Africa: corruption

The tide of corruption that has swept the continent may be ebbing as governments and Africans are investing more in their own countries

By Dianna Games

The issue of corruption does not often make the headlines any more in Africa, or for that matter in South America. This is not because it doesn’t exist, but because it has become part of the fabric of society. So far as Africa is concerned, it is certainly true that of the 20 countries ranked lowest on the 2015 Transparency International (TI) Index, 10 are from this continent. Chantal Uwimana, the organisation’s director for sub- Saharan Africa, says that 40 countries in the sub-Saharan region had a “serious corruption problem”, including the two economic powerhouses— South Africa and Nigeria. It is common cause that corruption undermines economies, social development and poverty initiatives—and it makes it expensive to do business. It is not just governments that are responsible for corruption in African markets, although they do have the advantage of being gatekeepers and decision makers on issues that are often vital to corporate success in a country. Companies also engage in unethical behavior to stave off competition or to deal with problems in the local business environment. For years, countries such as the UK, Germany and France allowed bribes to be claimed against tax as legitimate business expenses.

The African Union’s high-level panel on illicit financial flows, which estimates that between $60 billion and $80 billion is leaving the continent illicitly every year, claims that 60% of this activity derives from the activities of large commercial companies in the form of transfer pricing, tax dodges, trade mis-invoicing and other such mechanisms. Companies defend themselves by saying they have to build in safeguards against high risk in African markets where they believe their taxes fall victim to state corruption and inefficiency. They have to deal with the consequences of poor and often unpredictable policies, and have to ensure good returns in high-cost, difficult environments. But it does not make business sense for multinational companies to enter into unethical deals in emerging markets. The gains are short term and undermine the development of sustainable economies.

Companies that are known to be corrupt become “marked” in local markets, which compromises their success from the outset and it is hard to get back up that slippery slope. According to the World Economic Forum (WEF) “Global Competitiveness Report 2015-2016”, corruption ranks alongside access to finance and government bureaucracy as the most significant economic and political barrier to business. The risks of unethical practices for business are greater than ever. For one, corporate reputation matters more in a connected and competitive world—and one increasingly dominated by social media and rapid information flows. Increased scrutiny of offshore banking and finance hubs and “Deep Throat” leaks such as the Panama Papers are also brakes on unethical behaviour. Developed country multinational corporations have a plethora of anti-corruption conventions and legislation to adhere to, which limits their ability to behave unethically or at least imposes penalties for such behaviour.

The US Foreign Corrupt Practices Act (1977) and the UK Bribery Act (2010) carry stiff penalties for companies found to have bribed foreign public officials, for example. There are also the UN Convention Against Corruption, the Organization for Economic Cooperation and Development’s (OECD) Bribery Convention, and voluntary initiatives such as the UN Global Compact and the Extractive Industries Transparency Initiative, which aim to make financial flows between corporations and governments in extractive industries more transparent. The WEF’s Partnering Against Corruption Initiative (PACI) is a collaboration of 100-plus companies, which work alongside international organisations, academics and governments to rebuild and foster trust in business and institutions. “Growing social distrust and demands for greater transparency are reshaping relations between society, government and business. Indeed, awareness of and expectations for sound corporate behaviour and governance have never been stronger,” the PACI launch document says.

Companies listed on international stock exchanges have another raft of compliance issues to deal with. Rules drawn up in and suited to developed economies make it difficult for compliant companies to adapt to less developed operating environments in Africa. But for all this, graft is still pervasive across Africa. It has almost become a way of life, especially in countries with corrupt leaders, deep patronage networks and a lax and compromised application of the rule of law. A culture of doing business has evolved around the problems and inefficiencies inherent in many economies, which has elements that are regarded by outsiders as being corrupt. Efforts to fight the scourge from within have been patchy. Many governments have introduced anticorruption initiatives only as a result of donor pressure. This lack of domestic ownership shows, with officials having no real power to net the big fish or being directed by political interests to target specific people.

The entry of new countries to the investor landscape, such as China, has undermined the inroads made by international anti-corruption laws in some parts of the world. It was once the view that it was necessary to engage in unethical behavior to succeed in Africa. This is no longer the case. But it requires planning, knowledge and management of local environments. It also may require patience to deal with much longer turnaround times for services and decisions from state agencies and government ministries, waiting months to get goods out of the port, and other inconveniences. It may even require walking away from a deal or losing business to a less scrupulous competitor. The first principle of fighting corruption is to just say no in the face of an attempt to solicit a bribe or enter into a dodgy deal. But it is glib to believe it is that easy. Ethical dilemmas can be unpredictable and often emerge without notice. Foreign managers, often with little experience of such matters, have to react fast often in complex situations.

To assist them, companies need to become familiar with the potential ethical issues that may arise and decide how to manage these. It is also important for local managers to know how to behave when bribes are solicited. Being affronted or hostile can have implications for the company with the agency or ministry concerned down the line. Building strong local partnerships and strategic relationships within a country, particularly with relevant state agencies and officials that are critical to one’s business, is important. Although many companies prioritise high-level relationships, the most useful relationships are often those lower down the chain. A grey area with regard to ethical behaviour is that of third parties. These tend to be local companies who know how to “manage” their officials and may, without disclosing this, pay “dash” to unlock bottlenecks, source deals or facilitate government business. The definition of such parties is extremely broad and allows a lot of leeway for ignorance of the business practices of these companies. Due diligence of third parties is thus advisable, as is sharing with them the company’s own ethical standards before entering into an arrangement with them.

The payment of commissions for a host of things is standard practice in Africa. But it can be used to camouflage bribes and kickbacks, risk analysts say, so this is another possible red flag. While it is important to be able to deal with issues around ethics and business in Africa, there is reason to be optimistic that things are starting to change. As Africans themselves invest in their economies and create greater linkages with international business, they are putting pressure on governments to do things differently. There is a lot of talk within and among governments about domestic resource mobilisation to underpin development. This is incompatible with corruption, as is the equally popular idea of building sustainable economies that deliver jobs and wealth. As these issues gain more traction, governments will have to change the way they operate. Africa is not without success stories with regard to corruption. There are five African states in the top 50 nations ranked in the Transparency International 2015 Index—Botswana, Seychelles, Cabo Verde, Rwanda and Mauritius.

The key to their success in this regard is a strong message of zero tolerance for corruption and strong leadership, which has prioritised the strengthening of legal and institutional frameworks and sensitising citizens to the need to eradicate graft. Nigeria, coming off a low base (ranked 136 out of 167 countries by TI in 2015), is being led from the front in its new war against graft by its no-nonsense leader President Muhammadu Buhari. Though his campaign has claimed few high-profile scalps as yet, his strong messaging is slowly starting to change the behaviour of state agencies, ministries, local business and citizens. In Tanzania, new president John Magafuli has become a social media hero for his no-nonsense approach to corruption and cutting wasteful expenditure.

He has a strong approval rating from citizens and continues to show up his peers in this regard. There are other examples. Strong leadership with regard to fighting corruption is essential. There is only so much that can be achieved through laws and penalties. Leaders, not just political leaders but leaders across communities, need to play a stronger role in inculcating new value systems within their societies and reactivating positive norms that make it undesirable to engage in unethical practices. This is what will make the difference in the long term.

Dianna Games is the chief executive of business consultancy Africa @ Work and a regular columnist on African issues for Business Day newspaper. She is and a regular columnist on African issues for Business Day newspaper. She is a fellow of the GIBS Centre for Dynamic Markets in Johannesburg.
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Dianna Games is a leading commentator on business trends and developments
in Africa. She is the author of many published reports on African business and is
a columnist on Africa for Business Day newspaper in South Africa and African
Business magazine in the UK. She also heads the SA-Nigeria business chamber.