The emerging shift from charity to capital investment in Africa

The global economic recession isn?t going away any time soon. It will likely be worse than 2008 with the Euro debt hanging over us, the U.S. slow recovery, and China?s growth also slowing (but still strong).

There is no magic bullet for what is ailing the world and the pain will be felt for a long time.

However, just because there are economic crises doesn?t mean there isn?t money and resources available to invest in Africa.

There are many people and organizations sitting on cash and resources looking for solid opportunities in which to invest. I think of a recent story by the Associated Press on Ajay Piramal, an Indian billionaire, who is sitting on cash from sales of his pharmaceutical firm because he cannot find good investments in India. His issue was transparency in large transactions, which is a wake-up call for anyone looking for an investor. Transparency is important.

Another issue is identifying these opportunities and connecting investors to good investments. In the case of African SMEs, the Missing Middle Initiative of the World Economic Forum (WEF), and originally spearheaded by the South African Chamber of Commerce in America (SACCI), demonstrated that there were many SME institutions, but still funding of SMEs was a gap in the ecosystem.

Many more organizations are rising to fill this void. Funding and capacity organizations, like GroFin, provide both funding and technical capacity support to SMEs. Standard Bank has developed innovative solutions targeting the SME market recently and found growing success. Nexii has created an exchange board called iX for impact investment in sustainable social enterprises whether for-profit or non-profit. And there is even the first seed investment fund for tech entrepreneurs in Africa launching in 2012 called the Savannah Seed Investment Fund.

Some of these platforms, like iX and Savannah Seed Investment Fund, can be used by investors to identify good investment opportunities with transparency. iX works like a stock exchange (with many other types of offerings) so individuals even with small budgets can easily purchase stocks in an enterprise. Another platform is VC4Africa, which connects entrepreneurs and investors focused on opportunities in Africa.

This space will continue to evolve aggressively over the next 10 years, so this should stimulate growth of capital investment into African enterprises at all levels. However, there is still a huge pool of funds allocated elsewhere both in formal and informal structures ? charity. This is where the conversation gets a little sensitive for some in the audience.

The debate over trade versus aid has reached new levels. I can say I am definitely for this movement. However, it is not to say that some charity and aid work is not highly beneficial. There are thousands of great NGOs doing necessary work and impactful work, so we don?t want to take away from that work.

On the other hand, there is a lot of traditional models of charity that haven?t been revamped in decades, asking us to help with the same problems. I am going to personalize this now, so that you don?t think I am just an outside observer.

I grew up in a very giving family. My parents still give more than almost anyone I know, both in their personal time and resources.

When I was in my twenties and early 30s like many Americans, I saw the commercials on TV for poor children around the world and I sent monthly donations to assist the children and got progress reports. This is a ?good? thing to do.

However, when I began doing research on Africa and subsequently moved to South Africa, I began to realize that this was not the ?right? thing to do. Each year funds are sent to help children but creating economically sustainable communities is not a priority, so the communities become dependent instead of interdependent, or independent, and able to help others. Many of these children can end up on the streets when they become adults because there is not enough gainful employment or academic opportunities for them.

When I came to South Africa, this is the very scenario I was hoping to correct. I started working with a group of homeless teenage boys in Sandton, South Africa. They used to live and camp out next to the McDonald?s in Sandton in the lot that was replaced by a large office complex at the corner across from Investec.

They obviously needed clothing, food, and housing, but I wasn?t na?ve enough to think that doing just that would solve their problems. In fact, I had to find another solution as it was difficult in winter to find space for older teenage boys in the local shelters. I got so frustrated because, even with my connections, I couldn?t seem to find something temporary with the goal of getting them in school and working.

Then, one day a friend from church suggested having the boys make custom cards to earn income. At first, I wasn?t too excited about the idea but after a few professionals said they liked the cards I figured there was enough of a market at least to support my small group of teens, which now included a few young girls.

It ran well as long as I was fully involved. The teens were required to come to school two to three days a week. We held it at the Sandton Public Library thanks to the generosity of the Head Branch Librarian and I was the teacher, seeing as my Master?s degree is in education and I had some experience working with at-risk youth. If they came to school, they were allowed to work and earn money.

In two weeks, several of my boys got off the street, paying for their own place, food, clothes, and transport. I then knew this was the ?right? direction. Out of this experience, I still work on developing for-profit ventures that are both economically sustainable and address social issues because through this process we can break poverty and dependency.

But I can thankfully say that I am not the only one. People who have been working in development are getting tired of seeing the same problems. In an interview with Richard Schroeder, President of First Step in Sierra Leone, he shared that he had worked in microfinance for 15 years and didn?t feel it adequately addressed poverty. Instead, he and his team developed the first special economic zone in Sierra Leone which is bringing local jobs, economic opportunity to communities across Sierra Leone, and a platform that Sierra Leone can use to attract foreign businesses and investors. And First Step happens to be a for-profit subsidiary of World Hope International (WHI), a Christian humanitarian agency. They have successfully synergized the strengths and mandate of a non-profit with a for-profit venture that can stimulate economic sustainability throughout Sierra Leone and for WHI as well.

On another front, many non-profit organizations are feeling the economic pinch not only because of the economic crisis but also competition. Everywhere you look, a new non-profit needing support is coming to tap the same pool of resources already out there.

Also, givers are looking more strategically at their giving. This is where the wave of capital investment will come from. As traditional givers decide to become investors, the capital investment pool for Africa, and other emerging regions, will grow dramatically and quickly.

Imagine trillions of dollars flowing to capital investment from this resource pool. It can be scary for NGOs not on the right side of the equation, but promising for everyone else.

by Lauri Elliott - AFRICA the good news

Source: http://www.afronline.org/?p=21922

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