Continent’s investors increasingly drawn to development model based on using private-sector investment to stimulate growth.
For investors seeking profits, Africa is impossible to ignore. Sub-Saharan Africa has six of the world’s 10 fastest-growing economies over the past decade; glossy conferences, heads of state, and private funds all tout the huge returns possible for investing money on the continent.
But now key figures in the private sector are advocating new models of “philanthropic investment”. “Africapitalism”, as one African billionaire has called it – also known as “venture philanthropy” and “philanthro-capitalism” – combines unashamedly for-profit investment and free-market capitalism with the objective of stimulating economic development. Some proponents say that, properly handled, the model could overtake aid as the main way of alleviating poverty.
“Africapitalism is the philosophy that the African private sector has the power to transform the continent through long-term investments, creating both economic prosperity and social wealth,” said Tony Elumelu, the Nigerian billionaire who founded the United Bank for Africa and is now CEO of Heirs Holdings.
“It is also a call to action for us Africans to take responsibility for our own development – and for non-Africans to evolve their thinking about how best to channel their efforts and investments in the region.”
Elumelu, who coined the phrase “Africapitalism” in 2010, is one of a growing number of philanthropists and investors using their personal wealth and business expansion to generate jobs and, they say, widespread economic benefits for African countries.
“We have noticed an increase in wealthy Africans coming forward about their giving,” said Mary Glanville, managing director of the London-based Institute for Philanthropy. “We have seen at first-hand the benefits of supporting, not subverting, local infrastructures that will aid local development.”
The institute cites the example of the Indigo Trust, which is investing in a “co-creation hub” in Nigeria to provide business support for social technology ventures. “It is a proactive provision of support activities – including advice, training, [and] mentorship – alongside which there is access to funding through Indigo’s network of local and international partners,” said Glanville.
In May, the One Thousand and One Voices investment movement was launched. A $300m fund (£195m) offering “patient capital”, the initiative is designed to avoid what it sees as the “dependency” created by philanthropy for economic development, but also the short-termism of other private equity ventures, driven simply by quick returns.
“Our objectives are akin to the objectives of philanthropy – lifting millions of people out of poverty,” said chief executive Hendrik Jordaan. “Philanthropy does have a role to play, for example in relieving pain and suffering where a free-market society may not have a solution, but the tool that we believe should be used for economic development is private-sector investment.”
The One Thousand and One Voices project – founded by brewing scion John K Coors – offers what it says is a more effective means of achieving development objectives. It has attracted some of the world’s richest families, who feel that years of philanthropy have failed to achieve their aims.
“The families we are seeing are yearning for a model that can demonstrate results, and these investments – done properly – are proven to have the most positive long-term impact,” said Jordaan. “We intend for this movement to unlock not just these families’ financial capital, but their intellectual and relational capital that is so powerful, and could be harmonised and unleashed for good.”
Claims that private-sector investment can really solve Africa’s problems are not without controversy, however.
“The idea that private-sector investment is good and aid is bad, as some advocates of this theory have said, is completely ahistorical,” said Duncan Green, senior strategic adviser at Oxfam. “If you look at any other country that’s developed, it’s involved a relationship between the private sector and state.
“I think that this is really about a gut feeling that a lot of Africans are sick of hearing themselves described as victims, with which I completely sympathise. It’s true that there is a dynamic African private sector that plays an absolutely central role. But the view that aid drives out investment is not accurate – relative to the private sector, aid money is actually really small.”
The new breed of investors feel that aid flows perpetuate the inaccurate notion that Africans are dependent on outside help, whereas their approach is one of African self-empowerment. But the involvement of wealthy investors in the development debate has increasingly blurred the lines between private investment and philanthropy.
In May, fashion designer Ozwald Boateng asked African philanthropists to help raise $400m to kickstart $68bn of Africa’s infrastructure development.
Boateng, who created the Made in Africa Foundation based on a mantra of “understanding what Africa can do for itself”, also hopes to create “diaspora bonds” that would allow Africans overseas to invest in road, railway, port and power projects.
“This is unequivocally the new trend in development,” said Jordaan. “We are seeing it every day, everywhere.”