Measuring Unilever’s Economic Footprint: The Case Of South .
received significant assistance from many individuals in SouthAfrica and within Unilever PLC and ULSA, which is gratefullyacknowledged.ABOUT THE AUTHOREthan B. Kapstein is Paul Dubrule Professor of SustainableDevelopment at INSEAD, Fontainebleau, France, and a VisitingFellow at the Center for Global Development, Washington, DC.He is the author or editor of 10 books and scores of articles inthe area of international economic relations and economicdevelopment, including Sharing the Wealth: Workers and theWorld Economy and Economic Justice in an Unfair World: Towarda Level Playing Field . He has taught at Harvard, Minnesota, andSciences Po, served as a Principal Administrator at the OECDin Paris, and acted as a consultant to the World Bank amongmany other public and private sector organisations.ABOUT THE REPORTAND ACKNOWLEDGEMENTSThis report was commissioned by Unilever PLC to provide ananalysis of the company’s “economic footprint” in South Africa.It builds on an earlier study jointly carried out by UnileverIndonesia, Oxfam GB and Novib (Oxfam Netherlands), entitledExploring the Links Between International Business and PovertyReduction: A Case Study of Unilever in Indonesia . All this workrepresents an ongoing effort by Unilever to understand itseconomic, social, and environmental impacts on the countriesin which it does business.The present report draws mainly upon official statistics compiledby the Republic of South Africa and internal corporate dataprovided by Unilever PLC and Unilever South Africa (ULSA). Ingathering the data and other types of information, the author1The study author also received feedback and input from twoexternal “Reference Groups”, one international and one SouthAfrican, which were brought together by Unilever PLC and ULSAand whose role it was to challenge and comment on the researchprocess and report drafts. The members of these groups wereinvolved from the initial stages of planning the report and theyprovided comment both on the original research framework aswell as on a number of earlier drafts. The international referencegroup comprised economic, social and environmental expertsfrom government, NGOs and academia, while the South Africanreference group included local NGO representatives as well asa government economic advisor and representatives of businessassociations and academia. All these individuals are thanked forthe many useful comments and suggestions they offered. Anannex at the end of the report includes their names and someof their views on the research.The author is solely responsible for the report’s content, however,and the views expressed are his alone and do not reflect thoseof Unilever PLC, ULSA or INSEAD.WHY THE REPORT?FOREWORD BY PATRICK CESCAU GROUPCEO, UNILEVER PLC AND UNILEVER N.V.Business can only prosper and flourish if it is part of healthy,stable communities. Unilever is committed to promoting thedebate about business’ overall impact on society. Only byunderstanding our impacts can we enhance and improve them.In the past, the focus has been on minimising the negativeimpacts of business. The emphasis is now shifting to howcompanies can be part of the solution to the big issues facingthe world today. I believe the sustainability agenda willincreasingly be a crucial factor in determining companies’ abilityto grow, innovate and prosper.That is why Unilever has developed a strategy to integrate social,environmental and economic considerations into the developmentof its business and brands.
In 2005, we asked Professor Ethan Kapstein to carry out researchinto the impacts of our South African business on the country’seconomy, environment and society.The study was a follow up to the 2005 Unilever / Oxfam report,Exploring the Links between International Business and PovertyReduction: A case study of Unilever in Indonesia. This reportwas the product of two years joint inquiry into the impacts ofUnilever’s business in Indonesia and how it impinged upon thelives of poor people.Professor Kapstein’s work has brought a valuable perspectiveto the debate. He has provided insights into the impact whichUnilever South Africa has on economic development generallyand its specific role as an agent for improving the human andcompetitive capacity of the country that will enable it to competemore effectively in the global marketplace. In doing so, it respondsto concerns sometimes voiced by national governments aboutthe benefits that foreign direct investment brings to theireconomy.Professor Kapstein has raised a number of challenges relatingto our South African business and it will be responding to them.I want to thank him and the two reference groups (one in SouthAfrica and an international one) which have helped to connectProfessor Kapstein’s study with the wider debate around therole of business in society.This report is by no means a final answer. Where it provides apositive reflection of Unilever South Africa, it supports our viewon the contribution that business can make to society. Where itraises questions and criticisms, we welcome these insights andacknowledge the need to consider them further, both in the localand global context. I invite you to read the report in this lightand I hope you find it a useful contribution to an importantdebate.I continue to believe that companies like ours have a tremendouscontribution to make and can be a part of the solution to the bigchallenges facing the world today. To help us achieve this goal,we will continue our efforts to expand our knowledge of the roleand impacts of business in society.Patrick J Cescau2
EXECUTIVE SUMMARYThe central purpose of this report is to assess Unilever’s“economic footprint” in South Africa. It builds on an earlier studyjointly undertaken by Unilever Indonesia and Oxfam GB and Novib(Oxfam Netherlands), which focused on Unilever’s role in povertyreduction. The present report is broader in scope and focuseson Unilever’s impact throughout the South African economy.Unilever South Africa (ULSA), a subsidiary of Unilever PLC, hasbeen operating in South Africa for more than 100 years. It ranksamong that country’s “Top Forty” companies, and in 2005 itgenerated about R8.5 billion in sales of branded food, home,and personal care products, while employing more than 4 000workers and managers. What is the overall impact of thisenterprise on South Africa’s growth and development, and onits society and environmental quality?In this report these questions are examined using bothquantitative and qualitative analysis. From an economic standpointSouth Africa’s input-output tables and a related Social AccountingMatrix are used to generate estimates of ULSA’s direct, indirect,and induced impacts on such variables as private sector investment,household incomes, employment, and government revenues.ULSA’s direct impacts are those felt by its 3 000 suppliers andtheir 20 000 employees due to the company’s purchases ofgoods and services from them; its indirect impacts are thosefelt by its suppliers’ suppliers owing to the orders they receive;and its induced impacts incorporate the overall demand forgoods and services made by the employees of ULSA, its suppliers,and its suppliers’ suppliers based on their consumptionexpenditures out of wages paid.3This analysis shows that, in 2005, ULSA and its employees weredirectly or indirectly responsible for generating output of morethan R32 billion and, in the process, supporting approximately100 000 jobs throughout the South African economy. This meansthat for every job directly based at ULSA, another 22 workers dependedupon the company for some part of their livelihood. In total thisrepresents 0.8% of total South African employment.The report shows that the majority of these jobs are located inthe retail trade sector of the economy i.e. the network ofdistributors, wholesalers and retailers that ULSA depends on toget its products to the consumer. The ongoing modernisation ofthe retail trade sector raises the potential that the number oftraditional retail outlets may diminish over time, along with thejobs and incomes they support. Similarly, many of the jobs thatare associated with ULSA are located throughout the company’ssupply chain, which suggests that maintaining the competitivenessof South African suppliers is also essential from the perspectiveof employment and income generation. ULSA sources from morethan 3 000 suppliers and half of its R4.5 billion purchasing spendgoes to South African suppliers.ULSA is responsible for a number of other important economiceffects as well. The direct, indirect, and induced effects of ULSAoperations on government tax revenues, for example, total someR4 billion, equivalent to almost 0.9% of all government revenue.The input-output analysis shows that ULSA’s contribution tovalue added throughout the economy amounted to R12.5 billionin 2005, or around 0.9% of the country’s GDP. The GDP multiplierindicates that for every R100 of ULSA sales revenue, R145 isadded to the country’s GDP.
In addition to the economic analysis, the report provides anoverview of some of the broader social and environmental impactsof ULSA, both in its operations and along its value chain.As an employer, ULSA pays wages and provides comprehensivebenefits that include medical care (including for HIV/Aids) anda private pension scheme. The company also offers extensiveamounts of training for its own workers, and for non-workersincluding the unemployed, who participate in South Africa’slearnership schemes, which is a key component of thegovernment’s skill-building initiatives. The cost of this trainingwas equal to 2.7% of corporate payroll in 2005. The quality ofthe training that ULSA provides is demonstrated in part by thefact that its employees are often lured away by its competitors.While this presents retention challenges to ULSA, it could beviewed as a positive for the South African economy as a whole,since local firms - that may not have the capacity to provideextensive training programmes - essentially benefit from theinvestment that ULSA makes in its workers.As a producer of fast-moving consumer goods, ULSA contributesto consumer welfare through its products and brands. SouthAfrican consumers have been using products like Sunlight Soapand Rama margarine for more than 100 years. Today, ULSA’smarket shares for most of its products indicate that it iscontinuing to meet consumer needs in a rapidly changingmarketplace. With growing affluence among the emerging blackmiddle-class, however, ULSA faces increasing competitivepressures as new entrants appear on the scene. These pressureswill require ULSA to continue building trust in the quality of itsbrands with a new generation of consumers.Another area in which ULSA contributes to South Africa is throughits environmental policies and programmes. The report showsthat the company adopts global environmental standards thatmeet and often exceed those found domestically. Additionally,various ULSA factories in South Africa have pursued communityspecific environmental programmes that meet local needs.But this report also suggests a number of ways in which ULSAand its Unilever parent company could be even more supportiveof the South African economy. First, ULSA should seek to ensurethat its local suppliers, who are under increasing competitivepressure from the global economy, receive the ongoing supportneeded to maintain and improve their productivity levels so theyremain competitive. Second, it should continue to provide thetop-notch training that workers (and “learners”) require toimprove their skills. Third, it might wish to consider a moretargeted CSI programme that focuses on those areas in whichthe firm possesses a sustainable competitive advantage. Fourth,it should continue to reduce its environmental footprint,particularly with respect to packaging. Fifth, Unilever and ULSAshould continue to promote Research and Development (R andD) in South Africa. Finally, ULSA should maintain an ongoingdialogue with the South African government to ensure a policyenvironment that promotes private sector investment, withoutwhich the country will not be able to generate economic growthand reduce poverty, inequality, and unemployment.ULSA further influences South Africa’s economy and its socialwell-being through its broad range of Corporate SocialInvestments (CSI) and its efforts to promote Black EconomicEmpowerment (BEE). ULSA’s CSI programmes have had aparticular emphasis on health care, and specifically meeting thechallenges of HIV/Aids; the improvement of education and ofeducational opportunities for the least advantaged citizens; andcapacity building both within and outside government. Many ofthese activities have been carried out in close co-operation withthe government of South Africa, including the “Brand SouthAfrica” initiative, in which ULSA used its marketing expertise tohelp the country position itself in global markets.With respect to Black Economic Empowerment, ULSA has beenseeking to achieve best practice. It is now recruiting heavilyamong under-represented groups for its next generation ofmanagement executives; it is sourcing its inputs increasinglyfrom black-owned firms; and its high levels of CSI spendingshould enable it to score maximum recognition for this elementof the BEE “scorecard”.4
TABLE OF CONTENTSPagesLIST OF FIGURES AND TABLESFIGURE 1.1Measuring Unilever South Africa’s economicimpact on South AfricaEXECUTIVE SUMMARYABOUT THE REPORT ANDACKNOWLEDGEMENTS911ABOUT THE AUTHORTABLE 2.1South Africa’s vital statistics, 2006WHY THE REPORT:FOREWORD BY PATRICK CESCAUTABLE 2.2South Africa unemployment, 2000-200512TABLE 2.3Average annual GDP growth in Sub-SaharanAfrica and South Africa, 2000-200512TABLE 2.4South African exports of goods and services,2000-200512TABLE 4.1Unilever South Africa, key indicators,2003-200517FIGURE 4.1Dividing the pie: The first-round beneficiariesof Unilever South Africa sales18TABLE 4.2Unilever South Africa annual wages bygender, race, and skill level, 200519TABLE 4.3Average annual RSA manufacturing wages,2005216670TABLE 4.4Unilever South Africa management turnover,200623Annex 2Foreign direct investmentand sustainable development71TABLE 4.5Unilever South Africa, senior staff turnover,200623Annex 3Social accounting matrix77TABLE 4.6Suppliers to Unilever South Africa,2005241INTRODUCTION:Measuring the economic footprint2THE SOUTH AFRICAN CONTEXT7113UNILEVER IN SOUTH AFRICA:A brief history154ULSA’S ECONOMIC FOOTPRINTIN SOUTH AFRICA175ULSA AND ITS CONSUMERS456ULSA AND ITS COMMUNITY497ULSA’S ENVIRONMENTAL STEWARDSHIP558MEASURING ULSA’S FOOTPRINT:The next steps9ANNEXESAnnex 1Additional and alternative views1.A. Reference group commentary1.B. Unilever South Africa Commentary:Gail Klintworth, Chairman51063
FIGURE 5.1Unilever South Africa advertising channels,200546TABLE 5.2Household consumption expenditure, 200547TABLE 6.1Unilever South Africa – Corporate SocialInvestment projects and programmes5030TABLE 7.1Unilever South Africa’s environmentalemissions in South Africa, 1997-200657TABLE 4.10Unilever South Africa and itsmajor competitors33TABLE 7.2Environmental targets for Unilever South Africaand Unilever PLC59TABLE 4.11Scoring black economicempowerment objectives36FIGURE 7.1Unilever’s use of packaging material6239TABLE 7.3Unilever’s global approach to packaging62TABLE 4.12The impact of Unilever South Africa on theSouth African economyFIGURE 4.3Unilever South Africa’s contribution toValue-added (GDP)40FIGURE 4.4Economy-wide output effects ofUnilever’s operationsTABLE 4.7Unilever code of business principles25TABLE 4.8Unilever’s business partner code27TABLE 4.9Unilever South Africa’s major retail andwholesale customers as percentage of sales,200530FIGURE 4.2Trends in modern and general trade,2003-200611 ANNEX TABLESTABLE A2-1The UN millennium development goals72TABLE A2-2South Africa’s millennium development goals734274FIGURE 4.5Unilever South Africa’s effects onemployment, by sector42TABLE A2-3Multinationals and development:Some examples77TABLE 4.13Unilever South Africa’s international tradeflows and balance of payments 2002-200644TABLE A3-1The impact of Unilever’s total interests on theSouth African economy - 2005TABLE A3-2Commodities of the 2005 SAM for South Africa85TABLE 5.1Unilever South Africa brands in South Africa4612 REFERENCES886
1: INTRODUCTIONMeasuring the economic footprintWhat are the effects of multinational enterprises (MNEs) on theeconomies in which they operate? In this age of globalisation,that question has assumed renewed importance amongeconomists, public officials, executives, and citizens at large,and a growing literature has sought to establish appropriatemethodologies for generating some answers (Perrin and Sachwald2004; Moran 2006). These methodologies often make use oflarge data sets in which the influence of many firms as a wholeis aggregated. This study, in contrast, examines the question ofeconomic impact using a “case study” approach, or a detailedexamination of a single firm in a single country, namely Unileverin South Africa (ULSA).In measuring the “economic footprint” of an enterprise, its“direct” (or “first-round”), “indirect” (“second-round”) and“induced” (“third-round”) effects must all be taken into account.When companies build new plants or expand existing ones, theycreate many direct benefits for local economies includingpurchasing goods and services from suppliers, hiring workersand providing them with training, paying taxes, and introducingnew products. Their operations may also impose some costs onthe community in the form, for example, of air and water pollution.When analysts try to calculate the economic effects of corporateinvestment on a given market, they sometimes focus narrowlyon these direct or first-round costs and benefits in an effort toestimate the net impact (OECD 2000; Edwards 2000).But from the perspective of a host country’s economy, even moreimportant than the firm’s direct impacts are its secondary andtertiary or indirect and induced effects, meaning those generatedby its business decisions on the many suppliers, retailers,consumers, competitors and government agencies who aresomehow touched by its operations. By purchasing from localsuppliers, for example, a multinational enterprise will inducedomestic entrepreneurs to make investments, to hire workers,and to buy a variety of intermediate inputs. In turn, the wagesthat ULSA, its suppliers, and its supplier’s suppliers pay theirworkers enable them to make purchases in the economy, andthese consumption decisions make any number of businessactivities viable, from the local grocery store to an online travelagency (these are the “induced” effects). As a consequence ofthese direct, indirect, and induced effects, the impact ofmultinational firms magnify far beyond their factory gates.Tracing these wider circles is vital to any analysis of how themultinational enterprise influences a host country’s economy,and this study tries to do just that by providing an assessmentof ULSA’s economic footprint in South Africa. ULSA’s management7decisions over who it recruits, how much it pays in wages andbenefits, the training opportunities it provides, the suppliers itsources from and the kinds of support (e.g. technology transferand financing) it provides them, the price and quality of itsproducts, the packaging materials it uses, the social investmentsit makes - all these will play a role - big in some cases, smallerin others - in the daily lives of thousands of South Africans.But precisely how many South Africans depend upon ULSA fortheir incomes and employment and in what sectors of theeconomy are they located? In what ways is the country’senvironment and social well-being shaped by this one firm? Andwhat can a single case study suggest about the health of theSouth African economy more generally? These are among thequestions this study tries to address.MethodologyHow can the “economic footprint” of a singl
Fellow at the Center for Global Development, Washington, DC. He is the author or editor of 10 books and scores of articles in the area of international economic relations and economic development, including Sharing the Wealth: Workers and the World Economy and Economic Justice in an Unfair World: Toward a Level Playing Field. He has taught at Harvard, Minnesota, and Sciences Po, served as a .
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