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August 04, 2010
AfricaSIF Aims to Encourage Sustainable Investment Practices in Africa
    by Robert Kropp speaks with Graham Sinclair, co-founder of AfricaSIF, about the state of sustainable investment in Africa and the mission of the organization.

If the continent of Africa is indeed the last frontier of investment, can business-as-usual investment focusing on short-term financial gain be averted in favor of a sustainable investment approach? And if the continent's wealth of natural resources—60% of the world's uncultivated, arable land is in Africa, and commodities such as oil and raw materials are plentiful there as well—become, as is expected, a primary investment target for the significant inflow of capital, how critical are the risks involved if a sustainable investment approach is ignored?

According to Graham Sinclair, co-founder of the Africa Sustainable Investment Forum (AfricaSIF), "Investment in Africa will come, and when it does it can either have the greatest opportunity to do wrong, or have the greatest opportunity to do something positive. It's critically important that as the money arrives, it serves sustainable objectives."

Launched this year, AfricaSIF aims to encourage investment in Africa that incorporates environmental, social, and corporate governance (ESG) factors, by creating a network of investment practitioners and stakeholders who integrate ESG factors into investment decision-making. Sinclair told, "The opportunity we seek to exploit is to go straight past business-as-usual investment, and directly to sustainable investment."

Sinclair continued, "We know there's more interest than ever in sustainable investment in 2010, in part because of the economic meltdown in other parts of the world, and also because the African approach has always been about community."

"The Big Man syndrome has resulted in areas of Africa where people are being oppressed," he said. "But there's often been a sense of Ubuntu—I am because you are—and long before corporate philanthropy was tagged in the US, many companies had expectations of how they would treat the community and their workers."
"It's not an easy thing to mainstream sustainable investment, but we have a positive view of what is possible. We think the time is right," he said.

Sinclair noted that following the financial crisis and the subsequent global recession, investment in emerging markets decreased, and investment in Africa was no exception. However, as the global economy slowly recovers, investment in Africa is returning to pre-crisis levels, making the mission of AfricaSIF all the more important.

Complicating the mission of AfricaSIF is the fact that the continent can be divided into four major economic sectors. Of the four, South Africa is by far the largest in terms of economy, technically an emerging market but one that is, according to Sinclair, on a par with South Korea.

Compared to the other sectors, South Africa has developed a working ESG mandate. In June, for instance, the
Johannesburg Stock Exchange (JSE) began requiring its more than 450 companies to produce integrated reports, and announced its collaboration with four other South African organizations in forming the Integrated Reporting Committee (IRC) to issue guidelines on good practice in integrated reporting.

In a December 2009
report, the US-based Social Investment Forum (SIF) found that South African companies exhibited the best transparency practices of emerging market companies. The report also found that South Africa was the only country where all companies reported some form of ESG data, and that companies there were also most likely to report according to the guidelines of the Global Reporting Initiative (GRI).

Northern Africa is the second-largest economic sector on the continent, and its economies and ideals are closely aligned with those of the Middle East, according to Sinclair. In northern Africa, many Islamic investors practice a faith-based form of sustainable investment.

The sectors of East and West Africa are less developed, but initiatives in microfinance have contributed to a trend of sustainable investment in those regions.

According to AfricaSIF, "Barriers exist to investment, but especially investment that also values the people, biodiversity and 21st century transparency in public, private and philanthropy sectors." To transcend such barriers, AfricaSIF notes "the growing importance of local institutional investors, the returning wealth of the African Diaspora and increased international investor interest."

AfricaSIF is currently in the process of enrolling members, and only legal technicalities have prevented enrollment thus far, according to Sinclair. However, the organization has found widespread report from international organizations and asset managers, and Sinclair expects that members will be signed up well in advance of the continent's first annual ESG Africa conference, to be held in Capetown on December 1-2.

Sinclair also noted the support of many Sustainable Investment Forums, including the Social Investment Forum,
EuroSIF, and UKSIF.

The South African-based
Principal Officers Association (POA), a non-profit organization which promotes the common interest of Principal Officers of retirement funds, has also lent its support to AfricaSIF. At the launch of AfricaSIF in June, Wanjiru Kirima, chairperson of POA, stated, "Asset owners…are increasingly driving alignment of their fund managers and service providers toward the sustainable investment theme. AfricaSIF is a new element of the investment ecosystem that will play a vital catalytic role across Africa in accelerating this process."

At present, the MSCI Emerging Markets Index includes South Africa, Egypt, and Morocco among its 26 emerging market economies, while the MSCI Frontier Markets Index includes Kenya, Mauritius, Nigeria, and Tunisia, so opportunities for sustainable investment can be found.

Quoting Mo Ibrahim, a Sudanese entrepreneur, Bono, the singer for the rock group U2 and the co-founder of the advocacy group
One, said recently, "Guys, you Americans are lazy investors. There’s so much growth here but you want to float in the shallow water of the Dow Jones or Nasdaq."

For sustainable investors, the establishment of AfricaSIF should prove to be a vital link to the long-term opportunities to be found in the last frontier of investment.


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