The document discusses how extending local supply chains can maximize a firm's economic impact in three key ways: 1) It magnifies a firm's direct impacts like jobs and tax revenues by also capturing indirect impacts through local supplier expenditures and wages, as well as induced impacts from employee spending. 2) Extending to second- and third-tier local suppliers can have an even greater cumulative effect on the local economy. 3) Case studies of breweries and mines illustrate how strategically developing local agricultural and other suppliers strengthened those businesses while generating broader economic benefits and social license to operate.

1. The Economic Impact of Extending Local Supply Chains
Prof. Ethan B. Kapstein
ethan.kapstein@stewardredqueen.com
International Supply Management Congress
November 30 2012, Amsterdam RAI

2. Extending Supply Chains is Important for Maximizing a Firm’s
Economic Impact
Company profits
Supplier
Employee expenditures
salaries
ConsumptionCompany
Tax profits
Employee revenues
salaries Expenditures
Revenues
Tax revenues Supplier
revenues
Final and intermediate demand
Value added (i.e. incomes generated for employees, companies and governments)
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3. After All, A Firm’s Direct Impact is only the ‘tip of the iceberg’
Direct (0th Round) impact (The Firm)
+
Indirect (1st Round) impacts
(Direct suppliers)
+
Indirect (2nd Round) impact
(Suppliers’ suppliers)
+
Induced (3rd Round) impact
(Employees’ consumption decisions)
=
Total Economic impact
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4. But There are Hurdles to Local Supply Chain Development
• Many companies have global (least cost) sourcing policies and do not
realize the strategic value of local procurement;
• Many (potential) suppliers face serious capacity and skills shortages which
reduce quality and reliability;
• Many (potential) suppliers are not bankable which hampers their growth
prospects.
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5. Extending local supply chains: The Case of Nile Breweries
(Uganda)
Local context:
• Clear beer market limited by price
• High excise tax on beer
• Imported barley used as input
• Low income consumers drinking home brewed beer
Implemented changes:
• Domestic sorghum substituted for imported barley
• Commitment to develop local agriculture
• Introduction of Eagle Lager, now #1 seller
Benefits:
• Steady market for sorghum farmers
• Farmers provided political support for lower excise tax
• Positive Balance of Payment effects
• Revenues for Nile Breweries / SABMiller
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6. Extending local supply chains : The Case of Newmont Ghana
(NGGL)
Global perception of mining:
• Many stakeholders doubt benefits
• Some governments threatening to nationalize
• Resource taxes contested
• Environmental damage highlighted
Implemented actions in Ghana:
• Comprehensive supplier “linkages” and agricultural programs
• Economic Impact Study of mine conducted and publicized
• NGGL viewed as strategic partner for growth/development
Benefits of Linkages Program:
• Diversification of local economy
• Strengthen License to operate
• Employment creation
• Income generation for households and government
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7. Mining Example:
Newmont Gold’s Impact in Ghana = 48,000 Jobs
Jobs by sector (x1000)
6.1 48.3 = 0.5% of
3.3 labor force
Induced Impact
Indirect Impact 2.6
12.5
15.8
Direct Suppliers
2.8
Newmont Ghana
11.9
1.8
11.8
28.9
3.9
5.4
10.1 2.5
8.0 5.1
1.8
Agriculture Industry Newmont Trade Transport & Services Total
Ghana Communication
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8. Quantifying the Benefits: The Case of Newmont Ghana
$92 million salaries paid
$20 million profits to local companies
$63 million taxes to Gov. Of Ghana
$ 175 million total contribution
= 1 % Ghana’s GDP!
Note: 2010 data 8

9. Supply Chains in Agriculture: Ensuring Incentive Alignment
As in all sectors, developing agricultural supply chains require incentive alignment
among economic agents. This means that risks, costs and rewards must be managed
and allocated across the supply chain:
• Rewards: Long-term approach to pricing in order to establish trust and reliability
(buyers provide insurance);
• Costs: Companies can help develop scale economies that cannot be achieved by
individual suppliers, possibly through setting up intermediary organizations;
• Risks: Companies must provide technical assistance and incentives to ensure that
quantity and quality achieve corporate requirements. Care must be taken to avoid
risk of relationships breaking down under shocks.
Supply chain alignment can be driven off the rails by price shocks, government
policies and other exogenous forces!
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10. Building Sustainable Supply Chains: Role of government
Policy push: The Case of Nigeria.
Restrictions to import Barley shifted the supply chain of breweries in Nigeria to local
sorghum. Although restrictions have long been lifted the local supply chains are still
operational and improving.
Policy pull: The Case of Uganda.
Excise tax reduction on beer encouraged intensive use of local sorghum crop in beer
production. This created a new product which became the most popular brand within
years but lower tax rate is required for viability. The case has been replicated in
Zambia.
Just as companies need to look beyond their own boundaries, governments must be
convinced to take an economy-wide approach to taxation rather than to maximize
collections from individual sectors.
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11. The economic impact of Standard Chartered Bank is
greatest for the least bankable companies in Ghana
Value Added Employment
SMEs 3.8 m 1,700 jobs
Commodity Trading
1.8m 570 jobs
& Agriculture
1.0m
Local Corporations 1.8m 480 jobs
Global Corporations 1.7m Economic impacts 544 jobs
of a loan of $ 1
million made by
Consumers 0.5m Standard Chartered 223
Ghana
Companies can often (but not always) enhance
access to credit for their suppliers
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12. Some Take-Aways…and a Challenge!
• Firms can serve as a major contributor to employment and value-added
in the countries where they operate.
• Making intensive use of local supply chains greatly magnifies that
impact, and creates more constituents for corporate activities.
• But building local supply chains requires incentive alignment among all
economic agents.
• Enhancing bankability of suppliers and access to credit is crucial.
• The question is, how can we capture and quantify the benefits of
making more intensive use of local suppliers given corporate pressures
to procure from lowest cost sources!
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13. APPENDIX
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14. Newmont initiatives to spur agricultural productivity and
long-term development
Agricultural Inputs and land access program
• Investment 2006-2009: USD 6.6 million
• Number of farmers empowered: 3,200
Ahafo Agribusiness Growth Initiative
• Investment since 2006: USD 1.9 million
• Number of farmers trained: 3,500
• Increase in agricultural yields: 15-50%
• Increase in land under cultivation: 300%
Newmont Ahafo Development Foundation
• Investment since 2006: USD 6.5 million
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15. Companies Can Also Spur Private Sector Creation and
“Upskilling” of Workforce
Ahafo Linkages Program results in 2009
• Number of local companies supported: 99
• Value of contracts with local companies: USD 5.7m
• Number of companies trained: 120
• Total training cost: USD 1.7m
• Jobs created: 439
Of which skilled: 330
Of which unskilled: 109
Apprenticeship program
• Investment over 4 years: USD 1.1m
• London City & Guilds certification for students
Skill development for income improvement program
• Investment in 2009: USD 0.5m
• Students trained (catering, masonry etc): 270
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