The Nairobi Securities Exchange (NSE) says there is a need to attract more funding for green projects from international funds. We disagree and feel rather that the focus should be on funding African companies. Why projects funded by international investors are a problem for Africa.
Capital News Africa: From the Trading Floor – Week 6-2022
According to Loise Wangui Musyoka, Head of Regulatory Affairs at the Nairobi Securities Exchange (NSE), Africa is suffering from a lack of “investment-ready socially, economically and environmentally (ESG) sustainable projects.”
In a column for Kenya’s “Business Daily,” Musyoka states that African governments should make more ESG projects available to suit the increasing number of international ESG funds active on the continent. “Clearly, the main barrier to investment in sustainable projects is not the lack of available finance, but rather a lack of well-prepared and investment-ready bankable projects,” she wrote in the column.
Musyoka is correct: The investors’ interest in funding projects in Africa is greater than the number of available projects. We do, however, differ in that we believe that the emphasis should be on funding African companies so that they can grow and prosper. Indeed, this is the purpose of African exchanges like the NSE.
Naturally, one can assume that if more ESG projects were made available, African companies would play a role in their realisation. But in such cases, international financiers would be in the driver’s seat. They would decide which projects would be realised and which African companies would be hired. Projects in which African companies are merely allowed to participate in, but not lead, undermine African economic independence.
We feel therefore that Musyoka should not be calling for more projects - ESG or otherwise - for international investors to fund. Bourse officials like her should instead be urging international investors to support African companies by making capital available for growth and by providing them with expertise and more access to international markets.
Let us cite another reason for why more international investment in say ESG projects is not necessarily a good idea. The investors that Musyoka refers to do not base their intentions on what the African continent needs. Instead, current – and random – political fashions often dictate their investment plans.
Such fashions can change overnight. One day, the investors will be looking to fund projects that combat discrimination based on sexual orientation. The next day, the investors will want more women to become entrepreneurs. Or even the next day, renewable energy or microcredits for the very poor will be the chief concern of these investors.
Don’t misunderstand us: These issues are legitimate and, if they are handled wisely, can improve the lives of many. But we would prefer that Africans themselves decide which projects should be invested in.
African entrepreneurs know their market the best. This includes knowing where the supply bottlenecks lie or how capital can be best employed. If the North is eager to fund projects in Africa, it should give more capital to African companies. The type of projects that the NSE would like to see more funding for should also be defined by African companies instead of international financiers.
We also believe that the bourse is the marketplace for identifying the best investment ideas. This is because companies must present their projects to their investors in order to get them funded. And this is yet another reason why we find it so important that African stock exchanges be promoted more than they currently are.