Win-win for everyone – Entrepreneurial approaches to bridging the gap
Dialogue forum on 12 March 2019
Economic growth can be an effective means of combatting poverty in developing countries, and companies will play a key role in this context. How can they be socially responsible while operating under ever-tougher competitive conditions? What responsibility do investors from industrialised countries have in developing countries and emerging markets?
The importance of corporate action can be illustrated if we take the example of many Western African countries. “The proportion of self-employed people, including in the agriculture sector, is much higher than in this country. It is between 85 and 90 percent,” explained Professor Jann Lay, head of the research programme, Growth and Development, at GIGA, the German Institute of Global and Area Studies. The situation is similar in other emerging economies around the world and shows that micro-businesses, in particular, have a crucial role to play.
Political and social relationships are decisive
If these enterprises can invest and grow, it not only has a direct impact on their own incomes, but also creates jobs for future employees. The Professor added that business success was impeded more by political and social relationships than by technological issues. Contract farming, for example, an agreement between farmers and companies on seed, fertiliser and guaranteed purchases, offers ways of achieving much higher incomes. But, as Lay explained, not everyone takes advantage of this approach: “Many farmers opt out of these practical schemes because haphazardly introduced government subsidy programmes look more attractive.” He said that this approach was not sustainable and called for fixed frameworks and rules to allow private initiatives to flourish. “Unfortunately, if the government is not functioning properly,” he warned, “this will not be possible.”
Lay argues in favour of a clear framework of rules and laws set by the government, so that private initiatives can flourish.
Christiane Laibach, spokesperson for the management board of the German Investment Corporation (DEG), argued that business success and effective development policies go hand in hand. The DEG, a subsidiary of state-owned development bank KfW, provides loans to companies in developing countries. Since it was set up 50 years ago, it has helped create some two million jobs. When reaching decisions on loans, the DEG puts emphasis on sustainable management in the applicant companies. “This often involves a lot of effort,” said Laibach, “because not all the environmental and social standards can be met immediately.” Experience had shown her that real staying power was needed.
Many German companies also invest in emerging and developing countries, but one obstacle is finding enough qualified staff. If German SMEs (small- and medium-sized enterprises) were involved, she believed they could provide valuable support, for example by arranging or taking responsibility for employee training.
Concept of the social enterprise
The not-for-profit organisation betterplace.org takes a different approach to promoting corporate action. On its donation platform, interested parties can find and support international and local aid projects. “For us, the main focus is on the social corporate concept, where the priority is not on maximising profits,” explained Carolin Silbernagl, head of the organisation. “We want to tackle social challenges and help find solutions.” One successful example of social entrepreneurship is the mobile app “Share a Meal” from the UN World Food Programme. You can donate even very small amounts with a single click to help fight world hunger. Just 40 cents, which everyone in this country can easily afford, is enough to ensure that one person in a developing country receives a full meal. Even though philanthropic efforts to combat poverty now collect billions in donations in Germany, you still need to ask where a single euro can have the biggest impact. “Deworming tablets, for example, are having a major, positive effect,” Silbernagl said. “Parasitic diseases are a serious problem in poor countries and hamper their economic development. Remedies are inexpensive and prevent sick children missing days at school, something that is a serious stumbling block for their education.”
Moderator Busse leads the discussion between the audience and the experts (Carolin Silbernagl, Jann Lay, Christiane Laibach l.t.r.).
She is critical of companies who make philanthropic commitments on the one hand, while developing sophisticated strategies to avoid tax on the other. “It would be good to ask ourselves more often how we can ensure that corporate action does less harm in our world,” said Silbernagl. “As commendable as the commitment of many philanthropic personalities and institutions may be, they frequently operate within a framework where the elites are careful not to jeopardise their own positions.” In the end, she added, poverty and inequality can only be seen as symptoms of systemic imbalance. A genuine win-win situation, in other words one where business potential could be exploited in conjunction with positive social effects, could therefore only develop if it were accompanied by structural change, she argued.
Consider side effects
There is an undeniable risk of social development aid undermining a country’s development. “Every outside intervention changes something in the system,” Silbernagl reminded the audience. For that reason, she stressed the importance of considering side effects as well as the upsides. For example, you need to ensure that donations do not cement in place a bad system. She also called for greater research into the negative consequences of our actions, and for local players to be taken seriously as equal partners. “It is very useful,” said Silbernagl, “if the latter can be involved in projects with their own responsibilities.”
Lay added that we needed to consider more systematically how to exert a beneficial influence on local structures, instead of simply assessing the effectiveness of aid. Sustainable solutions in the health system, for example, could not be achieved just by distributing deworming tablets. “The aim should be to ensure that people are in a position to help themselves without external intervention.”
A further problem is that, in many countries, there is frequently a shortage of worthwhile projects to invest in. The interest rates that micro-businesses have to pay are at astronomic levels of 20, or even 40, per cent per month. Consequently, investors like to seize on the startup scene in large cities in countries like Nigeria or Kenya. “Everyone wants a slice of the cake,” said Silbernagl. There is less often a shortage of capital than a shortage of qualified developers.
Consumers have a responsibility
It is clear that, as consumers, we all have responsibility for combatting poverty. We should not be fixated on the price, but also need to consider the labour, environmental and social standards under which companies manufacture their products. Lay complained that the intelligence of the consumer was often underestimated. He said that the way in which the price was arrived at needed to be explained to consumers.
Laibach is convinced that capacity building can work if political elites are held accountable.
Many countries, especially in Southeast Asia, managed to reduce their levels of poverty significantly in the past. As a result, the poverty hotspot today has shifted to Central Africa. “We should not forget to hold the political elite in the region’s countries accountable. Aid can then operate as a path to self-help,” Laibach argued. Lay recommended not looking for a single factor that guarantees the success of development work. “Development encompasses institutions, business, the social fabric and the social contract,” he said. “We are bound to fail if we attempt to identify a wonder weapon for development.”
The next dialogue forum will be held on 4 April 2019 on the topic: “Riester pension flop, Hartz 4 and child poverty – Where is Germany heading? In what direction is the EU moving?”
21 March 2019