Innovations In Emerging Markets

Malaria Losing Fight against Business in Africa

International aluminum producer BHP Billiton joined in an exceptional partnership with the governments of three African countries and with other businesses to take on malaria across the region. Six years later, the New York Times reports, malaria is losing.

Billiton's initiative began in its Mozal smelter in Mozambique, where one in three of their employees -- almost 6,600 cases in two years-- were affected by the disease. Billiton's example is being hailed by the UN as a model of private sector and government partnership. The key to the success of this model, observers say, is a partnership which mobilizes efforts regionally while matching resources to the scope of the disease.

Mozal represents a capital investment of $1.3 billion, making it one of Africa's largest enterprises. To be effective on a wide scale, the partnership model must involve companies that have a fraction of Mozal's financial and managerial resources. IFC is doing exactly that in the fight against AIDS.

Over the past few years, IFC has created partnerships with African companies under the IFC Against AIDS program. One of them is Mozal itself, for which IFC provided much of the financing. Other companies involved in the program are much smaller. The aim is to help smaller companies replicate Mozal's model and be as successful against equally devastating diseases.

Brazil, South Africa, India Lead Field in Sustainable Banking

Brazil's financial sector does it again: it's home to two of the four emerging market banks singled out for innovations in sustainable banking in the Financial Times 2006 Sustainable Banking Awards shortlist, released earlier this week. Brazil's Banco ABN Amro Real and Banco Itau were shortlisted for the "Emerging Markets Sustainable Bank of the Year" laurels, along with South Africa's Nedbank and India's Yes Bank.

The FT Sustainable Banking Awards program, held jointly with IFC, recognizes global banks that have actively integrated social and environmental objectives into their operations. For more on the program, click here.

Brazil is fast establishing itself as a hub of innovations on sustainable financing in emerging markets. In December 2005, it launched the Bovespa Sustainability Index, the first of its kind in Latin America. The index includes local companies listed on the Sao Paulo Stock Exchange and will track not only their economic and financial performance, but also their corporate governance and environmental and social performance.

A Multinational in Africa: the Region Is Ready for Business

Unilever CEO Patrick Cescau writes in The Banker that African governments and institutions are successfully improving professionalism, thereby making Africa more attractive for sustainable investments. He notes:

"Business and banking in the region is helping to shift the emphasis from poverty alleviation to wealth creation, from aid and charity to the provision of jobs and sustainable development. In Africa, every job has extra value in terms of its indirect support to the wider family and community.

Cescau should have a pretty good idea of the business landscape in the region: Unilever operates in 18 African countries and generates about Euro 2 billion a year. He acknowledges that accountability and regulatory systems in some African countries continue to be serious issues for businesses. However, he says, that is no longer the norm in Africa. More countries than ever are doing the work necessary to attract investments and create the conditions for growth necessary for the jobs needed to support the wider community. 

India and China Entrepreneurs -- Who Has the Real Stuff?

In the long term, Indian entrepreneurs might have an edge over their Chinese counterparts, argued some experts in emerging markets attending a recent Wharton Private Equity Conference. Panelists bullish on Indian entrepreneurial potential noted the overseas experience of many working for Western companies, as well as their closer ties and partnerships with U.S. firms. Softer attributes such as a democratic government and a free press will stand Indian firms in good stead over the long haul, another conference participant argued.

China, by contrast, continues to be more attractive in the short term. The combination of a government which has embraced Western-style capitalism, cheap labor, and entry points to a wider range of industries led by a globally dominant manufacturing sector will ensure that Chinese firms remain ahead as a favorite destination for foreign direct investment in the foreseeable future.

On the risk side, India and China present different sets of problems for investors. In India, an evolving but still deliberate regulatory system, inadequate infrastructure, and overwhelming poverty are all part of the investment risk picture. In China, concerns focus on the legal and political systems.

All in all, however, the real drag on the performance of entrepreneurs in both countries is neither political nor economic. At least one expert noted that the real Achilles heel of both systems is the environment.

Here at IFC, we would agree that among the greatest long-term challenges to firms --let alone society-- in those countries is the deteriorating environmental conditions. In light of that, it would appear that a major piece missing from the Wharton conference discussion is an in-depth look at environmentally sustainable investments. It's time to address those issues so that investors can get a truly comprehensive handle on the prospects for investment in those two key Asian emerging markets.

On Firms and Their Track Records in Green Investments

Reliable information on companies’ social and environmental performance is scarce, especially in emerging markets. That is not news to anyone who has ever worked in the area of business and development. The news is in the initiative recently launched by IFC to remedy the problem.

Through its Capturing Value program, the IFC is hoping to encourage research on the topic by establishing a competition for the best ideas on the subject. Grants of up to $500,000 for organizations that can meet the challenge are available.

Emerging Market Firms as Socially Responsible as Global Peers

There are no significant differences between the level of corporate responsibility exhibited by companies in emerging markets and companies operating in OECD member countries, according to a 2005 OECD study. This myth-busting conclusion of the fact-finding study "Corporate Responsibility Practices of Emerging Market Companies" came as a surprise, even to its authors.

Another finding is that the business case for corporate responsibility --such as attracting  employees, improving product market positioning, and protecting reputation -- is equally compelling for emerging market companies.

Finding no. 3: Emerging market companies are the ones leading the way in corporate responsibility. South African firms are singled out for their record in this area in more sectors and across more dimensions than their OECD peers. WRI's NextBillion.net and IFC's Innovations in Emerging Markets blogs have both showcased the leadership of Egypt's Sekem company in this area.

This OECD study deserves revisiting, despite its 2005 publication date. It provides a still rare snapshot of corporate responsibility practices by emerging markets firms that are steadily working to expand their share of global investment flows.   

Firms Like Africa's Celtel Get Economies Moving

"You cannot underestimate the effect a cellphone can have on the lives of people who live in conditions where there are no roads, no transport networks, and no postal service." That's how Africa's Celtel telecommunications chairman Mohamed Ibrahim explains the revolution that the cellphone is bringing to the lives of poor and rich in developing countries.

A recent International Herald Tribune article says the revolution produced by emerging market companies such as Celtel -- which last year had $1 billion in revenue -- affects whole economies. In Congo, isolated farming communities now have access to price rates in the capital, and farmers can earn four times what they did before. Tanzania's banana trading has been boosted by improved connectivity between farmers in remote areas and trading centers in the capital.

Extending telecommunications systems in developing countries is not without challenges, including crushing regulations and high taxes. Governments have a role to play in reducing obstacles, as China recognized early on. Today 96 percent of its territory has coverage. By contrast, 22 percent of India has cellphone access.

And revenues are on a different scale. The IHT article says monthly revenues per subscriber for companies operating in the poorest countries are sometimes $5, compared to charges that can exceed $50 in the developed world.

Celtel Chairman Ibrahim, speaking at IFC's Private Equity Conference last year, explains the twin drivers behind his company's success: extending sustainable development of telecoms in Africa and making life better in the region. Celtel's contributions were recognized in 2004, when it received IFC's Client Leadership Award. Click here for more.

Morocco, Madagascar Find Niche in U.S. Sustainable Business

Organic farmers in Morocco and Madagascar are among the suppliers of Simplers Botanica, an organic foods company based in Sonoma County, California. It is one of many businesses, small and large, that have embraced sustainable business practices -- "a concept that recognizes the need to both earn profits and be socially responsible."

An April 3 article in the county's Press Democrat says, together with high-tech firms such as Agilent Technologies, these companies are "making strides toward sustainability by limiting demand on natural resources and reducing waste. And they are profitable."   

Scaling Up Businesses That Offer Biodiversity Services

Small and medium enterprises that offer biodiversity services have a new lease on life, according to a recent NextBillion.net posting. The World Resources Institute blog notes the recent landmark Convention on Biological Diversity in Brazil, which has re-energized initiatives in this area. Its representative at the Convention called for increasing efforts to create the markets and opportunities that allow the private sector to contribute to biodiversity conservation at a larger scale.

WRI itself has been involved for a while in programs aimed at supporting companies pursuing sustainable business ventures in a whole range of sectors. One program in particular is worth checking out: WRI's New Ventures and its growing network of companies.

Business Cannot Afford to Ignore Social Issues

Business leaders today have a strategic interest in getting involved in the sociopolitical debate, notes the McKinsey Quarterly in its current issue. "When Social Issues Become Strategy" says the case for incorporating an awareness of social and political trends into corporate strategy has become overwhelming and underlines the role of the CEO in pushing for such awareness. 

"For stakeholders, companies are, in many ways, already agents of social change and must become much more deliberate in understanding the way they affect society. Businesses that .... proactively understand and engage with social issues will benefit most. They will be better able to shape the social contract and to identify ways of creating value from the opportunities and risks arising from sociopolitical issues."