Impact Investment: Understanding Financial and Social Impact of Investments in East African Agricultural Businesses
The challenge for impact investors, if they are to continue to capture increased and varied sources of liquidity, is to demonstrate that the investment model is sustainable, that it creates strong businesses, it provides positive social impact and that the returns to investors are competitive.
On the face of it, this seems understandable and perfectly reasonable. However, gaining the necessary information is easier said than done. Impact investors, like other alternative asset classes, work in an environment where returns are guarded secretly and only revealed to current and potential investors, at a point in time, usually during fund raisings. Therefore this paucity of information creates, from an outsider’s perspective, an incomplete picture of the asset class as a whole.
By comparison to other alternative asset classes, the impact investment model is still immature and financial return claims not yet proven. Investments are made gradually and investee companies take time to realize value. It will require some shaking out yet to prove that the model is sustainable.
Quantifying positive social impact is both complex and cumbersome. There are many stakeholders involved, such as suppliers, customers and ancillary businesses. A seed business, for example, may supply hundreds of thousands of farmers, providing each with enhanced yields; employ hundreds of staff; be supplied by a considerable number of outgrowers; and create profit for ancillary businesses such as equipment and fertilizer providers, driving the broader development of its industry or value chain. The only way to categorically evaluate the financial benefit from all the activity would be to interview all of the related stakeholders. The time and resource required makes the task almost impossible.
This latest study is a continuation of that work and aims to support the thesis that investment in agricultural small and medium sized businesses (SMEs) can:
– create robust, sustainable companies, delivering consistent growth
– strengthen agricultural sub-sectors across Africa
– produce positive social return for smallholders, employees, suppliers and regional economies
– generate competitive risk adjusted returns to PCP and its investors; in turn, positively impact extremely high numbers of people