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Africa and Anti-Corruption Risks

Everyone likes to focus on the BRIC countries.  Article after article focuses on the risks in the BRIC countries.  Africa poses the delicate mix of opportunity and corruption risks.  Many of the FCPA enforcement actions have focused on Africa, particularly Nigeria, Angola and Kenya.

 Many African countries are experiencing significant economic growth especially in the oil and extractive industries.  Corruption risks are high because of unstable legal, political and business environments.  A majority of countries rank above 90 on the Corruption Perception Index.  Near the top of the ratings are: Botswana ranks 32; Rwanda ranks 49; South Africa ranks 64; and Ghana ranks 69.  At the bottom of the CPI are: Somalia ranks 182 (dead last); Sudan ranks 177; Angola, Chad and the Congo rank 168; and Zimbabwe ranks 154.

The African Union has taken an aggressive stance against corruption.  In 2003, the AU adopted the Convention on Preventing and Combating Corruption.  

The increase in foreign investment in Africa is positive for the economy but increases the risk of corruption.  Much of this investment is focused on the extractive industries.  A large number of African governments are spending money on infrastructure construction projects.  Both of these trends account for much of Africa’s economic growth.  African governments control infrastructure projects and there is a significant risk of government corruption.

Three of the most common risks in African countries are: 

1.  The use of third party agents who are used to navigate the local customs and rely on government contacts;

2.  Designation of local suppliers and partners; and

3.  Illegal payments for regulatory approvals (e.g. customs, business licenses).

Earlier this year Kenya announced a major oil discovery in the northern region of Turkana. Kenya’s discovery is a significant economic development and should increase the country’s wealth.  Kenya faces significant challenges in managing its new oil wealth and not falling to corrupt practices which only undermine the overall economic benefit to the country.  Unfortunately, Kenya already has been the focus of FCPA enforcement actions involving telecommunications contracts.

Nigeria has been the focus of many enforcement actions.  A majority of the enforcement actions have focused on the oil and gas industry.  Other enforcement actions have involved manufacturing and military equipment industries.

Angola’s economy is driven by government infrastructure projects, and the oil exploration and drilling industry.  State-owned enterprises play a significant role in the Angolan economy.  The military plays a strong role in the government and former military personnel play a significant role in the business community.  Due diligence on local agents and companies is difficult because it requires a company to unravel all of the inert-relationships between government and former government officials.

In the face of economic opportunities and a significant history of corruption, Africa will remain a challenging environment for anti-corruption compliance.

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