Measuring Unilever™s Economic Footprint in South Africa
Measuring Unilever™s Economic Footprint in South Africa
Measuring Unilever™s Economic Footprint in South Africa
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<strong>Measur<strong>in</strong>g</strong> Unilever’s <strong>Economic</strong><br />
<strong>Footpr<strong>in</strong>t</strong> <strong>in</strong> <strong>South</strong> <strong>Africa</strong><br />
A Report by Ethan B. Kapste<strong>in</strong><br />
Paul Dubrule Professor of Susta<strong>in</strong>able<br />
Development, INSEAD, France<br />
and<br />
Visit<strong>in</strong>g Fellow, Center for Global Development,<br />
Wash<strong>in</strong>gton, DC
Agenda<br />
g Does FDI promote development?<br />
g The <strong>South</strong> <strong>Africa</strong> context<br />
g Report Methodology<br />
g Key F<strong>in</strong>d<strong>in</strong>gs<br />
g Issues for Management<br />
g Implications for Research and<br />
Policy
Does FDI Promote Development?<br />
g<br />
g<br />
g<br />
Traditional <strong>Economic</strong> View: FDI plays two roles <strong>in</strong> develop<strong>in</strong>g<br />
countries: (1) fills the gap between local Sav<strong>in</strong>gs and<br />
Investment requirements; (2) br<strong>in</strong>gs technology (<strong>in</strong>c. human<br />
capital): result is more economic growth. Thus, one objective<br />
of World Bank is “to promote private foreign <strong>in</strong>vestment” (IBRD<br />
Articles of Agreement).<br />
Economists also argued that, by operat<strong>in</strong>g at a bigger scale<br />
than domestic <strong>in</strong>dustry, FDI could help “lift up” an economy.<br />
Other benefits of FDI <strong>in</strong>cluded provision of “public goods”:<br />
g Technology transfer to local suppliers<br />
g F<strong>in</strong>anc<strong>in</strong>g of local suppliers (fill<strong>in</strong>g f<strong>in</strong>ancial “gaps”)<br />
g Transfer of bus<strong>in</strong>ess & management skills directly to<br />
suppliers and <strong>in</strong>directly as managers left for domestic<br />
firms
FDI and Development, contd<br />
g<br />
g<br />
g<br />
g<br />
g<br />
g<br />
But many criticisms of FDI as well, e.g.:<br />
Suppresses domestic competition<br />
Fuels corruption (esp. In m<strong>in</strong>erals sector)<br />
Increases <strong>in</strong>equality<br />
Pollutes air and water<br />
In assess<strong>in</strong>g costs and benefits, most research relies<br />
on either panel or cross-country data analysis;<br />
detailed case studies lack<strong>in</strong>g!
The <strong>South</strong> <strong>Africa</strong>n context<br />
g<br />
g<br />
g<br />
g<br />
Remarkable achievements s<strong>in</strong>ce transition:<br />
Democratic, majority rule<br />
Macroeconomic stability and steady growth<br />
Introduction of BEE to redress effects of apartheid<br />
g World Cup 2010!<br />
g<br />
But cont<strong>in</strong>u<strong>in</strong>g challenges:<br />
g High unemployment (30% +)<br />
g<br />
g<br />
g<br />
g<br />
g<br />
g<br />
Shortage of educational opportunities and human capital<br />
generation<br />
Lack of <strong>in</strong>ternational competitiveness <strong>in</strong> manufactur<strong>in</strong>g sector<br />
and low levels of FDI<br />
Extreme <strong>in</strong>equality and poverty<br />
Crime<br />
Stra<strong>in</strong>ed <strong>in</strong>frastructure (e.g. electric power)<br />
An HIV/AIDS pandemic
Unilever <strong>in</strong> <strong>South</strong> <strong>Africa</strong><br />
g<br />
g<br />
g<br />
g<br />
g<br />
Unilever is oldest foreign <strong>in</strong>vestor <strong>in</strong> RSA<br />
1895: William Hesketh Lever visited <strong>South</strong><br />
<strong>Africa</strong> and sent agent to sell Sunlight soap<br />
1911: First factory opened <strong>in</strong> Durban<br />
1947: Persuaded Government to allow sale of<br />
margar<strong>in</strong>e, creat<strong>in</strong>g new markets<br />
Cont<strong>in</strong>ued to operate dur<strong>in</strong>g the apartheid<br />
era and to expand via new <strong>in</strong>vestment and<br />
acquisitions
Unilever <strong>South</strong> <strong>Africa</strong>’s ma<strong>in</strong> brands:<br />
Iconic household names<br />
Home care<br />
Personal care<br />
Foods<br />
Sunlight, Omo, Surf,<br />
Handy Andy, Skip,<br />
Domestos<br />
Shield, Lux, Vasel<strong>in</strong>e,<br />
Sunsilk, Dawn, Axe, Ponds,<br />
Brut, Lifebuoy<br />
Knorr, Rama, Robertsons,<br />
Flora, Ola, Joko, Stork,<br />
Lipton, Glen, Mrs Ball’s,<br />
Rondo
Unilever <strong>South</strong> <strong>Africa</strong>: Key Indicators 2005<br />
Rand (m)<br />
Net sales<br />
Income tax paid<br />
Total labour cost<br />
Net <strong>in</strong>come<br />
Employees (no)<br />
8,588<br />
405<br />
1,120<br />
908<br />
4,382<br />
Suppliers<br />
+3000
<strong>Measur<strong>in</strong>g</strong> ULSA’s <strong>Economic</strong><br />
<strong>Footpr<strong>in</strong>t</strong>: Methodology<br />
g<br />
g<br />
g<br />
g<br />
Purpose of footpr<strong>in</strong>t analysis is to assess corporate<br />
impact on local economy (eg job creation, capital<br />
formation, tax revenue, etc)<br />
Based on RSA’s Input-Output (I-O) Tables and<br />
associated Social Account<strong>in</strong>g Matrix (SAM) to<br />
measure more specific effects<br />
<strong>Economic</strong> rate of return (ERR) analysis where<br />
comparative data available<br />
Quantitative & qualitative assessments of Social and<br />
Environmental impacts
<strong>Measur<strong>in</strong>g</strong> Unilever’s Impact<br />
ULSA’s Direct (First Round) impact<br />
(economic impact of ULSA + immediate suppliers)<br />
+<br />
ULSA’s Indirect (Second Round) impact<br />
(economic impact of suppliers’ suppliers)<br />
+<br />
ULSA’s Induced (Third Round) impact<br />
(economic impact of all employees’ consumption decisions)<br />
=<br />
ULSA’s Total <strong>Economic</strong> impact
Who Profits from Unilever Sales?<br />
2005 Sales of 8.5bn<br />
Suppliers<br />
Labour cost<br />
Interest<br />
Depreciation<br />
Tax<br />
Profit
Unilever’s Contribution to tax revenue<br />
R4 bn (0.9% of RSA tax revenue)<br />
Corporate<br />
Income<br />
Indirect
Unilever’s Impact on Balance of<br />
Payments<br />
Rm<br />
5 year Average, 2002-6; (note RSA 2004 M = R124 bn)<br />
500<br />
250<br />
0<br />
-250<br />
-500<br />
Exports Imports Expatriated<br />
dividends<br />
Net
Unilever’s Impact on Jobs <strong>in</strong> RSA<br />
Total Jobs 99,062<br />
Trade<br />
Bus<strong>in</strong>ess Services<br />
Manufactur<strong>in</strong>g<br />
Agriculture<br />
Other services<br />
Other<br />
ULSA<br />
Unilever’s Multiplier = 21.6<br />
0 10 20 30 40<br />
%
Jobs by race<br />
70,000<br />
60,000<br />
50,000<br />
40,000<br />
30,000<br />
20,000<br />
10,000<br />
0<br />
Black White Coloured Asian
Jobs by skill<br />
40<br />
%<br />
30<br />
20<br />
10<br />
0<br />
High Medium Low Informal
Jobs vs. <strong>in</strong>come<br />
40<br />
%<br />
30<br />
20<br />
10<br />
0<br />
High Medium Low Informal<br />
Jobs<br />
Income
Unilever’s Microeconomic impacts<br />
g<br />
g<br />
g<br />
g<br />
Pay, Benefits & Tra<strong>in</strong><strong>in</strong>g at ULSA: all above averages of JSE<br />
companies to extent comparable data available (Unilever<br />
tra<strong>in</strong><strong>in</strong>g is a “public good” s<strong>in</strong>ce company serves as source of<br />
tra<strong>in</strong>ed managers for other RSA companies)<br />
Support to Suppliers & Customers:<br />
g Technical support and tra<strong>in</strong><strong>in</strong>g/some f<strong>in</strong>ancial support<br />
g Suppliers required to adopt Unilever standards via<br />
Bus<strong>in</strong>ess partner code<br />
g Smollans as case study of how a mult<strong>in</strong>ational can<br />
promote development of local firms, and vice versa<br />
Research & Development<br />
g RSA as Regional technical centre for HPC<br />
Black <strong>Economic</strong> Empowerment (BEE): Unilever objective to be<br />
a top performer
BEE elements<br />
Element<br />
Equity<br />
Management<br />
Employment<br />
Skills<br />
Procurement<br />
Enterprise<br />
Socio-economic<br />
Objective<br />
Equity/vot<strong>in</strong>g for blacks<br />
Decision mak<strong>in</strong>g by blacks<br />
Recruitment of blacks<br />
Development of blacks<br />
From BEE compliant firms<br />
Development of black SMEs<br />
CSI<br />
Weight<br />
20%<br />
10%<br />
15%<br />
15%<br />
20%<br />
15%<br />
5%<br />
ULSA performance <strong>in</strong> top 20% of companies reviewed
Unilever’s Impact on consumers<br />
Creation of trusted brands<br />
Introduction of <strong>in</strong>novative products<br />
Widespread distribution networks<br />
Appeal to all consumer segments<br />
L<strong>in</strong>kage of products to broader social goals
Unilever’s Corporate sociaI <strong>in</strong>vestment<br />
<strong>in</strong> 2006<br />
CSI spend = 3.2% of profit after tax (above JSE avg)<br />
Education<br />
Health/Nutrition/HIV/AIDS<br />
Empowerment & women<br />
Water<br />
Government capacity build<strong>in</strong>g<br />
Volunteer programme<br />
Charitable donations<br />
Total<br />
R 8m<br />
R 5m<br />
R .55m<br />
R 0.9m<br />
R 1.9m<br />
R 0.3m<br />
R 7.9m<br />
R 24.5m
Unilever’s environmental strategy<br />
g<br />
g<br />
g<br />
g<br />
Company and Suppliers required to comply<br />
with national environmental legislation:<br />
Unilever has won several awards <strong>in</strong> RSA for<br />
environmental performance<br />
Unilever <strong>South</strong> <strong>Africa</strong> required to comply with<br />
Unilever PLC environmental standards<br />
CSI funds used to support environmental<br />
protection<br />
Local factories also have their communitybased<br />
environmental <strong>in</strong>titiatives
Unilever’s emissions <strong>in</strong> S <strong>Africa</strong><br />
160<br />
140<br />
120<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
1997 = 100<br />
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006<br />
Energy GJ/tonne<br />
Water m3/tonne<br />
CO2 Kg/tonne<br />
Boiler SOX kg/tonne
Report’s Recommendations to Unilever<br />
<strong>South</strong> <strong>Africa</strong><br />
g<br />
g<br />
g<br />
g<br />
g<br />
g<br />
Work with suppliers to promote their<br />
competitiveness<br />
Ensure provision of top-notch tra<strong>in</strong><strong>in</strong>g<br />
Consider more targeted CSI programme<br />
Reduce environmental footpr<strong>in</strong>t, especially<br />
packag<strong>in</strong>g waste<br />
Conduct more R&D <strong>in</strong> RSA<br />
Dialogue with government and other stakeholders to<br />
support a policy environment that promotes private<br />
sector <strong>in</strong>vestment
And for the future...<br />
g<br />
g<br />
g<br />
g<br />
Generate more comparative data to assess company’s<br />
relative performance<br />
Support research on effects of modernization of RSA<br />
economy on traditional sectors (eg small retailers) and<br />
associated impacts on job creation, etc<br />
Support research on costs and benefits of local vs.<br />
global sourc<strong>in</strong>g (and outsourc<strong>in</strong>g)<br />
THANK YOU!