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									                                       THE ATRIUM DIALOGUES




Act responsibly – why CSR pays off




                                 Practical examples of companies at work




Our business is developing.
                                                              THE ATRIUM DIALOGUES




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DEG - Deutsche Investitions- und Entwicklungsgesellschaft mbH
Kämmergasse 22, 50676 Cologne, Germany
Telephone: +49 221 4986-0, Telefax: +49 221 4986-1290
E-mail: info@deginvest.de, www.deginvest.de


Editiorial board: Axel Mörer-Funk, Medienbüro S/Press Gbr, Bonn
Photos: DEG - Deutsche Investitions- und Entwicklungsgesellschaft mbH
Project coordination: Cornelia Neupert, Bergmoser + Höller Agentur GmbH, Aachen
Layout: Thomas Schorr, Bergmoser + Höller Agentur GmbH, Aachen
Printing: Druckerei Giessen Rotationsdruck GmbH, Rheinberg




                                                       2
                       ACT RESPONSIBLY –
                       WHY CSR PAYS OFF

                  PRACTICAL EXAMPLES
                 OF COMPANIES AT WORK



CONTENT




 SUCCESS THROUGH CORPORATE RESPONSIBILITY                    I page 4




 DEG PROJECT IN CHINA: HOPPECKE
 Clean batteries with an effective impact                    I page 10




 DEG PROJECT IN KENYA: IPSK
 A development-finance provider with social responsibility   I page 12




 DEG PROJECT IN KENYA: PANDA
 Roses for development                                       I page 14




 DEG PROJECT IN INDONESIA: IRS
 Success without starvation wages                            I page 16




 DEG PROJECT IN PERU: SINERSA
 A socket is a privilege                                     I page 18




 DEG PROJECT IN UKRAINE: UKRSPON
 Production of energy from wood residues                     I page 20




 DEG PROJECT IN MOZAMBIQUE: MOZAL
 Meltdown making the difference in Mozambique                I page 22




                                              3
                    SUCCESS THROUGH
                CORPORATE RESPONSIBILITY


Socially responsible companies prove successful even in developing countries and emerging markets
- DEG customers compelling



➜ “CSR - the secret weapon when it comes to securing              objective in all DEG projects. In the assessment of its
more market share?, was the question provocatively                projects, DEG considers environmental and social risks
asked by a German daily at the end of August. Is “Cor-            to be integral aspects of every analysis of long-term
porate Social Responsibility“ in effect nothing more              overall risk. However, the environmental and social
than a marketing tool used by companies to improve                standards are but one of its priorities. Significant de-
their image?                                                      velopment effects such as job creation, tax revenues
                                                                  and, specifically, social benefits for employees and so-
The challenging concept of Corporate Social Responsi-             ciety also feature in its assessment of each project.
bility is currently very much the trend at companies
operating at international level. 2,400 businesses                The Corporate Policy Project Rating – named GPR – in-
worldwide have joined the “Global Compact“ initiative             troduced by DEG in 2002 to assess the economic suc-
set up by former U.N. Secretary General Kofi Annan                cess and the quality of the development effects of its
and have voluntarily committed themselves to main-                projects based on specified standards has already re-
taining higher social and environmental standards and             vealed positive trends over the past few years. In terms
combating corruption. Even many of the local compa-               of the development effects grade, the projects financed
nies in developing countries now point to their wide              in 2007 improved from 2.5 in the previous year to a
range of additional social benefits and underline their           rating of 2.3 - the best score since the introduction of
social commitment. But how great is this responsibility           the rating system. New investments in developing
really? Are the companies driven by altruism, or do               countries and emerging markets are estimated to have
they in effect expand into developing countries and               created a total of 28,000 jobs. The anticipated govern-
emerging markets because of cheap labour, laxer social            ment revenues of the largely under-funded countries
and environmental laws and more relaxed controls?                 aggregated in excess of EUR 600 mn. in 2007 alone.
                                                                  “The companies that we finance create jobs and in-
For DEG, which provided long-term financing totalling             come for many people, but they also improve the fis-
to the amount of EUR 1.2 bn. for company investments              cal revenues and the budgets of the partner countries,
in developing countries and emerging markets in 2007              thereby enabling these countries to fulfil their social
alone, the question as to whether companies fulfil their          responsibility, e.g. by providing an adequate social and
responsibility in poorer countries in particular is a key         economic infrastructure,“ Dr. Polte emphasises.
issue. DEG was founded in 1962 to promote developing
countries by providing capital for private enterprises
investing in these countries. “For us, promoting develop-                               INNOVATIVE CSR-RATING
ment means specifically that the companies we work
with are committed to assuming responsibility towards             So, do the companies that receive DEG financing meet
society and are willing to do more than is required as            the expectations of Corporate Social Responsibility? In
possibilities to do so come their way,” Dr. Winfried Polte,       the summer of 2008, DEG had a panel of independent
Chairman of DEG‘s Board of Management, emphasises.                experts investigate. As the first development finance
                                                                  institution DEG developed a rating matrix for the eval-
DEG, therefore, by providing loans and equity finance,            uation of Corporate Social Responsibility based on the
is seeking not only to achieve long-term economic                 CSR Guideline of the International Organisation for
success for the companies. Ultimate compliance with               Standardisation (ISO 26000), which was used by the
the high environmental standards of the World Bank,               experts to assess 16 DEG partner companies in Africa,
the social guidelines of the International Labour Orga-           Asia, Latin America and Eastern Europe from the point
nisation (ILO) as well as with national laws is a key             of view of their CSR commitment.




                                                              4
                                                                      THE ATRIUM DIALOGUES




Since there are numerous definitions of CSR, DEG                 ject partners were assessed on-site based on the success
based its rating on the future ISO 26000 as a globally           criteria of DEG’s GPR rating, the environmental and so-
recognised guideline. It is due to be finalised and pub-         cial evaluation in the DEG Environmental and Social Risk
lished by 2010 following international discussion. For           Indicator (EaSI) and the seven CSR ISO core subjects.
the first time, projects were evaluated on the basis
of the seven CSR core subjects as currently formulated:          The contributions to social and local development of the
1. Transparent corporate governance, 2. Human rights,            companies evaluated are considerable. The spectrum
3. Labour practices, 4. Environment, 5. Fair operating           ranges from social benefits well above the local aver-
practices and fight against corruption, 6. Consumer is-          age to an improved economic and social infrastructure.
sues, 7. Social and economic development of the com-             Some companies, for example, had invested in public
munity. The evaluation focused on the last criterion,            roads and bridges or in energy supply, originally the
which includes elements such as social benefits for              job of the government. In addition, they had improved
employees and external stakeholders, tax revenues for            the social infrastructure of the surrounding communi-
the public sector, and the set-up of an infrastructure.          ties. By way of example, the companies evaluated had
The CSR rating devised by DEG for the evaluation of its          built primary and secondary schools, hospitals and
partner companies has broken new ground in terms of              health centres, orphanages, churches and mosques,
the method applied. The strengths of this innovative             and improved the local water supply and sewage system.
tool are its transparent approach to assessment, its             Many companies pay significantly higher wages than
standardisation of CSR in accordance with ISO 26000              the statutory minimum and grant bonus payments,
and its systematic mode of evaluation based on the               holiday pay, housing benefits, maintenance or training
grading system used in German schools.                           support, inflationary compensation and school fee
                                                                 contributions. Further key benefits for society include
                                                                 health insurance schemes, accident and life insurance,
SUBSTANTIAL SOCIAL BENEFITS                                      sick pay, petrol allowances, free accommodation or
                                                                 subsidised house-building loans, free canteen meals
The 16 companies in the DEG portfolio that were eval-            or free transport to the workplace. Finally, Africa in
uated exemplify the fact that it is worthwhile for both          particular has benefited from HIV/AIDS prevention
sides - society and the company - to comply with high            measures and the support of people infected by
environmental and social standards and additionally              HIV/AIDS as a significant part of the CSR activities of
to provide a wide range of social benefits coupled with          these companies. In addition to these benefits, it is
a commitment to society. This applies particularly to            thanks to significant fiscal revenues from the private
countries with sufficient framework requirements. This           companies that the local communities and states are
is the result of the evaluation appraisal. All of the pro-       ultimately able financially to perform their public duties.




                                                             5
All of the cases presented in this brochure have achieved   gy-generation. Previously, Ukrspon had used expensive
good to excellent results under DEG’s three internal        gas to operate its steam boilers that provided the
assessment systems – GPR, EaSI and CSR – and conse-         energy for its veneering production. Today, Ukrspon
quently, are examples of “Good“ and “Best Practice“ on      uses cutting-edge technology to burn previously un-
the part of companies committed to Corporate Social         used wood residues, thereby not only saving money
Responsibility that invest in developing countries and      but also reducing the carbon footprint. After only two
emerging markets.                                           years, its investment, financed by DEG, had paid off.
                                                            Today, Ukrspon complies with the stringent environ-
                                                            mental laws of the E.U. This very fact has enabled the
DEG-CUSTOMERS COMPELLING                                    company to win financially strong customers such as
                                                            Ikea that are in the public limelight. Ukrspon has now
Panda, a rose-growing enterprise in Kenya, for example,     become an example to similar businesses in Ukraine
became impressively successful in just a short space of     and teaches other companies about its production
time. In only six years, the company was able to increase   model and its environmental standards.
its area under cultivation more than tenfold from four
to over 50 hectares and is planning to develop a further    In the same way, the German battery manufacturer
20. Thanks to the high quality of its roses and its         Hoppecke is clearly setting an example in China with
numerous international seals of quality – including the     its demanding environmental and social standards.
Fair Trade seal of approval – revenue levels are high.      Last but not least, because one of its customers is
This is made possible by an exceptionally dedicated         Audi, a company that expects the highest standards
workforce that is paid 15% above the standard wage,         from its suppliers, even those in emerging markets.
receives free health insurance, participates in a house-    Hoppecke is but one example of how even a medium-
building programme and benefits from Panda’s support        sized company can combine high standards and eco-
of the public hospital and the schools. “It is more than    nomic success when investing in developing countries
understandable that employees, particularly in poor,        and emerging markets. In China, for example, Hoppecke
rural areas, are highly motivated and more committed        pays well above the standard wage, grants special
to companies like this as opposed to others,” says Polte.   fringe benefits – and still produces profitably and in-
                                                            creasingly successfully.
Companies benefit to varying degrees from assuming a
lot of social and ecological responsibility. As a manu-
facturer of veneering for the furniture industry, for ex-
ample, Ukrspon is the only company within Kiev’s city
limits that is able to use wood for the purpose of ener-
                                                                     THE ATRIUM DIALOGUES



                                                                At the same time, however, they ensure social peace
EXTENSIVE SPREAD OF MOTIVES
                                                                among the workforce and promote responsible dialogue
BEHIND CSR
                                                                with local communities and government authorities.
The motives for concentrating heavily on CSR and doing          Further primary motives that have been singled out by
more than others vary significantly. CSR activities serve       the experts within the scope of their evaluations in-
initially to boost staff motivation and job satisfaction.       clude:




CSR AS PART OF CORPORATE STRATEGY: Out of a sense of ethical responsibility for the future, thousands of
companies worldwide have included CSR as an element in their corporate strategy and also enforce these issues
in their subsidiaries. One example here is the investment company IPSK, whose parent company – the Aga Khan
Group – pushes CSR exceptionally vigorously.


CSR AS A PERSONAL COMMITMENT OF THE LOCAL ENTREPRENEUR: Strong personal motives, as in the
case of Kenyan company Panda, which is run by two local Kenyan managers, may also be behind a strong sense of
commitment to CSR. Those who have the financial resources to relieve poverty and remedy deplorable situations
in their immediate environment are also inclined to make voluntary contributions.


CSR AS A PERSONAL VOLUNTARY COMMITMENT ON THE PART OF THE GERMAN COMPANY: German
companies such as Hoppecke can be observed relaying from Germany on to their foreign subsidiaries, and as a
matter of course, their demanding environmental and social standards, their transparent company structures and
their willingness to be involved at local level.


CSR AS A REQUIREMENT FOR CORPORATE ACTIVITY: Without their high environmental and social standards,
companies such as the aluminium smelter Mozal in Mozambique or the veneering producer Ukrspon would, in all
probability, not have secured approval for production at the locations planned. High standards not only ensure
acceptance by the residents and communities, but also their active support of the investment project as a whole.
One of the motives behind CSR measures that should not be underestimated is the company’s pursuit of its own
goals. Where there is a lack of trained workers, of infrastructure such as roads and the supply of power and water
and of suppliers and service providers, a company is well advised to do something about it itself. It will build
schools and roads, set up sewage plants and power lines, establish homes for staff and commercial premises for
the suppliers it needs.




All of these primary motives have in common the fact            responsibility and act accordingly. Because those that
that CSR measures promote and ensure company                    invest need favourable and steady framework require-
success in the long term. This view is shared by the            ments, stable legal structures and social peace, fair-
Bundesverband der Deutschen Industrie (BDI) – the Fed-          ness in the company and a business climate that is
eral Association of German Industry – and the Bundes-           conducive to investment.
vereinigung der Deutschen Arbeitgeberverbände (BDA)
- the Confederation of German Employers' Associa-               Against the background of the current financial crisis,
tions. Both of these large organisations support CSR as         the question that naturally arises is whether CSR is, in
a voluntary commitment. For it is only economically             fact, implemented when times are difficult for compa-
successful companies that can also effectively provide          nies. The reality for those DEG companies evaluated is
a wide range of CSR activities. It is in their own best         that they have been operating for years in highly vola-
interest that companies adopt social and ecological             tile markets, some of them, indeed, in crisis scenarios.




                                                            7
The CSR activities of the examples presented here                benefit both from technical support partly financed by
have been developed and effectively expanded over                DEG and partly through the public which is promotion
the years partly, or, indeed, perhaps even specifically,         of the Federal Ministry for Economic Cooperation and
because of these problematic underlying investment               Development (BMZ) under the Public Private Part-
conditions. As such, the DEG project companies are               nership (PPP) Programme. DEG uses BMZ funds and
testimony to the fact that socially responsible corpo-           the aluminium group Mozal in Mozambique its own
rate management is far from being just a "fair-weather"          resources, for example, to finance the development of
issue. Consequently, these additional measures assume            training standards for engineers so urgently required
a very special significance in difficult times, not only         in Mozambique. Mozal works closely here with the
from the perspective of a company’s employees, but               state university in Maputo.
also from that of society as a whole.
                                                                 Many PPP projects focus on HIV/AIDS prevention. A
This brochure showcases a number of examples of                  total of 350,000 people in remote areas of the Ivory
good practice. This does not imply, however, that all            Coast, for example, have benefited from the set-up of
of the current DEG projects fully comply with these              two health centres and 75 rural medical stations by
challenging CSR guidelines. “There are, of course, a             a DEG client in the cotton industry. In 2007, DEG pro-
number of companies that still show weaknesses in                vided funds totalling more than EUR 800,000 for
this respect,“ says Dr. Polte. “But all of the new partner       measures implemented to combat AIDS. In 2002, DEG
companies that we work with are obliged to meet en-              was one of the first finance institutions to introduce
vironmental and social standards and are encouraged              an HIV/AIDS clause in its contracts. Under the clause,
to get involved in social activities. All of our companies       partner companies in countries with a particularly high
are well on the way. The beacons introduced here show            incidence of HIV (> 3%) undertake to set up HIV/AIDS
that the pursuit of CSR activity is also accompanied by          programmes.
greater success in business.“
                                                                 For the record, and by way of conclusion in the words
In its cooperation effort, DEG seizes every opportunity          of DEG Manager Dr. Polte, “CSR makes for a strategic
to enforce higher standards and encourage voluntary              competitive edge, particularly in developing countries
CSR activities. Its loans, for example, are often paid out       and emerging markets. And that is precisely what the
in several tranches, each dependent on the achieve-              companies stand for that we have worked with for
ment of previously agreed targets. At first glance, this         many years and have presented in this brochure.“ Seven
may make DEG financing seem “expensive“ on account               company histories, and two sides to each – for corporate
of the investment required and the conditions imposed.           success and social responsibility go hand in hand.
It pays off, however, in the long term. The companies




                                                             8
                                                                                         THE ATRIUM DIALOGUES




SEVEN CSR CORE ISSUES BASED ON ISO 26 000

1. TRANSPARENT CORPORATE GOVERNANCE                                                5. FAIR OPERATING PRACTICES
1.1 Transparent decision-making processes and structures                                AND FIGHT AGAINST CORRUPTION
1.2 Clear decision-making rules between owner and                                  5.1 Appropriate avoidance of corruption
     management                                                                    5.2 Responsible political involvement
                                                                                   5.3 Fair competition
2. HUMAN RIGHTS                                                                    5.4 Encouragement of social responsibility within the
2.1 Prevention of discrimination within the organisation                                company’s area of influence
2.2 Respect for human rights within the value-added chain                          5.5 Protection of property
2.3 Respect for civil rights, including prohibition of
     ill-treatment                                                                 6. CONSUMER ISSUES
2.4 Economic, social and cultural rights                                           6.1 Fair information, marketing and contractual practices
2.5 Compliance with labour laws, including abolition of                            6.2 Protection of consumer health and safety
     child labour                                                                  6.3 Sustainable consumption
                                                                                   6.4 Customer service and support
3. LABOUR PRACTICES                                                                6.5 Respect for data protection
3.1 Adequate employment conditions that are consistent                             6.6 Consumer information and education
     with International Labour Organization (ILO) standards
3.2 Working conditions and social protection                                       7. SOCIAL AND ECONOMIC DEVELOPMENT
3.3 Social dialogue between employer and employee                                       OF THE COMMUNITY
3.4 Health and safety in the workplace                                             7.1 Dialogue with local communities
3.5 Personnel development and promotion                                            7.2 Job creation as a contribution to the reduction
                                                                                        of poverty
4. ENVIRONMENT                                                                     7.3 Promotion of technology transfer
4.1 Prevention of environmental pollution                                          7.4 Creation of income and property, in particular tax revenue
4.2 Use of sustainable resources                                                   7.5 Responsible investment practice
4.3 Reduction of climate change                                                    7.6 Training
4.4 Protection of the environment and renaturation                                 7.7 Health promotion
                                                                                   7.8 Capacity building

Cf. ISO webpage: http://isotc.iso.org/livelink/livelink/fetch/2000/2122/830949/3934883/3935837/WD_4.2_ISO_26000_Guidance_on_Social_Responsibility?nodeid=
7364403&vernum=0
     DEG PROJECT IN CHINA: HOPPECKE
CLEAN BATTERIES WITH AN EFFECTIVE IMPACT


   No car or excavator that will run without a battery, nor will a switch box for telephone systems,
   a power plant, a wheelchair or a forklift function without a battery. However, the structural
   components of batteries can prove somewhat of a problem. Above all, the lead plates represent
   a considerable challenge both at the production and, later on, recycling stages, and it frequently
   is the case in developing countries and emerging markets that the threat they pose is not
   identified at all or quite simply ignored. As a consequence, residues end up in rivers, the soil
   and the food chain. In Chinese Wuhan, German medium-sized enterprise Hoppecke is delivering
   the evidence that it is possible, even in China, to manufacture high-tech batteries without
   exposing the environment and health of employees to the threat of contamination, and,
   furthermore to contribute to reducing poverty, which is still so widespread in China.
   A flagship project for which DEG is providing long-term loan funding.


                                                               regions. There are still approximately 100 million Chinese
                                                               who are living in absolute poverty with 470 million who
                                                               have less than USD 2 a day on which to live. Even today,
                                                               there are 800 million people living in regions with an ex-
                                                               ceptionally strong agricultural emphasis - this is almost
                                                               as many as in the whole of Africa. Although China has
                                                               overtaken the industrial nation France in terms of gross
                                                               domestic product (GDP), it still only ranks 81st of 177 in
                                                               the Human Development Index of the United Nations.
                                                               Wuhan, an eight-million-population metropolis, situat-
                                                               ed to the east in the country’s interior, welcomes every
                                                               single job that gets created there. A million impoverished
                                                               migrant workers pour into the city every year in the
                                                               hope of securing even the most meagre of incomes in
   ➜ With a staff that has meanwhile grown to 370, the         order to enable them to support their families, who most-
   Hoppecke subsidiary has been operating out of its           ly live under impoverished conditions in rural regions.
   Wuhan plant, which was inaugurated at the end of            Those who manage to get taken on at the new Hop-
   2006, for just under two years now. A long-term loan        pecke plant are the lucky ones. For the German sub-
   to the amount of EUR 7.5 mn. was provided by DEG            sidiary has also incorporated German management
   to help finance the EUR 16 mn. complex. Even after          and social standards into its China operations in order
   such a brief period of time, the developmental effects      to boost loyalty and motivation levels among its em-
   for the region have become tangible: employment             ployees. Wages at Hoppecke, for example, are approxi-
   and income have increased and, above all, the quality       mately 20% higher than the minimum wages paid re-
   of environmental and production-specific know-how           gionally. Contrary to what is usual in many Chinese
   that is being implemented is truly exemplary by Chinese     companies, there is additional payment for overtime
   standards.                                                  and night-work. The number of people employed at
                                                               the plant has increased sharply. Battery production got
                                                               underway in October 2006 with a mainly local staff of
   CHINA: WIDESPREAD POVERTY                                   250; that figure has climbed to approximately 370
   DESPITE BOOM                                                today. In addition, suppliers to the factory provide em-
                                                               ployment for roughly 280 people.
   It is exceptionally important for China, above all, that    And, it is anticipated, this growth is set to continue. At
   new jobs be created outside of the booming coastal          Hoppecke, it is estimated that the demand in China for




                                                          10
                                                                  THE ATRIUM DIALOGUES



traction batteries for electric forklifts, for example,      to minimise the risk and occurrence of environmental
will increase at an annual rate of 15 to 25%. In the         contamination. Recycled cooling water is used instead
case of stationary lead storage batteries, Hoppecke          of fresh water to clean the battery plates. All of the
anticipates annual growth of 15%.                            water that is required for the production process is con-
                                                             veyed within a closed system, and all of the accessory
                                                             and operating materials are recycled. It is proposed in
HIGH WAGES, ATTRACTIVE EMPLOYEE                              future to also melt the lead waste inside the factory
BENEFITS                                                     and to reuse it. The system of environmental manage-
                                                             ment that is now in place in the factory is to be certified
However, not only are the wages good at the German           at the end of the year 2008.
subsidiary; Hoppecke also throws in numerous employee
benefits that are not actually required under law. All of
the employees, for example, have health and accident-                      UPDATING OF ENVIRONMENTAL
insurance cover, and will, later on, enjoy the benefits of                             VALUES VIA SATELLITE
an old-age pension insurance scheme. Meals are provided
in the works’ canteen at no charge, and any employee         The company has already met one challenge: the espe-
who wishes to build a house or buy an apartment has          cially relevant values for lead-concentration in the
access, through Hoppecke, to a low-interest loan from        wastewater very significantly go below the Chinese
a Chinese business bank. This is a particularly signifi-     thresholds and even the German standards. Exemplary
cant benefit in the case of China, where the banking         for China is the fact that measured threshold values
system still does not facilitate loans such as these, and    are transmitted on an ongoing basis via a satellite based
more specifically so in the case of low income people.       system to the authorities responsible for environmental
                                                             management.
The plant’s immediate neighbours have likewise benefit-
ed from the establishment of the company. Hoppecke           The high social and environmental standards that have
financed the laying of a gas pipeline, to which other        been achieved thus far have resulted, in terms of its
companies and the local population can also be connect-      overall developmental effects, in an exceptionally high
ed up, and the high environmental standards of the           rating for this particular project, which has been co-fi-
new operation, which has served to export environ-           nanced by DEG. This is also a remarkable achievement
mental technology and production processes ‘Made in          in that Hoppecke is a comparatively small-scale medi-
Germany’ all the way to China, also make for a healthy       um-sized operator by Chinese standards. The company
relationship with the neighbours. All waste and operating    nevertheless achieves above-average levels of social
materials are recycled, and, where possible, operations      and environmental performance. Indeed, a truly inspir-
are conducted applying closed-circuit techniques so as       ing model.
      DEG PROJECT IN KENYA: IPSK
A DEVELOPMENT-FINANCE PROVIDER WITH
        SOCIAL RESPONSIBILITY


 IPSK is an excellent example of how economic success, social, corporate and ecological
 commitment can go hand-in-hand even in developing countries. Having said that, IPSK cannot
 be rated a “normal“ business enterprise in Kenya. IPSK was established in 1963 by the Aga
 Khan Fund for Economic Development (AKFED) to provide venture capital, technical assistance
 and management support to encourage and expand private enterprise. Growth, privatisation
 and a re-orientation away from import substitution and towards export promotion resulted
 in adjustments to IPSK’s approach to expand into agribusiness, packaging and infrastructure.
 Today, IPSK’s companies play a vital role in local and regional economies.
 The investment company’s underlying orientation is long-term, and it currently holds a majority
 stake in twelve companies from Kenya’s food, textile-production, printing and packaging
 industries. Over 10,000 direct employees and the 56,000 farmers under contract have IPSK
 to thank for higher incomes and social standards as opposed to the all too familiar scenarios
 of suppression, job losses and wage-dumping. The investment company succeeds in relaying
 on to its subsidiaries the high ethical standards of the spiritual leader of the Ismaili Muslims,
 Prince Karim Aga Khan IV.



 ➜ DEG has been cooperating closely with Industrial              for the poor in rural regions. A developing country
 Promotion Services Kenya Ltd. (IPSK) for over 20 years          such as Kenya needs a company like IPSK, the reason
 now. DEG finances the expansion of the company with             being that the banks will rarely, if, indeed, at all, invest
 long-term loans and also has a seat on the Supervisory          in labour-intensive sectors or make long-term finance
 Board, which provides it with the opportunity, among            available.
 other things, to ensure that international social and
 environmental standards are observed. In 2003, DEG              However, IPSK is out to achieve more than just create
 approved equity financing for IPSK to the amount of             humane working conditions by providing successful
 USD 5 mn. in order to facilitate further investment             companies with assistance. A unique feature of its make-
 activity in Uganda and Tanzania as well.                        up are the high social and environmental standards
                                                                 that IPSK sets for all twelve of the business enterprises
                                                                 in which it has taken a participating interest. To this end,
 EQUITY FINANCING IN AFRICA                                      IPSK vigorously supports Management, has systemat-
                                                                 ically introduced a comprehensive range of environ-
 IPSK is an unusual operation in a country whose econ-           mental and social standards, provides specific support
 omy, has grown rapidly in recent years and whose GDP of         in the form of equity and finances advisory services.
 around USD 30 bn. makes it the biggest in East Africa.          Since its beginnings, IPSK has aspired to achieving a
 However, the political unrest at the beginning of 2008          situation whereby the companies under its control not
 that followed the presidential elections was also a             only become successful in commercial terms, but also,
 source of significant negative impact. Kenya still ranks        and, indeed, more specifically so, from the perspective
 only 152nd in the Human-Development-Index, which                of the development policy currently being pursued. In-
 compares social and economic development in 177                 itially, IPSK focussed on the industrial sector, namely
 countries. This is due, above all, to the fact that the high    the food, printing and packaging and the clothing in-
 rate of growth in the population, which most recently           dustries. IPSK is currently expanding its activities with
 stood at 2.6%, erodes any growth in GDP. IPSK aims to           the support of DEG to include companies that play a
 provide equity capital for enterprises operating in Kenya’s     significant role from the point of view of the country’s
 financially delicate economic environment, thereby              infrastructure. There are IPSK-companies, for example,
 creating economic activity opportunities, above all,            producing runner beans, meat and fruit juices under




                                                            12
                                                                  THE ATRIUM DIALOGUES



                                                             IPSK also supports management at the companies in
                                                             its portfolio when it comes to developing and imple-
                                                             menting individual projects. At its headquarters, train-
                                                             ees undergo preparation for a later role within these
                                                             companies. Local industry is developed with a view to
                                                             enhancing supply potential for domestic markets, and
                                                             private equity is mobilised in conjunction with the im-
                                                             plementation of infrastructure projects.
                                                             The appraisers rate the system of environmental and
                                                             social management at IPSK as “exemplary”. The invest-
                                                             ment company applies a consistent policy of having
                                                             risk and any areas of potential burden identified
labour-intensive conditions and in structurally weak         through its individual companies. It develops strat-
regions. There are others that manufacture packaging         egies with which to reduce such risk and monitors
materials such as corrugated cardboard and plastic bags,     progress on a regular basis. In the area of food, IPSK
textiles destined for export, cable looms and leather        prepares ISO-certification on food hygiene and quality
goods. IPSK is also investing increasingly in infrastruc-    for all of its projects. The highly ethical approach that
ture companies. It has taken a stake, for example, in        IPSK adopts in the transaction of its business is further
the energy producer Bujagali Energy Limited, who will        underlined by the fact that, in crisis situations, it will
build and operate a hydroelectric power plant with a         seek to strike a balance between the economic and so-
capacity of 250 MW on the Upper Nile near Bujagali,          cial constraints that such situations trigger. Following
in Jinja, Uganda. The entire region benefits tremen-         the increase of the minimum wage, for example, in the
dously from projects such as this one as companies are       textile industry, unlike other companies, IPSK did not
forced, time and again, to interrupt production because      reduce its workforce. Instead, it agreed a step-by-step
of power failures and then have to produce their own         increase in wages coupled with a simultaneous search
energy with the assistance of Diesel aggregates, which       for ways and means of boosting efficiency levels. The
are an exceptionally expensive alternative. At the same      impact of the concept of equal rights for men and wo-
time, the company is also developing a rural electrifi-      men is also greatest in the textile industry, where 85%
cation project in Western Uganda, Wenreco.                   of employees are female. Consequently, they have
                                                             their own income and command a much stronger po-
                                                             sition within the family, which, as a rule, tends to be
SUCCESSFUL WITH CSR                                          dominated by its male members.


Some 10,000+ people are employed directly at the twelve      IPSK is also deeply committed to combating corruption,
enterprises that are controlled by IPSK. Then, there are     which continues to be an exceptionally widespread
approximately 56,000 independent farmers, who work           problem in Kenya and obstructs the development process.
under contract and who sell mainly beans to the food         IPSK vigorously counteracts corruption at all levels.
companies at prices that are guaranteed. Not only do         The impact that this particular group of companies has
IPSK-companies pay wages that are above-scale, they          had cannot really be overrated. Committed to its staff
also provide significant social benefits such as free        and independent farmers that it has under contract,
healthcare. They also fund medical centres and are           IPSK is making a valuable contribution to enhancing
heavily involved in preventive programmes that are           the living conditions of somewhere between 400,000
geared towards combating HIV/AIDS. As well as that,          and 500,000 individuals - and it is precisely this level
the farmers are given loans, thereby enabling them to        of social commitment that secures a healthy return on
purchase seed, for example. They are also provided           its effort as well. A company with a sound grasp of the
with assistance in the form of an agricultural advisory      issue of social responsibility. More of the same calibre
service and training programmes.                             would be most welcome, and not only in Kenya.




                                                            13
          DEG PROJECT IN KENYA: PANDA
            ROSES FOR DEVELOPMENT


She is the queen among flowers - and in Kenya, the rose is even more than that. Cultivating
roses secures the survival of 70,000 Kenyans and their families. Up to 500,000 Kenyans are
employed by suppliers to the industry or live from the trade and transport of roses. Those
employed within the industry benefit, in particular, from the fact that roses are exported,
above all, to Europe’s richer countries. Apart from paying wages in excess of what is generally
held to be standard, the farmers also open the door to social-welfare benefits, they invest in
health, education and environmental protection. Just as in the case of the firm of Panda,
who are based on Lake Naivasha and who specialise in growing roses



                                                            USD 730 mn., the country’s approximately 5,000 cut-
                                                            flower enterprises were the second most productive
                                                            generator of foreign currencies after tourism - ahead,
                                                            even, of tea, another great export hit.


                                                            In spite of this encouraging development, Kenya is still
                                                            a poor country, and the degree of inequality of distri-
                                                            bution of wealth is still particularly high. Kenya ranks
                                                            152nd in the Human Development Index of the United
                                                            Nations, which serves to provide comparisons from the
                                                            perspective of development for some 177 countries.
                                                            One of the reasons for this is the rapid rate of growth
                                                            of the population, which recently stood at 2.6%.



➜ Since 2002, Panda has grown its area under culti-                                          FLORICULTURE –
vation from four to over 50 hectares, which they also                       THE JOB-CREATION MACHINE
have DEG to thank for, who provided a loan of EUR 7 mn.
as part of a European Finance Partners cooperation          The results of a recent survey conducted by the Kenya
programme. A further 20 hectares will be developed          Flower Council, the national umbrella organisation,
shortly. The implications from the point of view of job-    would indicate that the flower-growing industry is a
creation and income-flow are significant. Along with        solidly based job-creation apparatus that delivers an
the 983 staff directly employed at Panda, a further         ongoing contribution to combating poverty. This can
5,500 have work through Panda’s tenants in the Flower       be accounted for, on the one hand, by the powerfully
Business Park. Panda is in a position to pay generously.    export-orientated character of the industry, which
As somewhere in the region of 60% of all of its roses       places the enterprises that are involved on an economic-
are exported under the Fair Trade banner and at higher      ally sound footing, and, on the other, on the labour-
prices than other roses, the revenues generated are         intensive nature of cultivation processes and the lack
correspondingly high.                                       of any reasonable potential for securing technical sup-
                                                            port. The sector offers direct employment to 70,000
This trend is reflected throughout the entire industry      people, and if we include service-providers and sup-
in Kenya. It was not until the mid-1980’s that the first    pliers to the industry, we are talking somewhere in the
farmers began to exploit Kenya’s climatic conditions        region of a further 500,000.
that are ideally suited to the cultivation of flowers.
With a market share of 25%, Kenya is now the lead-          Just how significant an enterprise such as Panda can
ing supplier of flowers worldwide. With exports of          become over the short-term in terms of regional develop-




                                                       14
                                                                   THE ATRIUM DIALOGUES



ment can be seen if we look at the DEG-evaluation of          of improvement concerning environmental protection,
the company that was conducted in the summer of               and DEG is pushing hard to ensure that this happens.
2008 by external appraisers. According to this report,        Granted, any plant-waste is composted and returned
more than 80% of Panda employees are women, and               to the fields in order to cut down the need for chemical
wages, which are in excess of what would be looked            fertilisation, and rainwater is collected and used for
upon as standard, are not paid in cash, in order to           the irrigation of the roses. However, there is still no
hamper forced handover of the money to the hus-               comprehensive system of wastewater recycling. In the
bands. Instead, the employees have accounts. They can         absence of public sewerage system, effluent is, today,
take out money in a protected environment and at no           required to be disposed of by means of an absorbing
administration charge through cash terminals located          well. Panda is currently using a part of the area under
within the confines of the plant premises. Panda also         cultivation to test closed irrigation systems designed
offers them additional non-monetary benefits, which,          and intended to recycle wastewater. If the tests prove
in a region where the poverty rate stands at 23%, is of       successful, it is proposed to install the wastewater re-
considerable significance. All of the employees, for          cycling system on a stage-by stage basis throughout
example, participate in a company health-insurance            the entire area.
scheme, journeys to and from work cost them nothing,
and there is a low-cost house-building programme.             Despite this deficit, cultivation of roses in Kenya has a
                                                              positive environmental and climatic impact: inclusive
The employees are closely monitored for contamination         of transport to Europe, the rose cultivated in Kenya
through pesticides, which, if only to a small degree,         uses up considerably less energy than its relations cul-
simply cannot be avoided in the cultivation of roses          tivated in Dutch greenhouses. According to a study
that are destined for export. There are in-company            conducted by Cranfield University in England in Fe-
further-training programmes. Appraisers can confirm           bruary of 2007, the cultivation 12,000 roses in Kenya,
that the rights of the employees are “respected and           including packaging, cooling and air transport to Eng-
documented to an exemplary standard”, to the extent,          land causes the emission of 2.2 tons of CO2 compared
even, that employees receive instruction on their rights      with 35 tons of CO2 for the same quantity of roses
and entitlements, as do the sub-contractors.                  produced in Holland. If, along with carbon dioxide, and
                                                              from the point of view of the overall greenhouse effect
                                                              generated, we also take into account the climate gas-
GOOD FOR COMBATING POVERTY                                    types methane and laughing gas, then we arrive at
AND CLIMATE PROTECTION                                        emissions in the case of Kenya that are a mere sixth of
                                                              those of Holland.
Panda also assumes comprehensive commitments
outside of the company. The company sponsors the              Up to now, the DEG has provided five floriculture busi-
schooling and vocational training of orphans, donated         nesses in Kenya and one in Uganda with a total of
five hectares of land for the building of a primary school    8,000 employees with overall long-term funding of the
and contributes to the funding of the local hospital –        order of EUR 24 mn. In most businesses, agreements
the Naivasha Women’s Health Care Center – and the             with DEG resulted in the effect that water-consumption
Naivasha Children’s Shelter. As part of the Public            levels and pollution caused by contaminated water
Private Partnership (PPP) Programme, the company is           have been significantly reduced. This has been achiev-
currently, with the assistance of BMZ funding, con-           ed by the installation of purification plants and clear-
ducting a HIV/AIDS project that is geared towards en-         ing reservoirs as well as of functionally efficient closed
hancing the standard of healthcare available to some          systems of irrigation. Appraisers have meanwhile
25,000 women within the region.                               awarded all six of the enterprises that received finan-
                                                              cing from the DEG as ”exemplary” and ”best practice”.
However, even in a showpiece enterprise of the calibre        This augurs favourably for the battle against poverty
of Panda, there is still room for a considerable measure      and for our environment on the whole.




                                                             15
   DEG PROJECT IN INDONESIA: IRS
SUCCESS WITHOUT STARVATION WAGES


The 7,000 plus employees of the yarn spinning plants in Purwakarta and Bandung on Indo-
nesian's main island of Java are part of an exciting success story. While 110 million of the
242 million Indonesians have less than USD 2 a day on which to live, the employees of
the yarn manufacturer Indo-Rama Synthetics, IRS for short, work regular hours, earning
an above average wage with health insurance and school fees for deserving students paid
by the company. The result is not just thanks and loyalty. Good working conditions, sound
health and high motivation on the part of its employees have made IRS one of the most
successful exporters of synthetic yarns in Indonesia. A company that has achieved success
with the help of long-term financing from DEG.


➜ Indonesia would like to see more companies like            only contribute 55% to the gross national product.
this that do not succeed by paying their workers a pit-      Development potential, therefore, which has not yet
tance, by offering them poor benefits and polluting          been tapped into.
the environment. IRS did not settle in the conurbation       In addition to the lack of stability in the legal structure,
of Jakarta. On the contrary, it created jobs and income      corruption is still a problem although the government is
in the hinterland. It observes wage agreements, pays         trying its best to eradicate it. In its recent report.
far in excess of the minimum wage and stipulates this        Transparency International has ranked Indonesia a low
in employment contracts. Child labour is strictly for-       143 of 179 countries. The consequence of this is that
bidden. The benefits offered by IRS are also remarkable,     companies find it hard to do business in Indonesia, a
e.g. medical care for all employees including their          bad development when combating poverty is called for.
families. Environmental and labour protection laws are
observed to the full and more.
This is precisely the kind of company that is so urgently       INVESTMENT IN EDUCATION AND HEALTH
needed in Indonesia, whose economy depends heavily
on revenue from the raw materials, oil and gas indus-        This makes the example set by IRS all the more sig-
tries as well as from the export of wood and palm oil.       nificant. Established as a small family-owned business
The economic conditions, on the other hand, for small        in 1976, the one-time spinning plant today is a public
and medium-sized companies are difficult. Indonesia          listed company (with institutional shareholders includ-
ranks only 107 of 177 countries in the United Nations
               th
                                                             ing the IFC) and Indonesia’s largest polyester producer
Human Development Index, despite its wealth of               and exporter producing polyester fibres, yarns, fabrics
natural resources. Indonesia achieved revenues of the        and PET chips as a raw material for the textile making
order of USD 100 bn. from exports for the first time in      and packaging industry. Meanwhile, IRS has progressed
2006 and increased this figure to USD 114 bn. in 2007,       to become one of the leading exporters in Indonesia.
however, raw material exports currently account for          The company’s impact is considerable: In addition to
the lion's share.                                            the 7,000 plus employees at its own plants, a further
                                                             7,200 employees work for local suppliers and service
Companies are still struggling in the face of a lack of      providers of IRS.
stability in the legal structure, a poor infrastructure,
red tape and the deplorable state of the system of           In order to maintain its high level of production, IRS set
education. Growth is difficult, in particular, for small     out to not only pay its employees over and above the
and medium-sized companies as most banks are not             general pay scale, but to set high social and environ-
willing to provide long-term loans. And here is where        mental standards as well. It also undertook to apply
the key to fighting poverty lies: small and medium-          CSR standards. Consequently, the social benefits offered
sized companies account for 99% of all companies             are above average: Food is free, all employees have
and employ 89% of the labour force. However, they            health insurance, which includes their families. They




                                                        16
                                                                   THE ATRIUM DIALOGUES




also enjoy the benefits of a pension as well as accident      IRS has also taken appropriate steps to combat wide-
and life insurance. IRS also pays employees' school           spread corruption: Not only is there a specifically de-
fees for deserving children (in addition to allowances        signated corruption representative. There are also cor-
for education for a defined group of employees) and           ruption clauses in all of the relevant contracts. Trans-
also provides direct support for local schools. The com-      parent tendering procedures have been put in place as
pany provides the poorer sections of the population           well. The fact that the wages paid are above average
with free food. In addition, IRS supports the communi-        also means that IRS employees are much less suscep-
ties and invests in the construction of roads and the         tible to bribery. Surveys have revealed no indication of
establishment of a social infrastructure such as health       the practice of corruption.
centres, a water-supply system and mosques.                   IRS is in a position to maintain many of these high
                                                              standards because the company has been able to fi-
IRS also maintains high standards with regard to the          nance investment in modernisation in recent years to
environment: All of its plants have modern waste-             a significant extent through a long-term loan facility
water treatment installations and exhaust-gas cleaning        of the order of USD 15 mn. provided by DEG, to part
systems controlled via monitoring systems. DEG stand-         finance the entire investment of USD 36.5 mn. that
ards for wastewater and air emissions are maintained.         was required for capacity expansion, optimisation of
Waste materials are recycled, and use is made of waste        production, acquisition of new boilers for steam gener-
heat. The cooling processes that are in use are particu-      ation and the use of energy-efficient cooling systems.
larly energy-efficient. Power generation takes place
with the aid of efficient coal-fired steam boilers. IRS is    It is hardly surprising, therefore, thanks to its demand-
also currently replacing climate-damaging refrigerants        ing standards, that IRS generates maximum develop-
in the cooling plants with environmentally friendly           ment effects. High wages, challenging environmental
substitutes. IRS is not content with only maintaining         and social standards as well as investment in educa-
the standards itself. The company also demands that           tion and health have resulted in IRS achieving top
its service providers and their suppliers contractually       marks in DEG’s internal GPR rating of this particular
undertake to maintain national environmental and la-          aspect of the company’s overall performance. Results
bour-protection standards.                                    that earn IRS benchmark status.




                                                             17
          DEG PROJECT IN PERU: SINERSA
             A SOCKET IS A PRIVILEGE




In the village of Martinez in Peru’s northwest Province of Sullana, the neighbours get together
in order to listen to the radio. The appliance works without batteries, as the host remarks
with pride - the socket as a status symbol. A dozen families in Martinez are connected up to
the public power supply system. They rank among the 5,300 households that have, up to
now, been provided with electricity for the very first time by Sindicato Energético (Sinersa)
in this rural region, where poverty is so rampant. Sinersa produces hydroelectricity at the
Poechos Reservoir, which lies 50 kilometres to the north of Piura, the capital of the coastal
department that bears the same name. In conjunction with the construction of the power
plants Poechos I und II, DEG provided the private company with loans of the order of USD 14 mn.
This particular infrastructural project serves to achieve two objectives, on which development
policy for the region is focussed, namely combating poverty and protecting resources by
means of low-emission energy-production.


➜ Reforms that have been implemented from the per-            Human Development Index of the United Nations,
spectives of democracy and market economy have made           which serves to provide comparisons from the per-
Peru a showpiece state in Latin America. The economy          spective of development for some 177 countries.
is growing at an annual rate of 7 to 8%, and the rate         The project-region Piura is looked upon as particularly
of inflation is comparatively low. The economic upturn is     underdeveloped with 63% of the population there living
being fuelled by the export of copper, zinc, gold, natural    below the poverty line. At least, the construction sector
gas, fish products and coffee. The country’s wealth,          benefits from the contracts which have been secured over
however, is not evenly distributed. Official figures would    time in conjunction with the installation of the Poechos
indicate that 48% are living below the poverty line. In       Reservoir, which got underway just under 40 years ago.
rural areas, above all, health-care services and drink-       Up to 55-metre-high dams located in the lower flow
ing water are in abysmal supply. Peru ranks 87th in the       of the Chira and Piura have a collection capacity of




                                                         18
                                                                  THE ATRIUM DIALOGUES



1 bn. m3 of water. What was originally conceived as a        hold. The company also shows in other ways that the
source of irrigation for the arid Piura Valley has today     pursuit of economic interests and honouring of social
become a pivotal feature of the energy supply in Peru.       responsibilities towards the region can be made to go
                                                             hand-in-hand. Over the long term, for example, a silt-
                                                             ing up of the valley floor of the State-owned reservoir
STAMINA CALLED FOR                                           and the consequent reduction in the capacity for re-
                                                             gulating water volumes in line with seasonal require-
Sinersa operates three hydrolelectric plants at the          ments can affect everyone who is dependent on the
Poechos Reservoir: Curumuy, Poechos I und the newly          water. Together with DEG, Sinersa analysed numerous
installed Poechos II. There is a total production capaci-    solutions to this potential problem, one that posed
ty of 38 MW, of which Poechos II accounts for 10 MW.         a threat to society as a whole, and these solutions
The electricity generated by Sinersa equates to a market     are currently being examined at Government-level. In
share of 17% in the region of Piura. The development         addition, grants are awarded annually to students who
of an infrastructure of these dimensions would never         come from low-income families to enable them to study
have been possible without foreign-based financial           at the Universidad de Piura. An affiliated company
backing as hydroelectric plants are profitable only          operates an agricultural business beside the Curumuy
over the long term. The construction costs involved in       power plant, cultivating peppers on 75 hectares of land
accommodating an MW-capacity level of this order             and offering employment and a regular income to no
are twice as high as those incurred in conjunction with      fewer than 200 people.
the building of a gas-fired power plant. The upside,         Sinersa adheres to the environmental and social stand-
however, is that hydroelectric plants are designed to        ards laid down by DEG, standards that are demanding
guarantee a considerably longer service life and, due        and are consistent with those of the World Bank. There
to the fact that the source of energy is water, they can     is a specifically designated official who is responsible
be operated at very low cost. Loans have to be long-         for issues of an environmental content, there are annual
term such as those offered by DEG.                           environmental reports, and there is a waste-manage-
The German involvement is geared towards securing            ment plan. Having said that, the environment is not
the success of the project and that of the electricity       being exposed to any particular risk – on the contrary,
producer under conditions that are consistent with           hydropower is a regenerative form of energy and, as
conditions prevailing from a market economy perspec-         such, contributes to the climate-protection effort.
tive. The developmental effects are also clearly visible.    Poechos I has a Kyoto Protocol certification. A coal-
The improved infrastructure contributes to economic          fired power station of the same capacity would emit
growth and to indirectly combating poverty as well as        30,000 tons of CO2 annually.
to achieving the Millennium Development Goals (Pro-
tection of the environment thanks to renewable ener-         The company is regarded as a correct employer. All of
gy). The construction and operating of power plants          its 60 employees are in permanent positions, and sub-
create employment, and for many families, a stable           contractors are engaged only in conjunction with con-
supply of electricity opens the door to greater oppor-       struction work. The statutory minimum wage of USD
tunities in the way of small-scale business and the          200 per month is guaranteed. However, as 15 monthly
provision of simple services.                                wages are regarded as standard in Peru and the law
                                                             stipulates a participation in profits of 5%, each em-
                                                             ployee has a monthly income of at least USD 320.
KEEPING IN WITH THE NEIGHBOURS                               Additional benefits such as private health insurance,
                                                             reimbursement of travel expenses and allowances for
When Poechos II is activated, up to 28,000 families in       further training round off the income-package. Em-
villages located all around the reservoir will receive       ployment and promotion procedure is conducted
access to electricity. Sinersa provides loans in order to    strictly in accordance with the principle of equal op-
finance the connection charge of USD 30 per house-           portunity.




                                                            19
    DEG PROJECT IN UKRAINE: UKRSPON
PRODUCTION OF ENERGY FROM WOOD RESIDUES


   A crane dips beech roundwood into a steam pit. The wood has to be heated before the knife
   barking machine can cut 0.6-millimetre-thick veneer, which is then dried and compacted.
   Every year, 7 mn. m2 of veneer leave the Ukrspon plant on the periphery of the City of
   Kiev. A low-emission, DEG-financed boiler plant heats the tank. Ukrspon was the very first
   manufacturer of veneer in Ukraine to introduce the process of heating boilers using previously
   unused wood residue and, consequently, the company’s dependence today on expensive natural
   gas is minimal. Here, we have an example of DEG promoting environmentally friendly technol-
   ogies in a country whose natural resources have come under threat. In addition, it is also
   contributing indirectly to combating poverty by strengthening the private sector.


                                                                downs and the legal imponderables that accompany
                                                                them, coupled with excessive regulation and corruption,
                                                                continue to frighten off many investors. According to
                                                                official figures, unemployment stands at 3%, and wages
                                                                are rising. Despite this, however, Ukraine ranks as one of
                                                                the poorest countries in Europe in 2008, showing a per
                                                                capita income of approximately USD 4,360 per year.
                                                                Inflation, which meanwhile stands at around 22%, is
                                                                proving to be an ever-increasing burden on the people.
                                                                Poverty is, above all, widespread in rural areas and in
                                                                the west. Since 1991, the year in which the country
                                                                became independent, the population has dropped
                                                                from 51.6 to 46.6 million as a result of emigration.
                                                                Ukraine ranks 76th in the Human Development Index of
                                                                the United Nations, which compares development
                                                                trends for a total of 177 countries.
   CHALLENGING BUSINESS ENVIRONMENT
   FOR INVESTMENT IN UKRAINE                                    Against the backdrop of this challenging investment
                                                                environment, DEG opted for project finance as well as
   ➜ The rapid development of the Ukrainian economy,            a BMZ-financed Public Private Partnership, to become
   which has been experiencing annual growth in excess          involved in a project-funding programme incorporating
   of 7% since 1998, has had serious implications for the       qualification measures and focussing on the area of
   country: the mining and steel sectors are very energy-       wood-residue utilization.
   intensive and give rise to high emission levels, which
   can also be accounted for by the fact that power-plant
   technology is outdated and the functional efficiency                                       ISO-CERTIFICATION
   of distribution networks sub-standard. Agriculture has
   lost an eighth of its usable area to severe soil erosion.    Ukrspon has its roots in the entrepreneurial activities
   Forest stand is on the decrease for the simple reason        of Rastatt businessman Bert Overlack. At the end of
   that those state agencies responsible have devoted           the 1990’s, he went out in search of locations that of-
   little or no attention up to now to the issue of sustain-    fered convenient supply of the raw materials required
   able forestry.                                               for his veneer-production operations in Eastern Europe.
                                                                A joint venture that he established with the former
   The Government has improved the underlying conditions        Kiev Wood-processing Collective Combine threatened
   for the private sector. However, the political ups-and-      to come unstuck through refusal on the part of private




                                                           20
                                                                 THE ATRIUM DIALOGUES



banks to provide the necessary finance. DEG stepped in      The recycling of energy in this manner greatly enhances
with financing of the order of approximately EUR 2 mn.      the company’s environmental balance. Water and ener-
In 2002, it acquired a 32% equity share in the newly        gy consumption levels drop, as do emissions. Training
established Ukrspon GmbH and provided a long-term           courses for employees, emergency guides and a pro-
loan. This amount was later topped up to facilitate,        fessionally structured waste-disposal programme have
amongst other things, the construction of the boiler        also been introduced as part of the overall system of
house, which was completed in 2006 and which served         environmental management. Provision has also been
to accommodate the steam-supply system.                     made for the appointment of an environmental man-
                                                            ager. The one issue that still attracts criticism is that
Ukrspon required a special permit from the Govern-          only some of the wood that is processed by Ukrspon
ment agency responsible as the use of wood-fired in-        comes from woodland areas where a sustainable forestry
dustrial boilers is generally not permitted within Kiev’s   programme is firmly in place. This is due, above all, to
city limits. In return, Management provided an assur-       the fact that there is scarcely any certified wood avail-
ance that the installation would be compliant with          able in Ukraine.
E.U. standards and that the company would undertake
to introduce a system of environmental management
in accordance with ISO 14001 and EMAS.                                                   SECTOR SHOWPIECE


Together, the boiler and the certification process cost     The effect of DEG involvement from the perspective
EUR 600,000. This investment was paying its way within      of development policy is underpinned by the fact that
two years as heating no longer required gas. Instead,       Ukrspon is looked upon as a showpiece company. The
use was being made of wood residue, which had been          representatives of other Ukrainian business enterprises
totally unexploited up until then. At today’s gas prices,   visit the 2.9 hectare works’ premises for information
the costs incurred would, in fact, have been amortised      on industrial environmental protection, availing them-
within a year.                                              selves of the training and advisory facilities on offer
                                                            there. Students from the Technical University of Lemberg
                                                            und Kiev University write their thesis on the system of
                                                            environmental management being implemented at the
                                                            company or undergo on-site practical training.


                                                            DEG‘s social standards are likewise adhered to. The
                                                            187 company employees receive monthly wages from
                                                            EUR 300 upwards, as opposed to the State-prescribed
                                                            minimum wage of EUR 80. The wages paid at Ukrspon
                                                            are approximately 15% higher than the average for
                                                            the sector.


                                                            In addition, Ukrspon pays 13 monthly wages as op-
                                                            posed to the twelve prescribed under law. Overtime
                                                            attracts a 100% bonus. The company conducts itself
                                                            correctly when hiring and promoting staff, as the large
                                                            proportion of women employed - currently standing at
                                                            60% - clearly indicates.
DEG PROJECT IN MOZAMBIQUE: MOZAL
 MELTDOWN MAKING THE DIFFERENCE
         IN MOZAMBIQUE


Mozal is a shining symbol for the future of one of the poorest countries in the world. The
aluminium smelter, located 17 kilometres from the capital Maputo, is the most ambitious
project of its kind in Mozambique. The smelter Mozal 1, launched in 1998, was the largest
investment in the history of the country with USD 1.3 bn. going into it. And, with Furnace 2
opened in August 2003, production capacity doubled to 506,000 tons annually. Mozal makes
Mozambique one of the largest aluminium producers in the world. 77% of Mozambique’s
export revenue, i.e. approximately USD 2 bn., is generated at Mozal. Unimaginable. The smelter,
which was established with long-term loans from DEG, has also set standards in Mozambique:
The company's commitment to Corporate Social Responsibility is rated "Best Practice".


➜ "The market and structural effects are considerable",      requirements. In addition, Mozal also requires of its
in the opinion of the external appraisers of DEG CSR         suppliers and service providers that they maintain re-
Evaluation, who surveyed the aluminium smelter. "On          quired standards in relation to minimum wages, social
the one hand, a totally new economic sector has been         contributions and medical care with ongoing monitor-
created in Mozambique, and on the other, high-tech           ing also in place to ensure that these requirements are
expertise has been introduced into the country". This        being met.
carries even more weight when we consider that three
quarters of the population currently work in agriculture.
However, revenue and efficiency levels are so low that                    REGIONAL ECONOMIC PROMOTER
Mozambique, with a per capita income of about USD
340 per year and a national debt of about 55% of the         It is almost a miracle that Mozal exists in Mozambique.
gross domestic product, is one of the ten poorest            This is because the preconditions for a high-tech oper-
countries in the world. The development of the econ-         ation of this type in one of the poorest countries in the
omy, in particular industry, is imperative. Mozal must       world are bad: The infrastructure, employee education
not remain an isolated case if Mozambique is to over-        and what service providers had to offer were nothing
come poverty.                                                short of abysmal. In order to improve the poor quality
                                                             of suppliers, for example, Mozal established an eco-
The importance of Mozal for Mozambique can hardly            nomic development programme for small and medium-
be overestimated. The aluminium smelter does not on-         sized companies. Contracts are intentionally awarded
ly contribute the lion’s share of export revenues for the    to local service providers in order to strengthen their
entire country, but as an important tax payer, it also       know-how and boost growth. At this stage, 65% of
makes a valuable contribution towards getting the na-        employees and service providers to the aluminium
tional budget deficit down. About 1,200 employees            smelter are from the region.
work directly at Mozal, and a further 10,000 jobs were
created at suppliers and service providers of Mozal.


However, Mozal is not only profoundly important eco-
nomically in terms of taxes and jobs. It is also a show-
case for all of the other issues that are important for
CSR - leaving out, perhaps, the high level of energy
consumption that is typical of any aluminium smelter
despite all efforts. Mozal complies with all of DEG’s
stringent environmental and social standards. Mozal
has successfully introduced a system to cater for both
industrial health and safety and social management




                                                        22
                                                                    THE ATRIUM DIALOGUES



                                                               new health centre. Due to a lack of government support,
                                                               the company also covers the expense of medicines and
                                                               wages. The company, which is located in swampland,
                                                               also started a malaria programme, which has resulted
                                                               in a noticeable reduction in the numbers of children
                                                               unable to attend school due to sickness. Finally, Mozal
                                                               supports a programme that is geared towards the pre-
                                                               vention of HIV. The measures extend from educational
                                                               campaigns through free distribution of condoms and
                                                               voluntary testing to acceptance of infected employ-
                                                               ees. Those infected are not dismissed at Mozal, but
                                                               are instead assigned to less physically demanding jobs.
To improve the level of qualification of employees, they       HIV prevention is of particularly profound importance:
receive regular training. Each employee takes part in          13% of the adult population is infected.
more than 20 training courses per year on average. DEG
has supported a Public Private Partnership (PPP) project
on behalf of BMZ that is geared towards the introduction                        IMPROVED INFRASTRUCTURE
of international standards in the training of engineers.
To this end, Mozal works closely with the university in        It goes without saying that the entire infrastructure of
Maputo as well as with various third-level colleges. The       the region, and to some extent, indeed, that of the
extent of transfer of knowledge to the schools is enormous.    country as a whole, also profits from the company's
                                                               commitment, e.g. roads to Maputo were extended, the
                                                               existing deep sea port was deepened. This also helps
COMPANY BENEFITS: SCHOOLS AND HEALTH                           other local companies. The competitiveness of the port
                                                               of Maputo has received a considerable boost and has
The social and communal commitment of the company              now become a more conveniently located and logis-
is exemplary and exceeds conventional expectations             tically more attractive alternative to the port of Durban
significantly. The appraisers are of the opinion that          for South African exporters.
Mozal "under the most difficult local underlying con-          The internal management structures are compliant with
ditions, has created a durable and functionally efficient      the international standards of the main investor, BHP
showcase in one of the poorest countries in the world".        Billiton, a manufacturer of aluminium with interests
Mozal, for example, set up a Community Development             worldwide. Tendering practices are transparent. There
Trust Fund, into which the company pays part of its            is a committee and video recordings for the evaluation
profits for the purpose of funding development aid             of tenders to avoid corruption in purchasing practices.
policy-orientated projects within the vicinity of the          Given that this is an aspect of business which, in Africa
smelter. USD 2 mn. are made available annually, with           in particular, suffers greatly from corruption, this is an
which up to 100 small-scale projects are supported.            extraordinary achievement.
Mozal has also financed a primary school for about             Alone, the large number of locally based employees,
800 children and a vocational school for 700 students          who receive at least four times the statutory minimum
and, in the meantime, has also assumed the expense of          wage, makes the effect of the project socially and
the teaching materials and the maintenance measures            from the perspective of income unusually high. On top
required for buildings and facilities as the government        of this, there are benefits such as the continued pay-
does not have the resources necessary. This is an im-          ment of wages in the event of sickness (also HIV/AIDS),
portant project, because 55% of the population in              free health insurance, further training and excellent
Mozambique are unable to read or write.                        working conditions that comply with all international
The support provided in the health sector is equally ex-       standards. Funding has also been made available for a
emplary. Mozal has built and equipped a completely             housing programme.




                                                              23
DEG - Deutsche Investitions- und Entwicklungsgesellschaft mbH
           Kämmergasse 22, 50676 Cologne, Germany
     Telephone: +49 221 4986-0, Telefax: +49 221 4986-1290
                   E-mail: info@deginvest.de
                       www.deginvest.de

								
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