Africa's business competetive disadvantages don't have to adversely affect corporate social accountability

In a landmark case settled in June 2009, the family of the “Ogoni 9” executed in 1995 received a US$ 15.5 million payout from Royal Dutch Shell company. The case goes back to the 1990’s in Nigeria where it was alleged that Shell had a long history of closely working with the Nigerian government to quell popular opposition to its business operations in the Niger Delta region; home of the Ogoni people.

Even though Nigeria is an oil-rich nation, environmental and human rights activists claim that oil and oil companies have brought nothing but poverty, environmental devastation and widespread incidences of severe human rights abuses to the inhabitants of the Delta. Oil spills, gas flaring and deforestation have stripped previously agricultural fertile land of its environmental resources, further impoverishing local communities by making traditional income earning activities such as small scale farming and fishing virtually impossible.

Thus, the Movement for the Survival of the Ogoni People (MOSOP) was founded in 1990 to non-violently agitate against the repression and exploitation of the Ogoni people and their resources by Shell and the Nigerian government. One of the founders, noted author and playwright Ken Saro-Wiwa worked tirelessly to raise worldwide awareness of MOSOP and the plight of the Ogoni people. MOSOPs activism resulted in Saro-Wiwa’s nomination for a Nobel Prize and he was also awarded a Right Livelihood Award as well as the Goldman Prize for his environmental and human rights activism.

In early 1993, Shell requested military support to build a pipeline through Ogoni territory. Karalolo Kogbara, a local farmer who protested over the bulldozing of her crops, was the first victim of the Nigerian military’s violent eviction. She was shot by Nigerian troops and lost an arm, spurring mass agitation in the Niger Delta.

In 1994, Saro-Wiwa and other MOSOP leaders were prevented by the Nigerian military from attending a gathering to air their views. It was at this gathering where four Ogoni chiefs were murdered. The military governor promptly announced that Saro-Wiwa was responsible for the deaths, forgetting that his own troops prevented Saro-Wiwa from attending. These murders were used as a pretext to conduct raids on 60 Ogoni villages, where several hundred men suspected of MOSOP involvement were beaten and detained.

Saro-Wiwa and his co-accused henceforth known “Ogoni 9”, were thereafter tried by a tribunal for the murders of the Ogoni chiefs. The trial itself was a travesty of justice. The Ogoni 9 were denied access to due process, as well as an opportunity to appeal death sentences proclaimed on them. The Ogoni 9 were executed on November 10 1995. A month after, Shell signed an agreement with Sani Abacha’s junta to invest US$ 4 billion in a liquefied natural gas project.

On behalf of the families of the Ogoni 9, the Centre for Constitutional Rights (CCR) and EarthRights International (ERI) flanked by other human rights attorneys sued Shell for human rights violations against the Ogoni people. Amongst the plaintiff’s allegations was evidence that Shell provided monetary and logistical support to the Nigerian police, frequently calling on them for “security operations” that often just amounted to raids and terror inflicted against the Ogoni people. Other allegations of meddling in the Ogoni 9 trial emerged, where in one instance, Shell Nigeria reported to headquarters that Saro-Wiwa would be convicted.

The Shell case is by no means a unique phenomenon, where companies are sued for corporate social unaccountability. Chevron, another oil multinational has been sued by the Bowoto for gross human rights violations including extrajudicial killing and cruel, inhuman, or degrading treatment in the Niger Delta region. The case originates in May 1998, when unarmed residents of the Niger Delta protested at Chevron’s offshore Parabe Platform, demanding that the corporation contribute more resources to the development of the impoverished oil-rich region. On May 28th, the protestors were shot and some killed by Nigerian soldiers and Chevron security personnel who were transported to the platform on Chevron-leased helicopters. Chevron is also being sued for causing the destruction of riverbeds, natural ecosystems, and contributing to extreme land erosion.

As more oil and extractive resources are being discovered, such reports of human and environmental violations are now setting a precedent. Cases of uranium workers in Namibia and gold miners in South Africa, where mining companies have been accused of not providing safe and healthy working environments, are cases in point. News reports of miners in Tanzania dying as a result of mines caving in have also been reported. The use of child labour has also been brought to light.

The recent settlement of the Ogoni 9 case further endorses the global trend towards corporate social accountability, that has pushed businesses to adopt internal codes of conduct. And this paradigm shift is not only directed at large multinational companies, even smaller businesses in Africa are under scrutiny.

The recently published Africa Competitiveness Report 2009 (ACR) arrives against the backdrop of the global economic crises whose effects are now being felt all over the Continent. Although Africa previously registered average annual growth rates of 5.9%, the global economic meltdown has meant that for 2009, GDP on the continent is expected to be below 3%.

Competitiveness of African businesses (their ability to create value) is both affected by the business environment, as well as internal factors (mainly production costs). Ultimately, profit minded businesses compete on the market on the basis of prices of their goods and services. Production costs (mostly wage related) are thus of fundamental concern when starting up or managing an enterprise, where business decisions centre on how efficiently to convert inputs into sales. The ACR is particularly useful in this respect as it analyses the direct, indirect and invisible costs African entrepreneurs’ face, with the conclusion that African firms experience higher costs as shares of sales in comparison to its most aggressive global competitor, East Asia whose operational costs are said to be almost 20% less expensive.

In terms of basic requirements for sustainable enterprise, sub-Saharan businesses face numerous challenges in accessing loans and venture capital. Efficiency enhancers such as public trust of the political class and government officials, also leave a lot to be desired. For instance, favouritism in government decision-making has been listed in Kenya as a factor that hinders local enterprise competitiveness. As far as innovation and communication goes, internet penetration rates are low in Africa compared to its Asian business rivals; and in an era where the knowledge economy is gaining more primacy, low levels of internet access in schools translates into higher training costs for employees compared to other regions.

Individual African firms in many African countries, also significantly suffer from a constraint in electricity availability as a result of a spatial terrain that impedes access to energy resources, un-affordability of energy, coupled with a regulatory environment that limits the number of investments for such technology. Even SMEs and co-operatives that venture into electricity generation and transmission through wind and solar power, are faced with a multitude of barriers from regulatory authorities and laws that give monopoly power to state corporations. In Tanzania, the quality of electricity supply has severely hindered local firm competitiveness, both regionally and throughout the continent.

High transport costs due to the poor quality of road and railway networks, also adversely affect the profitability of African enterprises. The railway that originates from Mombasa has been a sore thumb for enterprise for decades. Even recent concessions have failed to bear any fruits in terms of increased inland trade. The ACR also cites a lack of competition in the trucking industry that keeps transport costs exorbitantly high. In West and Central Africa, trucking cartels keep market prices high, both affecting consumer purchasing power as well as producer profitability. The report proposes such cartels should be abolished to promote enterprise in addition to fiscal incentives that encourage entrepreneurs to venture into the transport sector.

Cross border trade has also been an impediment to free enterprise within Africa. Exorbitant freight costs and delay prone border posts not counting the numerous police barriers speckled on Africa’s highways mean that inland trade is unattractive for new entrepreneurs.

In terms of the external business environment, the ACR reports that Africa retained the lowest global ranking in terms of its regulatory environment. Entrepreneurs face copious regulatory barriers including business startup rules, difficult registration of property requirements, a minefield of customs and excise policies, so much so that according to the ACR, the Continent stands out as a difficult location in terms of time and/ or the cost of doing business. The extent and effect of punitive corporate and value added taxation in countries such as in Kenya also act as a deterrent to business, keeping many entrepreneurs within the informal sector.

Even for technological savvy African firms keen to exploit business processing outsourcing opportunities, constraints in technological costs are involved. For those engaged in development of agri-business, the prohibitive costs from local research institutions mean that their innovative capacity also suffers. Competitive advantages such as Africa’s market size which ideally should offer vast economies of scale, are virtually wiped out by invisible costs such as corruption and security costs.

Thus, in order to remain profitable, the first cost in production to be guillotined by local firms are commonly labour related costs. Instances include the curtailment of training opportunities, not providing medical insurance in countries where it is mandatory, keeping wages at the barest minimum, resorting to unethical practices such as using child or illegal alien labour and refusing to put long-term employees on contract, amongst others. Another major social cost is environmental, where entrepreneurs face serious choices between keeping costs at a minimum as opposed to more expedient ways of processing that may cause environmental degradation. Even in African countries that have environmental bodies to monitor business activities and their environmental implications, these agencies are limited both in their capacity to detect violations, whilst environmental legislation is still nascent, and doesn’t empower them with vigorous enforcement rights.

Though these measures may pale in comparison to what the oil companies in the introduction have been charged with, they do still violate the rights of not only the people working for the enterprises; they also impact on the wider community in terms of lower income.

All businesses regardless of size, need to be aware that just as in the Ogoni 9 case, it is possible for them to be tried for corporate social unaccountability. It matters not whether the country of operation has such laws. The Ogoni case was filed under the Alien Tort Statute (1789) which gives non-US citizen the right to file lawsuits in US courts for international human rights violations. The Torture Victim Protection Act, empowers individuals to seek damages in the US for torture or extrajudicial killing, regardless of where the violations take place.

Nevertheless, business founders also need to be aware at the startup stage of the legacy they want their enterprise to have. This goes beyond a five year strategic plan. A business legacy is the impact an entrepreneur wants their venture to have 100 years from now. It matters not that Shell for instance began drilling oil in Nigeria in the 1950’s. It matters even less that the company was in existence way before then. The company will forever be linked to the case of the Ogoni 9.

African business does not operate in an isolated state, as seen by the local impact of the global financial crisis. As such, now is the time for African entrepreneurs think more long-term and in turn lobby for policies that emphasise competitiveness which will enable them to manage price shocks and economic uncertainty more competently; without having to resort to unethical measures.

Advocating for such competitiveness focussed reforms will not only promote business profitability, but will ultimately act as a catalyst for long-term growth and prosperity for Africa. Individually, we as entrepreneurs can educate ourselves and others on the importance of business integrity.