I very much believe there is a huge gap in the supply of risk capital for social enterprises. I am talking about longer-term, lower-interest, capital provided by investors who understand social enterprises and who are patient enough to allow an organization to use their financing to grow and take significant risks. Tom Friedman wrote an article a few weeks ago which highlighted just this need, specifically in Africa. I have been learning of and meeting with a few East African investors lately, but very few are considering themselves as patient capital investors. If you are a social financer looking for the sweet spot in terms of development potential- here is is.
Friedman opened by describing his experience in a Tanzanian used clothing market and then went on to write:Africa needs many things, but most of all it needs capitalists who can start and run legal companies. More Bill Gateses, fewer foundations. People grow out of poverty when they create small businesses that employ their neighbors. Nothing else lasts.Whenever you read about capital flowing into Africa, though, it tends to be from big lenders like the World Bank, which have very strict criteria and work on big projects, or from microfinanciers, giving out $50 to a woman to buy a sewing machine. Microfinance has a role, but many people don’t want the pressure of being an entrepreneur. They want the stability and prosperity of a job created by capitalist risk takers and innovators. See India.In some ways what Africa needs most today is more "patient" capital to spur its would-be capitalists. Patient capital has all the discipline of venture capital — demanding a return, and therefore rigor in how it is deployed — but expecting a return that is more in the 5 to 10 percent range, rather than the 35 percent that venture capitalists look for, and with a longer payback period.A good example of what happens when you combine patient capital, talent and innovation in Africa is the Kenyan company Advanced Bio-Extracts (ABE), headed by Patrick Henfrey. He and his partners put together a fascinating group of both white and black African farmers and scientists to build the first company in Africa to cultivate the green leafy plant artemisia, often called sweet wormwood, and transform it into pharmaceutical grade artemisinin — a botanical extract that is the key ingredient in a new generation of low-cost, effective malaria treatments commonly known as artemisinin-based combination therapies (ACTs). Malaria still kills nearly one million people in Africa every year, more than H.I.V.-AIDS.
From its factory outside Nairobi, ABE is not only processing the feedstock for the drug, but has also contracted with 7,000 farmers, most with small farms, to grow artemisia in Kenya, Tanzania and Uganda. The crop gives farmers four times the financial yield of corn.
ABE is one of Acumen's investments and a good example of the type of investments we are searching for here in East Africa. It was great that Friedman recognized the potential for development in Africa and highlighted one promising strategy. You can find the Friedman article quoted above by clicking here to read the New York Times (subscription required to read).
creato da Keely Stevenson