CLASH OF INTERESTS “Between economic aspirations and social responsibility”

Economics Conference “Commitment to Africa Initiative” on 9-11 December 2012 Berlin, Germany.

Presentation by Zitto Kabwe

Development cooperation needs to be configured to ensure it takes place within a framework of partnership while involving as much of the population as possible.

Mindsets are changing - slowly

• Implications for encouraging a major role of the private sector in responding to societal development and at the same time promoting their own aspirations.

• Identification of possible areas for partnership. • In Africa private companies have for ages been defining

their interests as simply profit maximization and side-lining the communities and the society they make that profit from.

• The mindset is however increasingly changing - but social responsibility is charity instead of acting responsibly and sustainably.

• Broad definition of CSR and underlining factors that influence businesses to act in a responsible way.

Example of a business successfully achieving both goals

• By definition, a successful business will aim at improving itself through growth, market control, 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

• 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.

What motivates responsibility?

• Companies acting responsibly are performing financially as well (or better) than irresponsible companies, even in the absence of coercion.

• How do they reconcile their business aspiration and social responsibility?

What is CSR?

• The methods mainly based on financial engineering worked until the actors in the market started changing their ethics, their models and their own aspirations.

• Businesses had to become creative and innovative, and had to analyse the context, then adapt to the new changes.

• In the late 60’s and 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).

Charity and corruption

• CSR is not just charity actions conducted by a 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 or its surroundings.

• In Africa, private companies from the developed world perform what they label as CSR in regards of i.e. school buildings, mosquito nets or rehabilitation etc.

• Requesting more school desks or more mosquito nets would result in a negative performance in their financial books. At the same time, some of these companies use accounting techniques to transfer most of their revenues to offshore and pay less tax in African countries or not at all.

• A socially corporation acts responsibly by paying its taxes.

Pay tax

• 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 hence isn’t a specific action done to avoid reputation damage or sanctions, but is part of the business model to maximize profits for all stakeholders.

• 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.

A succesful business in Africa

• Distribution of a two page case study on a successful business that has had great impact on the development of local communities in Africa as well as a high profitability, by focusing on the aforementioned key areas.

Robbing Africa

• Africa is being robbed of its resources through tax avoidance done by multinationals.

• From 2000-2010 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 - 2011 almost same figure to total foreign 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.

• For every 1 USD coming to Africa, 7 USD illicitly leaves Africa! This is unacceptable and henceforth must be mainstreamed into the development cooperation agenda.

Possible areas for partnerships?

• In order for businesses to express their CSR in the most beneficial way for stakeholders, they are influenced by:

• 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.

What can governments do?

• Governments in Europe and in Africa must 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 illicit money transfer by maintaining policies that obstruct transparency efforts, and are hence participating in the process of impoverishing Africa.

What can Germany do?

• My country is a top recipient of foreign aid – but more than third of the population is still anguishing in poverty.

• 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.

Future of development cooperation?

Empowerment which ends a donor-

recipient relation between developing

countries and developed ones.

“[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