Identifying the worlds most pressing issues can be a challenge. At GCP Solar we focus on providing safe and sustainable light solutions to the 400 million people living in Africa without light. The Head of Impact Investing Initiatives at the World Economic Forum (May 2014), Abigail Noble discussed the challenges of impact investments. Currently the average private equity deal is around US$36m and the average investment impact deal is around US$2m. For private equity firms to fully engage in impact investing it costs more to do. There is the bottom line measuring their fiscal performance financial profit, and then the second bottom line measuring the performance in the terms of positive social impact. Moreover, as the size of the deal is smaller, more consideration is needed in the terms of fee structures and due diligence.
Should impact investors anticipate market returns? Yes – a range of returns can be expected such as patient capital, whereby an investor will be willing to make a financial investment in a business with no expectation of turning a quick profit, substantial rewards will come further down the road. The Acumen Fund, a non-profit global venture fund that uses entrepreneurial approaches to solve the problems of poverty, are cautious about stating that they’re opting for the long-view, some investors only make 0-1% returns. Impact private equity firms like LeapFrog make +20% quartile of returns. Leapfrog invests for the NextBillion, investing in high-growth companies in Africa and Asia, as well as delivering financial services to emerging consumers. These investors need to consider their priorities in the terms of social impact and legacy; are there equity needs in the short-term? Or can a longer perspective be taken?
One could then argue that if impact investments focus more on financial returns, could less profitable investments with strong social impacts be left behind? Noble argues that there is a risk. Given positive selection bias impact investment deals that target the highest returns will receive the most capital and the most effective investors in juxtaposition with those with lower returns. Noble describes how philanthropic capital and development is integral, once investors start to realise that targeting social and environmental returns can actually boost and make more long-run, stable, financial returns. For example, when looking at climate change, the Arab Spring, social unrest, youth unemployment or social inclusion, these can all affect the financial market. By the by, the more stability in social or political institutions, the better the business climate. Noble indicates that the “real way” to create a stable market economy would be to focus on social and financial returns in the long-run. GCP and GCP Solar’s basic focus towards Africa and African investments identifies that investments are long-term opportunities as well as a socially responsible and ethical investments.
A representative of Ghana’s energy ministry has said that the country is on the lookout for $1 billion worth of investment in renewable energy technology over the next eight years.
The African state was the first developing nation to engage with the UN’s Sustainable Energy for All initiative, and has a target to produce 10% of its electricity from clean sources by 2020. And according to Seth Mahu, deputy director of the country’s energy minister, Ghana is seeking large sums of investment in renewable resources to help it to meet this objective.
“Policies are in place to exploit the country’s energy potential in solar, biomass, wind, as well as mini-hydro”, Mahu told The Washington Post.
“We are looking at both Ghanaian and non-Ghanaian private-sector operators partnering government to develop these resources.”
As of November last year, 77% of the country’s population had access to electricity, and coming before its renewable energy aspirations is a need to provide affordable power to all communities by 2020.
The National Electrification Scheme was set up in 1989 in order to achieve this goal – a time when only a quarter of the country’s population had access to electricity.
Speaking at a forum in Ghana’s capital Accra on Friday, Adotei Brown, president of the Ghana Institute of Architects (GIA), said that urgent measures need to be taken in order to capitalise on the country’s abundant clean energy resources.
“Heavy demand on power generation must lead to the use of the sun’s energy in every building and that the need to recycle water and waste and reduce air-conditioning heat-loads on our buildings may be ignored only to our peril”, he said.
For a country that has experienced significant power cuts over the last three months after a ship damaged a natural gas pipeline off the coast of Togo, Ghana’s ambitious call for renewable energy investors is much-needed.
It now has the difficult task of balancing sustainable energy with widespread access to energy – an undertaking that its clean, renewable resources can help it achieve.
Emerging Capital Partners (ECP) and Attijari Invest have hauled in 8.4x returns on their investment in Morocco-based resources exploration processing company Compagnie Minière de Touissit (CMT)). The exit generated an internal rate of return (IRR) of 94% for the investors’ co-managed fund.
The private equity investors have exited the company by selling their entire stake in Osead Maroc Mining (OMM), the holding company that has been the controlling shareholder in CMT. OMM is also part owned by Truffle Capital. ECP and Attijari invested in OMM through the Moroccan Infrastructure Fund (MIF), a vehicle they jointly manage. The returns are based on the MIF’s initial funded investment through OMM.
“Our partnership with Osead is a clear example of how we work with high potential, local companies such as OMM to help them achieve their next growth phase,” said Nayel Vidal, director at ECP said. “Today, OMM’s investment is among the most profitable listed Moroccan companies and we wish the company well as it continues its regional expansion.”
ECP and Attijari initially backed CMT through a $50.5million (EUR 38.3 million) acquisition 2007. A year later, CMT listed on the Casablanca Stock Exchange through the sale of 33% of its capital. The initial public offering was 14x oversubscribed.
The funding from the investors has helped the company boost expansion, with revenues touching $80 million (MAD 647 million) in 2011, a 27% average annual revenue growth since 2008. The company reported profits of MAD 362 million in 2011.
CMT is a mining company specialising in the exploration, extraction and treatment of silver-bearing lead and silver-bearing zinc. The company quarries a number of subterranean mines and operates an ore treatment plant at Tighza, southeast of Meknes.
Managing director Karim Fath represented Attijari Invest on the exit. Attijari is the private equity arm of Attijariwafa bank, a Morocco-based bank. Samir Belrhandoria worked on the deal for MIF.
An interesting observation:
The strongest performing sectors within the private equity funds in the African index were IT/telecom, industrial, manufacturing and consumer. Other than the consumer sector, all of these have outperformed their other emerging market peers.