Doing Business In Africa: Transparency Helps Stem Criticism

Doing Business In Africa: Transparency Helps Stem Criticism

There is a long-known and well-documented connection between a lack of transparency and corruption in Africa.There are similarly well-documented connections between corruption and stagnant economic growth, poor human rights records and poor, authoritarian governance.

That gives companies doing business with African states the potential to do a huge amount of good by simply working towards greater transparency and accountability.

A number of civil society and industry groups are doing great work towards these noble goals in a number of different industries, including the Kimberly Process Certification Scheme (diamonds), the Extractive Industry Transparency Initiative (all extractive industries), the International Council on Mining and Metals (mining and metals) and others.

Firms wishing to improve image while doing some good would be well advised to take part in these important initiatives.

There is a particular focus on these organizations and movements for accountability and transparency in the extractive industries. This is a direct result of the particularities of extractive industries, including the tendency for mineral wealth to breed a large amount of virtually undetectable revenue and the frequency in which state governments claim absolute ownership over the natural resources within their borders.

While there has been less of an international effort to stem them, the same dangers are present in nearly any industry where there are substantial contracts directly with the government or its agencies. This includes telecommunications and other infrastructure deals that may result in substantial bidding from multinational corporations.

The initiatives can broadly be put into two categories, state-side and industry-side. In the first category efforts must be undertaken by a country making alleviating corruption within its own ranks a national priority. This includes the EITI and Kimberly Process. On the other side of the coin are industry-led initiatives such as the ICMM or Publish What You Pay.

It is up to the state to become a member and keep up the requirements for membership. There have been extraordinary successes in such state-led initiatives throughout the African continent. One notable example is the EITI in Liberia.

It is impossible to understate the role that mineral revenue mismanagement played in Liberia’s 14-year civil war. Conscious of this fact, after emerging from this atrocity, the country’s new President Ellen Johnson Sirleaf promised transparency in mineral export revenue.

She turned to the Extractive Industry Transparency Initiative (EITI) and created the Liberia EITI as an implementation body. The initiative has already had tremendous success in providing transparency in mineral fees and rents, publishing the payments from each company doing business with the Liberian Government, matched with receipts for those payments. Previously, these figures never made their way into the public domain. Initial reports showed mainly minor discrepancies based solely on differing classifications of revenues and payments between the government and private companies.

While this is a state-led initiative, private industry can play a role by demonstrating a clear preference for states that have adopted such programs. There are several corporate benefits to such a policy. These include both supply-side (a reduction in corruption can significantly reduce costs) and consumer side (publicizing “public good” initiatives in the supply chain has proven successful and, as previously discussed, firm reputation plays a role in consumer decision making).

Company and industry-led initiatives can also be effective in ensuring transparency and  serve to fill in an important gap. While a lack of proper incentives can limit the effectiveness (or applicability) of state-led initiatives to authoritarian governments that are all-too-common in African states with mineral wealth, industry-led movements such as the International Council on Mining and Metals or Publish What You Pay do not fall victim to the same failing incentive structures. This allows industries to take steps to prevent corruption with or without participation of a contracting or host government.

In addition to the stagnant economic growth and poor democratic and human rights indicators in countries with high corruption and poor governance, a country can have far more brutal intentions with institutional corruption.

The collapse of the Gaddafi government in Libya revealed a horrific reality of corruption in government contracts under despotic governments. Released documents show that rampant corruption, in itself a surprise to no one, was heavily documented to use against potential political opponents. This evidence would then be used in sham trials against political opponents and would serve to reinforce Gaddafi’s tyrannical hold on power.

Similar stories are told in many other mineral-producing authoritarian states from Russia to Venezuela and the world between. In this way, transparency is effective in staving off a company’s complicity in propping up a repressive and autocratic regime.

Corporate social responsibility, at its very core, is about improving the reputation of a firm and doing some much needed good in the process. Ensuring transparency in government contracts, including payments and revenues, does a great deal towards both these goals. It is effective in ensuring improvements in governance in African countries and, in doing so, prevents the potentially harmful media coverage of becoming embroiled in extensive international corruption, potential court cases from the ever-expanding reach of the Foreign Corrupt Practices Act or something considerably worse, as was the case in Libya.