Investing in the future for Africa and the west

ETHICAL investing moved to a new level this week, with the Conservatives proposing the development of "green" individual savings accounts – to be knows as Gisas.
The aim is to allow consumers to increase tax-free savings by investing in eco-aware firms. This is intended to make people think about saving more because they are helping in the fight against climate change, as well as encouraging companies to do their bit for the environment.

The move by the Conservatives should help make more people aware of green investment opportunities and increase demand for appropriate financial products.

Emma Howard Boyd, head of socially responsible investment at Jupiter fund managers, said: "As a pioneer in green investing, we believe there is a compelling case for a product of this kind. There is a huge investment required to make the transition to a low-carbon economy and allowing individuals to target green strategies through investing via a tax-free saving wrapper demonstrates how savings can form part of this process."

This development comes in the week that Cru Investment Management and Africa Invest visited Scotland to encourage the population to think about medium- to long-term investment in Malawi through a new "ethical" vehicle.

Justin Malewezi, MP for Ntchisis North–East in Malawi – and a former vice-president – was a member of the party touring Scotland to explain this new concept to independent financial advisers (IFAs).

From last month, retail investors have been able to invest in Cru's collective fund – a structured product – which will see their money going into the Africa Invest scheme for small commercial farms. As well as helping alleviate poverty in Malawi, it is hoped investors will generate a healthy return over the period of the seven-year plan. Because Scotland and Malawi have strong ties, dating back to the 19th century when David Livingstone from Blantyre travelled to Africa as a missionary, Scots may find this opportunity particularly appealing.

Since January 2005, Cru has been establishing Africa Invest as a commercial agricultural business in Malawi to see if investment could generate a profit and tackle poverty. Total investment to date is almost £2 million, which is provided by Cru itself, not by the investment funds it runs. Its financial forecast for 2008 for return on the pilot scheme is between 30 per cent and 40 per cent. It focuses on investing in an "out-grower" scheme which harvests high-value crops, mainly herbs and spices, such as paprika and bird's eye chillies.

By opening this up to retail and institutional investors Cru aims to raise £30m by May this year.

On his trip to Scotland, Malewezi, who is now on the board of Africa Invest, told The Scotsman: "Africa Invest will only work through local participation in Malawi. A lot of development work in Africa has failed because of a lack of understanding of tradition and culture and the importance of family.

"I've been in government and public service for over 40 years and can assist Africa Invest through my understanding of chiefs, government officials and the small-farmer system in Malawi. The greatest benefits of Africa Invest is that its work should be sustainable."

Jon Maguire, founder of Cru, said: "Africa Invest brings wealth and philanthropy together as it puts money into something that will help transform the lives of some of the poorest people. We hope this will be the first of a whole new breed of investment."

Unlike many parts of Africa, Malewezi explained that Malawi has a stable economy with relatively low inflation and has been a democratic state for some time.

So, is Africa Invest a viable option for Scottish investors?

Barry O'Neill, a chartered financial planner and director with Thomson Shepherd, said: "There is no doubt that this is a laudable project which could potentially change the lives of many thousands of Malawians. The underlying investment is in food – paprika to be precise – and this offers potentially lucrative returns for those with the stomach to include such spicy ingredients within their portfolio.

"As the risks are not insignificant, this is certainly not a core holding, nor is it comparable with many, if any, investment propositions you are likely to see this year. For that reason it is probably best not to even try to compare it and simply to view it for what it is, a unique offer from an investment house that specialises in being different."

Julian Parrott, an IFA with Ethical Futures, described Africa Invest as something that could be called "the acceptable face of capitalism". He said it can be viewed as an "ethical" investment, but only as part of a more widely diversified portfolio.

Parrott said: "The opportunity to help develop an active economy in Malawi is welcome and the attraction is that it uses 'western capital' to seed-fund the structural changes but does not create a debt burden.

"Essentially, this is a private-equity venture focusing our capital into the project with the local Malawians doing the labour for a share of the profit.

" When we have been so used to giving money to Africa, we might feel a bit squeamish about taking a profit from such activities, but perhaps, like Fair Trade and Micro-credit schemes such as the Blue Orchid Dexia fund, we have to start to take a grown-up approach to doing business in a fair but not exploitative way.

"I'm not an expert in agriculture but have been assured that the local food economy will not be damaged by these agricultural developments and that Malawians will continue to be able to feed themselves and not give all land over to cash crops.

"I'm sure that some people might feel uncomfortable with an air of 'colonialism' of predominantly white western businessmen running the show but, again, I understand that there are very clear plans to develop skills and local management capability within the new business."

He explained there are two options for investors.

One is direct investment which comes with considerable risk and has a high threshold of £40,000, but with potentially high returns.

The other is a capital protected investment – not guaranteed – from £4,000.

A clear advantages is that it can be held as part of an Isa.

AFRICA INVEST – PROS AND CONS

JULIAN Parrott of Ethical Futures gives his view of the investment opportunity:

Pros

• Professionally resourced cash crop business.

• Established and successful pilot project.

• Industrial agricultural experience to help overcome climatic issues.

• Access to western markets.

• Creation of alternative income stream which will trickle down into and stimulate the local economy.

• Proposal to extend activities into added-value processing.

• Social programmes such as feeding and provision of a nurse with intentions to ext
end this to education and healthcare.

• Breaking the dependency culture.

• Non exploitative – with the intention to cap profits and plough surplus back into development.

Cons
• Only 30 per cent of investment funds in the capital protected version go to Africa – the rest is used to buy protection of original investment.

• Intensively farmed, reliance on agri-business farming.

• Western-led initiative. Will real opportunities for development arise for local people – "commercial colonialism"?

• Dependent on projected demand for the cash crops – no clear information on other competing suppliers.

• Reliant on Africa Invest establishing markets for products and making supply chain work.

• Climatic, legal and political risks.

• Significance of expansion plans – risk of over-extending abilities or capacity