There is diverse school of thought explaining why this phenomenon persists. But a tried and tested emerging solution, which is fast gaining ground to help address the stubborn income gap, is Impact Investing.
This is because of its vibrancy and robustness in promoting sustained economic growth and generating long-term, viable livelihoods across the country.
What is impact investing?
The very phrase sums up an emerging hybrid of philanthropy and private equity that proponents say is about to become more widespread.
The Global Impact Investing Network (GIIN) defines Impact investing as investments made into companies, organisations, and funds with the intention to generate measurable social and environmental impact alongside a financial return.
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The investments can be made in both emerging and developed markets, and target a range of returns from below market to market rate, depending upon the circumstances. The definition straightaway classifies the effects of impact investment into two; the social and economic effects.
• The social effects: These improve the livelihoods of society and also having positive impact on the environment.
• The economic return rewards the investor and underpins the sustainability of the investment.
It should be clear, hence, that an investment could improve the livelihood of a society and generate huge financial returns but cannot be considered as impact investing if the investment is not friendly to the environment.
What it is not
More often, impact investing is described by what it is not. It does not work in the same way as socially responsible investing, which excludes areas a person does not want to invest in — like tobacco or guns — through a simple screening process.
Impact investing focuses more on bringing about change — helping the working poor in Ghana buy a home, for instance. Investors expect at least a return of their capital with an adjustment for inflation and, in many cases, a lot more than that.
Areas to apply
Lessons of impact investing can be drawn from fields such as infrastructure, venture capital, private equity, microfinance, corporate social responsibility and responsible investment.
Ghana as a country has huge potential in impact investing in financial, housing, agriculture, education, energy sector and many more. It, however, demands innovative thinking and focused action to build practice and create viable investment vehicles that best suit the local context and opportunities.
The power supply is a major requirement for economic growth and development. There is a direct link between electricity use, economic growth and standard of living. At the same time power supply has serious financial and environmental implications to such an extent that uncontrolled energy consumption will have adverse consequences on the economy and the environment.
The best approach to power supply is, therefore, a combination of supply and demand option that ensures the least economic and environmental impacts according to the Energy Commission’s strategic national plan, developed in 2006.
Not taking the energy sector seriously can plunge the entire economy into darkness. For instance, the power crisis of 2006/2007 was estimated to have cost the country nearly one per cent loss to the gross domestic product growth rate.
Recently, Ghana once again was plunged into power shortages, which also could have been avoided, if lessons from the past had been learned and investment decisions boldly implemented.
The demand for power in Ghana is said to be growing at a rate of 10 per cent annually. The Energy Commission in its 2013 energy outlook projects that maximum peak (including suppressed demand) would be between 1,987 and 2,556 MW which translates into about 2,500 MW and 3,100 MW dependable capacity required.
The technically dependable and installed capacity available in 2013 is estimated at 2,267 MW and 2,480MW, as the ECG incurs about 27 per cent distribution losses, according to the World Bank.
Ghana has the potential to produce power to meet the projected shortfall and also for export to neighbouring countries.
The fact still remains that the government cannot single-handedly foot the cost of power production. There’s the need for more independent power producers to boost up national power production. This is where impact investing, as alternative power sector finance, comes in handy.
Besides the hydro and the now unpopular fuel thermal generation sources, impact investing can help trigger other renewable energy sources such as solar, wind biomass and small hydro to connect communities off the grid. The World Bank recognised this fact in its 2013 energy report on Ghana.
Source: Venture Capital Trust Fund/Graphic Business/Ghana