THE LANDSCAPE FOR IMPACT INVESTING IN SOUTHERN AFRICA Africa/Namibia... · IMPACT INVESTING IN...

NAMIBIA

THE LANDSCAPE FOR IMPACT INVESTING IN SOUTHERN AFRICA

WITH SUPPORT FROM

ACKNOWLEDGMENTSThis project was funded with UK aid from the UK Government though the Department for International Development’s Impact Programme. The Impact Programme (www.theimpactprogramme.org.uk) aims to catalyze the market for impact investment in sub-Saharan Africa and South Asia.

The Bertha Center at the University of Cape Town contributed to this report by providing access to their database of active impact investors operating across sub-Saharan Africa.

We would also like to thank Susan Balloch and Giselle Leung from the GIIN for their guidance throughout the research process and contributions to this report. We would further like to thank the tireless Open Capital Advisors (OCA) research team—Neal Desai, David Loew, Rodney Carew, Holden Bonwit, Katie Bach, Sarah Ndegwa, Elijah Ndarua, Joel Muli, Getrude Okoth, and Charles Njugunah—for their work interviewing impact investors, ecosystem players, and entrepreneurs, conducting rigorous data collection under tight timelines.

We would especially like to thank our interview participants. Without their key insights this report would not have been possible. We include a full list of interviewees in the Appendix.

For any questions or comments about this report, please email Rachel Bass at [email protected].

GIIN Advisory TeamAbhilash Mudaliar, Research ManagerKimberly Moynihan, Senior Associate, CommunicationsRachel Bass, Associate, Research

Open Capital AdvisorsAnnie Roberts, PartnerNicole DeMarsh, Principal

FEBRUARY 2016

WITH SUPPORT FROM

COMMON ACRONYMSAFD Agence Française de Développement (French

Development Agency)

AfDB African Development Bank

BIO Belgian Investment Company for Developing Countries

BoP Base of the Pyramid

CEPGL Communauté Économique des Pays des Grand Lacs (Economic Community of the Great Lakes Countries)

COMESA The Common Market for Eastern and Southern Africa

CSR Corporate Social Responsibility

DFI Development Finance Institution

DFID The Department for International Development (United Kingdom)

EIB European Investment Bank

ESG Environmental, Social, and Governance

FDI Foreign Direct Investment

FMCG Fast-Moving Consumer Goods

FMO Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (Netherlands Development Finance Company)

GDP Gross Domestic Product

GIIRS Global Impact Investing Ratings System

GIZ Gesellschaft für Internationale Zusammenarbeit (German Agency for International Cooperation)

HDI Human Development Index

ICT Information and Communication Technology

IFAD International Fund for Agricultural Development

IFC International Finance Corporation

IMF International Monetary Fund

LP Limited Partner

MDG Millennium Development Goal

MFI Microfinance Institution

MSME Micro, Small, and Medium-Sized Enterprises

NGO Non-Governmental Organization

OFID OPEC Fund for International Development

OPIC Overseas Private Investment Corporation (United States)

PE Private Equity

PPA Power Purchasing Agreement

PPP Purchasing Power Parity

PTA Preferential Trade Area Bank

RFP Request for Proposal

SACCO Savings and Credit Co-operative

SGB Small and Growing Business

SME Small and Medium-Sized Enterprises

SOE State-Owned Enterprises

TA Technical Assistance

UN DESA United Nations, Department of Economic and Social Affairs

UNCTAD United Nations’ Conference on Trade and Development

USAID The United States Agency for International Development

VAT Value-Added Tax

VC Venture Capital

WASH Water, Sanitation, and Hygiene

WHO World Health Organization

COMMON TERMSEarly-stage business Business that has begun operations but has most likely not begun commercial manufacture and sales

Focus countries Countries under study wherein non-DFI impact investors are most active, namely Madagascar, Malawi, Mozambique, South Africa, Zambia, and Zimbabwe

Growth-stage business Company has a functioning business model, and its current focus is developing new products / services or expanding into new markets

Mature business Profitable company with a developed and recognizable brand

Non-focus countries Countries covered by the study but that have limited non-DFI impact investor activity, namely Angola, Botswana, Lesotho, Mauritius, Namibia, and Swaziland

Venture-stage business Sales have begun but cannot sustain the company’s operations. The business model is still being aligned with the realities on the ground

IV • THE LANDSCAPE FOR IMPACT INVESTING IN SOUTHERN AFRICA

NAMIBIADIAMOND MINING IN THE DESERT

NAMIBIA • 1

TABLE OF CONTENTSAbout this Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Country Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Supply and Demand of Impact Investing Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Challenges and Opportunities for Impact Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

2 • THE LANDSCAPE FOR IMPACT INVESTING IN SOUTHERN AFRICA

ABOUT THIS REPORTMOTIVATION

The impact investing industry has grown in prominence over the last decade, and impact investors globally have developed substantial and particular interest in sub-Saharan Africa, given the region’s strong potential for investments to drive positive social and environmental impact. Despite strong interest, relatively little research has examined impact investing markets at the country level within the continent. This type of granular information is essential to investors currently operating in the region or considering investments there in the future.

This study provides detailed information on impact investing activity across 12 countries in Southern Africa. For each country, the report examines impact investing capital disbursed at the time of data collection in mid-2015 (by sector, size, and instrument), analyzes key trends in the industry, and describes the challenges and opportunities available for social enterprises and impact investors. Political and/or economic circumstances may have changed since initial data collection.

SCOPE

As defined by the GIIN, impact investments are “investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.” A commitment to measuring social or environmental performance is considered a hallmark of impact investing. Investors who do not meet this definition have not been included in this report’s analysis.

Development finance institutions (DFIs) are important actors in the impact investing landscape, providing large amounts of capital both through direct impact investments and through indirect investments through other impact capital vehicles. Because of their large size and unique nature, this report analyzes DFI activity separately from the activity of other types of impact investors.

METHODOLOGY

This report relies heavily on primary research, including more than 60 interviews with local and international impact investors, social enterprises, ecosystem players, and government institutions. The research team also examined publicly available primary information, including analyzing investor documents and reviewing organizational websites and press releases to compile a comprehensive database of impact investing activity across all 12 countries in Southern Africa. Overall, this report includes data regarding the activities of 25 DFIs and 81 non-DFI impact investors, totaling over 8,600 transactions including substantial activity from DFIs based in South Africa.

More detailed information on methodology and scope is provided in the ‘Introduction & Methodology’ chapter. All chapters of this report can be found at www.thegiin.org.


NAMIBIA • 3

COUNTRY OVERVIEWNamibia (formerly South-West Africa) gained independence from South Africa in 1990, making it the last country in Africa to do so.1 The country has a population of just 2.3 million and one of the lowest population densities globally, with only 2.7 people per square kilometer.2 The Namib Desert runs along the west side of the country and is largely uninhabited; the majority of economic activity is accordingly concentrated in the central and eastern areas of the country (see map in Figure 1).

FIGURE 1. MAP OF NAMIBIA

ANGOLA

NAMIBIA

SOUTH AFRICA

LESOTHO

MADAGASCAR

SWAZILAND

BOTSWANA

ZIMBABWE

MOZAMBIQUEMALAWI

ZAMBIA

Namibia’s gross domestic product (GDP) was estimated at USD 23.6 billion at purchasing power parity (PPP) in 2014,3 having grown at an average of 6.4 percent annually over the past decade.4 With GDP per capita of USD 10,800 (PPP), Namibia is categorized as an “upper-middle-income country”; however, the country faces extreme inequality, with the world’s highest ratio between the average income of the richest 10 percent and the poorest 10 percent and high unemployment at 17%.5

1 The World Factbook, s.v. “Namibia” (Washington, DC: Central Intelligence Agency), https://www.cia.gov/library/publications/the-world-factbook/.

2 United Nations Statistics Division, s.v. “Namibia,” https://data.un.org/CountryProfile.aspx?crName=Namibia.

3 World Economic Outlook Database, s.v. “Namibia” (Washington, DC: International Monetary Fund, 2015), https://www.imf.org/external/pubs/ft/weo/2015/01/weodata/index.aspx.

4 Ibid.5 Jeni Klugman et al., Human Development Report (New York: United Nations Development

Programme, 2009), http://hdr.undp.org/sites/default/files/reports/269/hdr_2009_en_complete.pdf.


TABLE 1. SELECTED NAMIBIA DEVELOPMENT INDICATORS

DEVELOPMENT INDICATOR Namibia Regional Average

Global Average

HDI SCORE (RANKS 127TH OF 187 COUNTRIES) 0.62 0.55 0.69

GDP PER CAPITA (USD) 10,800 6,874 17,975

UNEMPLOYMENT RATE (%) 17 13 6

POPULATION BELOW USD 1.25 / DAY (%) 32 51 25

UNDER-FIVE MORTALITY (PER THOUSAND BIRTHS) 39 75 47

POPULATION WITH SOME SECONDARY EDUCATION (%) 34 41 59

Extraction and mineral processing comprise roughly 30 percent of GDP, with diamonds and uranium the two major subsectors.6 Foreign direct investment (FDI), accounting for approximately five percent of GDP and dominated by South Africa and China, is highly concentrated in the mining sector.7

Namibia is a member of the Common Monetary Area (CMA) along with Lesotho, Swaziland, and South Africa.8 Across this currency union, currencies are pegged one-to-one to the South African Rand, which also circulates within the country. As a CMA member, then, Namibia follows the monetary and exchange rate policies of South Africa.9 Nevertheless, the government has a strong macroeconomic record, relying on fiscal policy to influence the economy; it spent heavily in 2008 and 2009 to stimulate the economy during the global economic crisis.10

6 The World Factbook, s.v. “Namibia” (Washington, DC: Central Intelligence Agency), https://www.cia.gov/library/publications/the-world-factbook/.

7 US Department of State, Namibia Investment Climate Statement (Washington, DC: US Department of State, 2015), http://www.state.gov/documents/organization/241886.pdf.

8 KPMG, Namibia Country Profile (Johannesburg: KPMG, 2012), http://www.kpmg.com/Africa/en/KPMG-in-Africa/Documents/Namibia.pdf.

9 Bank of Namibia, Namibia’s Monetary Policy Framework (Windhoek: Bank of Namibia, 2008), https://www.bon.com.na/CMSTemplates/Bon/Files/bon.com.na/12/12253e03-31d8-4a91-882a-35833faec548.pdf.

10 African Development Bank, Namibia 2014–2018 Country Strategy Paper (Abidjan: African Development Bank Group, 2014), http://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/2014-2018_-_Namibia_Country_Strategy_Paper.pdf; Martha Phiri and Ojijo Odhiambo, Namibia (OECD Development Centre: African Economic Outlook, 2015), http://www.africaneconomicoutlook.org/fileadmin/uploads/aeo/2015/CN_data/CN_Long_EN/Namibia_GB_2015.pdf.

NAMIBIA • 5

The private sector in Namibia benefits from a stable political environment. Namibia has a constitutional democracy, with the same party, SWAPO, in power since independence; nevertheless, Freedom House scores Namibia very well in the areas of freedom, civil liberties, and political rights.11 SWAPO has led Namibia to a strong regional ranking on business-environment indicators, scoring 98th out of 189 countries (and eighth in Africa) on the World Bank’s “Ease of Doing Business” index.12 To achieve this, Namibia has focused on reducing corruption and driving policies for private-sector development.

Education is a top priority for the Namibian government. Almost a quarter of Namibia’s national budget is directed toward education.13 This investment has created a highly literate population, with literacy rates for 15-to-24-year-olds and adults estimated at 94 percent and 89 percent, respectively.14

SUPPLY AND DEMAND OF IMPACT INVESTING CAPITAL The formal financial sector in Namibia is small, with only four commercial banks and one microfinance institution.15 Despite its size, its financial sector is one of the most sophisticated in Africa, and private sector access to credit is growing. In recent years, total credit provided to the private sector has risen by more than 13 percent annually,16 with only 31 percent financially excluded in 2012 (as compared with 52 percent in 2007).17 In this credit expansion, individuals and businesses are looking to take advantage of single-digit interest rates, which are significantly lower than the regional average and comparable to those in South Africa.18

11 “Namibia,” Freedom House, https://freedomhouse.org/report/freedom-world/2015/namibia - .VeBvM_mqqko.

12 The World Bank, “Economy Rankings,” in Doing Business 2015 (Washington, DC: The World Bank, 2015), http://doingbusiness.org/rankings.

13 Martha Phiri and Ojijo Odhiambo, Namibia (OECD Development Centre: African Economic Outlook, 2015), http://www.africaneconomicoutlook.org/fileadmin/uploads/aeo/2015/CN_data/CN_Long_EN/Namibia_GB_2015.pdf.

14 Ibid. 15 KPMG, Namibia Country Profile (Johannesburg: KPMG, 2012), http://www.kpmg.com/Africa/en/

KPMG-in-Africa/Documents/Namibia.pdf.16 African Development Bank, Namibia 2014–2018 Country Strategy Paper (Abidjan: African

Development Bank Group, 2014), http://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/2014-2018_-_Namibia_Country_Strategy_Paper.pdf.


18 Bank of Namibia, https://www.bon.com.na/.


Still, challenges around access to credit persist. Only 64 percent of adults are covered by the existing private credit bureau.19 Similarly, small- and medium-sized enterprises (SMEs) and start-ups report particular challenges accessing financial services due to low financial literacy, high fees and transaction costs, and an underdeveloped microfinance sector.20 Impact investing can provide alternate financing for SMEs. Namibia has seen some impact capital disbursed in this regard, though the majority of capital dispersed has been from development finance institutions (DFIs) to support the financial services and infrastructure sectors.

To date, there have been 46 known impact investments into Namibia, totaling approximately USD 846 million. DFI investments account for around 75 percent of deals and almost 99 percent of total capital disbursed (see Figures 2 and 3).

Deal flow in Namibia is generally limited, with almost half of DFI investments and nearly 40 percent of non-DFI investments made before 2005 (see Figures 4 and 5). Major sectors of focus for DFI investors have included energy, financial services, and information and communication technologies (ICT), while non-DFI investors have focused on housing and financial services.

FIGURE 3. NON-DFI IMPACT INVESTMENTS

Investments

USD (MILLIONS) # OF DEALS

Capital disbursedDeals

141210

86420

12

10

8

6

4

20

Average deal size (USD millions) 1.1

12.3 11

Source: Open Capital Research

FIGURE 2. DFI IMPACT INVESTMENTS

Average deal size (USD millions) 23.8

834 35

Investments



1,000

800

600

400

200

0

40

30

20

10

0

Source: Open Capital Research


20 Ibid.; World Economic Forum, “Namibia,” in Global Competitiveness Report (Geneva: World Economic Forum, 2013), http://www3.weforum.org/docs/GCR2014-15/Namibia.pdf.

NAMIBIA • 7

FIGURE 4. DFI IMPACT INVESTMENTS BY YEAR


Pre-2005

20062007

20082009

2010 20112012 2013

2014 2015

Unknown

400350300250200150100

500

181614121086420

8.8 - 4.8 1.4 11.8 65.3 10.8 90.4 122.8 8.1 - -AVERAGE DEAL SIZE (USD MILLIONS)

150

17

595 13

12

11 1

901 4 1

336

8

8 1102

32


Notes: Average deal sizes may not equal displayed capital disbursed divided by deal sizes. Capital disbursed rounded to nearest million, except where less than 1 million (rounded to nearest 100,000). Average deal sizes rounded to nearest 100,000.Source: Open Capital Research

FIGURE 5. NON-DFI IMPACT INVESTMENTS BY YEAR


Pre-2005

20062007

20082009

2010 20112012 2013

2014 2015

Unknown

87654321

0

4

3

2

1

0

0.3 - - - 0.2 0.6 - 0.6 - 2.0 - 3.5AVERAGE DEAL SIZE (USD MILLIONS)

1.14

0.2

1

1.32

0.6

1 2.0

7.12

1USD (MILLIONS) # OF DEALS

Notes: Average deal sizes may not equal displayed capital disbursed divided by deal sizes. Capital disbursed rounded to nearest million, except where less than 1 million (rounded to nearest 100,000). Average deal sizes rounded to nearest 100,000.Source: Open Capital Research


CHALLENGES AND OPPORTUNITIES FOR IMPACT INVESTORSNamibia’s combination of high unemployment, insufficient access to finance (especially for SMEs), and massive income inequality indicate a strong need for impact capital. However, impact investors will face challenges placing capital in Namibia, including:

• Small and dispersed market: With a small population and extremely high income inequality, the broader population exercises limited purchasing power. Consumer businesses face a challengingly small market size. This is further hindered by population dispersion: Namibia has the second-lowest population density of any sovereign nation in the world.21

• Electricity supply: Namibia suffers from an unstable power supply with frequent outages, which particularly interfere with agricultural processing and machinery-intensive manufacturing. The grid’s frequent outages indicate a significant power deficit;22 local energy production accounts for less than half of energy consumed, with the balance predominantly imported from neighboring South Africa and Zimbabwe.23

• Skill shortages: Despite the government’s focus on education, the educational system has been plagued by mismanagement, and interviewees regard the school system as inadequate to help prepare a skilled workforce.24 Employers cite a lack of skilled labor and insufficient productivity as key constraints on their businesses.25

• Climate change: As the driest country south of the Sahara, Namibia is highly susceptible to both droughts and floods, and climate change is a significant threat to the country; in the northern region of Kunene, rain has not fallen in three years, and the UN estimates that one-third of the population is either moderately or severely food insecure.26 This is particularly true for the lowest-income population segments, the vast majority of whom are employed in agriculture.27

21 United Nations, World Population Prospects (New York: United Nations, 2008), http://www.un.org/esa/population/publications/wpp2008/wpp2008_text_tables.pdf.


23 CCS Africa, “Namibia Factsheet,” http://www.ccs-africa.org/fileadmin/ccs-africa/user/CCS_Africa_2/Namibia_factsheet.pdf.


25 US Department of State, Namibia Investment Climate Statement (Washington, DC: US Department of State, 2015), http://www.state.gov/documents/organization/241886.pdf.

26 “Late Rains and Droughts in Namibia,” New Era, January 20, 2015, https://www.newera.com.na/2015/01/20/late-rains-droughts-namibia-2013-snapshot-future/.

27 African Development Bank, Namibia 2014–2018 Country Strategy Paper (Abidjan: African Development Bank Group, 2014), http://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/2014-2018_-_Namibia_Country_Strategy_Paper.pdf.

NAMIBIA • 9

Despite these challenges, there are many opportunities for impact investors to operate in Namibia and leverage return-seeking investments to reduce inequality and bolster human capital. As the Namibian economy is heavily based on natural-resource extraction, industry diversification could reduce the economy’s exposure to medium-term risk of a slowdown in mineral, especially diamond, demand.28 Impact investors report seeing opportunities across the following sectors:

• Clean energy: With a growing population and grid assets that meet less than half of current need,29 there is a large opportunity in clean energy. The potential for solar in Namibia is one of the strongest on the planet,30 and a number of substantial solar projects are currently under way.31 Similarly, wind and hydro power offer compelling investment opportunities for impact investors due to the abundance of these resources and favorable government feed-in tariffs.32

• Food supply: Given Namibia’s massive income inequality, improving the food supply chain by reducing food costs through efficient procurement and distribution could result in major social gains. Increasing the availability of nutritious foods through efficient procurement and distribution offers both short- and long-term improvements in public health.

• Tourism / ecotourism: Strong government conservancy efforts place half of Namibia, including its full coastline, under legal protection.33 Tourism supporting such programs and parks can generate both positive environmental impact and financial return.34

• Aquaculture: While fishing is a mainstay sector in Namibia, recent years have afforded poor wild fish catches, slowing growth in the industry.35 Sustainable aquaculture and fish processing could yield short-term cash flow and long-term environmental and social returns.36


29 CCS Africa, “Namibia Factsheet,” http://www.ccs-africa.org/fileadmin/ccs-africa/user/CCS_Africa_2/Namibia_factsheet.pdf.

30 Detlof von Oertzen, Namibia’s Energy Future (Windhoek: Konrad Adenauer Stiftung, 2012), http://www.kas.de/wf/doc/kas_34264-1522-1-30.pdf?130503111302.

31 Renewable Energy Industry Association of Namibia, http://www.reiaon.com/.32 Martha Mwandingi, “Energy: Challenges and Opportunities” (presented at the UNDP Namibia Societal

Acceleration Platform Prototyping Week), https://www.pwc.com/na/en/assets/pdf/day2-energy-in-namibia-martha-mwandingi.pdf.

33 “Namibia Overview,” The World Bank, http://www.worldbank.org/en/country/namibia/overview.34 British High Commission of Namibia, Doing Business in Namibia (Windhoek: British High Commission of

Namibia, 2014), https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/301482/Doing_Business_in_Namibia_2014.pdf.

35 KPMG, Namibia Country Profile (Johannesburg: KPMG, 2012), http://www.kpmg.com/Africa/en/KPMG-in-Africa/Documents/Namibia.pdf.

36 Fishing companies which employ Namibians and use Namibian vessels pay lower government quota fees. KPMG, Namibia Country Profile (Johannesburg: KPMG, 2012), p. 10, http://www.kpmg.com/Africa/en/KPMG-in-Africa/Documents/Namibia.pdf.


ABOUT THE GLOBAL IMPACT INVESTING NETWORK

The Global Impact Investing Network (GIIN®) is a nonprofit organization dedicated to increasing the scale and effectiveness of impact investing. The GIIN builds critical infrastructure and supports activities, education, and research that help accelerate the development of a coherent impact investing industry. For more information, see www.thegiin.org.

30 Broad Street, 38th Floor, New York, NY 10004 USA +1.646.837.7430 | [email protected] | www.thegiin.org

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