human Development Report 2012: Empowering Youth for Peace and Development (2012), available at http://www. undp.org/content/dam/undp/library/corporate/HDR/Arab%20States/HDR-Somalia Factsheet-2012-E.pdf.

The United Nations Development Programme, Unleashing Entrepreneurship: Making Business Work for The Poor, available at http://web.undp.org/cpsd/documents/report/ english/chapter4.pdf.

The United Nations Educational, Scientific and Cultural Organization National Commission of the United Republic of Tanzania, Investment Rising to the Challenge, available at http://www.natcomreport.com/Tanzania/pdf-new/Investment.pdf.

The United Nations Environment Programme Finance Initiative, Financing Renewable Energy in Developing Countries: Drivers and Barriers for Private Finance in Sub-Saharan Africa: A Study and Survey by UNEP Finance Initiative on the Views, Experiences and Policy Needs of Energy Financiers (2012), available at http://www.unepfi.org/fileadmin/ documents/Financing_Renewable_Energy_in_subSaharan_Africa.pdf.

The United Nations International Children’s Emergency Fund & The World Bank, Somali Reconstruction And Development Programme Deepening Peace And Reducing Poverty (2008), available at http://www.somali-jna.org/downloads/ACF7C9C.pdf.

371 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA The United Nations International Children’s Emergency Fund, “UK Donates USD$15 Million to UNICEF’s WASH, Health and Nutrition Programmes” (Feb. 19, 2013), available at http://www.unicef.org/esaro/5440_UK_donates_15M_to_UNICEF_Er- itrea.html.

The United Nations International Children’s Emergency Fund, 2011 UNICEF Human- itarian Action for Children: Eritrea (2011), available at http://www.unicef.org/arabic/ hac2011/files/HAC2011_4pager_Eritrea.pdf.

The United Nations International Children’s Emergency Fund, Children in Somaliland (2011), available at http://www.unicef.org/somalia/SOM_resources_childrensomalil- and.pdf.

The United Nations International Children’s Emergency Fund, UNICEF Annual Report for Djibouti (2011), available at http://www.unicef.org/about/annualreport/files/ Djibouti_COAR_2010.pdf.

The United States African Development Foundation, Tanzania Investment Summary, available at http://www.adf.gov/documents/TanzaniaExternalBriefingSheet1.28.14.pdf.

The United States Agency for International Development, Assessing USAID’s Invest- ments in Rwanda’s Coffee Sector: Best Practices and Lessons Learned to Consolidate Results and Expand Impact (2006), available at http://pdf.usaid.gov/pdf_docs/PNA- DG793.pdf.

The United States Agency for International Development, DCA Loan Guarantee Rwanda: Impact Brief, available at http://www.usaid.gov/sites/default/files/documents/2151/DCA_Rwanda_Impact_Brief_4_1_10.pdf.

The United States Agency for International Development, et al., Building Partnerships to Harmonize Support to Reproductive Health in Kenya (2013), available at http://www. usaid.gov/sites/default/files/documents/1864/rmnh_kenya_partnership.pdf.

The United States Agency for International Development, Power Africa: Annual Re- port July 2014, available at http://www.usaid.gov/sites/default/files/documents/1860/ USAID_PowerAfrica_AR_July2014.pdf.

The United States Agency for International Development, USAID Country Profile Property Rights and Resource Governance: Burundi, available at http://usaidlandtenure.net/sites/default/files/countryprofiles/fullreports/USAID_Land_Tenure_Burun- di_Profile.pdf.

The United States Agency for International Development, USAID Country Profile: Property Rights and Resource Governance: South Sudan, available at http://usaidlandtenure.net/sites/default/files/country-profiles/full-reports/USAID_Land_Tenure_ South_Sudan_Profile.pdf.

The United States Department of State, 2013 Investment Climate Statement: Tanzania (2013), available at http://www.state.gov/e/eb/rls/othr/ics/2013/204744.htm.

The United States Department of State, 2014 Investment Climate Statement: Burundi, available at http://www.state.gov/e/eb/rls/othr/ics/2014/228482.htm.

APPENDICES • 372 The United States Department of State, 2014 Uganda Investment Climate Statement, available at http://photos.state.gov/libraries/adana/766947/public/2014_uganda_in- vestment_climate_statement.pdf.

The United States Department of State, Department of State: 2014 Investment Climate Statement (2014), available at http://www.state.gov/documents/organization/227156.pdf.

The United States Department of State, Department of State: 2014 Investment Climate Statement (2014), available at http://www.state.gov/documents/organization/228594.pdf.

The United States Department of State, Department of State: 2014 Investment Climate Statement (2014), available at http://www.state.gov/documents/organization/229096.pdf.

The United States Department of State, Department of State: 2014 Invest- ment Climate Statement (2014), available at http://www.state.gov/e/eb/rls/othr/ ics/2013/204744.htm.

The United States Department of State, Meeting the Fast Start Commitment: U.S. Climate Finance in Fiscal Year 2012: Djibouti (2012), available at http://www.state.gov/ documents/organization/200902.pdf.

The United States Department of the Treasury office of Foreign Assets Control,An overview of the Sudanese Sanctions Regulations --Title 31 Part 538 of the U.S. Code of Federal Regulations and Executive Order -- Blocking Property of Persons in Connection with the Conflict in Sudan’s Darfur Region (2008), available at http://www.treasury.gov/ resource-center/sanctions/Documents/sudan.pdf.

The United States Government, Burundi: Global Health Initiative Strategy 2011-2015 (2011), available at http://www.ghi.gov/whereWeWork/docs/BurundiStrategy.pdf.

The World Bank & The International Finance Corporation, Enterprise Surveys: Djibou- ti Country Profile 2013(2014) , available at http://www.enterprisesurveys.org/~/media/ GIAWB/EnterpriseSurveys/Documents/Profiles/English/djibouti-2013.pdf.

The World Bank & The International Finance Corporation, Enterprise Surveys: Eritrea Country Profile 2009(2010), available at http://www.enterprisesurveys.org/~/media/ GIAWB/EnterpriseSurveys/Documents/Profiles/English/eritrea-2009.pdf.

The World Bank Group, Agribusiness (2013), available at http://www.ifc.org/wps/wcm/ connect/f4115800407f5b4885e095cdd0ee9c33/READY+FOR+PDF.Stories+of+Im- pact.Rwanda+IC+and+Agribusiness.pdf?MOD=AJPERES.

The World Bank Group, Fragile and Conflict-Affected Areas: Stories of Impact (2013), available at http://www.ifc.org/wps/wcm/connect/d2403e80407f5639853f95cd- d0ee9c33/ready+for+pdf.stories+of+impact.burundi+investment+climate.pdf?- MOD=AJPERES.

The World Bank Group, The Republic of South Sudan: Regulatory Reform Status, available at https://www.wbginvestmentclimate.org/advisory-services/regulatory-simplification/business-regulation/upload/Country-Presentations-South-Sudan.pdf.

373 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA The World Bank, Concept stage: P146250, available at http://www-wds.worldbank.org/ external/default/WDSContentServer/WDSP/IB/2014/01/30/000333037_2014013012 2423/Rendered/PDF/843600ISDS0P140Box382138B00PUBLIC0.pdf.

The World Bank, Djibouti at a Glance, available at http://devdata.worldbank.org/ AAG/dji_aag.pdf.

The World Bank, Doing Business 2015: Going Beyond Efficiency: Economy profile 2015 (2014), available at http://www.doingbusiness.org/data/exploreeconomies/sudan/~/ media/giawb/doing%20business/documents/profiles/country/SDN.pdf?ver=2.

The World Bank, High-Level Development Exchange Launch of Vision Djibouti 2035, available at http://www-wds.worldbank.org/external/default/WDSContentServer/ WDSP/IB/2014/10/24/000469252_20141024103322/Rendered/PDF/916950WP0D- JIBO0x385342B00300PUBLIC0.pdf.

The World Bank, Poverty Trends in Uganda: Who gained and who was left behind?, available at http://siteresources.worldbank.org/INTUGANDA/Resources/uganda-poverty-and-inequality-trends-full-policy-note.pdf.

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The World Health Organization Regional Office for Africa,WHO Country Coopera- tion Strategy 2008-2013: Kenya (2009), available at http://www.who.int/countryfocus/ cooperation_strategy/ccs_ken_en.pdf.

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377 • THE LANDSCAPE FOR IMPACT INVESTING IN EAST AFRICA ABOUT THE GLOBAL IMPACT INVESTING NETWORK The Global Impact Investing Network (GIIN®) is a nonprofit organization dedicated to increasing the scale and effectiveness of impact investing. The GIIN builds critical infrastructure and supports activities, education, and research that help accelerate the development of a coherent impact investing industry. For more information, see www.thegiin.org.

30 Broad Street, 38th Floor, New York, NY 10004 +1.646.837.7430 | [email protected] | www.thegiin.org

APPENDICES • 378