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Runa Alam, CEO Development Partners International

Interview with

Runa Alam, Development Partners International (DPI)

Runa Alam is the founder and CEO of DPI, which is among Africa´s leading private equity institutions. She has many years of experience working with sustainable investments in private equity in developing countries, including 22 years in Africa. Runa Alam chaired the African Private Equity Association (AVCA) and serves as Vice Chair and Africa council member for the Global Private Capital Association. She sits on the board of CARE, the international humanitarian relief agency, and on a Future Challenge Committee of the World Economic Forum on Investing with UN Sustainable Development Goals. Runa studied Development Economics at Princeton University and is a graduate of Harvard Business School. She sits on the Advisory Committee at Princeton and Yale Universities, as well as the boards of African Companies.

The restrictions that followed the pandemic initially had a huge impact on the labour market in developing countries. When people were prohibited to leave their homes, they could not go to work. This resulted in unemployment and the loss of many jobs in the informal sector. What is the situation now, two years on?

At the start of the pandemic, most African countries were quick to impose lockdowns and to close their borders. These measures delayed the spread of the virus and helped to keep the number of people infected with Covid 19 relatively low compared to the rest of the world. However, the restrictions in the wake of the pandemic had a major impact on Africa’s informal sector, which is the largest in the world and the sector that is expected to generate most new jobs on the continent according to the World Bank (2021). Today, most economies in Africa are largely open, and recovering at a different pace. Despite further protective measures being taken due to the spread of the Omicron variant, the recovery of the informal sector continues to take speed.

What impact has the pandemic had on the companies in your funds? Can you comment on the situation for SMEs in sub-Saharan Africa in general?

The pandemic has had a limited impact on the ADP funds, which mainly comprises of large established companies. During the pandemic, the DPI team worked closely with the ADP portfolio companies to ensure that operations can continue and to maintain the safety of employees. As part of this, we developed a Covid-19 checklist at the beginning of the pandemic, that was shared with the portfolio companies and other private investors in the industry. The checklist helped to navigate the pandemic, covering everything from how to protect employees and customers, maintain strong balance sheets and work with public authorities. None of the portfolio companies in the ADP Funds has been at risk of liquidation and most of our portfolio companies have continued to grow their bottom line during the pandemic.

The pandemic has had a significant impact on SME-dominant sectors, such as the tourism and retail trade. Since many SMEs in developing countries have limited cash reserves this has resulted in an increased need for financing and a demand for liquidity. At the same time, the pandemic has created opportunities for smaller businesses to quickly adopt to technology and digital solutions, which is likely to be beneficial in the medium and longer term.

Women are particularly hard hit by the pandemic. What measures are needed to get them back into the labour market?

It is important that companies around the world promptly implement recruitment policies that do not discriminate against women who have had to take a break from work during the pandemic. Companies need to be able to offer flexible working conditions and a work-life balance.

Can you describe the importance of gender equality in the private sector?

The private sector is a powerful player in advancing gender equality, due to its distinctive position as a catalyst and role model for change. According to the WEF, gender equality would be difficult to achieve without the private sector. Prior to the pandemic, the WEF estimated that it would take almost 100 years to close the global gender gap. In the wake of the pandemic, we risk losing the progress that has been made when it comes to gender equality in recent years.

Women account for half of the world’s working-age population. According to the McKinsey Global Institute $12 trillion could be added to global GDP by 2025 if gender equality was promoted. This is comparable to the combined current GDP of Germany, Japan and the UK, or twice the expected growth in global GDP contributed by female workers between 2014 and 2025 in a business-as-usual scenario.

What can be done to increase the number of jobs with decent working conditions?

For DPI, it is particularly important that all employees can return home safe at the end of the working day. Health and safety are always paramount when working with our portfolio companies. It is considered at every stage of the investment process, from doing our initial analysis, when we put risk mitigation measures in place to checking the company’s background. It continues throughout the holding period when we work to improve company standards through training, awareness raising, investment in safety equipment, recruitment of employees and securing production assets and the working environment.

Decent working conditions includes having a sufficient salary to be able to live a decent life and support one’s family, as well as medical insurance and access to pensions. Therefore, DPI analyses indicators such as minimum wage, health insurance coverage and access to pensions when conducting the initial evaluation of a company and we include these elements in the Impact and ESG Action Plan included in the investment documentation. Another important aspect for DPI is upskilling the workforce and to bring them the opportunity to grow within the company and thus improve their employability. We have always taken the amount of technical training provided to an employee into consideration and we are currently reviewing internal data for recruitment/promotion, length of service data and engagement. We are also working to provide mentoring programmes and training of soft skills for portfolio companies.

Building resilient and sustainable communities will be critical to the stability of our post-pandemic economies. How can that agenda be implemented in a world with a rising debt and risk aversion?

DPI was founded with the aim of building stable, resilient, and sustainable companies that contribute to the development of the emerging middle class in Africa through their growth. This is what we have been doing since the beginning, and we are continuing to do so. Many investors see Africa as a risky continent due to the lack of infrastructure, political instability, inaccessibility, climate crisis and health risks as well as corruption. Since it started during the financial crisis of 2007, DPI has operated through several crises such as political turmoil in several African countries, the Ebola epidemic, climate disasters, wars and the corona pandemic. All this makes the DPI team experienced in mitigating risks trough solid due diligence and investigation work, as well as hands-on management of portfolio companies. This positions us at the forefront of the African PE sector when it comes to supporting the development of resilient and sustainable societies in a risk adverse environment. Proof is, we have not lost a single company since 2007 and we have had less than 1% of our entire workforce made redundant during covid.

What are the reasons behind the increased risk aversion? Isn’t there a greater risk in investing in a company, product or service that is unsustainable compared to investing in companies that are sustainable or striving towards becoming sustainable? Or is risk aversion simply a matter of geography?

As mentioned earlier, some investors consider Africa to be geographically risky, mostly due to risks associated with political instability, currency fluctuations, lack of infrastructure and risk of corruption. In addition to this, Africa is already severely affected by the climate crisis and by the threats to biodiversity. On the other hand, the amount of untapped resources, the young population and the emerging middle class contribute to a favourable investment climate for investors that are looking to invest in the medium to long term. There is a growing awareness in all of society of the risks associated with investing in companies that are unsustainable and do not even aspire to be so. A company that operates without considering the impact it has on the environment, the society, the supply chain, its employees and customers will not succeed in the long run, nor will it deliver the expected returns. Increased awareness and knowledge have already resulted in new regulations and reporting and transparency requirements for companies worldwide, such as the EU SFDR and its counterparts. As always is the case when a company is reactive to change rather than planning and preparing for it, it comes at a cost.

How do you see the opportunity to attract institutional investors to developing countries? What are the main obstacles?

For as long as private equity has been available in developing countries, institutional investors have invested. We continue to see an interest in supporting the best managers that offer good returns but that also have high standards when it comes to corporate governance, Impact and ESG. A major challenge when mobilising additional capital is the institutional investors’ increased apprehension of the risks of investing in developing countries compared to developed countries. As a result, global institutional investors tend to place a relatively small proportion of their capital in emerging markets.

Can you explain what funding from development finance institutions (DFIs) has meant for your company and its operations?

DFIs have been great partners to DPI since we started in 2008. We have built strong relationships and have received funding for all our funds. DFIs have also helped to bring high standards of Impact and ESG to the private equity sector in Africa. Through providing training and other support in these areas, they have helped on us an ongoing basis.

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