Don’t Learn the Hard Way: Four lessons of investing in Africa - 3 min read Global business interest in Africa has blossomed, optimism about Africa’s growth prospects is widespread and both China and the US are reinforcing investments across the continent. Chinese foreign direct investment has jumped 60-fold between 2003 and 2017 and the US just announced a $60bn African investment agency. The numbers say it all. But, despite the positive shift in attitude towards Africa, investors are missing investment opportunities in Africa. While some investors simply don’t know where and how to invest in Africa, others don’t perceive the risk of investments in emerging markets rationally. Most African economies suffer from weak institutions and poor infrastructure, which can make investments in Africa more of a challenge than elsewhere. At the same time, it represents an even greater opportunity for private companies to create social and environmental impact by filling these gaps. At Transformational Business Network, we have made impact investments in African businesses for more than 15 years. In our experience, these are four things to consider when investing in African impact businesses. 1. Get Your Hands Dirty Small businesses in Africa require extensive support as many of them lack knowledge in business strategy, finance and other areas. Entrepreneurs frequently need help finding the right fundraising strategy and investor engagement, so our TBN, accelerator programme works with purpose-driven entrepreneurs to refine their business strategies and practices. The accelerator allows us to increase the revenue of participating companies and develop close ties with the entrepreneurs. This has given us important insights into entrepreneurs’ strategy and their ability to deliver results. Investors need to roll up their sleeves and provide advice and support to enable growth, or find a local partner who can do this. 2. Bridge the Chasm of Mistrust Trust is the currency of any business. Africa is no different. We learned how important relationship building is with HealthyLife Clinics*, a provider of healthcare services to poor communities in Kenya, that participated in our accelerator programme. Elea Fumnaya, the founder of HealthyLife was at first reluctant to engage new investors after she had had some negative experiences with investors previously. HealthyLife Clinics was unable to grow for this reason. It took an angel investor in our network who provided substantial mentorship and advice to build trust before we were able to consider investments. 3. Don’t Gamble, Mitigate Risks Many investors still struggle to find the right risk-mitigation strategy in emerging markets. In our experience, strong links to existing corporate supply chains allow businesses to substantially reduce the risk of demand shortages, which in turn mitigates the risk of investments. At TBN, we leverage our network to connect businesses to supply chains. Elea has put this strategy into practice with HealthyLife clinics, who established partnerships with flower farms in the Naivasha region of Kenya, which were interested in providing their workers with health services. In addition to this, Kenya’s National Health Insurance officially recognised HealthyLife Clinics and started subsidising the clinics. This greatly reduced the overall risk of HealthyLife Clinics. 4. Practice Patience Having patience is key to investment success. This is even more important when investing in Africa, where relatively few businesses are investment ready. Substantial time and effort are required pre-investment to close deals. In the case of HealthyLife, it took over a year to develop a deal. Once a deal is closed, investors are in it for the long haul. Investments usually require longer maturities to give companies sufficient time to gain traction. Investors in African businesses face many challenges. But successful investments bear fruit. Thanks to that investment, HealthyLife will be able to extend affordable healthcare in Naivasha to an additional 30,000 low-income patients each year. Increased investment in purpose-driven businesses on the continent will accelerate much-needed economic growth. *Some names have been changed to protect the privacy of individuals.