Beyond venture capital: Being purposeful about investing in Ghana

New paper on African investments offers insights into improving social benefits: it can be achieved but requires intentionality by business leaders and fund managers. This isn’t without a cost – something that only serves to highlight structural weaknesses in many fund operating models. The overheads available to support social performance are often tight. So, do donors and philanthropists have a role to play while this fledgling investment ecosystem emerges?

Sitting in Accra, Ghana feels like a country on the up. There’s lots of talk about its middle-income status, trade and investment, moving beyond aid… and the airport’s pretty plush with its new terminal!

Of course, it’s an elitist bubble. Something that I’m all too aware of as I’m here to share findings from a project evaluation from Northern Ghana – where poverty and inequality remains stubbornly fixed.

Life is often a series of juxtapositions, and so it intrigues me as to whether all this talk of investment can offer anything for the poorest. Will only the urban south of the country benefit, while the north misses out? Can private capital really have meaningful social benefits?

These are of course big questions that require big studies. So, what I offer here is something humbler: insights from a number of cases of real-life African investments. Humbler maybe, but nevertheless important: the ‘bottom-up’ view of investment is little understood and all too rarely studied.

Our new paper, in the African Journal of Evaluation, offers three lessons on African investments from our work with the Venture Capital Trust Fund and the Centre for Development Impact.

Improving social impact requires ‘intentionality and focus’ by business leaders and investors

In our thirteen cases, we found a number of firms that deliberately enhanced their benefit to society. This went beyond donations to community projects and instead went to the heart of the business model; in other words, rather than tack on ‘social responsibility’, these firms altered their supply chain or changed how they did business to better serve lower income groups.

For example, a cancer treatment centre (the preserve of well-off customers) set out to establish corporate accounts where staff of these corporations pay a small monthly fee into a common fund. The fund acts like an insurance policy, enabling lower and middle -income workers by providing access to treatment that they wouldn’t otherwise afford. Another is an ethanol factory located in a rural area that is seeking to extend its supply of cassava by offering up blocks of land in return for labour. Farmers (including potentially the landless) receive land, inputs and technical assistance plus an agreed market price.

These are small examples that indicate a direction of travel. Often, they are the result of visionary leadership by particular entrepreneurs – taking risks beyond their usual customer or supplier base, and with the support of their investors.

And, while it’s easy to assume that investors are awash with spare cash, this money is frequently locked up in equity for long periods. Depending on the structure of a fund (scale of operations, mix of debt and equity, etc.), operating costs can be very tight. In many cases, few resources are available to manage, improve, monitor and evaluate social performance.

This seems like a structural weakness for the investment industry to sort out. Will this happen by itself, especially in a country like Ghana with a fledgling investment ecosystem? I’m not so sure.

So, do donors and philanthropists have a role to act on behalf of the poor?

Are there ways in which public resources (development aid) can help shift the natural tendencies of investment that would otherwise benefit the urban elite? Are there ways to de-risk or reward those that re-orientate their investments and enterprises towards a greater social gain?

And how can this be best achieved during the life an investment by proving and improving its social impact?

For other lessons, read the paper here.

Chris Barnett, November 2018