BusinessDay 06 April 2018

36
BUSINESS DAY
C002D5556
Friday 06 April 2018
IMPACT INVESTING
In Association With
The state of Impact Investing in Nigeria (1)
Innocent Unah
& Uju Ikedionu
Nigeria has joined the
rest of the world to
grow keen interest towards
the increase
and effectiveness of
impact investing globally. The impact
investing landscape is growing in Nigeria,
leading the way for other countries
in West Africa as the region saw
28 active impact investors in 2015.
This growth is fuelled by a variety
of sources of capital, mostly available
in the manufacturing and services
sectors, which could be tapped for
impact investing. Even though the
impact investing sector in Nigeria
outperforms that of other countries in
West Africa, it still remains low relative
to the size of the global market.
Who are the Impact Investors
in Nigeria
28 active impact investors have
been identified to be in Nigeria. These
consist of eight Development Finance
Institutions (DFIs) and 20 non-DFI
investors. The non-DFIs include fund
managers with 17 investors, institutional
investors with one investor,
and foundations with two investors).
Some the Institutions which play in
the impact investing space in Nigeria
include Shell Foundation, FMO,
Tony Elumelu Foundation, the IFC,
Proparco, Alitheia, Aspire Nigeria,
Dorteo Partners, Sahel Capital Fund,
among others.
What is the level impact investing
capital in Nigeria?
According to the GIIN in its publication
entitled “The Landscape
for Impact Investing In West Africa:
Understanding the current Status,
trends, opportunities, and challenges”,
about 1.9 billion U.S dollars have
been deployed by 8 DFI-type impact
investors across 92 direct investments
in Nigeria since 2005, while 2 billion
U.S dollars was deployed to 53 indirect
investments through funds and
intermediaries in 2015.
Similarly, 79 million U.S dollars
have been deployed by 12 out of the
20 non-DFI investors across 89 direct
investments, and 2 million U.S dollars
deployed to one indirect investment
in the country.
The GIIN says that these investments
have come almost exclusively
from the DFIs with a focus on commercial
banks, impact fund managers,
and private equity funds, reflecting
DFI attempts to both support
impact investing and build shallow
commercial banking and private
equity markets.
Where do the Nigerian impact
investors come from?
According to the GIIN, most impact
investors operating in Nigeria are
headquartered outside the country,
while most funding for impact investors
originates from foreign sources.
The majority of identified DFIs involved
in Nigeria are headquartered
in the U.S. and Europe. While the precise
breakdown of funding for many
investors is sensitive information,
interviews indicated that non-DFI
investors rely almost exclusively on
a combination of these DFIs, family
foundations, and high-net-worth
individuals (HNWIs) from outside
the country.
Even though Nigeria’s huge market
(considering its population of
close to 200 million people) holds
opportunity for additional and the
existing impact investors (DFIs and
non- DFIs alike) to cover more sectors
and secure more deals, only about
eight out of the 28 impact investors
have local existence in the country.
These impact investors include the
IFC, Proparco, AFDB, Alitheia, Aspire
Nigeria, Dorteo Partners, Sahel
Capital Fund and Tony Elumelu
Foundation.
This development can be attributed
to the high obsolete infrastructure,
corruption, incompetent public
services, in addition to high living
and business operating costs in the
country. Nigeria ranks 148th out of
180 countries in 2017 Corruption
Perception Index (CPI), a figure lower
than the average in the sub-Saharan
African region. It is also poorly ranked
in the ease of doing business index for
2018, given that it occupies 145 out of
190 countries in the index.
What are the challenges that impact
investors face in the country?
There are many challenges faced
by impact investors in Nigeria, but
analysts say that the greatest is the
struggle encountered in obtaining
sustainable investments that meet
economic, social and environmental
aims of the investors.
The second challenge is inability
of potential impact investors to find
impact areas and funds in line with
investors’ risk and return prospects
have hindered performance in impact
investing sector.
The third challenge has to do with
location. It is often difficult for impact
investors headquartered outside the
country to maintain a local presence
due to the high living and operation
cost in the country. This makes it
challenging for investors to keep up
to date with developments in sectors
or regions of interest to them.