Inside the Red Lines

As demonstrations in the US and around the world have evolved over recent weeks - from specific reactions to the deaths of George Floyd, Breonna Taylor and many more at the hands of police, to more general advocacy for racial justice across many dimensions - I have had many opportunities to contemplate how racial injustice impacts housing investment in Africa - a space I have learned a few things about in recent years.

As an entity based in the United States, started by Americans, with a focus on homebuilding in West Africa and a client base almost exclusively composed of West Africans resident in the region or living in the diaspora, my company's story is but a recent chapter in a long history of global race relations, a history that has too often been characterized by unjust treatment of Africa and its people by those in positions of power around the globe. We’d like our chapter to be different.

I am currently reading the final pages of a translation of the traditional West African epic story of Sunjata Keita, founder of the Mali Empire (1235 - 1670 AD). By 1312 AD, when Sunjata's great-nephew Mansa Musa took the throne, the empire's wealth was unrivaled due to its control of key trade routes. Mansa Musa is commonly remembered as the wealthiest person in the history of the world, having established a fortune so vast that the gold he left behind in Cairo on his way to Mecca depreciated the value of the metal to a point that it crashed the Egyptian economy.

Just over three hundred years after Mansa Musa took the throne, the first slave ships arrived in the English colonies of the Americas. How West Africa went from home of the world’s richest ruler to source of enslaved labor for the American colonies (and others) is a complicated story involving guns, germs and steel; geography; violence; deceit and racism - but I’m not the person to tell that story. I’m here to tell the story of how pervasive racist thinking frames the context of homebuilding and housing finance - or the lack thereof - in West Africa today, and how it doesn’t have to be that way.

There are many challenges in the work we do building homes in West Africa. Infrastructure gaps are real, so bringing a truckload of construction material to a job site just 1000 meters off the main highway can be fraught with steep, washed out side roads that threaten the integrity not only of the material being delivered but the very trucks on which they travel. Electricity comes and goes. If you want reliable water, you have to dig a bore well and build a water tower. Mobile connectivity is often spotty. And so on. 

But the biggest challenge faced by the housing sector on the continent is lack of access to long-term capital - particularly long-term capital for homebuyers at sustainable terms. Of course, old-school 'rational markets' types who have ignored more recent Nobel laureates like Daniel Kahneman and Richard Thaler will recite for you their timeworn dictum that the cost of capital is determined by the risk associated with the plans to deploy that capital, and that access to capital in Africa is constrained - and the cost of that capital higher - because of quantifiable market risk factors.

But is it really? In 2017 the Brookings Institute published findings showing that African countries are burdened with a higher spread than other emerging economies for the same level of default risk. They have to pay not only the excess capital costs for being “developing” or “emerging” economies, but also get hit with an “Africa Risk” surcharge.

Figure 1: Sovereign spreads vs. credit rating scores

Source: Brookings Institute Figure of the week: The cost of debt in sub-Saharan Africa, January 26, 2017

If it is not market fundamentals that drive capital constraints and high capital costs on the continent, what else could it be? Americans have the benefit of not-too-distant hindsight in contemplating the the interplay of race and access to capital; we need look back no further than the racist redlining maps of black neighborhoods starting in the 1930’s, which constrained African-American families’ access to the housing finance stimulus tools that were a big part of the post-war economy and a critical ingredient to the development of a viable middle class in the United States.

This 1938 map of Atlanta shows the redlined “Category D” neighborhoods that appraisers singled out as ineligible for the most favorable housing finance subsidies and guarantees that helped make the American Dream a reality for so many white Americans in the mid-20th century. If, like me, you have spent time in Atlanta you will recognize the persistent impact of this injustice on Atlanta’s neighborhoods today. 

Figure 2: 1938 Home Owners’ Loan Corporation map of Atlanta

As Emily Badger pointed out in the 2017 New York Times article in which this map was featured, 

The maps became self-fulfilling prophesies, as “hazardous” neighborhoods — “redlined” ones — were starved of investment and deteriorated further in ways that most likely also fed white flight and rising racial segregation. These neighborhood classifications were later used by the Veterans Administration and the Federal Housing Administration to decide who was worthy of home loans at a time when homeownership was rapidly expanding in postwar America … new research reaffirms the role of government policy in shaping racial disparities in America in access to housing, credit and wealth accumulation. And as the country grapples with the blurred lines between past racism and present- day outcomes, this new data illustrates how such history lives on.

New York Times: How Redlining’s Racist Effects Lasted for Decades, August 24, 2017

Racist is a word few people want to hear as a descriptor of their actions or thoughts. It is a word whose definition shifts according to the perceptions and priorities of those who think or say it. Webster says simply that racism is “a belief that race is the primary determinant of human traits and capacities and that racial differences produce an inherent superiority of a particular race.” Critical Race Theory dives deeper, pointing out both racism’s banality and its specific connection to economic agendas: “Racism is ordinary, the ‘normal’ way that society does business, the ‘common, everyday’ experience of most People of Color … The power elite racializes different groups at different times to achieve their economic agenda, continually and repeatedly prioritizing profit over people.”

As Carl Nightingale wrote in his 2012 work Segregation: A Global History of Divided Cities, “White people almost everywhere had decided it was worth the effort to put into place the … process of rearranging whole cities into separate, unequal, and compulsory residential zones for different races ... land markets are the one capitalist institution in which race-infused economic interests became consistently and increasingly important to the division of cities, even arguably becoming the the single most important segregationist force in cities today.”

We know this happens at the municipal level. What happens when the global power elite racializes foreign direct investment to achieve their economic agenda, and prioritizes profit over people on a global scale? What I see from where I sit is the redlining of an entire continent.  

But if allocation of capital in the market is based on racist rather than rational analysis, then where is all the affordable long-term capital going? Well, despite all we know about climate change and fossil fuel risk from across the spectrum - from Swedish teen Greta Thunberg to the 97% of climate scientists who agree with her - bank lending to the fossil fuel industry continues apace, at terms that would cause the erstwhile African homebuyer to swoon. As Matthew Vincent pointed out in the Financial Times on June 8, “33 banks provided $654bn to 1800 fossil fuel companies (in 2018), equivalent to 70 percent of the capital expenditure of the entire industry. JPMorgan Chase was the world’s biggest ‘fossil banker’, providing $195bn over three years, followed by Wells Fargo, Citi, and Bank of America.”

And despite all we know about the environmental damage caused by plastics around the world - from hormone-disrupting microplastic introduction into the lowest elements of the food chain to the fact that 80% of marine debris is plastic waste - as Michael Pooler writes in the FT, companies like Dow, Shell and Exxon-Mobil have promised more than $200bn to support plastic-making facilities fed by raw material from earthquake-inducing, groundwater-polluting shale extraction. Which has led to a surge of polyethylene production at the same time demand for plastic is tanking. 

Numbers, of course, are meaningless without context. What is $195 - $200bn? It’s more than four times the total 2018 foreign direct investment on the entire continent of Africa. It’s enough to provide mortgage financing for more than 11 million affordable 2-bedroom homes (assuming a 30% deposit and 12% financing over 10 years). If this kind of private bank funding were accompanied by a blend of impact investment, state guarantees, and MFI / DFI lending and grants, so that rates were lower and terms longer, the impact would likely be multiplied several times. In other words, if the biggest fossil bankers and the biggest plastics-funders - or the investors who fund them - were instead catalyzing funding for homebuyers in Africa, they could solve the housing crisis on the continent in well under a decade. 

But they won’t do it, of course, because … “Africa Risk”. I read somewhere recently that the power elite racializes different groups at different times to achieve their economic agenda, continually and repeatedly prioritizing profit over people. That seems increasingly true the more I look at the way funds are invested around the world.

Checklists abound for ticking ESG and SDG boxes that will satisfy investors’ increasing demand for evidence of sustainable business practices. But just as ‘performance allyship’ has marked many public reactions to the murder of George Floyd, ‘performance sustainability’ has its own long history and a growing list of practitioners. Perhaps as society at large begins to cast a more critical eye on the impact that racist actions - racist policing, racist investing, racist trade policy - have on the people who make up our human community, we will see a shift away from performance and toward true justice and sustainability. 

Will we have arrived there when every African on the continent has quality, affordable housing?

Let’s find out.