Thursday
October 14
2010

Rebecca Regan-Sachs

How to Build the Private Sector in Africa

Dr. Christopher Fomunyoh is an internationally recognized expert on democracy and governance in Africa. A native of Cameroon, he serves as senior associate and regional director for Central and West Africa at the National Democratic Institute in Washington, D.C. He has conducted elections observations or democracy support programs in 19 different African countries, interacting regularly with heads of government, cabinet ministers, elected officials and political and civic leaders. He also is the founder and president of the Fomunyoh Foundation, a non-profit organization dedicated to governance and humanitarian issues in Cameroon. Dr. Fomunyoh recently designed and helped launch the African Statesman Initiative, which seeks to engage former democratic leaders in helping solve critical issues in their countries. A graduate of Yaoundé University in Cameroon, Harvard Law School, and Boston University, Dr. Fomunyoh is an adjunct faculty member at the African Center for Strategic Studies and a former adjunct professor at Georgetown University.

Rebecca Regan-Sachs, Nextbillion.net: How did you decide to enter this field?

Christopher Fomunyoh, National Democratic Institute: My background initially is in law. I went to law school in Cameroon, and then I went to Harvard Law School, and when I finished, I decided to do a PhD in political science. At the time I was finishing my PhD work, it coincided with the end of communism, the collapse of the Berlin Wall, the release of Nelson Mandela from prison, and all this talk about the third wave of democratization.

And so it was a very uplifting moment because a lot of good things were happening: across Africa, military regimes were falling, one-party rule was ending, multiparty-ism was being reintroduced. In Francophone Africa, there were a lot of national conferences where ordinary citizens were getting together and redefining or rewriting their constitutions. So there was a lot of positive energy and a lot of enthusiasm about democratic governance.

And as I talked to people and I wrote a couple of articles, I was connected to people who were also working in the same area. They would say, “Oh, by the way, NDI does this kind of work, and it’s trying to expand its activities in Africa.” There was also the Carter Center, which at the time was doing a Democracy and Governance Index. So I came down from Boston, where I was, and stayed with NDI, went down to Atlanta and visited with the Carter Center, and then NDI said, “Once you finish your PhD, come down and help us develop our Africa portfolio.” And so I did.

RRS: Why is good governance important to the success of the private sector?

CF: Good governance, democratic governance, puts in place processes and systems that help explain or define the utilization of resources, especially public resources. And in the developing world, this is so crucial. A lot of the developing world is not poor because the countries are poor. A lot of the countries are resource rich. They’ve got minerals and other resources that you probably wouldn’t find in other parts of the world. But they are poor because those resources are being poorly managed. So it’s not the lack of resources. It’s the poor management of existing resources.

… And so, if you are strong on anti-corruption and you’re strong on government accountability, then you create systems that would allow for those resources that countries have to be used in a way that can benefit the majority of the citizens -which would then create a more viable, vital society, in which citizens can live, in which business initiatives, entrepreneurial skills, can emerge. And various initiatives can take root.

RRS: What challenges do African entrepreneurs face as a result of poor governance?

CF: Unfortunately, based on my experience working on the continent, the private sector in Africa is – you would use the French expression tres mal parti – in a very difficult spot.

First of all, most governments do not create an enabling environment for their own private sector to emerge. In a number of countries where the commitment to democratic governance is weak on the part of the governments, it becomes extremely difficult for the private sector to emerge independently of political identification with the regime of the day. So if you want to launch a private business, and you’re not a supporter or the president or the ruling party, then you don’t win contracts. Then your bills are not paid. And then you’re prosecuted for tax reasons, some of which could be bogus. And it becomes very difficult to emerge from that. So that’s the first barrier that the private sector in many African countries still needs to cross.

When they cross that threshold, if they do, then they face the second challenge, which is the very ferocious competition that they face from international investors. A lot of Western companies understand the concept of partnerships with local entrepreneurs, or subcontracting to local entrepreneurs, which is one way to keep the local private sector vibrant. You can either subcontract or you enter into partnerships.

Unfortunately, the new kid on the block, in terms of trade and investment in Africa, is the Chinese. And they seem to neither understand the concept of partnership nor of subcontracting. They come in with their own labor, they come in … and go into every sector, and they become quite a challenge to private investment, to the indigenous private entrepreneur.

And so what you find in a number of African countries – just to take one industry, the textile industry, for example, where traditionally you find a lot of private entrepreneurs – is (local industry) is being wiped out in these countries because of direct frontal competition from Chinese textiles.

Two things could be at play. One could be: because of the relationships that these governments are creating with the Chinese, giving them free entrance into all of the sectors, there is no protection for the little entrepreneur that would form the foundation of the private sector in the host country.

The other explanation could be that when you speak to the governments, they say, “Oh, this is the era of globalization, we too are open to globalization, and there’s no reason why we should have some kind of protectionism.” But I don’t think that is valid, because you could still create an environment that promotes foreign direct investment as well as provide some protection and an enabling environment for private entrepreneurs to emerge from within your own country.

RRS: What is the role of foreign companies in either improving or worsening a transparent business environment?

CF: Having lived and worked internationally and gotten a sense of how companies operate–and also a sense of some of the social responsibility measures taken by some of the companies that want to give back to the communities in which they do business–I’m not one of those that would paint everybody with a blanket brush. (Nor would I) put all of Africa’s ills or the ills of the developing world solely in the laps of companies in the developed world. I think that one has to be more selective in one’s criticism, and recognize the examples of companies that are doing the right thing.

With that said, overall, I would say that not all international companies have yet understood that it is in their interest to have in place systems that allow for more transparency and more accountability. For example, in the ’70s, when the U.S. enacted the Foreign Corrupt Practices Act, which prohibits American companies from giving bribes overseas, that was a very innovative step. But that still wasn’t followed by the European companies or by the Asian companies. And so what autocratic regimes in Africa couldn’t get from American companies, they would get from either European companies or European subsidiaries of American companies that would come in and still participate in those activities that would be forbidden under American law.

Those companies were focused solely on getting profits and on getting contracts, even if (the contracts) were not competitive. And the way that most of them did it was to deal directly with these autocratic regimes, in deals that were less than transparent, deals that were less than equitable or beneficial to the interests of ordinary citizens.

Hopefully that should be changing because now the Europeans have caught up to where the Americans were, but we then have a third set of actors in Africa, by way of the Chinese, who come in, no questions asked, with deals that are not transparent, that are not public, and that are very focused on the extractive industries. Which means the work is not yet done.

RRS: How can the private sector help combat corruption and poor governance?

CF: One of the issues is for foreign companies to adhere to some of the new measures that are being put in place. For example, the Publish What You Pay initiative was launched out of London to say that companies dealing in extractive industries should release their contracts, what they pay to various governments.

There’s also the Extractive Industries Transparency Initiative, which companies as well as countries ought to adhere to.

There are also issues of social responsibility that companies can undertake in the areas in which they do business. One example would be what’s happening in the Niger Delta. Some of the civil strife is really provoked by citizens in this area seeing all the oil that’s being pumped out of their localities, the environment being polluted as a result of the oil exploitation, and nothing coming back to them by way of returns in their health, education, or other sectors that can improve on their well-being.

So for me, those would be three very concrete areas in which foreign companies could help. Because we also have to keep in mind – and this is not by way of an excuse – but in a number of cases, the balance of power is so uneven between some of these multinationals and African governments (including governments that may want to do well, but that are governments of small countries), that the governments have no choice but to take whatever is offered by the multinationals.

Now if the multinationals are adhering to international standards of good business practices, then everybody stands to benefit, because they would still be able to benefit from their investments, and the citizens of the country would be able to benefit from the dividends of that company’s presence. And there would be a lot more transparency in terms of how the royalties paid by these companies to the governments of those countries are managed within the framework of public financing or the public treasury of the host country.

RRS: As you mentioned, it is very difficult for African businesses to directly challenge their own governments if they want to survive. What role can they play with civil society organizations that are working for better governance?

CF: I think the African private sector needs to embrace the concept of good governance and democratic governance, and realize that it would be one of the beneficiaries of systems that allow for more clarity and more transparency. And so they don’t need to form organizations like NDI; they can be supportive of private initiatives by civil society organizations in their respective countries.

Civil society across Africa has become very vibrant, especially in the last 10 to 15 years, and a lot of these organizations are launched by men and women who have ideas but who need resources and sponsorships that can allow them to conduct programs that would benefit people in communities that are outside of the reach of government.

… I think that we’ve seen some cases where private companies have supported civil society organizations, and understandably, going back to my earlier point, they want to be careful that they don’t get caught up in partisan political discourse. But I think that some of it could be explained by a lack of habit. It isn’t something that they have done naturally in the past. And so with this new wave of democratization, with a re-emergence of civil society organizations, the private sector probably needs a gentle reminder to let go of its reticence and provide more support to civil society organizations in their respective countries.

RRS: In your opinion, what mainly accounts for the difference between countries that have good business environments and ones that don’t?

CF: I think this is almost taking us back to the point where we started, to say that leadership counts a lot. And especially leadership in the developing world. I say that because it’s so linked to the resource management question, both in terms of natural resources as well as human capital.

And so leadership that’s enlightened and democratic and visionary can help account for the difference between a Ghana and, say, a Cote d’Ivoire, which is next door and has the same population and produces (similar goods) – leadership can account for that. Leadership explains the difference between, say, a Mali, that’s doing well, and a Niger, that’s next door, that’s not been doing well. And it accounts for the difference between, say, a Botswana and a Zimbabwe.

So I think that leadership is one of the principal benchmarks and that the countries that are doing well are the countries in which the political elites have resolved the issue of leadership in a way that allows for more credible, more transparent and more accountable processes. And it’s going to be in those countries that private entrepreneurship, the private sector, will develop.

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