The risks and rewards of investing in Africa
Douala, Cameroon’s muggy commercial capital, is one of the busiest ports in Africa, so the city’s rotten infrastructure is a bit of a problem. The roads are resurfaced from time to time, but the soil is soft and the foundations often too shallow, so small cracks yawn quickly into great potholes. Street boys fill them with sand or rubble and hold out their palms for tips from the motorists who roll slowly by, but their amateur repair work rarely survives the first downpour.
In the middle of the day, the streets are horribly gridlocked, as I could see quite clearly from up in the cab of a sixty-ton beer truck. I was riding with Martin, a mild and amiable truck driver, and Hippolyte, his young, handsome, and green-hatted assistant. We were at the entrance of a Guinness factory, where Martin had just picked up 30,000 bottles of black velvety stout and other refreshing brews. We were trying to leave but couldn’t. The road we wanted to join was narrow and packed with stationary cars, none of whose drivers wanted to let us pull out in front of them.
Martin, however, knew his stuff. He inched the eighteen-wheeled beast forward with skill and calculated aggression and gradually barged his way into the fast lane, where he immediately had to stop again. Far into the distance, motionless traffic blocked the way. With no cooling breeze coming through the windows, it was monstrously humid. After five minutes in the cab, I was sweating like a pig in a plastic jogging suit.
When we eventually got moving again, we had to dodge both the potholes and the wrecks of cars that had crashed. Under Cameroonian law these may not be moved until the police, who are in no hurry, have arrived. It took us half an hour to reach the first gas station and another half an hour to fill up, owing to arguments about paperwork. Another hour and two police road blocks later, we finally left the city. That was the end of the easy part of the journey.
Visitors from rich countries rarely experience the true ghastliness of Third-World infrastructure. They use the smooth roads between airports and hotels and fly any distance longer than a hike to the curio market. But the people who live or work in countries with lousy infrastructure have to cope with the consequences every day. These are as profound as they are malign.
I had hitched a ride in Martin’s truck in the hope of following a bottle of Guinness from the brewery in Douala to a bar in the rainforest where some thirsty Cameroonian might drink it. The trip did not go entirely according to plan but it was educational. I saw, at first hand, just how difficult it is working in a country with wretched roads. I also saw how smart and persistent businesspeople can make good money in the most unpromising places.
Guinness Cameroon, the local arm of the global beverage giant, was very helpful. The managing director, Brian Johnson, asked one of the trucking companies that deliver his products to let me ride with them, and the head of logistics, a personable Scot named Ross Paterson, gave me a schedule that turned out to be as realistic as a James Bond movie.
At 2 p.m. on a Thursday in October 2002, I was to join 1,600 crates of stout on board a big truck bound for Bertoua, a small town in Cameroon’s south-eastern jungle. As the crow flies, this is about 500 kilometers – as far as from London to Edinburgh, or New York to Pittsburgh. The journey was supposed to take eighteen hours, including an overnight rest stop. It took four days, and when the truck arrived it was carrying only two thirds of its original load.
Along the way, the scenery was staggering. Thickly forested hills stretched into the distance like a stormy green sea, punctuated with explosions of red and yellow blossoms. Beside the road were piles of cocoa beans laid out to dry in the sun, and hawkers selling engine oil, tangerines, and twelve-foot pythons for the pot. I was able to survey it all at leisure, not least because we were stopped at road blocks forty-seven times.
These usually consisted of a pile of tires or a couple of oil drums in the middle of the road, plus a plank with upturned nails sticking out which could be pulled aside when the policemen on duty were satisfied that the truck had broken no laws and should be allowed to pass. Sometimes they merely stared into the cab or glanced at Martin’s papers for a few seconds before waving him on. But the more aggressive ones detained us somewhat longer.
Some asked for beer, which they couldn’t have because it was in a locked cage on the back of the truck and Martin had no key. Some complained that they were hungry, often rubbing their huge stomachs for emphasis. One asked for pills, lamenting that he had indigestion. But most wanted money and figured that the best way to get it was to harass motorists until bribed to lay off.
At every other road block, they carried out “safety checks.” Typically, Hippolyte had to climb down and show the truck’s fire extinguisher to a gendarme relaxing in the shade of a palm tree, who would inspect it minutely and pore over the instructions on the side. Similar scrutiny was lavished on tail-lights, axles, side-view mirrors, and tires. Strangely, no one asked about seat belts, which Cameroonians wear about as often as fur coats.
At some road blocks, the police went through our papers word by word, in the hope of finding an error. Some found fault with me, although I tried to avoid confrontation by pretending not to speak French. One frowning thug declared that my Cameroonian visa was on the wrong page of my passport; another insisted that I was obliged to carry my yellow fever vaccination certificate at all times, which was not true. Most of the demands for bribes, however, were directed at Martin. Because trucks have to abide by so many more regulations than passenger vehicles, truckers are easier to catch out breaking some trivial rule or another, and the Cameroonian police persecute them accordingly.
In the town of Mbandjok the police decided that Martin lacked a particular permit and offered to sell him a new one for twice the usual price. When he asked for a receipt, they kept us waiting for three and a half hours. A gaggle of policemen joined the argument. The total number of work-hours wasted (assuming an average of seven policemen involved, plus three people in the truck) was thirty-five – call it one French working week. And all for a requested bribe of 8,000 CFA francs (about $12).
The pithiest explanation of why Cameroonians have to put up with all this came from the policeman at road block no. 31, who had invented a new law about carrying passengers in trucks, found Martin guilty of breaking it, and confiscated his driving license. When it was put to him that the law he was citing did not, in fact, exist, he patted his holster and replied: “Do you have a gun? No. I have a gun, so I know the rules.”
Cameroon’s robber-cops are worse than the African norm. But even without their attentions, the journey would have been a slog. Most Cameroonian roads are unpaved: long stretches of rutty red laterite soil with sheer ditches on either side. Dirt roads are fine as long as it doesn’t rain, but Cameroon is largely rainforest, where it rains often and hard. Our road was made impassable by rain three times, causing delays of up to four hours.
The Cameroonian government has tried to grapple with the problem of rain eroding roads by erecting a series of barriers with small gaps in the middle that allow light vehicles through but stop heavy trucks from passing while it is pouring. The barriers, which are locked to prevent truckers from lifting them when no one is looking, are supposed to be unlocked when the road has had a chance to dry. Unfortunately, the officials whose job it is to unlock them are not wholly reliable. Early on the second evening, not long after our stand-off with the police in Mbandjok, we met a rain barrier in the middle of the forest. It was dark, and the man with the key was not there. Asking around nearby villages yielded no clue as to his whereabouts. We curled up in the mosquito-filled cab and waited for him to return, which he did shortly before midnight.
The hold-up was irritating but in the end made no difference. Early the next morning a driver coming in the opposite direction told us that the bridge ahead had collapsed, so we had to turn back.
Six hours, eleven road blocks, and three toothsome sardine sandwiches later, we arrived in Yaoundé, the political capital, where Guinness has a depot. The alternative route to Bertoua meant passing a weighing station, where vehicles weighing more than fifty tons faced steep tolls. Since we were ten tons overweight, Martin needed permission to offload 600 crates. But it was a Saturday, the man in charge was reportedly at lunch, and we did not get permission until the next morning. It then took all morning to unload the extra crates, despite the fact that the depot was equipped with forklifts. Finally, after twenty-five hours without moving, we hit the road again and met no road blocks for a whole fifteen minutes.
For much of the rest of the journey, which took another seventeen hours, I was struck by how terrifying Cameroonian roads are. Piles of rusting wrecks clogged the grassy verges on the way out of Yaoundé. We saw several freshly crashed cars and a couple of lorries and buses languishing in ditches. None of the bridges we crossed seemed well maintained. And when we arrived in Bertoua we heard that two people had been crushed to death on a nearby road the previous day, when a logging truck lost its load onto their heads.
Coping with chaos
Cameroon’s roads have wasted away. In 1980, there were 7.2 kilometers of roads per 1,000 people; by 1995, this had shrunk to only 2.6 kilometers per 1,000. By one estimate, less than a tenth are paved, and most of these are in poor condition. In recent years, however, aided by a splurge of World Bank money, things have improved a bit. The roads around Douala have been substantially rehabilitated. A more streamlined government helps: it used to take three years for officials to approve plans for new roads.
But there is much still to be done, and firms still have to find ways to cope with dire highways. Guinness used to buy secondhand army trucks, which was a false economy because they kept breaking down. Now, it buys its trucks new from Toyota, with which it has a long-term agreement to ensure that it will always be able to get hold of mechanics and genuine spare parts (as opposed to fake or stolen ones, which are popular in Cameroon, but of variable quality). The firm is also making more use of owner-drivers, who have a greater incentive to drive carefully.
“Just-in-time” delivery is, for obvious reasons, impossible. Whereas its factories in Europe can turn some raw materials into beer within hours of delivery, Guinness Cameroon has to keep forty days of inventory in the factory: crates and drums of malt, hops, and bottle tops. Wholesalers out in the bush have to carry as much as five months’ stock during the rainy season, when roads are at their swampiest. Since they tend to have shallow pockets, Guinness has to offer them credit on exceptionally easy terms.
Out in the forest, the firm does whatever it takes to get beer into bars and liquor stores. It is an exercise in creative management. At the depot in Bertoua, crates are unloaded from big trucks and packed into pick-up trucks, which rush them to wholesalers in small towns. The wholesalers then sell to retailers and to small distributors, who carry crates to villages in hand-pushed carts, on heads, and even by canoe.
No matter how hard Guinness tries, however, the bars that sell its brew sometimes run dry. I spoke to Jean Mière, a tall young bar-owner with slightly bloodshot eyes, in a small village called Kuelle. “I’m not going to open the bar this evening,” he said, “because I don’t have any beer to sell to my customers.” The local wholesaler’s driver, apparently, was in jail.
I had arrived in an empty pick-up truck with the local Guinness depot chief, Yves Ngassa. We had been given directions by the wholesaler who normally supplied Mière, but the wholesaler had not mentioned that Mière had no beer nor asked if he could load some into Ngassa’s empty pick-up. Ngassa was furious. “This is so stupid,” he spat. “I’m losing sales here.”
The famished road
The biggest losers from lousy infrastructure are ordinary Cameroonians. Many environmentalists argue that roads in rainforests are a bad thing because they facilitate illegal logging and destroy indigenous cultures by bringing them into contact with aggressive, disease-carrying, rum-swilling outsiders. But the absence of roads probably harms Africans far more.
I tried to measure that harm, crudely, by jotting down the price of each Coca-Cola I bought and seeing how much more expensive it became as we moved away from Yaoundé, where it was bottled. I don’t normally drink Coke when I’m in Europe; I prefer water. But in places like Cameroon even bottled water can be a bit iffy, whereas the Coke brand name conveys the reassuring message that “drinking this will not give you unpleasant bacterial diseases.” So I drink gallons of the horrible stuff.
Anyway, I found that a 60 cl bottle of Coke cost 300 CFA in Yaoundé but 315 CFA in the small town of Ayos, a mere 125 kilometers down the road. At a smaller village 100 kilometers further on, it was 350 CFA. Once you leave the main road, prices rise even more sharply. A Guinness that cost 350 CFA in Douala would set you back 450 CFA in an eastern village that can only be reached on foot.
What is true of bottled drinks is also true of more or less any other manufactured good. Soap, axe-heads, and kerosene are all much more costly in jungle hamlets than in the big cities. Even lighter goods, which do not cost so much to transport, such as matches and malaria pills, are significantly more expensive.
At the same time, the things that poor people sell – yams, cassava, mangoes – fetch less in the villages than they do in the towns. Yet, thanks to bad roads, it is hard and costly to get such perishable, heavy items to market. So peasant farmers are doubly squeezed by bad roads. They pay more for what they buy and receive less for what they sell. Small wonder that the African Development Bank finds “a strong link between poverty and remoteness.”
Where roads improve, incomes tend to rise in parallel. In Cameroon, where the soil is wondrously fertile, farmers start growing cash crops as soon as nearby roads are repaired. Big commercial farmers benefit too. Along the highway to Douala, I saw great plantations of sugar cane and banana trees whose fruit is wrapped in blue plastic bags to keep at bay the birds and bugs that might mar the visual perfection demanded by European consumers.
Better roads also ease the drudgery of rural life. According to the World Bank, a typical Ugandan woman carries the equivalent of a ten-liter jug of water for ten kilometers every day. (Her husband humps only a fifth as much.) With better roads, both men and women can, if nothing else, hitch rides on passing trucks, thereby sparing their feet and getting their goods more swiftly to market. And no country with good roads has ever suffered famine.
Africans often find ingenious ways around infrastructure bottlenecks. Buses designed for European roads do not last long in Nigeria, so Nigerians import the chassis of heavy European trucks and mount locally manufactured bus bodies on top. This is much cheaper than importing a whole truck, and the vehicle is more durable than an imported bus.
But there is no substitute for building and maintaining better infrastructure. Guinness’s Johnson told me that Cameroon’s bad infrastructure added about 15 percent to his firm’s costs. The reason Guinness can still make a profit in Cameroon is that its competitors all face the same problems. It also helps that labor costs are low and that Cameroonians drink a lot of beer. Johnson said that the firm’s annual return on capital was around 16 percent, which is not spectacular but it is pretty good. If the Cameroonian government were to lift those road blocks and put the police to work mending potholes, Guinness would do even better, as would everyone else.
If there’s one thing worse than being exploited, it’s not being exploited
In letting me watch Martin and Hippolyte delivering their beer, Guinness took a risk. I could have been planning an exposé of the dire conditions under which African truckers work as the first step toward organizing a boycott of Guinness’s products. Plenty of Western journalists are convinced that Western companies exploit their Third-World employees and feel a duty to protest. Naomi Klein, a siren of the anti-globalization movement, asserts rather dramatically: “Our corporations are stealing their lives.”1
My report could have started like this:
Weary and wincing with malaria, Hippolyte siphons diesel from a spare drum and pours it, jerry can by jerry can, into the juggernaut’s fuel tank. Eighteen hours a day, lashed by rainstorms or wiping the sweat from his brow, he toils to keep a Guinness delivery truck roadworthy. Lunch is a bag of peanuts; supper, a fatty slice of goat eaten in pitch darkness at a roadside food stall; his bed, a mat on the bumpy ground. He hasn’t seen his family for a week, but he has to keep on working. And for what? While his multinational employer reaps billions, Hippolyte barely earns enough each day to buy a pint of Guinness in a Dublin pub.
All of which is true but misleading. Hippolyte was indeed suffering from a mild bout of malaria when I met him, and it is no fun working with a fever even if you can afford anti-malarial drugs, which Hippolyte can. If he had been working in the fields, which is how most Cameroonians survive, he would have fallen ill just as often, but he would have found it harder to buy pills. His lunch was indeed a bag of peanuts, but they were the freshest, juiciest peanuts I’ve ever tasted, and he snacked all afternoon on fresh tangerines and bananas. He ate supper in pitch darkness, but that is because none of the roadside food stalls in the village where we stopped had lights. The goat was the best dish on offer, and believe me I looked. I’m fond of my food and had a thick roll of notes in my pocket.
Hippolyte’s wages would not go far in Dublin, but he does not live in Dublin. His job is nowhere near as cushy as that of, say, a Western journalist, but as far as he is concerned it is not bad. He dresses smartly, feeds his family, and aspires one day (he is in his early twenties) to be promoted to driver, which, he told me, is a really good job. Often, when we were delayed, Martin would let him stop, start, and park the truck, for practice.
Given Cameroon’s lower productivity and poorer consumers, a company that paid Irish wages there would soon go bust. Guinness and other multinationals pay much less but are still popular employers because they pay better than local firms and much better than subsistence farming.
One study found that the average wages paid by affiliates of American multinationals to their non-American employees in middle-income countries were three times GDP per head. In low-income countries, local employees of American multinationals had to get by on only eight and half times the average income in their country.2 The average income (i.e., the total national income divided by the total population) is not the same as the average wage, particularly in countries where most people do not draw regular salaries. But still the comparison is suggestive.
Foreign firms also bring ideas and technology. Even a humble clothing factory probably contains sewing machines, computers loaded with accounting software, and an opportunity for workers to learn new skills. For poor countries, mastering low-tech manufacturing is a crucial first step up the ladder to prosperity. As one writer recently reminded us, “In the 1960s, Westerners used to bemoan the conditions in Japanese sweat-shops.”3
For most African countries, the problem is not that their people are being exploited by rapacious multinationals but that those rapacious multinationals shun them. Foreign direct investment (FDI) in sub-Saharan Africa – long-term projects such as building shopping centers and digging mines, rather than buying shares or bonds – was $11.8 billion in 2001. This was much better than the average of less than $3 billion between 1987 and 1995, but foreigners invested nine times more in Asia.4
Multinationals hesitate to do business in Africa because it seems too difficult and risky. After years of chatting with people who actually do business in Africa, I’m inclined to think their fears are overblown. Sure, there are hideous obstacles. The head of Cadbury Nigeria, Bunmi Oni, once told me that, because there was no reliable water supply in Lagos, his firm had had to drill 2,500 feet into the ground for the 70,000 gallons of water it needed each hour for its food-processing plant. The water spurted out at 80 degrees Celsius, so it had to be cooled before it could be used. And Nigeria’s bureaucrats are as bad as Cameroon’s. It can take six months just to get permission to make a new type of boiled sweet.5 In much of Africa reliable services are so hard to come by that firms barter contacts: we’ll let you share the electricity from our generator if you can help us find spare parts for it.
What few outsiders realize, however, is that investing in Africa can be extremely profitable. Between 1991 and 1997, the average return on FDI in the continent was higher than in any other region, according to the UN Conference on Trade and Development.6This is partly because the perceived risk of doing business in Africa is so great that firms only usually put money into projects that promise a quick profit. But it also suggests that there are greater opportunities there than most businessfolk imagine.
Because Africa lacks so much, firms selling more or less anything of a reasonable quality at a reasonable price can do well. In countries where local banks often fail, many people feel safer putting their savings into big foreign banks such as Citibank or Barclays. Mobile telephones are wildly popular in countries so wild that landlines are stolen for scrap. In February 2000 I spoke to Microsoft’s top man in Johannesburg, who told me that the firm’s African business was growing by about 30 percent a year. Even poor countries have a laptop-tapping middle class, and Microsoft’s only serious rivals are software pirates, who charge less but offer little after-sales service.7
The risks in Africa are changing. In the 1960s and 70s, investors feared nationalization. Nowadays this is rare, but several African countries still lack clear laws impartially upheld by an honest and independent judiciary. In such places contracts are hard to enforce.
Some firms deal with this problem by forging an alliance with a well-connected local partner. But if that partner defrauds them, there is often little recourse. Another trouble with relying too heavily on political connections is that governments change, sometimes suddenly. Many firms that won state contracts in the last months of military rule in Nigeria saw them canceled when a civilian government took over in 1999. Companies that prospered from links with Mobutu Sese Seko in the former Zaire, or the apartheid regime in South Africa, lost out when their patrons lost power.
In some parts of Africa keeping employees safe can be a problem. In Algeria, for instance, where Islamic terrorists trade atrocities with pro-government militias, oil firms typically spend about 8 or 9 percent of their budgets on security. Much of the money is spent on crude precautions: fences, guards, alarm systems. For a hefty fee, security firms staffed by ex-soldiers provide protection for offices, mines, or pipelines. Managers’ houses in high-crime cities are often equipped with a bewildering array of defenses. My home in Johannesburg had high walls, razor wire, and panic buttons in every room to summon pistol-brandishing guards. (I never used the panic buttons, and they did nothing to protect my predecessor as the Economist’s correspondent in Jo’burg, who was robbed at gunpoint in the same house.) One tobacco executive I knew had steel blinds and electric portcullises to seal off rooms that burglars had broken into.
Softer precautions are at least as useful. Teaching employees how to drive defensively (check who is outside your front gate before stopping, beware at traffic lights) can reduce the risk of carjacking. Explaining what to do when faced with an armed robber or kidnapper (cooperate, don’t make sudden moves or eye contact) can make the difference between a scary experience and a fatal one. Some foreign firms in South Africa even offer “pre-rape counseling” to female expatriates and their daughters.
Countries that are actually at war are beyond the pale for most Western firms. Mining multinationals may drool over the opportunities in Congo or Liberia, but they cannot send salaried employees to prospect for minerals in minefields. Small, free-booting entrepreneurs, however, may be prepared to take greater risks in the hope of becoming seriously rich. If they find buried treasure, they will usually need the help of a larger firm to extract it. What often happens is that the larger firm buys the “junior” that has gotten lucky. Since it is easier to defend a copper mine than it is to guarantee the safety of geologists wandering around a wide area, extraction is less hazardous than prospecting. Most mining majors subcontract the bulk of their exploration to juniors, thus reducing the chances that their own staff will be shot at.
In some places, businesses face the hostility of local communities. The people of the Niger delta, for example, were for decades brutalized by the Nigerian army and denied any benefit from the oil that gushed from their ancestral lands. Angrily, they turned on the firms that pumped the oil and provided the military regime with most of its taxes.
This made sense: protests directed at the government would have resulted in the protesters being beaten up, jailed, or worse. An oil firm is a softer adversary. That said, the policemen guarding Nigerian oil installations did sometimes arrest and beat up demonstrators. Since foreign oil firms were obliged, by law, to pay those policemen’s salaries, the firms were often blamed for their actions.
Nigeria is a democracy now, but the delta’s inhabitants continue to sabotage pipelines and kidnap oil executives. Shell, the biggest investor in the region, is belatedly spending tens of millions of dollars on mending ties with locals. But old grievances die slowly. And lawlessness, once provoked, is hard to dispel.8
Relations between big companies and impoverished locals are always tricky, but there are ways of reducing the risk that they will turn bloody. Managers at Anglo American, a South African mining firm with operations in several African countries, take pains to explain to local communities what they are doing from the outset, to learn about local taboos, and to hire as many locals as is practical. In poor countries, local means very local: AngloGold discourages traders from neighboring districts from setting up stalls outside its mines in Mali, favoring those from nearer by. So far, the firm has suffered little sabotage.
In some countries investors will be asked for bribes in return for the swift issue of necessary permits. Until recently such expenses were tax-deductible for firms from many European countries. These days bribery can lead to bad publicity and even prosecution at home, so firms increasingly refuse to grease the palms held out to them. Guinness, for example, has a policy of never paying bribes. This can be tedious if you are stuck at a road block, but it is the only way since paying up encourages more demands.
Locally hired managers sometimes find it harder to stay clean. Faced with American-style sales targets, the temptation to clinch deals through baksheesh may be irresistible. They are also more vulnerable to threats than expatriates; they cannot fly home to France or Canada. So firms should teach them how to refuse demands for bribes without getting hurt. Techniques include insisting that someone else is responsible for the decision in question and never going alone to meetings with people who may demand bribes.
He that filches from me my good name …
Companies care about their reputations. An accounting firm that acquires a name for dishonesty, for example, will probably lose its clients and fold, as happened to Arthur Andersen in the wake of the Enron scandal in 2002. Similarly, a firm widely believed to be unethical will have trouble recruiting good staff. Who wants to work for a company that pollutes the planet or drives Third-World peasants off their land?
In the 1990s, a number of pressure groups started demanding that companies should practice “corporate social responsibility.” Campaigners argued that businesses should not focus solely on maximizing profits; they should also do their bit for the environment and for the communities in which they work.
In the age of the Internet, companies that fail to live up to these standards are sometimes swiftly punished. When Belgian king Leopold II turned Congo into a vast slave-tended rubber plantation in the nineteenth century, it was years before anyone in Europe noticed. Nowadays, if a Western firm transgresses abroad, a local NGO may email details to an NGO in the firm’s home country, and within days there may be pickets outside the firm’s headquarters, a boycott of its products, and vituperative editorials in the press.
Shell was pilloried for polluting the Niger delta and for failing to prevent the execution of Ken Saro-Wiwa in 1995. It is far from clear that the company could have saved him. The governments of most of the world’s rich countries appealed to Sani Abacha, the Nigerian dictator, to show clemency. So did many of his African brothers. He ignored them all. Nonetheless, because Shell was the biggest company in Nigeria and because Saro-Wiwa had criticized the firm’s environmental record, it was widely accused of complicity in his death.9
British Petroleum, another oil firm, was pummeled for working with Angola’s odious regime. Nestlé, the Swiss food giant, was roasted for selling milk powder to African mothers and so allegedly discouraging them from breastfeeding. Charities such as Oxfam have launched campaigns to improve the working conditions of Africans who pick coffee and cocoa for sale in the West.
One cannot fault these aims. Other things being equal, dictators should not be propped up. Better working conditions are obviously a good thing. But there is a catch.
Virtually any firm doing business in the Third World is vulnerable to ethical criticism. Poor, unstable countries tend to have lax or non-existent environmental or safety standards. Guinness’s trucks have seat belts, but no one wears them, and out in the middle of the rainforest it is hard to police this sort of thing.
Doing business in Africa sometimes requires firms to deal with, pay taxes to, and form join ventures with vicious regimes. If a dictator shoots dissidents, the firm has a choice. It can denounce him, thus putting its investment at risk. Or it can remain silent and risk being accused of complicity.
Damage to a reputation is hard to quantify. I asked Bobby Danchin, head of exploration and acquisitions at Anglo American, how seriously he took the threat. He said he spent 10–15 percent of his time worrying about environmental and human rights issues, up from about 1 percent a decade ago. He estimated that such concerns added about 5 percent to operating costs.10 This means that Anglo mines fewer marginal seams than it otherwise would and employs fewer people.
De Beers, the South African diamond cartel, has worked especially hard to distance itself from odious regimes and rebel groups. During the 1990s, the firm was flogged by NGOs such as Global Witness for buying gems from countries where civil wars were being fought, thus allegedly providing rebels with the cash to buy arms and carry on fighting. De Beers responded by shutting down its business in Angola, withdrawing its buyers from Congo and Guinea, promising to shun “conflict diamonds,” and helping to set up a certification process to keep such stones out of Western jewelry shops.
The situation for De Beers is tricky. The firm has prospered over the last century by controlling most of the world’s supply of diamonds and persuading consumers that glittering lumps of carbon are glamorous. A diamond has little intrinsic value, so to keep prices high De Beers restricts the supply and constantly polishes the stones’ image. The latter could prove hard if diamonds become associated in the public mind with deadly wars instead of undying romance.
De Beers claims that only 2 percent of the world’s diamonds come from war zones and points out that the diamond industry feeds hundreds of thousands of miners and gem-cutters in peaceful poor nations such as Botswana, Namibia, and India. Will such arguments convince consumers? Perhaps, but fashion is fickle, and passionate campaigners can shift it. Remember how quickly animal rights activists turned fur coats from objects of envy to objects of scorn? Because poor countries rarely measure up to rich countries’ standards in anything much, companies doing business there do so at their peril. There is practically no limit to what they could be condemned for allegedly condoning. What if gay rights activists or feminists decided to boycott firms that invest in countries where gays or women are mistreated? (Of which there are, sadly, a lot.)
Reputational risk is almost impossible to insure against. It is hard to put a value on a firm’s good name.11 The best way for any firm to avoid harmful publicity is to make sure that its environmental and human rights records are beyond reproach. Sometimes this is expensive, for instance when drug firms donate money to worthy causes in the hope of deflecting the criticism that they do too little to cure the poor. Sometimes, however, all it takes is common decency. Palabora, a South African subsidiary of mining giant Rio Tinto, managed to do business during apartheid without bad publicity simply by being nice to its workers. When an employee was arrested (as happened to many unionists), his manager would telephone the police and politely ask where and why he was being held. This was usually enough to prevent the detainee from being “disappeared.” The firm also continued to pay salaries to the families of miners who were not working because they were in police cells – not standard practice in those days. As a result, Palabora has unusually good labor relations to this day.
But this did not protect its parent firm, Rio Tinto, from being sued for having allegedly propped up apartheid. In 2002, an American lawyer assembled a class action suit on behalf of some of apartheid’s victims. Their targets were not the security policemen who beat them up (who don’t have much money) but the big foreign firms that did business in the old South Africa. The new, black South African government pleaded with the plaintiffs to drop the suit because it was likely to deter foreigners from bringing their money and expertise to South Africa. The plaintiffs carried on regardless.
Miners and oil firms will not abandon Africa, of course. They have to dig where the treasure is buried. But for most firms the possibility of attracting negative publicity is a grave deterrent to investing in poor countries. The fear of association with sweatshop labor has almost certainly led some multinationals to close factories in the developing world, thereby destroying jobs. For example, in 2002, Reebok, the sportswear firm, stopped doing business with a subcontractor in Thailand because of press reports that its staff were working more than seventy-two hours a week.12 These workers are now worse off.
Even before the anti-globalizers started demonizing multinationals, Africa found it hard to attract investors. Companies are attracted to large markets (such as China) or rich ones (such as Ireland). Africa is divided into dozens of small, poor countries. Cracking these tiny markets can seem like a lot of effort for a modest reward. When a manager adds to this the likelihood that his teenage children will accuse him of running a sweatshop, he may decide that it is not worth the trouble.
There is more than a whiff of racism in the assumption that workers in poor countries need to be prevented from working for Western firms. If working for a Reebok subcontractor were not better than the alternatives, Thais would not work there. Africans have even fewer choices, which is why every African government actively woos foreign investors. Even Zimbabwe offers incentives to platinum miners.
I have been a couple of times to the Niger delta, where the big bad Shell pumps oil. What struck me most, after interviewing local politicians, journalists, community activists, and people in the street, was that I did not meet a single person who wanted the firm to leave. One time, not long after I left, a group of armed youths broke into a Shell office, took hostages, and issued a list of demands. What did they want? Jobs.
Enterprise and trust
They cannot all have jobs, of course. Nigeria’s oil industry only employs about 100,000 people out of a population of over 100 million. Most Africans will never be paid a regular salary of any kind, let alone taste the superior wages offered by multinationals. To live more comfortably than peasants, they must usually start their own businesses.
This is getting easier. Until the 1980s, small traders were aggressively persecuted in many African countries. The smallest of all, peasants with a few extra bags of millet to sell, were crushed with price controls that allowed governments effectively to confiscate most of their produce. Those who dodged such controls were harshly punished. In a typical case in 1980, a Ghanaian peasant woman was sentenced to five years’ imprisonment with hard labor for trying to smuggle $4.36 worth of cocoa into neighboring Togo to buy some soap. In Zambia in 1988, when market traders refused to sell goods at government-dictated prices, the authorities arrested hundreds of them, pocketed their money, seized their stock, and smashed their stalls.13
These days, the main problems facing entrepreneurs are the ones I have described in this chapter: poor infrastructure, poor customers, and obstructive officials. In most African countries there seems to be a healthy entrepreneurial spirit. Some ethnic groups have a stronger commercial tradition than others, but few have none. I recall talking to Pakmogda Zarata, an energetic restaurateur from Burkina Faso. Her restaurant, in a marketplace outside Ouagadougou, was unpretentious. Rough-hewn logs propped up a ceiling of thatch and old trash bags; there were no walls to speak of. The menu matched the decor. “We only serve rice,” Zarata told me, “but we do cook it.”
Her business plan was simple. She borrowed a small sum from a microlender, which enabled her to buy rice wholesale rather than retail. Her profits rose. She now employed seven people and swanked around town on a second-hand motorcycle.
Entrepreneurial flair can only take you so far, however. Many individual African businessmen have built empires, typically in fields such as trading, trucking, or retailing, but too often these firms rely on the founder’s drive and vision and fall apart when he dies.
I asked a couple of Cameroonians why this was. Paul Fokam, who founded a private bank in Cameroon in 1987, when private banks were illegal, thought it had something to do with African traditions of inheritance. “A rich man will have three or four wives, and perhaps a hundred children, if you include the ones with his mistresses. Often, there’s no clear succession, so when the old man who held it all together dies, his business unravels.”
His colleague, an economist called Alamine Ousmane Mey, agreed and added: “The first generation of entrepreneurs learned by doing. They are often illiterate. When they make money, they send their children to school, but they don’t necessarily get them involved in the business, so the kids end up not even knowing what assets their father has, let alone how to run the firm.”
If Africa is ever to succeed in more technologically advanced industries, the continent will need more than a few gung-ho entrepreneurs. A man can make a fortune buying and selling real estate with little more than an eye for location and the back of an envelope to scribble numbers on. But the real estate will probably only be worth a fortune if other, more complex businesses want to operate in the same city. And lone entrepreneurs cannot easily manufacture cars or run large insurance firms. Such businesses need legions of skilled employees: engineers, accountants, designers, salespeople, and so on. In the rich world, these people tend to work together in impersonal, professionally managed companies, often with widely dispersed ownership, in the form of shares.
Africa does not yet boast many indigenous institutions like this. One reason is that so many African professionals have emigrated. Another is that complex institutions cannot operate without a measure of trust, a belief that most people will perform their jobs honestly and as well as they can. And Africans often do not trust each other. Two European academics claim that “outside [an African’s] own community … where rules of civic behaviour apply, there is an assumption that graft presides over all forms of exchange.”14
This is probably an exaggeration, but I have seen plenty of evidence that a lack of trust makes it harder to get things done in Africa. In Nigeria, guests at five-star hotels must pay cash, in advance, not only for their rooms but also for the meals the manager thinks they might eat and the telephone calls he thinks they might make. When paying in dollars at the Hilton in Abuja I have had to wait while the cashier scanned each bill to make sure it was not a forgery and recorded each individual serial number in triplicate to make sure that none of his colleagues could steal any.
Nigerians, being entrepreneurial types, find ways to profit from this sorry state of affairs. I once visited a firm in Lagos called Smartcard, whose business depended on the fact that no one accepts checks in Nigeria and banks do not generally entrust customers with credit cards. This means that Nigerians have to carry around uncomfortably large wads of banknotes, which attract thieves and are not terribly hygienic: according to researchers at the University of Lagos, 86 percent of the country’s notes are infested with the sorts of microbes that cause diarrhea.15 The solution? An “electronic purse”: a card that can be loaded with “e-cash” and used at hundreds of stores. It’s clean, it fits in your shirt pocket, and if it’s stolen, you can cancel it.