Challenges of East Africa
Impact investing, by its very nature, is designed to channel catalytic capital into investments that solve some of the world’s most pressing issues. Right now, this is more important than ever.
Through Wellers Impact’s experiences working in East Africa, this series of discussions will explore the new challenges East Africa and local institutions are facing as a result of the global COVID-19 pandemic. Wellers will discuss the role impact investing can play in assisting in the recovery from a crisis and in building resilient businesses, communities and economies for the future. We will address how innovative investment models using real estate can be used to empower local, essential not-for-profit institutions who serve the most vulnerable communities, whilst discussing a number of the key challenges of impact investing more broadly. Finally, we will explore the alignment of values which has been a significant factor with a growing participation in the impact investing sector by faith-led and values-based investors, and the role they can play in East Africa in mitigating the effects of global crises.
This first blog post in the series will highlight a few of the immediate and long-lasting challenges facing East Africa as a result of the COVID-19 pandemic. Wellers Impact’s local presence in this region has informed our discussion of these challenges, and as impact investors, we feel it is our responsibility to help local institutions and communities to recover and become more resilient to the shocks that local and global turmoil cause.
Ultimately, Wellers Impact views supporting the local private sector and local not-for-profit organisations to be financially self-sustainable and more resilient as a key contributing factor to helping East Africa recover. Many, including McKinsey & Company and the Global Impact Investing Network, acknowledge the longer-term complementary role private investors and impact investors will play alongside the philanthropy and government funding that is supporting communities through the immediate life-threatening challenges that they are facing.
Like most countries globally, East African communities are facing the prospect of the loss of life and livelihoods as a result of COVID-19. A number of factors, certainly not limited to this list, exacerbate the short-term effects they will likely face:
Poverty poses numerous economic and health consequences to the 40% of the Sub-Saharan population who live in poverty. Unsurprisingly the pandemic will exacerbate these. By definition, those who live in poverty face a restricted set of choices and have little to no savings. A government-mandated lockdown, designed to save their lives from one threat, exacerbates others including (but far from limited to) starvation, civil disorder and exposure to other diseases and illnesses.
This is compounded by large informal settlements in densely populated cities quickening the spread of COVID-19 through communities. The lack of infrastructure in these communities, such as clean water and adequate sanitation, that promote good hygiene, further increases the spread of disease.
Insufficient infrastructure is coupled with weak and poor healthcare systems that cannot cope with the exponential burden from the pandemic. These systems lack equipment, staff, and ICU beds to treat patients, let alone test them for the disease. Doctors and nurses, as in much of the world, will be forced to make difficult decisions, but far earlier than observed in developed countries. In rural areas where healthcare systems are largely non-existent, many residents will never receive healthcare – a sad reality that is only worsened by COVID-19.
Unfortunately, governments in East Africa have their hands tied. For example, Kenya is facing broader macroeconomic liquidity constraints due to high debt levels and the likely event that their currency will weaken. This constrains their ability to offer fiscal support packages to citizens, businesses and healthcare systems in ways that more developed countries have been doing. Their inability to provide income support constricts their ability to enforce a government-mandated lockdown to save lives and to “flatten the curve” of infection for the previously discussed reasons. Reportedly, Kenya has turned to the World Bank and IMF to negotiate standby credit facilities in preparation for an outbreak of infection and weakening of the currency.
Not-for-profit organisations (“NFPs”) and non-governmental organisations, who are essential service providers in these regions, are more important than ever. NFPs that operate in the healthcare sector are currently under-equipped to cope. Others working to provide income and food support for households who lose income and family members, will face greater burdens and face unprecedented challenges travelling through cities and countries to congregate with communities and households to provide this support. Continued support for these organisations, through grants and aid in the short term, will mean the difference between life and death for many people.
It is the longer-lasting challenges of the COVID-19 pandemic facing East Africa that impact investing is better suited to address. The challenges discussed here predominately concern disruption to the economy as a whole and to people’s ability to earn a living. However, emotional and health consequences will likely persist for months, if not, years.
The impact of a global economic slowdown, as well as government-imposed lockdowns, is likely to be long-lasting on businesses. With Africa’s GDP growth predicted to reduce by 3-8%, Small and Medium-Sized Enterprises (“SMEs”), who make up an ever-increasing proportion of East African economies, will be particularly hard-pressed to survive due to a lack of savings.
Economic downturns and widespread closure of SMEs will further increase unemployment, particularly among the middle and lower-income brackets. Larger businesses are likely to lay-off staff and reduce their output as they try to survive slower economic conditions too. In countries where unemployment is already high, and social welfare systems are weak, this will contribute to the persistence of poverty in East Africa.
Inequality, which was previously increasing, will likely increase further as those who are wealthier are better positioned to take advantage of opportunities when the economy begins to recover.
When borders reopen, economic instability and high unemployment may result in increased migration from East Africa as citizens seek employment and an increased standard of living. This will result in a “brain drain” from these regions as experienced professionals and younger, highly educated workers, relocate to seek improved opportunities.
Not-for-profits, many of which actively work to support small businesses, education, healthcare, employment, and innovation hubs are at risk of experiencing reduced funding due to the global economic slowdown, restricting their work.
There are some very critical challenges facing East Africa as the COVID-19 pandemic looms, but also some reasons for hope. Many businesses and innovation hubs are already focusing on addressing the short-term challenges we have mentioned. They will collectively fast-track innovation and local manufacturing sectors that spur economic development. Additionally, there may be a shift in government priorities towards healthcare and water infrastructure in response to the pandemic, which will have longer-lasting benefits to communities once built. These are areas requiring long-term funding strategies and investment.
As the rest of this blog series will explore, impact investing can contribute to addressing the longer-lasting challenges East Africa is facing and build more resilience in households, businesses and economies.
Our next article will look at what impact investing is and begin to uncover how this type of investing plays its part in the solution to these challenges, in regions such as East Africa, especially during times of crisis.
Wellers Impact is a UK-based, FCA-Regulated Impact Investment Manager and works to unlock community-focused impact through SDG-focused impact investing. Through innovative investment models that utilise fair economics, Wellers Impact originates investment opportunities across three core business activities: real estate developments in partnership with local land-owning not-for-profits in East Africa, financial support for agriculture firms and supply chains globally through sustainable development finance, and direct investment into private water, sanitation, healthcare, and plastics recycling firms globally. Investment involves risk. Suitable for Sophisticated, Professional and High Net Worth Investors only.