When the Covid-19 pandemic struck in early 2020, Africa found itself waiting at the back of the queue for vaccines and financial support.
Whereas wealthier nations secured vaccine doses in advance, most African countries had to wait for months because they lacked domestic manufacturing capacity and emergency financing buffers.
When help finally arrived, it was through global donation mechanisms such as COVAX (Covid-19 Vaccines Global Access).
It was yet another painful reminder of how dependence on external aid often leaves the continent vulnerable. More importantly, it underscored the need to urgently mobilise domestic capital and provide local solutions to our challenges. In other words, how can we unlock the vast pools of capital already within our borders instead of relying on aid?
The recent aid cuts are yet another reminder that we should strive to build independence and resilience, thereby reducing our dependence on donations.
Over the years, I’ve seen African innovators with brilliant ideas struggle to find funding, not because their ideas are not viable, but because financiers are too cautious to provide the initial capital required to test new ideas or markets due to perceived risks.
This has led to a development paradox of sorts. Sample this: The continent faces a $200 billion (Sh25.9 trillion) annual gap in financing the Sustainable Development Goals.
Yet Africa has more than $2 trillion (Sh259 trillion) lying dormant in pension funds, insurance companies, and sovereign wealth funds.
This capital could fund the hospitals, schools, clean energy, and job-creating enterprises the continent urgently needs.
This clearly shows that Africa does not lack capital; all it requires is risk-tolerant capital. Most private investors, such as pension funds and insurance companies, still perceive investing in social ventures as too risky. This is precisely where catalytic capital comes in.
Catalytic capital refers to risk-tolerant funding that absorbs early risk so that later investors can come in safely to scale.
It funds innovation, supports testing of new products, services, markets, and derisks social investments to make them attractive to private capital. It is the kind of capital that helps test concepts until they become attractive to private capital for scaling.
In simple terms, it is the “patient money” that helps build bridges between philanthropy and profit. It can come from philanthropies, development finance institutions, governments, or even visionary corporates who are willing to test new models before the market catches up.
Without catalytic capital, countless game-changing African enterprises will remain trapped in what some call the “missing middle” – too big for grants, too small or risky for commercial loans. These are the enterprises that could transform healthcare, agriculture, education, and clean energy if only they could access the right kind of financing.
And time is not on our side. Africa’s population is expected to double by 2050. The continent needs to create about 15 million jobs annually by 2030 to absorb new entrants into the labour market.
Yet our small and medium enterprises, the engine of employment, remain underfunded. At the same time, climate change, food insecurity, and gender inequality are deepening.
If we fail to mobilise the catalytic capital required to crowd in private capital now, the continent risks deepening poverty, worsening unemployment, and remaining highly vulnerable to future crises.
One of the biggest misconceptions about social investments on the continent is that Africa lacks investable opportunities. That is not true. Across the continent, entrepreneurs are innovating daily – from solar irrigation systems in Kenya to telemedicine platforms in Nigeria, and affordable private schools in Ghana. What they lack is early-stage capital that can absorb risk and prove commercial viability.
Another misconception is that you can’t make money while doing good.
The truth is that social investments can be profitable for social investors. Standard Chartered’s Opportunities 2030 report shows that sectors such as healthcare, education, and agriculture offer both strong financial returns and deep social impact. Profits in development are not bad when they are fair. They make social solutions sustainable and reduce their dependence on grants.
It is encouraging that we are already seeing examples of catalytic capital in action across Africa. In several countries, guarantee mechanisms have been used to unlock debt financing for small and medium-sized enterprises once considered too risky by banks.
In South Africa, similar guarantees have enabled medical students from underrepresented backgrounds to access education loans.
In Kenya, social impact bonds have supported reproductive health services for thousands of young women. In all these cases, philanthropic capital was used to derisk the programme to pave the way for scaling by other funders.
To make catalytic capital work, governments, philanthropies, and private investors must work together. Governments can formulate enabling policies and deploy limited public funds in catalytic ways through results-based financing or co-investment funds.
Philanthropies can provide risk capital and technical assistance. Private investors can then come in to scale proven models. Together, these actors can reduce risks and unlock larger flows of private capital.
The writer is the CEO of the African Venture Philanthropy Alliance (AVPA)
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