impact investment

USA should stop worrying about China in Africa and leverage its strengths

Posted on Updated on

This article first appeared in my weekly column with the Business Daily on September 23, 2018

The Trump administration recently appointed Donald Yamamoto as acting Assistant Secretary of State for Africa. Prior to this appointment the main signal Africa has gotten with regards to US approach to foreign policy in Africa was through statements by former US Secretary of State Rex Tillerson, and his concerns with the growing economic strength of China in Africa. On September 18, the US government, through Tibor Nagy, Assistant Secretary, Bureau of African Affairs, provided clearer direction of the focus areas for the US in Africa going forward. It seems US strategy will be focused on promoting stronger trade and commercial ties, and advancing peace and security. This is good because, rather than focusing on China in Africa, the USA has ample strengths it can leverage in Africa.

If one focuses on the economic engagement potential between Africa and the USA, there is considerable room for both parties to benefit particularly with a focus on private sector development. To be clear, the term private sector here refers both to formal and informal businesses, large players and Micro, Small and Medium Enterprises (MSMEs).

Chinese President Xi Jinping (left) with his US


The first opportunity is in financing options and opportunities in Africa that can be met by US financiers. A key strength of the funding options presented by the USA is that financing opportunities fall along a spectrum of more mission-oriented to more business-oriented financing. A key funding gap Africa has right now is patient and affordable capital for MSME development, a gap which cripples private sector development in Africa. This funding gap can be met by financing options already provided by entities in the USA, particularly impact and angel investors. Business-focused grants and affordable debt can be channeled to develop MSMEs that deliver social and economic value, and strengthens their commercial returns and business activity.

There is also opportunity for more bottom-line oriented financing for more established and large players in Africa. But the reality is that without the development of MSMEs, the pipeline of viable projects for mainstream investors will continue to be narrow. The USA has a blend of financing options that can be leveraged for MSME development and the creation of a pipeline of deeper financing options for everyone. This blend of financing can be more effectively coordinated and leveraged for private sector development to the benefit of both US and African players.

Related image


The second opportunity the USA presents Africa is a focus on environmental, social and governance (ESG) issues. While parties from other parts of the world may be more willing to be lax on ESG issues, the fact that US businesses view these are core concerns is important. While the centrality of healthy ESG practices from US business may be due to legal compliance issues and high ESG expectations at home, African businesses financed with this approach are likely to be stronger business entities going forward. Thus, the focus on ESG performance is a strength US financiers can use to support the growth of holistically sustainable businesses in Africa. African businesses benefit by ensuring they not only meet legal ESG requirements, but actually develop a brand of being responsible businesses that support the development of their continent.

The two points elucidated above are only the surface of the economic opportunities that exist between Africa and the USA. Thus, rather than being concerned with what other entities are doing in Africa, the USA ought clearly see it can be an important partner for private sector development in Africa and leverage this strength going forward.

Anzetse Were is a development economist;


Can capitalism really have a heart, or is it just creative branding?

Posted on

This article first appeared in my weekly column with the Business Daily on July 24, 2016

Last week I was mentoring businesses with Unreasonable East Africa which is an organisation that works to accelerate the growth of businesses that have positive social impact built into their models. The main reason I signed up to be a mentor is because as a development economist I have long been committed to the notion that the way money is made has an impact whether that’s the intention of the operating body or not; and that impact can largely positive or negative. In economics speak this impact is referred to as an ‘externality’. A negative externality is a cost that is suffered by a third party as a result of an economic transaction; third parties include any individual, organisation, property owner, or resource that is indirectly affected. Modern society is well aware of the negative externalities generated by some business activity that range from environmental pollution and degradation to worker exploitation and gender-based unequal pay issues. However, businesses can have positive impacts such as improved service delivery, wealth creation and even environmental protection.


The main concern I had is that capitalism and business entities operating within often did not integrate impact concerns into strategy and action related to profit generation. Indeed the default position was often to deal with negative externalities that had a negative impact on profit first, and then perhaps deal with the other concerns. For companies that had a stronger moral thread running through them, positive social impact concerns were handled by Corporate Social Responsibility (CSR) initiatives that were very charity like and came across more as dressed up marketing than impact  focused activities.


Recently however, the way in which money is made and the systems, processes, strategies and activities related to profit generation have come under more scrutiny. Consumers and populations want negative externalities to be limited and mitigated while positive externalities are amplified. Thus Impact Investment was born in which investments are made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return. According to a report by the Global Impact Investing Network last year, East Africa is one of the centres of global impact investing. 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. 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.

Impact investment tends to generate a divide in terms of whether it is a credible strategy to make capitalism sustainable. On one hand are organisations and people committed to making capitalism genuinely more socially and environmentally responsible and organise to try and ensure that the capitalism operates in a manner that mitigates all negative externalities and amplifies positive externalities. Thus impact investment to them is a way to engender structural change in the way profits are generated. On the other hand, are those who are not committed to augmenting positive and mitigating the negative unless there are clear profit benefits. Social responsibility for them is a rebranding tool that legitimises their bottomless appetite for profit-making. They engage in impact investment initiatives because they are cognisant of the fact using such branding increases the appeal of their product to consumers all over the world in the age of responsible consumption.


In short, parties which pursue the implementation of managing externalities have different relationships to capitalism and different motivations. This makes the activities in the social responsibility and impact investment space multi-layered and complex. Which of the two motivations you think preponderates is a personal choice perhaps informed by one’s cynical bent. As a development economist my view is that any effort aimed at making capitalism more sustainable is positive. Motives be what they may if it leads to structural change in economic dynamics for the better, it’s a step in the right direction.

Anzetse Were is a development economist;


What regional businesses should do to gain from Obama summit

Posted on Updated on

This article first appeared in The East African on July 23, 2015

The visit by US President Barack Obama to the region and for the Global Entrepreneurship Summit has caused a media frenzy. The President Obama’s visit and the GES have turned global attention to East Africa’s economic and business potential. GES is an important summit East Africans should be poised to take advantage of. But what should the East African businesses be looking for from the summit and thereafter?


While seeking investments that may arise from GES, regional entrepreneurs need to do three things. First, they should seek to attract long-term patient capital; second, leverage impact investment; and finally find local partners in securing investment deals. East Africa’s economies are young and most entrepreneurs are still in their nascent stage of innovation, creating business activity that can fundamentally shift the structure and direction of the region’s economy.

However, because many entrepreneurs have new business ideas, they may not be sure how long they require for their ideas to take off, and the factors needed to direct the venture into a success that generates attractive returns.

Credit hunger

Sadly, East African entrepreneurs function in a domestic environment that tends to be risk averse and often they find difficulty securing capital to seed their businesses. This has created a culture of credit hunger that may push some entrepreneurs to accept any type of investment without doing due diligence required to ensure the investors they get are a right fit for their businesses.


This risks the creation of a scenario where entrepreneurs attract vulture capital where investors (usually venture capitalists who fund risky and new ideas) deprive an inventor control over his or her own innovations and makes most of the money the inventor should have made from the invention. Local entrepreneurs should avoid this and do the due diligence on those from whom they seek capital.

Ideally, East African entrepreneurs should be looking for long-term patient capital where the investor is willing to make a financial investment in a business with no expectation of generating quick profit. Instead, the investor is willing to forgo an immediate return in anticipation of more substantial earnings later. This patience is crucial to give local businesses time to pilot, and get their products and models right so that they have a solid foundation on which consistent returns can be generated. Thus, entrepreneurs should look for the right investment partner rather than letting their credit hunger get the best of them and lead them into deals where they are at a disadvantage.

This leads to the next point, East African entrepreneurs should do their best, where it works, to leverage impact investment funds that seek to generate triple bottom line returns (financial, social and environmental) as this type of capital tends to be patient with an appreciation for returns beyond the financial. Thus, those whose business ideas feed directly into development and improving the lives of East Africans should look for impact investment funds in the US, a sector due to reach $1 trillion over the next few years according to JP Morgan and Rockefeller Foundation.


Finally, entrepreneurs ought to seek to partner with local companies, particularly business incubators that have a credible track record in attracting capital from the US. This is important because the incubators are experienced in working with US investors and have an understanding of the key features a business should have to attract capital; they will let entrepreneurs know whether they are ready for US investment or not. Also, local incubators can offer young and new entrepreneurs the technical support and mentorship to strengthen their business so that the business is a stronger candidate not only for investment but generating healthy returns.

If East African entrepreneurs consider the ideas above, they will be well placed to ensure that they make full use of the GES and any future investment opportunities that arise from it.

Anzetse Were is a development economist, email:; twitter: @anzetse

Is impact investment the answer to Kenya’s socio-economic challenges?

Posted on Updated on

Kenya is being sold the idea that impact investment that goes beyond the profit motive alone and instead seeks to generate triple bottom line returns namely social, environmental and financial, is the smartest way to structure investment into the continent. It is argued that the triple bottom line focus is warranted given Kenya’s socioeconomic issues which range from poor health and education services, to poor infrastructure, environmental issues, inadequate housing, water and sanitation structures and a healthy representation of low income citizens in the general population.

The Rockefeller Foundation states that, ‘Impact investing could unlock substantial for-profit investment capital to complement philanthropy in addressing pressing social challenges’. In terms of market size some argue that the industry could grow from around US$50 billion in assets to US$500 billion in assets within subsequent decades. Clearly this is becoming a big deal globally and already in Kenya there are numerous impact investment activities on the ground funding enterprises that seek to generate triple value. Bear in mind that Corporate Social Investment (CSI) is often not considered impact investing as the core focus of the corporation is profit not mission and CSI is a conduit of funds into social activities that do not inform core business. There is a spectrum along which impact investments lie; on one hand are those that are more mission oriented and on the other end are those that are more profit oriented but both share a commitment to generate economic, social and/or environmental (hereafter ‘social’) returns.

trico-2But is marrying impact and profit realistic? Some argue that Nairobi has already hit an impact investment bubble where, ‘too much money chases too few investment-ready companies, weak performers are propped up when they should really be driven out of business by superior competitors’. From a logical point of view, impact investment makes sense and if such investments do deliver triple returns it is an effective one in all pill for Kenya’s holistic development. Further, given Kenya’s weak regulatory framework and even poorer implementation of policies and law, it is a good idea to welcome investors who seek to work honestly, responsibly and with economic and social development in mind. Some companies pollute the environment, defy labour laws and exploit local communities as they conduct business and the truth is that they can get away with it because even if there are laws in place to prevent such phenomena from occurring, corruption and kickbacks means business can get away with unsavoury behaviour. Thus welcoming ethical investors creates an automatic buffer against such delinquency. In addition, when social financing is done in partnership in communities­­ to build their entrepreneurial capacity to tap into their resources, develop assets and ensure assets benefit and are owned by the community, some dramatic socioeconomic graduation can occur. Impact investors are already active in Kenya are scaling up SMEs and strengthening the positive social and environmental footprint of the business in which they invest. This is an industry that is set to grow in the country and this provides the incentive to better understand how it functions. CSI21One problem with impact investing is that the definition given in this article is one of many. For an industry that wants to scale, there is no consensus on what qualifies as impact investment. For example, some argue that impact investors have to expect a lower than market rate of financial return because those with market rate returns should be easily absorbed by the market. Others, such as the UN, define impact investing as any investment that has the intent to create benefits beyond financial return. The problem with ambiguity with basics such as definitions is that any enterprise can masquerade as an impact focussed investment and give a distorted representation of how big the impact market it. Further, as Stanford Social Innovation Review states, it creates, ‘a lot of confusion about when impact investing works and when it doesn’t’. So how can Kenya be sure we are benefitting from impact investment when no one agrees on what that exactly means? Secondly, categorising certain investments as ‘impact investing’ insinuates that other types of investment do not make any impact beyond financial gain. Yet we know that SMEs all over the country, especially those active in poor communities, do not self-identify as impact enterprises, yet they are creating impact in their communities. They provide employment for thousands, support the development of employees and even provide medical care for them. Yet they do not formally fall under the umbrella of impact investment. It makes one wonder whether impact investment is a just a new trend to mop up excess liquidity. Impact-Investing-Returns-300x236Another concern is that trying to marry people, planet and profit is not always profitable, especially when dealing with genuinely poor communities that have little market power and many needs. Such communities are the ones that need low cost services the most, yet , ‘delivering at a price point the poor can afford almost always translates into very small margins’ meaning that impact businesses often have to be subsidised over long periods of time. Therefore, are they viable market players? Many impact investments need subsidies which, may be prolonging the life of poor business ideas and products. Further, a chronic problem in the impact industry is the difficulty in measuring and demonstrating impact. There are so many models available on how to measure impact and different impact investors use different models thereby generating different, incomparable data sets. So how can one call it impact investment if measuring the impact has not been truly sorted out in a manner where comparisons between projects can be made? Making-Impact-Logo So clearly impact investment is a mixed bag. It is a commendable approach to investment that Kenya should seek to benefit from while cognisant of the pitfalls.