Socially Responsible Investing & Value Alignment

Socially Responsible Investing & Value Alignment

The Business Ethics Blog

Socially responsible investing (SRI) is a big topic, and a complex issue, one about which I cannot claim to know a lot. The basic concept is clear enough: when people make investments, they send their money out into the world to work for them. People engaged in SRI are trying to make sure that their money is, in addition to earning them a profit, doing some good in the world, rather than evil.

There are a number of kinds of SRI. For example, there are investment funds that use "negative screens" (to filter out harmful industries like tobacco), and there are "positive investment" (in which funds focus on investing in companies that are seen as producing positive social impact). We can also distinguish socially-responsible mutual funds from government-controlled funds, such as pension funds.

(For other examples, check out the Wikipedia page on the topic, here.)

Setting aside the kinds of distinctions mentioned above, I think we can usefully divide socially responsible investments into two categories, from an ethical point of view, rooted in 2 different kinds of objectives.

On one hand, there's the kind of investment that seeks to avoid participating in what are relatively clear-cut, ethically bad practices. For example, child slavery. Trafficking in blood diamonds might be another good example. Responsible investment in this sense means not allowing your money to be used for what are clearly bad purposes. In this sense, we all ought to engage in socially-responsible investment.

(Notice that investments avoiding all child labour do not fall into the above category, because child labour, while always unfortunate, is not always evil. There are cases in which child labour is a sad necessity for poor families.)

On the other hand, there's what we might call "ethical alignment" investments, in which a particular investor (small or large) attempts to make sure their money is invested only in companies or categories of companies that are consistent with their own values. Imagine, for example, a hard-core pacifist refusing to invest in companies that produce weapons even for peace-keeping purposes. Or picture a labour union investing only in companies with an excellent track-record in terms of labour relations. In such cases, the point is not that the corporate behaviour in question is categorically good or bad; the point is that they align (or fail to align) with the investor's own core values.

I'm sure someone reading this will know much more about SRI than I do. Is the above distinction one already found in that world?

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Kenya’s Mobile & Internet, by the Numbers (Q4 2010)

Kenya's Mobile & Internet, by the Numbers (Q4 2010)

White African

If you've been wondering what the numbers look like for Kenya's mobile and ISP space, look no further than the latest CCK Report (Communications Commission of Kenya). It's one of the best documents that I've seen, compiling information that you just can't seem to find anywhere else.

Highlights of Q4 2010:

• There are 22 million mobile subscribers in Kenya
• 9.5% mobile subscriptions growth, which is increasing over the previous quarters
• 6.63 billion minutes of local calls were made on the mobile networks
• 740 million text messages were sent
• Prepaid accounts for 99% of the total mobile subscriptions
• The number of internet users was estimated at 8.69 million
• The number of internet/data subscriptions is 3.2 million
• Broadband subscriptions increased from 18,626 subscribers in the previous quarter to 84,726

Price Wars

Everyone recognizes the impact on SMS and voice, due to the price wars brought on by Airtel last year. The average, people are paying 2.65 Ksh per minute for voice representing 33.4%
reduction on pre-paid tariffs. It comes as no surprise that there was a 68.4% increase in traffic during this period, nearly triple the norm.

There's nothing like a chart to bring this point home:

Interestingly, a decline in total number of text messages sent (4% less) was recorded. It's an indicator that given the choice of lower cost voice, people would rather use that, and they do.

Safaricom lost 4.8% market share, from 80.1% to 75.9% (still massive). Surprisingly, it wasn't Airtel who benefitied, as Orange made up for most of that with a 4.4% increase of their own. Airtel did lead the market by recording 1,143,353 new subscriptions, about 3x their closest competitor.

Internet

A whopping 99% of the internet traffic in Kenya is done via mobile operators, meaning 3G, Edge or GPRS. It's to Safaricom's credit that they moved on this early, not dithering around on data as their competition did, effectively taking the whole market.

My theory is that there are only two major players in the ISP space in Kenya. The first is Safaricom, supported by this report, who will own most of the country due to having an island strategy (mobile towers). This allows them to own all the rural areas and anyone who needs decent speeds and has to be mobile.

The other is the fiber bandwidth provider (ISP) who figures out and cracks the consumer market. The closest to doing this is Zuku (Wananchi) who started rolling out 8Mb/s high-speed fiber-to-the-home internet connections in Q4 2010 at only 3,499 Ksh ($45). These numbers aren't reflected yet. My guess is that we'll see Zuku tying up all the home internet connections in the major urban areas.

Estimates for those with internet access in Kenya is closing in on 9 million users, and at over 22% of the population, we can say we're getting a lot closer to the critical mass needed for real web businesses and services to thrive.

Final Thoughts

Overall, the numbers on both mobile and internet are trending up, and at a very favorable rate. The indicators here prove that you should be paying a lot of attention to mobiles and data connectivity in Kenya.

If you're a business, what's your mobile plan? How are you providing and extending your services over the internet (and no, a website is not enough)?

If you're an entrepreneur, how are you going to use this information to decide what to build? Are you paying attention to the wananchi, building apps for the upper class?

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Toch over naar Android....?

Thoughts on the Malawi fertiliser subsidy programme

Thoughts on the Malawi fertiliser subsidy programme

Aid Thoughts

Late last year, over at Duncan Green's blog, Max Lawson discussed a recent paper by Andrew Dorward and Ephraim Chirwa analyzing and espousing the benefits of the Malawi fertiliser subsidy programme. Having lived and worked in Malawi during the first major expansion of this programme, I've always been a keen follower of the debate around its cost and benefits. I reached out to several colleagues that have, in some way or another, dealt with or studied the programme in the past. This week we'll feature two short pieces which are fairly critical of Dorward and Chirwa's claims and Lawson's interpretation. Many of these posts will be anonymous for the usual reasons.

In 2005, Malawi undertook one of the most ambitious drives to develop its agricultural sector witnessed in a generation.  The initiative involves targeting fertiliser and seed inputs using 'smart subsidies', aimed at supporting the poorest smallholder farmers in the country.   The policy was launched following a drought which left close to five million people in need of food aid.  Between 2005 and 2009, Malawi's maize production doubled and real per capita GDP increased by 40%.

Andrew Dorward and Ephraim Chirwa have written a series of papers chronicling the program's development – their most recent paper was released last month.  They have been consistently supportive of the program, arguing that fertiliser subsidies have increased food availability, increase real wages and led to wider economic growth and poverty reduction.  However, this has come at a cost. In 2008/9, the program cost over $250m.  At 16% of the national budget and 5.6% of GDP, the money spent is equivalent 147% of total health spending and 175% of education expenditure.

When analysing a project of this scale, the concepts of opportunity cost and sustainability should form the main criteria for assessment. Not concepts such as operational efficiency – the focus of Dorward's and Chirwa's most recent work.  I would argue that the fertiliser subsidy program performs poorly on these criteria for two main reasons.

First, it is unclear that the benefits of the scheme actually outweigh the costs.  In 2008, Dorward and others estimated the benefit to cost ratio of the program in 2006/7 – a year of good rains and relatively low fertiliser prices.  The estimate was 1.06 – a small net benefit – and had a wide variance.  However, in later years, fertiliser prices have been considerably higher – suggesting that if the same methodology was applied, the results would be negative (costs>benefits).  The paper rightly argues that many of the benefits of the program are hard to measure, so have been excluded from this metric. But there are also unknown costs, for example the displacement of the private sector in the agricultural industry by massive government intervention.

Second, the focus on fertiliser to raise crop yields leaves the economy vulnerable to exogenous shocks –all the eggs are in one basket!  For instance, fertiliser won't work if there is no rain.  At present much of the country's foreign exchange is used for fertiliser imports – reducing the amount available to import food in the event of a drought.  Money spent on the subsidy could also be used to improve the country's near non-existent irrigation network (despite Lake Malawi covering a third of the country).  Or the money could be used to diversify the economy away from the volatile agricultural sector.  All of these make the economy more resilient.

There are many other costs and benefits associated with the program.  My point is that it is not enough to state that the fertiliser subsidy program is a success because maize yields have risen, or because the government has improved its logistical operations.  Instead, we should be asking whether this program will help Malawi move away from subsistence farming? What are the complements to subsidised fertiliser? And what are its substitutes inside and outside of the agricultural sector?

Malawi now stands at cross-roads.  On one hand the politically very popular subsidy program could continue to expand, raising its cost and complexity, to a level similar to the wasteful and counter-productive subsidies of the 1970s and 1980s.  On the other hand, the program can be brought under control, both in terms of scope and scale.  This will free up valuable resources to target complementary intervention within agriculture and support other government priorities outside of agriculture.  In order to stimulate a Green Revolution in Malawi, where increased production is used to invest in raising productivity, a holistic approach must be taken, with several interventions being pursued simultaneously

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The Dragon's Gift

The Dragon's Gift

The Enlightened Economist

At last some serious scholarly attention is being paid to the role China is playing in the economies of Africa, getting past the cliches and myths. The Dragon's Gift: The real story of China in Africa by Deborah Brautigam is a detailed, thorough assessment of China's engagement around the continent and the impact of its investments and aid. It should be essential reading for anybody in the western aid community as well as other academics.

One of the key insights is that China's policies draw on their own recent experience as a recipient of aid and as a developing country. Chinese policymakers believe that their relationships with African governments can bring mutual benefits, an exchange of economic progress for natural resources, because that has been China's path. Their own economy has moved along a track from shipping coal and minerals abroad to basic manufacturing to higher value activities. With China's help and investment, they believe African economies can follow the same path. This is one reason so much of China's investment involves infrastructure projects. As a result, they see aid as a small part of a menu of means of engagement, extending through concessional loans to direct investment. All of these are aligned to the same mutually beneficial end. China's engagement in Africa is a strategic one, not an opportunistic resource-grab - at least in intention it is not remotely like the western colonial engagement with Africa.

Another lesson for me was the duration of China's relationships. It has been an aid donor and investor on a large scale since the 1970s. It's just that many of us have only noticed China in Africa recently. Between 1967 and 1976, aid accounted for 5% of Chinese government expenditure (although a large proportion of this went to Vietnam). (p41) But as long ago as 1984 China was the 8th largest donor in Sub-Saharan Africa, according to the OECD's DAC. (p54)

In addition to emphasising infrastructure, China has a heritage philosophy of non-interference in the internal affairs of other countries and - perhaps notoriously - is therefore less likely to impose conditions on its projects. Brautigam explains exceptions to this as linked to individual African countries' attitudes to Taiwan. She also points out that China is clear African economies need to industrialise to develop - whereas "an increase in manufacturing is not part of the Millennium Development Goals." (p191) I think the Chinese are right; for all the negative aspects of early-stage industrialisation, African countries need to go through it.

The question is whether Chinese investment can help create a self-sustaining industrial base in Africa. There are many examples where Chinese investors have found, just like their western counterparts, that factories and facilities left to Africans to run founder in corruption and ineptitude. The book gives many examples of projects where the Chinese have built the plant, trained the managers, left it to run - and had to return later to rescue it with Chinese supervisors once again. The next few years will reveal whether that is changing in any African countries - the outlook seems variable.

The Dragon's Gift is a sign that received western wisdom about China's role - that it's merely cynical and exploitative - is being challenged. Peter Gill's Famine and Foreigners also took a more informed and nuanced perspective on China in Africa. Brautigam cites a debate on the Zambian Economist blog about a 2008 Newsnight report that raised the same question. I haven't yet watched the recent BBC documentary, The Chinese are Coming, on the same subject. However,  The Dragon's Gift is by far the most thorough look at this subject so far. Parts of it are very detailed but the author flags them up for readers. Highly recommended for anyone interested in this subject.

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Triple Bottom Line — the bad idea that just won’t die

Triple Bottom Line — the bad idea that just won't die

The Business Ethics Blog

I just got a bulk e-mail ad for yet another conference on so-called Triple Bottom Line Investing. Triple Bottom Line Investing is just one more incarnation of the more general "Triple Bottom Line" (or 3BL) notion.

(Wayne Norman and I wrote about the 3BL back in the April 2004 issue of Business Ethics Quarterly, pointing out problems with the concept, the lack of academic attention to those problems, and the concept's seemingly inexorable rise in popularity. Since we began tracking usage of the term in 2002, its popularity — based on Google hits — has continuted to grow exponentially.)

The "Triple Bottom Line" is roughly the idea that corporations can, and should, measure performance not just according to the good-old-fashioned financial bottom line, but also according to two more "bottom lines," namely the social and environmental bottom lines.

This idea is of course ridiculous. It's ridiculous not because companies can't or shouldn't track performance in those areas — they can, and they should. It's not even ridiculous because such performance can't be quantified — many environmental and social impacts can be measured, and companies' performance on various measures can be tracked from year to year.

No, the problem with the 3BL is that it's a terribly misleading metaphor. It's an accounting metaphor, used in domains that don't satisfy some of the basic assumptions that make financial accounting work. (In my Critical Thinking class, this is what we call the "False Analogy" fallacy.)
In particular, the 3BL implies two things beyond the idea of measuring and tracking social & environmental performance.

1. 3BL assumes that social and environmental plusses & minuses of different kinds can be totalled up, the same way income & expenditures can. This, of course, is false. It is practially difficult, and indeed probably conceptually impossible.
2. 3BL implies that the social & environmental "bottom lines" generated for one company will be amenable to comparison with the social & environmental "bottom lines" of other companies. This, too, is false. Without accounting's "common unit of measure" assumption, comparisons across companies are impossible.

I've had the opportunity to talk to a couple of 3BL consultants (consultants who help companies implement a 3BL system/strategy/whatever). Both caved in almost immediately when pressed on the meaningfulness of the term. One admitted that it was "just a metaphor," and that of course her practice didn't actually calculate social & environmental "bottom lines." The other consultant I talked to reassured me that costing out (i.e., putting dollar figures on) social & environmental impacts was relatively straightforward — in other words, he admitted that his group doesn't actually believe in three bottom, lines, but rather in 2 additional sets of factors (social & environmental impact) that can be bundled into the one, traditional, financial bottom line.

In sum: tracking and reporting on social & environmental performance is a good trend. Thinking that managing such matters can be reduced to a form of accountancy both understates the complexity of social and environmental performace, and overstates the reach of the field of accounting.

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