May 25

Avoiding a New Cold War Between Business and Government

An Article by Ian Kilbride and published in the Leadership Magazine

The rhetorical temperature is rising between business and government, this time over South Africa’s foreign policy. The current furore centres on Pretoria’s positions regarding Russia’s invasion of Ukraine, the consequential reputational damage caused to South African businesses operating internationally and the potential threat of sanctions on South Africa’s multinationals. These concerns will be amplified should South Africa host Vladimir Putin at the August BRICS summit and fail to arrest the Russian President as is required by the International Criminal Court.

Business is conventionally seized with matters of domestic policy, such as those relating to labour, taxation and regulation. And with the historical exception of Pretoria’s silent diplomacy towards Zimbabwe, it is unusual for business leaders to opine publicly on foreign policy matters. Yet, it is also legitimate for corporates to critique government when its policies are perceived to be damaging to the sustainability of businesses financial, commercial and trade interests. Yet public criticism may also heighten antagonism between business and government and sour relations further. Thus, a relational reset is required as there are persuasive reasons for business and government to co-operate more closely on foreign policy matters – indeed it is in the national interest to do so.

From the government foreign policy-making perspective, it would be wise to re-examine the institutional structure of our international relations and in particular the relationship between the Department of International Relations and Co-operation (DIRCO) and the Department of Trade Industry and Competition (DTIC). Australia, for example, combined the two successfully into a single Department of Foreign Affairs and Trade, resulting in a highly effective, integrated and focussed programme of international engagement oriented specifically to boost that country’s national interests.

South Africa’s national interests are served by its international companies operating as successful and responsible corporate citizens and thus, even at the most basic level, closer co-operation between government and business is warranted. In purely economic and financial terms, successful South African corporates operating internationally effectively earn ‘hard currency’, repatriate profits and pay significant company tax to the fiscus. Successful and responsible South African corporates operating internationally should be regarded as a national asset and central to the country’s economic diplomacy.

South African corporates are also essential to the country’s exercise and projection of soft power. Soft power is a country’s ability to persuade or influence others through non-coercive means, such as through economic engagement, political values or culture. In this regard, corporate diplomacy goes hand in hand with, and is inseparable from DIRCO’s, public diplomacy. The essence of corporate diplomacy denotes the achievement and sustaining of a social licence to operate. More broadly, corporate diplomacy is conventionally understood as the role played by companies in advancing their interests by negotiating and creating alliances with key external players. These typically include governments, communities, media, analysts and non-governmental organisations. While the particular form of corporate diplomacy conducted, and the ranking of key stakeholders is dependent on the specific context, South African corporates have (often through bitter lessons) become adept at the conduct of corporate diplomacy and in some cases are even referenced by international business schools as ‘textbook’ exemplars.

Yet, major South African retailers, for example, have lamented the lack of support from government, DIRCO and the DTIC when venturing into Africa in particular. One (now retired) famous retailer reportedly commented that his supermarket chain was successful in Africa despite, not because of, South Africa’s diplomatic missions. In this regard, the local developmental impact and quality of life improvements brought about by South African retailers in Africa is noteworthy. While some locals have objected to being crowded out by the entrance of South African retailers, this is far from a zero-sum relationship. For example, after learning hard and expensive lessons regarding the difficulty of food and value chain management in Africa, South African retailers have gone to lengths to encourage and incentivise local suppliers to stock its shelves. Not only has local economic development benefited from this, but the overall quality of local product has risen dramatically.

South African retail investment in Africa goes beyond building shops, growing local supply chains, quality job creation and advertising, however, as its shopping centres are growth points for scarce infrastructure build such as roads, electrification and water reticulation that are critical to national development. Beyond retailing, the positive developmental impact of South African cell phone network operators across the African continent has been nothing short of revolutionary.

But the most compelling reason for South African corporates to be brought into the foreign policy-making process is simply by virtue of ‘knowing the countries better’ than the diplomats.  By definition, diplomats come and go and serve a limited term in a particular mission and move on to the next step in their career. Seldom do they acquire the long-term and detailed experience of South African corporates operating in country. Diplomatic missions lose institutional knowledge, contacts and access at each regular change of personnel.

By contrast, South African mining houses, for example, are long-term investors and are obliged to develop local knowledge, understanding, partnerships and exercise good corporate behaviour simply to sustain their social licence to operate. In addition to being good corporate citizens, South African mining houses are obliged to adhere to stringent environmental protocols often under the scrutiny of well-funded western NGOs and activists. South African corporates do not enjoy the luxury of diplomatic immunity and are not only obliged to conform with all local law, regulation and convention, they are frequently held to a higher level of accountability and expectation than their local counterparts.

As part of their investment risk analysis, South African corporates are obliged not only to understand local law and custom, the latter of which is often informal and opaque, but to operate in a diplomatically deft and agnostic and respectful manner with respect to local and national politics. Yet, rent-seeking behaviour from local elites often places South African corporates under immense pressure and, in extreme cases, can result in the curtailing of operations. An all too familiar requirement for South African mining houses for is an awareness of and establishing operational defences against local opportunistic extortionists, criminal syndicates and paramilitaries. Local security forces are seldom on hand to protect South African corporates in foreign mining areas and yet corporate capitulation by paying off local criminals leads the company down the road to perdition, potential prosecution and expulsion from the country. South African diplomatic missions should be doing much more to assist corporates that are essentially being ‘shaken down’ by local kleptocrats.

Finally, a sensitive area often seldom recognised and under-appreciated is the security, crime and intelligence gathering value of business, particularly when operating in difficult jurisdictions. The obvious arena is that of oil, gas and mining exploitation, the accessing and capturing of which has been vital to terrorist organisations and criminal networks globally. The disruption caused by the Movement for the Emancipation of the Niger Delta (MEND) and the spread of Al Shabab and ISIS from the horn of Africa penetrating deeply into gas rich Mozambique are cases in point. Often it is corporates operating in the extractive sector that are in possession of the best quality intelligence on such terrorist and criminal networks as this is vital to security of their operations and the safety of personnel.

So, before business and government enter a new cold war over Russia and South African foreign policy and to paraphrase the words of Winston Churchill, jaw, jaw is better than a war war of words. It is high time for government and business to hit the reset button and co-operate more closely in the national interest.

Ian Kilbride

Chairman, Spirit Invest

Honorary Professor Stellenbosch Business School