Why Invest in Africa?

Jambo from Nairobi Kenya!

I’m so energized. I’ve been in East Africa for the past three days visiting tech entrepreneurs and tech investors.

While I spend about 95% of my working energy focusing on building iContact into a high-growth purpose-driven business, I like to take a couple weeks each year to travel and explore what’s going on with tech companies in other parts of the world.

This week I’m in Uganda and Kenya to find investment opportunities for the Humanity Fund, a personal investment fund I have for investing in African and American tech companies.

Why Invest in Africa?

There is so much economic opportunity in Africa, support for IT investment, and entrepreneurial energy. There’s an opportunity to make a lot of money investing in great companies while creating lots of jobs and doing a lot of good at the same time.

Africa is the least developed continent in the world. There are 1.03 billion people in Africa. Of this 1 billion (source) 65% of Africans live on under $2 per day (source) and 59% of African households do not have electricity (source),  and the number increases to 69% if you only look at Sub-Saharan Africa.

But Africa is no longer about famine, poverty, and war. That was the Africa of the 20th century. The 21st century Africa is about opportunity, technology, and entrepreneurship.

You may read about Sudan, Somalia, Zimbabwe, Eastern Congo, and the Ivory Coast in the New York Times and hear about these countries on the nightly news. But these are only five of the 54 countries in Africa.

The real, untold, narrative of Africa is what’s happening in the other 49 countries. Tremendous economic growth, investment, and rapidly rising living standards. What happened in South East Asia from 1950-2000 (rapid growth and poverty reduction) is now happening in Africa from 2000-2050. Most of the world just hasn’t realized it yet.

Why Invest in East Africa?

Here in East Africa (Kenya, Rwanda, Ethiopia, Uganda, and Tanzania) the GDP has grown at an average annual rate of 7.6% the last four years compared to just 0.5% for the USA. Africa will be the economic lion of the 21st century as McKinsey proclaimed in their July Report, “Lions on the Move: The Progress and Potential of African Economies.”

Take a look at these average annual GDP growth rates for 2006-2009 from the World Bank Development Indicators GDP database.

• Uganda: 8.75%
• Rwanda: 7.925%
• Kenya: 4.375%
• Ethiopia: 10.45%
• Tanzania: 6.675%
• USA: 0.5%

Uganda was the first country I came to in Africa back in 2008 and so I decided to start investing here in East Africa and expand later. I hope someday to run a fund making investments in high-growth socially responsible companies all over the developing world.

Investing As a Way of Making a Positive Impact

This is my third time in East Africa. When I came for the first time in 2008, I held the view that the way to best make positive change was to give money away to NGOs and non-profits.

I come now with the perspective that it takes all three sectors of society (government, non-profits, and for-profits) working effectively to create sustainable economic growth and that the private sector has a huge power to make positive change in the world.

The best way I believe I can contribute to positive change is to help high-growth companies that are creating jobs expand and create more jobs. At the end of the day, the cause of poverty is a lack of jobs and productive capital. Low education, low health care, and low nutrition are the symptoms of poverty, not the causes. If you increase someone’s income they can afford better education, health care, and food for their family.

So now, I believe the best way I can use my experience and resources to make an impact in reducing extreme poverty is to invest in high-growth companies that are creating jobs in developing world.

What I’m best at is figuring out how to grow technology and internet companies. Over the next two years I hope to invest in about ten more privately owned high growth African tech companies as part of dipping my feet into the water and beginning to create a model for eventually building a private equity fund some years down the road.

I hope to be able to eventually show that it is very possible to build a microequity investment firm that gets above market returns investing in high growth socially responsible companies in the developing world.

The field of impact investing is developing rapidly and I’m glad to slowly be learning about it. To learn more check out this Impact Investing Primer from the Rockefeller Foundation and this one from the Federal Reserve Bank of San Francisco.

Existing VC Funds in Africa

In my time here and in talking to people at the Skoll World Forum in April I’ve come across the following funds that are actively making venture capital investments in tech companies in Africa.

1. InReturn Capital
2. BusinessPartners Kenya
3. TBL Mirror Fund
4. eVA Fund
5. Flow Equity
6. FirstLight Ventures
7. Humanity Fund
8. Fanisi
9. Grassroots Business Fund (non-profit fund)
10. Acumen Fund (non-profit fund)
11. RootCapital (non-profit fund)

A more extensive list can be found on the African Venture Capital Association (AVCA) web site. Other resources include the VC4Africa and BiD Network

How You Can Invest in Africa

If you want to invest in private African companies, then you could contact the above VC funds and express interest in investing as a limited partner in their next fund. They will likely require you to be an accredited investor and be able to invest $100,000 and up. You can also find private companies yourself and invest in them directly or join an angel network that invests in African start-ups like Toniic.

If you want to dip your toes into the water of investing in African companies without putting tens or hundreds of thousands of dollars at risk, you can invest directly into publicly traded African companies. There are even Exchange Traded Funds (ETFs) that allow you to get index-fund like exposure to African markets. You can invest as little as $75 in these funds through your broker or your TD Ameritrade, E*Trade, or Scottrade account and participate in the growth of the African economy.

You may want to check out:

• AFK – The Market Vectors Africa Index ETF seeks to replicate the performance of the Dow Jones Africa Titans 50 Index. The fund represents a broad range of sectors and African countries, including exposure to some less traditional, frontier markets. Up 23% in 2010.
• GAF – SPDR S&P Emerging Middle East & Africa ETF. Seeks to closely match the returns and characteristics of the total return performance of the S&P/Citigroup BMI Middle East & Africa Index. Up 22% in 2010.
• EZA – South African ETF, up 29% in 2010.

You can also call your broker and ask them to invest directly in publicly listed firms on the Ugandan Securities Exchange or the Nairobi Stock Exchange.

For proper disclosure, as of this writing I do not own any of these ETFs but might in the future. I am definitely not a qualified securities advisor in any way and past performance is not necessarily indicative of future performance.

Thanks for reading. I hope you enjoyed this post! Please share and comment.

Next, I’ll be posting about the entrepreneurs I’ve met in my first three days here in Africa…

- Ryan, Nairobi, 30.12.10

Social Good With Market Returns at Skoll World Forum on Social Entrepreneurship

Why I’m At Skoll…

I’m in Oxford, England today for the first full day of the Skoll World Forum on Social Entrepreneurship. I’m making great connections with investors who care about social impact equally to financial returns and learning how iContact can be a more socially responsible enterprise.

Our vision for iContact is to “Build a great global company based in North Carolina for our customers, employees, and community.”

So I’m here to ‘go to school’ for three days on how to truly maximize return for customers, employees, and community so that we can in turn maximize financial results for our shareholders. Fiduciary duty can go along with human social duty!

To me, having a formal CSR program and caring about impact for the customers, employees, and community is just good business sense that in fact maximizes financial return.

Increasing Financial Results By Focusing On Social & Environmental Impact

Personally, I strongly believe, in today’s new world, ensuring your business provides a positive social and environmental impact (or at least not a negative one!) will increase your financial return, not decrease it. I’ve seen this happen with numerous for-profit socially responsible companies like Ben & Jerry’s, The Body Shop, Whole Foods, Burt’s Bees, and Salesforce.com.

How can focusing on social impact improve financial results?

How can focusing on social return improve financial results? In three simple ways.

1. The type of employees who want to work at companies that care–companies that put equal emphasis on profits and purpose–are the most productive and often most aware and intelligent team members.
2. There is a growing movement toward consumers who care. Consumers will have much more brand loyalty to a company that they know cares and makes a positive social impact.
3. When customers become passionate about a brand they talk about it more and more people will write about it.

The Tipping Point

After 30 years of so many in the social enterprise field working towards this, the tipping point has been passed wonderfully and thankfully. As the Dean of the Oxford Said Business School Colin Mayer said last night, the financial crisis has shown that short-term focus on only financial results does not lead to long term success.

Organizations like B-Labs have succeeded in changing public policy toward the benefit of companies who care. Self-interested (”greedy”) business owners who want to make money will now wonderfully benefit financially from implementing a formalized Corporate Social Responsibility program and ensuring they track and social impact and environmental impact.

The invisible hand is now starting to work toward social good with economic growth now that incentives are being realigned properly toward sustainable economic growth. While there is much more path to tread toward truly aligning policy incentives and consumer purchasing behavior toward companies who care–it is happening and the tipping point has passed! Eureka!!

Social Good With Market Returns?

Right now a panel called ‘Social Good With Market Returns’ is about to begin. I’ve been tweeting a lot about the conference via @ryanallis.

The moderator is Herta von Stiegel of Ariya Capital.

The speakers are:

Nick O’Donohoe, Global Head of Research JP Morgan
David Chen, Principle, Equilibrium Capital Group [video]
John McCall MacBain, Founder and Director, McCall MacBain Foundation

Nick from JP Morgan is talking about the Social Finance group at JP Morgan. Nick is not a “normal banker.” They invest in social enterprises that have a double-bottom line (financial and social). This social investing field is also being called “Impact Investing.”

Ensuring Off-Balance Sheet Externalities Are Positive

There is a engaging discussion going on now at the panel around off-balance sheet externalities (positive and negative) of impact (positive or negative). Nick says “every time we make an investment we are creating externalities.” He says these externalities can be positive (jobs) or negative (pollution). He says “for the first time the investment community is measuring the social impact of what they are doing and only investing in companies that create net positive externalities.”

This discussion is at the core of global history of the past 200 years as the ideological battle between communism, socialism, and capitalism has been waged. The new consensus that is emerging here is that what has won (and in fact what must win for the sake of humanity’s ability to continue) is socially responsible capitalism. As John Perkins points out in Hoodwinked, there is nothing inherent in the model of Capitalism and the competitive market economy that require off-balance sheet externalities that destroy the world.

Taking Into Account the Full Cost of Environmental Damage

Now the discussion is revolving around how to adjust public policy to enable the true cost of negative externalities to be accounted for in the financial accounting results. Some are saying the Holy Grail for improving the world through business is to make all investing ‘impact investing’ by taking into account the true cost of environmental resources that are not renewed into Generally Accepted Accounting Principles (GAAP).

“Better accounting for negative externalities is really important” said John McCall MacBain of the McCall MacBain foundation just now on the panel. The discussion is revolving around environmental costs being forced on any organization that destroys a natural resource (public good) that does not replace it sustainably and the impact this would make on ensuring warped incentives are not provided to global financially-focused Boards of Directors.

The discussion has shifted to bringing the silos of philanthropy, impact investing, running non-profits and socially responsible for-profit entrepreneurship.

Borrowing a meme from my friend Judith Cone who worked at the Kauffman Foundation and now works at UNC as a Special Assistant to the Chancellor for Innovation and Entrepreneurship, perhaps it is all about where goodness lies. Goodness can be in the heart of the public sector official, for-profit socially responsible entrepreneur, non-profit executive, global multinational Board member, activist, or investor.

Nick O’Donohoe from JPMorgan is speaking about how JP Morgan can access capital high net worth individuals and institutions they work with which want to tap into investment funds specifically set up for investing in companies who put an equal emphasis on social impact as financial results.

Questions & Comments?

What questions are there on this topic of public policy changes and investing in companies that create social good while achieving market returns or above market returns? I’d love to discuss this more!

You can follow tweets from the Forum here.