Africa: Is it time for corporate governance to finally make a foothold in Africa?


By Derick Hughes –

Africa’s economy is growing at a considerable pace; however, numerous legal and operational risks are still being faced by companies attempting to do business in Africa. The current primary concerns are centred on issues of bribery and corruption, both of which have had historical persistence in African business. In the past, these risks have been accepted to a certain extent as part of doing everyday business in Africa and this has been changing over the past decade. The continent has grown rapidly economically and multinationals are increasingly setting up business in the continent to take advantage of the substantial opportunities available. Individual countries across the continent are gradually developing governance laws and overall the risks are falling on the continent albeit at a less than favourable pace. The growing middle classes are putting pressure on the infrastructure and government to remove bribery, corruption and other risks from the system which has led to the development of more transparent business operations overall, a trend which is expected to continue. This will improve the challenges faced by new businesses but changes are still expected to take effect too slowly. Bribes remain a common part of daily African life with Sierra Leone, Liberia and Kenya amongst the main offenders and industry participants across the globe are wondering when corporate governance will finally make a strong foothold in the African market.

Increasing importance is being placed on Africa’s corporate governance policies and procedures but national corporate governance standards need further strengthening. This can only be achieved through increased amounts of sharing and learning between all relevant and involved parties.  Discussions of various working experiences and the related risks will aid the dissemination of best practices aimed at targeting specific corporate governance challenges in Africa. Corporate governance in Africa may be strengthened by country institutions coming together in order to discuss how to achieve their various domestic goals and this will lead to improved institutionalisation of good corporate governance practices. These meetings and processes of change have been taking place with increased frequency and effort over the last few years and progress is slowly materialising.

Corporate governance is crucial in convincing investors that there are good management teams who act ethically and in the best interests of stakeholders when it comes to operating in African markets and companies. It is vitally important that governance shortfalls are addressed so that African businesses can improve their access to capital for growth opportunities. Policy makers and market participants are engaging in important forums of discussion to exchange experiences and best practices aimed at addressing on-going corporate governance challenges in Africa and by continuing this process the results will be refined and improved further.

There are a number of initiatives and programs currently in place to help develop corporate governance in Africa and these have seen some success and progress over the last few years. One example is the IFC’s (International Finance Corporation) Corporate Governance Program in Africa which has been set up to support and build sustainable businesses through improving the investment climate in Sub-Saharan Africa through improved corporate governance practices. Furthermore, the Africa Corporate Governance Program (AfCGP) is a newly set up program that is attempting to roll out a pre-implementation strategy this year. A number of thorough plans have now been established as to how to investigate the current framework and shortfalls effectively, however, the next challenge is that of funding.  These programs and the relevant institutions need to obtain enough funds to progress even with the stage of collecting baseline data on corporate governance practices from all regions in Sub-Saharan Africa – this is just the stage of establishing the extent of the problems fully. Obtaining funding to implement changes further down the line will be an even bigger challenge across the continent.

It is extremely important that companies are assisted with improving corporate governance practices in Africa as this will lead to increased financial and operational performance in African companies and will lead to increased investor confidence and improved shareholder value in the long run.