RISK MANAGEMENT

How to mitigate the corruption risk in Africa

Conducting business in Africa can be risky in terms of reputational costs and financial losses. A review of the corrupt malpractice by Panalpina in Nigeria provides a useful insight into what you should not do when conducting business on the continent.

Opinion piece by Benedict N. Weaver CPP, managing partner of Zero Foundation Africa, a strategic risk management firm that provides intelligence-driven solutions.

Panalpina World Transport (Nigeria) Limited was an agent of the global freight forwarding and logistics services company that operates in more than 160 jurisdictions. Yet, between June 2002 and October 2007, the Nigerian agent paid customs officials to ignore local and legal regulatory requirements for the importing of goods, specifically deep-water oil drilling rigs.

The bribes were allegedly knowingly paid on behalf of Panalpina’s clients (Transocean and Tidewater) and the amounts were subsequently charged to these clients as ‘load processing fees’ or ‘administration/transport fees’ on their invoices.

When Panalpina was finally investigated and charged for this corrupt malpractice by the US Department of Justice (DoJ) in August 2010, the company had to pay $70.56 million in criminal fines and $11.3 million in civil penalties. Since then, British and European regulators have targeted organisations suspected of engaging in corrupt malpractice in Africa.

Country risk profiles not only identify the geopolitical, security and competitive risks, but also highlight the risk of corruption in that country.

In Uganda, the law does not distinguish between ‘a bribe’ and ‘a facilitation payment’. Corruption risks exist in the police, judiciary and procurement areas where cash payments are the norm. A recent survey conducted by a Kampalabased business NGO (non-governmental organisation) reported that one in six companies complain that the legal system is a major obstacle to their ability to conduct business in Uganda owing to political interference.

Botswana is generally perceived to be the least corrupt country on the continent. But, in November 2015, seventeen Botswanan police officers at the Kopfontein border post were arrested for bribery when helping a syndicate of counterfeit cigarette smugglers. Also, in August 2018, former President Ian Khama and his Director of Intelligence Services, Isaac Kgosi, were accused of nepotism and patronage with the payment of nearly BWP 30 billion from operational funds to a company styled Power Force (Pty) Ltd. Other companies have since been implicated.

Therefore, mitigating reputational and financial risk in any organisation relies on a clear understanding both of the terms used, and the practices involved. Reputational risk is based on the behaviour of individuals, whereas financial risk is based on operational decisions.

Implementing an effective risk management programme will protect a company’s corporate assets, especially reputational and financial ones. The success of such a programme relies on the following seven steps to create an effective risk management plan:

1.Conduct a risk analysis to identify potential risks. Prioritise and document these risks.

2.Evaluate and assess the probability of each potential risk, its consequence and impact.

3 .Assign roles and responsibilities to individuals to manage each risk.

4.Develop preventative strategies and countermeasures for each risk.

5.Create a contingency plan in the event that a critical situation occurs because of unforeseen or unplanned risks.

6.Continually liaise with your company’s stakeholders and regularly measure your appetite for risk.

7.Regularly monitor and report on each risk to determine its likelihood and severity of impact so that you may fine-tune your preventative strategies.

The above steps are designed to ensure that all the stakeholders in an organisation comply with the rules for mitigating identified risks and support the roles and responsibilities of the risk manager and their department.

In conclusion, consider that reputational and financial risks occur because of adverse behavioural and operational circumstances. By maintaining a comprehensive risk management programme that identifies, monitors, and responds to such risks, you will ensure the continued profitability of your organisation.