By Rafiq Raji
Many African businesses do ponder about how they can contribute to the development of their host economies. Firms can be integral parts of the development process. They can make direct investments in social welfare and do so profitably without being exploitative. The application of market-based solutions to social problems is not without controversy. There are documented pros and cons. Thus, the idea might not easily appeal to people in developed economies where things already work, where governments deliver public services efficiently and do so quite optimally, and where privatisations proved underwhelming in numerous cases. Still, in the African context, there are myriad problems that could be solved with private sector creativity, capital and drive. Public goods are likely to be delivered efficiently if there is a profit motive.
Nonetheless, there is always the risk of monopolistic or cartel behaviour. A firm or group of firms providing public goods could dominate an industry so much that they become uncontrollable. There is also the risk that the owners of such dominant firms extend their influence into politics and government. These concerns about “extraction” or “crony capitalism,” that is, “a political system in which the rich and the powerful get together to run the state – and the market – for their own benefit” are not unfounded. Within the African context, there are other peculiar risks of a private sector-led social welfare system. Realising their importance in an environment with weak institutions, private firms may become law unto themselves.
Firms providing private goods and services could also contribute to African development by simply being excellent in their ordinary line of business. For instance, a mobile telecommunication services provider might better serve its host economies by simply providing the best service at the best price. And as the case of Kenya’s M-Pesa mobile money service by the United Kingdom’s Vodafone shows, that excellence can manifest in excitingly impactful ways. There are other examples. Singapore’s Dufil Prima successfully introduced a new and highly nutritious staple food – noodles – into the African diet that is affordable and beloved across classes. Another example is Promasidor, which made milk accessible and affordable for the majority African poor with its Cowbell brand of milk products. These are firms providing largely private goods but contributing in very profitable but mutually beneficial ways to social welfare.
Thus, as a development paradigm within the African context, social value creation (SVC) extends beyond simply finding a market-based solution to a developmental problem. Sometimes, it is no more than a mindset change towards excellence in the core business of a firm that invariably ends up creating social value. This distinction is important to ensure that it is not confused with corporate social responsibility or philanthropy, which though are means towards some social value creation, are only so if that is the primary end in mind, and not some secondary after-thought owing to a guilty conscience.
Incidentally, Africa is ideally suited for firms looking to create social value at scale with relatively less effort and resources. Owing to dearth of capacity on many fronts, the continent is not likely to meet the United Nations’ Sustainable Development Goals (SDGs) on time. Thus, the purpose of the article is to provide a simple and yet encompassing framework to guide firms on how best they could help with filling the continent’s myriad developmental gaps and needs in a systematic, measurable, direct and yet profitable way.
2.0 Rethinking capitalism for development
Free-market capitalism is increasingly being criticized as not fit-for-purpose. When firms have been solely focused on maximizing shareholder value as in Western democracies, inequality rose disproportionately, underpinning the political dysfunction witnessed in America and elsehwere. In her 2020 book, Reimagining capitalism: How business can save the world, Harvard Business School professor, Rebecca Henderson, wonders “why and how we can build a profitable, equitable and sustainable capitalism by changing how we think about the purpose of firms, their role in society, and their relationship to government and the state (Henderson, 2020).”
This is a pertinent question for our time as “extractive elites monopolize economic activity and systematically underinvest (when they invest at all) in public goods such as roads, hospitals and schools (Henderson, 2020).” The subsisting “massive environmental degradation, economic inequality, and institutional collapse” are dysfunctions that may continue to endure if the western-type capitalism that underpins them is not rethinked (Henderson, 2020).
African countries, which see the increasing dysfunction in many Western capitalist societies, must now wonder if they should similarly adopt what had hitherto been dubbed the silver bullet for lifting their teeming populations out of poverty to prosperity. Multinational firms doing business on the continent may yet prove that is still the case. Besides, “states everywhere are failing. If we are to reimagine capitalism, we need the private sector to be part of the effort to rebuild our institutions and to fix government (Henderson, 2020).” There is nowhere in the world where this is more pertinent than in many African countries. And as Henderson (2020) asserts, “today’s firms have enormous power to influence governments if they choose to use it.” Africa is probably the one place where that influence could be most impactful.
These are not sentimental ideas. For instance, “many of the central institutions of the nineteenth-century American economy – including the New York Stock Exchange, the Chicago Board of Trade, and the New Orleans Cotton Exchange – were voluntary associations formed to address the public goods problems thrown up by the maturing US economy (Henderson, 2020).” In Germany, business leaders made the informed decision to cooperate with labour leaders to institute new economic orders at critical post-war junctures that endure to this day (Henderson, 2020). Consequently, “Germany now has one of the world’s strongest and most equal economies (Henderson, 2020).”
Similar business-labour cooperation in the face of political vaccums has been associated with Denmark (Henderson, 2020). There is also a thriving African example. Cooperation between business and political leaders has been attributed for Mauritius’ relative economic success. Mauritius, which though “fractured along racial lines,” “was able to build a thriving, multicultural community and a strong free market”, making it “now one of the most successful countries in Africa (Henderson, 2020).”
Business can help in even more proactive ways. According to IE Business School global economy professor Daniel Lacalle in his 2020 book, Freedom or equality: The key to prosperity through social capitalism, the power of free markets can be applied to solve society’s myriad problems. “Capitalism has delivered the greatest increase in social welfare the world has ever seen, and it will continue to do so in all areas. We simply need to apply the power of free markets to solve society’s greatest problems (Lacalle, 2020).”
The main idea is the application of free market ideas towards solving social problems and making profits in tandem. According to Lacalle (2020), “social capitalism, which is private investment into the public good, is the best system for creating sustainable solutions that produce the maximum welfare for all.” The Nordic countries are good examples of where such an approach has proved to be remarkably successful.
That said, there are risks. Social value creation could be used instead as a ploy for value extraction by firms. University College London economics of innovation and public value professor, Mariana Mazzucato, shows clearly in her 2019 book The value of everything: Making and taking in the global economy how far and apart the two concepts of value creation and value extraction are. And how governments and populations could easily be hoodwinked towards the latter, which is predatory, under the guise of the former, which is productive.
The financialization of the care home and water industries in the UK is a classical example of how “financial engineering of socially essential services can change the nature of an industry (Mazzucato, 2019). Thus, social capitalism could sometimes or inevitably result in the “transformation of public goods into private goods” owing to value extraction, as opposed to the intended social value creation of providing efficient and reliable services (Mazzucato, 2019). A better way might be for all firms, whether they produce private or public goods, to seek social value creation.
3.0 How do firms create social value?
In his 2020 book, Grow the pie: How great companies deliver both purpose and profit, Alex Edmans, a professor of finance and academic director of the Centre for Corporate Governance at London Business School, asserts a company’s primary objective should be “social value rather than profits.” Incidentally, firms that adopt this approach end up being more profitable over time than firms with a sole profit objective (Edmans, 2020). However, SVC is not corporate social responsibility (CSR). Nor is it philanthropy. Fundamentally, it starts with a firm asking itself “how is the world a better place by your company being here?” (Edmans, 2020). As firms control a lot of human and financial resources, they are very well-placed to create value for society. Edmans (2020) terms this positive sum approach to business as “pieconomics”. This is an approach to business in which creating value for society is the primary goal, with profits an inevitable consequence.
Figure 1: The SDGs-SVC-Development model
How is SVC different from CSR, though? “CSR typically refers to activities that are siloed in a CSR department, often to offset the harm created by a company’s core business (Edmans, 2020).” Instead, SVC is integrated into the core business with the primary objective of serving society. Still, CSR could also be used to create social value. A better distinction is shown in Table 1. Most CSR activities qualify as corporate philanthropy where activities tend to be special projects whereas SVC is more aligned with social responsibility and thus embedded in the day-to-day business of the firm.
|Table 1: Business & Society models|
|Trade-off model||Corporate philanthropy||Social responsibility|
|Ultimate purpose of firm existence||Wealth creation||Wealth creation||Social & economic development|
|Financial v Social performance||Trade-off correlation < 0||Jointly achievable Social => Financial||Jointly achievable Social => Financial|
|Governance mode||Shareholders’ rule||Shareholders’ rule||Shareholders’ mode|
|Resource allocation criterion||Shareholders’ value maximization (SVM)||SVM long-term + short-term social impact||LT social impact ST financial impact|
|Type of social impact activities||None, unless necessary||Add-on to normal (special projects)||Embedded in normal activities|
|Economic logic of social actions||Risk protection||Revenue growth opportunities||Fully integrated|
|Source: Zollo (2004)|
According to Edmans (2020), social value creation is guided by the three principles of multiplication, comparative advantage and materiality. The firm’s spend on a stakeholder should create a surplus benefit to the stakeholder (multiplication). The firm should be the one best able to add value than others for the particular activity (comparative advantage). And the beneficiaries of this activity should be material to the firm’s business (materiality).
Edmans (2020) cites a few examples to illustrate how the principles work. Coca-Cola’s Last Mile intiative leverages its comparative advantage in last mile distribution and cold storage logistics to transport medicines across Africa, for instance. Another example is Singaporean-headquarted agribusiness Olam, which grows various crops across the continent. Olam’s ‘Growing Responsibly’ philosophy helps to ensure conservation and regeneration in its operations and the natural resources it exploits. Similarly, owing to its huge water consumption and the tandem effects on the environment, Coca-Cola invests in various safe drinking water projects across Africa. And simply in the pursuit of excellence, Vodafone’s M-Pesa mobile money service in Kenya has transformed many lives.
4.0 African businesses are well-placed for social value creation
The United Nations’ Sustainable Development Goals (SDGs) is a comprehensive framework for assessing the development needs of the continent. A firm, looking to create social value, would find the SDGs a good starting point. Where do African countries currently stand with respect to the SDGs? The continental scorecard is very poor (see Table 2). According to the 2020 Africa SDG Index and Dashboards Report, no country had a good score for 13 of the 17 goals, for instance. The most pressing SDGs are good health and wellbeing (SDG 3), infrastructure (SDG 9) and peace, justice and strong institutions (SDG 16). Amongst the identified challenges in implementing the SDGs in Africa, the private sector could easily help with inadequate financial resources, lack of capacity in the civil service and civil society and lack of adequate data.
|Table 2: Status of the Sustainable Development Goals in Africa|
|1||No poverty||2030 poverty target will not be met by any African region other than North Africa. In absolute numbers, poverty has increased.|
|2||Zero hunger||With the exception of North Africa, food insecurity in Africa persists at a rate of over 25%|
|3||Good health and well-being||Under-five mortality rates are highest in Africa and well above the global average|
|4||Quality education||100% primary enrolment rate by 2030 likely if effort sustained. More than 50% of African countries already have over 90% primary enrolment rate.|
|5||Gender equality||Sub-Saharan Africa average greater than global. Africa leads the world in appointing female legislators.|
|6||Clean water & sanitation||Access to improved drinking water within a 30-minute round trip is below world average and off-target|
|7||Affordable & clean energy||Half of Africa has electrification rates of less than 40%. North Africa on track to achieve 100% electrification by 2030|
|8||Decent work & economic growth||Over 40 African countries have unemployment rates of over 5%.|
|9||Industry, innovation & infrastructure||Internet usage in Africa remains very low. Nearly half of African countries have internet access of less than 20%.|
|10||Reduced inequalities||Growing evidence shows Africa is one of the most unequal regions in the world. In fact, inequality worsened in 25 African countries between 2000 and 2015.|
|11||Sustainable cities & communities||Africa is relatively less urbanized. 13 countries have formulated and 21 are in the process of implementing national urban policies.|
|12||Sustainable consumption & production||No data available on any of the indicators|
|13||Climate action||Africa is the best performing region in the world when it comes to CO2 emissions.|
|14||Life below water||No data available to assess progress|
|15||Life on land||Good amount of protected land dedicated to supporting diversity. With focused policy interventions, 2030 target could be met.|
|16||Peace, justice & strong institutions||Number of deaths owing to conflict or terrorism in Africa is significantly higher than the global average.|
|17||Partnerships for the goals||More than half of African countries have a national statistics plan that is fully funded and being implemented.|
Source: The Sustainable Development Goals Center for Africa (2019). Africa 2030: Sustainable development goals three-year reality check. Kigali: SDG Centre for Africa. Retrieved from http://www.acsd.africa/static/site/pdf/africa/2.pdf
According to The Sustainable Development Goals Center for Africa, the SDG financing gap for Africa is estimated at between US$500 billion to US$1.2 trillion annually. Juxtapose that with more than 400 companies with gross sales of at least US$1 billion annually on the continent. Yes, these firms likely pay their fair share in taxes. But clearly, there is so much more they could do on financing alone. More than half of the world’s poor are in Africa, with over 60 million children stunted and almost 300 million of its 1.2 billion population malnourished. Many African firms can create social value in this regard as well. As shown in Figure 2, there are many other ways African firms could create social value. Firms involved in sustainable agriculture, water infrastructure or renewable energy would be creating social value by virtue of their products and services. Incidentally, these examples speak to the predominant needs related to food, water, housing, transportation and energy on the continent. In other cases, it could simply be via how firms doing business on the continent conduct their operations. Do they seek sustainable production, an inclusive workforce, gender balance and so on?
Figure 2: Framework to assess the impact of listed companies on the SDGs
Source: United Nations (2020). Financing for sustainable development report 2020. New York: United Nations. Retrieved from https://developmentfinance.un.org/sites/developmentfinance.un.org/files/FSDR_2020.pdf
And the evidence increasingly show that even in the African case, SVC can be profitable in the long run and loss-making when ignored. As shown in Table 3, when southern African firms invested in HIV/AIDS prevention and treatment, they not only helped save lives but enjoyed increase staff productivity and higher returns on their human capital. The Fairtrade chocolate initiative in Ghana is another good example. Cocoa farmers got paid more and participating firms secured better margins in tandem. And in instances where firms chose to be unethical like the UK’s Thor Chemicals in South Africa, it ended up paying a higher price.
There are recent examples as well. Nigeria’s Dangote Cement is building a cement-only multi-carriage road to the country’s busiest sea port in Lagos, for instance. And in January 2021, multinational oil company Shell was ordered by a Dutch court to pay significant compensation to host communities as damages for environmental degradation owing to its exploration activities in the Niger Delta. So even if in the African context, SVC may need to be decidedly less ambitious than the ideal in some cases, there is a lot that firms can do with so little.
Because of the peculiar political and socioeconomic contexts in many African countries, even if a company desires to put society first, it may find itself out of business before it is ever able to do significant good. Even Edmans (2020) admonishes that “while a company’s primary goal should be to create value for society, it’s important that it does so in a discerning way.” This is because even as it is true that companies which deliver great social value tend to also do well financially, it is not always the case. This nuance is even more pertinent in the African context.
|Table 3: Social value creation in Africa|
|Investments in prevention, treatment and care of HIV/AIDS by companies operating in southern Africa (such as Eskom) have led to reduced incidence of the disease and improvements in workers’ quality of life||Reductions in the cost of benefit payments, employee training, overtime and casual wages, insurance premiums, supervision and management; increases in productivity and employee motivation, and retention of trained employees|
|Fairtrade chocolate, which provides a market for initiatives such as Kuapa Kokoo, a cooperative involving 35,000 farmers in Ghana farming according to social and environmental principles||The Fairtrade movement is based on consumers’ willingness to pay a premium on products that are produced with high social and environmental standards, thereby providing more secure income to the cooperative’s members|
|During the 1980s and early 1990s, UK-based company Thor Chemicals’ mercury reprocessing plant in South Africa gave rise to severe pollution and health impacts on employees, including the death of two workers in 1993.||The company’s blatant pollution and health offences gave rise to numerous protest and legal actions. Business partners discontinued their relationship with the company. In 1993, the company and three of its directors were charged by the South African state (though charges were dropped after the payment of a small fine). In 1994, the plant was closed down by the government. The company was subsequently sued both in South Africa and in the UK, with settlement payments totalling over $3 million.|
|The Nairobi-based Serena Group of Hotels has built a number of lodges and tented camps in East Africa. It has implemented extensive environmental management, community involvement, and enterprise development programmes||The acceptance of the Group’s activities amongst local populations has significantly reduced theft incidents. The Group has also won a prestigious “Green Globe” award, thereby improving its reputation in the travel industry. Sensitive siting, protection of resources, and good community relations add to their visitors’ ecotourism experience.|
|Source: Hamann (2006), IFC et al. (2002) |
But even in the difficult African terrain, there are many instances where an SVC mindset would have been clearly more profitable. Take the earlier mentioned case of Shell Nigeria, which was ordered by a Dutch court in late January 2021 to pay compensation to farmers affected by oil spills from its operations in the Niger Delta. In addition to the financial reparations, Shell has also been ordered to install equipment to prevent further leaks. And while Shell argues the oil pipeline leaks were due to sabotage, there is no gainsaying that an SVC mindset – e.g., a duty of care – would have made the firm more enthused to ensure the leakages did not persist despite the high infrastructure and security costs.
Besides, Shell could easily have created social value by aiming for the SDGs via its operations to prevent pollution, waste generation and abuse of human rights (see Figure 2). By the recent Dutch court indictment, it clearly failed in regard of SDG 1 (no poverty) since livelihoods were lost as fishermen could not fish, SDG 3 (good health & well-being) in light of health costs to members of the host communities, SDG 6 (clean water & sanitation) owing to pollution of water bodies for drinking water, bathing, and laundry, SDG 11 (sustainable cities & communities), and SDG 13 (climate action).
Another case in point is the construction of the Apapa-Oshodi-Oworonsoki-Ojota highway in Lagos, Nigeria, by Dangote Industries. Perennially out of repair, the highway is the main access road to the busiest sea port in the country. And every time it was repaired in the past, it almost always unraveled during the rainy season, with a constant sight of long queues of heavy duty trucks parked by the side of the road for a considerable distance. And while Dangote Industries would enjoy a 10-year tax rebate from the Nigerian government, the value to the firm and the Nigerian economy owing to the wider and expectedly more resilient all-cement road, would be far greater than the estimated tax concessions of about US$180 million (72.9 billion naira).
The initiative is multiplicative, leverages on Dangote Cement’s comparative advantage, and is material to its business and stakeholders. And even as Dangote does not explicity say the intiative would help with the SDGs, it probably should have consciously sought to do so. Clearly, the Lagos port road would help with SDG 1 (no poverty), SDG 9 (industry, innovation, and infrastructure), SDG 11 (sustainable cities & communities), and SDG 17 (partnerships for the goals).
In sum, the above examples highlight how in spite of the peculiarly difficult African business environment, firms could aim for social value creation in a systematic, measurable and sustainable way by mirroring the SDGs in their operations, CSR and philanthropy. The upside to the African case is that firms have so many opportunities for social value creation with relatively less effort and financial resources. And there is almost an immediate, direct and easily discernible development impact. Where all firms operating on the continent to adopt our SDGs-SVC-Development model, the sum of the whole would almost certainly make the achievement of the SDGs in many African countries more feasible.
5.0 Conclusion & Recommendations
African businesses can contribute to the economic development of their host economies by deliberately seeking to create social value. Market-based solutions to social problems have been found to produce optimal public goods. And even by simply pursuing excellence in the normal course of business, a private goods firm could create social value similarly. Incidentally, Africa is ideally suited for global, pan-African and local firms looking to create social value at scale.
Our SDGs-SVC-Development model is a simple but encompassing framework that guides firms on how they could easily help with filling the continent’s myriad developmental gaps and needs. It relies on the United Nations’ Sustainable Development Goals to scope the continent’s development needs. Relying on various literature, we show how aiming for the SDGs creates social value. We also highlight the unique African case where but for increased engagement by all stakeholders, especially the private sector, targets for the SDGs are not likely to be realised. How is Africa a better place by your firm being here? How can you use your firm’s expertise to solve this social problem? These are the pertinent questions our SDGs-SVC-Development model hopes to enable firms operating on the African continent scope and answer with action.
Since studies on the relationship between business and society in Africa is relatively scant, the article’s continental bias is apropos. In Mauritius, a synergistic relationship between business and government underpins its relatively shared prosperity. Vodafone’s M-pesa in Kenya increased financial inclusion, helped in reducing poverty and is now being replicated across the world. Coca-Cola’s usage of its cold logistics and last mile distribution infrastructure to transport medicines and vaccines is another excellent example of social value creation. We also highlight the risks inherent in the provision of social services or public goods by the private sector. Under the guise of social value creation, firms have instead resorted to value extraction in many instances.
With more than 400 companies on the continent earning at least US$1 billion annually, the US$500 billion to US$1.2 trillion annual SDGs financing gap for Africa could easily be met if most firms on the continent (if not all) adopt a social value creation mindset. Beyond financing, firms could also provide expertise to make up for the identified lack of capacity in the civil service and civil society and inadequate data in many African countries. Additionally, firms could also create social value by virtue of their product and services. And even when firms are not involved in such naturally SVC-themed ventures like sustainable agriculture, water infrastructure, renewable energy and so on, they could easily create social value by simply conducting their operations in an ethical and sustainable manner.
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