Issue 24 November 05 - February 06

conflict zones and post conflict reconstruction

Tagbo Agbazue,
Programme Manager, Africa Corporate Sustainability Forum (a programme of AICC)

Conflict presents an exceptionally difficult set of dynamics for businesses within the African terrain, and is a reality facing many South African busi¬nesses operating across the continent. It raises some pressing issues. Firstly, is peace good for business? Should South African companies disinvest from conflict zones? How can companies operating in such zones manage to make meaningful profit and still keep their hands clean? What should be the role of South Africa companies in conflict and post conflict circumstances, considering South Africa's socio-economic and political history and lessons from the country's process of nation building? What standard of responsibility should guide their behaviour? How can businesses contribute to peace building?

An African proverb states that “when there is trouble in the land, it benefits the elders,” suggesting that there are quarters (including businesses) that stand to gain from volatile conditions and the states of emergency that conflict situations present, such as the breakdown of the rule of law, loopholes in the system, decay of channels for enforcing transparency and accountability. It is, however, noteworthy that although these conditions may present the opportunity for certain businesses to make instanta¬neous profit, the challenge is the extent to which these practices are sustainable in the long term. There is no doubt, as shown by the experiences in Europe and North America, that the conditions pro¬vided by a stable and organised environ¬ment premised on the rule of law and the cardinal principles of good governance (accountability, fairness, responsibility and transparency) are firstly, good for business and the development of a viable private sector in the long term, and secondly, supports public sector growth, social stability and the overall growth and competitiveness of the companies, sectors, countries and regions.
Business activities including both legitimate and illicit trade have a signifi-cant impact and influence on global and African conflicts and, in the spirit of NEPAD, it is important to understand and criticise certain business practices that promote rather than discourage conflicts on the African continent. At the Africa Economic Summit 2005, Hon. Kadi Sesay, Minister of Trade and Industry of Sierra Leone, stated that business has been largely instrumental in prolonging the war in her country for eleven years by supporting feuding parties. Participants at the Summit called for mechanisms to be developed and deployed to prevent busi¬ness activities from prolonging conflict in African war zones and for means to pros¬ecute companies and middlemen known to be fuelling conflict on the continent for their personal gain.
Although the primary focus of companies is on achieving good return on investments for their shareholders, enterprises need to recognise that they no longer act in isolation or independently from the societies and the environment in which they operate.
South Africa's new democracy opened doors for South African companies to expand their operations across the African continent, enabling them to make meaningful investments in the countries in which they operate and to perhaps export South Africa's tenets of democracy and peace building. South African investment in Africa is further enhanced by The New partnership for Africa's Development (NEPAD), which promotes more inter-African trade to tackle challenges relating to growth.
Research shows that as at 2001, South Africa was listed as the second largest investor in the Southern Africa Development Community (SADC), with investments of R14.8 billion, trailing only multi-state deals at R27 billion.1 Large transactions within the SADC region included an investment of US$1.1 billion by Sasol (petrochemical sector) in the Pande & Temane gas fields in Mozambique; a US$142 million invest¬ment in Tanzania and a further US$139 million investment in the Democratic Republic of Congo (DRC) by Vodacom Group (telecommunications sector); and a US$56 million investment by Southern Sun in its hotel in Zambia.2
South African companies have a footprint not only in the SADC region but also throughout the continent. For example, Nigeria is South Africa's biggest West African trading and investment partner, particularly in the imports of crude oil while noting the key involvement of South African companies in Nigeria's IT and energy sectors. In the north, South African business is dominated by the exports to Morocco.
Operating in other African countries is challenging and complex, considering that many African countries are still in the process of nation building and are faced with different types of volatile and fragile circumstances, ranging from full-blown wars (such as in Cote d'Ivoire), internal strife and agitation (as within the oil rich Niger-Delta region in Nigeria) to the intri¬cate process of peace building, reconciliation and post conflict reconstruction (as in Burundi, DRC, Guinea Bissau, Liberia, Rwanda, Sierra Leone and Sudan). The challenges of operating in conflict zones include corruption and poor corporate govern¬ance, as well as social crises such as those posed by poverty, HIV/AIDS, crime and other security concerns, water and sanitation. There is also the challenge of the high financial cost of business due to infrastructure and logistical constraints; and the management of, and accounting for, social and environmen¬tal risk. Notably, zones of conflict are often weak governance zones where appropriate mechanisms to enforce secured claims are lacking and characterised by threatened or actual abuse of political power.
A combination of factors, sometimes with deep historical roots cause conflict in many African countries. These include socio-political and economic issues such as colonisation and post colonisation, ethnic polarisation, the marginalisa¬tion of minority groups and competition for resources. The economies of many African countries are still primarily dependent on natural resources and, in many cases, dominated by the extractive sector. On the one hand, this gives rise to a number of opportunities for economic growth, as in the case of resource rich countries such as São Tomé and Príncipe (where oil deposits have recently been discovered in the joint development zone it shares with Nigeria). On the other hand, research indicates that this reliance on natural resources induces a number of vulnerabilities. For instance, it entices rent seeking practices rather than sustainable businesses that contribute to the well being of the economy and society at large. It also fuels corrupt and dubious business practices and internal strife and conflict arising out of the quest for control and allocation of resources.
Funds paid for extraction that are supposed to be used for development purposes end up in the hands of only a few corrupt politically connected individuals. For example, conflicts in Angola, DRC, Liberia Sierra Leone and many other countries have been funded through 'blood diamonds'. In Sierra Leone, only a fraction of diamonds exported during its years of conflict and post conflict passed through legal channels. This denied the government that was elected after the conflict of much needed revenues (from taxes and royalties) for the rehabilitation of the country.
The role of South African corporations investing in Africa is an issue that gained extra significance with recent reports by the Human Rights Watch, which accused South Africa mining company AngloGold Ashanti of making payouts to rebels in the DRC. South African companies operating across the continent need to manage these complex risk issues. Large companies are having to ensure that their subsidiaries and divisions operating in other African countries, as well as their supply chains, are behaving with the same standard of responsibility.
There are a number of initiatives and Codes relevant to investment in Africa that can guide companies in this regard. These include: The Global Reporting Initiative (GRI), which provides guidelines for companies to report on both financial and non-financial aspects of their activities; The Global Compact, which provides a set of ten core values in the areas of human rights, labour, the environment and anti-corruption; The OECD Guidelines for Multinational Corporations, which is only applicable to companies from OECD countries and con¬tains voluntary recommendations to multinational enterprises in such areas as human rights, information and disclosure, anti-corruption, taxation, labour relations, environment and consumer protection; The Extractive Industries Transparency Initiative (EITI), aims to increase transparency in transactions between governments and companies operating in the extrac¬tive industries. Closely related to the EITI is the Publish What You Pay coalition of over 250 NGOs worldwide, calling for the mandatory disclosure of the payments made to all governments for the extraction of natural resources; the Kimberly Process for the certification of diamonds, which exclude conflict diamonds from legitimate markets; the standards of the International Standardisation Organisation (ISO), including its proposed guidance document on social responsibility; the listing rules in the various stock exchanges and the King Report on Corporate Governance for South Africa 2002 (King II) that is of wide application in Southern Africa.
There is a lacuna in terms of specific guidance for multina¬tional enterprises from South Africa considering that King II does not explicitly extend to the operations of South African companies abroad. There are those quarters that call for a set of guidelines set up by the African Union through its initiatives and programmes to regulate not only South African multina¬tionals but also all corporations operating in Africa.
There was no consensus among participants at the Africa Economic Summit 2005 with regards to the relevance of codes and standards in developing conflict sensitivity in business. The need for codes of conduct for companies in unstable zones was defended on the grounds that regulation and national law do not always work to promote responsibility and international law is often not applicable in the practical sense. Others, however, ques¬tion the efficacy of codes that have often been described as “not worth the paper they are written on”, buttressing the view that legally enforceable measures are needed to tackle the issues ef¬fectively. The dilemma in this instance centres on the institutional capacity for enforcement and sanction in these zones.
The solution does not lie in disinvestments from zones of conflict. Multinational companies operating in zones of conflict of post conflict reconstruction must safeguard their invest¬ment, make meaningful returns and at the same time, make a contribution to peace building. Practical strategies towards success in this regard will include codes of conduct, train¬ing, accounting and reporting on their economic, social and financial performance, particularly as investors, analysts and individual shareholders are asking for more information on the operations of South African multinationals.

For further information, contact:
Tagbo Agbazue
Tel: +27 11 643 6604
Fax: +27 11 643 6918
E-mail: tagbo@aiccafrica.org
Website: http://www.aiccafrica.org