Increasing local income

Increasing local income also increases prosperity for people in developing countries. The private sector plays a particular role in generating local income, and the more the business model is rooted in the local context, the greater the contribution it makes. This means that companies employ more local employees, pay local taxes and source goods from local suppliers. 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 portfolio companies generated local income of EUR 208.6 billion:

In the reporting year, DEG’s portfolio companies paid EUR 22.3 billion in local wages and salaries as well as EUR 6.4 billion in taxes.

Some 64% of necessary supplies and almost half of capital goods were sourced locally, generating EUR 145.9 billion in income for local suppliers.

Interest payments to local capital lenders, local licence fees and profits after taxes of local businesses created further annual income of EUR 27.3 billion.

Tax payments increase local resources

Companies contribute to increasing local income through tax payments, thus contributing to SDG 17, which aims, among other things, to strengthen the mobilisation of domestic resources. A study by DEG on corporate revenues and government income shows that the total contributions of the private sector to government income are significantly underestimated, as many publications focus primarily on corporate income tax. The tax contribution of DEG’s customers triples when taking into account some of the additional revenue sources, such as VAT and income tax.

Impact of local sourcing

Local sourcing offers a whole number of advantages for companies and the social environment. Among other things, it simplifies the logistics process, 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.

Agricultural producer builds local value chain

Name: Agricola Pampa Baja S.A.C.
Invested volume (in EUR): 16.4m
Country: Peru
DERa category: Local income
% achieved of DERa category: 58

Peru is one of the emerging countries in Latin America, and the economy is growing continuously. The agricultural sector is one of the fastest growing economic sectors. Agricola Pampa Baja is a family-run producer and marketer of fruits (avocados, grapes, mandarins and pomegranates), horticultural crops (paprika and sweet yellow onions) and fresh milk. The company has doubled and renewed its fruits division, mainly avocados and grapes, based in two strategic production sites in the Olmos region (Northern Peru) and in the Majes region (Southern Peru). In addition to building the new site, which is also stimulating the local economy in the two regions, Pampa Baja is contributing to creating jobs and, most importantly, generating local income in the form of wages, salaries and taxes. As a result of the expansion, around 8,500 additional jobs were created.

Latin America and the Caribbean: lending to small businesses

Invested volume (in EUR): 12.4m
Region: America national
DERa category: Decent jobs
% achieved of DERa category: 74

DEG provides long-term financing to Locfund Next. The fund uses these resources to invest in microfinance institutions in Latin America and the Caribbean so that these can grant microloans to microenterprises. Microfinance institutions are a cornerstone of the informal economy in Latin America. In addition to developing the sector, their financing enables people to start their own businesses and generate local income, thereby creating local economic growth. Since its inception in 2020, Locfund Next has reached 48 microfinance institutions in 13 countries in the region, including Bolivia, Ecuador and Nicaragua.