Investing in Women for Sustainable Growth in Africa
Gender equality is a cornerstone of socio-economic development and women's rights, essential for advancing the UN's Sustainable Development Goals. Sub-Saharan Africa’s gender parity score sits at 68.2%, ranking above Southern Asia and the Middle East and North Africa regions. African countries have achieved notable strides in addressing critical issues vital for the empowerment of women and girls, including legal reforms pertaining to the age of marriage and gender-based violence. Despite being the world's youngest continent, with 60% of its population under the age of 25 and grappling with some of the highest rates of youth unemployment, Africa maintains a higher female labour force participation rate than the global average of 50%.
This Insights explores the current landscape of gender equality in Africa, and what initiatives are in place to close the gender gap, highlighting the significant link between investing in women and fostering sustainable development.
The key opportunities and challenges to investing in women
A Multi-Trillion Dollar Opportunity: A McKinsey study indicates that closing the gender labour gap could add up to $28 trillion to annual global GDP by 2025, a 26% increase akin to China and the US economies combined. Structural barriers such as unequal land rights persist, hindering women's economic participation by impeding asset accumulation necessary for loans.
Credit Gap: Women entrepreneurs across the continent face a staggering $42 billion shortfall in financing, particularly in agriculture, where there's a deficit of $15.6 billion. Despite challenges like the gender pay gap and limited access to finance, women entrepreneurs dominate Africa's SME sector: In Sub-Saharan Africa, the entrepreneurial landscape is a hive of activity with 44 million micro-, small-, and medium enterprises, of which more than a quarter are female-led. This stands in stark contrast to Europe, for example, where female entrepreneurial activity hovers at 5.7%.
The World’s Largest Emerging Market: Bridging the gender divide and fulfilling unmet demands in sectors such as water, telecommunications, energy, healthcare, and childcare could boost African economies by the equivalent of 10% of their collective GDP by 2025. Globally, women control over $20 trillion in annual consumer spending. In Africa, women are the primary decision-makers for 89% of household purchases. Given these statistics, it would be imprudent to underestimate the influence of the female consumer, particularly in the African context.
Gender Balance & Fund Performance in Emerging Markets: Empowering and investing in women is smart economics. An IFC study on gender parity in emerging market private equity (PE) and venture capital (VC) funds reveals a compelling correlation between gender balance and fund performance: companies with diverse management teams are more profitable and create greater value. With a strong track record of successfully investing in impact in Africa, Development Partners International (DPI) is a gender-balanced PE firm demonstrating performance. Currently managing approximately $1.1 billion in assets, 45% of the firm is female, and DPI has embedded gender-lens investing into its mandate, committing to achieve 2X eligibility for at least 30% of portfolio companies, positioning itself as a shining example of how performance benefits can be obtained through gender-balanced investment teams within the African context.
It's clear that the female economy, encompassing women in business, the value chain, and the community, holds immense potential and will serve as a pivotal catalyst for future growth across Africa. So, what does investing in women look like?
Gender-Lens Investing: There has been a steadily growing trend globally towards gender-focused investing to generate impact, driven by the recognition of the economic benefits of gender equality and empowerment. Gender-lens investing (GLI) is an investment approach whereby private sector investment is aimed at improving access to entrepreneurship, leadership opportunities, employment, finance, and products and services that enhance women’s economic participation in developing country markets. The 2X Challenge, spearheaded by Development Finance Institutions (DFIs) and International Financial Institutions (IFIs), has set a solid foundation for gender-lens investing in Africa, encouraging private investors to adopt it as a strategic approach: unlocking gender-smart capital at scale to generate sustainable impact. From 2021 to 2022 the initiative exceeded its target, driving gender-lens investments totalling $16.3 billion and benefiting 473 businesses across Africa, Asia, Central and Eastern Europe, Latin America, and the Caribbean. German DFI, DEG, has positioned itself as an active pioneer in the space, connecting clients to networks and resources of the female economy as a partner of The Boardroom Africa in addition to being a founding member of the 2X Challenge. Against this backdrop, Africa has witnessed the emergence of several funds in recent years, such as Alitheia Capital and Aruwa Capital Management, with strong intentionality on gender. Indeed, private equity represents the highest asset class globally for the number of GLI-focused impact funds open for investment. These collaborative efforts highlight the importance of women's economic empowerment in impact investing and affirm our collective responsibility to advance towards a more gender-equal society.