#8 - Philanthropy vs Investment
Should I Invest for Market Returns in Africa?
Summary - 10 seconds
Core takeaway: All types of capital are needed in Africa — but each must be deployed with intention. Understanding the purpose of capital ensures it achieves its desired impact.
Detailed Overview - 5 minutes
I once heard an African entrepreneur say, “You have a heart for the poor? Good — everyone does. If you really want to help, you must have a mind for the poor.” If you’re reading this, your heart is likely already aligned with helping the poor. My hope is that this note helps you think more strategically about how to do so.
A common question people ask is: If I want to advance economic development in poor countries, should I donate, invest for concessionary returns, or invest for market-rate returns? Behind this are two deeper questions:
1) Is it ethical to invest for market returns in poor countries?
2) Is it possible to achieve market returns in Africa?
1. Ethics: Choosing the Right Capital for the Right Purpose
Instead of asking what type of capital is right, the better question is: Am I choosing the interest of others and acting on their behalf? In other words, am I loving these people well? All forms of capital — donor, concessionary, and market-rate — have a role to play. The key is aligning the type of capital with the intended outcome.
Donor Capital has three vital roles:
Triage: In crises such as war or natural disasters, aid is essential — but it must be temporary. It’s meant to stop the bleeding, not solve the problem. What we must understand is that when aid enters an area, it kills the businesses that were providing that service and keeps other businesses from starting because no business can compete with “free.” Short-term aid saves lives; long-term aid keeps people poor.
Nonprofit Support: Certain work — like churches, orphan care, or human trafficking safe houses — isn’t meant to be profitable. Donor funding here is essential.
Catalyzing Innovation: Donor Advised Funds (DAFs) can take on high-risk, high-potential ventures. Returns recycle back into the fund, and successful pilots can pave the way for commercial investors. This is repositioning philanthropy – not as the final tool, but as the initial spark, catalyzing enterprise by taking risk most investors aren’t willing to take and fueling the long-term engines of change.
Concessionary Capital (below-market returns) can be useful temporarily but often distorts markets and discourages large-scale investment. Many investors lower returns out of sympathy — but that can send the wrong signal. African entrepreneurs are highly capable and competitive. Treating them as anything less undermines both dignity and scalability. It can be useful as a launching pad, but a pathway to market returns is needed for scalability and sustainability.
Market-Rate Capital is the engine of sustainable growth. One of the best ways to help Africa is to prove that investors can earn strong returns there. The raw fact is that most money – trillions and trillions of dollars – simply goes where it’s treated best. For Africa to attract its share, we must demonstrate viability, not charity.
2. Viability: The Case for Market Returns in Africa
Africa is a frontier market — higher risk, yes, but also higher potential. Eleven of the world’s twenty fastest-growing economies are in Africa. It has the youngest, fastest-growing population and is the last major frontier for large-scale economic development.
Opportunities abound in technology, healthcare, energy, agriculture, and infrastructure. Because perceived risk often exceeds actual risk, valuations remain deeply attractive. I’m not saying all countries are investable, but markets like Rwanda, Kenya, Nigeria, Zambia, South Africa, Egypt, and Morocco, among others, offer compelling entry points. As we used to say on the bond desk: “There’s no bad bond, only a bad price.” Similarly, an African company valued at $5 million instead of $10 million in the U.S. can offer outsized opportunity — not charity, but value.
Final Thoughts
All forms of capital are needed, but purpose must drive deployment.
For emergencies, nonprofits, or high-risk innovation: donor capital may be best.
For sustainable business development: pursue market-rate investments.
Africa doesn’t need pity; it needs partnership — capital that respects both potential and performance.