A trusted and capable local business partner is a sought-after commodity in Africa. For companies and entrepreneurs entering the market, the benefits of a successful partnership can include immediate access to local business networks and invaluable in-country knowledge. Moreover, African governments are increasingly promoting local economic participation through the enforced or incentivised partnering of foreign companies with local businesses.
However, it is not uncommon for a business relationship to move into advance stages only for one party to unearth potential risks associated with their prospective partner, whether it be in the form of financial instability, reputational concerns, legal liability or sensitive political links. Whilst the substantive issues of corporate compatibility, legal frameworks and financing would typically be addressed as part of a standard pre-engagement due diligence review, there are steps that can be taken even earlier in the partnering process.
In the early stages of engagement, before the essential issues of partnership are tabled, a straightforward three-point due diligence “quick check” can be performed by any company or entrepreneur prior to taking the relationship forward. In doing so, business executives and entrepreneurs alike can begin to know more about who they are dealing with before a formal business relationship takes shape. In this day and age, the internet now stands as a powerful and surprisingly insightful tool for compliance and regulatory measures. Detailed searches across a range of web resources can often turn up a surprising amount of information, which can assist in making business decisions. For “quick check” purposes, it provides anyone – from CEOs to compliance officers – with a means of learning more about their prospective partners.
Below are three simple checks that can be performed in the initial stages of a business relationship:
1) Political exposure check
There is often a strong intertwining between business and politics throughout many African economies. The increasing range and depth of anti-bribery legislation emanating from both the United Kingdom and United States is gradually influencing good governance procedures in emerging markets. Trends in best-practice compliance and risk management are increasingly highlighting the political exposure of executives and shareholders as a necessary compliance check. The motivation behind this is largely based on the rationale that politically-linked individuals or government officials with interests in the private sector are inherently more exposed to offers of bribery and corruption.
How can you find out more? Publicly accessible compliance portals hold lists of identified politically-exposed persons across various countries. Typically, these lists include both politicians and government officials, which can be searched via the web. These lists, of course, should only serve as an initial check and any suspicions of damaging political exposure should be followed-up by a more thorough review. The issue of indirect political exposure – through associations with the family members, personal friends or business partners of government officials and politicians – should also be considered as part of an initial assessment of a prospective business partner. Aside from the issues of anti-bribery compliance, it is also necessary to consider that who you are associated with, in the contemporary African business landscape, can ultimately impact on your own corporate image and reputation.
2) Industry reputation check
Before potentially putting your own business reputation at risk, it is important to have a basic understanding of your counterpart’s own local reputation and track-record. Large companies, no matter where they are active globally, can typically never escape public scrutiny when issues of business integrity or malpractice come to light. In this sense, it is fairly easy to assess a large company’s reputation.
When dealing with a small to medium sized counterpart in Africa it is altogether more challenging to determine issues of reputation and professional track-record. In these instances, it is prudent to be proactive and make more detailed enquiries that are based on the opinions of other industry players and in-country contacts. Calls to professional associations that your counterpart may belong to or local trade missions are also viable options. Whilst opinions can vary, the key is to provide your company with enough information to formulate a view and better understand who it is that you are dealing with.
3) Sanctions and international watchlists check
It’s common to dismiss sanctions and watchlists based on the assumption that only high-profile and internationally recognised individuals and companies would feature. The reality is, however, that these lists incorporate a large number of designated persons and companies, many of whom continue to conduct business. Africa, like any other part of the world, is home to a host of individuals or companies that have either transgressed trade embargoes, intentionally or unintentionally funded terrorist activities or committed/assisted in human rights violations. Your “average” company may have contravened in some way, for example, through trading fronts or other indiscriminate commercial links. One shouldn’t expect sanction busters or specially designated companies to be entirely upfront about previous indiscretions. When entering a new business partnership in the African market or any other market for that matter, you could inadvertently put yourself at risk of immersing, either directly or indirectly, into a business network that could include sanctioned companies or individuals.
Sanctions and warnings are regularly issued by countries and global institutions and can be accessed and searched through selected open-media sources. The United Nations, European Union and the United States all oversee sanction and warning systems, allowing for quick checks against the names of companies and individuals. The US Department of Treasury and its Office of Foreign Assets Control, for example, maintains a Specially Designated Nationals (SDN) list. The United Nations and the British Treasury also maintain similar lists. There are, of course, limits to what data can be accessed freely and comprehensively. Checking an individual or company name is straightforward but the network of companies, business partners or other associates surrounding a sanctioned person or entity can also present diluted risk. When in doubt, any concerns surrounding a business partner should be escalated and the assistance of a specialised service provider should be used to more fully assess the level of risk.
Forewarned is forearmed
The benefits of a local business partnership are clear but identifying a suitable business partner and cultivating a successful relationship can be a tedious and challenging process. In the long-run, knowing as much as possible about your prospective partner at the outset is a critical means of avoiding the risks of fall-out down the line. It should also be remembered that it is not always necessarily about how a prospective partner engages with you directly but, rather, how they might conduct themselves outside of your business relationship. The guiding principle should be that, whether you are partnering with a large company or an individual, knowing more is a key factor in identifying and cultivating a successful business partnership in Africa.
Mitchell Mackay is a senior analyst in the Johannesburg office of Pasco Risk Management, a specialised risk consultancy helping international firms enter emerging markets.