Corporate Sustainability in Africa: below the State

Big multinational firms operating in Africa are finding host governments ever more proactive about seeking the private sector's help in improving the business climate -- and in helping government's political and policy challenges in meeting social and developmental goals.[*]

Business-government relations were one topic under discussion at the summit I attended last week in Cape Town, 'Growing Beyond Borders' (Strategic Growth Forum).

Discussion on the topic covered familiar issues, for instance, delineating the proper relative roles of governments and business in providing public goods and services like safety, healthcare and basic infrastructure (see previous posts on this Blog on 'business and government').

Yet what about relations below the national level, between foreign firms and provincial/state or municipal/local government authorities?

This relatively neglected topic did not come up at the Forum -- or at least the distinctions between different tiers of government did not. What important public policy (and related corporate strategy) issues arise when influential firms and sub-national governments engage one another -- what opportunities exist to promote public interests, what risks arise to private sector interests?

The fact that a large majority of corporate social investment / corporate responsibility strategies and spending are very local in nature and impact means that firms are, especially in the extractive sectors, often very familiar with sub-national government relations. Moreover, it is only natural that where the subject is nationally-applicable fiscal or other regulatory measures, the focus will instead be on business dialogue with the national government.

But in general I think it is fair to say that debate on business-government relations in Africa focusses on national goverments in a way that neglects an important trend: in the same way that investment into Africa often focusses on cities rather than countries (many firms have a Lagos city/state strategy not a Nigeria-wide one, for instance), city and provincial/state leaders in Africa appear to be becoming more proactive about directly engaging externally on everything from investment self-promotion to climate change mitigation.

If so, this trend holds the promise of finding, beneath the national-level, a wider set of people and institutions among which business-government dialogue and cooperation can occur on alleviating social or environmental or governance bottlenecks or backlogs, on giving substance to rhetoric about pro-sustainability public-private development partnerships, and so on. For example, corporate contributions on air or water pollution mitigation, youth job-creation, or greener supply-chains may be too political or daunting when approached at a national level, but responsible business might find more to talk about and do (and show measurable progress on) with a mayor's office.

This 'emerging' trend of greater foreign investor engagement with sub-national African public authorities may not be new (much pre-colonial trade and diplomacy developed between city-states that pre-dated present-day countries; city officials have a taste of 'foreign policy' roles when they bid to host major world sporting events). Nor of course are more recent trends of sub-national government pro-activity on foreign policy or global issues limited to Africa -- witness various US states moving ahead with their own carbon emissions-related legislation whatever Washington's position in multilateral forums; my friend Jabin Jacob, for example, is an expert on sub-national investment and other relations between Chinese provinces and Indian states; Australian state governments have fairly developed 'foreign investor relations' capacities.

In the African context, Nikia Clarke (here in Oxford) has recently pointed out the growing direct bilateral relations between Chinese cities and provinces with African ones, irrespective of national-level interactions. Mineral-rich provinces of large states with weak central governments -- like Congo-Kinshasa -- are increasingly confident in making direct overtures to foreign investment. One is just as likely, at an African investment conference, to find a Nigerian state governor as one is to meet a federal investment promotion official. Often, there is considerable scope for such city or state officials to discuss where the private sector can help alleviate local social or developmental problems, furthering the local public interest while cementing a firms' local 'social license' to operate, or its ease of operations.

Having briefly mentioned above the promising dimensions of such trends and relationships in terms of advancing sustainability concerns, two caveats spring to mind.

First is that while we should welcome plurality of 'bottom-up' inputs and initiatives by all levels of sub-national government on globally-shared sustainability challenges, and the private sector's role in these conversations and activities, these are ultimately no substitute for the sort of multilateral or bilateral movement that follows dialogue between sovereign states. Second is that in the African context, relations between central and provincial or city authorities will often be highly political, some even fraught with a history of secessionism: corporate engagement with sub-national governments to address particular localised issues or build local regulatory capacity might, executed poorly, create risks of adverse reaction from central government.

Jo

* Ps -- the pattern of greater business-government dialogue relates to countries other than South Africa, where relations between big business and the ANC-led Alliance have particular distinguishing features: for previous posts see for example here (balancing too much and too little business access to officials) and here (building trust) and here (private sector role in development).

'Corporate foreign policy': phones and filters, norms and no-go's

Corporate or investor reputation is not only based on values but on how consistently they are applied.

In a networked, info-sharing world, this creates potential reputational (and operational) vulnerabilities for firms or financiers involved or interested across countries with varying democratic, human rights and governance/transparency standards.

The notion of multinational firms needing a 'corporate foreign policy' is strongly tied to the recognition that such firms may need a coherent and clear principled position on acute or chronic serious socio-political issues arising in particular countries of operation.

Beneath modern corporate responsibility frameworks is the tendency towards a normative assumption (or at least aspiration) that a firm's policies on social and governance issues are universal -- applicable wherever the firm operates; yet implicit in operating (and, especially, competing) across jurisdictions is the sense of a need for flexibility especially where engaging in situations where political space is more constrained and austere. (EU human rights law in other contexts refers to a 'margin of appreciation' afforded, there to states, in their local interpretation and application of norms).

It is easy to see that compromises reached in some places may expose a firm to allegations, back home, of laxity in upholding human rights or other standards -- while attempts (or perceived attempts) to promote certain values in a host country may expose a firm to awkward government relations. In hard cases, and faced with competitors for whom reputational risk is far less relevant, firms will think hard before risking their license to operate for the sake of bolstering their (global or local) 'social' license to operate -- even if in the much longer term it is conceivable that a principled stance on a country or issue may improve their strategic business position.

Three coming events prompt this re-visit to the 'corporate foreign policy' (CFP) question. First -- this week -- is a talk on the topic at the Chicago Council on Global Affairs by my colleague Dr Stephanie Hare. Second -- next month -- is another talk here in the UK. (The former promises to deal with issues such as the consistency question; the invitation for the latter seems to explain CFP as little more than 'do try harder to understand the nuances of your host country'...)

The third event -- which ties these CFP thoughts to the sub-Saharan African settings that I follow -- is one I am attending, this week's Ernst & Young 'Growing Beyond Borders' Strategic Growth Forum, in South Africa.

Two large African countries that I do not expect attendees to ask or talk about much are Sudan and Ethiopia. This is despite their objective importance and the attention such African investment and business talks give to demographic factors as elements of frontier market attractiveness (Ethiopia has over 80 million people, Sudan over 30 million; Addis Ababa and the Khartoum-Omdurman conurbation are major African cities). At least among Western investors, there is little interest in either country in the consumer-facing sectors -- such as telecommunications -- so captivating investors elsewhere on the continent. Despite both having governments that strongly constrain free political activity, the two are not analogous -- Sudan is still subject to US economic sanctions, whereas Ethiopia is a key Western strategic ally in the region and something of a donor 'darling'. The countries' respective images are such that the CFP (reputational) implications of investing in Ethiopia are considerably less than those relating to Sudan.

Ethiopia's mobile phone and internet penetration rate is well below the east African average -- like other strategic sectors, activity is restricted to certain local elites and entities, while its authorities actively monitor and filter local telecomms and internet usage. As Dr Hare has noted, CFP concerns are often at their sharpest around cases where global firms with universalist brand aspirations are prevailed upon by less democratic authorities to restrict user services, for example in cases of domestic political (pro-democracy) crisis. Ethiopia is unlikely rapidly to liberalise (in a commercial sense) its telecomms sector; but should it begin to embark -- in the aftermath of the death of long-standing ruler Meles Zenawi -- on a new era of opening up some sectors of its tightly-controlled economy to foreign firms, new entrants will need to ask whether the degree of continued state interest in users' content, or the political stance of local partners, are compatible with any universalist aspirations or commitments that the foreign firm may have.

Firms have to do their own filtering if they are to decide their value stance, reputational or regulatory exposure, and how pragmatic they will be in trading-off certain principles and preferences.

The global and sector-specific normative framework is still evolving for responsible business conduct in cases of value-challenging political and economic governance dilemmas. Under varying (but arguably growing) degrees of public or regulatory scrutiny, firms and funds are deciding their own filter-gauge and normative threshold for what constitutes an acceptable set of choices and actions when confronted by value-laden dilemmas about their operations.

As I've argued before, the 'CFP' label can mask that these issues are not entirely new (think, for instance, of apartheid divestment campaigns and decisions). They are nevertheless one more issue on the risk dashboard when contemplating country entry, expansion or exit; where a country's political space is opening up, holding the promise of first-mover or hope-signaller advantage, it is one issue on the 'opportunities' dashboard corresponding to risk calculations.

Jo

See the most recent post on related issues (corporations and principled engagement in 'pariah' states, with links to other previous posts on CFP and on corporate 'nationalism') -- here.

CFP is distinguishable from -- but closely related to -- topics such as the use or attempted use states make of activity abroad by their corporate nationals for official foreign policy purposes and to defend or promote the national interest (private or state-owned corporations as witting or unwitting agents of state foreign policy).