Public procurement: the trillion-dollar missing link

Andrew Forrest AO | Australian Business Co-Chair

Chevann Daniel | Group Director,
The Capital Maharaja Organisation Limited

No one speaks in favour of modern slavery, and slavery has no real friends. At best, it can be said that slavery has temporary acquaintances, people who rely on slavery for short term profit.

No country or business can build its future on slavery. Indeed, slavery thwarts economic empowerment and puts a ceiling on growth.

All sides of politics are unified behind this point, a rarity in today’s fractured policy landscape. Likewise, business has led its own reform and has shown its willingness to work with government in joint endeavours. The leaders of all faiths have come together and shared their common abhorrence of slavery in their teachings.

Still, despite this leadership many continue to benefit from this often invisible crime, or resign themselves to accepting modern slavery as an inevitability.

Modern slavery is a human condition of our own making which can be ended by concerted action. It is a multi-billion dollar transnational criminal business which, on any one given day in 2016, ensnared 40.3 million people.

The scale of this truly global and abhorrent practice is staggering and will not be rectified until there is significant cooperation between business and government. One of the first areas to address is rooting out slavery where it exists in supply chains, be they of major businesses or governments.

Many governments are the biggest buyers of goods and services in their countries. Public procurement represents, on average, around 12 percent of a country’s GDP and it is estimated to be in the order of the GDP which equals to US$1.6 trillion worldwide.

While some governments are setting reporting requirements for corporations, there are a paucity of measures directed at minimising the risks of modern slavery in public procurement in these policy responses. Governments need to get their houses in order.

This is a failure of leadership and an insult to business, which is tasked with meeting high expectations by policy makers who fail to measure themselves to the same standards. Continued inaction by governments exposes them to enormous reputational risk and economic consequences.

Thankfully, there are green shoots of progress. This year’s Global Slavery Index finds 36 countries are taking steps to investigate forced labour in business or public supply chains, up from just four countries in 2016. Of the 36 countries, 25 are taking steps on government procurement. And there is no reason why the figure can’t be higher.

The countries which collaborate beyond their own borders to adopt regional approaches to stamp out slavery will be rewarded with stronger societies, robust trade, and sustainable growth. Those that take steps to clean up labour issues at home will send the best possible signals to the investment world.

For investment destinations that are both accountable and attractive, there is almost no shortage of capital available. As more is learned about slavery, and how to measure it, investors will increasingly steer clear of opportunities that come with exposure to slavery risk. Business leaders are acutely aware of the attractiveness of certain investment destinations and often labour issues and other social problems are serious deterrents to new ventures.

In the short term, slavery may fill criminals’ pockets with illegal profits, but in the long-term, the national profits of a country that allows slavery to thrive will be dragged down. Economic empowerment is the key to long term growth and so it is no surprise that slavery, more than many other factors, cruels sustainable development.

As scrutiny increases down the long tail of multi-national companies’ supply chains, countries that continue to allow modern slavery within their borders are at ever increasing risk of tarnishing their reputation and losing out on trade.

But slavery is not just a problem for developing countries seeking investment.

The great challenge with modern slavery is that not only is it hidden within the depths of criminal networks that are trafficking people for exploitation, but modern slavery also occurs where mainstream industries meet informal economies.

Slavery exists in all corners of the planet and touches us all through trade and consumer choices.

Walk Free has engaged with the G20 process to ensure that the countries responsible for 80 per cent of the world’s economic activity take responsibility The decision of the G20 in Germany in 2017 to prioritise the issue of modern slavery and develop policy responses was a huge step forward. It is now time for each of those countries to act.

We are encouraged by developments in G20 countries including Australia, Brazil, France, Germany, Italy, the United Kingdom, and the United States on public procurement. But, as the 2018 Global Slavery Index finds, there is still a long way to go.

Businesses and governments in G20 countries are importing masses of products that come with significant risks of being produced using modern slavery.

Our analysis found G20 countries are collectively importing at least US$354 billion worth of at-risk products annually – for example seafood from Thailand, electronics from Malaysia, or coal from North Korea.

Business too has a critical role to play here. The old paradigm of name and shame has not delivered comprehensive reform, rather it has often discouraged businesses from looking too closely in case they discover abuses.

We need a paradigm shift to encourage businesses to seek out abuses in their supply chains, and reward leaders who take on the responsibility and challenge of addressing modern slavery. We need to celebrate the discovery of slavery as the first step to remedy the problem and empower those afflicted. This will drive businesses to ensure they are not enabling this crime.

Investors are more alert to this issue than ever before and are increasingly demanding businesses act with impact. Some of the largest institutional investors in the world are telling major corporations to improve their social footprint or face losing out on billions of dollars of investment.

True business leaders know that creating sustainable supply chains can contribute positively towards growth, improve competition, provide job opportunities, and bring families out of  poverty. This is a sustainable business model.

By providing decent work or demanding their suppliers and contractors do, companies are investing in the futures of communities. Profits and purpose are not mutually exclusive. In the long term, everyone loses out from slavery.

We have a tremendous opportunity to capitalise on the progress made and the commitment of so many to end the misery of 40.3 million of our fellow human beings.

It is an opportunity we must not let slip.