Dr Henrietta Onwuegbuzie is the Project Director for the Impact Investing policy initiative at the Lagos Business School (LBS). She is passionate about economic development and social transformation in Nigeria and Africa, and has initiated the creation of over 100 profitable, social impact businesses through the MBA and Executive programmes at LBS. Onwuegbuzie recently spoke to BusinessDay’s Innocent Unah and Sandra Okougbegun on the state of impact investing in Nigeria, the benefits to the society, the opportunities available within the space, and the expected role of the various stakeholders for advancing the cause of impact investing in Nigeria and Africa. Excerpts:
Different people seem to have different definitions of impact investing. What is impact investment and what are its characteristics?
Impact investing refers to investments that are aimed at achieving social impact in addition financial returns. Basically, when people go into business they are trying to make money and focus only on that. Impact investing however seeks to make money as a result of making a positive impact on people and/or society. It is about making money from transforming lives, similar to solution-driven entrepreneurship. Most people find it difficult to understand, because nowadays we see business only as a vehicle for making money. This understanding has led people to run businesses that either fail or don’t last.
Let me explain: when you provide a solution, you have a ready market because people are generally looking for solutions to their problems. For example, Nigerians were craving for telephone services but NITEL was doing quite a frustrating job of getting telephones to individuals no matter how much they paid. So when GSM came, the providers didn’t have to market much since they were meeting a real need as Nigerians were already thirsting for communication. That is what happens when you provide solutions, especially affordable solutions: the sky is the limit in terms of demand for your offering.
Like I tell people Bill Gates didn’t start out thinking about how much money he was going to make. He wanted to make life easier for people. Before Microsoft came up with the Windows operating system, people had to learn or cram MS dos commands. People went to computer schools to learn to use a computer. However, with Bill Gates Microsoft Operating System all you do is turn it on and you see icons to explain whatever it is you want to do and you are ready to go. Hence, the reason why Bill Gate is one of the richest men in the world is simply because he developed a solution that is relevant to the whole world. Similarly, when Apple appeared on the scene, money was not their primary focus. They wanted to help people be more creative and make computing life easier for the customers. That’s why they are also very successful in the market.
Impact investing actually reconciles impact and profit, two concepts that were traditionally set as dichotomous. Conventional thinking used to be: “If you are interested in impact, become a non-profit or a philanthropist and if you want to make money, be a shark (think only of money at any cost).” But the reality is that if you are a shark, you usually don’t make money for the long term because being a shark gives you an exploitative mind-set, not a value-driven mind-set. Or instance if your business produces orange juice, you are likely to over-dilute or use poor quality oranges because the focus is on reducing cost and maximising profit, rather than giving value to the customer. You forget that when people buy your orange juice and they don’t get value they won’t buy it again. On the other hand, that what could have made your orange juice sell for a longer time is when people take it and say, “this is fantastic! I had a nice glass of orange juice, I want another one”. Value drives profits.
So the difference between someone who has an Impact Investing mind-set and others is that while an impact investor is thinking what problem can I solve, the other business owner is thinking how can I make the most money (usually at the customer’s expense). As a matter of fact, when people say entrepreneurs are the engine of economic growth I know that not all entrepreneurs are the engine of economic growth. Some actually damage the economy when they act negatively and this usually happens when the focus is only on making money.
So you are saying that impact investing is also business . . .
Impact investment actually takes us back to the origin of business because businesses were initially set up to serve the society and not to exploit it. But somewhere down the line capitalism derailed that original intention, making people see business as all about making money for oneself. Solution providers make even more money than those who focus on money alone. Solution providers are constantly thinking about what more to do for customers and how else to help them. A good example is Lagos Business School which started with a rented room, but today see where we are. The intention of this school was to build socially responsible and competent leaders for Nigeria, Africa and the rest of the world. So, the value we are determined to give people is what makes them keep coming and tell others to come.
What are the motivations for impact investing and the benefits, especially for a country like Nigeria?
The motivation for Impact Investing is now global because we have seen the kind of world we have created for ourselves. Terrorism is now a global threat. Terrorism is simply a backlash of the prolonged neglect of the poor. For a long time, the Capitalist mentality of ‘me myself and I’ led us to engage in business in a way that only took care of the rich and neglected the poor. There is now a wide gap between the rich and the poor in most countries and this has given rise to terrorist groups. So long as poverty continues to reign, terrorism continues. And the fact that it is a global threat shows it is a global problem and not just a Nigerian or African problem. One way to solve this problem is to financially empower the less privileged and impact investing provides ample room for this.
We cannot leave empowerment of the masses to government. How much money do they have compared to the magnitude of the problem? The private sector needs to step in with solutions. So, the motivation of impact investing is to change the world dynamics which is self-destructing right now, because as terrorism grows more innocent people die. The good news is that Impact Investing creates wealth, while transforming society. The businessman who adopts this model will make a lot of money because as I said before, it is making money from meeting needs or providing solutions, which have a ready market. Another way to put it is, “doing good and doing well financially”. It is actually in our favour to adopt the impact investing model because that is the secret business model behind the richest people in the world. People need to realise that the extent of wealth in business depends on the size of problems being solved.
What are the potential impact investment opportunities in Nigeria and what sectors have the most opportunities?
There are a lot of problems to be solved in this country and every problem is a potential business opportunity. Jack Ma who said: ‘if you want to make small money solve small problems and if you want to make big money solve big problems’. For instance, I’m currently working on a project to set up commercial public toilets. I didn’t see the need for public toilet as just a business opportunity. I was thinking of how we could curb epidemics and also improve sanitation to prevent avoidable illnesses or deaths. As it turns out, the people who will pay for the franchise will make good money. There are so many other problems that provide very profitable business opportunities in Nigeria.
What category of impact investors engage more in impact investing in Nigeria?
Foundations, development finance institutions, religious institutions, micro-finance institutions, NGOs and individuals. All can engage and should engage more in Impact Investing. Examples of such big players in the Nigerian impact investing space include the Tony Elumelu Foundation, Ford Foundation, Rockefeller Foundation and many others.
What factors should impact investors consider before investing in Nigeria and West Africa and what are the threats to impact investment in the country?
Well, I don’t think there are differences between the factors you look at when you want to make impact investment in Nigeria compared to when you want to invest in any other part of the world. You need to understand the policies, the regulations in the space you want to enter and that’s it. It has more to do with the mind-set to understand that you want to solve a problem, using a business model that is financially profitable.
What is the current state of the impact investing market in Nigeria?
Most people are not aware of impact investing in Nigeria and so it is difficult for them to practice what they don’t know. And some people who are in the hinterlands and even in the cities are practicing it without knowing what they are doing is referred to as Impact Investing. If you understand the principle you can identify Impact Investors. But people like me are very deliberate about it- I teach about it and help my students to understand it because I want them to be impact-driven entrepreneurs.
Are there challenges that limit the growth and expansion of the impact investing space in Nigeria?
We don’t have enough policies to encourage it. Many countries like the UK, US and Asian countries have policies that encourage and educate people about impact investing. And so it is easier for them to thrive as there is more awareness.
Here in Nigeria, the Corporate Social Responsibility (CSR) model is still prevalent. Impact investment has more impact than CSR because its core strategy is making money from transforming lives. So, if I have a tailoring academy for example I am empowering the people with knowledge and skills and also giving them jobs, I also make money because when they produce in my production factory, I sell the products and create wealth. From here I pay them salaries that pull them out of the poverty cycle. So everyone is winning and we all enjoy shared prosperity.
What do you think can be done to develop Nigeria’s Impact Investing landscape?
We need to talk about it more, create awareness, and also help people understand it. Also, government policies should support it thereby make it attractive for more people and organisations to get involved. The key thing is that awareness has to increase.
How can we create awareness?
We can create more awareness by talking more about it in the media: television, radio, social media and also educating people about it.
How can impact investing be measured and tracked and how can we tell it is fulfilling its purpose?
Quite easy, if I say I want to improve sanitation through the provision of public toilets, I will take record of the number of people that use my toilets from the start time till present, know if there is an increase or not. This will reveal the impact.
Basically, different impact-driven businesses will have different ways of being measured and the measurement will be based on what you set out to achieve. So basically, you test the result against the objective.