Investing in democracy: the private sector’s role

Dina Sherif and Frederic Sicre

The revolutions that have taken place and continue to take place in the Arab region can be viewed as a caution to the world that systems lacking accountability, transparency and social justice are losing ground. The structure of the countries involved in the Arab Spring was flawed: political and socioeconomic systems, while empowering for a few, were disempowering for the majority. Now, as well as demanding their rights from governments, citizens also have a close eye on the private sector and the role it should be playing as transitions to democracy take place. This will leave little space for companies to engage in cosmetic community initiatives. Private sector-led community engagement will need to look for enhanced social impact.

Frederic SicreIf there was ever a time when the expansion of local markets, generation of employment opportunities and investment in local communities was essential, that time is now (pictured is an alabaster factory in Luxor, Egypt). Often the private sector is seen only in terms of the profits it makes and the salaries it provides. It also needs to be seen as providing increased job opportunities across the board and resources that can be mobilized to further invest in sustainable community development. In addition, the private sector needs to consider ‘base of the pyramid’ investing, whereby it can provide affordable services to lower-income groups that have not been previously considered due to assumptions about low profit margins. Credit Dain SandovalSuch assumptions have been proved wrong by a number of companies, ranging from multinationals like Proctor and Gamble to local Egyptian companies like Mansour Group and Orascom Housing.[1]

A pattern of democratic practice

Although most government institutions suffer from poor governance structures and rampant corruption, numerous companies in the Arab region have gone to great lengths to enhance their governance and compliance structures in a manner that will enable them to remain competitive globally. The region’s private sector as a whole needs to leverage the knowledge it has acquired to promote a wider application of good corporate governance, equal opportunities, transparency and anti-corruption in their companies, thus acting as a role model not only to the public sector but also to the non-profit sector. Since effective democracy is nothing without good governance and accountability, this puts the private sector in a strong thought-leadership position, allowing it to serve as a model for all sectors of what effective democracy can be like. The governments that will succeed in the future are those that embrace the private sector as a positive agent of change. Governments are to set the frameworks and level playing fields whereby businesses can get on with the job of investing, creating jobs and further social growth.

Investing in civil society

Institutionalized civil society organizations continue to lack the resources, both financial and technical, necessary to expand and remain sustainable. Over the past decade, the private sector in the Arab region has become one of the main sources of funding available to civil society organizations. It will need to become more strategic in its giving and wherever possible partner with relevant civil society organizations to meet their goals and objectives. This can no longer be limited to a transfer of financial resources. Companies will need to extend their engagement with civil society to the provision of time, expertise and knowledge to help strengthen the sector and allow it to be a strategic partner in the development process.

The private sector can play a key role in ensuring a successful democratic transition because of its potential to engage a multitude of stakeholders. South Africa’s transition to democracy would not have succeeded had the private sector of that country not been thoroughly involved. The CEOs of the country’s largest companies engaged with all political parties to ensure that reformed institutions would be built and the right economic policies adopted by the future leadership. As an example, South Africa’s police force was rampant with corruption and poor morale. A strong leader was needed to reverse the trend and create the necessary links to a modernized legal system. The man who orchestrated that change was the CEO of South Africa Breweries, who in 1997 seconded himself to the position of CEO of the police force. Finally, well-run businesses also have the talent and know-how to best apply limited resources to achieve objectives.

Abraaj Capital: an example

While the past two decades have witnessed an exponential growth in the Arab private sector, there is still a dearth of responsible companies along the lines described above.  It is for this reason that Abraaj Capital, the largest private equity firm in the Middle East, North Africa and South Asia (MENASA) region, stands out. Abraaj Capital has pioneered a new path, going beyond traditional business methods to include progress and development for both company and community, viewing its stakeholders and surrounding communities as just as significant as its shareholders. Furthermore, Abraaj has chosen to be a model of good governance and compliance. It has drawn up its own Holistic Compliance and Governance Framework as well as abiding by the standards set by the Global Reporting Initiative. Further, the Abraaj Strategic Stakeholder Engagement Track and Riyada Enterprise Development are two examples of how Abraaj remains dedicated to the sustainable development of its surrounding communities.

Through the Abraaj Strategic Stakeholder Engagement Track, the company develops and implements multi-stakeholder engagement strategies, thus giving its employees and partner companies the opportunity to contribute meaningfully to the creation of more sustainable and equitable societies in the MENASA region.

Abraaj community partner organizations (ACPO) include Dubai Cares, Endeavor, Injaz-al Arab, Mowgli and the Welfare Association. They are dedicated to combating unemployment by investing in entrepreneurship, education and healthcare. Investing in these areas is crucial since unemployment is both the effect of a country in transition and the cause of an unstable environment if increased.

Supporting SMEs

Small and medium-sized enterprises (SMEs) already account for about 70 per cent of employment and some 30 per cent of GDP in the region. They are thus crucial to the corporate landscape and an important source of social and economic stability. They can play a critical role in transforming traditional industries such as healthcare and education through innovative business models.

However, SMEs in the region face structural obstacles. Most fundamental is limited access to capital, with traditional forms of growth finance such as bank debt and venture capital/private equity in short supply across the region. Beyond capital, SMEs need strategic support including access to new markets, as well as the best human resources and business practices. Abraaj Capital established Riyada Enterprise Development in 2009 as an independent platform dedicated to investing in the SME sector across the region as a way to contribute strategically to the growth of the region’s local economies, and to resolving the pressing problem of youth unemployment.

Businesses in the Arab world have a heavy agenda ahead of them as the winds of change blow across the region. Whether they know it or not, or even wish to know it, is another question. Denial is never a good approach to creating sustainable growth and yet sustainability is in the interest of businesses. If people are lifted out of poverty, provided with the right types of education, vocational training and opportunities to excel and make a living; the consumer class grows, providing businesses with an expanding market rather than a contracting one. And here is the key: mindsets in the private sector need to change from short-term thinking to long-term value creation. If they don’t, then the Arab Spring will have been a lost crisis – and as we all like to say, never waste a crisis!

1 For further details on pro-poor business, see C K Prahalad’s The Fortune at the Bottom of the Pyramid.

Frederic Sicre is a partner at Abraaj Capital in the UAE. Email frederic.sicre@abraaj.com
Dina Sherif is associate director at the John D Gerhart Center for Philanthropy and Civic Engagement at the American University in Cairo. Email dsherif@aucegypt.edu


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