19 December 2012

Egypt: Impact Investing Is Key to Inclusive Development in Egypt

Photo: This is Africa
Egyptian citizens

Demographic pressures and years of under investment in meeting social needs suggest that Egypt will not be able to provide jobs, housing and basic services without adopting a wide strategy for inclusive development. Impact investing should be encouraged as one of the strategy's pillars.

Impact investing has, at its core, the objective of inclusive development. It drives capital directly to the sectors and enterprises that naturally address social and environmental issues. It applies sound investment principles because it recognizes the need for profitability in ensuring an enterprise's success. Impact capital comes with the added benefit that it brings higher standards of conduct to the economy. It is wired to encourage collaboration and to build networks that enhance potential impact and inclusiveness.

Opportunities for impact investors

There are compelling business arguments for impact investors to look to Egypt, and conversely, for Egypt to encourage impact investing as a means to address its core development issues. Egypt has a population of 83 million, with a growing need for basic services and jobs. To policy makers and government, this is a major challenge. To impact investors and social entrepreneurs, however, this is a large underserved market in high impact sectors such as access to utilities, affordable housing, education, healthcare and nutrition.

Anticipating the lifting of electricity and diesel subsidies, impact investors should look to support solar power solutions designed to save on the cost of lighting, water pumping and communications. Egypt has an ideal climate and terrain for solar power generation, and its potential should be sufficient to meet domestic demand, with capacity even for export.

Egypt's population is over-concentrated around the Nile, stressing the country's most important water resource with over-use and pollution. More land could be made arable for community farming through access to the extensive groundwater reserves now believed to lie under much of Egypt. Impact investing, mindful of the careful management and community involvement needed to draw sensitively on these water resources, could provide the appropriate balance of resource stewardship and capital for development.

The impact multiplier

Such opportunities for impact and business are evident, and will be available in other sectors. If commercial capital can be aligned with Egypt's inclusive development needs, the country will also benefit from the multiplier effect of impact investing. Impact investing as a discipline, through its processes, nature and intent, can provide a roadmap for good practice in the private sector. Its requirement to deliver financial and impact returns ensures it adheres to principles of sound governance, social equity and responsible business. With its commitment to rigorous impact assessment through industry standards of reporting and measurement such as GIIRS and IRIS, new benchmarks of transparency and accountability can be established.

Impact investing can both transform existing companies and enable new social enterprises to leapfrog into an inclusive framework of business. It also sets standards for the economy at large - higher expectations spread to clients and suppliers, to industry and trade bodies, to the financial, legal and regulatory sectors and ultimately to institutions of state.

Accessing impact finance

As the world tests new models of inclusive finance and equitable development, it seems only natural that Egypt's vibrant voluntary sector should join forces with the private sector to bring together capital and knowledge. The voluntary sector's deep experience of inclusive, rural and women's development issues, its wide networks, grassroots presence and, crucially, local credibility, should be considered assets by impact investors. For their part, sustainable and successful enterprises, built with the support of development organizations, should look to impact investing for growth capital to scale their operations and impact.

The Middle East and North Africa are expected to attract only 2% of the private capital earmarked as impact funds. This is very low, and Egypt should make every effort to attract a larger share. Policymakers could begin by adjusting capital market regulations to encourage the entry of social investors; supporters of social enterprise have already begun advocating to that effect. Egypt could also allow non-profit organizations to develop revenue streams beyond grants. Then, their enterprise models can become truly self-sufficient and, in time, attract impact capital.

Several other practical steps to encourage social entrepreneurship can be taken: ease penalties on bankruptcies, lessen the red tape in starting a new business, make lines of credit available through development banks and support the networks and institutions that value and build entrepreneurship.

The recent launch of the World Bank's Egypt Development Marketplace brought together an electrifying group drawn from civil society, NGOs, foundations, impact investors, incubators and social enterprises. A whole spectrum of inclusive development was focused on building an enabling environment for social business. Such commitment and effort needs to be nurtured

Nadine Kettaneh is a Founder and Managing Partner of Willow Impact Investors.

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