Getting Good Governance for Your Company

Every business leader participating in Success in Africa has found it possible to succeed in Africa and have a productive, transparent relationship with government. That does not mean that every company succeeding in Africa has chosen that path. I know many business leaders with an opaque (and in my view, corrupt) relationship with government. Some of them are succeeding wildly. I also know business leaders who have a hostile and unproductive relationship with government. Few of them are succeeding. Ironically, there’s also a fair bit of overlap of business leaders who both engage in corruption and have a dreadful relationship with government.^*

Most globally competitive business leaders I know have determined that it’s worthwhile to have a productive and transparent relationship with government. Those relationships share a few common characteristics. The successful relationships I’ve seen are all long term, collaborative, broad based, and consistent. None of these characteristics is surprising, but I find there’s insight to be gained from how successful CEOs implement them.

Long-Term Engagement

Governments in Africa are like governments elsewhere in their need to meet short-term political needs. What distinguishes frontier market governments is how often they value long-term commitment by companies.

An example from outside Africa helps shed light on the point. A friend of mine worked with one of the world’s top three investment banks in the early 1990s. The bank was expanding in Mexico when that country went through a financial crisis in 1994 driven by a rapid and deep devaluation of the Mexican peso. The bank moved aggressively to reduce its exposure to all Mexican entities, including government. The federal government of Mexico quietly sent a message to the bank saying, “We have the liquidity to pay you now. But if we do, you will never do business with us again.” The bank took its money. The government, backed by the U.S. Treasury, proved liquid and the peso recovered quickly. Despite the investment bank’s unrivaled expertise, network, and reputation, it has never recovered its position in the Mexican market to this day, nineteen years and $738 billion in Mexican growth later.²

By contrast, GE’s Jay Ireland is betting on African governments rewarding long-term commitment. “As a market, Africa has gained attention, ” Jay explained. “Governments are used to seeing companies come by. So what are we bringing that’s different? If you can be seen as a company engaged in the country’s long-term development, and explain the benefits you and your team bring to support that development, it shows real commitment. Most importantly, it shows that you’re here to stay.”

To that end, GE has developed “company-country” dialogues in two of its core African markets, Nigeria and Kenya. The dialogues are based on the long-term development needs of the country and assume a long-term presence by GE, independent of any single transaction. GE reinforces its message of long-term commitment by focusing the dialogue not only on product, but on the creation of skills, employment, and enterprises in the national economy at scale, and well beyond its own workforce. The results of that dialogue include, but are not limited to, GE equipment sales and revenue generation. In the case of Nigeria, GE is also investing in a manufacturing facility, supplier development, and extensive technical training operations. GE’s approach provides a model for several aspects of a productive relationship with frontier market governments.

Olam is similarly pursuing long-term strategies in core African markets that include new investments in plantations, processing plants, and brands. In early 2013, investor pressure grew on Olam to gear down debt and create more cash flow. Even as it did, Olam stepped up local and national engagement in Africa to assure it communicated its sustained commitment to the investments it was making.

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