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.

 

Why ESG is an opportunity and not a cost to business

20|09|2016

Kina Advisory Founder and Managing Director, Rosalind Kainyah, explains why environmental, social and governance (ESG) strategies are an opportunity to businesses rather than a cost.

 

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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What we are up to & News

20|09|2018

Africa50 expands its board of directors

Africa50 has appointed our Imoni Akpofure to the board of directors.  Her expertise in project finance, strategy, business development, environmental and social sustainability, and stakeholder engagement, with a focus on emerging markets will be invaluable to Africa50 as they continue to contribute to Africa’s growth. For the full article, just click here.

10|09|2018

Rosalind Kainyah | Appointed | Board of Aker Energy

Aker Energy’s Appointment of Rosalind Kainyah to the board demonstrates their commitment to developing the socio-economic environment within Ghana.  Click the link to read the full story.

30|08|2018

August newsletter from “Word of Mouth” | Part of this month’s Wing Women series

Managing Director, Rosalind Kainyah, has been featured in this month’s edition of Word of Mouth Newsletter as part of this month’s Wing Women series. Word of Mouth is ‘an offline community focused on changing the existing default by way of female empowerment.’. Their newsletter focuses on Rosalind’s positive work with companies that have significant socio-economic impacts doing business in Africa. To read the Newsletter, just click here

13|07|2018

Derick Omari wins the Queen’s Young Leader Award

From 4000 finalists from across the common wealth, Derick Omari, a graduate of the Class of 2018 at Ashesi University, Ghana is awarded the Queen’s Young Leader Award.  Dericks goal … “My greatest desire has been to make a substantial positive impact in Africa. To receive the Queen’s Young Leaders Award along the way to this dream is a great honour.”  Click to read more

12|07|2018

Congratulations to the 2018 class of graduates from Ashesi University

Kina Advisory congratulates the 2018 class of graduates from Ashesi University. We particularly want to mention a young female graduate, Teni Agana, who has an inspiring story. To know more, just click here: