SA Companies Conduct in Africa: briefings by SA Institute of International Affairs & Institute for Global Dialogue

FOREIGN AFFAIRS PORTFOLIO COMMITTEE
16 August 2006
SA COMPANIES CONDUCT IN AFRICA: BRIEFINGS BY SA INSTITUTE OF INTERNATIONAL AFFAIRS & INSTITUTE FOR GLOBAL DIALOGUE

Chairperson: Ms F Haijaig (ANC)

Documents handed out:
Institute for Global Dialogue presentation
SA Institute of International Affairs presentation
SAIIA Article: South African Corporate Engagement with Africa: Unpacking Negative and Positive Perceptions
SAIIA Article: Can South African Business Drive Regional Integration on the Continent?
SAIIA Article: Changing the Business Landscape in Africa: South African Business Moving Northwards

SUMMARY
The Institute for Global Dialogue and the SA Institute of International Affairs presented their views on the conduct of South African companies in Africa. Both organisations argued that negative perceptions of SA companies exist in the rest of Africa and that SA’s peacemaking and peacekeeping activities are often seen by Africans as a method to pave the way for SA companies.

Members accepted that some negative perceptions of South Africa existed in the rest of Africa, but felt that a specific code of conduct for SA companies operating in Africa would go a long way to addressing these perceptions. They also felt that better coordination and marketing should take place between SA companies and the Department of Foreign Affairs and other SA state departments to address the negative perceptions.

Minutes

Institute for Global Dialogue (IGD) presentation

Mr F Ikobe stipulated the focus of his presentation is on South African corporate expansion into the rest of the continent, South African post-apartheid foreign policy and convergence and divergence of the two. On the one hand, Mr Ikobe wanted to appraise the extent to which South African investment in the continent advanced or impeded the realisation of the goals and objectives of South Africa's foreign policy of the continent. He wanted to illustrate the measure of influence that South African foreign policy has on corporate business on the continent. He questioned the behavior of South African business on the continent and whether that behavior converged or diverged from the country's foreign policy. He stated that he would place certain perceptions of the continent concerning the conduct of South African business on the continent before the Committee. He asked whether South African government could exercise control over South African business outside the country. Lastly he wished to illustrate a possible link between South Africa's peace diplomacy and continental multilateral institutional building and South Africa's business infiltration of the continent. He pointed out that it is necessary for South Africa to manage its corporate engagements on the continent better and to improve on the alignment of these engagements with foreign policy groups.

Mr Ikobe articulated that there is a perception in Africa that South Africa's continental involvement in peace making and peace building is driven by purely altruistic intentions, but also driven by the disguised interest to pave the way for South African Business. Mr Ikobe referred to the change in South Africa's foreign policy after Apartheid and how the focus shifted towards restructuring the country’s relations with its immediate neighbours of the Southern African region and the rest of the continent in the manner that would differentiate it from the previous oppressive Apartheid regime. During Apartheid, South Africa remained in isolation from the rest of the continent. Since 1994 South Africa has been in a process of reintegration into Africa. The post-apartheid foreign policy was formulated to promote equal partnerships and to endorse mutually beneficial regional development. This policy was formulated with the intention of reformulation a stabilising pattern of interaction based on partnerships. Mr Ikobe stressed that the foreign policy must reflect the interests of the continent. Furthermore, he placed South Africa's foreign policy under scrutiny. He questioned whether the policy is perhaps more economically driven than politically. He mentioned that since South Africa has the most advanced economic structure in Africa it is rendered vulnerable to the opportunity of conflict and discomfort in relation to other African countries. He suggested that better dialogue must be facilitated between objectives and regulations of the New Partnership for Africa’s Development (Nepad), the African Union (AU) and South Africa's foreign policy.

Mr Ikobe gave an analysis of the character and nature of South Africa's corporate expansion in Africa. Since 1994, this has been found as eruptive and extensive in two different directions seeing Africa firstly as an export destination and secondly as a destination for South African foreign direct investment in the form of mergers, acquisitions, joint-ventures and completely new investments. He continued by pointing out that economic indicators show that South Africa's export trade to Africa has grown significantly since 1994, becoming South Africa's fourth largest export destination. With the restoration of peace in Angola and the Democratic Republic of Congo (DRC), more business and trading opportunities will be available to South African business. Mr Ikobe stressed the imbalance in the South African trade relations with the rest of the continent. Another problem area is the extent to which South Africa dominates the economy of the continent. South Africa enjoys trade relations with almost all African countries. The Southern African Development Community (SADC) region receives particular attention. He referred to the trade imbalance of mass exports from South Africa to the rest of the continent and minimal imports from the continent into the country, with the ratio of approximately 7:1. This ratio depends on the particular country concerned, for instance the ratio of trade relations to Angola is 22:1. He found the fact that this imbalance is increasing very disconcerting. In 2001 South African imports amounted to only R856 million compared to R3.7 billion in exports to the rest of the continent, resulting in a ratio of 5:1. He also blamed the Department of Trade and Industry (DTI) for not focusing enough on the African continent. The African markets are small and the very trade imbalances that South Africa creates threaten the existence of these small businesses. South Africa is capturing a market that is already very small.

Furthermore, South Africa's business engagement on the continent being a destination for South African foreign direct investment in terms of acquisitions, mergers, joint-ventures and completely new investments has created the idea of South Africanisation of the African economy. Mr Ikobe suggested that South Africa should play a promotional role regarding South Africa. The rest of Africa currently has quite a negative view of the South African business approach and conduct. Whereas the South African business sector has responded by saying that "business is business" and that they do not wish to implement the traditional approach to business, Mr Ikobe felt that South African markets are relatively closed to the rest of Africa.

Regarding South African peace projects, other African countries feel that South Africa is not sincerely altruistic in their diplomatic interventions. He suggested that the corporate behavior of South African businesses in Africa must be monitored and communication between the DTI and the Department of Foreing Affairs (DFA) must be improved. Issues must be addressed with sensitivity.

SA Institute of International Affairs (SAIIA) presentation

Ms N Grobbelaar (Deputy Director: Studies) pointed out that the presentation would consist of two sections: firstly, the extent to which investment by South African firms in the region advances South African foreign policy goals and objectives. Secondly, to what extent South African businesses see themselves as key role players in advancing South Africa's foreign policy goals or do they consider themselves exempt and unaffected by such a policy.

Africa is the most undeveloped region in the world, according to United Nations (UN) surveys. There are relatively small markets in Africa, both in terms of the number of consumer markets as well as the low level of disposable income. Therefore, foreign investment is very visible in Africa and impact is immediate. It resonates far beyond its entry point of investment. There is a dominance of the informal sector in Africa, where informal trading and subsistence farming form the backbone of most African economies. In other words, in order to improve the economy, foreign investment must be welcomed to develop the formal sector. The private sector is in its infancy compared to other developing regions such as Asia and Latin America. Despite the adoption of free market policies, many economies are still government controlled. Through foreign investment, economies can become more modernised and globally competitive. Trade, aid and investment linkages must be initiated with the developed north. Most African economies are highly dependent on aid and up to 60 percent of government revenue in least developed states come from aid and borrowing. Many African countries have worked on improving economic and political governance. The increase in the overall growth rate in Africa reflects this.

The aggressive entry of retailers into the region combined with the significant influx of South African products in Africa as primary inputs into some of the largest South African investments has lead to the accusations of South African displacement and undermining of local manufacturing capability. The skewed terms of trade within the region have improved to some extent. The strengthening of the rand as well as the influence of the Asian market has led to increased competition in Africa. South Africa is counted as one of the top five investors in Africa. Whereas non-African countries are mostly investing in energy and mining, South African companies also invest in retail, banking, manufacturing, telecommunications, franchising, tourism, construction and agri-processing. South African investment push is largely private sector driven and led. South African investment has been led by small, medium-sized and large South African companies expanding into the region and largely carrying the burden of risk themselves. Not surprising for the private sector, companies are largely profit and opportunity driven. South African investment in Africa has been significant and highly visible. Ms Grobbelaar questioned whether South African investment in Africa has been good for the region, for sustainable wealth creation and for Africa's attempts to overcome its marginalisation and underdevelopment. South African investors are changing the face of Africa. They could and should be key factors of our foreign policy objectives. However, the link is not automatic.

Ms Grobbelaar suggested several areas for improvement to enhance the linkage between South African foreign policy and South African corporate activities. Firstly, ongoing and structured dialogue must be initiated between the government and the private business sector. South Africa has to ensure that it follows the best global practice in the way that South African diplomats conduct our economic engagement on the continent. Diplomats must be adequately versed in economic and business issues to provide the necessary assistance to companies and to grasp opportunities. Increased communication must exist between the DTI and the DFA. More priority must be placed on encouraging investment of private-public partnerships. There must be insistence upon good governance. South Africa should continue to be as well as improve upon its position as developing partner in Africa and provide the necessary resources to achieve this goal. Trustworthy local partners must be identified for enhanced co-operation. South Africa must import more African products. Economic policies must be carefully revised to improve upon the business environment. There needs to be convergence of economic, fiscal and industrialisation policies across the region, which would improve the desirability of investment in Africa. Through the co-operation of multiple players, Africa will advance to reach its true potential. Ms Grobbelaar felt that the government must take the lead in this respect.

Discussion

Ms Haijaig thanked Ms Grobbelaar for her well-presented briefing and opened the floor for questions to be posed to the respective presenters.

Mr M Sibande (ANC) felt that it is crucial for South Africa to support development in neighboring countries, since neglect would lead to problems of immigration and migration, which would affect the South African budget. He considered South African corporate expansion as being on the right track. There is a dire need for assistance and South Africa presents additional aid in terms of HIV/Aids and the eradication of poverty. He questioned the role of the IGD to correct the wrong perceptions of the role of South Africa on the continent as well as internationally. He viewed Mr Ikobe’s presentation as overly negative and that it ignores the positive impact and contributions that South Africa had made on the continent. Since the IGD is part of the continent, Mr Sibande felt that the IGD must go abroad to amend those distorted perceptions.

General B Holomisa (UDM) commended the research conducted by SAIIA for giving the DFA a direction as to what role the state plays and what steps South African business should take in order to harmonise relations on the continent. The fact that South Africa is in competition with other countries, such as China, that do not implement regulations regarding business conduct, must be taken into consideration.

Mr L Greyling (ID) pointed out that the nature of the African crisis is institutional; that institutions are not strong enough in terms of providing the kind of regulations and control that is needed to keep control over our own resources and people. He felt that the onus lied within each individual country to set regulations in place to control the corporate conduct of foreign countries in their country, not only South Africa. Yet he acknowledged a responsibility of South Africa in terms of guiding struggling African countries. He asked whether there must be some code of conduct for South African companies, which is written up in South Africa and which places some restraint on corporative conduct and activities in Africa. At a previous occasion, former Deputy President, Mr J Zuma informed Mr Greyling that South Africa has no jurisdiction over companies that leave South African soil. He did not feel that it was necessarily true for government officials. He recommended a convention that would monitor corporate behavior in Africa during war and conflict situations, since this is continentally absent. He wanted to know whether non-South African companies in South Africa would also have to adhere to legislation regarding corporate conduct and regulation. Lastly, Mr Greyling suggested that the AU and the Pan-African Parliament (PAP) should work collaboratively to draft a convention that would regulate all business conduct in Africa.

Mr B Skosana (IFP) experienced the presentations as thought provoking. He asked to what an extent is South Africa still influenced by the Washington Consensus economic system, which emphasises exploitation and capitalism. He wondered whether South Africa really has freed itself from the chains of the culture of exploitation regarding South African businesses. He believed in the doctrine of economic interdependence, peace and democracy, where business functions normatively. However, he questioned the direct effect of businesses on local citizens. He proposed that socio-economic policies must be declared as afro-centrist and then to instill this consciousness in South African businesses. Lastly, he asked how the presenters see the African Diaspora partnership in breaking the deadlock of underdevelopment. He directed a response to General Holomisa’s previous comment. Before the demise of the Apartheid system, economic consultants and politicians in other countries spoke about the economy as the front-runner of the liberation of South Africa. Nevertheless, the African Diaspora objected by pointing out that other countries simply wish to utilise the South African economy as another entry point to recolonize Africa.

General Holomisa responded by acknowledging Mr Skosana’s comment. However, he added that he would not repeat his position. South Africa “must not be taken for a ride”.

Mr J Seremane (DA) wanted to know how they should go about the issue regarding continental business regulation. A code of conduct, which is not too rigid but a broad guideline, needs to be explored and put into place. Finally, Mr Seremane commented on the last presentation that he found very pertinent; he was in full accordance with their views and suggestions. Furthermore, he acknowledged the fact that critique removes one from one’s comfort zone, which is from time to time necessary. He found the difference in views thought provoking and insightful.

The Chairperson said she had visited sub-Saharan countries numerous times and experienced the double standards of companies in those countries firsthand. South African labor laws are sometimes completely ignored by South African organisations in the rest of Africa. She stressed the unacceptability of this situation. She emphasised the need for a code of conduct. Furthermore, South Africa has experienced a love-hate relationship with certain African countries. One the one hand, it seems that South Africa is expected to take the lead regarding a whole host of issues. On the other hand, when South Africa does take the lead, it is accused of domination. She acknowledged this as a problem for South Africa.

Mr Ikobe thanked the Committee and stated that he was very impressed with the Committee’s questions and issues raised. He wished to clarify a certain issue. His understanding of his position as an academic researcher is to present the facts as they are. He did not consider it his job to look for solutions. His understanding of the presentation was that he should do research and identify what is out there in order to inform the Members of the stated problem areas. He viewed the Committee Members, being policy makers, as being in the required position to formulate the necessary policies and related requirements to address the reported areas of concern. Moreover, he stipulated that he presented the perceptions of other Africans and that he had explained that some perceptions might have more grounds than others, yet they are real. Business in the rest of Africa tends to operate differently than in South Africa, since the South African government would not condone such behavior. He asked whether the South African government might dictate how business must be conducted outside its borders. He did not think that this is possible. He said that the host country should do it instead. Mr Ikobe suggested that the South African government should be in partnership with the host countries and remain in constant dialogue to address those issues. He felt that if the presented problems are argued as nonexistent, then one simply attempts to shy away from reality itself and would not help South Africa in any manner. The link between peace diplomacy and conflict is a question of perception according to Mr Ikobe. He wondered whether the Committee Members were oblivious to the accusations leveled against the peace mediation and other processes in the Ivory Coast. He considered it common knowledge that a certain camp in the conflict felt that President Mbeki was biased, because he supported the government in order to promote South African corporate interest in the Ivory Coast eventually. He felt it mandatory to inform the Committee of the existing perception of South Africa on the rest of the continent. He also referred to the DRC where foul play in the electoral process had been reported and some argued that it was due to international community, including South Africa, who had been favouring a particular party and “who made deals under the table”.

Mr Ikobe moved on to Mr Skosana’s question relating to the African Diaspora in breaking the deadlock of underdevelopment. The South African government has had extensive involvement with the African Diaspora. The AU has a special African Diaspora division, which is aimed at helping to relieve Africa of certain problems. However, in his own experience he felt that the African Diaspora is more interested in certain privileges than taking responsibility. There is also tension between the different Diaspora on and from the continent, making it increasingly harder to manage the Diaspora in a way that would add value to African development.

Mr T Hughes (SAIIA Research Fellow) said there are many standards, protocols, conventions and codes of conduct that operated throughout the continent, many of which are sector-specific. He pointed out that this does not undermine the importance of Mr Greyling’s proposal, since many of these initiatives are instigated outside Africa from the developed world placing pressure on big corporates to act in a socio-responsible way. He considered Mr Greyling’s call apposite and timely and that it should be the responsibility of the AU and perhaps the Economic and Social Council (ECOSOC) of the UN. Furthermore, Nepad had almost universal encouragement from the business sector, yet this position had changed due to the disappointment of expectations related to delivery. Mr Hughes identified a sense of a stand-offish attitude by the business sector in not wanting to give full co-operation in the partnership relationship with Nepad. He suggested that one should stand back and examine where Nepad stands collectively in terms of the DTI, the DFA, the Presidency, and other departments such as Defence and Safety and Security. Business must also be examined in how it has contributed to Nepad. Dialogue between businesses and the government must be improved, especially regarding smaller businesses and secondary players who are less open to public scrutiny.

Dr S Pheko (PAC) commented that the perceptions of South African business practice in Africa could not simply be ignored. The issue of South Africa being regarded as the Big Brother is not new. He felt that recrimination should be avoided. He encouraged the Committee to face this problem and to proceed with the necessary steps to formulate a code of conduct to regulate business practice in Africa. He remarked that the demise of Africa would not leave South Africa unchanged. South Africa should be careful not to be the springboard for economic colonialisation by developed states.

A Committee Member commented on the objective research presented. He commended the presenters for giving the Committee a platform on which they can approach the parties involved to commence amendment. He pointed out that the DFA would have to engage with the corporate sector at some point and to invite them to take part in discussions regarding the formulation of codes of conduct. He remonstrated that South African business cannot be internationally competitive, yet display different practices in Africa than in the rest of the world. Business is business; its main aim is attaining profit. He continued by arguing that all foreign policies in the world have their own interest at heart. He used President Bush as an example. His conclusion was that South Africa should not be expected to act any differently.

Mr R Ntuli (ANC) referred to the global phenomenon of superpowers. South Africa finds itself in a similar position, which one must accept. Because of that reality, there is much focus on South Africa. In other words, some criticism is real whereas others may be fantasy. Mr Ntuli stressed the importance of accordance between the DFA foreign policy with policies of the AU and Nepad principles. He explained that business by definition strives after profit. Business is after political stability and attractive markets; they would move elsewhere if too much risk were involved. He asked the presenters how they ensured that their interactions comply with AU principles and how they encouraged the country to move in that direction. He wanted to know how to change the negative perspective of South African business conduct. He felt that the government, the business sector as well as civil society must agree on ethical conduct.

Mr Hughes wanted to withdraw his previous statement that no African initiative had been successful. He presented the Kimberly Process Certification Scheme (KPCS) as a success story of a South African initiative, which has become a world-wide scheme to stop the trade in conflict diamonds. This initiative has led to a remarkable reduction in this trade. Mr Hughes stressed the fact that one of the key factors in its success was the close co-operation of government, businesses, NGOs, civil society and the media. There is a need for tri-lateral co-operation among all parties concerned. Ethical business conduct must be encouraged everywhere, especially within conflict-ridden zones.

The Chairperson remarked that the South African government as well as its people has a vision for Africa - the African Renaissance. She felt that there is a certain ethos that compels South Africans who have the advantage of better infrastructure, economic system and more resources. South Africans in the rest on the continent must act responsibly. The trade imbalances were of particular concern to her. She proposed that research should be done to find solutions to rectify the trade imbalance between South Africa and other African states.

The meeting was adjourned.