Insights

Kina Advisory provides insights on topical issues facing the industry today as companies operate and invest in Africa. Read through our latest thought pieces that give an insight into Kina’s way of thinking, as we discuss ideas that challenge the way business in Africa is conducted, offer solutions to those challenges and highlight the success of others.

 

The ‘When’ and ‘What’ of a project Social Investment Strategy

13|09|2016

So you’ve got the government’s approval to build that road, mine, dam, power plant, or solar farm. Now what? Do you go ahead and build as is your legal right per the terms of your agreement? Many smart companies today have found that to be a not-so-smart move. What you have, in fact, are two sides of the stakeholder relationship triangle (See Kina Advisory’s Triangular Theory).

Before you go ahead, think ahead: Does the impacted community approve of the project? What are the community’s expectations? Can you meet those expectations? If not, then what? What is the capability of the industry regulator? What are the expected environmental and social impacts? What is the narrative about the project in the national discourse? What would be the impact of a change in government?

The answers to some of these questions can disrupt your elegant financial models. Larry Fink, the chief executive at BlackRock, the world’s biggest asset manager with US$4.6 trillion under management, knows this—environmental, social, and governance (ESG) issues are core business issues. In a February 2016 letter to CEOs, he writes that ESG issues have real and quantifiable financial impacts.

Newmont, the world’s second biggest gold miner, knows this too. Despite a ruling by Peru’s Constitutional Court paving the way for the development of the Conga mine in that country, the miner had to walk away from the US$5 billion copper and gold project, unable to withstand violent opposition by the community.

So the need for a clear ESG strategy and the competent management of such is, thankfully, accepted wisdom among serious investors—we hope.

But how to do it?  In this piece, we focus on the ‘S’ of ESG and specifically on social investment plans and programmes.

If you begin thinking about stakeholder engagement, social impact management, and social investment issues after approval, you have waited too long. As investors race to help plug Africa’s US$90 billion annual infrastructure gap, and as companies lay the groundwork for a rebound in oil, gas, and mining, we at Kina Advisory see many companies struggle with the issue of the timing of such activities—when to do what. For instance, when to start consulting the community (without creating unrealistic expectations), when to announce a social investment program (before or after an election), and when to start implementing a social investment programme (before or after approval of a plan of development or power purchase agreement).

Tough questions, admittedly, with no easy answers. It’s a context-specific art, but one that must be grounded in information, best practices, and the connections, experience, and skills of specialists. To help investors, Kina Advisory has outlined suggested activities for the five main phases of a project.

Phase 1—Early development. During project identification and feasibility studies, an investor would need enough information to make a go/no-go decision. Here, activities would focus on investigating the ecosystem of the project: physical environment, political environment, economic environment, legal requirements, communities to be impacted, availability of skilled labor, and other critical issues. The information gathered can be used to begin to formulate a vision for social and economic contribution. Many governments now require that vision and related activities are part of project proposals – so social investment plans are becoming a compliance requirement. Even where they are not, any developer is well-served to articulate such in order to get a leg up. Besides, such a company gets a better grasp on managing risks. Conducting community consultations at this stage must be done tactfully so as not to raise expectations. Also, competitors may be conducting similar surveys, thereby overwhelming the community. An experienced advisor can estimate the nature and cost of managing such activities to help the investor make that go/no-go decision.

Phase 2—Advanced Development. Now is the time to begin executing some level of social investment or community investment programmes. It begins with more comprehensive consultation with stakeholders and a deeper understanding of the country’s economic development strategy.  Even where a company is using an external partner to assist in designing and implementing such programmes, developing in-house capacity would be critical. That would involve cultivating an internal mind-set that values partnership and underpins a more considered approach to stakeholder engagement.

Phase 3—Execution/ Construction. The construction stage is the first test of the robustness of the ESG strategy and management systems. It is the time to begin implementing some of the social investments to smooth the way for construction and related activities. Besides, as the project becomes tangible, its visibility increases and issues will come up that must be managed.

Phase 4—Operation. The operational phase should be one with a constant feedback loop, involving execution of the social investment programme, continuously listening for feedback, monitoring and evaluating programs, and correcting course when needed. In Ghana, for instance, years after a company started operating a plantation acquired from the State, local chiefs started making demands on the basis that customary practices had not been followed in the procurement of the land. But of course the only way to sustain any social investment is by maintaining operational excellence of the core business—while managing all the external forces.

Phase 5—Decommissioning. Often overlooked, the decommissioning process is important not only for the extractive industries. For many other industries, there are compliance issues to deal with. Programs may come to a halt, buildings may be abandoned, jobs would be lost, so it is never a frictionless process. Again, this phase begins with consultation with key stakeholders, especially the impacted community, including helping to identify alternative livelihoods. In many cases, partnerships must be forged to carry on with programs.

The array of actors and factors at play throughout the project lifecycle illustrate the need for a robust stakeholder engagement and communications strategy to underpin any social investment – and for that strategy to be adaptable to each stage. It is also critical for that strategy to include explaining to stakeholders the company’s core business and how it ties in with its social investment. This stops the social investment strategy from being seen simply as a ‘social wash’ PR plan.

While every situation is different these guidelines may be useful in helping companies understand their ESG needs at any phase in a project, and thereby avoid the misallocation of resources or opening themselves up to even more risk.

Trina Fahey, Partner

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Investing in Africa | Relieving African data poverty

06|06|2016

There is a poverty of accurate and reliable information about society and economics in African countries. And it is affecting the growth and prosperity of those nations.  Timely, reliable and relevant statistics can be used to improve every aspect of life, from fundamentals like people’s health, nutrition and education, through to governance, business and investment. Speak to any potential investor into Africa and you will find that one of the major drawbacks to investing is always the dearth of reliable data.

A measure of success or failure

Even gross domestic product (GDP) figures for many African countries cannot be relied upon, due to the suspect nature of the underlying data. In his book Poor Numbers: How We Are Misled by African Development Statistics and What to Do About It, Morten Jerven says that African GDP data are affected by serious problems of reliability, accuracy and volatility. If you cannot even measure GDP reliably, then there is little hope of building a long-term strategy for development and growth in Africa. Take the UN’s new sustainable development goals. It doesn’t matter how noble the intentions or socially transformative the goals, they mean nothing if you cannot reliably measure a country’s progress towards achieving those goals.

Mining data in Africa

The question is: just what can African governments do to reverse this data poverty? The answer lies in working with academic and research institutions, the private sector – particularly in the technology world – and NGOs to form robust institutions, systems and processes for the collection and aggregation of both national data and statistics, and statistics from the informal sector. Governments need to use all the tools at their disposal to gather the necessary data that will act as bedrock to economic and social advancement.

The way ahead

Fortunately there is already a shining model for success that governments across the developed world can imitate. The Global Strategy to improve agricultural and rural statistics, or GSARS, is the largest global effort to ensure reliable statistics in the field of agriculture. The strategy is founded upon three fundamental pillars:

  • Produce a minimum set of core data
  • Better integrate agriculture into the National Statistical Systems
  • Improve governance and statistical capacity building

There is absolutely no reason why these tenets cannot be applied beyond agriculture, to society and economics too.

To take a look at the GSARS Website, please click here.

It is imperative that governments find a way to gather and store information so that it may be used for the public good.

Rosalind Kainyah, MBE, Founder and Managing Director

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Are your contractors managing the social impacts of their activities?

25|04|2016

Aligning social performance roles and responsibilities between project operators and their contractors is tough at the best of times. Project investors and operators are under increasing pressure to manage costs, and projects now deemed ‘uneconomic’ are collecting dust on a rather large shelf at headquarters. On the other side, contractors are facing fierce competition for the surviving projects with many squeezing their already tight profit margins just to keep a foot in the game.

Every day there seems to be another example of the challenges of managing the social performance issues associated with large capital infrastructure projects.  Many project operators have to navigate the complex dynamics of communities impacted by such projects, labour disputes, issues of human rights and the use of increasingly precious water, land and other natural resources.

In addition and increasingly, host Governments are enforcing more stringent local content requirements on project operators in an attempt to capture greater socio-economic benefits.  However, not all local suppliers have the capabilities of large international contractors and so the challenge becomes balancing local content requirements with high health, safety, environment and social standards.  The unfortunate truth is that a project operator will only ever be as good as the poorest performing contractor in their supply chain.

The business case for a more cohesive approach between operators and contractors has been well documented.  A 2011 executive briefing entitled ‘Shared Value, Share Responsibility’ by the International Institute on Environment and Development (IIED) clearly articulates both the challenges and actions required to improve performance in this area. IIED looked to the 2010 Macondo incident in the Gulf of Mexico to demonstrate the enormous impacts which poor contractor management and supply chain coordination can have.

Whilst some might continue to argue that alignment on social performance issues between project operators and contractors is a ‘nice to have’, I believe it is essential.  After all, owners can ill afford projects that suffer cost and schedule over runs (or stop completely) as a result of community unrest – particularly when margins are so tight to begin with.  Getting it right from the outset has never been more important.

As a colleague recently reminded me, ‘social performance management is not core business, but it must be core to the business’.  I believe this sentiment also lends itself to the supply chain.  Just as a contractor’s health and safety performance is fundamental to a successful operation – whether drilling an exploration well, building a process facility or shopping center, or constructing a road – so too is their ability to understand and manage the social impacts and opportunities which come with that activity.

At Kina we understand that each operation and project will bring unique challenges that require unique solutions.  There is no ‘one size fits all’ approach that will bring about alignment and cohesiveness, but we offer a range of tools that can help both project operators and contractors better manage social challenges.  We help our clients prepare for and manage the social risks inherent in their supply chains but we also passionately believe in building capacity within the supply chain – helping local suppliers enhance their social performance capabilities.  This is good business and ultimately can only lead to better outcomes for project operators, contractors and host communities.

Trina Fahey, Partner

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A Japanese concept that sums up Kina’s ethos

21|04|2016

Have you ever heard of the Japanese concept of nemawashi? No? Neither had I till I spoke to a Japanese client of mine the other day. Nemawashi, she explained to me, is an informal process of quietly laying the foundation for some proposed change or project by talking to the people concerned, gathering support and getting feedback. The Japanese consider it a fundamental first step before any major change or project gets underway. Successful nemawashi means that changes can be carried out with the support and consent of all sides.

Building consensus

I think this neatly encapsulates the work Kina does for its clients. We help to build consensus and trust between the companies that want to invest in African countries, and the governments and societies that will influence or be affected by those investments. We prepare the ground for our clients and make sure that, from the very outset, business, government and society understand each other’s fundamental motivations and needs. A successful, long-term business cannot be built without this understanding – this nemawashi.

Going around the roots

The literal translation of nemawashi is “going around the roots”. It refers to the process whereby – before you transplant a tree – you gradually introduce soil to it from the new location. By doing so you get the tree accustomed to the new location, before you move it.

At Kina we “go around the roots” on behalf of our clients. We believe in a gradual process of acclimatising them to the countries in which they plan to operate. We help to forge links between them – ‘the company’, and the government and society in the countries where they wish to operate. These links are based on mutual understanding and respect.

Our triangular theory

We call this our triangular theory of doing business: It is founded on the idea that the key to unlocking long-term profits in African countries is to understand how governments, business and wider society interact with one another. It’s not just about having conversations with governments and society, it’s about having the right conversations. In fact, it’s all about nemawashi.

Rosalind Kainyah, MBE, Founder and Managing Director

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What we are up to & News

04|04|2018

Key to investment success in developing countries

Published in the The New Model Corporate Affairs Director’, Managing Director Rosalind Kainyah discusses understanding the socio-economic environment and creating the right conversations as key to success in investing in new markets in developing countries and the role of the Corporate Affairs Director. Click here to read the full article.

29|03|2018

Ghanaian women empowered in business

Empowering women in business is a key aspect of the fifth sustainable development goals. The 2018 Mastercard Index of Women’s Entrepreneurship (MIWE) names Ghana as having the highest percentage of female business owners at 46.4%.

It is encouraging to read about businesses led by women that also consider environmental sustainability, such as the collaboration between Redavia, a German rental solar company, implementing a solar farm for the Ghanaian hospitality group Linda Dor.

27|03|2018

Congratulations to the Young CEO of the Year

Kina Advisory congratulates Dr Amy Jadesimi, CEO of LADOL for winning the Young CEO of the Year award at the 2018 Africa CEO Forum. Amy is a role model for young and old, men and women alike https://t.co/stvCAA5FEr.

19|12|2017

Commemorating Harvard Kennedy School’s Professor Calestous Juma

We at Kina are shocked by the passing of Kenya’s and Harvard Kennedy School’s Professor Calestous Juma. It’s hard to believe that the boundless energy with which he engaged the world through all media on innovation and international development is gone forever. Our last such interaction followed his piece on the limits of leapfrogging for Africa’s development. Inspired by the thought piece, I gave a perspective from the business angle, to which Calestous further responded to me privately.

We are fortunate at Kina to count one of his former students as one of our team. Like the millions of others in Africa and the world who loved his brain and followed his work, we all claim a piece of Calestous, but we can’t claim to understand the grief of those who were closest to him. We can only offer our heartfelt sympathies and continue to build on and implement some of the ideas he shared to help shape Africa’s development.

05|12|2017

Rosalind shares insights on Africa’s hidden figures with This is Africa

Managing Director, Rosalind Kainyah shares her insights on how big business can play a role in bringing the ‘hidden figures’ in Africa’s informal economy into the formal. Click here to view article.