(Ecofin Agency) - Investment portfolios of impact investors in sub-Saharan Africa mainly target the agriculture, finance, energy, health and technology sectors. Between 2017 and 2022, they recorded annual growth of 14.2%.

Sub-Saharan Africa accounts for 12% of global impact investment flows, according to a report released on June 7, 2024, by the Foundation for Studies and Research on International Development (FERDI).

Titled “Impact Investing in Africa: a 2024 Analytical Map”, the report notes that this rate is higher than the minuscule share of foreign direct investment (FDI) that sub-Saharan countries receive (3%).

In 2022, the region attracted an estimated $2.51 billion in impact investments out of a global total of $20.57 billion. However, these flows remain relatively limited compared to FDI ($70.15 billion in 2021) and official development assistance ($53.97 billion in 2021).

Impact investment has grown at an average annual rate of about 18% globally between 2017 and 2022. This rate varies by region, with sub-Saharan Africa seeing an average annual growth rate of 14.2%, compared to 53.4% in the United States and Canada, 33.3% in Europe, and -0.44% in the Middle East and North Africa.

The report highlights the lack of a unanimous definition of impact investment in literature, noting that this type of investment is based on two key concepts: intentionality and additionality. Intentionality involves the intention to generate a positive social, environmental, and economic impact before allocating capital while seeking financial viability, with expected returns ranging from highly concessional to above-market.

Additionality, the second fundamental principle, is defined as "making an investment that would not have occurred without the intervention of the impact investor." This principle extends beyond financial additionality, suggesting that impact investors should enhance the development content of investments by highlighting their effects.

Intentionality and additionality differentiate impact investors from other investors seeking financial returns, even if they also have positive impacts and excellent environmental, social, and governance (ESG) practices. FERDI, a French foundation aiming to influence the international development debate through research results, identified 255 active impact investors in Africa. These investors manage approximately $25 billion in assets.

Local investors remain a minority

The funds with the highest actual amounts were created during the "boom years" of impact investing in Africa (2002-2018). The creation of impact investment funds was halted or significantly slowed by the COVID-19 pandemic.

Most funds operating in Africa are not from the continent. Local investors represent only 16% of total assets under management.

Additionally, impact investors' portfolios are concentrated in a few sub-Saharan countries. Analysis shows that most targeted businesses are in Nigeria, South Africa, and Kenya.

Medium-sized impact funds (between $1 million and $250 million in assets under management) account for over 50% of the total funds listed. The 18 mega-funds (more than $1 billion in assets under management) represent only 7.1% of the total impact investment vehicles operating in the region but hold more than 80% of total assets under management.

The top five mega-impact investors identified are Mirova (a France-based private equity fund), The Rise Fund (a US-based private equity fund), Blue Orchard Finance (a Switzerland-based multi-financing private fund), Africa Finance Corporation (a Nigeria-based multi-financing private fund), and New Forests (an Australia-based private equity fund).

The distribution of impact investors by legal status reveals that nearly 85% are independent private actors. Although these investors use various financial instruments (equity, mezzanine, debt, guarantees, etc.), equity financing represents about 50% of contributions.

Key sectors attracting impact investors in Africa include agriculture, finance, energy, health, and technology. This predominance reflects the continent's key development themes and challenges, as well as the potential for investing in profitable enterprises. Impact funds are nearly absent in the hydrocarbons sector, and large telecommunications companies, and generally do not target mature businesses.

The report also emphasizes that the impact investment industry in Africa faces several challenges: macroeconomic shocks, exchange rate fluctuations, a lack of data and skilled personnel for impact measurement management, fundraising difficulties, and limited exit opportunities.