Month: May 2020

In a recent interview with Michael Holder for Environmental Finance, Vital Capital Managing Partner, Mr. Nimrod Gerber discussed the economic crisis facing Africa as a result of the coronavirus pandemic and how small- and medium-sized businesses stand to be most affected. Mr. Gerber described how Vital Capital has adapted its core strategy to extend support to these companies with the launch of the Vital Impact Relief Facility, explaining that: “This is what impact investment is all about: we see the need from being on the ground, not from our theoretical model. The need right now is to preserve impact and to save existing value – not necessarily to build new impact, as with our greenfield projects.”

He also issued a rallying call for investors to preserve impact and value by backing these otherwise viable companies that have recently joined the “missing middle” of financially underserved businesses: “Fantastic companies, which are creating an important impact for their communities and have good financial performance, are now fighting for survival. And unless someone acts fast there’s going to be a massive destruction of value.”

In discussing how Vital Capital is supporting its existing portfolio, Mr. Gerber explained that in addition to putting in place World Health Organisation guidance on workplace practices as part of its standard ESG practices, in many cases the investment team are “rolling up our sleeves,” helping out overloaded CEOs as if they are working for the companies themselves: “they are calling banks, talking to creditors, arranging international alternatives to existing supply chains.” With Vital Capital’s deep and long-established presence in the region, Mr. Gerber also revealed how Vital’s team can bring some “extra perspective” to management teams that may not have encountered too many crises before.

The full article can be found online here (subscription required)

Our team recently participated in webinars hosted by GIIN and Big Path Capital focused on the economic consequences of COVID-19 in Africa and on the role the impact investment must play. These discussions have been illuminating and served to further shape our thinking and approach to supporting impactful businesses providing services to communities throughout our target geographies in sub-Saharan Africa.

We wanted to share some of the key takeaways:

The pandemic is already affecting businesses, demanding urgent, direct action

While the full extent of the public health emergency caused by COVID-19 in Africa has yet to unfold, the economic impact is already undeniable. Supply chains are being disrupted, foreign investment is drying up and governments don’t have the financial clout to offset the effect of the “stay at home” mobility restrictions they’re imposing. This threatens the livelihoods of employees and the communities these businesses serve. As our managing partner, Nimrod Gerber commented during the Big Path Capital panel: “One thing for certain is that the economic crisis is already a reality… it’s already happening. We cannot sit on the fence; impact investors need to step up now to secure businesses delivering essentials for local populations.

The ‘missing middle’ is most at risk

Against this backdrop, it’s the small and medium-sized businesses that are most vulnerable. While the very small ‘mums and pops’ businesses may be able to manage, and large strategically important companies will be at the top of the list to receive what government aid is available, it’s mid-sized companies – the financially underserved missing middle – that are most at risk. The harsh reality is that as financing channels have dried up, many previously viable and successful firms now find themselves in this bracket – and this missing middle has grown dramatically in just a matter of weeks.

Impact investors have a key role to play

It’s these businesses that need to be supported: to survive the crisis; to maintain the positive economic and social impact they have on their communities; and to position them to thrive in the future. The good news for investors is that it presents a significant opportunity to create both impact and financial value – there are plenty of great companies with fantastic profitability that, without the stresses presented by the crisis resulting from the COVID-19 pandemic, wouldn’t be in difficulty.

This is a test for impact investing

There is an opportunity for impact investment to demonstrate it truly works. Investors are in a position to create real impact and to be financially rewarded but it requires a flexible approach and urgent and immediate action.

The risk is that if these companies are left to fail, it would represent a terrible destruction of both value and impact. The damage caused and cost of failing to act would be great – not just for the businesses and communities affected, but also for the credibility of impact investing more broadly.

In an interview with Ian King of Sky News, Vital Capital founder Mr. Eytan Stibbe discussed the impact that the spread of COVID-19 is having on Africa and highlighted the financial needs of SME’s providing essential services in the region. “The first [to be affected] and most vulnerable are the small and medium-sized businesses,” Mr. Stibbe told Sky News. “Their financing channels have dried up and there will be plenty of opportunities to invest.”