CSR in the Middle East: good business

Philanthropy is ingrained in the fabric of Middle Eastern culture, but businesses have been slower to capitalise on the idea of giving back. Amid the region’s fledgling CSR landscape, we examine the firms starting to create win-win models for corporates and communities

What role should business play in society? Should corporates seek more than just profits and power? In the aftermath of the 2008 global financial crash, companies in the US and Europe are wrangling anew with these questions. How firms should engage with society, and their duty to tackle the big issues, is a debate that is hotly contested around the world.

The topic of corporate social responsibility (CSR) has a different slant in the Middle East and North Africa (MENA), where the duty of giving back is woven into the region’s culture and religion. Companies in the GCC gifted $727m to charity in 2012, accounting for 18 per cent of regional donations worth more than $1m, according to a Coutts philanthropy report. This compares favourably to the US and UK, where corporations gave 13 per cent and 7 per cent of $1m gifts, respectively.

The question in the region, then, is not if businesses should do good for the community, but how. While philanthropy has a long tradition, practices labelled as CSR are still very much in their infancy in the Middle East. Where it exists, CSR’s evolution in the region parallels that seen in Europe and the US: companies are gingerly exploring ways to formalise giving, to help solve the most pressing social challenges, and to build CSR into their business blueprint.

CSR is a way for a company to balance economic, environmental and social imperatives, according to the UN agency on industrial development, UNIDO. Discussion of what CSR looks like has morphed since the term was coined in the 1930s, from being purely corporate philanthropy – charity fun runs, employee volunteering – to discussions of ‘creating shared value’ and ‘integrated CSR’, where companies act in the interests of shareholders and society to mutual benefit: doing good is good business.

In this debate, corporate philanthropy still has a role to play where issues of poverty and acute need remain. But even ways of doing this are evolving, with some businesses in the Middle East putting structures in place to entrench giving and broaden the net.

“Maybe some businesses think this is the government’s job. But in the end, this is our country” UAE-based food chain Just Falafel – which has 42 restaurants across nine countries – is a partner of the UN World Food Programme’s (WFP) zero hunger campaign. WFP estimates some 805 million people globally do not have sufficient food. Last year, Just Falafel announced a plan to raise $1m by 2016 for WFP by donating $500 for each new store and asking franchise holders to do the same. The company gave $25,000 to WFP in the first year and is set to give another $25,000 by the end of 2014.

The problem has been getting franchisees to match the donation, says Just Falafel founder Mohamad Bitar. So this year, the business capitalised on a company shake-up to formalise giving: from 2015, any franchise sold will require the franchisee to donate $500 to the UN agency.

“Whoever doesn’t want to sign up for [this donation] is not fit to be our franchisee,” explains Bitar. Just Falafel hopes this move will help accelerate progress towards the target: the company has 800 franchises in the pipeline.

The chain has gone one step further in embedding philanthropic values by making franchisees’ willingness to give to charity an explicit requirement. The new Just Falafel franchise questionnaire asks questions such as how much of their lottery winnings franchisees would give to charity. “I will only accept franchisees who agree to give back,” explains Bitar.

The Middle East, too, is starting to see a shift in corporate social responsibility towards creating shared value. Businesses are waking up to the fact they can use their assets and expertise to create better conditions for people and, ultimately, corporations. In MENA, no other issue is as pressing as job creation, and tackling sky-high rates of youth unemployment.

“We’re starting to see a subset of 20 to 30 per cent of businesses in the region providing greater assistance through skills development, supporting job creation or helping small- and medium-sized enterprises (SMEs) gain commercial traction,” says Ramez Shehadi, international managing director for the MENA region, with consultancy Booz Allen Hamilton (BAH).

BAH claims the Middle East must create 75 million jobs by 2020 to keep pace with its young population. Youth unemployment, one of the main drivers of the so-called Arab Spring, averages 25 per cent in the region.

One spur to the focus on job creation reflects a nuance of the Middle East’s corporate landscape: the family business. Coming from and being part of the community, family businesses are switched on to society’s needs in a way that the non-family run enterprise isn’t quite yet, says Shehadi. “Family firms in the region have been at the forefront of CSR initiatives.”

The potential of this factor is huge in the six GCC states, where family businesses generate an estimated 80 per cent of non-oil GDP.

One of the frontrunners on this issue is Abdul Latif Jameel Community Initiatives International (ALJCI), part of the family-run Saudi conglomerate. ALJCI has targeted job creation as a central part of its strategy for more than a decade.

“We felt the best thing we can do for our community is to find job opportunities for the young generation,” Ibrahim Mohammed Badawood, managing director of ALJCI, says of their jobs initiative, Bab Rizq Jameel. “Maybe some businesses think this is the government’s job. But in the end, this is our country. We have to give back because they give to us – increasing our business, improving it.”

ALJCI invests some SR110-150m ($29m-$40m) a year into Bab Rizq Jameel, and a further SR280-312m ($75m-$83m) in loans and microfinance for entrepreneurs.

In the 10 years to 2013, ALJCI claims to have created more than 465,000 job opportunities in Saudi Arabia, Morocco, Egypt and Turkey. Its schemes include helping women from low-income families start home businesses and granting interest-free loans for young people to launch small projects.

Impact is key for ALJCI: each initiative has a target. “The best thing to make community initiatives succeed is to manage it as a business,” observes Badawood.

In 2003, Bab Rizq Jameel’s target was 2,000 job opportunities. Today, that target is 70,000 and growing by 10 per cent annually. They also measure the sustainability of those jobs: around 78 per cent of the initiative’s youth stay in employment for more than six months.

“Every year we see the numbers of CSR reporting in the region double” Adopting a win-win mindset on CSR, rather than seeing it as a pleasant, but optional requirement, requires a cultural shift from many corporations. Since setting up its corporate responsibility (CR) team three years ago, Dubai state-backed ports operator DP World has worked to create a global framework ensuring each of its 65 terminals are run responsibly and reflect the needs of local communities, and that CR programmes benefit the broader business.

The cultural shift comes from the top: DP World’s CR advisory committee is chaired by its CEO. The firm has more than 13 CR champions at regional and unit levels tasked with rolling out initiatives across four ‘quadrants’: community, environment, marketplace, and people and safety. Each location has its own specific plan.

“The way we look at CR is there has to be business alignment,” says Kathryn Wightman-Beaven, DP World’s director of global CR. This ranges from investing in technology – small, unmanned submarines – to clean ships’ debris that ultimately reduces fuel emissions, to giving scholarships to 100 Djiboutian students to study engineering at Amet University in Chennai, India, and integrating them back in the business at the Djibouti and Doraleh container terminal.

The issue of how to measure impact is in its infancy. “At the moment, we’re measuring inputs and outputs,” Wightman-Beaven says. “The next phase – say, in education – is measuring how many people are getting out of unemployment, what that means for the local economy and for the business in terms of talent pool.”

Within the phase of integrated CSR is also the idea of aligning core business practices with responsible principles. This includes higher standards in corporate accountability, internal governance and transparency, according to the Pearl Initiative, a network of 41 businesses in the MENA region. The ultimate benefit for society is jobs, according to Imelda Dunlop, the initiative’s executive director.

“I see it as a virtuous circle,” says Dunlop. “Higher levels of integrity and of accountability are fundamental for higher levels of economic growth and job creation. It’s linked to the willingness to invest, to make a business more successful.”

Founded in 2010 by a nucleus of business leaders from the Gulf, the network includes corporations such as Saudi manufacturing giant Sabic, logistics giant Aramex and UAE conglomerate Crescent Group. The network’s aim is to share experiences and practices. Only 22 per cent of businesses in the UAE reported on corporate responsibility in 2013, compared to 86 per cent in the US and 78 per cent in Brazil, according to a KPMG study.

The lack of reporting in the Middle East is a problem because other companies simply don’t know what good practices exist, says Dunlop. Indeed, ignorance of what others are doing and a lack of data are brakes on CSR’s development in the region.

“Each company is waiting for others to be the first to report,” says Fatih Gul, founder of CSR Middle East, a regional source for CSR-related news and trends. “But every year we see the numbers of CSR reporting in the region double.”

Putting these approaches into practice will take time. “We’re almost at a tipping point where many of the companies adopting good practices are ahead of the curve,” explains Dunlop. “The bulk of the bell curve understands the business case, but struggles with implementation.”

Getting more – and, eventually, all – businesses in the Middle East to subscribe to this approach is the goal. “I hope to see community initiatives in each firm in Saudi Arabia, however large or small,” emphasises ALJCI’s Badawood. “I want business people to feel they have to do something for their communities. That is my aim.”

Putting people first

In the Middle East’s incubator landscape, Dubai-based Afkar says it provides more than the usual offering of desks and money: it invests in people.

“The problem we identified in the region was that while was a lot of appetite for entrepreneurship, the skills to be successful were not yet fully developed,” says Afkar founder Juan José De La Torre.

Launched in September 2013 and focusing on digital ideas, Afkar is run by UAE-based digital agency Intigral, itself a joint venture of telecom giant Saudi Telecom Company and Malaysia’s Astro Holdings.

Afkar received applications from some 30 countries in its first year, although most are from the Middle East. Ten shortlisted teams spend a ‘bootcamp’ weekend with Afkar working on their business and financial plans. Three or five start-ups are selected for a four-month programme where the incubator invests education, training and $20,000 of seed funding in each team. Afkar partners with some of the biggest corporations in the Middle East who provide mentors in marketing, financial management or product development, among other skills.

Intigral takes a piece of the action in each product. If it fits Intigral’s portfolio, the company will distribute the start-up’s product and share revenue.

Afkar anticipates around 40 per cent of the product ideas will fail – compared to a 80-85 per cent failure rate at other incubators – but by training entrepreneurs, it is confident its investment will not be wasted. “The idea they bring to Afkar might not be the multi-million dollar start-up,” observes De La Torre, “but we encourage them to start again.”

To date, Afkar has incubated five teams – a deliberately small number so each team gets more attention. Afkar anticipates it will help 50 start-ups in five years in its Dubai incubator and potentially 150-200 in the Middle East if it opens more locations. There is already a second location in the pipeline for 2015. Regional banks and airlines have also expressed interest in their own ‘Afkar’.

De La Torre is adamant Afkar is not a CSR programme: “Our interest is in helping the entrepreneurs realise their ideas, turn them into products and have these products reach our clients through Intigral’s portfolio.”

Finding the next generation

Launched in 2013, DP World’s Turn8 initiative backs entrepreneurship in the region: both as a source of potential suppliers for DP World and growth for the local economy.

“You find very few companies who invest in R&D or in innovation in the region,” says Afzal Khalfay, vice president of IT, DP World. “Most foreign companies here focus on sales.”

The programme holds pitching events around the Middle East – the UAE, Lebanon, Jordan, Egypt and Turkey – to shortlist 10 new business ideas per start-up round. Last year, Turn8 received close to 4,000 applications.

Selected start-ups go through a four-month accelerator phase, where each team nets $30,000 and mentoring by DP World to start-up, produce a prototype product and present to potential regional and international investors.

To date, Turn8 has held two rounds. Of 20 start-ups, 11 have graduated from the accelerator phase and five have already attracted outside funding. Three of the projects came from Egypt, including KinTrans, a company that converts sign language into audio.

Turn8 also hopes to create value by integrating some of the start-up ideas into DP World if they match a business need. “In round two we had an idea from Ustad Mobile, a mobile phone learning platform that works with $20 phones as well as smartphones,” says Khalfay. “We see some potential for this in our company for sending information to local staff.”

Khalfay says Turn8 is not a CSR initiative: DP World takes a 10 to 15 per cent stake in each start-up. Giving birth to new entrepreneurs also makes good business sense:  “Adding to the innovation environment has a direct impact on us,” he adds. “Our business is outward facing, working with logistics and supply chain businesses.”

The start-ups don’t necessarily need the accelerator to build a business, admits Khalfay. But Turn8 presents all the information in a condensed period – a “mini-MBA” – and connects start-ups with investors.

“It is something through which we are able to bring together people from different parts of the world and help the local economy.”

Photo credit: WFP/Ancel Kats