Edition: Dec 2013 - Feb 2014


View from abroad

Hugh Wheelan, managing editor of ‘Responsible Investment’ magazine in the UK, attended  the PRI conference. He summarises major  points  as he saw them.

Wheelan . . . African thrust

Investing in Africa was appropriately centre stage at the seventh annual PRI in Person conference held this year in Cape Town, South Africa. The opening plenary was titled “Doing Business in Africa today, understanding the political, economic and social landscape”. Arnold Ekpe, former chief executive of Ecobank Group (the Pan-African bank), said international investors should have confidence that they can invest profitably in the continent, despite the perceived risks.

He pointed out that Ecobank, which operates in 34 African countries, had never experienced problems in remitting dividends or had to shut down operations because of social or economic concerns. But he warned against a tendency to view Africa as a country rather than 54 separate and very different markets.

Tshepo Mahloele, chief executive of Harith General Partners (the South Africa-based infrastructure fund manager), said investors needed to look at the success as well as scare stories. The former included private equity funds that had made 30% risk-adjusted returns in some funds. Harith manages the 15-year old Pan African Infrastructure Development Fund (PAIDF).

John Oliphant, principal executive officer at South Africa’s ZAR1.2 trillion (€101bn) Government Employees Pension Fund (GEPF), the largest in Africa, said the scheme had invested $250m in the PAIDF, alongside investment banks, financial institutions and development finance institutions.

Mahloele said Harith had made a number of successful club deals across Africa, including an airport in Tunisia and cabling projects in Kenya. The fund’s investment process considers ESG (environmental, social and governance) risk factors and reports on the development impact of the projects it invests in. He said there had been no portfolio write- offs to date and value impairment in just two of the companies in which it had invested.

Ebrima Faal, regional director for Southern Africa Resource Centre at the African Development Bank, which turns 50 years old next year, also noted that gdp growth in a number of African countries had doubled in recent years, on a par with China and India. The ADB was looking at issues of greener growth and social mobility in its investment selections and plans the launch of an ‘Africa 50’ fund to combine institutional, private and government money for infrastructure investment across the continent.

Discussing corruption, the panellists concurred that it was a problem, but that foreign investors coming into Africa had a duty not to be party to it. Faal said: “Capital coming in has to be responsible also and to work in a way that builds lasting partnerships on the ground; not hot money.”

Oliphant of the GEPF urged pension funds to partner with local players: “If I were to invest in Brazil, I would want to invest alongside other pension funds because they know the local references.” The panel agreed that such partnerships would contribute to a virtuous cycle to overcome another major issue, engaging African capital to invest in its own continent.

Mahloele elaborated: “The commitment of long- term capital to the continent is very slow but corporate capital is coming in. There needs to be a better articulation of the risk/reward story in Africa.”

On a public policy panel, titled “How can investors work with governments to create integrated capital markets?” was Olano Makhubela, chief director of Financial Investments and Savings at South Africa’s National Treasury. He ran through the history of South African regulatory moves on CSR/ESG, starting with the 1994 King Code on corporate governance, now in its third iteration, which includes integrated reported via a comply-or-explain mechanism.

For investors, he pointed out South Africa’s Regulation 28 calls on pension funds to consider material factors in their investment affecting long- term performance, while July 2011’s Code for Responsible Investing in South Africa (CRISA) formally encourages institutional investors to integrate ESG considerations into their investment decisions. He added that CRISA was designed to assist and nudge pension funds on ESG: “It’s a relatively new area and the inertia so far has led to the nudge, after a lot of consultation. We hope pension fund trustees will take these issues seriously without being told.”

One questioner asked whether, given the onerous compliance issues of Regulation 28 for prudent supervision of assets, trustees were using this an excuse to put off doing anything about ESG.

Stephanie Giampocaro, senior lecturer in the Graduate School of Business at University of Cape Town, responded that the pre-amble to the regulation was also “very optimistic about human nature” in encouraging trustees to act on responsible investment: “Materiality is key, so the question is how is this measured? King is soft law and Reg 28 is soft law. Given this, how can the trustees get the level of sophistication they need to really do responsible investment?”

Then there was a specialist workshop titled “Mining in Africa: boosting sustainability in the mineral economy”. Martin Kuscus, independent chair of the board of trustees at the South African Mineworkers Provident Fund, gave a hard-edged local example. He noted that that the tragic violence at the Marikana platinum mine, operated by Lonmin, was a complex mix of poor housing, difficult work conditions and aggressive unionization that pension investors had to understand and act on where possible.

He urged that shareholder activism had to be part of the solution in reigning in the rife inequality that, he believed, was a serious issue in the sector due to huge disparity between worker salaries and highly paid executives: “Shareholder activism is pathetic here in South Africa. It’s too nice and diplomatic, and the management bonuses get bigger every year. The new capitalists are the workers because it’s their pension fund money.”

The panellists agreed that long-term investors could start to make a difference following Marikana by developing policies on mining companies based around transparency on licensing issues, workers’ rights and employment conditions, water use and the post-production rehabilitation of mines.

Investor visits to a Lonmin mine, prior to the conference, could be part of that move to fully understand the on-ground reality of their investments and apply pressure where both values and financial value are at risk.