Contributions to the economy
Sustainable development in the places where we operate is not possible without a sustainable economy to underpin it. Assessment of Rio Tinto’s contributions in this regard has often had a narrow focus on the distribution of profits, or on corporate expenditure on social programmes and donations. These areas, however, account for only a small fraction of our contribution to the economy –and thus to sustainable development.
An initial approach to understanding the full economic contribution of an enterprise is to look at its gross turnover. While this is appropriate at the company level, care must be taken when aggregating total revenues across different industries in a national economy as some outputs are inevitably counted more than once (e.g. iron ore that goes into steel plus steel that goes into car manufacture). For this reason, it is more accurate to measure the economic contribution of a business in terms of “value added”.
Value added represents the value that a firm has added to the materials and services it has bought in and is calculated as the difference between a firm’s gross turnover and its payments to suppliers. Value added can also be calculated as the sum of payments to employees, taxes and royalties, interest payments, dividends, retained profits and depreciation.
Although excluded from the calculation of value added, payments to suppliers constitute a strong additional benefit to the economy, generating employment and creating wealth in other sectors. Payments to suppliers constitute a direct channel for knowledge diffusion that can assist in upgrading domestic suppliers, particularly important in developing countries.
The final economic contribution will include the effect of workers spending their wages, governments distributing their tax revenues and shareholders spending their profits. These are the so-called induced contributions. The generation of export revenues also represents an important economic benefit, as does the provision of local infrastructure such as roads, power or telecommunications.
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