Increasing local income

Increasing local income also increases prosperity for people in developing countries and empowers them to make their own decisions. By employing more local people, paying more local taxes and buying more goods from local suppliers, private companies can increase the contribution of the income they generate.

The 2030 Agenda stresses the crucial importance of mobilising and using domestic resources efficiently to achieve the Sustainable Development Goals, in particular SDG 8 (Economic growth), SDG 10 (Reduced inequalities) and SDG 17 (Mobilising local resources).

DEG’s direct portfolio companies generated direct local income of EUR 36.7 billion in the reporting year:

They paid around EUR 18 billion in local wages and salaries as well as EUR 4.9 billion in corporate income taxes.

DEG’s customers generated almost EUR 14 billion in local profits after taxes.

These companies also contribute indirectly to gross domestic product (GDP) through the economic value they generate through their supply chains, investment and consumption of goods and services. Their total indirect contribution to local income, as modelled using the JIM methodology, amounts to EUR 254 billion.

Tax payments boost local resources

Businesses help to increase local income by paying taxes. This also contributes to SDG 17, of which one of the targets is to improve the mobilisation of domestic resources. A DEG study on corporate income and government revenue shows that the total contributions of the private sector to government revenue are underestimated, as many publications focus primarily on corporate income tax. However, if VAT and employee income tax are included, the contribution of DEG customers to local government revenue increases threefold.

Impact of local sourcing

Local sourcing offers a whole number of advantages for companies and the social environment. Among other things, it shortens supply chains, thereby enabling more resilience in production, is more environmentally friendly and boosts local income, which in turn can be invested in, for example, local infrastructure, education and health, and increases general welfare. To find out more, have a look at the DEG study Unlocking the benefits of local sourcing for companies and society.

DEG uses a range of different programmes to provide advice and support to its customers in order to secure their financial success and allow them to generate sustainable local income as a result. These programmes can also be used to enhance companies’ financial and management structures, as well as their supply chains, and to reduce project risks.

Local pharmaceutical production improves access to medication

Name: Aspen 

Invested volume (in EUR): 100 million

Country: South Africa

DERa category: Local income

South African pharmaceutical company Aspen Pharmacare Holdings Limited received a long-term loan worth EUR 500 million to expand local production capacities and improve access to essential pharmaceuticals throughout Africa. DEG contributed EUR 100 million to this. The aim is to significantly step up the regional production of life-saving medication, including insulin and paediatric vaccines. During the COVID pandemic in 2021, DEG had already partici­pated – together with several other development finance providers – in financing a loan for the company, arranging a total of EUR 144 million.

Aspen’s strategy, Manufacturing in Africa for Africa, aims to improve access to medication and to make it affordable by producing it locally and entering into strategic partnerships with other pharmaceutical firms. The company is expanding its production capacities and wants to be in a position to manufacture a wider spectrum of vital pharmaceuticals on location in future. This will reduce dependence on imports and increase security of supply in Africa.

Nutrient-rich food production in India

Name: Lorenz
Invested volume (in EUR): 1.3 million
Country: India
DERa category: Local income

ImpactConnect, a promotional programme implemented by DEG and funded by the German Federal Ministry for Economic Cooperation and Development (BMZ) for projects by German and European companies, is providing the food manufacturer Lorenz Snacks with a loan of EUR 1.3 million. This funding makes it possible to establish a production line in India for ready-to-use therapeutic food (RUTF), which has been specially developed to combat malnutrition in crisis situations.

Lorenz Snacks India Private Ltd, part of the German Lorenz Snack-World Group, is sourcing peanuts and other ingredients for the new production line from a regional cooperative with around 700 farmers. These are used to produce a nutrient-rich peanut paste, enriched with vitamins and minerals. This paste is an easily distributable solution for treating acute malnutrition in crisis areas. Demand for this kind of products has risen sharply in recent years, with organisations such as the World Food Programme and UNICEF being the main customers.

The five DERa dimensions