Case study by Allianz Global Investors
In the spirit of showcasing leadership and raising standards of responsible investment among all our signatories, we are pleased to publish case studies of all the winning and shortlisted entries for the PRI Awards 2020.
Give a brief overview of your project, its objectives, and why you decided to undertake it.
AfricaGrow was designed as a fund of funds to promote small and medium-sized enterprises (SMEs) and start-ups primarily in countries associated with the G20 Compact with Africa (CwA). The design and structure of the fund – a blend of public and private finance – will be used to close the existing financing gap, and build a solid equity base for African SMEs. Allianz Global Investors launched the fund jointly with the German Ministry for Economic Cooperation and Development (BMZ), and KfW.
In addition to the basic investment, AfricaGrow hopes to catalyse the emerging private equity and venture capital market across Africa via a special Technical Assistance Facility This will not only support AfricaGrow’s target funds, and their portfolios of companies, but also support the development of the overall African PE and VC market. The deal team brings together German and International educational backgrounds, and professionals in private markets, investment banking and consulting across Frankfurt and London.
Please describe the scale of the project, financially and in impact terms.
The aim of AfricaGrow is to finance about 150 SMEs and start-ups in African countries through local funds by 2030. It will promote sustainable economic and social development, and aims to create more than 25,000 new jobs that can support manifold families and people.
Great importance was placed on ensuring that investments have clear sustainability objectives. AfricaGrow uses a multidimensional index-based Development Effectiveness Rating (DERa) guided by the 2030 Agenda for Sustainable Development and the SDGs to measure those objectives. These include:
- long-term change by job creation
- local income ignition
- market development
- environmental responsibility
- and community benefits.
The fund volume is €180-200 million. Of this, €100 million comes from BMZ, €30 million from KfW subsidiary, DEG, and €50 to €70 million from Allianz companies. A special feature is an additional budget in the tens of millions for accompanying support measures via the Technical Assistance Facility.
Describe the process of delivering the project, including any challenges and how these were overcome.
AfricaGrow was set-up within three months of being mandated. Given the complexity of a blended finance structure, with public and private partners, and in a jurisdiction where such structures are not very common, it was a big achievement to pull it together in that time. And, despite COVID-19, AfricaGrow is fully on track with its investment schedule.
The fund’s unique investment approach allows it to address both the eco-systemic efforts required to train the African PE and VC sector, and at the same time, the needs of investors for long-term cash flows and returns – all the while generating a measurable social impact.
The fund’s creators strongly believe that combining investment targets with measurable socio-economic impact allows for a competitive edge versus its peers, and will lead to stable investment returns.
AfricaGrow faced multiple challenges on its way to success, and will no doubt face more. However, these challenges are seen as opportunities. To deal with Africa’s unique business environment, with all its risks, unknowns and cultural challenges, AfricaGrow has forged strategic partnerships with established local private-equity funds that act as a gateway through their extensive network and local expertise.
How successful has the project been and how have you measured this? What have you learned from this project that can be applied more broadly?
AfricaGrow is mandated to ensure that its target funds and the target funds’ portfolio companies commit to continuous improvements with respect to socio-economic factors, and work over time to apply relevant international best practice standards. AfricaGrow sticks to the following principles:
- minimise adverse impacts and enhance positive effects on the environment and all stakeholders.
- support the reduction of greenhouse gas emissions.
- encourage Portfolio Companies to work towards full compliance with the ILO Core Labour Standards, IFC Performance Standards and World Bank Group’s general and sector-specific EHS Guidelines, and to respect the International Bill of Human Rights.
By sticking to these strict ESG standards, AfricaGrow contributes directly to the United Nations Sustainable Development Goals (SDG) 8 and 9. The fund plans to report on these KPIs annually, and there is a stringent process in place to make sure that lessons are learned as the projects develop. AfricaGrow has a five-year investment period, but the longer-term ambition is to establish a stepping-stone for companies so they can flourish way beyond that time – and benefit African people and the environment for decades to come.