ZITTO KABWE AUNGURUMA UJERUMANI

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: 

 

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
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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:

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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 stakeholder- friendly 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
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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: 
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"[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.