The Risks and Rewards of Political Party Donations in Africa

Businesses around the world—including Europe and the United States—often use political party donations as a means by which to win influence and get an edge on potential competitors.  The potential benefits are obvious.  With projects or businesses where government buy-in is key, such as the awarding of a contract, well directed donations toward a governing party can help wing decisions in favor of a certain enterprise.  Donations also can help firms successfully lobby for regulatory changes that would make their investments more profitable.  And if a problem arises—local obstructionism, bureaucratic inertia, or anything else—such donations can ensure that a firm has an open door to the government’s key decision makers, the men and women who can ensure that sticky problems can be quickly unstuck.

However, while these benefits are clear, the party funding game is one fraught with minefields.  First and foremost, governments change—overwhelmingly backing one political horse can have disastrous consequences if a rival party is elected or otherwise comes to power.  This is applicable even within parties, particularly those beset by factionalism and other internal rivalries where a business is perceived to back one particular politician or group.  Party funding also brings the danger of a sort of never-ending Pandora’s Box—once you donate, the requests never stop coming, and a failure to follow through, even after years of loyal support, can have consequences.  And lastly, firms must carefully understand and adhere to the regulations regarding party donations—amounts, sources, disclosures, and the like.  These rules often change between election cycles, meaning careful attention must be paid to the regulatory framework. 

All of the issues above deserve particularly close scrutiny for firms looking to do business in sub-Saharan Africa.  The continent, with its rapid economic growth in recent years, has received mounting attention of businesses of all types looking to expand their operations.  Whether it is resource extraction, retail, telecommunications, or anything else, Africa offers investors the opportunity for tremendous returns on their investments.  That said, investments on the continent also frequently entail significant political risk stemming from inter- and intra-state conflicts; governmental instability; potential for civil unrest stemming from governments’ inabilities to meet the needs of their citizenries; and weak regulatory and legal systems.  In short, any company looking to do business in any of sub-Saharan Africa’s 49 countries needs to have a very good idea of what it’s going into before embarking on such endeavors.

Party financing is no exception to this point.  The idea of using political donations to score points throughout Africa is intriguing in large part because picking winners seems so easy.  Although nearly all sub-Saharan states hold elections at regular intervals, few offer anything close to a competitive environment whereby an opposition party has a legitimate chance to win national control (Ghana in 2008 and Zambia in 2011 and next year are notable exceptions).  Opposition weakness stems from a variety of reasons, including lack of capacity, funding shortages, and—most commonly—electoral “deck stacking” by ruling parties that ensures they can use state resources and, in some cases, intimidation, to ensure their dominance.  In addition, the relatively low cost of African elections—particularly in smaller countries—compared to those in the West means that companies can get a lot more “bang for the buck” there.

In any case, with winners often pre-determined across the continent, donations to the ruling party would seem like an easy way to win influence for firms.  This is not necessarily the case.  Most of the minefields raised above are highly applicable in an African context.  Factionalism in African ruling parties is an issue across the continent.  A firm looking to contribute, for example, to Zimbabwe’s ruling Zimbabwe African Union-Patriotic Front (ZANU-PF) must understand the nature of that party’s divisions as rival factions look to succeed longtime President Robert Mugabe.  African ruling parties often split, with disaffected rivals breaking away to form new parties and join others—with the upshot that these figures can reveal sources of political funding that businesses would wish to remain discreet.  Firms also should prepare themselves for continual demands by ruling parties for funds, even between election cycles, for unspecified “party building” exercises; where these monies go is seldom clear. 

Understanding regulatory environments for party funding also is a necessity on the continent.  In sum, 18 sub-Saharan states have laws that demand parties or donors disclose either all or some party donations, while 15 countries ban any sources of foreign funding.  A handful of states—notably Mali—specifically ban corporate donations.  In reality, most of these laws are on paper only; enforcement is almost non-existent.  However, the issue of party finance is gaining greater public attention and scrutiny throughout the continent.  Tanzania and Kenya in recent years are among states that have amended electoral laws to ensure greater scrutiny and transparency of political donations, while civil society in South Africa—which has almost complete opacity in regard to political donations—is leading the call for greater regulation of political donations.  In addition, enforcement is as much a political issue as it is a regulatory one; Uganda, for example, allows foreign funding except when it is a threat to national security, suggesting that a firm clearly understand the parameters of this “threat” before making any contributions.

In all, there are no hard and fast rules in determining whether to delve into the party financing rule in Africa; each firm has to consider its specific aims and interests to decide whether such a move is prudent.  That said, we at ISI would suggest a few considerations to take into account:

  • Carefully understand levels of government: Although national government is paramount in most African states, firms should carefully understand the roles of provincial/regional and local governments before making donations.  If you want to make an investment in province X or city Y, and those entities are controlled by the national opposition party, the firm needs to understand the political and legal dynamics of that before making funding choices. 
  • Seek discretion…but don’t count on it: Even where it is legal, open funding of political parties by foreign firms can prove a political lightening rod, raising accusations that the funding destination is stalking horse for external, neo-colonial interests.  Hence, finding local cutouts and subsidiaries to make the donations is generally in the best interests of foreign firms.  Making donations through one or a handful of leading party figures is another solid strategy.  That said, the potential for party splits and other leaks means that firms should be prepared for their funding role to become public, hence they should have a strategy in place to ameliorate any potential fallout.  This fallout is not just local; Western media is likely to make hay out of firms dabbling in politics in some of the continent’s more repressive and corrupt regimes, making a coordinated media strategy even more important.  
  • Consider a mix: As a hedge against political risk, businesses should consider blending their party funding across parties.  This can be along the lines of voter support (ie 70 percent of funds to a party getting 70 percent of the vote) or equally to parties meeting a certain threshold (such as 10 percent of the vote).  While this might diminish influence with a ruling party, it protects against low probability scenarios where a seemingly weak party wins an upset victory—either at the next election, or in the foreseeable future.
  • Set your parameters.  As noted, once you start giving to a ruling party, there is always likely to be another demand.  Before starting down the funding road, firms must clearly lay out what it is they are seeking to get from their party funding.  Short-term projects—a construction contract with a clear exit point—would not require a long-term strategy but may require more investment up front.  A firm looking to operate long term, however, will similarly require a long-strategy.  Whatever the case, firms must establish early on what their parameters for giving will be, and operate within them accordingly.

Overall, the funding game is a tricky one that requires exceptional attention to detail.  If this is something that is of interest, ISI can provide you a host of tailored solutions.  These include careful political analyses of countries throughout the continent that can help you weigh the pros and cons; clear explanations of party finance laws to help prevent inadvertent law-breaking; identification of local individuals and entities through which you can work in making donations; and brokerage of introductions that can help start the process moving.  To conclude, while party funding anywhere has significant benefits and minefields, these are magnified in Africa.  Make sure you clearly understand the state of play before getting involved.

ISI Consultants assists U.S. companies to enter or further expand their business in Middle East and African markets. From small projects to longer-term engagements, we put our knowledge and experience to work for you, saving you time and money and minimizing your risk. And our results-oriented approach means we don’t just advise you on what to do to be successful – we work with you to get it done.

As part of our commitment to the National Export Initiative (NEI), ISI Consultants offer a limited number of COMPLIMENTARY STRATEGY SESSIONS each month to qualified U.S. companies. 

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