When better analysis can help address supply chain challenges

From Brazil to Indonesia, on issues from food production to mineral extraction, companies constantly wrestle with the challenge of getting things done in complex and difficult situations, especially where governments and corporate interests collide. The “business as usual” processes of political engagement clearly don’t always work, and a new approach is frequently needed. Welcome to the world of political economy analysis (PEA). 

Traditional processes of political engagement – lobbying, for example – often fall short in emerging economies because they fail to reach below the surface of what goes on. They don’t engage with the much more complex – and often rather messy – way in which power is wielded, or understand that “normal” is very far from anything someone with a developed world perspective might expect.

What PEA does is to dig deep into the nuts and bolts of how power and authority affect economic choices, and to use this understanding to inform how one should go about getting things done. Whilst the term “political economy analysis” might sound rather academic, the process is in fact a ruthlessly practical one. 

 Get real 

The aim is not to create a dry analytical analysis, but to develop an understanding of the realities of a location, which can inform how actually to get things done. It is a process used by development institutions such as the World Bank and explores three key dynamics.  

·      Incentives: Who are the key stakeholders, be those individuals or groups, who have an influence or interest in what is going on? And what makes them tick – what do they really want?

·      Institutions: What political and other institutions and networks affect the way in which these actors interact with one another? Some of these may be formal political institutional arrangements; others may be more informal and opaque.

·      Events: What contextual factors impact on the way in which these actors and structures work at the moment? How might changes in this context lead to increasing tensions, or to a situation where change can more readily be put in place? 

To date, this is not an approach that has been widely used by the corporate sector. It is therefore rather interesting to look at how some recent challenges facing companies might appear when viewed through a PEA lens.

 Amazon fires analysis

The stand-up row between the Brazilian president, Jair Bolsonaro, and much of the rest of the international community over fires in the Amazon this summer was subject to immense political and media attention. The business community was also caught in the cross hairs. Agricultural producers were accused of contributing to the problem, and leading fashion brands including H&M and Timberland suspended their supply chains from Brazil. 

However, applying a PEA lens to the situation can help identify the issues that really need attention if companies are to manage this, and other similar situations, effectively. 

A Buzzfeed article reported on a visit their correspondent had made to Apui, a town in the state of Amazonas. Local labour rates, the article reported, are typically around $18 per day, but developers were prepared to pay $60 per day to clear forest land. The article quoted one of these workers, Luz, who said he was “proud to have accepted the money to put his two children through college”. 

That is a huge incentive, but only by addressing incentives like these can companies and others who really want to make a difference in the Amazon make any headway. Indeed, companies such as Timberland refusing to buy from Brazil may actually make the situation worse by reducing the opportunities to ordinary Brazilians of legitimate jobs.

Questions also arise when one looks at some of the institutional challenges. Both Germany and Norway have cut contributions to the Amazon Fund, which has put $827m into forest preservation funds since 2008. 

What is less clear is how effective the fund has been in addressing some of the societal root causes of deforestation. A political economy analysis would suggest exploring how effective the fund has been in finding ways in which poor people in the Amazon region can earn a living in ways that do not involve damaging the forest. 

 Why IPOP went pop

PE analysis can also cast some light on the demise of the Indonesian Palm Oil Pledge (IPOP), which collapsed in 2016. 20/20 hindsight is a wonderful thing, but a PE specialist could identify some key issues which undermined the initiative – issues that future such ventures might usefully learn from. 

Among the reasons for IPOP’s demise were accusations that it undermined smallholder farmers, an argument that was itself denied by smallholder farmer groups. This situation suggests that more work might have been done to understand the internal dynamics of farmers’ groups, and their relationships with key political figures. 

It is not unusual for business groups in developing countries to represent the interests of key vested interests, rather than the interests of their members. In this case, there were obviously differences between the groups and some of their members that were not identified in advance, to the detriment of IPOP and its survival.

It is also possible to question how well understood were the incentives of the different Indonesian government ministers involved in the pledge. It may be that ministers involved wanted to be able to portray themselves as being strong, decisive, and promoting the country’s interests in a key industrial sector. 

If this were the case, it makes it easier to understand the adverse reaction to the fact that IPOP’s launch took place in New York, and to IPOP’s offer to help “strengthen and adjust government policy” to be more effective in tackling deforestation. Both of these actions could quite easily be used by ministers’ opponents to present those ministers as being lackeys to international interests. In this case accusations that the international companies were acting as a cartel, and that the IPOP was driven by foreign interests, can make complete sense. 

Of course, none of the issues raised here are definitive – the potential range and depth of issues requires greater in-depth attention. Nevertheless, it seems clear that there would be much companies could gain from looking situations in challenging places in a more robust and analytical way. 

 Dr Peter Stanbury is principal of The Frontier Practice. Join him at Innovation Forum's sustainable landscapes conference on 20th and 21st November in London. Click here for details.