Opinion: CEOs can drive inclusive industrialization. Here's how.

Can CEOs drive inclusive industrialization? Just ask your Tanzanian counterparts. Nearly two-thirds of Tanzania consumes imported palm oil, despite the fact that the country has more than 1 million sunflower farmers who produce a substitute product. Sunflower oil has 80 percent less saturated fat content than palm oil and it is recognized by Tanzanian consumers as healthier oil. However, domestic sunflower oil is expensive. It retails at almost twice the cost of imported palm oil. CEOs have naturally responded by developing palm oil importing and refining operations that import cheap crude oil from Southeast Asia, refine it locally, and distribute it across the country. That’s industrialization, right? Well yes, but it doesn’t create many jobs in Tanzania. A majority of Tanzanians work in the agriculture sector, but most of them do not benefit from the palm oil industry. Tanzanian farmers cannot produce for export because their oil is not as competitive as oil coming from Ukraine or Argentina. They can produce for domestic markets, but consumers cannot afford their products. Is it necessary to disrupt this status quo? Yes, for a number of reasons. Firstly, consumers want the healthier sunflower oil. It is an aspirational product that consumers buy and use on special occasions. As the middle class continues to grow in the country, this usage will increase. The market is bound for a disruption and the first-mover will reap the rewards. Secondly, those consumers are also farmers. Creating an opportunity for them to improve their livelihoods will increase their incomes, accelerate their progression into the middle class, and enable them to purchase more high-quality products, such as sunflower oil. Finally, those consumers and those farmers are also voters. The government wants to create economic opportunities for its constituents. They can continue doing so by giving them handouts, but they prefer to do so by creating new markets. The government can also benefit from additional tax revenue by growing a domestic industry and increasing the prosperity of its citizens. This change would also reduce the country’s need for foreign exchange — imported palm oil is the second largest user of foreign exchange in the country, second only to petroleum. One Tanzanian CEO understood these arguments and asked one powerful question: What would it take to reduce the cost of domestic sunflower oil, so that it is affordable to many more Tanzanians? Turns out, not much. Tanzanian producers — despite being smallholder farmers — generate good yields. Improved seeds and better farming practices would help them increase these yields even further, but they are not a binding constraint. The binding constraint is much simpler: A large enough investor who can afford an investment in more efficient solvent extraction machinery, and who has a distribution network that can transport oil at low costs to the majority of Tanzanian consumers who live in less accessible rural areas. Thankfully, our inquisitive CEO is just one such investor. That simple question has helped spark the imagination of a sunflower industry in Tanzania. Investors are now lining up to make the investments required in the sector. The government is pleased to see its industrialization agenda supported, its future tax revenue double, and its forex bill cut. More importantly, it is pleased that it can improve the livelihoods of over 500,000 farmers and improve the productivity of over 2,000 small and medium enterprises. These SMEs will need access to new loans, providing business opportunities for the financial sector. And up to 10 million additional consumers will have access to edible oil with less saturated fat, possibly reducing the country’s long-term health costs. Investors win. Governments win. Farmers win. SMEs win. Banks win. Consumers win. That’s inclusive industrialization. In what other sectors is this possible? Several value chains in the agro-industrialization sector are ripe for similar disruption. Sectors such as livestock — beef, fisheries, poultry — and horticulture are bound to experience rapid increases in demand as a rising middle class begins to aspire to more nutritious food options. And of course, a number of light manufacturing products will follow. All they are missing is a bold investment vision that imagines a different future. And an inquisitive CEO.