Smart Money: Connecting Sustainable Investments and Entrepreneurship in Sub-Saharan Africa

"African entrepreneurs are the key to solving Africa’s development problems." — Iqbal Z. Quadir, founder and executive director, Legatum Center for Development and Entrepreneurship{1}

With Nigeria's top banks recently signing a landmark commitment to sustainable financing with the Nigerian Lending Principles{2}, three of the incoming fellows to the International Women’s Forum (IWF) Fellows Program coming from Africa{3}, the rapid development of mobile apps to empower African farmers{4} and South Africa's boosting of sustainable investing through CRISA and Regulation 28{5}, sub-Saharan Africa is poised to become a leading laboratory for sustainability in the developing world.

HIGH SUSTAINABLE INVESTMENT PERCENTAGE, BUT LOW FDI

And now, finance ministers, fund managers and investors geared toward SRI (socially responsible investing) and the tenets of ESG (environmental, social and corporate governance) have new tools to help navigate through the challenges and opportunities of this dynamic emerging market, thanks to a report and online toolkit produced by the International Finance Corporation (IFC), a member of the World Bank Group that promotes sustainable economic growth in the developing world by supporting private sector development and risk management services to both companies and governments.

The report, “Sustainable Investment in Sub-Saharan Africa,” presents investment practitioner views of sustainable investment in private equity and asset management in the region’s three biggest markets — Kenya, Nigeria and South Africa. The report estimates that assets under management (AUM) in which an ESG factors have been used in policy or process stages in these nations is over USD 125 million, representing a full fifth of total AUM. South Africa accounts for 95 percent of the total, fueled by the Government Employees Pension Fund (GEPF).

Notably, only the European Union has a larger sustainable investment percentage of total AUM, with 47 percent. The United States and Canada, by comparison, lag in that departments, with 12 percent and 19 percent, respectively, invested under ESG guidelines.{6}

But attracting foreign investors remains a hurdle. According to the CIA Factbook, Kenya ranks 82nd out of the 84 countries ranked in the foreign direct investment (FDI), with an estimated USD 2.3 billion inflow in 2010. South Africa ranks 39th, with USD 83 billion, and Nigeria is 47th, with USD 67 billion.{7}

BUSINESS IN AFRICA: NOT EASY, BUT GETTING EASIER...AND GROWING

The IFC report does note, however, that "the governments of South Africa, Nigeria, and Kenya are keenly aware that sustaining democratic practice and the rule of law, enhancing security for life and property, and rebuilding and maintaining infrastructure, are necessary preconditions to attract foreign investment."{8}

Additionally, it's not necessarily all that easy to do business in these nations. According to the IFC and World Bank "Ease of Doing Business" ranking, South Africa rates fairly well at 34th out of 183 ranked nations, with Kenya at 98 and Nigeria at 137.{9}

Thankfully, the IFC has developed an online Environmental and Social Management Toolkit "to give fund managers a framework for how to deal with these risks and opportunities."{10} The IFC notes that "institutional investors are increasingly considering environmental and social factors when deciding what projects to fund in sub-Saharan Africa" and sustainable investing in the region "is expected to grow rapidly as pension funds, fund managers and others are increasingly motivated by the long-term benefits of their investments."{11}

In their Johannesburg Plan of Implementation, the United Nations Department of Economic and Social Affairs notes that insufficient investment has hindered Africa’s efforts to achieve sustainable development — along with such factors as conflict, supply side constraints, debt, limited market opportunities and HIV/AIDS.{12}

AFRICAN ENTREPRENEURSHIP IS KEY

Socially responsible investments in sub-Saharan Africa are a critical part of the overall solution, but as Iqbal Z. Quadir, the founder and executive director of the Legatum Center for Development and Entrepreneurship at the Massachusetts Institute of Technology, notes in an an essay published by the Templeton Foundation, money will only solve Africa’s development problems if it empowers its citizens. "African entrepreneurs are the key to solving Africa’s development problems," writes Quadir.

"It is they who can drive their continent’s economic growth and it is they who can make their governments better. If money is invested engaging the organic and transformative potential of local entrepreneurs, Africa will flourish. If money is poured into government bureaucracies — which hold back these entrepreneurs — Africa will continue to languish."{13}

To be sure, the African Union has championed the phrase "African Solutions for African Problems" not to create isolation from the global community, but to call upon African leadership in nurturing and maintaining strong international partnerships in any plan to solve the continent"s development issues. One of those partnerships must be between socially responsible foreign investors and Africa’s own entrepreneurs.

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NOTES

1. http://www.templeton.org/africa/essay_Quadir.html

2. http://www.justmeans.com/Truth-Comes-Market-Sustainable-Finance-on-Rise-in-Nigeria/49830.html

3. http://www.justmeans.com/Emerging-Markets-Emergent-Women-Breaking-Glass-Ceiling-in-Developing-World/49799.html

4. http://www.justmeans.com/Linking-Africa-s-Farmers-Food-Crisis-A-Challenge-World-s-Mobile-App-Developers/49794.html

5. http://www.justmeans.com/CRISA-Regulation-28-South-Africa-Boosts-Sustainable-Investing/49464.html

6. http://www.ifc.org/ifcext/sustainability.nsf/AttachmentsByTitle/p_SI-SubSaharanAfrica/$FILE/IFC_Sustainable_Investment_in_Sub-Saharan_Africa.pdf

7. http://en.wikipedia.org/wiki/List_of_countries_by_received_FDI

8. Ibid., 6.

9. http://www.doingbusiness.org/rankings

10. http://www1.ifc.org/wps/wcm/connect/region__ext_content/regions/sub-saharan+africa/news/sustainable_investment

11. Ibid.

12. http://www.un.org/esa/sustdev/documents/WSSD_POI_PD/English/POIChapter8.htm

13. Ibid., 1.

image: Acacia tree at sunrise, Serengeti National Park (credit: Daniel Zaas, Wikimedia Commons)