African Regulatory Spotlight: The Importance of Governance

Author: Dr. Ken Jennings, K2J Environmental

Companies often focus on the existence or absence of environmental regulation as part of a market assessment, particularly on the African continent. However important an inventory of environmental regulations is, there are other key factors that should be considered. One is governance. How consistent and effective are institutions charged with determining compliance and managing enforcement of requirements? Consistency and effectiveness are a function of organizational structure, leadership, technical and regulatory capabilities of government representatives and corruption.

Two recent events, the disputed presidential election in Kenya where Uhuru Kenyatta declared victory over Raila Odinga, and the forced resignation of Jacob Zuma as President of South Africa in favor of Cyril Ramaphosa, underscore the importance of governance in any company’s assessment of environmental requirements in African markets. Both Kenya and South Africa have environmental laws on the books beyond most other African countries (see Table 1) yet ineffective or distracted governance could interfere with the smooth and systematic process of ensuring compliance. There is a natural inclination to consider ineffective governance an opportunity for business. Another possibility is the random application of environmental regulation, which is very disruptive.

Table 1: Summary of Existing Environmental Requirements in South Africa and Kenya

One example of a country with good governance is Tanzania. Its most recent change of government saw John Magufuli assume the Presidency after the term of Jakaya Kikwete ended in 2015. President Magufuli signed into law new and stricter mining laws geared towards ensuring that Tanzania reaps more benefit from its mineral resources. Laws included prohibitions on the export of unprocessed ores, the imposition of a 1% clearing fee on all exported minerals; a required 16% ownership stake in mining projects with increased royalty taxes on gold and other minerals; and the ability to renegotiate projects or halt mining licenses. Many of the international mining companies operating or considering operating in Tanzania, along with other investors, expressed misgivings at first. Now, with Tanzania poised to become, according to Oxford Business Group, a top producer of graphite. Concerns about the mining laws have reportedly abated. This very positive outcome, for Tanzania and industry, is in significant part due to the stable and effective governance in Dar es Salaam.