A most promising sign of a bright future for the African economy is that the number of female-owned start-ups continues to rise, reaching a rate of 22% in 2022.
It would be difficult to overstate the importance of gender equality to the global economy. A study by management consulting firm McKinsey found that advancing women’s equality in the workplace would add up to $28tn to annual global GDP, equivalent to the economies of China and the USA combined.
Throughout most of history, humanity’s ability to progress has been severely stunted by the exclusion of women from most economic activity. While this exclusion still persists in some regions, the last 150 years have seen an unprecedented wave of gains in gender equality, particularly in the fields of political rights, education and labour.
Even so, the realm of business remains one of the last bastions of a male-dominated world, with women under-represented at every level, but particularly when it comes to ownership.
Africa makes no exception to this disheartening rule, with the traditional field of agriculture constituting what is perhaps the most striking example. While making up a majority of agricultural labourers, women rarely own land themselves, with only 15% of agricultural landowners in Africa being women. Even among smaller businesses, where women are more likely to act as owners, funding opportunities are limited.
Today, at least 40% of SMEs in sub-Saharan Africa are women-owned, but only one in five of those women have access to institutional finance, leading to a funding gap of $42bn.
As Thiaba Camara Sy, co-founder of the Women’s Investment Club (WIC) puts it, “In Senegal, women are born entrepreneurs, but only 3.5% have access to bank credit”. The organisation was founded in 2016 to combat the low level of funding access for women-owned enterprises.
One of the principal reasons for this disparity in funding has to do with the small number of diverse fund managers, with investment teams all-too-often living up to the reputation of being “boys’ clubs”. According to a report by the International Finance Corporation (IFC), only 2% of fund managers in Africa are women, compared with a still-meagre 9% in the United States.
The need for more female investors should be understood as more than simply a matter of equality. Numerous studies have found that affirmative finance action aimed at women is not only crucial in closing the gender wealth gap, but also serves to reinforce an undeniable truth: gender diversity is good for business.
Read more about Africa’s women entrepreneurs
- Women-led companies outperform African stock exchanges
- ‘The tiny, tiny, number of black women who have received venture funding is shameful!’
- Women in the boardroom: more than a number
Rewards of gender balance
An IFC study from 2019 reveals that companies that maintain a team of between 30% and 70% women enjoy higher returns, with 20% higher net IRR on average.
Gender balanced teams also see better increases in their valuation, growing on average 9% faster than male-dominated companies. Despite these clear advantages, 70% of all investment teams are all-male, highlighting the fact that antiquated practices can hold strong even when they are directly harming a company’s bottom line.
The same study also shows a very encouraging trend among women investors, who are twice as likely to invest in female entrepreneurs than their male counterparts. This means that any efforts to increase the number of women investors is likely to maintain momentum and continue producing positive effects for women in the future.
There is also ample evidence that investments in women are associated with important ripple effects as women in developing countries reinvest up to 90% of their income into their families and communities.
As Florence Gatome, investment committee member at EG Capital puts it, “women and youth are at the heart of the consumer economy in Africa”. Its maiden fund, the EG-Economic Empowerment Fund focuses on the food, climate, health and education sectors, where women and the youth are predominantly represented as consumers, employees and asset owners.
The fund is active in Rwanda, Zambia, Kenya, Tanzania and Uganda, which are ready for “lift-off” economically, with women and youth fuelling demand, and thus building the resilience of their local economies against external shocks (e.g. pandemic, war in Europe, systemic failure of banks, climate shocks, currency depreciation).
A world with more female fund managers would be a world with a more equitable distribution of resources, where the gender of an entrepreneur will not dictate how easy it will be to access funding. For Africa to succeed, we need to feminise investment funds.
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