Getting Down to Business: Lessons from the African Peer Review Mechanism

Report 17

As part of its multi-pronged inquiry, the APRM devotes a great deal of attention to investigating corporate governance in Africa.

The Africa Peer Review Mechanism (APRM) is an initiative aimed at fostering good governance and development in its participating states. However, thus far corporate governance has attracted less attention than any other area of the APRM.

Focussing on the six Southern African Development Community (SADC) states that have thus far completed their first Country Review Reports (CRRs) – Lesotho, Mauritius, Mozambique, South Africa, Tanzania and Zambia – this report shows that corporate governance can play an important role in driving Africa’s development. Central to the continent’s future prospects is expanding the scope for productive business activity. This has been taking place in tandem with policy and legal reforms, driving high growth rates in some countries. There remains an imperative to enhance the business environment; Africa needs more businesses, and businesses oriented towards growth as opposed to mere survival.

Corporate governance provides a framework for business sustainability and value creation. For the most part, the APRM shows that these countries have satisfactory legal and institutional frameworks, or are striving to put them in place. However, awareness and application of corporate governance principles is uneven and sometimes poor – although this varies across countries, with South Africa being in many respects exemplary, as opposed to the very rudimentary situation in, for example, Mozambique and Lesotho. The ethical dimension constitutes a major element of the current corporate governance conversation in Africa.

Likewise, company-level governance is highly variable. For the most part, management and ownership are combined. A key problem more sophisticated companies confront in all the countries is the narrow pool of talented, board-capable people. This has produced a raft of problems, such as ‘over-boarding’, the dominance of close-knit family interests and the exclusion of women.

Recognising and protecting stakeholder relationships remains a work in progress. The ‘traditional’ shareholder interests are in theory generally reasonably protected, although a lack of shareholder activism and cumbersome avenues of recourse undermine this. The interests of other stakeholders, such as employees and adjacent communities, are gaining increasing recognition, but remain a source of contention.

The specificities of corporate governance to particular niche areas in the African economy – the informal sector, state-owned enterprises (SOEs) and foreign (especially extractive) companies – require particular attention. Each of these is important for Africa’s development, but may not fit the corporate governance mould of the classic privatelyowned formal sector companies.

The report concludes with an appeal for a principles-based approach to corporate governance. This should be based on recognising the limitations of businesses in Africa, and corporate governance should play a facilitating rather than prescriptive role for them.

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16 Oct 2014