Failure of big brands to comply with regulations hurts Africa's economy badly

If news and reports coming out of the Democratic Republic of Congo are anything to go by, the baton of big brands and their failure to create value for local (smaller) partners in Africa is now being held by telecoms giant Vodacom.

On paper, the partnership between Vodacom SA and Congo Wireless Network (CWN), struck in 2002 to birth Vodacom Congo has all the makings of a profitable business venture. However, for 15 years the business has not realized a profit and current management plans for continued losses through to 2020 and beyond.

Beyond that, the relationship between both parties has been frosty with previous legal actions taken against each other based on disagreements on how to manage the business and interest on loans to recapitalize the business.

Despite all the internal wrangling, Vodacom has remained the leading communication network in the DRC with about 8.5 million subscribers.

By denying CWN, a 49% shareholder of Vodacom (RCD) SA, access to the companies financials, refusing to agree to an internal audit, subverting justice through fraudulent activities of appointed officers, and going as far as falsifying court documents, Vodacom’s antics in the DRC follow a worrying pattern of flagrant non-compliance with corporate governance laws by multinationals operating on the African continent.

In October 2015, the Nigerian Communications Commission (NCC), slammed a $5.2 billion fine on MTN for failing to comply with the telephone subscriber’s regulation, and for not meeting the deadline for disconnecting SIM cards with improper registration.

The compliance audit carried out by the NCC on MTN network revealed unregistered 5.2 million customers lines un-deactivated. This led to the NCC fining MTN with the sum of $1000 for each unregistered SIM, which amounted to $5.2 billion, the largest corporate fine in Nigeria’s history.

The SIM registration exercise became necessary when Nigeria’s security agencies observed increasing use of unregistered cards for criminal activities, including by Islamist militant group Boko Haram. NCC gave all mobile telecoms operators till 11 August 2015 to deactivate all unregistered SIM cards.

According to the regulatory body, while all the other telcos complied with that directive, MTN failed to fully deactivate any subscribers and following repeated warnings and compliance enforcement visits by the responsible authorities, only made a partial attempt to bar unregistered subscribers in selected areas over a few days in September 2015.

The temptation to dismiss MTN’s failure to comply with regulations, albeit one with enormous security implications, in its biggest market Nigeria would have been overwhelming had a similar occurrence not surfaced in its operations in Rwanda.

In May, Rwanda’s telecom industry regulator fined MTN Rwanda, $8.5 million for running its IT services outside the country in breach of its license. According to a statement released by the regulator, “MTN Rwanda provided services in contravention of enforcement notice and directives issued by the regulator against hosting its IT services outside the country. By doing so, MTN Rwanda breached its license obligation requiring it to comply with all applicable laws, regulations and any other regulatory instruments issued by the competent authority".

It doesn’t end there. Vodacom Tanzania was one of the six telecoms companies fined a total of $4,760,520 by the Tanzania Communications Regulatory Authority (TCRA) in July for violating SIM card registration rules set by the regulator. Other violations levied by TCRA against Vodacom Tanzania and the other five companies include registering SIM cards without taking photos of the subscribers.

Back in 2015 TCRA also fined Vodacom Tanzania Sh22 million for failing to comply with the regulations. This came after the telco introduced special offers to subscribers in February 2015 without first filing same with the authority as required by regulations.

In 2013, Ghana’s Fisheries Commission imposed a $3.1 million fine on ten fishing companies for illegal, unregulated and unreported fishing (IUU) in the country’s waters and in breach of Ghana’s fishing regulations.

The roles played by global auditing firm, KPMG, and British PR firm, Bell Pottinger, in the scandal engulfing President Jacob Zuma and the billionaire Gupta family in South Africa are well documented.

All these goes to show that for most multinationals operating in Africa, the urge to not play by the rules, the mindset of skirting around regulations and corporate laws, the penchant for dismissing the ethical standards of corporate governance is the norm rather than the exception. This sadly is the mindset Vodacom has adopted in its operations in the DRC.

Recall that in March, the president of the DR Congo’s Commercial Court had appointed by order two accountants to audit Vodacom Congo SA. With 49% stake in Vodacom Congo, CWN has a right which is recognized by the relevant provisions of the commercial companies and economic groupings of the OHADA Uniform Act to access the companies’ financial statements and call for an internal audit if fraud is suspected in any form.

Vodacom’s decision to not only disobey orders issued by a competent court mandating an internal audit of the companies but falsifying documents to contradict same order speaks volume of its disregard for the DRC’s judicial system. This cancerous attitude should be condemned by all and sundry, not only by the Congolese people but all Africans.

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If indeed Vodacom’s vision for the Congolese market is to provide access to the best mobile telecommunications network services to enable the people to communicate and interact with people around the world, then it needs to treat the indigenous partner, CWN, on whose 2G license the operational framework is built, with more respect.

The failure of big brands like Vodacom to comply with regulations in countries where its operations extend in Africa seriously undermines the economic growth of the host countries and is a great disservice to the people and the local smaller partners. This trend must be checked as history has shown that no brand, no matter how big and rich, is above the law.

Kevin Mbwana is a Kenyan economist based in Nairobi.