How impact entrepreneurs can boost Africa’s economy

Africa is on the rise. The continent’s GDP has quadrupled since 2000 and, with 6 of the 13 fastest-growing economies in the world, its reputation is changing from aid recipient to investment opportunity. Despite this progress, many challenges remain: 48% still live on less than $1.25/day, only 16% are in stable employment and just 7% have access to higher education.

Sustaining growth will thus require entrepreneurs to create companies that can both make a profit and deliver positive social, economic and environmental impacts to their communities.

Kenyan microfinance expert Aleke Dondo is part of this generation of impact entrepreneurs. Juhudi Kilimo, Mr Dondo’s for-profit company, gives loans earmarked for agricultural assets paired with training; up to 80% of Kenyans are farmers, but without access to finance many remain at a subsistence level. The training and targeted lending have delivered returns and have had an impact: Juhudi Kilimo clients can boast a 95% repayment rate, with their income doubling or tripling as a result of their loan.

Impact enterprises are also appearing in the energy space. Toyola Energy, for example, sells energy-efficient cookstoves that cut charcoal use by 30%–40%, saving users both money and health complications (indoor smoke from firewood is responsible for 600,000 premature deaths annually). As of 2014, Toyola had sold more than 300,000 stoves, registering profits of 7% and starting new production centres in Togo, Benin and Nigeria.

With just $8bn given over to African impact investment, however, it is still a nascent field. “There’s a lot of excitement when you address a social issue with an innovative business model, but many are still struggling on the profit side,” says Issam Chleuh, the Malian founder of African Impact Group, an advisory firm that specialises in impact investment. “Scaling is a big problem for these entrepreneurs and so is access to capital. Others just need mentoring because of the skills gap in Africa.”

Impact accelerators can be one way to address this skills gap. Village Capital, for example, provides coaching and access to strategic partnerships. It has 400 graduate enterprises that have created 6,000 jobs and a 93% enterprise-survival rate. Technology will be another important lever. A 50-month partnership between the UN, the Bill & Melinda Gates Foundation, and GE, for example, found that more than 80% of the midwives provided with portable ultrasound machines like GE’s V-scan could perform obstetric ultrasounds as successfully as a gynaecologist. The result has been an upsurge in antenatal-care visits. In Tanzania, for instance, the number of women seeking more than four antenatal-care visits doubled to reach 60%, according to a GE report to be launched next week.

As for capital, ensuring access across the value chain of venture development will be key. In fact, while VC investments in Africa are on the rise, they target mostly established companies, leaving little for early-stage firms.

Successful African entrepreneurs are trying to fill this gap by giving back to the start-up scene. In 2014, for example, the Tony Elumelu Foundation launched a $100m project with the goal of initiating 10,000 start-ups, creating 1m new jobs and achieving $10bn in annual revenues. These ambitious aims will also need ultimately to achieve growth, which will require financially savvy start-ups that can provide investors with the information they need to assess risk; most African SMEs work in the informal sector, where revenues are not always recorded.

The world is waking up to the possibilities of impact entrepreneurship. Last year, the UN General Assembly designated July 15 as World Youth Skills Day; next week, President Barack Obama will host this year’s Global Entrepreneurship Summit in Nairobi, Kenya. Both moves highlight the importance of sustaining Africa’s economic growth without leaving half the population behind. Investors and entrepreneurs must work to meet the challenge.

This article is published in collaboration with GE Look Ahead. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Abigail Higgins writes for GE Look Ahead.

Image: Dusk settles over the Angolan capital, Luanda. REUTERS/Mike Hutchings