On the road to #SeedTheTransformation
Having recently returned from New York during the United Nations General Assembly meetings, it is clear that the UN Sustainable Development Goals (SDGs) and the necessary call to action were all the talk of the town. For those that were not there, the recent Financial Times piece by Gillian Tett “The UN has started to talk business”provides a good overview. We are witnessing a paradigm shift and I wanted to share with you some insights from our meetings.
Abraham Lincoln gave a speech to congress in 1862, a quote from which would certainly have been applicable to this year’s UN GA meetings. “The dogmas of the quiet past, are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise with the occasion. As our case is new, so we must think anew and act anew. We must disenthrall ourselves, and then we shall save our country.
Current rates of public and private investment fall short of the SDGs targets by US$2.5 trillion each year, and the UN are calling on capital markets to make up for the deficit. In a world where some estimates indicate that as much as US$9 trillion is invested today in fixed income instruments yielding a negative return, the key question then is not whether capital markets will have to think anew and act anew but rather how.
IMPACT INVESTING: REAL VS. PERCEIVED RISKS
During the Global Impact Investing Network (GIIN) event Scaling Impact Investing: A Conversation Among Senior Leaders, a key theme discussed was the need to resolve the divide between real and perceived risks of impact investing. Arif Naqvi, the founder and chief executive of The Abraaj Group, as keynote speaker presented frontier markets as an opportunity where superior growth will occur over the next decades, but highlighted the difference between real and perceived risks as a current bottleneck to attract further investment. He stated that project finance default rates are notably higher in North America than in Africa, but most would find that difficult to believe.
New mechanisms will be needed to attract private investors and align incentives to catalyse investment and impact at scale. Two statistics in particular highlight the gap between the role of investment capital now and what it could be if the right mechanisms were in place: today, more than 30% of Official Development Assistance goes to Africa but only 3% of Foreign Direct Investment (FDI) globally ends up in the continent. Blended Finance has the potential to propel impact investing and unlock the FDI multiplier effect in Africa and elsewhere. Luckily, ideas are turning into action as exemplified by a recent innovative Blended Finance initiative being spearheaded by the Rockefeller Foundation, where they will sponsor the SDG-finance unicorns, ten innovative financial structures that will mobilize at least US$1 billion each in sectors key to meeting the Sustainable Development Goals.
SO WHERE DOES THE POTENTIAL FOR IMPACT REMAIN VAST?
During the African Union event Reflecting on Rural Transformation and achieving the Sustainable Development Goals, we had the opportunity to interact with Dr. José Graziano da Silva, Director-General of FAO (Food and Agriculture Organization of the United Nations), and HE Mr. Gilbert F. Houngbo, President of IFAD (The International Fund for Agricultural Development). Their comments echoed a report published recently by the World Bank Group and IFAD on rural youth employment: 62% percent of people in Sub-Saharan Africa live in rural areas and most people will continue to do so over the next two and a half decades and agriculture generates 68% percent of rural household income in African countries. Most importantly, an estimated 440 million young people will enter the rural labour market by 2030 in Africa alone and two-thirds will not have a job. In a world of infrastructure build out and exponential technologies, this reality is as much a problem as it is an opportunity.
THIRDWAY AFRICA’S APPROACH
We are standing on the dawn of a new paradigm. Changing risk perceptions through blended finance will propel the value and impact of businesses over the medium to long-term. And this shift now seems eminent. At ThirdWay Africa we embrace this new paradigm and have chosen to focus on Rural Development as an investment thesis. Our aspiration is to unlock the power and discipline of private equity into rural Africa. We will do this with the strict imperative of leveraging ecosystem partnerships and targeting commercial returns which will pave the way for further capital. We must indeed think anew. We must indeed act a new and we sincerely hope you will join us on the journey.