28472 - Export Trading Group Guarantee

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Environmental & Social Review Summary

Project Number

28472

Company Name

EXPORT TRADING CO.LIMITED

Date ESRS Disclosed

Oct 23, 2009

Country

Eastern Africa Region

Region

Africa

Last Updated Date

Nov 30, 2016

Environmental Category

B - Limited

Status

Completed

Previous Events

Approved : Dec 10, 2009
Signed : May 26, 2010

Sector

Grains and Beans

Industry

Agribusiness and Forestry

Department

Gbl Ind, Manufact, Agribus & Services

Project Description

Export Trading Company (ETC) Tanzania Limited, Agri Commodities & Finance FZE and their affiliated companies (collectively “Export Trading Group” or ETG or “Sponsor”) are leading commodity supply chain operators based in East and Southern Africa. ETG’s main businesses include:

- Trading and distribution of agricultural products and fertilizers,
- Farming of a range of agricultural commodity crops,
- Processing of some of these commodities and
- Investments in information technology, mining, leisure, forestry and logistics.

ETG has developed competitive position in origination, storage and transportation capabilities and diversification into new production and markets, and has achieved strong growth in its agricultural commodity trading.

ETG plans to expand its trading operations and has requested an additional US$120 million financing (the “Project”). Financing will include a US$100 million collateral-backed facility and US$20 million overdraft. The proposed IFC financing is to provide a 50% guarantee for each of the facilities with total IFC guarantee of up to US$60 million.

ETG is headquartered in Dar es Salaam and has regional offices in 12 countries, namely South Africa, Zimbabwe, Zambia, Malawi, Mozambique, Tanzania, Kenya, Uganda, Ethiopia, Sudan, United Arab Emirates (UAE) and India. The facilities under the Project will be used to purchase soft commodities for the import from and export to Tanzania, Nigeria, Zambia, Kenya, Malawi, Mozambique, Ethiopia, Uganda, Ghana, Ivory Coast, Guinea Bissau, Benin, South Africa and India.

Around 70% of ETG’s trading business by volume is export of agricultural commodities and 30% is import of fertilizer and rice. A significant percentage is unprocessed/semi-processed commodities. The commodities are simply cleaned, graded, packaged and exported either locally or within the region (50%) or deep sea export via Dubai (50%). A small percentage of the commodities traded are processed into final products of which 10% are sold locally within the region and 90% exported.

ETG currently trades in maize, pigeon peas, wheat, soya beans, beans, cashew nuts, yellow garm, sesame seeds, sugar, green garm, groundnuts, cow peas, millets, tea, chick peas, sorghum, ginger, cloves, coriander seeds, cumin seed, linseed and Niger seed. Maize constitutes the largest commodity by volume.

Since 2002 the Group began investing in agriculture processing and the Group’s interest in this area includes agricultural processing plants in Zambia, Malawi, Mozambique, Tanzania, Uganda and India.

Overview of IFC's Scope of Review

The environmental and social appraisal of this project consisted of:

Reviewing environmental, health & safety and social (EHSS) information provided by the project sponsor.
Field visits by IFC specialists to facilities in Tanzania (Dar es Salaam and Dodoma), Kenya (Eldoret), Uganda (Tororo), Zambia (Mpongwe, Lusaka) and Malawi (Lilongwe and surrounding area).
Meeting with representatives of the Sponsors’ management group in each country.

Due to the nature of the sponsor’s business model, the main focus of the environmental and social due diligence process was on understanding supply chain risks. This included reviewing:

- commodity sourcing and storage,
- processing and transportation,
- occupational health and safety, food safety, life and fire safety at warehouses, and
- supply chain issues such as labor, use of pesticides and fertilizers, land matters and prices paid for commodities.

Additional checks were conducted on key commodities in the Sponsor’s countries of operation to screen for particular EHSS risks in the supply chain. The review also involved a high level screening of the Sponsors’ investments in some other ETG’s affiliates namely:

- Forestry operation
- Mining activities, and
- ETC – Bio-Energy Limited’s issues with informal settlers in one of their estates.

Categorization: The issues and risks identified to the project financed by IFC can all be addressed using standard mitigation methods. Based on this finding, this is a Category B project.

E & S Project Categorization and Applicable Standard

While all Performance Standards are applicable to this investment, IFC’s environmental and social due diligence indicates that the investment will have impacts which must be managed in a manner consistent with the following Performance Standards:

- PS1: Social and Environmental Assessment & Management Systems,
- PS2: Labor and Working Conditions,
- PS3: Pollution Prevention and Abatement, and
- PS4: Community Health, Safety and Security

PS5: Land Acquisition and Involuntary Resettlement: ETG will closely monitor and report on the Mpongwe informal settlers’ issue (see the discussion below) and resolution. They will put in place a contingency plan for helping to provide a solution should the court case be resolved. ETC – Bio-Energy company has already reserved 1,800 hectares of land for the resettlement of the settlers. In addition, all new land acquisition and development will follow IFC Performance Standards.

PS6: Biodiversity Conservation & Sustainable Natural Resource Management: ETG does not own or manage any forestry plantation. The government of Tanzania has some old plantations which they sell by way of tender and awardees harvest it within the stipulated time frame. Cielmac Ltd, an ETG affiliate, tendered for and was awarded permission to harvest timber (teak wood) in an open tender. The government of Tanzania undertakes replanting through the Ministry of Natural Resources. The forestry operation is reportedly not FSC-certified. It was confirmed at appraisal that Cielmac does not source timber from other timber operators. For any future land development and potential clearing of land, ETG and all affiliates will apply the requirements set under PS6.

PS 7: Indigenous Peoples and PS8: Cultural Heritage, is not applicable based on the information reviewed and knowledge gained by visiting a selected sample of ETG’s operations including some affiliates.

Environmental Health & Safety (EHS) Guidelines that are expected to be applicable to this investment include:

The General EHS Guidelines (April 2007), and
Agricultural and Food Production Guidelines (April 2007)

The EHSS impacts of the project’s operations are relatively limited. IFC’s review did not identify any significant adverse impacts. Issues to address, as captured in the attached Environmental & Social Action Plan, include:

- improvements in social and environmental management systems (including supply chain management, human resources, occupational health & safety monitoring and reporting, and fleet management),
- development of a pesticide management plan,
- improvement of life & fire safety arrangements at key storage facilities, and
resolution of a resettlement-related issue at one of the Sponsor’s subsidiaries, i.e. ETC – Bio-Energy Limited’s Mpongwe Farm.

These matters can all be addressed using standard mitigation methods. Based on these considerations, this is a Category B project according to IFC’s Environmental & Social Review Procedure.

Environmental and Social Mitigation Measures

PS1: Social and Environmental Assessment and Management Systems

Assessment: Environmental Impact Assessments (EIA’s) are undertaken for specific projects such as the development of the Sponsor’s processing plants. The Sponsor does not currently have a formalized management system dealing with EHSS issues, including potential supply chain risks. As such, the Sponsors will develop a robust auditable system to screen, assess, mitigate, monitor, record and report on EHSS and supply chain issues across its operations. This will include, amongst others, the need to screen for and, if necessary, eliminate potential supply chain risks such as harmful child labor, forced labor, misuse of pesticides and fertilizers, and land disputes.

Organizational Capacity: The Sponsors recently (February 2009) hired the former Head of EU Agriculture and Environment for Tanzania to manage EHSS issues at a group-wide level. She will have a particular focus on liaison with NGOs, working on out-grower schemes, and developing community development initiatives.

Training, monitoring and reporting: Whilst ETG has put in place a Technology Transfer Program for the training of its plant operators in Uganda, no EHSS training is currently undertaken. This will be addressed by the new EHSS management system described above, as will monitoring.

Currently the only monitoring undertaken is by purchasers of commodities such as the World Food Program, Oxfam and Save the Children, who have strict technical specifications for dryness, packaging and so forth. The Sponsors do not currently have external reporting requirements on EHSS matters. As part of the IFC investment agreement, ETG will submit an annual environmental & social monitoring report to IFC.

PS2: Labor and Working Conditions

ETG currently has a management staff of 757, of which 75% are male and 25% female, and a non-managerial staff of 5 962, of which 60% are female and 40% male. The staff members are spread across the different countries that ETG trades in. The total number of employees would increase by approximately 1,000 should the trading business expand as proposed.

Human Resources Policy, Working Relationship and Conditions, and Terms of Employment: There is currently no well-defined and documented human resources policy, although there is an ETG Human Resources Handbook which spells out working conditions and terms of employment. Each worker is given a written contract when they join the company. Remuneration levels always exceed the minimum wages in each country that the Sponsors operate in, and the general employment conditions are above in-country standards.

Workers’ Organizations: There are no unions active in the commodity trading business largely because operations are geographically spread out with only a handful of employees at each site. However, other parts of the business, for example processing plants, do have unions and these sometimes have offices within the factories. ETG has 258 unionized workers, covering Mozambique (27), Zambia (15), Malawi (89), Tanzania (103) and Kenya (24).

Non-discrimination and Equal Opportunity: The Sponsors do not make employment decisions on the basis of personal characteristics unrelated to inherent job requirements. They also do not discriminate on the basis of gender, religion, HIV-AIDS status or related matters.

Retrenchment: The Sponsors have expansion plans and no retrenchment is currently foreseen. Retrenchment related matters are dealt with in the Human Resources Handbook referred to above.

Grievance Mechanism: ETG has a grievance mechanism which is communicated to employees. The procedure describes the steps to be followed at different stages from immediate supervisor level through HR. The grievance mechanism adheres to in-country requirements and largely appears to be adequate and effective. All countries in which ETG operate have ratified the International Labor Organization’s Core Labor standards.

Child Labor: The Sponsors do not employ staff below the age of 18 in line with in-country regulations and verify age through the use of identity documents. There is currently no mechanism to screen the supply chain for child labor issues (refer also to ‘supply chain’ below): this will be rectified as outlined in the attached action plan.

Forced Labor: The Sponsors do not use forced labor of any kind and forced labor has not been identified in the supply chain of any commodity traded.

Occupational Health & Safety: Medical aid is provided for some employees in some countries where there is a well-developed medical system; otherwise the Sponsors normally pay medical bills for its employees to a maximum of USD 500. There is currently no occupational health and safety monitoring system in ETG, although serious/disabling/fatal incidents are almost unheard of at depots and processing plants. The group, as part of its restructuring exercise is in the process of documenting an occupational health and safety programme.

Traffic safety is an issue in most countries and fleet safety management is therefore included in the attached Action Plan, as is occupational health & safety management.

Working conditions at certain warehouses and processing plants leave room for improvement. This is in relation to availability of personal protective equipment and life and fire safety (though no fires have been reported at warehouses) and these issues are addressed in the action plan.

Supply chain: ETG buys most of its commodities from small-scale farmers, with the balance coming from middlemen and semi-commercial or commercial farmers. In order to help small holders improve their productivity and production, the Sponsors have been considering developing out-grower programs. In 2004, ETG helped introduce the production of green beans in the Machakos region of Kenya where 20 groups of 30-40 women were involved. ETG provided the seeds and committed to buy back production at prices linked to international prices.

Literature on the incidence of harmful child labor in the smallholder farm sector in affected countries did not yield any significant risks or issues. However, family labor involving children is often employed across Africa alongside hired labor during planting times (generally this does not deprive children of educational opportunities).

Harmful child labor in certain countries in which the Sponsors operate has been reported to be an issue, for instance in Malawi on tobacco plantations. This typically involves large-scale commercial cropping of certain cash crops where migrant workforces are involved. These crops do not form part of the Sponsors’s supply chain.

More than 90% of commodities are bought directly from farmers, who are paid cash on delivery at local depots located within reach of the farmers in each country from which ETG sources commodities. Pricing is often determined by state agencies. For example, in Malawi, minimum prices are set by the Government on a periodic basis. The Sponsors always pay more than these minimum price thresholds. The level above these prices is established through competition among other commodity traders who are active in each country. Pricing obviously differs according to transport requirements and seasonality.

The remaining portion of commodities is sourced from other smaller traders/middlemen and commercial farms. The commodities are then transported to the main centers, normally still in farmers bags, where they are processed and standardized. Processing at the main centers refers to mainly cleaning and grading (standardizing). From the main centers, the commodities are then transported to the warehouses (about 400 in eight different countries). From here, 90% is repackaged and exported locally and internationally and 10% is further processed at ETG processing plants.

Whilst ETG have their own commercial trucks, more than 90% of the commodities are transported by commercial transporters contracted to ETG. ETG use their own trucks in situations where there are no commercial transporters available. This model is applicable to all the countries from which ETG sources their commodities and each country unit acts as a separate business unit.

PS3: Pollution Prevention and Abatement

All facilities and each center within the supply chain is run as a sub business unit with a manager who is responsible for housekeeping issues.

Hazardous Materials: ETG also trades in fertilizers and pesticides. About half of the fertilizer traded by ETG is imported as part of the bids it has won. The Governments of Tanzania and Malawi for example decide how these imported fertilizers are distributed as part of their subsidies and voucher programs. For the fertilizers it imports for its own account, ETG uses a network of independent distributors who resell them to farmers. ETG also imports pesticides for use in its own farms in certain countries and fumigants for its own warehouses.

The small-scale farmers from whom ETG buy commodities generally do not apply pesticides at all.

ETG only handles pesticides that are registered with in-country regulatory bodies, for example the Tropical Pesticide Research Institute (TPRI) in Tanzania. The same approach is followed in the other countries and compliance is achieved by adhering to in-country requirements.

Periodically, all the properties especially the warehouses are fumigated for pests and this is contracted out to registered fumigators. ETG also mentioned that it imports a small quantity of sulfur dust from time to time (2 containers per annum and no imports in 2008) at the request of the Cashew Nut Board of Mozambique. Sulfur is used to control funguses.

A list of pesticides sold and used in Malawi, Tanzania, Mozambique and Zambia was provided by ETG during appraisal and the majority of the pesticides are Class II, i.e. moderately hazardous, according to the World Health Organization (WHO) pesticide classification system. The remainder of the list is Aluminium Phosphide, a fumigant, and some class U pesticides, i.e. pesticides that are unlikely to present acute hazard in normal use.

ETG will develop a Pesticide Management Plan in line with IFC guidelines on crop production and WHO pesticide classification system. The plan should ensure that pesticides are sold to and only used by personnel who have proper training, equipment, and facilities to handle, store, apply, and dispose of these products properly. ETG will also ensure that pesticides that are banned under the World Health Organization (WHO) pesticide classification system, are not traded and used by ETG in all their operations.

PS4: Community Health, Safety and Security

The primary identified risks of ETG’s trading operations are:

- Traffic-related accidents that occur during the transportation of the commodities from farm-gate through to the ports of shipment;
- Life, Fire and Safety (LFS) with regards to the warehouses and specific to potential for explosion risk at the warehouses;
- Food safety management at the processing facilities and infestation of commodities in storage; and
Security, which is one of ETG’s biggest challenges as a largely cash-only business in which fairly large sums need to be paid out.

It could not be determined during appraisal how many, if any, transportation incidents and accidents involving communities had been recorded prior to appraisal. In the future, ETG will be required to record and report on total mileage covered by vehicles, either contracted or in-house, against incidents and accidents. It was also not determined whether contractual agreements with these transporters include provisions for meeting national transport laws. ETG will include specific provisions in their contracts with transport companies to ensure compliance with national laws, and the provisions under IFC PS2 and PS4.

According to the collateral managers, Global Inspection Group (GIG), fire is a risk at the warehouses and they ensure adequate emergency responses per each warehouse. Theft is also a risk identified by the collateral managers, which is relevant to PS4 since ETG has to use third-party armed security. Fire and theft are insurable risks for the collateral managers.

Security: Only the minority of “large” scale farmers has bank accounts, hence payment by check is very limited. There have been multiple incidents of armed robbery, either at depots or even en route to local bank branches. At one time in Tanzania, ETG resorted to charter a flight to deliver cash to depots. Theft of actual commodities has been very limited except for fertilizers.

Security at all facilities is outsourced and provided on a 24 hour basis. Some of the contracted guards are armed. Whilst ETG does have in-house security, they are not armed. As per the ESAP, a security protocol will be developed concerning the use of firearms, and the armed security will be trained according to the protocol.

Stakeholder Engagement

ETG does engage with communities at project level where ETG affiliates may be involved - for example - as part of project and site appraisal with regards to the development of a processing plant. ETG also offers agricultural extension services where they have out-grower schemes. Also, as mentioned, they have hired the former Head of EU Agriculture and Environment for Tanzania, to work on liaison with NGOs with regards to community development programs. Specifically, out-grower schemes are anticipated to be developed further.

ETG does not currently have an external grievance mechanism. ETG will develop a formal system to deal with external queries, concerns, and grievances for its operations in the countries they operate. ETG will also formalize and implement such a procedure for all its operations.

The project documentation for public viewing as agreed to between the Export Trading Group and the IFC can be accessed from the Export Trading Group via the Dar es Salaam Office (contact Vasudev Barkur) or via the Johannesburg office (contact Jean Craven). The full contact details are provided below.

Vasudev Bakur
9th Floor, Habour View Tower, Samora Avenue
P.O.Box 10295, Dar es Salaam, Tanzania
Tel: 255 22 211 6094 / 2117212
Fax: 255 22 211 2341 / 2112493
Email: vasudev@exporttradinggroup.com

Jean Craven
Export Trading Group
6th Floor, South Wing, Sandton City Office Towers
Cnr Rivonia & 5th Street, Sandhurst, 2196
P.O. Box 78637, Sandton, 2146
Tel: 27 11 783 5238
Fax: 27 11 783 5341
Email: jean.craven@exporttradinggroup.com

Client Documentation

File Name	Actions
ETG ESAP Final.pdf

**Information on IFC's Policy and Performance Standards on Environmental and Social Sustainability can be found at www.ifc.org/sustainability

IFC supports its clients in addressing environmental and social issues arising from their business activities by requiring its real sector clients to set up and administer appropriate grievance mechanisms and/or procedures to address complaints from Affected Communities in relation to environmental and social issues arising from IFC's clients' business activities. Since 2012, IFC's Financial Intermediary clients applying the Performance Standards are required to develop External Communications Mechanisms to receive and review inquiries or complaints from any interested party regarding the E&S risks and impacts of their operations.

For IFC projects that are active or under consideration, individual(s), or their authorized representative(s), who allege they have been or will be adversely affected by E&S risks or impacts arising from IFC's clients' business activities, may submit a complaint to IFC directly for consideration. When receiving an E&S complaint, IFC engages with complainants and works with its clients to find solutions to E&S concerns as quickly and efficiently as possible.

Complaints can be submitted to IFC online at www.ifc.org/escomplaints or by email to EScomplaints@ifc.org.

IFC complaint response is separate from and complementary to IFC’s clients’ project level grievance mechanisms and IFC’s Independent Accountability Mechanism (CAO). Lodging a complaint directly with IFC does not, at any time, restrict access to CAO.

Affected communities have unrestricted access to the Compliance Advisor Ombudsman (CAO), the independent accountability mechanism for IFC and MIGA. CAO facilitates the resolution of complaints related to IFC and MIGA projects and sub-projects, undertakes reviews of IFC’s and MIGA’s environmental and social compliance, fosters public accountability for their commitments, and enhances the environmental and social performance of IFC and MIGA.

Independent of IFC and MIGA management and reporting directly to the IFC and MIGA Boards of Executive Directors, CAO helps resolve issues raised about the environmental and social impacts of projects through a neutral, collaborative, problem-solving approach via its Dispute Resolution function. It also reviews IFC’s and MIGA’s compliance with environmental and social policies, assesses related harm, and recommends remedial actions through its Compliance function. Additionally, CAO provides advice to IFC, MIGA, and their Boards to enhance environmental and social sustainability performance and minimize the risk of harm.

Complaints may relate to environmental and social harm regarding any aspect of the planning, implementation, or impact of a project or sub-project, and can be made by any individual, group, community, entity, or other party affected or likely to be affected by the environmental or social impacts of an IFC- or MIGA-financed business activity.

Complaints can be submitted by any of the following methods:

Online form: available at https://www.cao-ombudsman.org/
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CAO receives and addresses complaints in accordance with the CAO Policy, which can be accessed at: https://www.cao-ombudsman.org/policies-guidelines.

This Environmental and Social Review Summary (ESRS) is prepared by IFC to disclose its findings and recommendations related to environmental and social considerations regarding potential investments. Its purpose is to enhance the transparency of IFC's activities. For any project documentation or data included or attached herein, whether prepared by the project sponsor or otherwise, authorization has been given for public release by the project sponsor. IFC considers that this ESRS is of adequate quality for release to the public, but has not necessarily independently verified all of the project information therein.
It is distributed in advance of IFC Board of Directors' consideration and may be periodically updated thereafter. Board dates are estimates only and this document should not be construed as presuming the outcome of the Board Directors’ decision. The following ESRS is disclosed in accordance with IFC's Access to Information Policy (AIP).

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