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.
Source: GIIN, BRIU
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.
Innocent Unah & Uju Ikedionu
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