SOCIAL OR MISSION-DRIVEN ENTERPRISES: THE SOLUTION FOR AFRICA’S PROBLEMS IN 2019

Date: 03 January 2019

Private sector and market driven interventions will definitely play a key role in the economic development of the African continent. The traditional private sector intervention has played a significant role in the development in Africa especially where the business models allows for benefit sharing with other stakeholders. 

The matter is, however, complicated when it relates to provision of social or public good. In most instances the citizens’ as well as the private sector has expected this to be provided by the government. Unfortunately, this has not been the case due to limited resources. 

To bridge the gap, the emergence of social/mission-driven enterprises has been on the rise and have a huge potential in moving developing countries to development and at the same time solving those challenges being faced by such developing countries. 

There has been a huge global movement toward impact investing which is giving rise to social enterprises aimed at solving the challenges that will have been resolved by government on market-based approach. Impact investing in Africa remains nascent and has the potential to resolve the African challenges especially in health, education, social services, provision of energy etc. and at the same time contribute to the continent’s economic growth and development objectives. This will be going a long way in replacing official development assistance (ODA) which has predominately been the source of development finance in the continent.

Impact investing in Africa

Related Article: http://www.edwardmungai.com/impact-investing-in-africa-opportunity-for-the-continent-and-for-investors

In the past the continent was focused on official development assistance (ODA) from developed and other emerging markets, to meet the basic service needs of their populations. Due to the uncertainty faced by the global economies, it is expected that ODA will no longer be the major source of development financing in developing countries. 

Private sources of capital will play a larger role where it will be used to improve access to social services in Africa. In other ways as noted above, ODA will be more innovative and will be based on market based approach which will be more efficient and effective. 

In the last decade, there has been a significant increase in the private financial flows to Africa as the traditional ODA declines. This will mean that there is need for the African Governments to provide the relevant space to attract even more private funding and especially where those funds will be able to provide for the public goods in a market-based approach. 

This will, in turn, be of help in addressing the socio-economic challenges by providing market-based solutions that address the priority areas such as health, education, water and energy supplies among others. 

Impact investment has the potential to fill in the above space and to complement public spending and ODA. This will be achieved by bringing in private sector capital and skills to reduce African economies’ vulnerability to external shocks, providing a market-based solution to address socio-economic needs. 

In some instances, there will be need for allowing ODA and other public funds flows to focus on addressing social needs for which there is no viable market-based solution.

In other words, the room for ODA is not completed vanished only that it will become more innovative and in fewer and fewer cases it will be done on a non-market basis.

Now and in the future Africa, long dependent on aid, will instead rely on investment to fuel its growth. Rapid growth is expected, because of the rise of the middle class, stable governments, urbanization, and improved infrastructure. Both large-scale institutional opportunities and smaller-scale opportunities for direct investment will be prevalent in the future. 2019 will present a good year for the continent to encourage more social enterprises and mission driven investment with the aim of resolving some of the challenges that the continent is faced with in a more market-based way. This call for innovative financing, innovative business models and innovative technologies.