•      Thu Jul 25 2024

Investing in African Women Will Yield Outsize Returns

LUSAKA – The theme of this year’s International Women’s Day was “Invest in women – accelerate progress.” It was simultaneously an observation, a promise, and a call to action. In fact, investment in women is essential to build the positive “impact economies” that are envisioned in the United Nations 2030 Agenda for Sustainable Development, which comprises the Sustainable Development Goals (SDGs). Such economies boast robust and equitable growth, reflect and support social progress, and meet environmental-sustainability imperatives.

In my career in development finance, I have seen firsthand the difference that investing in women can make, not only for them, but also for their businesses, families, communities, and countries. The data confirm my observations. Numerous studies have shown that investments in companies with diverse leadership yield larger-than-average returns.

In Africa, women typically reinvest up to 90% of their income in the education, health, and nutrition of their family and community, compared to 40% for men, according to findings from the African Development Bank (AfDB). Further highlighting African women’s economic power, Ipsos reports that 89% of women are the primary decision-makers or co-decision-makers for household purchases.

When women succeed, their communities thrive. And each International Women’s Day, international organizations and private actors eagerly offer statements of support for investing in them. But, in practice, not nearly enough funds are flowing toward women-led businesses. Globally, women entrepreneurs face a $1.7 trillion financing gap. In Africa, that gap stands at $42 billion, according to the AfDB.

The entrepreneurial drive of women in Africa is notable. It is the only region of the world where women are more likely than men to be self-employed. Women in Africa are up to five times more likely to start a business than their counterparts in Europe, with the female entrepreneurship rate reaching 26% in Sub-Saharan Africa. And they are doing so in a highly dynamic economic context: African GDP growth is on track to outpace the global average this year, thanks partly to a potent demographic advantage.

What is not on track is the 2030 Agenda. A mere six years before the deadline for achieving the agenda’s 17 SDGs, progress is lagging in many areas. In last year’s Impact Taskforce report, we showed the difference that mobilizing outcome-oriented capital for emerging markets and developing economies can make in advancing the SDGs and fostering the economies of the future. But if new funding follows old patterns and investment in women falls short, the full economic and social potential of these countries will remain untapped.

So, why aren’t funders investing adequately in women? The biggest barrier remains risk perceptions. As one male investor put it in a 2015 interview with the Harvard Business Review, “Ultimately, venture capital at the early stages is a people thing,” and “[p]eople are just more comfortable betting on somebody that is more like them, looks like them, talks like them.” It is a “comfort thing.”

With women holding just one-third of the seats on the boards of major banks, development finance institutions (DFIs), and investment consultancies, it is not enough to hope that women entrepreneurs will “look like” the investors from whom they are seeking capital. The gender imbalance at the top translates into inherent biases against women entrepreneurs.

The result is that both public and private financial institutions are locking women-owned businesses out of their funding streams – risking lower returns, slower economic growth, and fewer net social benefits – even as they trumpet their commitment to impact investing. We must urgently work together to change the narrative, showing that the real “risk” for funders lies in not taking advantage of African women’s potential to propel growth.

Despite the many social and financial challenges they face, African women are leading the world in creating economic opportunities and social impact for themselves, their families, and their communities. DFIs and private financial institutions alike must start matching these women’s ambition, ingenuity, and commitment. By reframing their thinking and delivering far more financing to women entrepreneurs in Africa, they can unlock faster economic growth, accelerate progress on the SDGs, advance the creation of impact economies, and inspire women entrepreneurs around the world. #Nepal

Dolika Banda is Global Ambassador at GSG Impact and Chair of the Board at Standard Chartered Bank Zambia.

Copyright: Project Syndicate, 2024.

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