1 Economics Conference "Commitment to Africa" Initiative 9 - 11 December 2012 in Berlin, Germany “Clash of interests?” Be...
1
Economics Conference "Commitment to Africa"
Initiative
9 - 11 December 2012 in
Berlin, Germany
“Clash of interests?” Between economic aspirations and social
Responsibility”
How development cooperation needs to be configured in future
in order to
ensure it takes place within a framework of partnership while
involving as much
of the population as possible
Zitto Kabwe’s intervention:
 |
| ZK Presenting-Paperon Clash of Interests |
Clash of interests? Between Economic aspirations and social
responsibility
In this brief presentation, we evaluate the implications of
encouraging a major
role for the private sector in responding to social needs
(societal development)
and at the same time promoting their own aspirations (profit
and market share).
We then identify the possible areas for partnership. In Africa
the interest
between the private companies and communities must highly be
aligned.
Private companies have been for ages defining their interests
as simply profit
maximization and side-lining the communities and the society
they make that
profit from. The mindset is increasingly changing but in a narrower way; that
Social responsibility is charity instead of acting responsibly
and sustainably. We
will try to define CSR broadly and underline factors that
influence businesses to
act in a responsible way. The presentation ends with an
example of a business
that is successful in achieving both goals.
By definition, a successful business will aim at improving
itself through growth
(Maximizing the profits and injecting them back into the
business) market control
(mastering the rules of demand and supply) and distributing
benefit to its
shareholders. This is how business was done for years and is
still done in some
enterprises.
Critics of business as development actors will argue that
businesses:
Contribute to economic
development, but not human development or
wellbeing
Focus on value
appropriation than value creation
Inefficient use of
resources
Add to social problems
and economic inequality
Undermine government
role and capabilities
Do not account for the
external impact of their activities
In Africa, there are many examples of corporations acting in
an irresponsible
way, and the reason is believed to be their pursuit of profit
and financial
performance. Some of the challenges we see are linked to tax payment,
corruption, illicit money transfer, money laundry etc.
However, some companies acting in a very responsible way are
performing
financially as well (or better) than irresponsible companies,
even in the absence 2
of coercion. What motivates their responsible behaviours? How
do they
reconcile their business aspiration and social
responsibility?
The methods mainly based on financial engineering worked until
the actors in
the market started changing their ethics, their models and
their own aspirations.
At this point businesses had to become creative and
innovative, and had to
analyse the context, then adapt to the new changes. In the
late 60’s early 70’s
businesses became increasingly aware of the fact that their activities had
positive and negative impacts not only on the shareholder, but
to a group of
people, and that compliance with fair rules that benefited the
stakeholders had
a positive impact on their financial performances
(aspirations)
What is corporate social responsibility?
CSR is not just the charity actions conducted by the company
in the
communities where it operates, CSR is not an action. CSR is a
behaviour and
can be defined as a process that aims at influencing the
company action in
order to maximise its positive impact on its stakeholders
(consumers, employees,
competitors communities, governments etc.) or its surrounding
(natural
environment, political environment, governance etc.). In
Africa, private
companies from developed world perform what they label as CSR
in issues like
schools buildings or rehabilitation etc. Of course, requesting more school
rehabilitation or more mosquito nets would result in a
negative performance in
their financial books. At the same time, some of these
companies use
accounting technics to transfer most of their revenues to
offshore and pay less
tax in African countries or don’t pay at all. This is charity
and corruption in two
different sides of the coin. A socially responsible
corporation must pay its taxes
responsibly as well.
Amongst many responsible CSR examples, training their
employees in new
technologies of production and keeping their health and safety
records
positive, business save money and increase their performance.
CSR becomes
not a specific action done to avoid reputation damage or
sanctions, but
participates in the business model to maximize profits for all
stakeholders. This
means that business should act in a socially responsible way
because all the
area of their value chain would increase their profits if
various stakeholders
benefit from the business performance and vice versa. By
paying their taxes to
governments companies enable governments to pursue their
mandate
properly. By denouncing corruption they participate in sustaining a healthy
environment for business etc.
As a business rolls out and creates its value chain, it goes
through a number of
stages, and all these stages are organised in a way that meets
the corporate
objectives as defined in the business aspiration. Just like in
the above example
of paying tax and avoiding corruption, it is increasingly
proven that if the
interests of all shareholders are taken into consideration at
these stages,
businesses would benefit more. These areas are: 3
We are distributing a two page case study on a successful
business that has had
great impact in the development of local communities in Africa as well as a
high profitability, by focussing on key areas that we have
just mentioned. While
reading the document, please focus on the elements we
mentioned as being
common to CSR and business development (research funding by
donors,
models adapted to the local socio economic context, ethics and
participation
to the millennium goals, profitability to the company and high
stakeholderfriendly value chain).
Unfortunately, in African countries not all business perform
so well in CSR and for
local communities to fully benefit from their presence. Some
of the institutional
elements need a particular attention from northern countries
as the area of
scope goes beyond the territorial competency of a single
country.
For example, Africa is being robbed of its resources through
tax avoidance
done by Multinationals. Between year 2000 and 2010 more than
USD 844bn was
flown out of Developing countries yearly through capital
flight and 69% of this
was from Africa (Global Financial Integrity report 2011).
The global FDI inflow in 2011 was 1.5 trillion USD (UNCTAD
2012) while Capital
flight from developing countries is averaged at 0.84 trillion USD per year and
0.58trn USD of this money is from Sub-Saharan Africa. The
total FDI to Africa was
a mere 37 billion USD in 2011 almost same figure to total
foreign Aid flows to Sub
Sahara Africa. So while a total amount of 538 billions of USD
leaves Africa illicitly
as proceeds of bribery, theft, kickbacks and tax evasion and
avoidance, only
around 80bn USD flow into Africa as FDI and Aid combined. In
every 1 USD
coming to Africa, 7 USD illicitly leaves Africa! This is
unacceptable and
henceforth must be mainstreamed into Development cooperation
agenda.
What are the possible areas to look at for partnerships?
In order for business to express their CSR in the most
beneficial way for
stakeholders, they are influenced by:
Job
creation/recruitment
Research and Development
(R&D)/ Market study
Process Innovation
Product Innovation
Education and Training
Infrastructure and
Investment
Health and
Safety Standards
New Products and
Services
Business Networks
Taxation/rent
Social Innovation
Self-Regulation
Provision of Public
Goods
Social and Economic 4
Good domestic tax law
that raise the price of irresponsible behaviours
and reward companies that act responsibly in their countries
of
operations.
Well organised
institutions –both normative and cultural- with a clear
framework. A set of standard best practices that could serve
as a
guideline in specific fields.
Increased competition
between businesses to emulate good behaviours
Increasing transparency
and strong governance issues
Independent
organisations monitoring businesses behaviours and
mobilising to change it.
Participation of
businesses in academic and research fields
Their membership to
associations of several business sharing the
same
ethics and promoting CSR
The main challenge is the creation of institutional framework with countries in
Africa to stop capital flight as Countries in the north have a
role to play in this
change, given the money flow from north to south and more so
vice versa.
It is therefore important for governments in Europe and in
Africa to consider the
above elements and focus on friendly laws, researches and
networking, in order
to foster the participation of businesses into development of
developing
countries.
Countries like Switzerland and other tax havens facilitate
this illicit money transfer
by maintaining policies that obstruct any transparency
efforts. Countries like
these are participating in the process of impoverishing
Africa. Friendly countries
like Germany shall help to bring to the attention of these
countries that Africa
will no longer entertain this robbing.
My country is a top recipient of foreign aid after Iraq and
Afghanistan but more
than third of the population is still anguishing in poverty.
This is the same for
many Africa countries. Transformational Development
Cooperation is that of
empowering the people to take care of their own lives. Germany
must up its
efforts in pushing for governance issues in Africa especially in exploitation of
Africa’s natural resources. Germany must support African
countries in ending
illicit money flows through capital flight done by
multinational corporations.
Germany must encourage its private sector, especially SMEs to
invest in Africa.
Africa is rising as dubbed by The Economist. Africa is the
future of the world.
Africa can work with Europe as equal partners. Interests of
the companies and
of the society can be aligned and clash isn’t inevitable.
I conclude this paper by arguing that the future of
Development Cooperation is
that of Empowerment which ends a donor-recipient relation
between
developing countries and developed ones. A development
cooperation whose
pillar is simply on Aid has failed; it has not produced the
expected results for
almost half a century. This is better illustrated by one of my
favourite quotes from
Mwalimu Nyerere: 5
"[A] man is developing himself when he grows, or earns,
enough to provide
decent conditions for himself and his family; he is not being
developed if
someone gives him these things." Julius Kambarage
Nyerere, from his
book Uhuru na Maendeleo (Freedom and Development), 1973.
Thank you.
Zitto Zuberi Kabwe, MP
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