Proving improvement, evaluating value in Africa

As it matures, the 'responsible business' agenda requires (and exhibits) realism alongside idealism. Indeed, it is often by getting real that ideals are realised.

Disciples of the African investing story, positive version, in my experience use a discernible mix of head and heart: citing hard numbers (yield / return), but typically often overlaying it with something of an emotive appeal to be part of something bigger, the rise of a continent and its sustainable development. In extreme cases, this appeal smacks of a guilt-trip.

Yes, many objectively appealing investments in Africa are obscured by enduring unfair misconceptions. And talk of responsible investment in Africa goes over the heads of those whose approach (whatever nice noises they make about being part of Africa Rising) resembles that of the couple in Paul Simon's song: "Soon, our fortunes will be made, my darling / And we will leave this loathsome little town..."

But for the rest (beyond a limited set of mainly mandate-based institutional investors: pension funds, endowments, and the like), heart-based appeals to invest at all in Africa, and then to invest responsibly, will not get us far ... evidence of results will.

Is it too harsh to wish for a day when advocates of investing in Africa by reference to sustainability principles feel confident enough to pitch 'do so just because it works, not also or only because you (we) think it is right'?

The realism-idealism point is that the 'field' of responsible investment / business activity both needs and is increasingly marked by greater discipline and rigour: quantifying qualitative gains, proving improvement, measuring success, evaluating value.

This professionalisation of the wider environmental, social and governance (ESG) industry / discourse is both inevitable (if it is itself to be 'sustainable'), and a good thing. One does not have to be subverted to market considerations to accommodate them, and indeed to harness or leverage them in pursuit of sustainable development.

Hence the focus on aligning ESG considerations with 'core' business or investment ones (see here), on learning and speaking the language of positive value-creation (or at least no value impairment), the focus on positive value not just risk management or compliance or reputation-building or goodness, the focus on framing as need-to-do not nice-to-do, and so on.

However, there is still a need to go beyond saying these things work, to showing they do. Too much still involves treating it as obvious that ESG is value-adding, or pleas to disregard that 'it might not be but is still probably a good thing'.

The notion of 'responsible' investment is that it will do no harm, and of 'impact' investing is that it will go further and do some good. Explicit in at least the latter is proof of impact, but investment generally seeks proof of value, and the challenge is to get conceptions of 'value' to include ESG impact as a matter of course.

Socio-enviro responsibility will hopefully move beyond speaking about the falsity of people-planet-profit trade-offs. It must not just show the approach works and is right. It must aspire to show that ESG-based approaches work because they are right and just (not despite it, as an add-on).

Governments across Africa may regulate for greater ESG emphasis, but this is both unlikely and partly beside the point of responsible investment, which is about going beyond mere compliance, and increasingly (one hopes) about seeing ESG due diligence / impact as simply part of 'investment', without the 'r' word prefix.

Discussions had lately have involved whether there something particular about social and sustainability factors relating to Africa, and a particular way of doing business there in terms of ESG factors, development impact or context. Previous posts on 'Africapitalism' have asked this. There is the dynamism, optimism, leapfrog, frontier feel / phenomenon ... but there are also some pretty entrenched structural features of political economy, and Africa Rising is now over a decade old. (There is also the generic challenge of data reliability / availability in the region).

Arguably, if 'Africa Rising' debate is to mature further, it can certainly still seek to inspire new pro-social, sustainable ways of doing business and investment, but must strive to move beyond appeals. It must construct a case that shows how ESG-based approaches add or protect commercial value (at least in the long-term). This means not appealing by saying 'seek more than yield, make a difference' or on the faith that intuitively ESG-based approaches reduce political and other risk exposure. It means maturing beyond the insinuation that if you do not invest in Africa (at all / sustainably) you're neither with it nor a very nice person, and that if you divest you are hurting its children's future. (Much capital flows out each week to secure the future of someone, somewhere else).

In this sense, there is nothing new, nothing uniquely 'African' about all this. Along with an undeniable gloss of subjective, almost sentimental factors (that is, a degree of herd instinct behaviour), capital looks impassively for value propositions.

The challenge for those interested in inclusive, sustainable long-term growth in Africa that does not mortgage its environment and ecosystems is to move, swiftly now, beyond the binary of 'yield' or 'tree-hugging' and show why it works to filter one's investments and run one's business on an ESG basis. Hard proof, the empiricism to match (and sustain) the optimism.

"Faith..." as Paul Simon's song continues "... is an island in the setting sun / but proof, yes, proof is the bottom line for everyone..."

Jo

'Partnering' business for development

In the new fashion for cross-sector cooperation, are we tending to distort the term 'partnership', applying it to things that are either just dialogue, or normal cooperation with regulatory requirements?

And alongside all the promise that lies in the convergence of public and private sector focus on shared development constraints, are there not some concerns?

Convergence and blurring are related ideas, but one has a positive sense and the other a pejorative one.

So policymakers have 'discovered' the private sector as an 'actor' with impacts and interests relevant to development. Duh. But we now risk too rapid a transition in which proper parameters and principles have not yet been worked through.

Scaling-up the private sector's developmental impact was a key theme of last week's inaugural high-level meeting on global partnerships for effective cooperation for development ('GPEDC'), held in Mexico.

This blog is very 'pro' looking for ways to unleash-yet-harness the energies (etc.) of business in support of sustainable development aspirations and imperatives. Yet one overwhelming theme at and message from the GPEDC agenda / outcomes was not really about partnering for development (in the sense of systematically looking for areas and issues where business strategy / self-interest and government policy / duty overlap).

Instead, a major focus was about shifting from external financing of development (donors) to 'domestic resource mobilisation'. That is, taxation of business activity and constraining licit and illicit capital outflows, retaining more value within regions such as sub-Saharan Africa. (See para [4], [20-[24] of the outcomes document). This is a very sound idea (see a previous post on taxing for development in Africa). Especially for heavily indebted donors, and some developing country governments which might become more democratic if they become more reliant on and responsive to local taxpayers.

But a focus on taxation is not 'partnering' with business for development, nor is it public-private development cooperation.

It is a basic function of the state to tax and spend, and a basic obligation of a firm to pay, and to complain or leave if it does not wish to. When regulatees share the regulators' vision and cooperate, this improves compliance and eases regulatory burdens. But tax compliance is not cooperation, it is an obligation. Cooperation comes where business and government enter dialogue about what the taxation envelope might consist of. Even then, this is not a relationship of equals, for a number of reasons on both sides.

It is a basic ideal of development policy to eventually wean a country off external funds to enable it to finance its own development. To do so, one wants to think less about particular partnerships with business here and there (helpful as these can be), and more about creating an environment where business can flourish, so that appropriate social shares can be taken and distributed, building a better and more sustainable, inclusive society in which (in turn) business can flourish more. Virtuous cycles, and so on.

Sure, there is scope for greater cooperation, expertise-sharing, dialogue, etc between the public and private sectors. But these are not necessarily 'partnerships'.

Cooperating to find ways to help developing countries to tax more fairly, consistently and to spend the proceeds on developmental purposes is something to be explored. In previous posts I've repeatedly noted the initially counter-intuitive idea that a major investor might help its host government improve its tax and regulatory capacity. This way business can know what its fiscal exposure is, but also know that its taxes will in fact lead to better infrastructure, a healthier and better educated population (workforce / customers), and so on. Cooperation like that is to be welcomed, and specific partnerships may help deliver it.

But 'partnering for development' should not now mean everything that vaguely relates to business. Some of those things are just 'development'. Hence the 'duh' above: why is it such a revelation to donors that business can make general and specific contributions to development goals, and may in fact be interested in more peaceful, prosperous societies?

The social responsibility of any one corporation is not open-ended. One needs only pause for a minute to know why this is a good thing: business is not accountable in ways that policymakers (in theory) are. Hence the previous post, making the point that business and government may 'partner' but are not true 'partners': governments must lead, serve, respond, take responsibility.

Excitement about 'partnering' should not obscure the state's duties, and the state's capacity shortfalls without which it cannot partner effectively.

Blurring these lines is not in the interests of business, or in the public interest.

Where government functions as it should in Africa (or anywhere), there would perhaps be nothing shocking and anti-progressive about reiterating (with caveats) Milton Friedman's adage that the social responsibility of business is to grow, employ, obey laws, pay tax ... the social responsibility of governments is to finance development by planning, supporting, taxing, spending. There is convergence, there are shared interests and vulnerabilities, but there are separate spheres, and there is value in that. Friedman had some objectionable ideas, but it is too often overlooked that he cherished freedom. Do we want the public and private spheres to blur?

This blog says that the private sector inhabits a public world, and with it various responsibilities. But that does not mean business can or should do it all, or that government can absolve itself of its duties by producing a soup of partners.

In academia, 'multi-disciplinary' scholarship is useful for cross-cutting problems, but by definition relies on people who first have a strong grounding in their individual discipline, and only secondarily have an openness to other forms of knowledge. So it is with development: each sector needs to succeed in its own sphere, while looking out for judicious combinations and efficiencies. Societies need to resolve where those spheres lie, what is private and what is public.

These are big questions of ideology and social-political preference. The current 'business and development' debate can obscure that this is so. Does business want more social responsibility? Do we want business to have more social influence?

These things need discussion, not what I call the NDL: the New Disapproving Look. One gets it these days if one suggests that not everything that matters can be solved by some or other public-private dialogue and, of course, a partnership. 'Only connect!' and all will be well? I do not think so.

On a practical level, firms and departments may not be very good at partnering, or sure about it. The NDL and the new high-level rhetoric on engaging companies and investors in development can obscure the extent of ambivalence that still exists, within both bureaucracies and corporate structures, about expanding explicit links.

As with all high-level meetings: they matter, they steer, but they are generally aspirational, not declarative. Greater cooperation is a goal and a process, but it is hardly happening all around us. Policymakers need to show both the public and potential business 'partners' why partnering is more efficient and effective. Intuitively it seems so, and these linkages hold enormous promise for dealing with development bottlenecks and business frustrations. But more proof is needed, that partnering works. 

And in Africa and beyond we must keep an eye out that 'partnering' is not a cover under which the state (realising how few expectations it can deliver on) tries to abdicate its role or responsibility, or a cover under which business (fearing the effects of unmet expectations) tries to partner so as to say 'we tried to partner'.

Jo

Regulating business for peace

Failure by business to implement socially responsible practices also represents a failure of public policy.

Where business falls short, blame is swift but such failures are ultimately regulatory failures, the failure of public policy to reach in to business and open it to the influence of public values, as Parker argued in her excellent Open Corporation (2002).

The pace of business engagement on social and infrastructural development bottlenecks in Africa is welcome. Given business impatience with public sector planning and delivery, and firms' long-term risk exposures and opportunity costs if development imperatives are not met, this enhanced engagement is also somewhat inevitable. Often business is ahead of policymaking in assessing and seeking development gains that align with business interests.

Yet the state still matters in Africa, perhaps more than ever, and excitement about the role of business in development can obscure this.

It is short-sighted to believe that business sustainability efforts can be sustained without relying, ultimately, on the powers of the regulatory state.

A previous post made this case, pointing to recent research by Rory Sullivan and others (here). A related post noted that implicit in the (much-hyped) concept of public-private partnership is a capable state, one not only fit for partnering but able ultimately to steer the development agenda from a basis of duty.

We talk of business 'responsibility' for human rights and other issues, but for governments these are questions of 'duty', a concept of a somewhat higher order.

In this sense, PPPs are not truly equal partnerships. The state must lead, and must bear the ultimate responsibility. Business should not want it any other way, however impatient it might be.

The fact that many of these practices are not subject to mandatory regulation can obscure this fact. Despite all the rhetoric on partnerships and public-private convergence on development issues, governments and business have both legitimacy-features and obligations of a fundamentally different level and kind. Again, despite welcoming the new pragmatism and engagement on public-private cooperation for development, business leaders would not, in the long term, want it any other way, and nor would a democratic society.

I write this because this week I speak on a panel on the social and governmental factors of long-term investment in Africa. The audience wishes to focus on what business can or should do more or less of to find local or national development synergies. All good and well, and the topic of next week's high-level meeting on global partnerships for effective development cooperation (see recent posts). Yet such conversations sometimes tend to gloss over the state, which is inconsistent with the idea of 'long term' thinking. A previous post made this point.

So business-led initiatives on a range of issues from peace to sustainable development are to be welcomed. Many of their issues lie beyond what is likely, possible or desirable for public regulation, or are necessary because regulatory impact is weak. But the state's role cannot be side-stepped.

Consider the various 'business for peace' initiatives. The UN Global Compact launched its one recently, and this week (for example) an international conference takes place in Belgium on 'Business for Peace'. Business-led schemes are, as said, both welcome and somewhat inevitable (if not always satisfying or universally subscribed too). Yet the proliferation of guidelines now available to business on conflict-sensitive practices should not be seen as a substitute for a regulatory or pre-regulatory strategy on the part of policymaking. Public policy can (and often should) promote self-regulation by business on such issues, but this is conditional or supervised, the regulation of self-regulation.

Recently, Anette Hoffmann made the point that whether business is able to adopt and implement conflict-sensitive business practices will depend on much more than the business alone. There is low risk that business 'captures' this regulatory space, retarding more effective public regulation; there is perhaps a greater risk that policymakers see these issues as running themselves, without the need to 'reach in' and stimulate, support, or require these behaviours of private sector actors.

For this reason, my forthcoming book is called 'Regulating Business for Peace' (CUP). The private sector shares with policymaking many of the latter's interests in peace and prosperity. But the process must be influenced, steered, shaped (ie, 'regulated'), even if sometimes only lightly, by the public sector. Africa's development is too hard, too important, and too strongly underpinned by profound duty to be considered a true partnership.

All who are partners are not equal: some partners hold a higher duty than others, and the private sector will be the first to agree that the public sector must lead.

Jo

For a previous post distinguishing 'duty' and 'responsibility' see here.