First published on 28 April 2016 in The Conversation
MTN Nigeria has been hit with a giant fine for failing to comply with the country’s regulations. Reuters/George Esiri
The recent sustained attention given to the economic performance of Africa is a sharp departure from the usual negative and patronising representation of the continent in the global media. The old narrative represented a continent riddled by wars, famines, disease and the burdens of poor infrastructure and reckless governments. While many think that the description of Africa as a hopeless continent was harsh, the Africa rising narrative was considered rather hyped.
Obviously, Africa is not hopeless. But it is not yet Uhuru! The balance between the two extreme representations seems to have been struck in a recent article in The Economist, “Making Africa work”. This is a very positive stance and a welcome development.
However, it is slightly puzzling that some of the efforts of African governments to curtail the excesses of big firms are positioned as a risk. The rare mention of sustainable and responsible business practices is also a lost opportunity to challenge some of the nefarious activities of some businesses in Africa.
Two recent fines imposed on MTN Nigeria and Guinness in Nigeria – the biggest corporate fines in the country’s history – could prove to be symbolic if they are sustained. As the biggest economy in Africa, it signals to the world that the continent is ready and open for responsible business. The era of anything goes may fast be coming to an end.
Days of strategic arbitrage may be over
It is often argued that some firms are attracted to Africa because of the opportunities presented by the continent’s weak capitalist institutions – that it has inefficient governments and weak civil society. In other words, bad government is good for business. In such an environment, it may be easy to exploit the weaknesses of poor regulation, cheap labour, raw materials and tax loopholes.
This is the classic case of strategic arbitrage where firms take advantage of price differentials in different countries of factor markets such as labour, capital and raw materials to enhance shareholder value. This strategy has been effectively used by many multinational corporations in their quest for global dominance. In such situations, responsible business practices become a luxury and an unaffordable burden. The Niger Delta region of Nigeria, with its oil deposits, is a victim of this exploitation.
But business in Africa can also provide an opportunity to challenge this exploitative undertone, which has continued to trail contemporary capitalism and undermine the continent. In other words, responsible business practices are possible in Africa, despite the inherent challenges of weak institutions.
This view is central to the tenets of Africapitalism — a new economic philosophy for Africa championed by Nigerian banker and entrepreneur Tony Elumelu. According to Elumelu, Africapitalism describes
the process of transforming private investment into social wealth.
Africapitalism: a new way of doing business
Africa is rising. And as it rises, its business environment will become more sophisticated.
The recent fines imposed on multinational companies are a sign of things to come. The telecom giant MTN Nigeria has been fined a record US$5.2 billion by Nigeria’s Communications Commission. The fine was imposed for non-compliance with a deadline set by the commission to disconnect all non-registered SIM cards. The fine had a negative impact on MTN’s share price and led to the resignation of the group’s CEO, Sifiso Dabengwa.
And in November 2015 Nigeria’s National Agency for Food and Drug Administration and Control fined Guinness $5 million over expired raw materials.
The fines have one thing in common – the failure to comply with regulation and the seeming lackadaisical attitude to regulation and regulators.
Businesses on the continent will need to rethink their ways and grow with Africa. One possible way to successfully ride the wave of Africa’s economic renaissance is to imbibe the principles of Africapitalism as a new economic philosophy. This applies to both local and international businesses interested in Africa.