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Commentary

How to De-risk Investment in Africa Through Big Data

Mansoor Hamayun, Co-Founder and CEO of Bboxx, explains how big data holds the key de-risk investments in Africa and channel capital towards the UN SDGs.

It has often been said that data is the new gold. 

And Africa is a continent which is opening up to the next rush – for data – one of the greatest untapped markets on the planet. And this time it is Africa-first, enabling this young continent to unlock its own potential. And the statistics are eye-opening. By 2050 a quarter of the world’s population will be African. Four in every ten Africans are children under 14 and, in most African countries, the average age is below 20. 

The structural handbrakes on development are also eye-opening. The whole western model for infrastructure investment simply does not work. This is because in developed economies, country risk is lower than the overall credit risk. However, in emerging countries it is the opposite. In other words, you can find a group of African customers that have a higher likelihood of paying than their governments. So, the sovereign model, where you invest in governments and government ratings, is fundamentally flawed. 

How can you mobilise billions of dollars of infrastructure investment when most countries in Africa are either bankrupt, junk rated, unrated or in economic crisis?  

This simply doesn’t work. We have to unlearn what we have learned. 

Golden opportunity

Data holds the key – not only to de-risk investments but also to seize a massive market opportunity, which will be a key factor in the continent’s future development.

This is a multi-layered but golden opportunity for investors into Africa. Both in terms of enabling better, more robust, and more reliable investment decisions and for really reaching the consumers on whom these economic opportunities depend.

The level of granular data was unimaginable even a decade ago, and it transforms the risk assessment for investing in Africa, as it is doing already for tech-enabled businesses on the ground. This data equips investors with insights into market dynamics, customer behaviour, and economic trends, enabling more accurate, context-specific predictions – rooted in the unique socio-economic dynamics of local communities – that lowers investment risks in Africa, boosting both returns and impact. 

Decentralisation is the core of the solution, from business model, tech and financing perspectives. 

So, what does decentralised financing mean? It means we must look at individuals and the only way to do this at scale is to be able to understand the credit scoring of consumers. It creates an enormous opportunity to finance the crucial infrastructure for Africa’s development and indeed climate transition, household by household. 

So, we have to change the models for credit scoring. In a developing country context, the main factors that affect the credit score are education levels, postcode, gender, and age. It turns out, from our experience at Bboxx, that the weather is one of the biggest – if not the biggest – factor when it comes to customer resilience, including financial.  

Access to real-time data on energy consumption patterns can also help investors identify the most promising clean energy projects. This includes off-grid solar projects in rural areas or energy efficiency or e-mobility initiatives in urban centres. Live data on repayment rates and credit scores enable investors to assess the viability of loan-repay services across the continent. The data can also track the environmental impact of investments, track progress against social metrics, and ensure robust governance structures are in place.  

ESG integration

In today’s investment landscape, a growing and inexorable emphasis is being placed on the integration of ESG factors into decision-making. This, with a returns-led focus on emerging markets, creates a unique opportunity for investors – a situation that can be improved by big data.

Technology companies operating in Africa are now able to create and utilise large volumes of data that did not previously exist, from minute-by-minute energy, appliance and mobile phone usage to the impact of weather events on customers’ ability to pay.

This wealth of data offers an unprecedented window into the lives of the continent’s consumers, indicating their preferences, behaviour, needs and, crucially, their ability to pay and repay. This highly accurate live data provides a nuanced understanding of what products and services are in demand, how they are being utilised, and an overall real-time picture of what’s happening on the ground.

Big data can help investors not only meet their ESG criteria but also generate meaningful impact – channelling capital towards the UN Sustainable Development Goals. Whether it’s investing in renewable energy projects that reduce carbon emissions, supporting small businesses that create local jobs, or financing infrastructure development that improves quality of life, big data can provide the insights needed to identify the most impactful and profitable opportunities.

The power of data extends beyond the financial returns of individual investments. It can help create a more transparent, accountable, and efficient market, promoting sustainable growth and resilience in the African economy. Data on market trends and consumer behaviour can support policymaking, while data on environmental impacts can inform conservation efforts.

The utilisation of vast amounts of data is transforming the face of investment, converting markets previously perceived as risky and ESG-focused investments into promising prospects for lucrative returns. This data-driven approach confers an unparalleled understanding of market dynamics, consumer behaviour, and socio-economic trends, enabling investors to make informed and strategic investment decisions. Decentralised climate finance is the key to building resilience and catalysing sustainable economic growth.

The investment community must make use of the rich, new, and accurate analysis available to them, provided by the power of data held by their investments. It is important to get a deeper understanding of the African market, make better-informed decisions, and significantly de-risk investments.

There is so much potential to be unlocked once we have unpicked the close intersection between decentralisation, climate and finance and, only then, will the glass ceiling be well and truly smashed. 

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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