Looking beyond success stories – Legislators and companies need to adapt their ways of working

Employment & Income,Inclusive Economy13 Nov 2014Klaartje Jaspers

To give local and international businesses a new role in assuring inclusive growth in Africa, the African Studies Centre and the Netherlands African Business Council organized the two-day Africa Works! 2014 conference. They invited 740 representatives from business, government, NGOs and knowledge institutes to come to Leiden and create new partnerships. To make sure both host and investing countries sustainably benefit from new business opportunities, they need to look beyond success stories.

There was no lack of success stories in Leiden. Many Africans are doing much better, and growth figures are sky-rocketing. Representatives of businesses told stories of employees who are now able to send their children to school, and ecological business cases were presented. The way ahead seems so simple: more growth, more investment. Like many African government representatives, South Sudan’s former minister of Agriculture Betty Achan Ogwaro came to Leiden to meet new partners. In her keynote speech, she was very critical about the role of the international oil companies, but she urged other investors to come to her country. Coffee, palm oil, honey… these are already profitable value chains, she assured her listeners.

The need for good domestic governance

Nevertheless, companies that have recently visited the young state seem hesitant: local transport is too expensive, and they doubt whether South Sudan is a secure destination for their precious investments. With international media reporting on ongoing fighting, rape, famine and a new influx of weapons, Ms. Ogwaro’s assurances fell on sceptical ears.

To make sure new partnerships will benefit them, both local and international companies in agriculture emphasized the need for strong host governments. Berry Marttin of Rabobank’s Executive Board said that an enabling environment –good governance, logistics and access to finance and technology – is more important than the quality of the soil or the climate. Joost Reintjes, the Dutch ambassador in Kenya, stressed that good domestic governance is needed not only to protect the investments of international companies but also to make sure African entrepreneurs actually enjoy sustainable benefits from the new partnerships. Though Reintjes was confident that true win-win partnerships are possible, he was concerned about whether the Dutch government’s new focus on partnerships with international companies and mid-sized farms in Africa means that it leaves it up to ‘others’ (i.e. NGOS, etc.) to devote attention to poor subsistence farmers.

In Reintjes’ view, this is a dangerous approach that stems from the idea that small farmers are not interested in growing, using fertilizer, etc. The ambassador argued that this is a false assumption: in fact, research like Esther Duflo’s Poor Economics has shown that, with the right incentives, small farmers will innovate. Rather than supporting these small farmers, Reintjes said that it is now assumed that the growth generated by mid-sized farms will trickle down to the poor, through employment creation and wealth generation – “an assumption that has often proved not to work”.

The choice of the Dutch government to leave working with the poor to international NGOsor the corporate social responsibility (CSR) programmes of some ambitious multinationals was called into question. Angeline Nguedjeu, Advisor in the Central And Eastern Africa Regional Office at Dutch NGO ICCO, did not believe that inclusiveness is high on the list of priorities of private foreign investors. “It is about income generation for both international & local companies,” she said. ”they are strictly export-oriented and want to produce high quality foods for their own markets. I miss an orientation to local markets.”

Today’s poor, tomorrow’s partners

Rabobank’s Peter Niekus argued that this is a missed opportunity: export-oriented approaches restrict benefits not only for Africans but also for international companies. Using a graph to illustrate his point, Niekus said that Sub-Saharan Africa is the only region where the population dynamics are still favourable for economic growth. If people are provided with some education and health care, fertility rates will drop and productivity will go up. He added that food production should not only focus on the middle class, but also look at the poor as consumers: right now, just below that upcoming African middle class, is where a new generation of consumers is to be found.

At the moment, a lot of high quality food is being produced in Africa for the European market, while Africans themselves eat food imported from the West. Niekus believes that we should adapt these systems: we need to encourage good farming practices where the customers are, to give them an alternative to importing food from Europe. It would improve local conditions, and provide Rabobank’s clients with new markets.

Aware of how including local populations can depend on providing local loans, Rolph van den Hoeven, professor at the Institute of Social Studies, pointed to the weaknesses in international financial systems as the main obstacle to creating economic added value through the private sector in Africa. In its recent report “Improving Global Financial Cohesion”, the Dutch Advisory Council on International Affairs (AIV) identifies bottlenecks for the private sector in Africa to access finance. It points to the need for greater coherence of development objectives within the international financial system. Illustrating the report’s implications, Ruth Ochieng from Uganda explained how rural women remain entirely excluded from the financial system and lack the opportunity to access capital to expand as rural entrepreneurs. The international bank recently established by the BRICS countries is not changing this reality.

The role of the government is to tax, the role of companies is to invest

During several debates at the conference, participants questioned whether things like encouraging good farming practices or integrating development objectives in financial systems are the responsibility of companies like Rabobank, or of a government which aims to create food security and generate income among its people. “Real inclusive business includes NGOs and the government, but they in turn should also involve companies”, warned Rob van Tulder, Professor of International Business-Society Management at the Rotterdam School of Management. “They all have to be aware of the ‘crowding out effect’,” he said. “Taking too many jobs away from the government, for instance by putting tax collection or infrastructural investments in the hands of companies.” Companies and governments should make plans together to create more ‘enabling activities’, providing solutions for issues that will not be solved without them.

For Van Tulder the division of roles is very clear: the government collects money through taxes and companies invest. If companies take that role seriously, Van Tulder argued, they can have an impact on society, which will give them sustainable benefits in the long run.

International collaboration

However, many young nations are facing difficulties negotiating better terms and conditions with multinational companies whose turnovers are far larger than the countries’ annual GDPs. Several initiatives have been introduced to strengthen their position and negotiating power. Host countries seek regional cooperation and, where they are not restricted by anti-monopoly regulations, competing producers of similar resources try to avoid being played off against each other.

To generate future taxpayers, host states need money to invest in sustainable business environments and infrastructures. At the moment, however, multinationals often avoid paying tax in many countries, using their international nature to avoid unprofitable tax regimes. To stop such potential sources of tax income escaping their treasuries, several countries – both ‘rich’ and ‘poor’ –together with a number of international organizations, are adapting outdated regulations that enable such practices. Though many of these responses have been criticized for being fragmentary or voluntary, some hope that the UN – arguably the only international representative organization where votes are not weighted by financial power. – can give ‘small’ states a better position. In the mining industry, the Extractive Industries Transparency Initiative (EITI) aims to open the account books, forcing companies to be transparent. But instead of countering such practices, as the European Network on Debt and Development (Eurodad) illustrates, international development agencies still ‘feed’ tax evasion by hiring the companies involved to implement their development agendas abroad. In this way, taxpayers’ money is used to deprive those that it aims to protect.

Growth figures in Africa are not leading to political and social development

All too often, the inclusiveness of businesses is measured only by their primary economic spin-off: how many jobs have been created, how much tax is being paid. In his keynote speech opening the second day of Africa Works!, Professor Stephen Ellis noted that high growth figures in Africa do not automatically lead to political and social development. Without structural growth, he suggested, the fixation on economic growth is nothing but an empty hype. The mothers of the girls kidnapped by Boko Haram will not care whether Nigeria’s economic indicators improve, while the safety of their children is not assured. “We need to reflect on what development really means”, Ellis urged: for economic growth to be meaningful, we must incorporate social and cultural realities.

Incorporating social, environmental and cultural agendas in economically initiated projects cannot depend on the host states alone. A country like Uganda, well represented during Africa Works!, shows how different realities can co-exist within one nation state. Though the Ugandan businesswomen at the conference indicated projects in which the local population was successfully integrated, Josh Maiyo, PhD-researcher at the VU University Amsterdam, described how, during his PhD research on an international mining project in Uganda, he had found that instead of benefitting from the economic activities of the project, local communities will inherit a destroyed nature reserve. Maiyo saw the mining companies only celebrating tax cuts and limiting themselves to employing seasonal labourers, while failing to deliver the economic development, schools and clinics that the community had expected. Though Uganda has rules to protect citizens (e.g. foreigners can only lease land), Maiyo noted, there are ways to bypass them.

Beware: local investors are no guarantee of inclusiveness

Finally, Maiyo is hoping for a future with no need for foreign involvement at all. However, as Mutuso Dhliwayo of the Zimbabwe Environmental Law Association (ZELA) illustrated, leaving investments to local investors does not seem to be a guarantee for inclusiveness either. In the Zimbabwean mining industry, Dhliwayo explained, small scale miners are known to cause more environmental damage than the large international companies involved. Like Maiyo, Dhliwayo addresses issues with land rights, as the 1961 Mining and Minerals Act does not recognize communities as relevant stakeholders, enabling the government to allocate land directly, without consulting them.

Update legislation that favours shareholders over stakeholders

Lacking effective protection by their national governments, mining communities often find themselves confined to the open-ended charity of NGOs and CSR policies, which are often accountable not to local stakeholders, but to faraway donors or shareholders. Aiming to bypass the arbitrary nature of such voluntary initiatives, Dhliwayo’s ZELA likes to refer effected communities to the UN Guiding Principles on Business and Human Rights, which is a binding tool to pressure governments and enforce rights against businesses, but currently has ‘no recourse’ if the state does not comply. Ultimately, both national law and international regulations need to be adapted.