Operational risk in Africa

While China is not perceived as a direct target, the desire to cause economic chaos to foster rebellion or social unrest is very present. One way to fund political unrest is to kidnap foreigners, such as in Algeria and Nigeria. South Africa, on the other hand, has its own homegrown kidnapping industry but admittedly just for the purpose of extracting money from individuals.

Fourth, plants that are near borders are vulnerable to incursions from rebel groups that straddle the notoriously porous borders in Africa in quick raids before fleeing to the safety of neighboring countries.

And finally, one cannot fail to mention that the Somali pirates have created copycats in West Africa, where roving bands have adopted the same modus operandi.

Sometimes only some of these elements are combined, but any combination of these risks significantly raises the premium of doing business in African countries. In many cases these situations are dormant and a spark could trigger a political blaze. Staying ahead of these developments is the role of the risk command center that should be part of any business plan.

China has so far adopted a position of benevolent neutrality and non-interference in domestic affairs. However sincere and sound this approach might be it cannot guarantee that Chinese companies and citizens will not be targeted for the presumed support to a party or group in power. We know what Chinese workers in the Niger Delta had to face after being taken hostage by insurrectional groups that were trying to force the government of Nigeria to agree to some concessions.

Chinese investors have an advantage over their Western counterparts. Despite the occasional grumbling, Africans by and large see their involvement in the continent positively. It is thus incumbent upon Chinese investors to be forward looking and prepare for their involvement by setting up risk command centers.

Furthermore, guanxi (connections or network of influence) works both ways. It pays to be recognized as an active member of the community where you do business, as many French and British expatriates would testify.

There are many Chinese success stories, but there also are a few that did not end so well. With the benefit of hindsight, one can say that this could have been prevented. It is up to us to not just rely on hindsight.

The author works in an investment advisory firm that specializes on Africa. He has also worked in 19 African countries, advising companies such as Apple, Microsoft and Sega on business development.

(China Daily 01/29/2013 page9)