Sustainable Investing: An Africa Outlook
JOHANNESBURG – Africa continues to be prime for institutional grade, private sector investment, with its backdrop of high rates of gross domestic product (GDP) growth and a rapidly urbanising consumer who is embracing technology in accessing goods and services.
However, Africa’s growth potential remains constrained by:
- its widening infrastructure deficit
- a legacy of recurring conflict
- widespread instances of corruption in public office
The infrastructure deficit alone, which spans sub-sectors such as information communication technology, power, transport and water, is estimated at more than USD 100 billion a year. In order for Africa to realise its inherent growth potential, it is in dire need of truly sustainable investment initiatives.
‘Sustainable investment’ in Africa refers to the integration of priorities other than commercial return into the investment processes of practitioners. These priorities are governance, climate change, human rights, job creation and education. Local and international development finance institutions have led the charge in this regard, having deployed most of the USD 25bn of sustainable investment over 2012–2017 through the private market asset class.
Private market investment affords practitioners and investors the ability to more meaningfully integrate the priorities of a sustainable investment thesis per asset, given the positions of control held and longer than average holding periods relative to the traditional asset class managers. Africa abounds with success stories of assets accessed through a sustainable investment lens.
Albatros Energy in western Mali
A case in point can be found near the remote village of Medine in western Mali in the form of Albatros Energy (Albatros), the country’s first independent power producer (IPP) project to feed into the national grid. Mali’s power grid is grossly inadequate to provide sufficient, reliable power for its population. Mali is among the world’s 25 poorest countries and only 25.6% of its 17.6 million people have access to electricity, with this level falling to 15% in rural areas.
Albatros, a thermal-power plant completed in late 2018, provides enough energy to power just short of one million households and represents over a quarter of the country’s base load capacity. The Albatros investment held sustainability front and centre as part of its investment thesis considering the following over and above commercial return:
- Economic impact: Albatros is one of the lowest cost thermal power producers supporting long-term reductions in overall cost of energy for the national utility and providing a platform for increased economic activity in compliance with international environmental guidelines.
- Governance: As Mali’s first IPP, the project created an effective blueprint of engagement for all future IPPs in Mali, which has already begun to bear fruit with two solar plants being developed off the back of the Albatros success story.
- Job creation: During construction, Albatros employed 139 people from the local community (25% of workforce).
- Social impact: The Albatros project facilitated the upgrade of a range of social infrastructure in the surrounding community, which included upgrading the local dispensary, creating a maternity facility and purchasing a 4x4 ambulance.
South Africa brings with it its own challenges that warrant investment through a truly sustainable investment lens. An unemployment rate close to 30%, an ailing power sector as well as widespread corruption within many public and private enterprises are stifling the nation’s ability to grow.
However, here once again one can demonstrate that private market investments successfully integrate these competing sustainability-focused priorities such as job creation, human rights and good corporate governance into their investment processes. In so doing, they create compelling development and social impact whilst achieving institutional grade return outcomes. We need to look no further than the logistics truck passing us by in traffic every morning to see a sustainable investment at work.
Laser Logistics in South Africa
Laser Logistics (Laser), an empowered South African owned SME is a multi-line logistics company with over 130 branches across the country. Laser employs almost 2 000 semi-skilled workers and around 500 unskilled workers nationwide, most of which are outside the major metros and in more rural areas by virtue of their branch locations. Laser has pioneered a pilot project with the National Department of Health to facilitate the delivery of chronic medicines to consumers in remote, rural areas that can’t just pop to their local pharmacy to collect their prescription, but rather have to travel vast distances to collect essential medicines at huge personal cost. Laser, through this project, is facilitating the handout of approximately 50 000 prescriptions a month to patients, addressing a basic human right (access to critical, therapeutic medicines) whilst expanding its revenue base by adding a high-growth business line.
Retail Capital in South Africa
SMEs like Laser are the lifeblood and growth engine of any developing economy and are in dire need of support from both public and private sector practitioners in South Africa. A great example of a privately-backed SME-focused business is Retail Capital, a merchant cash advance business that provides innovative working capital and growth finance solutions sustainably to SMEs. Retail Capital purchases the future income streams from debit and credit card transactions completed by retailers in return for upfront cash advances, which these SMEs can then use to make meaningful capital investments to grow their businesses. Over and above an attractive commercial return, investing in a business such as Retail Capital aids in driving economic growth owing to its niche, SME-focused business model coupled with explicit job creation benefit of approximately 850 new jobs created over three years since its inception.
Sustainable investment in Africa is not only a topical investment theme but more over a critically required one. Solving the pervasive infrastructure deficits and governance failures continentwide can only be achieved through multi-faceted investment approaches that target both commercial returns and some if not all of the sustainability metrics discussed. Let us hope that case studies such as these can serve to catalyse both local and international institutional funds to allow Africa to become a force to be reckoned with in the global economy.
David Moore is head of alternative investments at Alexander Forbes Investments.