Social investors with an eye on Nigeria are struggling to make an impact despite the huge financing needs faced by Africa’s largest economy in areas such as healthcare, education and poverty eradication.
Impact investing is a type of investment made in organisations, companies, and funds that has the purpose of creating social and environmental impact with a financial return on capital. It responds to social needs not satisfied.
Impact investment is needed in Nigeria, a country where over 90 million of its 200 million people live on less than $2 a day because of the financing gap in meeting basic and social needs.
Nigeria last year displaced India as the country with the largest number of people living in extreme poverty. According to the World Poverty Clock, Africa’s most populous nation was estimated in 2018 to have 87 million of its citizens, around half of the country’s population, living below the poverty line.
In Nigeria, an estimate by United Nations Education, Scientific and Cultural Organisation (UNESCO) puts the financial requirement to achieve SDG4 alone, which deals with equitable quality education for children, at about $34 billion per annum between 2015 and 2030.
Nigeria’s total federal budget for 2018 was $29.9 billion, with education accounting for a paltry 7 percent of this amount.
This implies that if public funds are solely depended on for implementing quality education goals, then Nigeria already faces an annual financing gap of over $32 billion, which is more than its annual budget.
“Nigeria cannot afford to rely entirely on public funds to finance projects; hence there is a need for significant scale-up in investment especially with areas for social impact,” Impact Investors Foundation Nigeria, a non-profit organisation, said.
The UN estimates that the annual funding needed to achieve the Sustainable Development Goals (SDGs) by 2030 is about $4 trillion, much greater than the current aggregate SDG-focused funding of $1.5 trillion from domestic and international sources. The $2.5 trillion gap dwarfs official development flows and philanthropic commitments, which currently stand at $350 billion, by over five-folds.
The global goal was adopted by all United Nations Member States, which Nigeria is part of, in 2015 as a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity by 2030.
Apart from ending poverty, having a quality education, one of the most pressing SDG needs in Nigeria is ensuring healthy lives and the promotion of well-being for all at all ages.
In Nigeria, access to good health care is a luxury many cannot afford. No wonder the country’s average life expectancy rate is one of the lowest in the world at 52.2 years.
Since 2001 when Nigeria alongside heads of state of member countries of the African Union (AU) declared to commit at least 15 percent of their annual budgets to improve their health sector, Africa’s largest economy has not attained the pledged funding benchmark.
The Federal Government has never voted more than 6 percent of its annual budget to the health sector. The highest the sector has ever received since the declaration was in 2012 when 5.95 percent of the budget was allotted to health.
To achieve the SDGs in Nigeria, a significant scale-up investment is required and the involvement of the private sector is critical, according to industry sources. Blended finance – the strategic use of catalytic capital from public and philanthropic sources to mobilise additional private sector investment – has also been presented as an important approach in engaging the private sector for financing the gap.
“Investment will be coming to education and health care sectors, but what we need to do is to create the right ecosystem, and more enabling environment for investments to come,” Jennifer Pryce, president/CEO, Calvert Capital, told BusinessDay on the sidelines of the 2019 impact investment conference in Lagos.
It means that “the public and philanthropists need to work together to create investment-ready opportunities”, Pryce said on Thursday.
Even though Nigeria is one of the top five destination countries for impact investment in Africa, the total worth of deals recorded in 2018 was $238 million, which is very small when compared to the scale of needs and financing gap to be addressed in the country.
“One of the reasons why we are here is to find the most impactful ways to invest. We have heard agribusiness, health care, and education, and they are on the top list of interest,” Roy Swan, director, mission investments, Ford Foundation, said at the conference.
Industry players say stakeholders including policymakers, donor partners, private sector investors and indeed development practitioners are sceptical about the potential and opportunity costs of blended finance.
Concerns range from the sustainability of contingent liabilities or risk on the part of developing countries; limited participation of local actors in designing or originating some blended finance solutions; the dearth of reliable evidence on sustainable development impact blended finance, among others.
In de-risking social impact investments in Nigeria, stakeholders at the 2019 conference in Lagos on Thursday advised on the need for collaboration and partnership between private and public sectors with enabling environment that will continue to attract impact investment opportunities.
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