Pioneering research on private investment in development

21 November 2012

The past decade has seen the rise of a new hero in the troubled world of development aid: the private investor. The theory is that involving the private sector in poverty-stricken regions will foster economic growth. If it works, it would be an efficient and effective solution to global problems.

The Dutch government embraces the idea, but is it supported by evidence?

Does private investment have an impact on poverty?

In September 2012, the Royal Tropical Institute (KIT) began a 5-year study on the impact of the African Agricultural Commodity Fund (AACF). The AACF is investing $25 million on behalf of four big investment funds: the Gatsby Foundation, Rockefeller Foundation, JP Morgan’s Social Investment and the Bill & Melinda Gates Foundation. The money will go to support business plans put forward by ambitious local companies, and is expected to have a positive impact on a quarter of a million African farmers.

Assessing impact over time

Of the twenty companies in which the AACF will invest, six will participate in the impact assessment. For each company, KIT will first map out the existing business, its customers and its environment before the AACF invests. After three years of monitoring developments at a distance, the researchers will return to look at what effect the investments have had.

Results will inform investors, policy-makers and the development sector

This study will provide unique information on the impact of responsible and sustainable private investments. For investors, it will help answer the question of whether it’s possible to be profitable while fighting poverty. For KIT, this is a new and promising avenue of research. KIT will be one of the first to come up with an evidence-based answer to the question: what are the socio-economic impacts of private investment?  It’s a chance to make an important contribution to existing knowledge on sustainable poverty reduction.