Impact investing in West Africa COPENHAGEN | DAKAR | GENEVA | JOHANNESBURG | MUMBAI | NAIROBI | NEW YORK | SANTIAGO | SAN FRANCISCO | WASHINGTON DC Supported by Acknowledgements This report was made possible thanks to the generous contributions of time and expert knowledge from many individuals and organisations. The Advisory Team provided invaluable insights, guidance and support throughout the preparation of this report. In addition, special thanks goes to all the individuals that took part in the interviews and attended the impact investing workshops in Senegal, Ghana and Nigeria in March 2011. Through the interviews and the workshops, a wealth of experience, understanding and data was shared on impact investing activities in West Africa. We would also like to thank Jenny Everett of the Aspen Network of Development Entrepreneurs, Oliver Karius of LGT Venture Philanthropy, and our colleagues at Dalberg, Peter Tynan and Andrew Stern, who also contributed their time and energy. Any errors or omissions in the report are the responsibility of the Editorial Team. Advisory Team Margot Brandenburg, The Rockefeller Giselle Leung, The Global Impact Investing Foundation, New York Network, New York Justina Lai, The Rockefeller Foundation, Jacob Samuelson, The Global Impact New York Investing Network, New York Wiebe Boer, The Tony Elumelu Foundation, Laurie Rud, The Global Impact Investing Lagos Network, New York Amit Bouri, The Global Impact Investing Stephen Nairne, Lundin for Africa, Network, New York Vancouver Sapna Shah, The Global Impact Investing Network, New York Dalberg Editorial Team Madjiguene Sock, Dakar Afua Sarkodie‐Kupka, Dakar Angela Hansen, Johannesburg Daniela Nwaobasi, Dakar Liesbet Peeters, London Abdourahmane Diop, Dakar Susanne Normark Christensen, Copenhagen Table of contents Executive summary ...................................................................................................................... 1 Chapter 1 – Introduction .............................................................................................................. 7 1.1 Objectives of the report .................................................................................................................... 7 1.2 The heterogeneity of West Africa ..................................................................................................... 7 1.3 Data gathering and stakeholder outreach ........................................................................................ 9 1.4 Defining impact investing ................................................................................................................ 10 1.5 Structure of the report .................................................................................................................... 12 Chapter 2 – The need and opportunity: demand side ................................................................. 14 2.1 Characteristics and needs of impact investing sectors ................................................................... 14 2.2 Sectors with economic impact: the example of agriculture ............................................................ 16 2.3 Sectors with social impact: the example of water supply and sanitation ....................................... 18 2.4 Sectors with environmental impact: the example of renewable energy ........................................ 20 Chapter 3 – Impact investing in West Africa: supply side ............................................................ 24 3.1 The impact investor ecosystem in West Africa ............................................................................... 24 3.2 Private equity and venture capital .................................................................................................. 29 3.3 Development Finance Institutions .................................................................................................. 33 3.4 Foundations, high net worth individuals and private family offices ............................................... 36 3.5 Institutional investors ...................................................................................................................... 38 3.6 Microfinance institutions ................................................................................................................ 40 3.7 Other impact investments ............................................................................................................... 42 Chapter 4 – Barriers to enabling more impact investments ........................................................ 44 4.1 Match of supply and demand .......................................................................................................... 44 4.2 Investment infrastructure ............................................................................................................... 46 4.3 General business environment ........................................................................................................ 48 4.4 Addressing the challenges ............................................................................................................... 49 Chapter 5 – Recommended actions to develop West Africa’s impact investing industry ............. 51 5.1 Actions specific to the impact investing industry ............................................................................ 52 5.2 Conclusion ....................................................................................................................................... 59 Appendix A – List of impact investors in West Africa ..................................................................A1 Appendix B – List of institutions interviewed ............................................................................. B1 Appendix C – Case studies .......................................................................................................... C1 End notes .................................................................................................................................. D1 Table of figures Figure 1.1: Geographical scope of the research ................................................................................................ 8 Figure 1.2: Framework used to identify impact investors in West Africa and set research boundaries ........ 11 Figure 2.1: Sectors that lend themselves to economic, social, and environmental impact ............................ 14 Figure 2.2: Use of improved sanitation facilities ............................................................................................ 18 Figure 2.3: Use of improved drinking water sources ...................................................................................... 18 Figure 2.4: Available hydro‐potential (MW) in West Africa (2006) ................................................................. 20 Figure 3.1: Mapping of impact investors based on risk tolerance and deal size ............................................ 28 Figure 3.2: IFC cumulative gross commitments for West Africa as of the end of FY2010 (US$ millions) ....... 35 Figure 4.1: Challenges for expansion and growth of the impact investing industry ....................................... 44 Figure 5.1: Actions required to increase the scale of the impact investing industry in West Africa .............. 51 Table of tables Table 1.1: Overview of key macroeconomic indicators in West African countries ........................................... 9 Table 2.1: Overview of enterprise finance needs in the agriculture sector .................................................... 17 Table 2.2: Overview of enterprise finance needs in the water supply and sanitation sector ......................... 19 Table 2.3: Overview of enterprise finance needs in the renewable energy sector ........................................ 21 Table 3.1: Type, number and size of impact investors in West Africa ............................................................ 25 Table 3.2: High‐level summary of the differences between impact investor types ....................................... 26 Table 3.3: Examples of funds investing for impact in West Africa .................................................................. 30 Table 3.4: PE/VC fund country focus in West Africa ....................................................................................... 32 Table 3.5: Examples of DFI activities in the region .......................................................................................... 34 Table 3.6: Foundations and private family offices with investment activities in West Africa ........................ 37 Table 3.7: Active microfinance funders in West Africa ................................................................................... 41 Table 3.8: Microfinance investment vehicles in Ghana and Nigeria ............................................................... 41 Table of boxes Box A: Examples of investment approaches ‐ Grofin and E+Co ...................................................................... 31 Box B: Impact investing tools .......................................................................................................................... 33 Box C: Indian Angel Network ........................................................................................................................... 53 Box D: The Global Impact Investing Network (GIIN) ....................................................................................... 55 Box