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Huge conflict cost for doing business in Africa

Cape Town - The cost of socio-political conflict for those doing business in Africa can no longer be denied, according to Prof Brian Ganson, director of the Africa Centre for Dispute Settlement and professor extraordinaire at the University of Stellenbosch Business School (USB).

He pointed out that many companies still operate under old-fashioned notions of conflict risk management with local communities, labour or government as factors over which they have little control.

On the other hand, leaders who understand and proactively address conflict in their planning and operations reduce risks and open new business opportunities.

Research shows that when a company experiences a business failure in a complex environment, it is more than likely caused at least in part by the company’s own actions.

A company may cause conflict directly, for example, through the way it plays politics to acquire land for mining or commercial agriculture.

But a company may also exacerbate conflict indirectly, for example, when a large influx of people seeking opportunities creates competition for jobs.

READ: Jeff Radebe: Africa not continent of doom

Often a company’s operations could also force dormant conflicts to the surface.

“Boards and senior management tend to focus on the level of support or opposition they face from a narrow group of elite political figures. They take a largely passive view of risk, asking what government might do to them or fail to do for them," explained Ganson.

"They often engage in risk management as a spectator sport, driven by outside consultants and analysts producing voluminous reports. And if they assess socio-political risk at all, they may do so only as part of strategic decisions to start, expand, or close business operations, not as an integral part of ongoing business operations.”

READ: Companies fail to report Africa conflict minerals

He said costly confrontations between companies, communities, labour unions, and governments in Africa are growing in number and intensity.

This was particularly true for the increasing number of investments in the extractives industries, commercial agriculture and infrastructural projects.

“Markets increasingly understand and account for these conflict risks.  In the valuation, for instance, of the share price of a gold mine, good relationships with governments and communities may be worth more than twice the value of the gold in the ground itself,” he said.

"Proactive engagement is essential in the case of governments, community members, civil society organisations and labour unions that may greet the company with indifference, suspicion or hostility."

Yet one can find examples of successful conflict management in even the most difficult places, in his view.

“The social costs of business and conflict are enormous. When business causes, exacerbates or is drawn into conflicts, peace building and development opportunities are lost, the dynamics of instability are reinforced and there is little prospect for the poor to rise out of poverty, in Africa or elsewhere,” warned Ganson.

ALSO READ: Over 80% of South Africans believe corruption is on the rise

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