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Investing In Africa’s Future: Youths As An Asset

February 25, 2014

 

With 200 million people aged between 15 and 24, Africa maintains the youngest population in the world. The current trend indicates that this population will double by 2050, according to an African Economic Outlook report, which aggregates data from several multilateral organizations including the African Development Bank (AfDB) and the United Nations Economic Commission for Africa (UNECA).

Sub-Saharan Africa’s workforce is also becoming larger and better educated, indicating that there is an overwhelming potential for economic growth and development. But even with this progress, youth unemployment and underemployment still remains a major constraint.

Africa’s youths are full of innovative ideas that seek to address a variety of societal challenges. With upwards of 10 million young people entering into the job markets each year on the continent, vastly outnumbering the jobs available in both public and private sectors, many of these youth have turned to entrepreneurship. Yet the fact remains that without an established credit history, significant assets, or business experience required by traditional investment models, young entrepreneurs are constrained by access to affordable capital to start or expand a business.

As investors across Africa seek to diversify their portfolios, they may increasingly look to young people for high growth opportunities. This is not to say that young people are assets that can be hedged and traded, but to argue that the education of, and enterprise of young people need to be considered to be both viable and valuable investments, perhaps even a new asset class?

While many investments can be captured within traditional investment classes (such as debt, equity, venture capital), I’d argue that young people in Africa and other emerging markets present a tremendous market opportunity. As new assets classes have come into play over the last decades, leaders in the global financial sector have argued that an asset class is no longer defined simply by the nature of its underlying assets, (this includes impact investments, social bonds, etc.) but rather by how mainstream investment institutions organize themselves around it. If how investment institutions organize themselves around it makes the difference, then as more investors see the value of investing in the future of Africa, it may become an asset class in itself, right?

An often quoted Global Impact Investment Network (GIIN) piece proposes that the identifying characteristics of an asset class in today’s markets requires a unique set of investment/risk management skills, demands organizational structures to accommodate this skillset, is serviced by industry organizations, associations and education, and encourages the development and adoption of standardized metrics, benchmarks, and/or ratings. With a bit more development, youth investments have the potential to meet or exceed these criteria.

Unique set of investment/risk management skills

Investing in young people requires a unique set of skills, and an appetite for a different kind of portfolio. Some youth may require long term patient capital with a long tenor, as well as mentoring and training to manage risk. Others may require seed funding, or funding to develop a new technology, which requires shorter term financing. With web-based enterprise on the rise, investment in youth has become as easy as a funds transfer or mobile payment, and runs the same risk as any impact or venture capital investment. The risk of investing in young people whether real or perceived is far outweighed by the rewards of having a financially literate population who is creating and sustaining wealth in their community and beyond. This age group, which is currently defined as 15-24 years of age worldwide, and more broadly in Africa to include up to age 40, has potential for great returns down the line.

Organizational structures to accommodate skillset

Even in the developed world, young people often do not benefit from the opportunities that investments in youth can provide. The Financial Times recently release a special report entitled Investing in Young People and uses layman’s terms to suggest that fewer graduates will end up underemployed if business does more to help guide students towards available jobs. The institutions have to be available to support investments in youth and to see returns. Job skills training (both soft and hard skills), mentorship, apprenticeship, and professional development opportunities need to be made available to investees. Though this particular report focused on several countries, not including any in Sub-Saharan Africa, its key theme is applicable across the board: though governments have a role, private businesses and financiers should be working closely with educational institutions to make clear what skills are needed in the workforce, and create a pipeline. Investment in youth is not enough, if there aren’t organizational structures to position them to succeed.

Service by industry organizations, associations and education

With the trend of increasingly educated youth in sub-Saharan Africa, including graduates of tertiary institutions, the investment opportunity is ripe. As the number of young people that are under or unemployed continue to grow, many youth are already seeking support from industry organizations, associations, etc. There are a number of reputable organizations (numerous to list) out there that seek to elevate young people and give them access to improved economic standing. Many financial institutions including commercial banks (Equity Bank, Ecobank, etc) and funds have recognized the need to invest in young people, but too often do so with a lens of philanthropy versus commercial activity. Similar to impact investment, there is potential for a double or triple bottom line, when you see such an investment through. As more organizations align around a common goal to support and facilitate investment in the development of young leaders, there may be a need for a more specialized type of investment category.

Encourages development and adoption of standardized metrics, benchmarks, and/or ratings

Many analysts have focused on youth and how to measure the growing number of this population, using model after model to understand what impact long term unemployment or underemployment can have. Youth as an asset class, should be considered by a different metric! While global indexes track a variety of sectors and populations, few systems actually exist to track or compare across countries the particular challenges facing young people. To address this gap, the Center for Strategic International Studies (CSIS) and the International Youth Foundation (IYF) recently collaborated to launch a Global Youth Wellbeing Index. This index will measure youth development in areas such as health, education, economic opportunity, political engagement and security, covering 30 countries in its first year. This effort is focused on standardizing metrics to track the status of youth while identifying the investments that could be made to improve their wellbeing. They assert, and it is widely agreed that, that these investments should focus on preparing young people to become entrepreneurs, particularly as innovations through social media, crowd funding, and peer-to-peer lending, remove some barriers to market entry. This index is arguably a good concept, and would benefit from having quantitative documentation of financial support to youth in various sectors, disaggregated by age group, gender, economic standing, etc. It is likely that this type of effort will inspire the development of other similar metrics.

Though I expect that youths will continue to seek ways to improve their own livelihoods, the discussion is open and many of these young and talented men and women look forward to seeing how the private sector on the continent will align to support investments in their future. As aptly said by former UN Secretary General Kofi Annan, “…a society that cuts itself from its youth severs its lifeline, but a society that engages their interest, enlists their talents and liberates their energies brings hopes to the entire world.”

*Source Ventures Africa Morgan McClain-McKinney is Program Advisor at the U.S. Agency for International Development (USAID), based in Nairobi, Kenya

 

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