Lessons from the African Peer Review Mechanism
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RESEARCH REPORT 17 Governance and APRM Programme August 2014 Getting Down to Business: Lessons from the African Peer Review Mechanism A look at the corporate governance thematic area in the Country Review Reports on Lesotho, Mauritius, Mozambique, South Africa, Tanzania and Zambia Terence Corrigan ABOUT SAIIA The South African Institute of International Affairs (SAIIA) has a long and proud record as South Africa’s premier research institute on international issues. It is an independent, non-government think tank whose key strategic objectives are to make effective input into public policy, and to encourage wider and more informed debate on international affairs, with particular emphasis on African issues and concerns. It is both a centre for research excellence and a home for stimulating public engagement. SAIIA’s research reports present in-depth, incisive analysis of critical issues in Africa and beyond. Core public policy research themes covered by SAIIA include good governance and democracy; economic policymaking; international security and peace; and new global challenges such as food security, global governance reform and the environment. Please consult our website www.saiia.org.za for further information about SAIIA’s work. ABOUT THE GOVERNA NCE A ND A PRM P ROGRA MME SAIIA’s Governance and African Peer Review Mechanism (APRM) programme aims to place governance and African development at the centre of local and global discussions about the continent’s future. Its overall goal is to improve the ability of the APRM to contribute to governance reforms, institutions and processes. The programme focuses on: Enhancing meaningful and authentic participation of non-state actors in Country Self-Assessment Review (CSAR) and National Programme of Action (NPoA) processes; increasing knowledge amongst key decision-makers of the need for Country Level Institutions to be functional, have political support and enjoy legitimacy; increasing the capacity and functionality of official APRM institutions; and contributing to the identification of critical issues for governance reform in Africa through the APRM. SAIIA has been working on the APRM since its inception in 2003. The programme has previously undertaken work in 22 African countries, developed an online APRM Toolkit with vital information on the APRM process, produced an extensive body of innovative research on governance and the APRM and has frequently commented on African governance issues in South African and international media. The programme is funded by the Swiss Agency for Development and Cooperation (SDC). Programme head: Steven Gruzd, [email protected] © SAIIA August 2014 All rights are reserved. No part of this publication may be reproduced or utilised in any form by any means, electronic or mechanical, including photocopying and recording, or by any information or storage and retrieval system, without permission in writing from the publisher. Opinions expressed are the responsibility of the individual authors and not of SAIIA. ISBN: 978-1-919969-862 Please note that all currencies are in US$ unless otherwise indicated. CONTENTS About the author 4 Abbreviations and acronyms 5 Executive summary 6 Chapter 1: Introduction 7 Corporate governance beyond business 9 Chapter 2: Corporate governance in the APRM 11 Chapter 3: Six countries, six economies 14 Chapter 4: Business environment 19 Ongoing economic reforms 24 Business–state relationships 27 Chapter 5: Corporate governance systems 30 APRM corporate governance standards 30 Corporate governance legislation 32 Corporate governance institutions 35 Business and professional institutions 36 Is the corporate governance architecture working? 38 Chapter 6: Company Boards 39 Board performance 40 Chapter 7: Ethics 44 Chapter 8: Stakeholder engagement 47 Shareholders 47 Employees 49 Wages, working conditions and workers 51 The community beyond the factory gate 53 Corporate social responsibility 55 Chapter 9: The informal sector 58 Chapter 10: Foreign investment 61 Chapter 11: State-owned enterprises 65 Chapter 12: Concluding observations 69 Appendix 1 74 Appendix 2 75 Endnotes 77 GOV ERNANCE AND APRM PROG RAMME AB OUT THE AUTHOR Terence Corrigan holds a BA (Hons) in Political Science from the University of KwaZulu- Natal (Pietermaritzburg) and has worked as a teacher in South Africa and Taiwan. He has held various positions at the South African Institute of Race Relations, the South African Institute of International Affairs (SAIIA), SBP and the Gauteng Legislature in South Africa. He is currently a SAIIA Research Fellow in its Governance and African Peer Review Mechanism project. His research interests include political thought, aid and development, corporate governance, enterprise development and identity politics. He has published in all these areas. SAIIA RESEARCH REPORT NUMBER 17 4 G ETTING DO W N TO BUSINESS: LESSONS F ROM THE APRM ABBREVIATI ONS A N D ACRONYMS APRM African Peer Review Mechanism ADR alternative dispute resolution AU African Union BEE black economic empowerment CRM Country Review Mission CRR Country Review Report CSAR Country Self-Assessment Report EITI Extractive Industries Transparency Initiative FDI foreign direct investment GDP gross domestic product GNI gross national income IFC International Finance Corporation ILO International Labour Organization MSME micro, small and medium enterprises NEPAD New Partnership for Africa’s Development NGO non-governmental organisation NPoA National Programme of Action OECD Organisation for Economic Co-operation and Development SADC Southern African Development Community SARS South African Revenue Service SME small and medium enterprises SOE state-owned enterprise TCCIA Tanzania Chamber of Commerce, Industry and Agriculture UNCTAD UN Conference on Trade and Development WEF World Economic Forum SAIIA RESEARCH REPORT NUMBER 17 5 GOV ERNANCE AND APRM PROG RAMME EXEC UTIVE SUMMARY he Africa Peer Review Mechanism (APRM) is an initiative aimed at fostering good Tgovernance and development in its participating states. As part of its multi-pronged inquiry, it devotes a great deal of attention to investigating corporate governance on the continent. However, thus far corporate governance has attracted less attention than any other area of the APRM. Focussing on the six Southern African Development Community (SADC) states that have thus far completed their first Country Review Reports (CRRs) – Lesotho, Mauritius, Mozambique, South Africa, Tanzania and Zambia – this report shows that corporate governance can play an important role in driving Africa’s development. Central to the continent’s future prospects is expanding the scope for productive business activity. This has been taking place in tandem with policy and legal reforms, driving high growth rates in some countries. There remains an imperative to enhance the business environment; Africa needs more businesses, and businesses oriented towards growth as opposed to mere survival. Corporate governance provides a framework for business sustainability and value creation. For the most part, the APRM shows that these countries have satisfactory legal and institutional frameworks, or are striving to put them in place. However, awareness and application of corporate governance principles is uneven and sometimes poor – although this varies across countries, with South Africa being in many respects exemplary, as opposed to the very rudimentary situation in, for example, Mozambique and Lesotho. The ethical dimension constitutes a major element of the current corporate governance conversation in Africa. Likewise, company-level governance is highly variable. For the most part, management and ownership are combined. A key problem more sophisticated companies confront in all the countries is the narrow pool of talented, board-capable people. This has produced a raft of problems, such as ‘over-boarding’, the dominance of close-knit family interests and the exclusion of women. Recognising and protecting stakeholder relationships remains a work in progress. The ‘traditional’ shareholder interests are in theory generally reasonably protected, although a lack of shareholder activism and cumbersome avenues of recourse undermine this. The interests of other stakeholders, such as employees and adjacent communities, are gaining increasing recognition, but remain a source of contention. The specificities of corporate governance to particular niche areas in the African economy – the informal sector, state-owned enterprises (SOEs) and foreign (especially extractive) companies – require particular attention. Each of these is important for Africa’s development, but may not fit the corporate governance mould of the classic privately- owned formal sector companies. The report concludes with an appeal for a principles-based approach to corporate governance. This should be based on recognising the limitations of businesses in Africa, and corporate governance should play a facilitating rather than prescriptive role for them. SAIIA RESEARCH REPORT NUMBER 17 6 G ETTING DO W N TO BUSINESS: LESSONS F ROM THE APRM CH APTER 1 I NTRODUCTI ON ‘A thriving private sector – with new firms entering the market, creating jobs and developing innovative products – contributes to a more prosperous society. Governments play a crucial role in supporting a dynamic ecosystem for firms. They set the rules that establish and clarify property rights, reduce the cost of resolving disputes and increase the predictability of economic transactions. Without good rules that are evenly