A perfect storm of reduced capital flows, a rising post Covid debt crisis, failed promises by OECD (Organisation for Economic Co-operation and Development) countries to deliver climate finance, and an out-of-date risk assessment of a resource and entrepreneurial rich continent, is gathering speed.
I believe it’s time for African entrepreneurs, corporations, and stock exchanges to act collectively. They need to collaborate with their governments to drive ambitious change disrupting the developed economy dated view of African risk. There’s far too much international focus on what can be extracted from Africa rather than the value to be created for communities and entrepreneurs.
The diverse, vibrant, sometimes troubled, 53 countries that comprise Africa should lead as we shift from 250 years of extractive capitalism to regenerative capitalism. African capital and business can directly confront the complex converging systemic risks, such as climate change, ecosystems destruction and deepening inequality, but the scale of fairly priced finance for the continent has to increase dramatically.
President Macron’s Paris Summit
With the outcome of President Macron’s Paris Summit meeting in late June being to create a new international financing pact between the rich Northern economies and the emerging South, the timing for a Pan African sustainable finance revolution could not be better.
Plans to transform the world’s multi-lateral, regional and national development banks strategy, operations, and deployment of finance to align with real sustainability, notably climate action, are gathering pace.
MFIs (Multi-lateral Financial institutions), DFIs (Development Finance Institutions) and The NDB (New Development Bank), can put African business at the forefront of imaginative, market-driven sustainability action. With the convergence of the Digital World, Data, IoT, Artificial Intelligence and Machine Learning combined with African leadership in mobile money it seems the impossible can be made possible: linking international capital markets with African opportunities and communities.
Turnkey in Africa
Recent trips to Kenya have convinced me of how this East African powerhouse, mirrored by other countries in the North, West, South and Centre of this vibrant continent, hungry for development in all forms, can use its growing Stock Exchanges and most forward-looking corporations to forge an African model of sustainable finance at scale.
In terms of sustainability the Nairobi Securities Exchange (NSE) and Safaricom are two of the most progressive institutions I have seen in action. From the agricultural sector we also see players like Maris establishing sustainability leadership across their portfolio.
Embedding an African ESG (Environmental, Social, Governance) model in the systemic, strategic and operational foundations of African capital markets, and from there into the corporate DNA of both listed and unlisted companies, is the route to building investor trust, boosting capital flows, and reducing the high-cost Africa pays for capital.
The future of Africa
Financial and corporate Africa, aided by vibrant stock exchanges, need to get the real economic story out about a youthful, resource rich continent which will grow from 1.4 billion people now to 4 billion by 2100. After 2050, Africa will be the only continent with a growing population hungry for development and success.
More than 5300 investors representing US$ 121 trillion – yes that’s trillion – back a set of United Nations principles with ESG protocols at their heart. The great African leader, the late UN Secretary General Kofi Annan, launched the UN Principles for Responsible Investment (PRI) at the New York Stock Exchange on 27 April, 2006.
African investors, such as the US$138 billion, Government Employees Pension Fund (GEPF) of South Africa, were present at the NYSE that day and their leadership then drove the development of CRISA (Code for Responsible Investment in South Africa). The then CEO of GEPF, John Oliphant, now building his own sustainability-aligned investment firm, Third Way Investment Partners, spoke of a vision where African stock exchanges became “safe harbours” to attract more private international investment flows. Oliphant’s dream is now more relevant than ever.
Post Covid, and with the rise of the continent’s debt crisis, dedicated African equity funding, not including that captured by emerging market funds, has fallen precipitously.
Resource rich Africa
Without Africa’s true and building success in the decades running up to 2100, capitalism itself will have failed. A strong example comes from African mining where the demand for strategic critical minerals (cobalt, copper, lithium etc) needed for the decarbonisation of the energy intensive economies of the OECD countries is increasing exponentially.
Some of the poorest and most climate vulnerable African communities, representing a significant percentage of the world’s 45 million miners practising Artisanal and Small-scale Mining (ASM), supporting 230 million dependants, will provide the minerals for rich economies where the legacy carbon footprint that unleashed climate change is heaviest while Africa’s historical carbon debt is minuscule.
Without real ESG embedded across every level of the complex mining value chain, from the huge global mining behemoths to the smallest informal operations, inequality, and value extraction rather than structured value creation will continue to curse African mining. Mining must embrace real time ESG data collection to forge lasting sustainability-aligned dynamics across an industry essential to delivering accelerated decarbonisation.
Switching focus to Africa’s huge potential for clean energy delivery at continental scale. The Climate Policy Institute (CPI) confirms that in emerging market developing economies renewable energy “has enormous potential but cost of capital is a major barrier.” CPI proposes a Global Credit Guarantee Facility to “make these projects commercially viable.” I would argue that leading African clean energy companies demonstrating ESG leadership should be at the front of the queue for such facilities to drag down the ridiculously high Weighted Average Cost of Capital (WACC) allowing them to execute ambitious projects. We need to ensure that African ESG leaders across the clean energy, engineering, construction, and mining industries benefit from a sustainability WACC (Weighted Average Cost of Capital) discount.
Written by: Tony Wines, CEO, Turnkey Group