Six ways your company can reduce poverty

Six ways your company can reduce poverty

You and your company can reduce poverty, here are six approaches:

  • Drink a beer at a luxury hotel in Sierra Leone;
  • Throw bales of money out of a helicopter over farmland;
  • Sell water in Kibera slum, Nairobi at twice the price of that in the city centre;
  • Use your weight;
  • Invest in a budding new competitor, supplier or buyer;
  • if all else fails, then donate.
  • Yes, there are six ways your company can do its bit to reduce poverty in a developing country. With only minor changes to the way your company runs its business you can make a significant difference to the lives of the poor. Do not wait for development aid, governments and NGOs to make up their mind, the difference can be made today. Here are six recepies.

Firstly, create indirect jobs.

Sierra Leone Breweries Ltd. supports about 40 jobs outside the brewery for every person it employs. These are the farmers, the dock workers at the port, the truck drivers, the employees of kiosks, bars and hotels. Sierra Leone Breweries, a Heineken company, has 175 employees but supports over 6500 jobs outside the company. Of which 75% of the jobs are downstream towards retail and distribution and 25% upstream buying and farming. Because Sierra Leone is a very poor country a company like this one is supporting jobs for seven person households whose average income per head is below 1 dollar a day.

These results are not so very different to what Unilever discovered in Indonesia. A lot of indirect jobs are supported and most of them on the sales or downstream side. Sierra Leone Breweries could however, boost the number of farm jobs supported by substituting some of the imported wheat (from the EU) for brewing beer, with locally grown sorghum. This supported an additional 3000 farmers. This was done at almost no extra cost, nor any noticeable change in the taste of the beer.

I recommend that companies should look to substituting imported goods with locally produced goods. Especially if those locally produced goods are labour intensive like agricultural produce. This gives a tremendous boost to jobs.

Secondly, if your companyproduces and sells a consumer product, also consider ‘export substitution’, sell locally. It can increase the number of indirect jobs dramatically by developing a franchising or distributor system. The more sold, the more jobs.

So as said in the introduction, drinking a beer at a luxury hotel in Sierra Leone suddenly has a positive taste to it !

Secondly, let cash flow locally.

John Meynard Keynes was genius because he kept things simple. Let me explain his multiplier effect. Rather than give aid to a corrupt government and see the money flow directly to a Swiss bank account, instead, fly over a poor rural area far from the capital with a helicopter and throw the money out. Let the money do its work by exchanging many hands, before it gets to the corrupt officials and then leaves the country to a Swiss bank account. Every time a dollar bill changes hands it does a lot of work: adds value to the recipient and makes a service possible before the Swiss get to use it. Yes the rural poor have more knowledge about how to best allocate their scarce dollar bills than a development worker.

A salary paid by Sierra Leone Breweries Ltd. for example. Once that salary had changed hands eight times, almost half had passed through the hands of the poor, those living on less than a dollar a day. It does the same as micro credit. If you do business, you are indirectly supplying micro-credit.

The lesson here is that companies active in very poor countries (less than $5000 GDP/capita) can have a big impact in cash to the poor by simply checking all the cost and purchases – buy local is the advice. And if possible buy in such a way that it takes long for the money to end up outside the country.

Thirdly, sell at a profit, but meet social needs.

The price of a liter of clean drinking water in Kibera slum is 10x the price of the drinking water in the city center. If your company can find a way to profitably sell drinking water to slum dwellers at twice the price of the city center, then you are saving slum consumers a lot of money. Companies can see the poor as consumers and producers. The poor are willing to pay for good products which improve their living standards. For example, in India 50% of the medicine sold is fake. Acumen Fund in India guarantees that medicines sold through their franchise Medicine Shoppe in slums are real. Financially this saves the consumer 50%.

In Mendoza, Argentina the poor pay twice as much for gas for their homes than the rich. Providing them with commercial biogas outfits, making them producers of gas, they can sell gas and no longer have to pay a premium for gas. There are many more markets where pricing and reliability is biased against the poor – health, education, water, energy, food, housing, finance – seek out the opportunities at the bottom of the wealth pyramid!

Fourthly, lobby for improvements

The World Business Council for Sustainable Development (WBCSD), the World Economic Forum and the UN Global Compact are all clubs for the biggest companies to discuss and share strategies for a better world. At these meetings they also meet heads of state and lobby for improvements to the living standards of the poor.

Smaller foreign companies in a developing country often do not individually possess this level of lobby power to improve the living standards of the poor. You may then want to seek a collective lobbying route. Bring your suppliers or buyers together. Jointly act as companies through mediation of the embassy. On and you can find benchmark data in areas where governments need to improve upon.

Fifth, invest in a young starting SME that can be your competitor, buyer or supplier

Starting small and medium sized enterprises (SMEs) in developing countries face two big problems. Access to finance is a major obstacle. Credit is scarce or expensive and local venture capital markets are non-existent. The other problem is sufficient support, know-how and coaching. Your company, given it has sufficient cash can solve both these problems for an SME. The ideal candidates are start-up competitors, your suppliers or buyers. At BiD Network we see that these companies create on average 10 new jobs in the first two years. And if they survive, about 30 jobs in the first 3 years. As an investor you can demand that new recruits come from the unemployed. Your money, your advice and being in your supply chain will guarantee their survival and growth. Investing in poor economies is not a bad bet. In 2009 world economic growth is predicted to grow at -1.3%. The IMF expects the poorest countries to grow at 4.5%. Your company is probably in an even faster growing market sector – profit from it.

Finally, as Finally, as a matter of last resort, donate.

The poor have many social needs that cannot be met via commercial means. The Millennium Development Goals cover most of these: hunger, poverty, education, health, gender 4 equality, housing, environmental conditions and more.

There are however five issues that need to be resolved before your company decides to donate to a good cause.

  • Firstly, make sure your support is designed so that, like any investment, there is a clear exit strategy within 2-3 years. i.e. how is the project going to support itself once your company pulls out? If this cannot be answered or if the exit is yet another donor, then don’t do it. Clarify this before getting in.
  • Secondly, are you sure that your donation or support is not distorting the local market? Food aid for example. This free food can entirely damage the chances for local farmers to sell their own produce locally.
  • Thirdly, have you priced or costed your donation or support right? At BiD Network Foundation we work with local entrepreneurship centers to help small and medium sized enterprises start. The full cost of doing so is about €15,000 per SME that gets started. Each SME creates about 10 jobs making the cost price per job about €1,500. Some agencies and donors are spending more than double the price. This is not only a waste of resources, but it also drives the more efficient players out of the market.
  • Fourth, make sure to target the poor. Absolute poverty resides below the US$ 1,25 a day income line. But someone earning 5 dollars a day supporting a household of 5 is also living below the poverty line. Supporting the poor can be an extension of a service you currently offer to your employees. Shell in Nigeria decided to offer health checks and health insurance to non-employees because they were already doing this service for a huge number of employees.
  • Fifth, nothing should be for free. Local recipients should always have to show their commitment or that they value your support by offering something of value in return. This could be their time or goods or handicrafts or a small fee. There is nothing worse than people who have lost their dignity, personal drive and motivation because of the Aid virus.

Poverty reduction and business can go hand-in-hand. Your company only needs to be willing to think local. With some changes in the way you operate you can make a difference.