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Sub-Saharan Africa / Kenya

What does responsible foreign investment look like?

Investors are seeking business resilience in the sweet spot between responsible investing and FDI amid the Covid-19 crisis.

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Kenya’s pioneering mobile phone service M-Pesa has extended financial inclusion through a number of African countries and can be held up as a shining example of responsible foreign investment. (Photo by Tony Karumba/AFP via Getty Images)

With Covid-19 disrupting operations across the globe, foreign investors are seeking to back responsible investments in a bid to waterproof their businesses, but also to generate strong returns while having a positive impact on the countries that they invest in.

“Thankfully, we are seeing some silver linings emerge from the devastating outbreak of Covid-19, as it has encouraged companies to go more into impact investing in order to do more for the common good and support each other,” explains Frank-Jürgen Richter, chairman at think tank and economic summits organiser Horasis.

Foreign direct investment (FDI) can be a driver of economic growth for the host countries, especially when multinational enterprises promote corporate social responsibility initiatives. Greenfield projects in particular have the potential to boost developing countries, since they create jobs and/or facilities and transfer technology and expertise to the local population. In short, this type of investment can empower people, especially women, giving them the opportunity to gain new skills, improve their quality of life and walk away from the informal sector.

However, for this to happen it is key that multinationals maintain the same standards and follow the same practices when investing in developing countries as they do when investing in their home countries or other developed economies. This includes environmental standards, health and safety measures and equal treatment of employees, among other practices.

Richter explains that companies are moving away from only looking at profits when investing abroad, and they are also seeking to create the right working conditions for their employees, a move motivated to some extent by that fact that this could also result in higher productivity. He mentions the examples of companies that build kindergartens close to their manufacturing facilities to accommodate parents among their workforce, adding that more and more governments are asking for this kind of supplementary investment from companies looking to invest in their country.

If Coca-Cola were a medicine…

Across Africa, medical supply chains suffer from numerous challenges, meaning many health facilities do not receive the basic products they need. In fact, up to 50% of people on the continent lack access to critical medicines, according to the World Health Organisation. At the same time, a Coca-Cola product is available almost anywhere in any African country.

So if a Coca-Cola product can be found anywhere in Africa, why not life-saving medicines? This is the question underpinning the work of Project Last Mile (PLM), a pioneering public-private partnership between the Coca-Cola Company and Foundation, the Bill and Melinda Gates Foundation, the Global Fund and USAID that seeks to improve the planning, distribution and performance management processes of public health in Africa.

The project was initiated by the Global Fund in 2010 to help Tanzania’s medicine distribution network build a more efficient supply chain through the use of Coca-Cola’s world-class expertise and logistics.

Governments and donors have made progress in transporting medicines into African countries and making them more affordable. However, public sector supply chains often struggle to get medicines to the ‘last mile’ – to the health facilities where people collect them.

The key challenges facing governments’ medical supply chains in Africa include a combination of poor information systems, a shortage of trained personnel, a lack of appropriate equipment, poor roads and infrastructure, limited engagement with private sector entities, and uncoordinated public financing, according to a USAID report.

In these areas, PLM has offered demonstrable support. Over the past decade, it has assisted government health systems in eight African countries. In Tanzania and Mozambique alone, it optimised delivery routes for more than 3,500 health facilities, reducing delivery costs and increasing reliability. Meanwhile, in Lagos, Nigeria, it developed proactive maintenance and repair systems for more than 392 refrigeration units, while in South Africa it supported the direct delivery of medication to almost two million people with chronic diseases.

Moreover, PLM has raised more than $12m in partner investment for tailored health system solutions across Africa, and ensured a return on investment for donor partners on billions invested in life-saving medicines and vaccines in sub-Saharan Africa.

Above all else, however, PLM has shown other businesses how to make a scalable model for cross-sector partnerships that leverages business solutions and facilitates access to skills and intellectual property from multinationals.

M-Pesa makes money more accessible

M-Pesa, a mobile service facilitating money transfer and financial services, is widely considered to be a shining example of responsible investment. This is largely because it has boosted financial inclusion within several African countries.

It was first launched in Kenya in 2007 by Safaricom, an associate of Vodafone in the country. For this project, Vodafone secured funding from the UK’s Department for International Development.

M-Pesa helps customers transfer and receive money via a basic mobile phone, allowing users to pay their bills, purchase products in a shop as well as receive pension payments and government grants. It has also helped low-income individuals launch their own businesses and improve their financial resilience.

On top of that, it significantly reduces “the potential risks of street robbery, burglary and petty corruption within cash-based economies where only a small proportion of the population benefit from access to conventional financial services”, according to Vodafone’s website.

M-Pesa has gained popularity in countries outside of Kenya, and there are now active agents operating in Tanzania, Mozambique, Egypt, Lesotho and Ghana, among others.

What responsible investment looks like

Foreign investment is not always a force for good. Often, however, it has an inherently beneficial economic impact, as can be seen with the success of M-Pesa. It is only on rare occasions, however, that investors go the extra mile.

PLM is looking to resolve this problem. More specifically, it shows how multinationals can leverage their core competence for economic development, in partnership with the public sector.

Unfortunately, PLM is an all too rare example. This is one reason why, unless there is significant international action, the UN’s Sustainable Development Goals will not be achieved until 2073, according to the Social Progress Imperative, a Washington-based non-profit organisation.

Responsible investing, sustainability and environmental, social and governance (ESG) have come to the fore amid the Covid-19 crisis. With the world heading towards its worst recession since the Second World War, foreign investment will play a vital role in economic recovery, especially in developing countries. They must think beyond the purely economic impact they can make, and focus on the social and environmental, if they are to be true to the ESG message they want to convey.