Business In Ghana
Impact investment solutions to Covid-19
Covid-19 has disproportionately hit the most vulnerable, even more acutely in lower-income countries. Existing measures to mitigate the economic impact of the pandemic are too slow in Africa where the crisis has severely hit small businesses. We must work faster to mitigate the impact of the pandemic in Africa. The time is now for a just and impact-led global recovery that benefits all people.
The Global Steering Group for Impact Investment (GSG) has been liaising weekly since mid-March with its members in Ghana, Zambia and South Africa to assess in real-time the needs of non-profits, businesses and investors faced with the effects of the crisis.
We have identified solutions and areas where impact investment can have transformative effects. These solutions are outlined below. The GSG’s full paper on impact investment solutions to Covid-19 is available online here.
WHAT WE KNOW
Small businesses are suffering – and they are the beating heart of African economies.
Africa has entered its worst economic crisis in the past 25 years.
Micro, small and medium enterprises (SMEs) make up 90% of businesses and 80% of jobs on the continent, but they are struggling to keep afloat. Most SMEs may have only one- or two-months cash reserves left.
The hard stop on tourism, lower levels of trade and the plunge of commodity prices are driving businesses to bankruptcy in several sectors, endangering the livelihoods of many, from taxi drivers to smallholder farmers.
Around 20 million jobs are at risk because of Covid-19 in Africa. In South Africa, 60% of SMEs are thinking about or have already laid off employees. South African President Cyril Ramaphosa warned of widening job losses as the effects of the shutdown to curb the spread of Covid-19 batters the economy.
African governments are taking proactive measures, many considering or already implementing cash transfers to the most vulnerable. In each country, local businesses and philanthropists have taken action, from pivoting businesses to manufacture masks, to coordinate food delivery for nurses, matching public funds for emergency relief. Countries are not waiting for others to bail them out, but have welcomed significant support packages by donors and DFIs, or debt relief measures by the IMF.
WHAT SOLUTIONS HAVE BEEN IDENTIFIED?
Impact investment can provide powerful recovery tools for African businesses
Collectively we can all do more to provide support to African countries given the scale of the challenges they are facing. Now is the time to re-build economies that are truly equal and resilient to future shocks. We believe at the GSG that impact investment can provide relevant and powerful tools for the recovery of African businesses.
It can support micro-finance institutions (MFIs). At the moment, most of the support packages provided by multilaterals or DFIs will go to their existing portfolio and clients, given that any new due diligence is near impossible. This means that mainly government institutions, and larger businesses or finance providers will benefit directly. Yet, they are unable to on-lend to smaller businesses because outside of their usual risk profiles.
MFIs are among the few addressing the finance gap for SMEs. They may be the best allies to support livelihoods now and for the recovery of economies, but they too will need support. For that, they need to be included in any DFI or government support packages to financial sector operators, which hasn’t been the case until now. They would also need revised repayment terms and additional liquidity. This is where DFIs and other impact investors can help.
Impact investment will be critical too to mobilise emergency liquidity funds for SMEs. “The liquidity crisis can become a solvency crisis, but it doesn’t have to. We know how to strengthen the resilience of small enterprises through impact investment tools,” says Laurie Spengler, Board member of CDC (the UK’s DFI).
The Mastercard Foundation launched early April a $15M USD MSME fund in Ghana in partnership with the government. Other impact investors such as Yunus Social Business, Open Road Alliance, Kiva, or Equalife, are fundraising for similar emergency funds, targeting SMEs directly. The call to action is for DFIs and other impact investors to coalesce around these initiatives to ensure pace of relief and scale of impact.
The current context also pushes us to fast-track the design of impact-led funds. Under the impulse of the GSG’s National Advisory Board (NABs), several countries such as Ghana, Zambia and South Africa, have been exploring the possibility of setting up impact funds to support economic recovery.
In Ghana, under the leadership of the NAB, new SME funds supported by the World Bank may be repurposed for Covid-19 recovery.
The South African NAB led the launch of a $25M USD green outcome fund for high impact SMEs and are designing other impact vehicles.
In Nigeria, the NAB Taskforce is exploring the use of unclaimed assets to set up an impact wholesaler, on the model of Big Society Capital in the UK. While addressing the most pressing emergencies, these examples show how the private sector can be a partner to support national governments in planning for a just and sustainable economic recovery.
Partnerships and collaborations will be essential
Despite increased operating constraints for many impact investors, the sector has already started working together on solutions.
The GSG is already working with its national boards in Africa as well as with governments, multilateral organisations, philanthropists, entrepreneurs and business leaders across the world. Sharing and investing in solutions to Covid-19 in a coordinated way will help drive change, and hopefully lead to faster and more impactful disbursements to support SMEs in Africa.
We must make this crisis a turning point towards more inclusive and impactful economies.
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