COVID-19 has plunged the African continent into a full blown recession. According to the World Bank, the pandemic has pushed up to 40 million people across the continent into extreme poverty. It is estimated that each month of delaying the vaccine introduction program costs about $ 13.8 billion in lost GDP, a price that costs both lives and dollarswrites Lord St. John, the Crossbench peer and member of the all-party parliamentary group on Africa.
Foreign direct investment (FDI) in Africa has also declined as a result, with poor economic outlook hurting investor confidence. The rise of ESG investing, which measures investments against a range of ethical, sustainable and governance metrics, should in theory lead to funds pouring into worthy projects across the continent to fill this void.
However, in practice, ethical investment principles can indeed create additional barriers if the evidence required to meet ESG requirements is not available. Operating in emerging and frontier markets often means working with imperfect information and taking some risk. This lack of information has resulted in African countries among the weakest ESG scores in international rankings. The Global sustainability competition index For 2020, 27 African countries were among the bottom 40 countries classified for sustainable competitiveness.
As someone who has seen firsthand the social and economic benefits of entrepreneurial projects in African countries, it makes no sense to me that a supposedly âethicalâ investment approach would discourage investment where it would bring the greatest social benefit. The financial world needs to keep working to generate metrics that take into account unsafe environments and incomplete information.
The countries most in need of foreign investment often harbor unacceptable legal, even moral, risks for investors. It is certainly to be welcomed that the international legal systems increasingly hold companies accountable for corporate behavior in Africa.
The United Kingdom Supreme CourtThe ruling that oil-contaminated Nigerian communities could sue Shell in English courts will surely set a precedent for more cases. This month, LSE-listed Petra Diamonds reached a Â£ 4.3 million settlement with a group of plaintiffs who accused her of violating human rights at her Williamson operation in Tanzania. A report from Rights and Accountability in Development (RAID) alleged at least seven deaths and 41 assaults by security guards at the Williamson mine since it was taken over by Petra Diamonds.
Finance and commerce must not be blind to ethical concerns, and any involvement in the abuses alleged in these cases should be strongly condemned. Where there is conflict and where there are human rights violations, Western capital must stay away. However, when conflict gives way to peace, Western capital can be used to rebuild society. To do this, investors need to be confident that they can operate in post-conflict zones without facing false legal claims.
Leading international lawyer Steven Kay QC recently launched a extensive defense his client Lundin Energy, who was subjected to an extended public opinion court trial between 1997 and 2003 for his operations in South Sudan. The trial against Lundin is based on allegations made by NGOs some twenty years ago. The same allegations formed the basis of a US lawsuit against the Canadian company Talisman Energy in 2001, which failed due to a lack of evidence.
Kay withers at the quality of the evidence in the report, particularly its “independence and reliability”, saying it “would not be allowed in an international criminal investigation or prosecution”. The decisive factor here is the international consensus that such allegations will be dealt with by the relevant institutions, in this case the International Criminal Court. In this case, the company has been brought to justice by NGOs and the media while activists allegedly searched for a jurisdiction to accept the case. The prosecution in Sweden will shortly decide after an exceptional eleven years with the case whether the wholly unlikely event that the chairman and former CEO of Lundin was involved in alleged war crimes from 1997-2003 will be indicted or closed.
I am by no means an expert on international or even Swedish law, but according to Kay’s description, this is a case where the public narrative has far outstripped the limited and imperfect information we have about the facts on the ground. Western companies operating in post-conflict areas rightly have high standards and are expected to be partners in the countries’ economic development. This simply will not happen if part of the cost of doing business in these countries is to be recovered through spurious legal claims for decades.
Africa has a grim history of heinous crimes committed in the name of Western capitalism, there can be no doubt about that. Wherever they operate, Western companies should enter into social and economic partnerships with their host countries and communities, while exercising a duty of care towards the population and the surrounding area. However, we cannot assume that the terms and conditions for these companies will be the same as in established markets. International institutions, standard setters and civil society should be aware of African realities in performing their lawful and appropriate roles as holding companies accountable for operations in Africa.