Business Insights

Africa Should Rethink Business Models For Impact And Sustainability by Babatunde Oyateru

It is no secret that humans anthropomorphise everything; perhaps it is down to the urge to make things more relatable or our need to recreate.

Whatever the case, many inanimate, abstract concepts now bear personalities. Because of this, we can think of organisations with personas, and we argue that they should be responsible corporate citizens. In recent times, there has been a tension between the different personalities we have imbued our corporations with, which has resulted in an identity crisis if you will.

Is the corporate goal of an organisation solely to return a profit to its shareholders, or should it be purpose-driven and respond to wider societal needs at the expense of robust profits?

As the world confronts the fragility of the current consumption-based economic system with the attendant environmental effects and perpetuating inequality, it has turned more and more to sustainability and societal impact as a possible alternative.

The conversation on sustainability, however, has not sufficiently addressed the dichotomy presented by attempting to create impact economies with corporations not designed to deliver impact.

What is in a Name?

Corporations are largely delineated into two broad categories: those driven by profit and those driven by social impact. Those driven by profit are usually pragmatic and efficient, with little concern for other indices beyond the bottom line.

Companies motivated by social impact defy maximising profit and aim to improve the quality of life. What is becoming evident however, is that the delineation cannot be absolute.

Private corporations can no longer pursue profit while ignoring the social, political and environmental effects their business has. Neither can Impact or development institutions claim to be adherent to social goals but promote inefficiency in delivering their services.

Best practice seems to be shifting to the middle-ground, a hybrid between the need to run profitable enterprises which have a broader impact on the communities they serve.

Thought leaders like Dirk Schoenmaker, the Rotterdam Professor of Banking and Finance, have called for an impact economy that recognises these often-divergent urges and coalesces them to improve corporate citizenship and improve the quality of life of customers, end-users, consumers and ultimately the country.

Achieving this Impact Economy is often easier said than done, as corporate citizenship is often reflective of the economy and regulations of a country.

Redefining the Structural Space

Most companies conduct their business either in a market economy where the government provides public goods, such as health, education and security and regulates economic activities. However, private companies are geared towards profit-maximisation and usually at the expense of a more profound impact.

Or companies operate in a state economy where the government controls the production of private and public goods ostensibly to ensure broader service provision but usually at the expense of efficiency and individual enterprise.

In Africa, where the distinction between the private and public sectors is becoming less obvious and more transparent and where private corporations that thrive do so with considerable government incentivisation, it is often difficult to tell the difference between the two systems.

What is clear is that either system or a combination of both have contributed to environmental degradation, economic inequality, and reduction in the quality of life in Africa.

A possible solution to this will be redefining the economic structure and, by extension, the companies they foster; Schoenmaker refers to this as the Impact Economy.

The Impact Economy coalesces the distinct features of the market economy and those of the state economy which seeks broader participation of both the public sector and the private sector in the provision of goods and services.

This model actively encourages considering the common good and general welfare without sacrificing the self-sufficiency and growth of private enterprises.

Striking the Right Balance

Admittedly, the impact model appears self-indulgent and wistful, but it is not without precedent. Indeed, development financial institutions (DFIs) and development agencies are founded principally on the ideals of impact investing and sustainability, all while funding their operations.

It is little wonder that most of these institutions are openly financing the achievements of the relevant United Nations Sustainable Development Goals (SDGs) in their industries and have done so while promoting profitability.

Recently JP Morgan committed itself to invest in the SDGs and launched a DFI in 2020 that has so far channelled $146bn to development projects worldwide.

This is not to suggest that striking a balance between a shrewd investment philosophy, greater risk appetite and a mandate for development and profit is easy- just that it is possible and already exists in some ways.

To be fair, it may be asking African governments to take on more than they are able for now, but this is one of the specific roles DFIs can play.

DFIs demonstrate the delicate balance needed for impact investment and advance the conversation on repurposing African organisations for impact and sustainable development.

DFIs can also revisit what states should consider a public good; for instance, decent and affordable housing should be regarded as a public good in the same way education and health services are. Making these distinctions will broaden the space for impact investment as well.

The SDGs, if achieved by 2030, will serve all of humanity but perhaps Africa more than most. As countries task themselves with closing the SDG funding gap which stands at $2.5trn according to a UNCTAD report, they should also be concerned with reshaping organisations to help deliver them.

About the author:

Babatunde Oyateru is a Communication and Development Professional who heads Communication and External Affairs for Shelter-Afrique, a Pan-African DFI. He is also a Doctoral Candidate in International Relations

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