Africa’s business terrain a minefield of political agendas
Published: 2011/10/17 07:36:20 AM
IN AFRICA, where doing business often involves traversing a minefield of politics, concluding a deal around election time is not a good idea. Poor institutional structures mean there is undue emphasis on personal relationships. A change of a minister or even a top bureaucrat can mark the end of a carefully constructed business deal, contract or investment.
When both the president and the ruling party change, the risk factor escalates significantly.
Deals that have become stuck in the works often get freed up just as elections appear on the horizon. Incumbent politicians look to see what financial advantage they can get in case of an upset in the poll. Or they are diverted by their re-election ambitions and take their eye off the ball, allowing for some movement on deals that have been caught up in undue bureaucracy or lack of political will. But when the dust settles, contracts can be scrutinised and are sometimes found wanting — for the right or wrong reasons.
The reversal by Zambian President Michael Sata of FirstRand ’s $5,4m deal to acquire local institution Finance Bank has resulted in much comment and criticism in SA. But it is fair to say that the banking group probably put too much faith in a system built on the shifting sands of politics.
There is no suggestion of impropriety by the company itself but the timing of the deal was high risk.
The Movement for Multiparty Democracy (MMD) had been in power since the end of the one-party state in 1991 — until Sata’s Patriotic Front, formed a decade later, won last month’s election.
Sata has lost to MMD candidates by slim margins several times. So it is no surprise that now he has won, dozens of politicians and bureaucrats aligned to the former ruling party have been shown the door.
An early casualty (besides FirstRand) was Caleb Fundanga, governor of the Bank of Zambia, which facilitated the sale of Finance Bank. Sata’s plan to change economic policy may be the reason for Fundanga’s removal — but it might equally be the fact that he is an MMD member and his wife stood for the party in the election (and lost).
It may also be linked to talk that Sata’s campaign was funded by Rajan Mahtani, Finance Bank’s majority shareholder before he was ousted by the Bank of Zambia, which has brought fraud charges against him over the way he acquired his shareholding. Mahtani, a friend of former president Levy Mwanawasa, is no stranger to politics.
Undisclosed interests that lie beneath local politics are one of the biggest risks of doing business anywhere. These include under-the-table business relationships that can influence policy in a way that undermines reform and promotes corruption by ensuring that local business empires are supported, even if this conflicts with the broader national interest. Given Africa’s developmental and operating challenges, this situation is more iniquitous here than in many other regions.
Many investors like to hitch their fortunes to presidents and ministers, despite the inherent risks this holds. While it may be good to build relationships with incumbent leaders, it can backfire. Companies may unknowingly fall foul of factions within the ruling party or of people whose political star may suddenly decline. This has all sorts of potentially negative consequences.
Nigeria’s late president, Umaru Yar’Adua, scrutinised and reversed a number of deals worth billions of dollars that had been pushed through by his predecessor, Olusegun Obasanjo. Richard Branson, who had close links to Obasanjo, found an investment contract that gave him operational preferences was reversed by Yar’Adua’s administration. Branson disinvested.
FirstRand is one of many casualties. The African business landscape is littered with contracts and deals that turned sour after a change of leadership, a sudden change of policy or the unexplained withdrawal of operating licences. Vested interests or politics generally underlie these failures.
But it is not just politicians that are at fault. Companies — both local and foreign — also have a role to play in breaking the cycle of patronage and other bad habits that undermine the performance of economies and the ability to operate on a level and predictable playing field in African countries.