Africa: Bad Business
by Ronak Gopaldas <
http://gga.org/biographies/ronak-gopaldas>
Sep 06, 2014
Africa is a notoriously difficult place to do business. Many investors
remain sceptical of their ability to navigate the continent's often murky
operational environments, where weak governance, regulatory failure and
unstructured economies have created the conditions for corruption to thrive.
The scale of graft has been particularly noteworthy in extractive
industries. As a result, the citizens of many African countries rich in oil,
gas and minerals are mired in poverty. Rather than investing resource
revenues into infrastructure, health care and education, governments, often
in collusion with the private sector, have diverted the proceeds into their
own pockets.
Angola and Nigeria are plagued by the "resource curse". They are the largest
producers of oil in Africa, yet their citizens are among the world's
poorest, with approximately 70% of Angolans and 80% of Nigerians living on
less than $2 a day, according to the latest World Bank figures.
Transparency International (TI), the Berlin-based watchdog, ranked Angola a
dismal 153rd out of 177 countries in its 2013 Corruption Perceptions Index.
In 2012 the International Monetary Fund (IMF) reported that between 2007 and
2010 $32 billion disappeared from the country's public accounts.
The Angolan government frequently commits itself to greater transparency, at
least on paper. In 2010 it passed the Public Probity Law, which obliges all
government officials to declare their wealth. This information, however, is
not made public, a direct contradiction of the legislation's title. As a
result, this act has yielded few positive effects. Nigeria's poor also
suffer from the government's mismanagement of the coun- try's oil revenues.
Unlike Norway, which has used its oil wealth to develop and diversify its
economy, Nigeria is still stuck in a mono-export economy. Oil accounted for
97% of Nigerian exports between 1980 and 2010, according to a 2013 report by
the United Nations Economic Commission on Africa.
Accusations of corruption have plagued successive Nigerian governments: the
2013 TI index placed Nigeria at 144 out of 177 countries. Lamido Sanusi, the
former central bank governor, this year accused the Nigerian National
Petroleum Company (NNPC), the state oil firm, of stealing billions from
federal accounts.
This is not the first time that corruption in the NNPC has been highlighted.
But Mr Sanusi's allegations are staggering. He claims that more than $1
billion disappeared every month for a 19-month period between January 2012
and July 2013.
The Nigerian government said last March it would conduct a forensic audit of
the NNPC's books, but this has inspired little confidence. "Even if they
establish at the end of their findings that the money is missing, I am
afraid that the outcome might go the way of other probes we had in the
past," said retired police commissioner Alhaji Abubakar Tsav, in a February
interview published in the Vanguard newspaper. He was referring to the fate
of previous investigations, which for the most part have failed to charge or
convict people and companies implicated in corruption.
Despite its prevalence, corruption is not insurmountable. Rwanda and Senegal
have made substantial inroads into the scourge. Rwanda has succeeded because
its president, Paul Kagame, has adopted a "zero tolerance approach" to
corruption. He has backed his rhetoric with strong action when required.
In 2004 Mr Kagame created an ombudsman's office to monitor government
transparency. Four years later, on the recommendations of this office, his
government suspended Janvier Murenzi, the finance director in the
president's office, pending an investigation into graft allegations. Mr
Murenzi was ordered to pay a fine in excess of $1m and imprisoned for four
years in 2009. "People who embezzle public funds must pay back what they
have eaten," Mr Kagame said at a 2009 press briefing.
This has helped investor perceptions: Rwanda placed 50th out of 177
countries in the 2013 TI index, a striking contrast to its fellow East
African Community members: Burundi (157th), Kenya (136th), Tanzania (111th)
and Uganda (140th).
Rwanda was the world's tenth fastest-growing economy in the decade from 2000
and more than 1m Rwandans were lifted out of poverty, according to a 2013
IMF report.
Senegal provides another encouraging example. When Aminata Tourè became
prime minister in September 2013, she arrived with a reputation as one of
the country's strongest corruption fighters. In her prior role as justice
minister, Mrs Tourè had led extensive anti-corruption campaigns,
prosecuting many government officials accused of corruption, including the
son of Abdoulaye Wade, the former president, in April 2013.
In the 2013 Corruption Perceptions Index, Senegal jumped higher in the
rankings than all but two countries in the world (Nepal and Laos), moving
from 94th out of 177 in 2012 to 77th in 2013.
Institutional competence and laws can also change behaviours related to
corruption. Botswana, for instance, has a functioning parliament, a robust
anti-corruption commission and an independent judiciary. As a result, not
only is Botswana one of Africa's economic success stories, it is also one of
the cleanest--ranked 30th out of 177 countries in TI's 2013 index, ahead of
all sub-Saharan African countries and even some developed countries such as
South Korea.
One measure that mineral-rich countries can adopt is the Extractive
Industries Transparency Initiative (EITI). This voluntary programme seeks to
promote better use of mineral wealth through increased transparency and
accountability. It encourages governments and companies to publish their
revenues and payments and then submit them to independent auditing.
Currently 45 countries, including 22 African nations, are implementing EITI
requirements and 17 are compliant, according to the EITI website.
The African Development Bank endorsed the EITI in 2006, but governments and
private companies still resort to inventive ways of hiding their buyoffs and
kickbacks. While the initiative in itself is not sufficient to eradicate
corruption in the extractive sectors, it is generating more information on
revenues that was previously either not available or difficult to access.
In addition to the EITI, African governments and multinationals need to
define clearly and publicly their rules of engagement. Transparent resource
management with well-defined principles and neutral administration will
discourage participants from rent-seeking behaviour.
While corporate Africa's reputation for clean business is unflattering, this
is changing. As African companies strive to become world class, many are
tightening up their governance, buttressing business codes of conduct and
teaching their employees about ethics.
Graft is a cancer that African governments need to remove. This requires
fostering greater transparency in their dealings with mining, oil and gas
companies; developing and enforcing stronger anti-corruption legislation;
and creating economic policies that promote diversified, industrial
economies and reduced dependency on resources.
Corruption is not simply about ethics. It is also about how a government is
set up and managed. Critical elements in fighting the scourge include an
active and engaged media and judiciary, and the use of information
technology. The underlying causes of corruption--poor pay incentives,
ineffective political processes and a deep-seated acceptance of
corruption--need to be expunged. Citizens should demand greater ac-
countability and transparency from their governments.
Received on Sat Sep 06 2014 - 18:42:33 EDT