What Challenges are Governance and Financial Information Facing in Africa?
How to get reliable financial information?
The business relations of a company and its growth rely upon the trust they enjoy. As African companies are facing funding difficulties and struggle to survive, reliable financial information and governance are key issues.
Financial information informs investors and stakeholders
Removing obstables that constrain good financial information
Today in Africa, some obstacles are preventing financial information from being released properly.
The lack of adequate resources, the non-compliance with regulatory provisions and the poor management - often due to the shortage of expertise - reduce the quality of financial information. The culture of secrecy and the lack of transparency add up to systematize mistrust.
The business community does not seem to consider accountants and statutory auditors as business partners. From a sociocultural perspective, book-keeping is a legal duty, if not a fiscal constraint. Therefore, only the information declared to the fiscal administration is sent to the accounting officer for registration.
To date, the African business context does not provide enough incentives for the economic actors to formalize their activities. On the bright side, some legal improvements deserve to be mentioned:
- Reform of the Business Formalities Centre
- Implementation of the single window
- Removal of the business development tax
- Adoption of an investment Code
- Corporate tax rate reduction
- Implementation of Approved Management Centres and tax advantage
Ensuring good financial information
Any information deemed relevant must enable investors to understand and evaluate a company's financial position and performance.
Proper financial information must be comparable in time and space, i.e from one year to the next and from one company to another. The OHABL accounting law provides a body of provisions, sufficiently broad and consistent with the realities of Africa's business world.
However, in our global context, accounting professionals are contemplating harmonizing Africa's OHABL law with IFRS standards - largely used in Europe and more increasingly in Asia and the United States.
Information must also be easily understandable by any user who has reasonable management skills.
That being said, communication on companies' internal control systems and non-financial communication - Corporate Social Responsibility specifically - must be developed.
Governance is a balancing factor for the different parties
Observing the governance models in force
The financial regulatory system relies both on professional self-discipline and intervention of public authorities. The convergence of practices was implemented in some governance organs: the Boards of Directors, shareholders and stakeholders better involved in General meetings and better informed due to an improved transparence.
Countries and markets are positioning themselves according to two fundamental axes:
- The first factor would be the specific importance given to shareholders, which often reflects the"market culture" specific to each country. In this very Anglo-Saxon "shareholder" model, shareholders prevail. On the contrary, the "stakeholders" model gives much space to stakeholders.
- Two large governance structure also prevail: the structure of centralized blocks is applied in France and Germany whereas companies with dispersed ownership prevail in Great Britain and the Netherlands.
Developing Specific Governance Models
It is structurally difficult to transfer the western governance model to Africa. African companies are mainly family-owned or individual, medium-sized and small, do not use public offerings and are run by its founders or owners.
Various lines of actions can be considered to implement a governance model tailored to Africa. The creation of a code of ethics and the compliance with rules are essentiel points to develop. Internal control mechanisms throughout the company must be developped and their proper implementation must be secured.
An objective remunaration policy connected to the professionals' performances is mandatory.
If a company opts for a Management board, the entire board must be comptent, independent, able to express their views freely and play an exemplary role: it is called "tone at the top".