Tag Archive for: Business Model

Addressing Corporate Sustainability in The Corporate Sector through Payin30

The #Payin30 initiative in South Africa has been largely driven and supported by the private/corporate sector. Corporate Social Responsibility (CSR) is a management concept or a business model, that consolidates topics of social and environmental concerns into their business policies, operations and their conduct. It is a way in which the company becomes socially accountable, not only to itself and the stakeholders but also to the public. Corporate social responsibility is the approach a company undertakes to enact a balance of the Triple Bottom Approach (TPL) – “People. Planet. Profit” while holding itself accountable to stakeholders.

CSR is a conscious effort to address the capitalistic nature of the business but being cognisant of the environment in which it exists – understanding that people, profit and the planet cannot operate in isolation.

The Corporate Social Responsibility (CSR) diagram: Photo courtesy of Getty Images

THE ROLE OF GOVERNMENT IN CSR AND PAYIN30

Although the business sector lies at the centre of CSR, the government as an authoritative power can play a catalyst role – yielding their power and voice to raise awareness of what CSR truly embodies. The government can a vital role in mediating between social agents (business sector and the public).

The United Kingdom (UK) government and the South African (SA) government have been exemplary in calling for action against 90-, 60-, and 45-day payment terms. On the 19th of January, the United Kingdom government announced that it has re-examined the Prompt Payment Code (PPC) to renounce delayed invoices owed to SMEs. Under the new reconstructed terms, companies are obliged to now pay SMEs within 30 days – which is half the time defined by the current Code. The UK government is looking to strengthen the rules, by increasing Small Business Commissioner powers as a post-covid19 economic strategy.

During the South African Investment Conference in Soweto, President Cyril Ramaphosa called for the government to ensure that SMEs suppliers are paid within 30 days. The Public Service Commission (PSC) is an independent and overseeing institution, ensuring the effectiveness and efficiency of public service performance. The PSC aptly states that “The non-payment of suppliers is in contravention of the Treasury Regulations and constitutional principles such as efficient, effective and economic use of resources, accountability and transparency”. The PSC will continue monitoring compliance with 30-day payment terms, announcing that they [PSC] will view non-compliance as financial misconduct.

These two exemplary moves by the respective are indicative of how not only government institutions can set precedence on ethical practices but also yield their power for the good of the greater society. The ability of government institutions to recognise the importance of SMEs as job creators, but also as an integral part of the economic ecosystem. The government is held accountable and is responsible for its stakeholders – the people and acknowledging that SMEs are the microcosm of society and the economy. The government’s role is a prime example of the influence of corporate social responsibility.

THE ROLE OF CORPORATE AND THE PRIVATE SECTOR IN PAYIN30

As the economic and social unit of society, corporate must operate in accord with sustainable strategies endorsed by the economic system in which it operates. The highlight of this is that corporate and business do not exist in isolation and their existence is dependent on the people and planet, there is a responsibility to the planet and the people. In pursuit of a sustainable business strategy, “CSR emphasises on the maximisation of the utility of resources with minimum consumption, exploration of resources without exploitation and maintaining the surplus balance of resources for future generations.”

The #Payin30 initiative in South Africa has been largely driven and supported by the private/corporate sector. Business for South Africa (B4SA), the SA SME Fund, and Business Leadership South Africa (BLSA), and supported by, amongst others, Business Unity South Africa (BUSA), the Small Business Institute (SBI) and the Black Business Council (BBC) have all put their heads together to support SMEs. This serves as evidence that corporates are largely aware of the role and influence in the country’s economic ecosystem.

Paul Hanratty, Sanlam Group Chief Executive Officer, and member of the Risk and Compliance, and Social, Ethics and Sustainability (SES) Committees speaks on the importance of the #Payin30 campaign.

Paul Hanratty, Sanlam Group Chief Executive Office

Hanratty says, that the #Payin30 is a supportive mechanism to SMES navigating the Covid-19 pandemic and will help them become sustainable in the long term. He follows this, highlights how the #Payin30 is also an economic strategy to the pandemic, urging all big businesses to adjust their payment terms in support of SMEs. Hanratty says,

 “Recovery will not happen exclusively through big national initiatives; it will happen bit by bit, in small but meaningful increments. The business sector in South Africa has the opportunity to play a profound role in the recovery of smaller entities.”

We cannot ignore the need for economic development and growth, but we must be cognisant that it needs to be done sustainably. We cannot grow the economy at the expense of the people or the planet. The progression of concepts like that of CSR is dependent on the partnership of the private sector and government.

CONCLUSION

In their article, ‘The Truth about CSR’, Kasturi et al note that there is an increasing pressure for corporate companies to “dress up CSR as a business discipline and demand that every initiative deliver business results.”. This takes away the essence of CSR is: “to align a company’s social and environmental activities with its business purpose and values.”. The authors of the article aptly advise that to maximise the positive impact of CSR, companies must depart from poor coordination of their CSR programs and the lack of logic connecting their various programs. Kasturi et al advise that maximising this means companies need to develop coherent CSR strategies by a) focusing on philanthropy, b) improving operational effectiveness, c) transforming the business model. Post the development of these three theatres, companies must develop a unified practice program through a four-step process. Step 1) Aligning Programs Within the Theatres, 2) Developing Metrics to Gauge Performance, 3) Coordinating Programs Across Theatres, and 4) Developing an Interdisciplinary CSR Strategy. Best-practices companies operate coordinated and interdependent programs across the CSR field.

We must understand the world from the triple bottom line: the social, environmental and financial – people, planet and profit. SMEs contribute immensely to the country’s sustainable growth and need the support of both government and corporations to ensure their survival and preservation. The global problems cannot be solved alone. The collaboration with entities like SMEs, NGOs and association can help them unleash the full potential of corporate social responsibilities. Payin30 is an important CSR initiative that serves as evidence of how government and corporate can work together to ensure the sustainability of SMEs.

 

There are no defensive postures here. Undaunted by the potential for pandemic induced collapse in demand for commodities like sugar and cement, Nigerian billionaire Abdul Samad Rabiu sees only possibility – especially in agriculture, especially in Nigeria.

Not only is agribusiness relatively simple in terms of its business model, but it is urgent to save needed foreign exchange and to boost employment, he explains. Rabiu’s major focus is on promoting more production and processing to meet national demand and make more profits for his conglomerate BUA Group. BUA listed its subsidiary BUA Cement in January to raise capital for industrial projects in the glass, steel and oil sectors, citing the rigour and “scrutiny” of the process as a way of “de-risking” Nigerian opportunity for investors domestic and foreign.

“The opportunities are here,” enthuses the group chairman and chief executive during our videoconference, a portrait of South Africa’s former president Nelson Mandela beaming over his shoulder. That has not really been the case for the man on the Lagos Danfo, to twist a phrase – the city buses were restricted due to measures against transmission of COVID-19.

Most Nigerians are still reeling from the economic impact of the pandemic. Traders have ceased operation, farmers have thrown away produce due to the lack of transport, and businesses have mothballed investment projects. Most of BUA Group’s expansion programme remains undisturbed. Chief executive Rabiu unveiled plans for 3 million tonnes per annum (mtpa) in cement capacity and 50MW of power in Adamawa State in July.

However, he put off the announcement of a glass project that was slated for the postponed June France-Africa summit. While COVID-19 disrupted most firms, greater automation in BUA Group’s agribusiness and cement plants allows them to operate at about 40-50% of their normal capacity. “We are lucky for the fact we are even at 50%. Many others have not been able to work at all,” says Rabiu.

The ban on travel between Nigeria’s states was the greater challenge, “and that is lifting now”. He argues that “the impact [of the coronavirus] is going to be with us for quite some time” and that “entire industry business models are going to have to change.”

Better than 2019

Learning from operating his family business as a young man, Rabiu has built up his empire slowly but surely. BUA Group has moved from a trading company importing commodities to a manufacturing powerhouse in agribusiness and construction materials. From edible oils, through sugar and cement projects, the group also operates a shipping terminal in the oil town of Port Harcourt and owns a real-estate portfolio.

Cement is the industrial star. BUA Cement had a solid first quarter in 2020, banking nearly $60m in profit. This means, according to Rabiu, that it can absorb the slowdown from April to June, and have year-end results that may be “better than 2019”. That is not something many other Nigerian companies are predicting. It is bullish given the record year the company had in 2019; a 47.5% increase in turnover, with profit jumping nearly 70%.

He attributes the leap to the launch of a second line at the Obu plant in March 2019, adding 3mtpa to BUA’s output, and the first full year of the Kalambaina plant’s second line operations. The cement expansion does not stop; while BUA Cement currently has capacity for 8mtpa, Rabiu is targeting 14mtpa over the next few years.

Analysts do not share Rabiu’s optimism about the sector in the short term. “We expect the deterioration in the macroeconomic conditions – caused by the outbreak of COVID-19, which triggered a sharp decline in oil prices – to constrain activities in the construction industry as fiscal spending on capital projects weakens,” wrote Nigeria’s CSL Stockbrokers.

The scars will remain for some time for the Nigerian economy at large, Rabiu says, with the damage hitting the poorest first. “The price of goods has gone up, especially food items,” he says, partly as a result of the devaluation of the naira but also because the virus has hurt port logistics, making the clearance of imports difficult. That could be seen as an opportunity to intensify Nigeria’s great push to support food production, something that the government of President Muhammadu Buhari has supported for rice in particular.

As part of Nigeria’s CACOVID (Coalition Against Covid-19), an organisation of private-sector operators pooling funds to help relief efforts, BUA has put money into feeding programmes in Lagos and other cities, to cushion the blow of the pandemic. Fundamentally, Rabiu is unhappy about the high level of food imports. “It should not be happening at all, not only here in Nigeria, but generally in Africa. We have 60% of the world’s arable land. We have the people [to farm]. We have the climate. We have everything it takes.”

He is keen for that opportunity to go beyond food crops to cash crops, and again focus on keeping value in Africa. “The US, Germany, Switzerland and Belgium produce 75% of the entire chocolate production worldwide. And if we look at the cocoa industry worldwide, what are we talking about, $150bn-$160bn? And Africa gets maybe $10bn-$15bn of that?”

Sugar for resilience

He expects agriculture to provide the resilience that Nigeria needs in the post-COVID-19 era. Next year, for example, will see the ramping up or opening of operations at three major sugar plantations, including BUA’s own in Kwara State, as well as projects for Dangote Sugar and Golden Sugar.

BUA is Nigeria’s second-largest sugar producer after Dangote Sugar. “With that plantation, we will be able to produce 150,000tn of white sugar with millions of litres of ethanol, employing over 10,000 people in direct jobs,” says Rabiu.

He was inspired by a visit to Uganda’s Kakira sugar estate, run by the Madhvani family: “It was the most impressive sugar plantation I had ever seen.” And Mayur Madhvani told Rabiu that while he could get yields of 9tn per hectare in Uganda, the soils and potential in Nigeria were far greater.

 

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Sources: [1], [2]. Image sources: [1], [2].