In a modern world where one bank’s decision can lead to a domino effect that results in total paralysis of the world’s financial system, times have come for capital markets to make a 180 degree turn-around to introspect.
It’s a world in which a Murdoch-type Ponzi scheme can rip off billions of US dollars from pension funds and wipe off the savings of thousands, a world where the richest 10 people supposedly hold 90 percent of global wealth.
Capital markets priorities have traditionally been two fold - risk versus return. Impact investing shifts the capital markets tectonic plates from this conventional school of thought to bring in the aspect of impact -more specifically, “social impact”. This type of model is right at the intersection of philanthropy and for-profit capitalism.
In earnest, this investor sees himself as contributing to the social good and at the same time still making profit. This type of investing has gained much-needed momentum in the developed world and is slowly spreading towards sub-Saharan Africa. It is estimated that global investors are redirecting capital at the rate of a growth of 19 percent more capital invested in Africa in 2017 and beyond than in 2013, when the model was fairly new.
According to the 2017 Annual Impact Investor Survey, 208 respondents collectively manage a minimum of US$114 Billion in assets of impact investing. The survey collected data on a large array of institutions that varied from pension fund managers to banks and even foundations. The report goes on to note that 89 percent of investments are below market rate or not adjusted for risk rate. A point which most investors agree, poses a considerable threat to social impact investing.
Botswana is not classified as an emerging market but a frontier market according to FTSE, Standard & Poor and the Russel lists. An emerging market is a market that mimics or has certain characteristics similar to those of a developed market. On the other hand, frontier market is one that is developing slower than that of an emerging economy, but more than a least developed country or failed states.
This article attempts to look at different industries which impact investors can consider with a view to possibly improve socio economic indicators in Botswana.
The world over, it is estimated that 34 percent of all corporate giants invested in agriculture invest in sub-Saharan Africa. This on its own is an indication that as food prices continue to soar, investors continue to rake in profits and so does the region become more food secure. Botswana like many other African countries continues to hold vast underdeveloped natural resources like land and surface water bodies.
With more than half the population being under 65, labour is highly available and cheap but as noted by political pundits, severely underutilised. South Africa in comparison to Botswana is a more industrialised country hence agriculture is highly modernised than in Botswana. In terms of impact investing, the focus is on the use of environmentally friendly equipment.
South Africa was a victim of political unrest and sanctions which handicapped investments. But the turnaround came in the 90’s when the likes of Ford began seriously reinvesting in the country. These companies, although not Greenfield investments, have the potential to drive impact investing through production of cheaper and environmentally friendly agricultural equipment.
Hence, Botswana may not be able to attract socially impactful investments in the short term because of the above, in as much as it cannot attract general foreign direct investment compared to more industrialised countries.
Botswana had the second highest HIV/AIDS prevalence rates in the world in 2011 at 23.4 percent just behind Swaziland at 26 percent. This result can be attributed to ARVs which prolong life and increase prevalence rates (Timmrek, 2002). When the disease was first diagnosed on a human, the estimated median survival time was only 12 months, but after the introduction of ARVs, this estimate rose to five years.
Therefore, the duration of a disease affects prevalence positively. Prevalence will most likely remain higher for longer periods if life years increase and this is bound to have an effect on health expenditure. Therefore, this is a potential impact investment vehicle for investors. In social impact investing, one invests in the improvement of outcomes.
That is, the more you invest, the more likely those charged with the utilisation of the investment will have freedom to employ their objectives. The higher the investment, the more the disease remedying interventions are put in place. That results in more preventative care than curative, which has been proven to be more effective. Therefore, in terms of health care, impact investing is not far-fetched. What remains are those who stand in between the investor and the recipient to devise the vehicles through which we can invest in these positive outcomes.
These areas are non-exhaustible and include investments in clean energy in solar power, fluorescent paint for our roads and electric intra-city train systems. They include investments in the arts which are proving to be a growing industry with huge potential for profit. A notable contributor in this industry is ThabisoBlakMashaba of “THESE HANDS”, a social enterprise with a focus on the arts.
Particularly notable is his work with the indigenous people of D’kar. These are investment vehicles that show potential to turn philanthropy into a cash cow. In conclusion, with more focus on climate change by governments, social impact investing will surely grow in the coming decade. The classical question will always be why capital does not flow from developed economies to frontier markets like Botswana today?
When in these infancy years, capital is still cheap, labour is still cheap. Then of course there is the Lucas paradox (which requires another publication of course). This notes that, contrary to the classical school of thought, capital does not flow to poor countries as expected and factor price equalisation is slower than expected.Whatever the case, the future is in impact investing; finding cold hard profit in doing good.