Viewpoint: In emerging states, more investment isn’t enough

In mid-January, 21 African delegations will descend on London to attend the UK’s inaugural Africa Investment Summit, taking place in London on 20 January. There will be announcements of more investment, but we should be asking ourselves is ‘more’ enough?

The focus on economic indicators as the way to measure state and society’s progress is garnering increasing criticism. In emerging states, a fixation on economic growth is keeping at arm's length the issue that investment is implicitly charged with addressing: social progress.

The summit will see governments and businesses meet to discuss how investors and the UK in particular can grow partnerships in Africa. Rightly, it provides a forum for investors and governments to grow relationships and to remove obstacles to investment. But to what end?

More isn’t simply the answer. A different approach is needed.

More jobs needed

Demographics matter. Africa needs to create 20 million new jobs per year just to sustain its current unemployment levels. Even without taking into account the disruption of automation, trade wars and climate change, that’s double the job creation rate of the past five years.

Emerging states must move beyond business-as-usual public administration. Investment-related approaches being taken today are often decades old, outdated and don’t reflect either the needs of the population or tomorrow’s investor. Beyond job creation, the current model expects investment-fuelled state revenue to meander its way through a state’s – often inefficient and aged – public administration and eventually fund public services in order to satisfy the needs of a critical mass of an exponentially growing population. Is that going to generate enough social progress to meet the needs of the population and ensure the stability of the state? Don’t count on it.

A state’s pursuit of investment needs to be clearly seen as serving the needs of the citizen, not the tax authorities.

More of the same, in the form of the relentless pursuit of improved public administration, is not enough. For emerging states to both compete globally and provide their populations with the dividends of that competition, there needs to be a paradigm shift in how states view, value and pursue investments.

Outsized social impact

Today, governments largely judge investments on the basis of two indicators: jobs and dollars. Their value is viewed through an economic lens even though the ultimate impact needed and sought is social. This should be short-circuited. Emerging states must re-orientate their investment efforts to increasingly target investments with an outsized social impact. With the proliferation of high-impact, tech-enabled, network-based start-ups, this has never been more relevant, or more possible.

Taking the example of an e-banking start-up we are working with. Its entry into one of our focus states will bring no jobs and next to no revenue to the country. By traditional measures, the government would view it as a near-worthless investment. Yet, viewed through a social lens, it is a tool for increasing access to banking services for countless entrepreneurs within low-income portions of the population, directly impacting the lives of some of the state’s poorest.

In this context, we feel our role is clear. We’re evangelists for a different approach to investment in emerging states. One that works with the grain of government to increase not only the quantity of a country’s inward investment but its quality; not only its direct economic benefit but the extent to which it directly or indirectly addresses social issues.

If we want to drive transformative change, our approach has to be more than tugging at the sleeves of investors to have conversations about social impact. Even if we feel it needs to change, we need to internalise that the majority of businesses we work with are commercial entities interested in commercial returns for whom social impact is an afterthought.

On that basis, we need to work with emerging states and the international donors that support them to ensure that the system those investments are feeding into is increasingly inclusive and focused on delivering social progress.

Better, not just more.

Raymond Asfour is CEO of Expectation State, an organisation that works alongside senior government officials to improve investment related governance and decision making in emerging states, while maintaining relationships with industry investors and global private equity.