By Blair Glencorse. Originally published on the GE Ideas Lab Blog.
There is no doubt that Africa’s success deserves to be recognized and celebrated. At the recent World Economic Forum on Africa, much was made of Africa’s clear and well-documented progress. FDI in the continent has more than tripled in the past 15 years for example, while GDP is expected to rise by over 6 percent a year in the next decade. Life expectancy has increased over 10 percent in many countries, while rates of HIV and other diseases have plummeted. Organizations at the forum like the Africa Leadership Academy, the Mara Group and Spring AGE are showing how a new generation is emerging to lead positive economic and social change.
But discussions also highlighted that a lack of corporate accountability is compromising some of this progress. Take corruption, for example, an issue that is consistently ranked as a top-three risk to business on the continent. Last year a PwC study indicated that 76 percent of CEOs in Africa feel corruption is a threat to growth. Illicit financial flows are another critical problem; Africa is losing over $50 billion a year as a result of these flows, according to a High-Level Panel led by Thabo Mbeki. That is more than double the amount annual development aid provided to the continent, and largely consists not of transfers through criminal networks, but of trade mispricing and transfer pricing by legitimate companies.
For Africa to truly fulfill its potential, this has to change — and will require a process not only of compliance and enforcement, but of efforts to build trust and understanding between governments and companies. Doing business in the region does not require corrupt practices or illicit behaviors if corporates can indicate clearly that they are engaged for the long haul, well beyond any specific deal in hand. Governments come and go, and if companies can act with integrity from the outset they are in a far better position to build value for shareholders and citizens over time.
Jay Ireland, CEO of GE Africa, has spoken previously of a “country to company” approach, for example, through which “the long-term development needs of the country” are addressed “independent of any single transaction.” Efforts to build local supply chains, skills and knowledge not only help the bottom line but also support the emergence of a new, more informed customer.
At the WEF meetings, both Centum of Kenya and the Sahara Group of Nigeria spoke of their efforts not just to build a culture of accountability and transparency within their businesses but also within these societies more broadly. Sahara Group is beginning to engage and train students at universities across the country on issues of accountability, for example — because they understand that a generation that values integrity will prove to be both better staff and consumers.
The discussions in Cape Town also made it clear that those companies that support legitimate business across Africa can help governments too, by making information more transparent and bolstering initiatives to fight graft. For instance, they could follow Statoil’s example by showing disaggregated financial and operational reporting on a country-by-country basis to indicate that transfer pricing is not taking place. They could also participate more fully in international initiatives like the Extractive Industries Transparency Initiative and Publish What You Pay so that all data on payments to governments is open and accessible to citizens. Many governments in Africa lack the ability to adequately monitor trade flows and corporate behaviors too, and businesses could also find ways to bolster capacity in this regard — through technical support to Financial Intelligence Units, for example.
There will always be corporate stakeholders within the economic system that seek to benefit in illegitimate ways. But efforts along these lines to build trust through greater engagement, transparency and collaboration can begin to expand the zone of legitimate business and transform the lives of Africa’s citizens. To answer the WEF’s call, businesses must reimagine Africa’s future as one in which economic growth is based on collective integrity.