April 01, 2004
Into Africa: The Paradox of Socially Responsible Investing in the Developing Continent
by Willliam Baue
To support sustainability in Africa, social investors can invest directly outside the SRI
community, or else they can pursue community investment and shareowner action.
As a continent of predominantly developing nations with emerging economies, Africa presents a
paradox when it comes to socially responsible investing (SRI).
On the one hand,
South Africa's Johannesburg Securities Exchange (JSE) requires listed companies to comply with the second King
Report on Corporate Governance (or King II), which necessitates
adherence to Global Reporting Initiative (GRI) guidelines for reporting. In a sense, JSE's King II
mandate stipulates that all companies exceed a minimum bar of SRI standards. Furthermore,
JSE recently launched an SRI index.
"The most significant event providing a platform for
SRI to take off in Africa is the launch of the Johannesburg Securities Exchange SRI Index," said
Paul Kapelus, director of the African Institute for Corporate Citizenship (AICC), a South Africa-based nonprofit nongovernmental
organization (NGO) promoting corporate social responsibility (CSR). In 2001, AICC's Centre for
Sustainability Investing published a report entitled Socially
Responsible Investing in South Africa, perhaps the most comprehensive statement on SRI in
On the other hand, South Africa is a complete anomaly.
there's very little SRI happening outside of South Africa," Mr. Kapelus told SocialFunds.com.
This is reflected in SRI international fund holdings in Africa-based companies. The Calvert
World Values International Fund (ticker: CWGVX) invests 1.03 percent of
its portfolio in South Africa, as of January 31, 2004. The MMA Praxis International Fund (MPIAX) holds
only one African company, New Clicks Holdings (NWCZF.PK) in South Africa. Essentially, African
markets are not developed enough to support investment from U.S. SRI funds.
may have to look outside the SRI community to invest directly in Africa-based companies. However,
it is still possible to focus on issues of concern to social investors, such as corporate
governance and environmental stewardship.
"The private sector in Africa realizes that the
conditions have to be right for investors to come in," said Reed Kramer, CEO of AllAfrica Global
Media, which hosts the AllAfrica.com website, a
comprehensive information source on Africa. "There are several preconditions to attracting
investments, among those are certainly transparency, anti-corruption measures, and good corporate
governance, which all go together."
"The issue of corporate governance is being discussed
all over Africa, not just South Africa," Mr. Kramer told SocialFunds.com.
Mr. Kapelus of
AICC provides an example.
"The Kenyan Capital Markets Authority [CMA] has recently issued corporate governance guidelines and
criteria for investing on Kenya's Nairobi Stock Exchange [NSE, ]," said Mr. Kapelus.
Outside investors concur.
"We consider corporate governance as very crucial" when assessing African companies for
investment "because corporate governance affects growth," according to Jacob Ajayi, president and
CEO of Dallas-based Africa Mutual Fund Corporation (AFMC).
AFMC has investments with a total
market value of almost $7.5 million, with 80 percent in equities and 20 percent in bonds. AFMC
invests in nine African stock exchanges, including Kenya's NSE, which was up 112 percent in 2003,
Egypt's Cairo and Alexandria Stock Exchange (CASE--up 60 percent), and Nigeria's Lagos Stock Exchange
(LSE--up 59 percent).
"Corporate governance has always been very solid in companies traded on African stock markets,"
Mr. Ajayi told SocialFunds.com. "Most big African companies were at one time or another associate
with big corporations outside of Africa."
"Because of this outside oversight, the boards
of directors in Africa are held to a higher corporate governance standard than the parent companies
hold themselves," he explains. "The king can do whatever he wants, but the subjects can't--they
must always be on their toes."
While AFMC does not claim to practice SRI, Mr. Ajayi points
out that providing equity capital to emerging markets, which often rely on high-interest loans that
preclude the consideration of social and environmental issues, may represent a necessary precursor
"When companies owe a lot of money, they are running with their eyes closed just
to make the debt obligation, so environmental and social considerations will be the last things
they think about, but when we provide equity funding, they are able to pay more attention to
environmental and social issues," said Mr. Ajayi.
Social investors can also support
sustainability in Africa through two other tenets of SRI, shareowner action and community
investment. For example, shareowner resolutions addressing the HIV/AIDS pandemic in Africa have
been filed at four major pharmaceutical companies: Abbott Laboratories (ABT), Merck (MRK), Bristol-Myers Squibb (BMY) and Pfizer (PFE). PepsiCo (PEP), which tried
to block the resolution last year in vain, faces it again this year, while the Coca-Cola (KO) board of
directors is taking the opposite tack by recommending shareowners support the resolution with a
Community investment is another way the SRI community supports social and
environmental sustainability in Africa. For example, the Calvert Social Investment Foundation, a nonprofit
community investment vehicle affiliated with the Calvert Group, provides approximately $2.5 million in
financing to 10 community development organizations at work in Africa. Among the 10 groups
supported by the Calvert Foundation are Boston-based ACCION International, the Toronto-based Africap Fund, and Washington,
DC-based Oikocredit, or the Ecumenical
Development Cooperative Society.