The Business Case for Investing in African Women

December 15, 2020

By Tokunboh Ishmael, Managing Director and co-Founder, Alitheia Capital

What is good for gender equality is good for the economy and society as well. – McKinsey & Company

An estimated 120 million Nigerian women are susceptible to the health consequences of firewood use. Of this, about 95,000 die each year from inhaling smoke. By extension, infants and children too are affected, leading to an increase in maternal and infant mortality and predisposition to respiratory diseases. Cooking accounts for 91% percent of energy used in Nigerian homes, and for many households, firewood is the main source of energy. There have been global efforts to address the domestic consumption of firewood. But many of these efforts view this issue through the lens of development and aid. Unfortunately, this approach has resulted in a short-term, unscalable solution to a systemic problem.

In 2010, Alitheia Capital, the investment company that I founded and serve as managing director, approached this issue as a business problem. Alitheia recognized the immense purchasing power of women, understood their needs as the major decision maker in homes, and saw a social problem that needs an immediate long-term solution. In partnership with a large oil and gas company, we designed and financed a product that provided thousands of Nigerian women with clean and affordable energy. The social implication of this was that thousands of households were spared the grief of needless loss(es) brought on by firewood use. Economically, we created a value chain that had a ripple effect across communities. For instance, over 30,000 entrepreneurs were engaged as part of our distribution network; and we enabled women entrepreneurs in the hospitality sector to scale their businesses without exposing themselves or their staff to a health hazard. This project, at its core, showed the role of impact investment as a sustainable vehicle for socio-economic development. Equally, it showed the place and importance of diverse thinking in financea sector that is notoriously male dominated and, thus, predisposed to a singular worldview. By having a diverse team, we created a profitable business model that also yielded social returns and proved that women are, in fact, a viable market both as consumers, entrepreneurs, and decision makers.

For decades we have approached the complex problems of Africa through development. Unfortunately, many of the problems have persisted and, in some cases, grown. It is now pertinent to reinvent the wheel and approach these seemingly intractable problems through a different angle: capitalism tempered by social consciousness. For us to unlock the dividends of capitalism and for Africa to achieve its full potential, we need the entire economy participating – that is men and women viewed and empowered as economically productive units. This means that we must understand and accept that investing in women is not just about flexing a moral muscle. Rather it is an economic imperative born and guided by the reality that women – as entrepreneurs and consumers – are economic entities that can yield financial and social returns.

There are more female entrepreneurs in Africa than there are in any other continent. In fact, African women are more likely than African men to start a business, with one in four choosing to explore entrepreneurship. Small businesses are the backbone of the continent’s economy, thus women – as both homemakers and business owners – are the true backbone of Africa’s economy. Unfortunately, African women face severe challenges in accessing financial services. They are less likely to receive formal funding from private equity investors, bank loans are inaccessible to most, and many lack the network to find and access angel investors. The African Development Bank (AfDB) estimates that the funding gap between men and women in Africa stands at about $42 billion. That is significant opportunity left on the table, and a barrier to Africa’s growth. It becomes more troubling when we see that women reinvest up to 90% of their income into their family compared to 40 – 30% for men and are, thus, capable of stirring growth at the micro level.

Financial services are the oil that keeps the economy grinding. Yet, for a sector that is so necessary it is also willingly blind to an obvious truth: investing in women leads superior returns. A study into this concluded that women-led businesses generate twice per dollar invested than men. Unfortunately, the gender gap in investment persists as women receive fewer financial backings. A report from Briter Bridges showed that only 3.2% of total capital invested in Africa within the first quarter of 2020 went to startups with at least one female co-founder or leader. Clearly, a situation where a significant part of the economy is unable to access favorable financial services for their entrepreneurial efforts affects the entire system. It also shows a failure to appreciate the purchasing power of women and to see the opportunities within. This is one of the reasons why working towards financial inclusion is imperative.

In 2015, we set up Alitheia IDF to solve this problem and bridge the investment gap between men and women. Alitheia IDF is a $100 million fund, the first of its kind in Africa and a product of transcontinental partnerships. Our goal is to fill a glaring market gap created because of bias. We proactively seek out female entrepreneurs, founders, and businesses with diverse management teams outside of conventional networks; and attempt to understand their business model and social impact. Inclusive funds, like Alitheia IDF, are groundbreaking and necessary. But they are also rare and few. To stir growth across the value chain, we need to find and empower more women entrepreneurs, consumers, and decision makers and charge them with the goal of going into uncharted territories and unlocking opportunities for Africa.