August 24, 2011
AfricaSIF Co-Founder Describes Challenges to Sustainable Investment in Africa
by Robert Kropp
Graham Sinclair talks with SocialFunds.com about a recent report he authored on sustainable
investment in sub-Saharan Africa, and the challenges to mainstreaming the practice on the
Last month, SocialFunds.com reported on a new study of the current state of sustainable
investment in sub-Saharan Africa.
Commissioned by IFC, the study surveys private equity investors, asset owners and
asset managers, and other key stakeholders on the environmental, social, and corporate governance
issues (ESG) that would be important for investing in Africa. Overall, the study found, "As an
investment destination, the continent's numbers are compelling."
The study was authored by
Graham Sinclair, co-founder of the Africa
Sustainable Investment Forum (AfricaSIF) and Principal of SinCo, a South Africa-based investment advisory firm.
Sinclair spoke with SocialFunds.com recently about the report, as well as the case for sustainable
investment in sub-Saharan Africa.
"We're hoping that people will read the report and be
impressed by the amount of activity in Africa," Sinclair said, "And that they can go from a
situation of an information vacuum to realizing that some of their preconceptions about Africa are
"There are unique characteristics of sustainable investment in sub-Saharan
Africa, particularly the role of private equity," he continued. The report found that private
equity (PE) in sub-Saharan Africa grew from $800 million in 2005 to over $2.2 billion in 2008, and
92% of PE investors expect growth to continue.
"The model characteristic of investment in
Africa is capital to small, growing businesses on growth trajectories," Sinclair said. "The capital
behind the private equity shops has been DFI (development finance institutions)-funded, which means
that ESG (environmental, social, and corporate governance) is being integrated."
Development finance institutions such as IFC invest in sustainable businesses in developing
economies to foster growth, reduce poverty, and help achieve the Millennium Development Goals (MDGs).
week, AfricaSIF is hosting a Master Class on ESG investment in Africa," Sinclair said. "In many
ways, it's very experimental stuff, building the practice from the ground up. But in another way,
it's also advanced, because of the influence of the development financing world. The concept we're
puzzling over is how to develop the countries and create jobs at the same time while preserving the
environmental endowment we have."
The report found that sustainable investment in Kenya,
Nigeria, and South Africa stood at over $125 billion in December 2010, which equals 20% of total
assets under management in the three countries. South Africa alone accounts for 95% of the total,
in large part due to the influence of the Government Employees Pension Fund (GEPF).
institutional investor market is really big here," Sinclair said, "And South Africa is a G-20
economy on the continent. Add to that the role played by the government's sovereign wealth pension
fund, and the size of sustainable investing in sub-Saharan Africa starts to make more sense."
On the other hand, Sinclair continued, "There are close to 14,000 different retirement funds,
and among those in Kenya and Nigeria there is very little awareness. Even in South Africa, by count
of funds, there's little awareness; but by count of assets, because of the sovereign wealth pension
fund, there's larger awareness."
Commenting on the findings of the report in a SinCo press release, Sinclair stated,
"Further research is needed to benchmark ESG impact, but there is no doubt billions of dollars
today are seeking investment opportunities in the region."
Asked by SocialFunds.com about
the state of ESG research on the continent, Sinclair said, "Some of that is getting the
international providers in the game. MSCI is on the ground here, and we're potentially doing a
project with Trucost. So there has been some
looking into it. But at one level it's still about getting the major ESG research and analysis
shops to get Africa more properly on their radar. There's no doubt that they cover controversial
issues, or cherry-pick elements, but robust coverage of the largest companies just does not exist
A recommendation made by the report is that a benchmark index of sustainable
investment in Africa be launched, to "spur the development of new portfolios and products that
specifically integrate ESG factors."
"The JSE (Johannesburg Stock
Exchange) Socially Responsible Investment (SRI) Index has been very helpful," Sinclair said.
"Our view is that to improve the level of understanding of Africa's investment destination, the
role of sustainable investment, and how ESG factors affect it compared to the rest of the world, an
index would go a long way."
Asked to describe impediments to the uptake of sustainable
investment on the continent, Sinclair said, "All the usual subjects crop up: the knowledge gap,
unfamiliarity, costs, the case for sustainable investment. But what might not be immediately
apparent in the report is that in Africa there are fewer skills. In the main, you can build a team
fairly easily in a place like Boston, but it's much harder to do so in the major cities of Africa."
"There's often a feeling of solidarity in African situations where people are mindful of
the implications," he continued, using as an example the necessity for job growth. "To get the
right trend of growth is often seen as an extra ask."
However, he continued, "From the 160
interviews we did for the report, we found a real interest from the average African investment
professional to learn from what's happening in other places. I wish more people from the Northern
Hemisphere would see, and think about things like knowledge sharing and technology transfer."
"It's a great opportunity we have, but there's concern too," Sinclair concluded. "Africa has
gotten the rough end of the deal in the past, and there's caution about having seen this play out
before when it didn't work out."
"I think this is a great opportunity for sustainable
investment people to take the lead in thinking how sustainable investment could be at the forefront
of a system in Africa."