The Royal Tropical Institute has explored the possibilities and challenges of investing with a pro-poor development outlook

Social investment

Most economies in Africa are growing. There is enormous potential still, rates of return are usually around 10-15% and, when an African country passes the early stages of growth, the rate of return can grow even more rapidly. However, most (Dutch) investment funds and multinationals are still investing in the US, Asia and Europe, while Africa needs these investments to grow.

It is often taken for granted that foreign investment will lead to economic growth in recipient countries, and that economic growth will help reduce poverty. Is this actually happening? In some cases economic growth only widens the gap between the rich and the poor.

There are broadly-speaking two types of investors, multinationals, and (social) investment funds. Some investors have a Corporate Social Responsibility programme to contribute something to local society and to upgrade their image. Apart from that, local taxes (admittedly often set at low levels) also provide a source of revenue for local society. Social investments, however, have an additional ethical objective, next to financial returns. They aim explicitly to positively impact social welfare and income distribution, and to incorporate societal concerns in corporate or investment decisions. They do this by taking fair remuneration and prices into account, by creating jobs, and often by aiming for environmental concerns as well.

What are the major challenges for (social) investors, how can these investors contribute to pro-poor development? How can public and private donors intervene effectively to assist in these processes in development cooperation?

This Social Investment Dossier explores the possibilities and challenges of investing with a pro-poor development outlook. It focuses specifically on investments in Africa, since Africa is a continent with both high business potential and a dire need for positive social impact. It is based on experiences brought in by representatives of the Dutch financial sector during a Round Table meeting held September 7th, 2010, at the Royal Tropical Institute. During this Round Table, representatives of both types of investors shared their experiences on investing in Africa.

The dossier also provides background information for the "Debate on investing in Africa" on 10 November 2010. It is a spin-off from the Round Table meeting, and aims to position the results of this meeting within the wider discussion on development policy in the Netherlands.

Sections in this dossier:

• In-depth: background information on the issue;
• KIT's involvement: further information on the programme by the Royal Tropical Institute;
• Resources: a selection of relevant resources