Fighting Poverty Using Business

Published on 29th November 2005

Recent studies show that it makes business sense for companies to join the fight against poverty.

DAR ES SALAAM (PANOS) – Those who believe businesses can afford to ignore poverty on their doorstep may have to think again: it makes business sense for companies to join the fight against poverty, says a recent study.

The research, undertaken jointly by Tanzanian and British academics, looks at how poverty impacts 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. It shows that chronic poverty in low wage countries like Tanzania is bad for business and of concern to businesspeople.

“Businesses know too well that in order to prosper, customers’ purchasing power must be improved. One way of doing this is by helping them to fight poverty,” says Tanzanian researcher Dr Benedict Mongula of the University of Dar es Salaam. His collaborators  are from a UK-based consultancy, the Environmental Resources Management Social Strategies.

While multinational companies may adopt Corporate Social Responsibility (CSR) for charitable or business reasons – such as protecting their brand names and preventing consumer boycotts – society-business partnerships in poor countries are a matter of survival for national companies, suggests the study. One of the companies featured in the research is Tanzania Tea (TATEPA), manufacturers of Chai Bora, the country’s best-selling tea brand.

Established in 1995, TATEPA is the largest domestically owned private company in Tanzania – and the third largest on the stock exchange – with 2,000 shareholders and 200 employees. The company is vulnerable to poor harvests and the fluctuating income and spending power of its largely poor and rural customers. TATEPA sees itself playing a role in poverty reduction through job creation, sale of good quality but cheap products, sourcing locally and encouraging small-holder supply.

After the company bought the Wakulima Tea Company in Rungwe, southern Tanzania, tea farmers saw a 50% increase in tea prices and received technical advice on how to improve yields and use inputs such as fertilisers and herbicides. Gerald Magashi, TATEPA’s credit controller, says: “TATEPA was forced to help farmers so as to improve its own production of packed tea, thus killing two birds with one 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 a day (1,000 Tanzanian shillings), TATEPA’s workers are also better off than many Tanzanians. The lowest paid employees earn $70 per month, well above the statutory minimum wage of $35. By comparison, most low level government employees, such as police constables, are paid less than $50 per month. The workers also receive medical treatment, transport allowance, daily milk and loans for school fees and rent. 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 $113,000 compared to about $30 million 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 is put together with that of other businesses and non-government organisations, a tremendous impact may be made on poverty reduction,” says Corse.

However, critics like Dr Mohamed Bakari, lecturer in public administration at the University of Dar es Salaam, points out that TATEPA is unique and exceptional – 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 than helping the people they are using CSR to advertise their goods,” he explains. Bakari cites the example of a brewery that has sponsored a number of health projects in order, he says, to compete with a rival company.

Gastone Gaudence Kikuwi, the Secretary General of Viwanda na Biashara Ndogondogo (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% in 2001 according to the Tanzanian Planning Commission – works in the informal sector. He wants big companies to provide loans, training and market-access to people working in the informal sector.

But 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) says that to have the maximum effect, corporate schemes should focus on rural areas, where 97% 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%) on donations made by businesses towards alleviating poverty, fighting HIV/AIDS and developing sports.

But researcher Mongula is convinced that the government and Chamber of Commerce are not doing enough. “It is saddening that the government and the business organisations have failed to come out with an explicit policy on CSR,” he says, adding that it should be mandatory for all businesses to invest in social schemes.




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