Africapitalism, Sustainability and Professional Accountants

By Dr Innocent Okwuosa

I usually like to start by reminding us about this emerging concept of Africapitalism, which is at its embryonic state. It is at its embryonic state because many questions around it are yearning for answers and many more will continue to emerge. In my first article on the topic, I raised many questions from accounting perspective including:

What is the meaning of accountability in Africapitalism?

To whom is this accountability owed?

What is the nature of accounting and accounting information required to render this accountability?

What capital is to be accounted for?

How is profit to be determined, given invested capital?

How do we assess the idea that as you make profit you are also impacting the society positively?

I do not intend to provide answers to any of the above questions which, hopefully, I will do subsequently in later articles. In this piece, I intend to connect Africapitalism, sustainability and professional accountants and show that professional accountants can play a role in promoting sustainability in Africapitalism. I draw attention to emerging sustainability discourse in Nigeria in which the professional accountants appear missing. I end up by highlighting the unique role that African accountants can play in Africapitalism drawing from expectation among social and environmental accounting academics.

Recollect that Africapitalism rests on the philosophy of a private sector led economic transformation of Africa through investment that creates both economic prosperity and social wealth. This connotes what I see as responsible orientation in investment. Responsible orientation drawn from “impact investors” and private equity firms with projects that positively impact upon Africa both economically and socially. These are the enablers of sustainable development in whom Africans will place their hopes now and in the future.

As we know, the concept of sustainability derives from sustainable development which advocates for meeting the needs of the present generation without compromising the ability of future generations to meet their own needs. This, according to Hopwood and his colleagues, touches upon intergenerational equity, even though Africa is engrossed in present generational equity as the western world and China exploit its non-renewable scarce natural resources.  Sustainability epitomises that responsible orientation in which responsible investment is the watch word of these ‘impact investors’ and ‘private equity firms’ in Africapitalism.

As Africa is home to many of the world’s non-renewable economic resources to which the western world and China are scrambling for, Africapitalism embodying responsible investment is a welcome philosophical ideology. This leaves us with the question of whether the so called ‘impact investors’ and ‘private equity firms’ are going to be the western and Chinese investors whose investment ideology may differ, or are they solely going to be Africans. If they are going to be Africans, Africapitalism may be faced with capital challenge, if capital is not properly defined. If they are going to be western and Chinese investors, sustainability awareness and consciousness in Africapitalism must be awakened among Africans, which will not always be the case. This, therefore, calls for the awareness and consciousness to develop at organisational field level, especially among African professionals who would assist in promoting Africapitalism. To this end, the accountant has a vital role to play.

The accountant’s role connects sustainability and Africapitalism because the responsible capitalism in Africapitalism needs proper accountability to thrive. In this I see sustainability accounting by accountants as the beginning and foundation of Africapitalism. I argue that for there to be Africapitalism, accountants in Africa must get on board and engage in robust sustainability accounting and reporting. In this sustainability accounting and reporting, lies the governance information that Africapitalism needs to thrive. Some academicians attribute the beginning of the conceptual development of sustainability accounting to Rob Gray, previously of St Andrews University Scotland.  One aspect of the foundational sustainability accounting which Gray proposed is that of accounting for sustainable or full cost. In this conceptual development of sustainability accounting, Gray sees sustainable cost as the cost of restoring the earth to the state it was in, prior to a firm’s operational impact; that is

…the amount of money an organisation would have to spend at an end of an accounting period in order to place the biosphere back into the position it was at the start of the accounting period. (Gray, 1994, p. 33)

In the above conceptualisation, Gray carefully draws on the accountant’s concept of capital maintenance as captured in the Conceptual Framework of financial reporting and applies it to the biosphere. In doing this he recognises the need for corporate operation to ensure that the stock of natural capital is maintained for future generations thereby highlighting the sustainability aspect. He goes on to define a sustainable organisation as one that maintains the stock of natural capital intact for future generations. Sustainable profit or loss is determined by matching sustainable cost against accounting profit determined following the normal generally acceptable accounting principles (GAAP). Thus, the degree of corporate unsustainability can be measured in monetary terms by the extent that sustainable cost exceeds accounting profit. This in itself is problematic.

The limitation of Gray’s conceptualisation is its emphasis on natural capital. This is because it reinforces my question in the first article on this topic, which sought to know what capital is to be accounted for in Africapitalism? Today, accountants speak in terms of multiple capitals that include natural and social and relationship capital, among others. This situates the important role that accountants can play in assisting Africapitalism to define and clarify the capitals in Africapitalism. By defining and clarifying capitals, they simultaneously define and clarify the profit arising from Africapitalism, including social wealth. To this end I see this profit as increases and decreases in capitals, including social and relationship capitals, resulting in what is known as ‘sustainable profit’. Sustainable profit is one made without causing environmental and social distress and is not philanthropy. African accountants should develop skill that employs accounting to determine sustainable profit; and Nigerian accountants should be at the forefront in this.

An emerging trend is an evolving sustainability reporting awareness in Nigeria led by the Nigerian Stock Exchange (NSE). In partnership with the Global Reporting Initiative (GRI), NSE held a workshop on sustainability reporting where its Sustainability Disclosure Guidelines was unveiled sometime in March, 2019. Present at this event is a group known as Corporate Social Responsibility and Sustainability experts who, during interactive sessions, shared insights into good sustainable practices and reporting. Conspicuously absent at this event were accountants, raising the question of how the Nigerian accountant can be at the forefront of sustainability as expected.

Perhaps realising the absence of accountants in the first workshop, the NSE recently in partnership with Dangote Cement Plc and GRI held another capacity development workshop on sustainability value proposition and reporting for accountants, financial analysts and communication practitioners. Both the NSE and Douglas Kativu, Director, Global Reporting Initiative (GRI) Africa, who was the lead facilitator at the workshop, acknowledged the crucial role that accountants can play in supporting corporate sustainability reporting. I argue that this role is intertwined with the role accountants can play in Africapitalism.

Within the ranks of social and environmental accounting academics, there is a realisation that accountants possess expert skills to advance sustainability agenda of corporations. Accountants have been described as gate keepers of sustainability information. Schaltegger and Zvezdov see accountants as information and methodological experts and gate keepers when it comes to sustainability. In particular Ballou and his colleagues show that “using Big 4 accounting firms is positively associated with strategic integration of sustainability initiatives. Accountants, therefore, play active roles in the dynamic embedment of sustainability into corporate strategy through accounting and reporting. Performance of “impact investors” and private equity firms, when they invest in projects that positively impact upon Africa, both economically and socially, can be measured through information provided by accountants. This way accountants can become the gate keepers of Africapitalism.

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Dr Innocent Okwuosa is a member of Africa Integrated Reporting Council (AIRC) and sits on International Panel on Education (IPAE) of International Federation of Accountants (IFAC). Currently he is an Adjunct Faculty teaching Corporate Reporting at Pan Atlantic University, Lagos and a Council Member of the Institute of Chartered Accountants of Nigeria (ICAN).