Sunday 8 June 2014

'Engage or fail'? Stakeholders in African investing

Africa investment risk advisers can sound good and play it safe by merely stating the obvious.

Yet the obvious is never pure and rarely simple. If it were otherwise, such advisers would find little demand for their services.

A recent report by FTI Consulting warns that investors in Africa risk failure if they do not 'engage' with government and social stakeholders: here.

Two remarks here. The first is that this is not new insight. The report calls itself -- and the strategy of engagement -- 'a new approach' to risk management in Africa. Well, not quite.

True, directly invested firms, especially in time- and capital-intensive sectors such as mining, have over time shifted towards seeking positive social impact, rather than just attempting neutral impact, mitigating negative impact, or not considering local impact at all. They have faced pressure to do so, on various fronts. To shift effectively they have had to re-conceptualise their relationship to host governments and communities. Some have also sought to see this embedded-ness as a value-creating exercise not just a risk-managing one. Still, it is a bold consultancy that presents as a new idea the notion that firms might further their objectives by engaging their host governments, and might protect and enhance their long-term value proposition by deepening their social license to operate through various forms of local inclusion, investment, outreach and disclosure.

The second remark is that consultants do their clients a disservice to simply state the obvious ('engage with stakeholders' ...) as if (a) the process of doing so will be self-evident, (b) the consequences of enhanced engagement are always manageable and foreseeable, (c) the identity of relevant stakeholders is clear and (d) these stakeholders are passively awaiting engagement by corporates and have no mixed feelings or motives of their own. None of these is typically the case in fact.

True, responsible firms with long-term plans in African localities would be well advised to pursue more deliberate, strategic and intensive stakeholder engagement. But the FTI report frames this as a risk-management strategy, when in fact the process of expanding and deepening links to host governments and social groups is neither easy nor risk-free. Few serious firms in Africa would read such a report and say 'Thank you -- it had never occurred to us to reach out locally'. They are far more likely to say 'Yes but it is hard, who is who, what do stakeholders really want, is this our role, where does it expose us?' and so on.

Reports such as FTIs make it seem as if not engaging is risky, but simply 'engaging' solves all social and political risks. That is far from obvious. 'Engaging' can itself become the source of (ok often manageable) risk. It assumes governments and communities speak with one voice, know what they want, understand firms' viewpoints, etc. Now these things are better handled by firms adopting an explicit pro-engagement mindset, actively seeking to find shared ground with authorities or other stakeholders, or delineating the extent of their responsibility. But merely calling on firms to 'engage with stakeholders' tells them nothing about how to do so, and suggests a far easier, smoother process than ever exists in fact.

I say all this partly because of my own fatigue (and my perception of generalised fatigue) at the constant refrain about 'engaging'. It heavily marks the whole area of sustainable / responsible business, and of cross-sector cooperation on development issues. My own blog goes on about it. So does a policy brief I wrote, published last week, on engaging the private sector in peaceful development in Africa. Yet I think a healthy dose of realism is required.

We use 'engage' as a short-hand, convenient phrase in the context of business-government-social relations because our intuition and ideals tell us it is better (for development impact, risk management, etc) than non-engagement. Yet it is far easier to call for than to do. Too few in my field seem prepared to admit this, as a recent post in effect noted, as did another post on enthusiasm for the act of public-private 'partnering'.

Last week's post made the same point in relation to NGO-business collaboration: on balance productive and advisable, but hardly a smooth ride.

Jo

Post-script:

The FTI report's mini-poll of WEF-Africa attendees does reinforce a good point: foreign investors in Africa have a long way to go in communicating better with / to local stakeholders. In previous posts (see 'Corporates, Communities, Communicating' here) I've noted that firms involved in the bumpy African growth story can improve their messaging about the nature of the constraints they face, their limited ability to meet social demands, the delineation of their responsibilities from those of government, and so on. High expectations of firms (individually and as a class) are a source of risk, both directly and in feeding arbitrary and/or populist-placating fiscal demands and regulatory actions.

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