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Impact Investors

Mainstreaming impact investing in Egypt: insights from leading renewable energy company ‘s CEO

The growing demand for a more socially/environmentally-responsible and purpose-driven finance has been best illustrated by the emergence of a new approach to putting capital to work called “impact investing.? Having started out as a niche activity, largely practiced by wealthy and philanthropically-inclined individuals, impact investment is now championed by a growing number of leading institutions in the capital markets. Yet such a shift is by no means inevitable. Many questions remain open and one of the most challenging is this: what does it take to overcome the existing obstacles to the mainstreaming of impact investing?

We had the pleasure to discuss some of the issues related to impact investing in Egypt with the founder and CEO of SolarizEgypt, Mr. Yaseen Abdel Ghaffar.

Qs:

1)      What was behind your decision to start the SolarizEgypt?

The decision to quit a high paying corporate job at ExxonMobil should have been a difficult one; it wasn’t. When you take a look at Egypt’s energy mix; the size of the market and the lack of players it’s easy to see the potential. The potential to scale very rapidly and grow sustainably, the potential to transform Egypt’s energy mix and the potential to create job, lower the country’s CO2 emissions and transform its economy. Egypt can then start putting its fossil fuels in the petrochemical and fertilizer sector where the real value addition of Oil and Gas can be seen.

2)      Solarizegypt has recently changed its business model. When and why did you realize that a new business model for Solarizegypt is needed?

If you take a look at the levelized cost of energy (LCOE) from Solar PV compared to conventional electricity it’s around 50% of the cost. An obvious question then comes to mind; why isn’t everyone installing Solar? It’s a simple answer; it’s too capital-intensive, neither home owners nor commercial entities want to pay for 25 years of electricity in advance. That’s why we changed our model, from an integrator/ installer to a Solar Financing company that offers Solar power to its clients at a rate less than the current (and subsidized) government tariffs; shifting to the investment cost and project risk away from the consumer. Our company is called SolarizEgypt, that’s precisely what our objective is to make Egypt go Solar, in order to do that we have to create a value proposition that’s so obvious it would take an idiot to say no; I think we’ve finally cracked that challenge with our new business model innovation.

3)      What do you think about the Impact Investment potential when it comes to renewable energy in Egypt

From an economic stand point there are few investments that would yield a 25%+ IRR; the returns are incredible, especially with low interest debt (almost 10% below commercial lending rates) being available specifically for Solar & SME activities. The PV industry is known to have a strong job creation potential; additionally almost 50% of Egypt’s CO2 are coming from burning fossil fuels to produce electricity. It’s really great to be in an industry where you can have a tremendous social and environmental impact and still be able to yield such high returns.

4)      To your opinion, which are the main barriers to Impact Investing in Egypt today?

I think the main problem is that few SME’s have managed to create a bankable model thereby creating a pipeline for investors to look at. Access to finance used to be quite difficult but this is changing quickly with Egyptian banks and financial institutions starting to adopt project financing schemes and investors looking for long term reoccurring revenue and fixed income vehicles as opposed to short term gains. There is also a disconnect between what social entrepreneurs or ecopreneurs aim for from one side and the basic requirements of investors.

5)      In your professional life you deal a lot with investors. Would you agree that raising awareness and building investors’ capacity on topics related to social/eco innovation and green entrepreneurship is required today? Would it improve financiers’ power to successfully support new ideas and innovative businesses?

Definitely, there is room for capacity building in this regard. Many investors don’t understand the technology risks or the social and environmental impacts of their investors. Local banks do not have renewable energy experts and this makes it much harder to develop projects and have a larger risk appetite. Knowledge is power; if the right awareness is present it will create an environment where additional business models are utilized to disseminate the technology and support new ideas and initiatives, at the end everyone benefits.

 

Artur Nadcrinicinii is an associated Expert in social business development at the Regional Activity Centre for Sustainable Consumption and Production. He has an extensive experience supporting NGOs and private companies in developing and starting-up their social business. For more information Linkedin .