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Wednesday, October 04, 2006

Fighting corruption the Celtel way: Lessons from the front line

Commentary:

IF you “google” corruption and Africa you get over 25 million hits.1 Such is the scale of the problem. Yet Celtel is a success story from the poorest and, according to Transparency International rankings, the most corrupt part of the world – sub Saharan Africa.

Today Celtel provides 15 million Africans with mobile phone service across 15 countries of sub Saharan Africa: Burkina Faso, Chad, Democratic Republic of Congo, Gabon , Kenya , Madagascar, Malawi, Niger, Nigeria, Republic of Congo, Sierra Leone, Sudan, Tanzania, Uganda, and Zambia. Five of these countries are in the bottom decile of the Transparency International Corruption Perceptions Index 2.

Since 1998 Celtel has raised over $1 billion from the Western financial community and invested it in mobile telecoms infrastructure in Africa . Celtel’s $3.4 billion 2005 acquisition by MTC of Kuwait not only demonstrated the success of the business, but unleashed a wave of Middle Eastern investment into Africa .

Africa’s development
There is a consensus that Africa —the original cradle of human civilization—today suffers from underdevelopment. Many studies have attributed this to different causes: climate, colonialism, cultural diversity, geographic fragmentation, the curse of natural resources, political instability, state ownership, and underinvestment in education and infrastructure.3

Celtel was formed as a private sector business to focus on telecoms infrastructure—now recognized as an essential driver of development in Africa . The Economist reported in a study on Africa by Professor Waverman of London Business School : “Plenty of evidence suggests that the mobile phone is the technology with the greatest impact on development. A new paper finds that mobile phones raise long-term growth rates, and that their impact is twice as big in developing nations as developed ones.”4

Corruption
The “Blair Report” Commission for Africa 2005 summarized the issue as follows:

“Corruption is systemic in much of Africa today…It is another of Africa ’s vicious circles: corruption has a corrosive effect on efforts to improve governance, yet improved governance is essential to reduce the scope for corruption in the first place. All this harms the poorest people in particular.”

It also recognized that Western countries need to look hard at themselves in the mirror: “After all, as the former Zairian dictator Mobuto Sese Seko once reportedly said “It takes two to be corrupt: the corruptor and the corrupted.” And he should know.”

Earlier, in 2002, the African Union had put a figure on the scale of corruption across the continent: $148 billion or one quarter of the GDP.6

Celtel approach to governance and corruption
Any international business operating in Sub Sahara Africa needs to face the issue of corruption. From the beginning Celtel adopted a very strict set of six values, the first of which is: “We are open, honest and transparent.” We applied these values at all levels: from the shareholders and the Board to a handbook for every employee.

When searching for shareholders we sought institutions who could contribute expertise and guidance as well as money. Early examples included the Commonwealth Development Corporation (now Actis), the British Government’s development finance arm and the International Finance Corporation —part of the World Bank Group.

Both had many years of experience investing in Africa and were rigorous in ensuring that every Celtel investment and local partner passed their transparency scrutiny.

Right from the start Celtel was run as a Western institutionalized company (it is based in the Netherlands ). We believe good governance starts at home. So we formed a very talented and experienced Board of Directors, with shareholder representatives and strong independent directors from the worlds of politics and business such as Lord Prior, formerly a UK Cabinet minister, Dr Salim Salim, the African statesman and a former Prime Minister of Tanzania and Sir Gerry Whent, the original founder of Vodafone.

Some might regard such a heavyweight Board as restrictive to a start up company. But for Celtel this has helped navigate some of the complex political currents. We made it clear that any requests for political donations and the like would be referred to the main Board and discussed by the representatives of major donor nations. It showed everybody that we were serious about our anti-corruption stance and it was a great protection.

It also brought recognition to Celtel: when giving the inaugural IFC Client Leadership award, Peter Woicke, former IFC Executive VP, said Celtel is “a company that sets the gold standard for its peers anywhere in the world, a company that is a role model for others, regardless of sector, region or country.”

Business advantage
Celtel’s rigorous stance against corruption is not drawn from a purely moral motive—it is also good business practice. For corruption, like blackmail, is insidious. Once started it is very difficult to stop paying. Far better to pass up, as Celtel has done, a few business opportunities which, while superficially attractive, involve partners or governments about whom one has major doubts.

For a Western company, the costs of getting it wrong can be devastating. For obvious reasons few of the examples are well documented. But the U.S. Courts released documents of the SEC investigation into Titan Corp., summarized as follows by the Wall St Journal (WSJ 2005): “In the biggest foreign-bribery penalty under U.S. law, Titan Corp. (of San Diego) pleaded guilty and agreed to pay $28.5 million to settle allegations that it covered up payments in six countries, including millions of dollars funneled to an associate of an African president to influence a national election Titan’s foreign bribery was uncovered by Lockheed Martin Corp. during acquisition negotiations.

Though both companies cooperated with the ensuing investigation, delays in resolving the probe scuttled the $1.6 billion deal in June.”

Curing corruption
Some may find it ironic that it was Lockheed Martin as potential acquirer and Arthur Andersen as external auditor who uncovered this example. But to its credit, the USA has had the Foreign Corrupt Practices Act in place since 1977, which makes it illegal for U.S. corporations to pay bribes to foreign government officials or political parties in order to secure or maintain business transactions or secure another type of improper advantage.

If a violation is established, not only can a large fine be levied against the corporation, but executives, employees, and other individuals involved may be fined or jailed or both. And while American corporations are subject to the law, it is possible that it may also, be applied to overseas subsidiaries or joint venture partners of U.S. companies. However other countries have been much slower to recognise the problem at home. Until 1997 bribery was still tax deductible in some Western countries.

Finally the OECD countries implemented the Anti- Bribery Convention in 1997, with entry into force on 15 February 1999. But implementation has been slow and there have been few prosecutions. Now adopted by all 30 OECD countries plus 6 others, the Phase 1 implementation monitoring has been completed (compliance of national anti-bribery laws with OECD Convention). Phase 2 (peer review assessment of effectiveness) has been done by 21 countries with remainder to be done by 2007.9

UN Convention against corruption was adopted in October 2003 and came into force on 14 December 2005. 140 countries signed but only 52 have ratified it and we are still waiting for G8 countries to participate.10

Meanwhile, Africa is starting to record real progress in addressing the problem of corruption. One of the first acts by President Obasanjo of Nigeria was to set up the Anti Corruption Commission. The former President of Zambia and Vice President of South Africa are facing corruption charges. Under the auspices of NEPAD, the New Partnership for African Development, African countries are undertaking peer reviews.

Conclusion
It is clear that, if the Millennium Development Goals are to be achieved in Africa , the issue of corruption must be addressed. It is also clear that solutions must come from both within Africa and from outside it.

Celtel is dedicated to “making life better.” In our eyes this means ensuring a sustainable business to continue the infrastructure investment essential to Africa ’s development. And it means doing so in a fully transparent manner, including publishing what we pay to Governments and state owned enterprises: this amounted to some 35 percent of Celtel’s revenue in 2005. The Celtel story shows emphatically that it is possible, if not always easy, to run a successful clean business in Africa which can benefit all stakeholders and help to enable development.

*Mohamed Ibrahim, Founder and Chairman, Celtel International.


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