Business has shaped southern Africa; now it can help the region move forward. In this Thought Leadership post, Dr. Ralph Hamann describes business's past and envisions its future. Dr. Hamann is Academic Director of NBS: South Africa and Professor at the Graduate School of Business, University of Cape Town.
Business’ role in society has always been a double-edged sword. Businesses make vital public contributions through efficient resource allocation and innovative goods and services. But their pursuit of profit all too often leads to private benefits and public costs.
This grand tension is not just the story of recent products or corporate scandals. It is a driving force of how countries and civilizations develop. It has been a stark feature of southern Africa’s history, and will also influence this region’s future.
A History of Business in Southern Africa
The Dutch East India Company was one of the first corporations to encounter southern Africa, in the 17th Century. The Company brought linkages and trade with other parts of the world and new ideas, products and technologies. It also brought slavery and genocide.
When diamonds and gold were found in the 19th century, southern Africa again became attractive to entrepreneurs, managers and investors from around the world. They created towns and cities: e.g. Johannesburg, called “the City of Gold.” But realizing that their businesses relied on cheap labour, they helped create and enforce a range of state policies such as land grabs, which forced rural peasants into the dangerous gold mines. Migrant workers lived in huge, prison-like hostels on the mines, while rural areas were denuded economically, socially and environmentally.
Mining and related industries became the foundation of the South African economy, in particular. But the system of governance, migration and settlement that they created had huge social costs, and left a legacy that has proven very difficult to undo since Apartheid ended.
Region at a Crossroads
Southern Africa is again at a crossroads. In the late 20th century, the region had the worst socio-economic development indicators globally. But today it is one of few regions with regular increases in GDP. The middle class is expanding and large infrastructure investments are being made.
Three main challenges exist: inequality and lack of skills, the resource curse, and environmental changes.
- Brutal inequality persists. South Africa and Namibia are among the world’s most unequal countries. Much of the southern African population is in effect unemployable, as even mining increasingly incorporates technology and mechanisation. A minority of well-educated southern Africans are connected to global networks of information, capital and opportunities, but the majority is confined to unemployment or to menial and precarious labour. This hopelessness leads in South Africa to often violent protests, xenophobic attacks and high crime. Journalist Mike Nicol once called crime the civil war that we never had: private security is one of the region’s highest growth industries.
- Raw resources extraction and export remains the core of economic growth. Partly because of the skills gap, little further processing occurs in southern Africa, which means fewer jobs and few options for communities when resources run out. Additionally, government and business elites often collude in the licensing and sale of resources, exacerbating inequality and frustrating local communities. The result has been calls for resource nationalization in Lesotho, South Africa, Zimbabwe and elsewhere. (Such calls are a global trend; mining executives identified resource nationalism as the top risk in a 2013 international survey.) In the worst cases, fighting for the spoils of resource extraction leads to violent conflict and human rights abuses.
- Crucial resources, such as water and food, are limited. Water availability already constrains resource extraction, energy production projects and food production. Declining soil fertility leads to more food imports, and vulnerability to international food price increases. Finally, southern Africa is already experiencing some the greatest impacts of climate change, including droughts and floods.
Choosing the Right Path
Corporate strategies will play an important role in addressing these challenges. Noteworthy efforts include:
- Mining companies establishing co-ownership schemes with mine-affected communities to provide them with tangible benefits from mine development, over and above more traditional philanthropic initiatives. (Examples include some of Anglo Platinum’s mines in South Africa and Zimbabwe.)
- Companies developing innovative ways to provide products and services to “base of the pyramid” markets. Banks are creating innovative financial services for the previously unbanked, sometimes in conjunction with mobile phone companies; and food companies seek novel distribution mechanisms in informal settlements.
Companies are acting not out of philanthropy but because they see business opportunities in addressing social need, and believe that their future viability depends on the social and ecological context. For example:
- The South African retailer Woolworths provides direct, science-based support to farmers in implementing ecologically-friendly, soil fertility-enhancing practices. Woolworths recognizes that its future supply of fresh produce depends on fertile soils; this programme also enhances supplier relationships. Such shared value creation stands to benefit farm ecosystems, farmers, the retailer and the consumer.
- South African insurance company Santam seeks to avoid increasing insurance premiums because of extreme weather events, recognizing that higher premiums will reduce its market. Santam works with diverse collaborators (researchers, government, WWF
and other companies) to address landscape factors that magnify the harm of weather events: e.g. alien vegetation (which increases fire risks) and inappropriate land surface development (which increases flood frequency and damage).
Building a New System
The challenges are too complex and too systemic for individuals or organizations to make a difference through incremental, isolated changes. Companies must act collectively and with states to make systemic changes. Instead of implementing an exploitative migrant labour system, as in the early 20th century, can they create a virtuous cycle of organizational and regulatory approaches? They must build social, economic and environmental systems, rather than depleting them.
Such change requires appreciation of the value of collective action and understanding of how competition and collaboration can co-exist in a market economy. It also requires novel means for helping the state ensure accountable and effective governance. Already, some mining companies are providing support to local municipalities to ensure the provision of basic services, on which the mines depend. However, these links are often ad hoc and the dangers of co-opting the state are insufficiently managed. We need transparent and open partnerships, such as those being attempted by Santam in the example above.
The southern African context is thus giving rise to particularly innovative and far-reaching corporate efforts at systemic engagement. In such engagement, companies recognize their dependence on social-ecological systems and develop innovative, collaborative efforts to build resilience in such systems. Companies take such efforts because they recognize that complex social and environmental problems pose significant risks to supply chains and business models , and that the state is unable to respond alone.
In 1977, the Sullivan Principles, developed in response to Apartheid, became one of the first corporate codes of conduct. Just as these principles heralded subsequent developments in the international business and human rights movement, we think that current actions in southern African are signs of things to come in the global business sustainability movement.
This is an adapted version of a chapter published in The shared value debate: Academic visions on corporate sustainability (2013).
For an overview of South African history:
Sparks, A. 1991. The mind of South Africa: The rise and fall of Apartheid. Ballentine Books.
About the Author
Ralph Hamann is Research Director and Professor at the Graduate School of Business, University of Cape Town (UCT), South Africa. His research is on organizational responses to complex social and environmental problems, such as climate change and food security. He is director of the Cape Town Partnership and of FutureMeasure, and chair of the Southern Africa Food Lab. Much of his graduate training was at UCT and he has a PhD from the University of East Anglia.
Dr. Hamann is Academic Director for NBS: South Africa. As one of NBS’s regional affiliates, NBS: SA addresses business sustainability issues within the South African context. His understanding of “systemic engagement” has been developed in conjunction with Kristy Faccer, Knowledge Advisor at NBS: SA.