Written by Allan Wood, Global Head of Business Development at Jersey Finance
The current global trend towards more meaningful, purpose-led investment – otherwise known as Impact Investing – has shown there are real opportunities for a stable, growing investment portfolio that also reflects your beliefs.
In 2019, the Global Impact Investing Network estimated that the impact market was already at US$502 billion, but that this was going to increase significantly in the coming years.
For international finance centres (IFCs), the shift towards sustainable finance and environmental, social and governance (ESG) investment has resulted in a growing interest from both financial institutions and high net worth individuals (HNWIs).
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While sustainable finance is growing in global markets, when looking through the lens of investment in Africa, much of this capital is being invested through corporations and private equity investors who are interested in developing technology, healthcare and infrastructure.
Currently, the vast majority of transactions we see going into Africa are likely through private equity, but the private equity investors are asking the fund managers more about their impact and sustainable finance and the agenda within their prospectus. This is leading to more bespoke portfolios for individual clients. But within the rapidly evolving asset management industry, we must make sure they have the right products and services available for pure ESG portfolios.
We have noted an increase in such investment from HNWIs in Southern and West Africa, and a particularly good example is Nigeria’s diaspora having a larger economic impact than the oil industry in that country. The diaspora wants to be a part of economic growth and job creation in their own country when investing, and there are billions of dollars returned into the country as a result.
A key concern for many investors worldwide is, of course, the potential risks of investing in the developing world. However, in the recently released report by Jersey Finance, ‘South African Fund Managers: Trends in Fund Domiciliation and Capital Raising’, it was found that emerging markets are becoming increasingly more stable, and Western markets less so.
“The shifting geopolitics introduced by Brexit, Trumpism and now also, Covid-19 is reconfiguring Africa’s place in the world and driving its rapid ascendency. One important consequence is that Brexit and Trumpism have brought home some inconvenient truths that political risk is not idiosyncratic to Africa and so-called ‘emerging markets’ but rather, that they are features of markets everywhere,” the report reads.
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Equally important findings emerged in Jersey Finance Value to Africa Report, where these opportunities were even more clearly outlined. Africa is still a young continent, whose peoples will make up almost a quarter of the world’s population by 2040. Greater life expectancy is a challenge for African governments, but it is also a great opportunity: their fast-rising working-age populations will boost urbanisation and sustain economic growth. Capital Economics estimates that Africa’s economy could grow by 5 % per year to 2040.
However, achieving such growth will require a surge in investment — US$85 trillion by 2040 – for infrastructure, machinery, buildings and homes. Some of that could come from domestic sources, though entrepreneurs and investors would need reassurance that they would be properly rewarded in a region where the rule of law is often weak. But these legislative gaps are shrinking, and the regulatory environment – derisking investment on the continent – is evolving quickly.
Modern OECD model international agreements – such as Double Taxation Agreement (DTAs) and Bilateral Investment Treaties (BITs) – provide multi-year certainty in terms of tax and investor treatment, which is critical for impact investors looking to deploy capital over the long term. As a forward-thinking jurisdiction, Jersey is looking to add to its list of existing international agreements and is currently negotiating new agreements in the Middle East and Africa to complement industry’s appetite for exposure to opportunities in these exciting markets.
Meanwhile, research into HNWIs in Africa shows more and more that they are going to be critical to Africa’s future. A recent report by Intellidex*, capital markets and financial services researchers, explained how while in the past this economic segment has been all but invisible, the number of dollar millionaires is growing exponentially. In the next five years, an estimated 208,713 African HNWIs – with assets worth US$30 million or more – will be the key drivers of much of the economic growth on the continent, as they continue to develop their already sophisticated onshore and offshore investment capabilities.
Jersey Finance research has shown that capital raising and economic opportunities in Africa are substantial – and growing – particularly when it comes to sustainable finance and making impactful investment choices.
As part of its own commitment to impact investment, in January 2021 Jersey Finance will be launching its own sustainable investment initiative: Jersey for a Wilder World. Established as a joint project between industry, government, Jersey Overseas Aid, and the Durrell Wildlife Conservation Trust, which allows investors to directly contribute to Durrell’s projects. Durrell’s pioneering work in Madagascar, for example, has focused not on conservation and preserving endangered species from extinction, but poverty alleviation in local communities.
Such partnerships give investors an opportunity to effect positive change and make a difference with their capital.