Cote d’Ivoire faces continued insecurities as 2015 polls approach

By Anaïs De Meulder

Only two years after the 2010-2011 post-election crisis that resulted in some 3,000 deaths, Cote d’Ivoire is already preparing to hold presidential elections amidst persistent insecurities. On 4 May 2013, President Alassane Ouattara announced that voting would be conducted electronically at the 2015 presidential polls, in order to prevent incidents of ballot-box interference which were seen during municipal and regional elections, both held on 21 April 2013. The local elections, characterised by accusations of irregularities and violence, highlight the country’s persistent security problems and its lingering instability.

The polls were seen as a trial run for the 2015 presidential elections, which will be the first since the widespread political violence that followed the November 2010 vote. Fighting broke out when former president Laurent Gbagbo refused to concede victory to Ouattara, the internationally recognised winner. Continued political violence and infighting within Ouattara’s ruling coalition is likely to result in long-term ramifications for investor confidence in the West African nation.

Independent parties take the lead
The local elections were characterised by the emergence of various independent parties, reflecting the growing divisions within both the ruling Rally of the Republicans (RDR) and the Democratic Party of Cote d’Ivoire (PDCI).  The PDCI, in particular, is divided between the current leadership and its youth wing, which is increasingly resentful of Bedie’s supremacy. Many PDCI members consequently abandoned the party to run as independents. Moreover, despite opinion polls before the election placing the RDR and the PDCI as the narrow favourites, independent candidates performed surprisingly well. While Ouattara’s RDR performed better than any other party in the regional elections, securing 10 of the 31 regions, independent parties came out on top in the municipal elections, gaining 72 out of the 194 local councils, in addition to six regions. The RDR won 63 of the 194 local councils, with Henri Konan Bedie’s PDCI secured just 46 local councils and four regions. In the remaining nine regions, the RDR and PDCI were able to successfully run together under the Rally of Houphouetists for Democracy and Peace (RHDP) banner.

FPI boycott undermines stability
The FPI boycotted the local elections, just as it did the parliamentary polls at the end of 2011, highlighting the slow progress of reconciliation in the country as well as the difficulties inherent in achieving political stability. The boycott enabled a large number of ‘independent’ candidates to secure victory in its strongholds in the south, as many of the independent parties are also linked to Gbagbo’s Ivorian Popular Front (FPI). This was particularly the case in the cocoa belt in the south and west of the country as well as Abdijan’s Yopougon suburb.

The polls therefore reinforce the regional north-south divide in the country, a division exacerbated by the First Ivorian Civil War in 2002, which split the country into a rebel-held north and a government-held south until 2011. It also suggests that the regional divide will continue to feature at the 2015 elections. Following the polls, the FPI stated that it did not recognise the results of what it claims to be an ‘electoral masquerade’ and called on its members to unite against the Ouattara ‘regime’. The boycott led to a low point in voter turnout, with 30% of the population participating in the election compared to a 40% turnout in the municipal elections of 2001. Such a low turnout undermines the mandate of the ruling RDR, weakening political stability.

Survival of the ruling coalition is important for long-term stability
Stability is further undermined by the growing tensions between the RDR and PDCI. The two parties, who govern the country within the RHDP coalition, appeared on separate electoral lists in the majority of voting constituencies. The local elections have exacerbated the rivalry between the RDR and the PDCI within the coalition, which lost its former cohesion when Gbagbo, their common rival, was extradited to The Hague in November 2011 on charges of crimes against humanity. Moreover, the FPI has called on the PDCI, which has accused the RDR of electoral fraud, to form a new alliance against Ouattara.

The increasing divisions between and within the coalition partners is likely to destabilise the coalition and enable the opposition to gain momentum. Although the FPI is poorly positioned to retake power in 2015, the run-up to the 2015 elections is likely to see increasing tensions between Ouattara and Bedie, who each have their own presidential ambitions. The inability of the coalition to maintain its coherence will increase the danger of violent political competition in the north as the elections approach. Meanwhile, the increasing internal rivalry will undermine the coalition’s ability to progress with reforms designed to facilitate investment.

Risks of political violence
The April 2013 elections have further weakened the RDR as they demonstrate Ouattara’s inability to hold peaceful polls whose legitimacy is accepted by all political actors. Although voting was generally peaceful, the Independent Electoral Commission (CEI) and the UN mission in Cote d’Ivoire (ONUCI) announced that ballot boxes were destroyed and stolen by young protesters in the night following the election. Moreover, significant unrest arose when electoral results were contested in Koumassi, Yopougon and Cavally. Localised incidents of political violence especially affected Abidjan and Yamoussoukro, where police clashed with young protesters. Security risks are further heightened in the west of the country, which remains troubled by attacks from neighbouring Liberia by pro-Gbagbo militias and Liberian mercenaries.

Elections have implications for investors
Along with the increasing rivalry between the RDR and PDCI and the weakening of the ruling coalition, this persistent insecurity is likely to undermine future improvements to the business environment. Full-blown conflict, as seen in 2010-2011, is unlikely in the short term, but the municipal and regional elections have shown that there is potential for renewed large-scale violence in 2015. The resurgence of sporadic violence is likely to concern investors and constrain short-term growth prospects, while the ability of companies to conduct long-range planning will be affected by fears of disruption in 2015. Investors are likely to be faced with increasing risks of attacks on company assets and personnel, especially in cocoa-producing provinces bordering Ghana and Liberia and in Abidjan, a flashpoint during the post-election violence of 2010-2011.

Anaïs De Meulder is an analyst at Maplecroft

Shifting sands beneath the tax landscape. Photo credit Wikimedia

By James Smither
In a move that may prove a forerunner for other resource-rich economies, Zambia’s Finance Ministry on Monday 6 May announced new measures aimed at curbing tax avoidance by foreign investors. The country estimates that it loses around US$2bn each year to the problem, a sum equivalent to over 10% of its $19.2bn GDP in 2011. Under the new regulations, the government will from 16 May onwards require foreign currency earned from all exports over $10,000 in value to be deposited in a commercial bank in the country within 60 days and evidence to be provided for the reasons behind transferring the funds offshore.

Zambian officials have acknowledged that securing higher revenues from its mining sector, currently estimated to contribute between 9-10% of the country’s GDP and expected to grow to $1.35bn in size by 2015, is a prominent objective of this move. The country doubled its royalties on copper production from April 2012 but refused to introduce a windfall tax on company profits, a levy under consideration in fellow metals producer countries Ghana, Cote d’Ivoire and South Africa. Kenya and Tanzania also introduced higher royalty regimes in 2012, a move that may be echoed further afield in Poland, Romania, Quebec, Mexico and Brazil in the year ahead.

Higher taxes, higher collection

While straightforward tax increases will remain a weapon in the policy arsenal, transfer pricing – essentially charges across different jurisdictions between legal entities within the same corporation to achieve fiscal efficiencies – may emerge as the latest front in the increasingly complex and contentious ‘resource nationalism’ equation involving mining and energy investors and their host governments. If Zambia’s decision is seen to improve revenues without significantly deterring investment, other countries can be expected to follow suit – in much the same way that royalty adjustments, windfall taxes and retrospective reviews of individual companies’ licence agreements have all been enthusiastically replicated across multiple jurisdictions in the recent past.

Despite industry concerns, international winds appear to be blowing in Zambia’s direction on this topic and potentially strengthening the hand of other administrations keen to follow in its footsteps. The April 2013 G20 Finance Minsters’ Communique stated that “More needs to be done to address the issues of international tax avoidance and evasion.” Revenue mobilisation through higher and broader tax collection meanwhile remains a key pillar of the IMF’s technical assistance work with developing countries around the world, while the African Development Bank in 2012 opined that “royalty rates… in the region can be increased to enable countries to better profit from the sector while allowing firms to realize reasonable returns on their investments.”

Shifting sands beneath the tax landscape

Against this potentially growing enforcement backdrop, forecasting and managing emerging fiscal risks will remain a key priority for natural resources companies around the world – especially in Zambia’s neighbourhood. According to the World Bank, sub-Saharan Africa is already both the most onerous and most aggressive tax region in the world – requiring an average of 39 separate payments and 319 hours per year to complete processes accounting for an average rate of 57.8% of profits. The continent’s revenue authorities also feature regularly at or near the top of surveys of its most corrupt institutions – with aggressive investigations of alleged arrears often used as a pretext for bribery demands.

Both Zambia’s administration and other governments are increasingly keen to secure the greatest possible array of economic and social development benefits from the depletion of their finite natural resources. Companies involved in that extraction process, meanwhile, complain that ever more onerous requirements targeting their profits, limiting their ownership and mandating ever greater ‘localisation’ of skills and other inputs damage operating margins and deter high-risk investments in volatile commodity classes that can take decades to achieve meaningful returns. With many companies’ input costs rising and grades declining, recent downward trajectories in commodity prices – especially gold – will only heighten the stakes and squeeze the margins further.

Uganda’s Petroleum Act likely to boost investor interest, but risks remain. Photo Credit futureatlas

The unveiling of Uganda’s new Petroleum (Exploration, Development and Production) Act 2013, has paved the way for new bidding rounds and a lifting of the ban for new oil licenses, which has been in place since 2006. These developments have sparked a rush of interest from oil and gas firms that are keen to invest in the country’s huge hydrocarbons potential. This potential is illustrated by the success of drilling in the Lake Albert region so far, with oil discovered in 76 out of 87 wells.

The new legislation governing Uganda’s petroleum sector will provide greater regulatory clarity for investors, but the operating environment remains complex and companies need to be aware of the range of risks that they may encounter. In particular, there are challenges related to the lack of transparency, weak institutional capacity, poor oil and gas infrastructure, entrenched corruption, and the personal involvement of President Yoweri Museveni in the industry.

Regulatory uncertainty persists

The Petroleum (Exploration, Development and Production) Act 2013 was gazetted on 5 April 2013, supplanting outdated legislation dating back to 1985. The new regulations clear the way for bidding rounds, the first of which is likely to be held in late 2013, with 13 exploration areas set to be licensed.

Despite improvements in the regulatory framework that the act brings, ongoing uncertainty could delay investment, at least for the next six months. The Petroleum (Exploration, Development and Production) Act was the first of three bills designed to regulate the oil and gas sector. While the act provides for signature bonuses, royalty payments and annual payments, these are unstipulated. Such additional regulations may provide more clarity, but contracts are still likely to be subject to considerable negotiation between investors and the Ugandan government.

Meanwhile, the Petroleum (Refining, Conversion, Transmission and Storage) Bill, which regulates midstream activities, was approved by parliament on 21 February 2013 and is expected to be signed into law by Museveni reasonably quickly. However, the final bill – the Public Finance Bill – is likely to be more controversial. The proposed legislation, which is currently before parliament, will regulate the management of oil revenues. A high level of public and parliamentary scrutiny of the bill could lead to further delays, suggesting that regulatory uncertainty will persist in the short term.

Institutional responsibilities remain vague

Under the new Petroleum Act, the administrative responsibilities for the management of Uganda’s petroleum sector are separated under three institutions. The Ministry of Energy and Mineral Development is responsible for policy and regulation, and will handle the negotiation of agreements as well as granting and renewing licences for commercial players. The Petroleum Authority of Uganda will advise the ministry and supervise compliance of operators with contractual and legal obligations. Meanwhile, the proposed National Oil Company (NATOIL) will manage state participation in the sector, including through joint ventures.

The institutional separation of powers provides for checks and balances, which could reduce potential conflicts of interests and boost transparency. However, further clarification over the specific roles and reporting requirements of each institution will be required to avoid confusion. Oil and gas companies will therefore face short-term uncertainty and delays in projects being approved while regulations and institutional frameworks are embedded. Weak institutional capacity – a major challenge facing investors – may be exacerbated by the need to spread existing human capital and technical expertise across the three institutions, compounding risks of delays. Furthermore, lack of clarity over the management and functions of NATOIL contributes to ongoing concerns over poor transparency in the sector.

High-level political involvement in the oil sector set to continue

Despite the inclusion of provisions to improve transparency, investors in the oil and gas sector will continue to face substantial risks of complicity in corruption. Unlike previous regulations, the new Petroleum Act allows for competitive bidding, although guidelines have yet to be formulated. Officials are prohibited from having a direct or indirect interest in any venture, holding an equity participation in petroleum activity, or providing goods and services to the industry. However, the Petroleum Act failed to grant the parliament responsibilities for oversight of the oil sector, which will undermine scrutiny of production-sharing contracts. This is a likely attempt by Museveni to maintain his close personal involvement in the negotiation of contracts, as well as an effort to re-affirm his control over parliament, which has become increasingly assertive amid growing social unrest since 2011.

The failure to establish parliamentary oversight also means that investigations of corruption allegations related to previous deals between the government and petroleum companies are unlikely, suggesting that businesses will face significant legal and reputational risks of complicity in corruption for the foreseeable future.

Furthermore, the concentration of the power to grant and revoke licences in the hands of the oil minister heightens concerns about opaqueness and political control over the energy industry. Under the Petroleum Act, the Petroleum Authority could be reduced to little more than a rubber stamp for the minister’s decision, while the minister may also issue instructions to NATOIL. Uncertainty over the specific responsibilities of each institution may also provide the opportunity for political actors – including the oil minister (appointed by Museveni) – to strengthen their control over the sector.

Investors will continue to face challenging business environment

While increasing clarity in the regulatory framework is likely to boost investor interest in Uganda’s petroleum sector, businesses will continue to face immense challenges. These include weak institutional capacity, poor transparency and high-level political involvement in the sector. The new regulatory framework does not significantly lower any of these risks, and indeed may exacerbate some aspects, particularly in the short term. Inadequate and expensive infrastructure will continue to constrain investment opportunities. Ongoing international arbitration and plans to build a domestic refinery suggests that the government is likely to continue pursuing a hard line with investors. Nonetheless, the potential of Uganda’s oil reserves will continue to present exciting opportunities for investors prepared to navigate a high-risk political and business environment.

For more information on Maplecroft’s in-depth Country Risk Report for Uganda, which focuses on the key risks affecting oil and gas firms investing or operating in the country contact info@maplecroft.com.

Sarah Collier, is a member of Maplecroft’s Africa Practice

China baby milk crisis highlights low consumer confidence to domestic brands

Purchase limits in overseas markets coupled with toughened custom controls between Hong Kong and the mainland has led to an infant milk formula supply crisis for Chinese consumers. From early April 2013, major retailers in the UK including Sainsbury’s, Tesco and Boots have all imposed purchase limits on sale of baby milk powder to two tins per person per day. This followed similar measures applied in other countries such as Germany, the Netherlands, the US, Australia and New Zealand.

The ongoing crisis reflects the very low trust and confidence in domestic products following on from the highly publicised 2008 infant milk scandal. The illegal practice of adding melamine to milk to boost the protein level led to the deaths of six infants and damage to health to more than 300,000 babies in China. The scandal together with China’s appalling food safety records have led to aspirational middle class parents paying inflated prices to online brokers for foreign-made milk powder.

As Western dairy companies seek ways to balance global supply, as well as meet rapidly growing demand from the Chinese market, some have established direct selling channels online. For instance, Danone (which produces Karicare, Cow & Gate and Aptamil) and Nestle (which owns NAN H.A & Wyeth) set up partnership with China’s Tmall (a popular business-to-consumer online retail platform owned by Alibaba Group) in March 2013 to sell baby milk powder directly to Chinese consumers. Considering the potential demand for foreign-made milk powder, China offers great business opportunities for setting up official direct selling operations, cutting off private brokers and unregulated imports. Approximately 16m babies are born every year in China and only 28% of them are breastfed. By comparison, the breastfed rate in the UK stood at 81% in 2012.

However, as foreign dairy manufacturers look online for expanding their market share in China, the country still lacks an adequate regulatory framework to govern distance retailing. Despite the fast growing online commercial space – expected to value over US$250bn in sales in 2013 – China does not have designated regulations on e-commerce. Although large online retailers such as Taobao have extensive terms and conditions in consumer protection and dispute settlement, enforcement can be cumbersome as there is inadequate legal backing for these rules. Product quality, payment security and reliability of delivery services remain top concerns for both internet shoppers and retailers. Given the absence of a robust regulatory framework, businesses selling goods online continue to face high reputational risks, particularly when encountering disputes with consumers. Moreover, questions remain whether dairy companies using business-to-consumer (B2C) platforms to sell foreign-made milk formula can meet demand volume in China. Prior to the agreement with Tmall, brands such as UK-based Cow & Gate did not officially export to overseas markets. Therefore, high sales figures in China could cause capacity problems in sourcing and production. Indeed, the ongoing drought experienced in the world’s top dairy exporter, New Zealand, has not only led to record-level wholesale prices for milk powder, but it has also added to the supply crunch to the Chinese market.

In addition to regulatory uncertainties and potential problems in production capacity, the Chinese government is likely to intervene with higher taxes on imported infant milk and other restrictive measures, should all major Western dairy firms follow the model of B2C direct retailing. Direct importing and selling foreign-made milk powder brings little, if any, benefit to China’s domestic dairy industry, which suffered severe damage from the 2008 scandal. The government prefers joint-ventures between reputable foreign firms and local producers in order to revive China’s dairy industry. However, full or part foreign ownership is unlikely to regain consumer trust in domestically produced milk powder. Due to weak implementation on food safety regulations, locally sourced ingredients, including fresh milk, continue to be exposed to high risk of contamination along the supply chain.

 Guo Yu is a Senior Asia Analyst at Maplecroft

Pressure mounts after Dhaka factory collapse, but change remains unlikely. Photo credit Wikimedia

By Ryan Aherin

The 25 April 2013 collapse of the Rana Plaza, which resulted in the deaths of at least 300 workers, has brought further scrutiny over poor working conditions in Bangladesh. International and domestic pressure is mounting on the Bangladeshi government to take action towards improving labour standards in the country. However, the garment industry has significant political influence, and factory owners face great pressure from their clients to maintain competitive pricing amidst tense regional competition. These factors, combined with general political instability, will make it difficult for significant improvements in labour standards to be achieved in the short term.

Political influence of garment industry inhibits change

Bangladesh’s economy relies heavily on the export of ready made garments (RMG). In 2012, RMG exports accounted for 78.6% of the country’s total of US$24.2bn (according to the country’s Export Promotion Bureau). In 2012, Bangladesh’s total value of exports to the US and EU combined was US$15.4bn, second only to China.  However, regional competition in the industry is fierce – Vietnam’s own RMG sector is growing rapidly, and is threatening Bangladesh’s position, with total export value of US$12.6bn in garment exports to the US and EU in 2012. Furthermore, Vietnam’s participation in the Trans Pacific Partnership and a relatively more stable (albeit authoritarian) government will only increase its competitiveness in years to come. This will place increasing pressure on Bangladesh’s manufacturers to keep costs down.

Bangladesh’s garment industry has also suffered significant financial loss as a result of the political instability that has been ongoing since the March 2013 conclusion of a war crimes trial that sentenced a leader of the Jamaat-e-Islami party to death. The sentencing ignited tensions within the country, with factions both in favour of and against the death penalty carrying out street demonstrations. The riots resulted in factory closures, which business leaders in the garment industry claim resulted in US$500m worth of export orders going to other countries. In light of these losses, the industry would resist any initiatives that would increase the cost of production and cause investors to seek cheaper labour elsewhere.

Foreign governments unlikely to have significant influence for change

The US Trade Representative is in the process of reviewing Bangladesh’s privileges under the Generalized System of Preferences (GSP), which gives developing countries special tariffs on selected imports. The Obama administration has been under heavy pressure from the AFL-CIO trade union federation to revoke Bangladesh’s GSP status because of the country’s poor labour standards. While the GSP does not cover Bangladesh’s garment exports to the US, the move would have symbolic significance which could influence US brands to source products from other countries. However, such a move would only further alienate the impoverished nation, and would seriously dent what little influence Washington has over Dhaka.

It is therefore unlikely that domestic or international pressure will influence any significant change in Bangladesh’s labour standards. Foreign investors will continue to face significant supply chain risks as a result of poor oversight. Some companies have taken measures to monitor their contractors more closely. However, the widespread use of subcontractors, typically done without the knowledge of the client, makes it difficult for investors to monitor their supply chains. This could result in delays or even losses in production, as well as significant reputational risks for being complicit with subcontractors who do not meet labour standards.

More in-depth analysis of supply chain risks in Bangladesh is available via Maplecroft’s Labour Standards Report – http://maplecroft.com/about/news/country-risk-reports-bangladesh-april29.html

Ryan Aherin is an Asia Analyst at Maplecroft

Dramatic abduction of foreigners demonstrates risks in Afghanistan’s restive eastern provinces

By Dr Karl Sandstrom

The Taliban’s capture of a group of development workers in Afghanistan this morning is not the propaganda success they are trying to make it into by claiming that the group were all NATO soldiers. In fact, once the workers’ identities have been established, a release is the most likely scenario – unless a rescue attempt is made.

On 22 April 2013, a helicopter reportedly belonging to Afghan civilian charter airline Khorasan Cargo Airlines made an emergency landing in insurgent-dominated Azra district of Logar province in eastern Afghanistan. All crew and passengers were detained by the Taliban, who subsequently destroyed the helicopter. While precise information about the passengers appears unavailable, the group most likely consisted of one Russian, one Afghan pilot/interpreter and nine Turkish civilians working on a Turkish development project in Khost (located in ISAF regional command East (RC-E)).

It is noteworthy that the Taliban claim that the entire group consisted of American soldiers and that they were dressed in US military uniforms. US forces, on occasion, have been reported to ask journalists to wear uniforms in order to blend in with the troops they are accompanied by. It is however unclear why civilian development project personnel would wear military uniforms when in transit from their own project site. Turkey, a member of NATO, does have troops in Afghanistan but they are not deployed in RC-E. Further, Turkey would most likely transport troops using its own air assets. The Russian embassy has also confirmed that one of the hostages is Russian, thus suggesting a civilian helicopter with a contract pilot.

Hostages likely to be released following negotiations

Azra district, formerly a part of Paktia province, is on the border with Pakistan, heightening the possibility that the hostages may be transferred across the border into Pakistan’s Federally Administered Tribal Areas (FATA) for lengthy detention. However, it should also be kept in mind that a vast majority of kidnappings involving foreigners in Afghanistan have resulted in the eventual release of the hostages. Of around 100 foreign hostages since 2001, more than 80 have been released by their captors, rather than freed through military or police raids or escaping. The lengthy detention of US Army Sergeant Bowe Bergdahl since June 2009 also suggests that being taken does not equal death in Afghanistan – even for US soldiers. In addition, the fact that Turkey is a Muslim country could contribute to the hostage being released.

The fact that the passengers were abducted rather than executed on the spot suggests a profit motive of an economic or political nature rather than a propagandistic statement. The latter could theoretically take the form of gruesome execution videos that are then sent to media stations and intended to reduce popular support for the Afghan war in ISAF nations. However, it must be noted that such tactics are extremely uncommon in Afghanistan. At the same time, the influx of radical, madrasa-trained and ideologically-driven fighters from the Pakistani side of the border makes this a moderate possibility. Indeed, summary executions of foreign aid workers suspected to have been committed by such groups have occurred in some north-eastern provinces such as Badakhshan.

Local elders were reported to be involved in negotiating a release – a common method of negotiation in Afghanistan that often yields positive results. The most likely scenario is an eventual negotiated release – unless ISAF or ANSF feels compelled to act to free the hostages, in which case the life of the hostages could be further endangered.

Dr Karl Sandstrom is a Senior Asia Analyst at Maplecroft

Child labour, the vulnerability of girls and the role of business

By Amber Larsen

The ILO estimates that there are 215 million children labouring in the world. The underlying reasons for child labour are diverse, and include discernible issues such as extreme poverty and lack of access to education. However, what might not be as apparent are the gender dimensions of child labour exploitation and how these perpetuate poverty cycles.

Due to a myriad of factors, such as boy child preference, early marriage and traditional gender roles, girls suffer from greater disadvantages than boys in accessing quality education, restricting their socio-economic progress. For example, poverty can cause families to remove their children from school, and girls are at an increased risk of being removed from education to support their families.  Data retrieved from Girls Discovered reveals how female youth literacy rates are lower than those for males in the same age group, in for example India (girls 74%, boys 88%), Pakistan (girls 59%, boys 79%), Nigeria (girls 65%, boys 78%), and Guatemala (girls 84%, boys 89%).[i]

Gender disparities affecting access to education can directly influence the prevalence of child labour. For example, girls are particularly at risk of being engaged in the informal domestic sector. In this environment, young girls are removed from any contact with the outside world and exposed to risky work environments. In addition, they are denied access to education, thus perpetuating poverty cycles. Gender-disaggregated data reveals that the percentage of girls aged 5-14 years engaged in child labour is as high as 48% in DR Congo, 12% in India, 38% in Cambodia, and 36% in Peru (for a global view, please access Girls Discovered).^[ii]

The business relevance – risk and sustainability

How is this relevant to business? When operating in, or sourcing from, countries with a high prevalence of child labour, businesses face various risks. These include, for example, revenue losses, brand contamination, negative media exposure, divestment, legal action, stakeholder alienation and reputational damage.  In addition, long term investment returns can be undermined.

Educating girls promotes sustainable business and is a step towards the elimination of child labour

Education lies at the heart of the wellbeing and development of all children, and society at large. Educating girls empowers individuals, families, and communities, and goes hand in hand with health and development. Moreover, education grants girls economic empowerment, can break poverty cycles, and be a step towards the eradication of child labour.

Businesses should be aware of the gender-based social dynamics in order to effectively prevent and address incidents of child labour exploitation in their operations and supply chains. Responsiveness to child labour and its underlying issues will assist investors in identifying viable business solutions and contribute to the rehabilitation of child labourers. Gender vulnerabilities should be incorporated into to all child labour prevention, monitoring and remediation strategies.

Girls require increased investment in their rights to a childhood free from labour and equal access to education. Businesses can support girls’ rights and promote equality through gender-sensitive social investment programs that target the underlying causes of child labour.

Responsible businesses can utilise data sources such as Girls Discovered to identify and act upon any gender inequality risks that may exist in their areas of operation.

Raising awareness – Girls Discovered: global maps of adolescent girls

To raise awareness of the issues adolescent girls face, over the past four years, Maplecroft, in partnership with the Nike Foundation and the United Nations Foundation, has developed Girls Discovered, a global database of key indicators pertaining to the social, economic and legal welfare of adolescent girls. The aim of the website is to raise awareness of the situation faced by many adolescent girls as they strive for equality, and is accessible to anyone who seeks change for the world’s 515 million adolescent girls.

EU disclosure rules target increased transparency in resource management, expanding compliance challenges for extractives companies

By Chris Dixon

On 9 April 2013, European Union (EU) ministers reached agreement on new transparency rules for the extractives sector aimed at countering mismanagement of resources in developing economies. The EU is following in the footsteps of the US, which introduced transparency requirements under the Dodd-Frank Act in 2010. The rules are expected to be finalised by June 2013. Industry efforts to win concessions in the implementation of the law can be anticipated, however, and may delay implementation. Key business concerns include the costs of compliance and implications for data privacy.

The proposed rules put forward by the EU go beyond those introduced by the US. Notably, the rules apply to both private and publicly listed companies and extend to the forestry industry, in addition to oil, gas and mining. The EU will require companies in these sectors to disclose any payment to government over €100,000, as well as earnings by country. The rules will apply to any company with more than €40m in profits, €20m in assets or 250 employees.

Targeting the supply side of corruption, the requirements seek to encourage improved management of extractives revenues. A number of developing countries have suffered despite significant oil and mining windfalls due to a lack of transparency in the sector. This has facilitated corruption. In Equatorial Guinea, for example, the exploitation of large oil reserves led to a massive increase in GDP per capita, estimated to have reached US$20,000 in 2012 from US$730 in 1995. This figure, however, belies the fact that around three-quarters of the population continue to live in absolute poverty. Misappropriation of state revenues has benefited a small elite at the expense of the rest of society. Recent oil discoveries in the likes of Ghana and Uganda have led to greater urgency for transparency to prevent similar mismanagement.

While anti-corruption enforcement remains woefully inadequate in many resource-rich developing countries, the disclosure of payments should enable greater scrutiny by civil society and EU-based agencies charged with enforcing foreign bribery laws. The London Stock Exchange alone is host to over £1,000bn (US$1.6 trillion) worth of oil, gas and mining capital. The fact that all UK-listed companies will be required to disclose government payments is a significant boost for transparency in the sector. For the companies themselves, any apparent irregularities will raise the risk of legal action under the UK Bribery Act. With this in mind, companies that are able to demonstrate compliant business practices stand to gain in reputation among consumers, investors and government.

As in the US, an industry challenge to the EU rules can be expected. The US Securities and Exchange Commission (SEC), the government agency charged with implementing and enforcing the US transparency rules, faces an on-going legal challenge from the American Petroleum Institute and other industry bodies. Critics of the law are concerned that the reporting requirements will increase operational costs, deter legitimate business, and expose private commercial data to foreign competitors. It is unlikely that the legal challenge will prove successful, but it may force concessions from the SEC and will prove an important litmus test for the implementation of the EU rules.

The global proliferation of similar rules would allay some concerns regarding competitiveness, as well as enhancing the positive impact on resource management. This requires cooperation from other key industrialised countries, including Canada and Australia, which are home to some of the world’s largest extractives firms. It would also benefit from input from the major emerging economies of Brazil, Russia, India and China (BRICs), whose extractives companies are playing an increasingly significant role in Africa. Consensus will prove a challenge, particularly in the BRICs. Finalisation of the EU rules may, however, prove an important step in encouraging uptake elsewhere.

Chris Dixon is a Senior Analyst at Maplecroft

Security risks persist in Cote d’Ivoire, despite gradual progress in reconciliation. Photo Wikimedia

By Anais De Meulder

The exhuming of mass graves in the Yopougon district of Abidjan is a crucial step in the reconciliation process for President Alassane Ouattara’s government. However, if badly managed, these efforts could lead to renewed violence in the country. On 4 April 2013, Ivorian authorities began works to exhume dozens of mass graves dating from the post-election conflict in 2011. Violence, which broke out in December 2010 after November elections, gradually escalated as former president Laurent Gbagbo refused to concede victory to the internationally recognised winner, Ouattara. The ensuing five-month crisis resulted in an estimated 3,000 deaths. Fighting ended in April 2011, after a French-led military intervention supported by the UN peacekeeping mission, ONUCI, led to the arrest of Gbagbo by pro-Ouattara forces.

Reconciliation progress could destabilise fragile peace

While the exhumations started in Abidjan – where 57 graves have been identified – the process is targeted to gradually expand across the country over a one-year period. This small, but concrete step in the reconciliation process will be welcomed by the majority of citizens and the international community as an apparent attempt to identify and bring to justice perpetrators of the 2011 post-election violence. However, while these investigations are vital for justice in this post-conflict nation, rekindled tensions could lead to further civil unrest.  Although Ouattara created a national commission of inquiry in July 2011, investigations only started six months later, in January 2012. This lapse of time, along with concerns voiced about the commission by human rights groups and UN officials, highlights the shortcomings of Ouattara’s reconciliation efforts.

Perceptions of victor’s justice

Transparency will be key for reconciliation, and the lack of it undermines hopes for future stability. One-sided justice is of concern, in particular the unequal treatment of Gbagbo allies. Gbagbo appeared on 19 February 2013 at the International Criminal Court to hear whether he could be tried on charges of crimes against humanity. Ouattara’s decision to transfer Gbagbo to The Hague angered many of the former leader’s supporters, who labelled the move as ‘political kidnapping’. There is a heightened risk that opposition anger may spark unrest during the trial. Moreover, Gbagbo’s trial illustrates the government’s failure to investigate abuses committed by pro-Ouattara supporters. Since the end of the conflict, more than 150 Gbagbo supporters have been charged, while pro-Ouattara forces have remained untouched. This is despite a UN-mandated international commission of inquiry, and a number of other international human rights reports, confirming that crimes during the conflict were committed by both sides. Uneven application of the law is likely to hinder reconciliation efforts and exacerbate societal tensions.

Root cause of cyclical violence not addressed

Notwithstanding sensitivities over the application of justice which will require careful political management by Ouattara, reconciliation is one of the key factors for long-term regime stability in Cote d’Ivoire. Human rights groups have claimed that the 2011 conflict was, in part, sparked by impunity of perpetrators of crimes committed during the first Ivorian Civil War in 2002. While the 2010 elections were largely an attempt by the international community to end the civil war, it resulted in conflict largely due to deep-rooted and unresolved ethnic grievances. Impunity from the violence in 2011 is therefore likely to perpetuate the cycle of violence, particularly as Ouattara’s forces are accused of continued involvement in human rights abuses. The increase in violent attacks in provinces bordering Ghana and Liberia, as well as in the economic capital of Abidjan, has been largely attributed to pro-Gbagbo supporters.  While the exhumation of mass graves and investigation into the events in Yopougon in April 2012 is a small step towards justice and reconciliation, security in Cote d’Ivoire is unlikely to improve in the short term.

Macro-economic performance could be hampered by ongoing security concerns

The potential for renewed violence could have negative ramifications for businesses operating in the country, as the fragile situation in Cote d’Ivoire has been marred by repeated attacks since the end of the 2011 post-election crisis. Abidjan, a flashpoint during the post-election violence, presents a high security risk for employees as well as a heightened risk of operational disruptions. Attacks in the economic capital in October 2012 targeted key economic infrastructure raising concerns within the business community. Moreover, renewed fighting in the west could also have serious consequences for the cocoa sector, destabilising the macro-economic situation in the country. Although a reoccurrence of the 2011 cocoa export ban is unlikely, recent security incidents have disproportionately affected cocoa-producing provinces bordering Ghana and Liberia. While the prospect of a return to full-blown conflict is low in the short to medium term, the absence of political will for justice and reconciliation is likely to see insecurity persist,  undermining the business environment.

Anais De Meulder, a member of Maplecroft’s Africa Team

Tunisia’s sectarian divide simmers, despite the formation of a new governing coalition

By Christian Beaumont

The composition of Tunisia’s new governing coalition reflects the authorities’ willingness to accommodate different interest groups, helping to promote stability. However, February’s short but protracted period of sectarian violence, is likely to dominate elections scheduled for December.

On 13 March 2013, the recently appointed leader of the dominant moderate Islamist Ennahda party, Ali Larayedh, won a vote of confidence in Tunisia’s National Constituent Assembly (NCA), confirming him as prime minister. Constructive negotiations in the weeks leading up to the vote helped to secure an orderly transition. However, this was only made possible by the subsidence of violence provoked by the assassination of secular political leader Chokri Belaid on 6 February. As is common across many of the post Arab-Spring states, political progress in Tunisia is often determined by the mood on the streets.

Re-building bridges

Initially, the appointment of Ali Larayedh, the former Minister of the Interior and alleged Ennahda ‘hard-liner’ seemed an ill-conceived choice for the critical task of restoring dialogue with Tunisia’s secular parties. Relations between the two collapsed in the wake of Belaid’s assassination, with the latter accusing Ennahda’s leadership of harbouring an Islamist plot to overthrow Tunisia’s fledgling democracy. The result was violent protests across Tunisia.

However in spite of these challenges, Larayedh has made significant progress. His new cabinet will include most of the secular parties included under the previous administration. In addition, the contentious ownership of the ministerial portfolios of Defence, Foreign Affairs, Interior and Justice will be given to independents – a feat which Larayedh’s ‘moderate’ predecessor, Hamid Jebali, tried but failed to achieve. Illustratively, this suggests a ‘softening’ on the part of Ennahda’s deputies who blocked Jebali’s plan for an independent cabinet during the height of February’s violence on the grounds that it might convey political weakness.

The new government is also preparing to re-build bridges outside of Tunisia. February’s unexpected violence caused the International Monetary Fund (IMF) to suspend its December 2012 promise of a US$1.78bn stability mechanism, a significant blow which will likely harm cumulative foreign direct investment (FDI) in Tunisia for 2013. Larayedh has made resumption of talks with the IMF a top priority.

However, despite the recent calm, the return of sudden violence remains an ever present possibility. Larayedh’s government has committed itself to presenting a final draft constitution to the NCA by the end of April. Issues such as the role of religion and women’s rights could easily stoke simmering tensions between Islamists and secularists. In addition, pressing economic problems could also provoke sudden and sporadic unrest. The self-immolation of Adel Kedhri, aged 27 on Tuesday 12 March evidences this risk. The incident is alarmingly reminiscent of Mohammed Bouazizi’s suicide in December 2010, which provoked the Arab Spring uprisings.

Election outcomes:

Most likely

Ennahda still draws the largest share of the vote, although this will be significantly reduced from its 2011 height of 37%. The likely cause for this is that Ennahda’s grassroots voter-base (moderate Islamists and sympathetic secularists) punishes the party for the chaos of early 2013. In addition, pressing socio-economic frustrations, exacerbated by February’s riots, could also count against it. Tunisia’s limited number of pro-political Salafist parties could secure part of Ennahda’s wavering voter-base. However, many of these groups have yet to gain authorisation to partake in elections and Ennahda, along with its secular allies, are likely to make this process difficult.

Although the secular voter-base rallied after the assassination of Belaid, maintaining this pace into December will prove challenging. In addition, there is little mutual respect between the two largest secular actors, Ettakhol and the Congress for the Republic Party (CRP). As a consequence, the secular vote (although strong in terms of total numbers) will likely break-down across a range of competing party interests and local allegiances.

As a consequence, the likeliest outcome for the 2013 election is that a coalition (not dissimilar to the current administration) emerges, with perhaps a few small additions and/or losses. Ennahda will remain the key, albeit diminished power-broker and will continue to partner with moderate secularists with whom it has more in common than Tunisia’s salafist groups. Indeed, the recent political emphasis on calm and moderation (a stark contrast to February’s confrontational rhetoric) could be interpreted as an attempt to forge a durable governing model which ties Islamist and secular moderates together. Such a model presents significant advantages for stability, as the distribution of positions need only be tweaked according to electoral outcomes.

Possible

Tunisia’s economic problems rapidly deteriorate causing support to haemorrhage for Ennahda. As a consequence, the NCA is occupied by a much-enlarged raft of parties with no clear frontrunner and Ennahda becomes one of many similar-sized players, forced to govern alongside a more disparate group of secularists and political salafists. This presents a significant risk that Tunisia’s entire political system could grind to a halt, fomenting the country’s economic challenges and potentially encouraging a return to February’s street violence.

Assuming that relations between Ennahda and the secularists are at least partly repaired before December, Ennahda could potentially forge an alliance with a greater number of secularist parties. However, only a fraction of these, such as Ettakhol and the CPR, will have had any experience of navigating Tunisia’s complicated coalition power-politics. As a consequence, any such alliance will be significantly less stable than the current administration, potentially resulting in legislative gridlock.

Unlikely

Either Ennahda or a secular rival manages to secure a majority share of the vote, increasing stability and advancing political normalisation and reform. For Ennahda to achieve such an outcome it would need to maintain its existing voter-base whilst securing a significant portion of salafist support. For a secularist victory to happen, the numerous competing parties would need to form a common umbrella arrangement. Given the significant profusion of secularist political outlooks including liberals, neo-capitalists, socialists and communists (as well as geographic divisions), this is highly unlikely to occur.

Christian Beaumont is a  Principal Analyst, MENA