In a Bryan Cave blog piece (link here) “Corruption costs: why your business needs an anti-corruption strategy if you are investing or operating in Africa,” authors Anita Esslinger and Cara Dowling (Bryan Cave Attorneys) state: “As a continent rich with mineral resources, Africa offers abundant business opportunities for international companies and foreign investment.” Furthermore, while their report focuses specifically on the risk of investment and engagement in the extractive industry sector, it is abundantly clear that Africa presents great opportunity and risk across industries. As Jonathan Berman states in Success in Africa, a must-read book (Amazon link here) for those interested in being a part of Africa’s growth, “Africa is experiencing a boom that extends from metals to mobile payments,” and while extractive industries are a large part of that growth, “three fourths of the story is elsewhere.” And, the reader should note, Berman shares his story from his extensive experience on the ground, working across public and private organizations doing business in Africa.
Indeed, as New York Times Dealbook author Danny Hakim explains (link here), opportunity in Africa goes well beyond manufactured products and extractive industries, as “bankers are jockeying for the next sovereign debt deal.” Hakim describes Africa as “a continent that foreign investors have long been wary of, for its economic woes, rampant poverty and political instability” but adds that “now that narrative is changing.” Accordingly, I look at the paper by Esslinger and Dowling as providing an excellent road map of the risks, along with the work by Berman as articulating the “perspectives on Africa, what works there, and why.”
Esslinger and Dowling discuss the risks associated with doing business in Africa as representative of markets “where corruption can be systemic and entrenched,” in part due to “dealing with governments or state owned or controlled entities, having regular contact with government officials, and depending on third parties.” If we combine the recent Transparency International Corruption Index and the OECD Bribery Report, we see a multitude of red flags across industries and African governments. But is that cause to abandon business development in Africa as impossible due to corporate ethics and anti-bribery regulation?
Africa: Tremendous Upside and Substantial Risk
As Berman states, for companies small and large, contemplating business investment so as to capture lucrative sales and earnings outside of traditional markets, Africa can look like “a new horizon in a place that many had written off.” But business in Africa contains both tremendous upside and substantial risk, along with Berman’s words of caution that “nobody succeeds in Africa in a straight line.” Furthermore, as Berman reflects, the tipping point where investor confidence and government policies “create a good business environment at the regional level,” is “not here yet. It’s coming.” Thus, Africa is very much a work in progress.
Alison Taylor states in a recent Control Risks White Paper (link here), that organizations need to have a “clear eyed” strategic view of the risks they face before they commit personnel and investment resources to business development in new markets. Africa, as a high-risk region is certainly no exception. In addition, Africa is not a ‘one size fits all’ continent, so businesses would be well advised to listen to Berman when he speaks via his own ‘boots on the ground’ experience that, “businesses falter in Africa because they fail to distinguish its parts, and because they fail to grasp its whole.” In other words “Africa has parts: see them,” which is a good partner to Taylor’s “all risks are not created equal.”
So, with all of the risks which are described and well listed in the Esslinger and Dowling work, especially third party exposure, is success possible? I was recently addressing a business group from the financial services sector, where one individual who was managing a business development team in Africa, asked, “how can we manage our business, the requests for bribes are everywhere?” The answers in large part are elevated in Berman’s work, and are addressed when he states: “In Africa, as in most frontier markets, operating profitably and addressing the needs in the surrounding environment is essentially the same challenge.” So what does that mean and how does it relate to corruption?
Beginning with the issue of third party exposure, again, the possibilities of risk and reward abound. Esslinger and Dowling point to the dynamic that “controlling third party conduct will always be an issue,” and that “companies can be held accountable for corrupt practices of certain associated third parties.” The flipside of that risk, as Berman addresses, is the ability to engage with local companies as part of “being local” and to “merge core values with local needs” as part of doing business together across multinationals, local companies and government. Ok, so how?
Berman describes the environment in which corruption thrives, as very similar to Matteson Ellis’ description of “weak state institutions.” (see How to Pay a Bribe, 2014, Wrage) Berman defines corruption as occurring “in conjunction with other governance challenges, like excessive bureaucracy, an absence of working systems and a shortage of either manpower or skills, or both.” Indeed, and here my experience aligns with both Ellis and Berman. Where I saw corruption (for the most part), I observed poorly trained procurement personnel who were tasked with executing procurement regulations that were deliberately confusing, as to “bake in” (Ellis) the requests for bribes into the procurement process.
The GE Experience: A Better Customer is a Less Corrupt Customer
Thus, Berman focuses our efforts on “how a business obtains good governance” as on a higher order than “how it avoids corruption.” Here is where the reading gets interesting, as Berman separates from the pack of compliance practitioners who simply proclaim, “just say no.” How? Berman provides plentiful examples of corporations that work with African governments in order to strengthen the “systems of governance at the technical, institutional, and strategic level.” As Berman articulates “institutional systems that work well reduce the scope for human inconsistency, including corruption.” In other words, tackle the problem of governance, not the output of corruption, to make real progress towards ethical conduct and clean commerce.
Berman points to those such as GE, where Jay Ireland, President and CEO, GE Africa, remarks “if you can be seen as a company engaged in the country’s long-term development, and explain the benefits you and your team bring to support that development, it shows real commitment. Most importantly, it shows that you’re here to stay.” Sounds nice, but what does that mean in terms of business practice? Berman describes the GE “country-company” approach whereby “the long-term development needs of the country” are addressed “independent of any single transaction.”
In addition, in this process, GE “reinforces its message of long-term commitment by focusing the dialog not only on product, but on the creation of skills, employment and enterprises in the national economy at scale, and well beyond its own workforce.” In other words, while participating in corruption just perpetuates it, the GE experience suggests there is another way. GE succeeds in Africa by staying persistently and resiliently engaged in way that, in the end, helps to create a better customer.
Berman then continues to describe the components of collaboration, which from my experience, transcends markets or the size of the corporation as “delivering value to government for value returned,” and avoiding a “transactional tit-for-tat.” Berman isolates a very relevant road map for newcomers and existing players that should not be dismissed as “well, we don’t have GE’s resources.” These variables, including “Collaboration, Not Reciprocity,” “Broad Participation,” and “Consistent Posture,” among others, are all significant components of a successful business model. Tullow Oil Director, Aidan Heavey, captures this process when he states, “if you start off doing things properly, people respect you for it,” and “when you’re there for the long haul, politicians change, people change.” You don’t have to be big like GE to participate in that dynamic.
Perhaps Emerging Capital Partners (ECP) founder Tom Gibian, who reflects, “you look at the numbers, you run through your analysis, and you simply conclude that Africa over time rewards honesty and punishes corruption,” best summarizes the potential of Africa. And, as he adds, “maybe not in every single transaction, but over time.” Or, as Jeff Immelt states: “If you want to be a good global company you have to know how to make money in a country for a country. If you don’t understand that, you’re never going to win.” And you don’t need GE’s capitalization to play by those rules. Maybe we should look at his model of success and reflection that “Being in Africa doesn’t make us better in Africa. It makes us better everywhere.”