By Frank Aswani, CEO of the African Venture Philanthropy Alliance (AVPA)
Can Africa attain the SDGs?
Africa is on track to achieve only two of the 17 Sustainable Development Goals (SDGs) by 2030. We need about USD194b annually to finance the SDGs. This has to be done against declining aid and growing public debt meaning that governments have less money to spend on service delivery and social investments. This situation is not static – the challenges are growing. The young African population that grows by about 1 million people a month adds to other growing challenges like youth unemployment and the impact of climate change.
While this seems like an insurmountable challenge, the reality is that there is enough capital available in the global economy to achieve the SDGs. Globally, we need only about 1% of the capital available in private capital and financial markets to address the SDGs. The reason why the capital needed to achieve the SDGs cannot be mobilised is that private investors views social investments as too risky. Thus, the problem is not that the world of impact is short of capital – it is short of risk capital.
The potential of social investments
How do we get private capital players to deploy some of their money into social investments, converging profit and purpose as we simultaneously do our best to leverage the existing philanthropic capital to maximize its impact? This is the critical question to answer.
Our current social challenges are not just a concern of the development sector, but also a significant risk for the future survival of African businesses. Consider that continued youth unemployment means that pension funds are unlikely to have enough contributors, and businesses like banks will not have the customers they need to sustain them in the future.
It is in everyone’s interest to solve our current challenges and move from sustainable development to sustainable growth. There is a huge and urgent need to be collaboratively and constructively impatient in solving these problems. This requires a breakdown of the silos between private capital holders and development funders that can happen only if there are also significant shifts in mindset amongst all players.
Philanthropy’s catalytic role
We have to accept that we cannot achieve the SDGs without private sector involvement and that no one player can achieve the impact that is needed on their own– but we can do what is needed when we work together as a collective. It will only be possible to crowd-in private capital into the impact space when philanthropic capital plays a catalytic role by providing de-risking capital. This makes philanthropic capital the most important capital in driving Africa’s sustainable growth.
Philanthropy can and must leverage the change that is so desperately needed in the current resource constrained space. How can philanthropy fulfill this critically important role?
- Philanthropy can provide innovation funding. This is where philanthropy can respond to the need for risk capital in the world of impact, as explained above. Philanthropy theoretically has the unique property of being risk seeking capital and should develop and foreground its appetite for risk. It can play a critical role in funding and driving innovation through for example, helping to develop and test new products, services, markets, and models where generally, risk is very high due to the possibility of failure. The need for innovation is key when we acknowledge that many of our current problems cannot be solved by old solutions and hence the need for continuous or iterative innovation.
- Philanthropy can provide scaling capital. By funding riskier early stage and growth innovations, philanthropy can take these to a proof-of-concept stage, where they are less risky and can thus be scaled by either bigger philanthropy, governments, or private capital players – all of whom have deeper pockets. Scaling can propel innovative solutions to move into new markets, customer groups, segments, and geographies.
- Philanthropy can drive collaboration. Through collaborative or pooled funds, philanthropy can support the aggregation of large pools of capital from multiple donors into a fund that can enable funders to back worthy initiatives with more capital, seeking a multiplier effect; or sharing risk when piloting or experimenting with new solutions. AVPA will soon be launching a catalytic capital collaborative pooled fund and inviting African foundations to join the collaboration initiative.
- Philanthropy can be an evidence producer. When we need evidence to influence changes in policy or practice, philanthropy can fund research and studies to collect the necessary data.
How philanthropy can evolve
Understanding what philanthropy can do to unlock the funding dilemma is a good start, but to play this role philanthropy has to evolve, and this will require openness in changing the way we think about philanthropy, and how we practice philanthropy. It will require:
- Willingness to unlearn, learn, and relearn.
- Changing mindsets and challenging assumptions.
- Building relationships with governments and private funders.
- Failing fast, failing cheap, and failing quick.
- Falling in love the problem, not your solution.
- Embracing technology.
- Tracking economic cycles.
- Working yourself out of a job.
See the text box below for more detail.
It is not either-or, but both-and
Shining the light on the evolving role of philanthropy does not imply that traditional grant making must be abandoned. Traditional grant making should be supplemented with some of the above suggested processes, simply because we are running out of time and out of financial grant resources to solve our problems. Our new problems need new solutions from new partnerships. The evolving role of philanthropy demands that we learn new skills, build new alliances, and challenge our assumptions and mindsets. We need urgency and collaboration with the private sector and government if we are to move at the required speed and scale for sustainable growth on the continent.
What philanthropy can do to evolve so that it can play to its strength?
Philanthropy can do any or a combination of the 8 things below to transform itself so that it can play to its strength in a resource-constrained environment.
- Willingness to unlearn, learn, and relearn. The world of impact is rapidly changing and requiring new competencies to effectively deliver on our impact mandates. This necessitates that funders seek out programmes that advance our skills and competencies in the impact space. Such programmes are currently being run by the likes of AVPA and the Bertha Centre, including the Catalytic Capital training program for grant makers from AVPA.
2. Changing mindsets and challenging assumptions. There are a number of myths that funders should get rid of:
- If we think that we have enough aid, we need to face the facts – the reality is that aid to Africa is declining.
- We must let go of the notion that philanthropy can deliver on its own – the scale of the problems we face far outstrips philanthropic resources. We need to deliberately collaborate not only with other philanthropists but also with private capital players in order to crowd-in their money into the impact space. Philanthropy is one of many types of impact capital at our disposal and it can achieve much more when in collaboration with other players rather than working on its own.
- Thinking that the development space can only utilise grants is an unnecessary limitation – this is not true, and we need to be open to market based, profit generating solutions in the development sector.
- The idea that profits in development are bad is not helping us to evolve – profits in development solutions are not necessarily bad unless they are exploitative. If anything, they could drive more sustainable solutions.
- It is not true that our beneficiaries only want free things – our beneficiaries want sustainable and reliable solutions and not necessarily free solutions. Our beneficiaries have pride and want to be able to be independent in managing their lives and families, instead of being dependent on others for their livelihoods. (See the AVPA Matrix to drive sustainable impact in the text box below).
- It is not necessary to invent everything from scratch – it is important to engage others who are solving similar problems in similar environments on the continent and in other emerging markets. We should replicate where we can. This can fast-track learning and execution and help us to minimise mistakes.
3. Building relationships with government and private capital. It is important for funders to bring governments along especially as we unlearn, learn and relearn. If they understand the work and the innovations that we are testing, then they are more likely to provide the right enabling environment for us to thrive and grow.
4. Failing fast, failing cheap, and failing quick. In the impact space there are not enough experiments or testing out several possible solutions in small pilots to determine which solutions have the highest probability of success, before putting large amounts of money behind these initiatives. Experimentation can reduce the chances of failure in the long run and can ensure better returns on the scarce investments/resources that are available. Philanthropy should also follow more proven private sector innovation processes, like design sprints and Human centered design, in our development work.
5. Falling in love with the problem, not your solution. Focusing on our solutions rather than the problem can lead to hanging on to solutions that are not cost-effective, outdated, irrelevant, out of touch with the needs of beneficiaries. Falling in love with the problem creates a better platform for collaboration, reduces competition and provides space for significant cost savings through sharing programme costs and support services.
6. Embracing technology. Philanthropy’s low-tech inclination could rob the sector of opportunities to leverage technology for scale or improved efficiency especially in impact measurement and management.
7. Tracking economic cycles. Because most fundraising in Africa is from business/corporate income, and not from long-term wealth, it is important to keep an eye on economic cycles. When economic growth is slow, profits are low and so are Corporate Social Responsibility (CSR) budgets. That calls for more collaboration, focused funding, and catalytic/risk funding.
8. Working yourself out of job. Funders need to consider whether they must be in a programme for life or if they can be a catalyst. The best option could be to leave your beneficiaries independent enough to solve their problems; or to leave when a proven solution is ready to be maintained or scaled up by a bigger funder, private investor, or government. This approach enables funders to optimise their innovation capability, exit and move to the next problem.
