Dalberg Nigeria’s Eze: “Tax transparency of HNWIs raises questions over formality of philanthropy”

• Donor- Government- SME- Advisory partnerships are required to tackle some of the most pressing global challenges according to Eze.
• After the fact investments are a tool that can help ensure impact is achieved
• Tax transparency of HNWIs raises questions over the level of formality that philanthropic organisations and foundations should take.

With clients ranging from private companies, foundations, governments, donor organisations, bilateral and multilateral organisations, Dalberg Nigeria has structures that involve the funder of a project that is neither the main client or beneficiary.

This donor can be supporting a national or state-level government to develop a strategy in a given sector, and Dalberg can in turn work with a state or national government although the advisory fees are paid by the donor.

“Depending on the situation the approach will vary, but partnerships are quite important. If we are going to tackle some of the most pressing global challenges, we will be seeing more and more partnerships with a funder and a key client structure.” Eze said.

Dalberg’s Advisors business model in Nigeria supports a range of activities including working directly with Small to Medium Enterprise (SMEs) - normally investment-ready or post-investment companies, supporting fund managers on commercial due diligence, and conducting landscaping studies.

“We work with a range of actors, such as PE funds that are investing into these SMEs where we are helping to do conduct diligence, or to develop a pipeline. Or it might be for example finding and identifying the gaps in terms of agri-finance and helping a bank develop a lending product to lend to agricultural SMEs in a certain market.” Eze explained.

Measuring impact to ensure results for investors.

Measuring the actual impact that investments are making is fundamental to impact investing. While some investors are willing to accept below market rates of return knowing that their capital is providing for a greater good, they need to be assured that is the case.

When asked if investment targets are not met, and if programmes will be left unfunded, Eze said that it depends on the structure of the investment and that a number of investors, in particular donors rather than commercially minded investors, are starting to fund impact ‘after the fact’ rather than at the beginning.

This method of utilising financial tools such as development impact bonds, means that donors are in a position to make designated payments of money only if the targets have been met.

“These models are quite interesting even for private investors as it not only motivates the private investors to put the money in, as the booster bonus helps out on their return, but it also keeps them hopefully oriented towards impact over the course of the investment” Eze said, adding that, “There haven’t been too many of these bonds or payment for results in Nigeria, although in the coming years we should have a better sense of what has happened in this sort of pay for results model.”

Structural challenges facing Nigerian Philanthropy

With less than half a million businesses paying taxes in a population of 200 million people in Nigeria, there are likely individuals and businesses who have significant net worth and asset value that may want to remain under the radar of the taxman, according to Eze.
The challenge therefore is how to engage domestic capital to drive impact investing. "There is a concern about whitewashing effects of impact investing where funds that were gained from pollution, illicit activities, or other 'negative' sources can be invested to provide a positive benefit to the individual or organisation". Eze said.

Another challenge in Nigeria is from a registration perspective where it can prove difficult to set up either a foundation, or what a lot of impact investors are interested in, which is a company limited by guarantee. In Nigeria, Eze outlined, this structure allows the company to invest and re-invest the returns rather than being set up as a completely for-profit enterprise.

“A number of the foundations and funds that have a zero-return plan, are set up as companies limited by guarantee. The companies can return the principle to investors, but any of the returns need to re-invested in a philanthropic way or revolved in the fund for example,” Eze said, adding that, “One of the challenges is that you need the Attorney-General him or herself to sign approval documents, which has been difficult in recent times due to transitions in appointee or otherwise.”

Nneka Eze moved to Nigeria five years ago to open Dalberg’s first office in Lagos and is now Partner-Director of agriculture and food security.