Researchers in Tanzania are urging domestically-owned businesses to join the nation's fight against poverty. It's a vital means, they say, for businesses to prosper and survive.
Poverty eradication is not the first thing that comes to mind when talking about business. But researchers in Tanzania are urging domestically-owned businesses to join the nation's fight against poverty. It's a vital means, they say, for businesses to prosper and survive – and they are pressing the government to make it compulsory for all companies, including multinationals, to invest in social schemes.
Those who believe private business impacts negatively on the poor may have to re-examine their case: it makes business sense for companies to join the fight against poverty, says a recent study.
The study, undertaken jointly by Tanzanian and British researchers, looked at how poverty impacted on five private firms: a tea company, a sack manufacturer, an aluminium sheet producer, a foreign-owned brewery (one of Tanzania's largest private sector employers), and a not-for-profit crafts business.
Contrary to popular belief (image of uncaring businessman), it shows that chronic poverty in low wage countries like Tanzania is bad for business and of concern to businessmen.
"Businesses know too well that in order to prosper, customers' purchasing powers must be improved. One way of doing this is by helping them to fight poverty," says the Tanzanian academic Dr Benedict Mongula of the University of Dar es Salaam. His British collaborators are from the Environmental Resources Management Social Strategies consultancy.
While multinational companies may adopt corporate social responsibility (CSR) to be charitable or for business reasons such as protecting their brand names and preventing consumer boycotts-society-business partnerships in poor countries are a matter of necessity and a strategy for survival for companies, suggests the study.
"Domestic businesses can only make a profit because consumers continue to buy their products and services – without them, businesses cannot survive. It is against this background that a social-business partnership is of paramount importance in poor countries," explains Mongula.
One of the companies featured in the study is Tanzania Tea (TATEPA), manufacturers of Chai Bora, Tanzania's best-selling tea brand.
Established in 1995, TATEPA is the largest domestically owned private company in Tanzania – the third largest on the stock exchange – with 2,000 shareholders and 200 employees. Despite its size, the company is vulnerable to poor harvests and the income and spending power of its largely poor and rural customers.
TATEPA's sees itself playing a role in poverty reduction by taking account of its employees and consumers through the creation of employment, sales of quality – but cheap products – sourcing locally and encouraging small holder supply.
Following the company's purchase of the Wakulima Tea Company in Rungwe, Southern Tanzania, tea farmers have enjoyed a 50 per cent increase in tea prices and benefit from technical advice to improve yields and inputs such as fertilisers and herbicides.
Says Gerald Magashi, TATEPA Credit Controller: "TATEPA was forced to help farmers so as to improve its own production of packed tea, thus killing two birds with the same stone – making good business and boosting the incomes of the people surrounding its factory."
In a country where half of the population lives on less than a dollar (about 1,000 shillings) a day, TATEPA's workers are also better off. The lowest paid employees earn 70,000 Tanzanian shillings per month, well above the statutory minimum wage of shillings 35,000 per month. By comparison, most lower-cadre government employees, such as police constables, are paid less than 50,000 shillings per month.
The workers also get medical treatment, a transport allowance, daily milk and loans for school fees, rents.
John Corse, TATEPA's Marketing and Sales Director, concedes that the company could do more, but says it is hampered by it being a relatively small player.
Last year the firm made a profit of 113 million shillings compared to about 30 billion made by large listed companies like the South African owned Tanzania Breweries.
"TATEPA's contribution may be a drop in the ocean but if its initiative nis put together with that from other businesses and non-government organizations tremendous impacts may be made on poverty reduction," says the director.
However, critics like Dr. Mohamed Bakari, lecturer in public administration at the University of Dar es Salaam point out that TATEPA is a unique exception because of its local roots and domestic ownership. To most companies, being socially responsible means just giving ad hoc charitable donations.
"Whenever big companies give something to help the society, the event is accompanied by big media hype, indicating that rather helping the people they are using corporate social responsibility to advertise their goods," he explains. Being a socialist country, most businesses are still state owned and private companies feel compelled to come up with CSR schemes as a publicity stunt, he claims.
He cites the example of a brewery that has sponsored a number of health projects in order to compete with a rival company.
Gastone Gaudence Kikuwi, the Secretary General of VIBINDO, an umbrella organisation of small traders, says CSR schemes will do very little to ease poverty in Tanzania because a large chunk of the population – over 75 per cent in 2001, says the Tanzanian Planning Commission – works in the informal sector. He wants formal companies to provide loans, training and access to markets.
Sikitiko Kapile of Poverty Africa, a Dar es Salaam based-NGO which gives loans to workers in the informal sector, does not think businesses will be keen to aid the informal sector. "In a market scramble, where big firms are sometimes pitted against small ones, a company making garments is not likely to be happy with the growth of the roadside second-hand clothing business," she says.
The Tanzania Chamber of Commerce, Industry and Agriculture (TCCIA) believes that to have the maximum effect, corporate schemes should focus on rural areas where 97 per cent of Tanzanians live and work. It is trying to get other businesses to follow Tatepa's example.
"At the moment we are holding monthly business breakfasts in which members of the business community deliberate on how they can effectively help to reduce poverty," says TCCIA president Elvis Musiba.
Through the chamber, the government has been persuaded to waive income tax (ranging between 25-30 per cent) on donations made by businesses towards alleviating poverty, fighting HIV and developing sports. Most companies donate between 1-30 million shillings.
Industry and trade minister Juma Ngasongwe thinks the government and chamber of commerce are not doing enough and wants it to be mandatory for all businesses to invest in social schemes, saying: "It is saddening that the government and the business organisations have failed to come out with an explicit policy on corporate social responsibility".