Understanding and complying with the international laws and regulations, like the FCPA and the UK Bribery Act, has been a primary concern for many international companies operating in Africa. The fines imposed on companies for flouting these laws and regulations and associated remediation costs by various regulators around the world in countries such as US, UK, Germany, and China run into billions. It has been estimated that banks alone paid more than USD 65B in fines in 2015. This has led to significant investment in risk, regulatory and compliance functions in these organisations to respond to various requirements from international regulators.
Companies need to invest time and resources into responding to the changes that are occurring in the regulatory environment in African counties. Whether the changing regulatory landscape is due to an acute appetite for revenue generation, or whether regulators are coming of age, or whether it is rooted more in a long-term aspiration to improve compliance in the business environment, the implications for businesses are the same. Government agencies are under increasing pressure to fulfil expectations for increased government revenue within an atmosphere of transparency and anti-corruption, and they appear to be taking a hard line with regards to compliance.
Recent examples of the changing regulatory environments and associated headwinds for companies include:
- The introduction of carbon tax in South Africa to mitigate greenhouse emissions;
- The onerous regulatory requirements for the financial services industry in Nigeria. Its estimated the financial regulator issued more than 30 directives in 2015 that need to be complied with;
- Regulatory fines imposed in the telecommunications industry in Nigeria;
- Higher proposed fines for telecommunications companies in Kenya for not meeting quality standards, based on revenue percentages rather than fixed amounts;
- Changing interpretation of excise duty regime by the Kenya Revenue Authority (and the suspension of more than 800 manufacturers as a result);
- Conflicting laws and regulations in Kenya between the national and county governments, as well as duplicated regulatory and compliance requirements e.g. licences, taxes etc.
The complex regulatory environment in Africa can even create challenges for companies that strive hard to be compliant. This can create scope for arbitrary interpretation or ambiguity, while enforcement of these laws and regulations has often been uneven or non-existent. The sheer abundance of laws also means that there are frequently overlaps. Sometimes companies run into trouble even when trying to comply.
Adding to this complexity, in several industries operators have to deal with two or three regulatory bodies ), operating independently of, and sometimes in competition with, each other e.g. the on-going dispute between the Communications Authority, the Competition Commission, the Attorney General and the ICT Ministry with regard to the setting of dominance rules in the telecommunications industry in Kenya. While this means that companies have periodically operated with impunity and disregard for the law, sometimes playing one regulator off against the other, it also means companies are sometimes unaware of legislation that applies (or does not apply) to them. This increases the risk of regulatory breach, and restricts the channels through which firms can address compliance issues when they arise.
Is it all bad news for business? How to prevent, anticipate and analyse?
There are opportunities for companies to engage with authorities to avoid sanctions and fines and influencing policy and regulations. Companies should demonstrate a clear commitment towards improving compliance and engaging continuously and constructively with regulators on any issues that arise in order to avoid issues arising. If companies can demonstrate such commitment, authorities are more likely to be supportive rather than adversarial. This is because governments are aware that too much regulation, sanctions and fines can have a negative impact on existing and potential investments and business operations.
Companies can improve their local risk management and compliance approach by:
- Investing in internal capacity building around compliance issues, including staff with local regulatory compliance expertise;
- Prioritising engagement and seeking to build durable relationships not just with regulators but across all key public sector stakeholders. Engagement will deepen understanding of regulators’ priorities and facilitate dialogue that will improve policy formulation, and consequently help companies to shape the business environment around their operations.