Are South African companies damaging relationships with other African countries by not playing by the rules?

This politically sensitive issue, which has dogged SA-rest of Africa ties for nearly two decades, came to the fore again with the release of a report by the Open Society of Southern Africa on the behaviour of South African miners in the region. A survey of selected companies operating in southern Africa found the practices of South African mining companies to be “appalling”. These include lax environmental standards, a failure to keep promises on development agreements, wage differentials between locals and expatriates in similar jobs and a lack of upliftment of communities.

The report, South African Mining Companies in Southern Africa: Corporate Governance and Social Responsibilities, also details many excellent programmes and activities of mining firms. But it is the dirt that sticks and the findings will, rightly or wrongly, tarnish the image of all companies.

South African companies come under greater scrutiny in Africa than investors from elsewhere, partly because of the tendency among South Africans to occupy the moral high ground in dealing with other Africans, based on the size and relative sophistication of their economy. Locals criticise the way some South African firms “swagger” into their countries. The poverty, rundown infrastructure, often corrupt or unsophisticated governments and other aspects can encourage corporate behaviour unacceptable at home.

A lack of regulation and monitoring of environment standards, compounded by the sometimes poor behaviour of local companies, makes it easy for foreigners to drop their standards in countries such as the Congo and Angola. But company ethics should be the same wherever a company operates. Otherwise what is the point?

Being the regional economic power imposes particular obligations on SA, particularly business, to engage positively with neighbours. The report reiterates the oft-stated call for the government to design guidelines for businesses operating across the border.

The nationalisation debate gaining ground in Africa has upped the ante for good corporate behaviour in the resources sector. No excuses are needed for more regulation and greater state intervention. While Zimbabwe‘s indigenisation laws may be considered to be extreme, the concept of greater local empowerment is generally embraced in Africa. And the focus elsewhere, as in Zimbabwe, is on the resources sector.

Tanzania, often praised for being investor friendly, sent shock waves through the mining sector when it announced a new law that provided for the state to have a stake in all future mining projects. The government also said it would no longer issue gemstone licences to foreign firms.

The relevant minister said the law was not enacted to please investors but to safeguard Tanzanians’ interests. That is the new direction Africa seems to be taking, as governments tread the fine line between attracting foreign investment and satisfying growing demands for local ownership.

Resource companies need to raise standards, not lower them, and to build relationships with host governments to ensure their continued welcome. Corporate social responsibility programmes should be as inclusive as possible, no matter how excessive expectations of communities and governments on non-core development are.

But African governments also have a responsibility here. Mining companies complain about their hosts breaking entry agreements, policy unpredictability and onerous and multiple financial obligations.

Governments’ investor unfriendly actions tend to be defended on the basis that the state is the victim in any relationship with multinationals because officials do not have the expertise to negotiate big deals with company executives used to hard bargaining in well-resourced western states. But that view negates the obligations of the state to negotiate for its future. If a country does not have the capacity to do so, then it should make it a priority to build — or buy — it.

South African firms face rising competition in Africa’s mining sector. They need to exploit their competitive edge as a fellow African state by ensuring exemplary corporate governance and a strong empowerment focus.

Dianna Games is executive director of Africa @ Work. The article was first published in Business Day.