Investors looking to effect meaningful social change are finding the perfect match in Africa’s energy entrepreneurs, whose projects offer solutions to energy poverty and climate change.
Some 600 million Africans, most of them in sub-Saharan Africa, lack access to electricity, the cornerstone of social development. Although the Africa Energy Outlook 2022 analysis identified national grid extension as the preferred approach to addressing energy poverty for almost 45% of those without electricity by 2030, solar-based mini-grids and standalone systems remain the most viable solution to electrifying rural areas, home to 80% of electricity-deprived Africans.
African entrepreneurs have stepped up to fill the off-grid power generation gap over the past decade, but historically struggled for financing since off-grid projects were widely perceived as high-risk investments.
“Some 600 million Africans, most of them in sub-Saharan Africa, lack access to electricity, the cornerstone of social development.”
Following the Covid-19 pandemic and the economic slowdown it precipitated, investors began to look beyond traditional investment destinations, identifying young, entrepreneurial Africa, particularly its energy sector, as an attractive investment prospect. According to The Big Deal, investment in African energy start-ups more than doubled between 2021 and 2022, from US$413 million to US$874 million.
This growth follows the positive investment trend in which increasing numbers of investors seek social impact as well as financial returns. For these ‘impact investors’, Africa has become the investment destination of choice. According to the Global Impact Investor Network’s (GIIN) 2020 annual impact investor survey, as much as half of all global impact investment capital is currently being channelled into Africa, with renewable energy one of the top three investment sectors.
While the funding gap for small businesses remains a challenge, the investments being directed to the continent are making a difference. The Off-grid Solar Market Trends Report: 2022 states that the number of Africans accessing cost-effective, off-grid solar energy kits to power their homes and businesses had grown from 420 million in 2019 to 490 million by the end of 2021. In this period, 3.8 million customers gained access to solar televisions, which were critical for accessing news, health information and educational programmes during the pandemic.
“The number of Africans accessing cost-effective, off-grid solar energy kits to power their homes and businesses had grown from 420 million in 2019 to 490 million by the end of 2021.”
Worth noting, however, is the disproportionately small ratio of funding to women-led start-ups, a mere 26% according to the African Private Capital Association’s (AVCA) Venture Capital in Africa Report 2023 despite the high rate of female entrepreneurship in Africa.
As impact investors look to Africa, there is increasing opportunity for philanthropic and non-profit groups to support efforts to address this gender imbalanced funding, while accelerating off-grid solar solutions for the productive use of energy appliances to power industrial and agricultural supply chains and healthcare and education facilities.
Read more about entrepreneur and small business support:
- Read the Overview of CSI spend on entrepreneur and small business support in 2023.
- Read the 2022 research findings: Overview of CSI spend on entrepreneur and small business support 2022.
Source: The original version of this article was published in the Trialogue Business in Society Handbook 2023 (26th edition).
