Africapitalism, Governance & Sustainability

Lessons from two Nigerian firms

MOST OBSERVERS WOULD AGREE that corruption is a primary barrier to economic and social development in emerging markets. Nigeria is a case in point. With its abundant resources and population,

MOST OBSERVERS WOULD AGREE that corruption is a primary barrier to economic and social development in emerging markets. Nigeria is a case in point. With its abundant resources and population, and a tradition of entrepreneurship, Nigeria ought to be a leading light of African economic growth. But rampant governmental corruption, driven partly by the lure of abundant oil, has hindered development and channeled most of the country’s wealth to the politically connected few. The vast majority of the population continues to live in dire poverty.

One reason that corrupt governments don’t change is that local firms usually end up supporting or at least tolerating the abuses. If they refuse to participate, they may be shut out of lucrative contracts or face restrictions from bureaucrats. It’s one thing for a local subsidiary of a foreign company or a division of a large conglomerate to act differently. They have outside support. But for a local company, resisting corruption—even though it might be the best kind of social responsibility that a company can demonstrate—seems to come with a heavy price.

At least, that’s what we thought, until we came across “positive deviants” such as Fidelity Bank.

The banking industry in Nigeria is highly competitive, so locally owned Fidelity has relatively little market power, even though it is the sixth-largest financial institution in the country, with more than $400 million in capital. Yet Fidelity has developed an impressive reputation for resisting corruption. As one Fidelity manager told us, “We try to avoid the popular norm in Nigeria.” (Our academic paper offers more detail.)

A Virtue Out of Necessity

Ordinarily, the choice to be ethical and responsible would have harmed Fidelity’s bottom line. The investments the bank makes in corporate social responsibility anti-corruption actions close off high-margin revenue. Yet Fidelity has been growing Granted, in part that’s because the bank had less to lose from charting a new path than some other organizations. Fidelity began in 1988 as a merchant bank, which meant that it dealt extensively with foreign banks with lower tolerance for corruption. It moved into domestic commercial and consumer banking only in 1999, when the industry was already crowded. As a new corruption to start with, because it lacked the political and commercial relationships that established banks enjoyed. But also, Fidelity’s leaders valued innovation and were determined to look beyond the traditional banking market, attract customers in new ways, and make operating ethically a sustainable option. While most of the established banks, profiting from questionable practices, were content to innovate slowly, Fidelity saw an opening and forged ahead. As it invested ! " # advantage won the loyalty of a growing customer base. Other organizations that seek to avoid corruption take similar paths, using their intrinsic values to guide them as they strive to be strong performers. Consider, the Chair Centre, a major Nigerian importer $ $ $ $ $ - $ demanding bribes, yet the company has a striking reputation for avoiding corruption. This commitment likely came partly from the strong religious values of its founder and CEO, Ibikun Awosika, who simultaneously serves as pastor of a Christian church. Shut out of some conventional markets because of its anti-corruption stance, the Chair Centre reached out to one of its ma% $ & connection eventually led a joint manufacturing venture, which provided advanced technology for the Chair Centre’s local factory so that the company could focus on $ meet international ergonomics standards. The company’s improved designs and $ $ # to attract enough customers to thrive.

How Nonprofits Can Combat Corruption

By compiling reports and lobbying for transparency and accountability, social innovators working in developing markets can add ground-level support to institutions, such as the World Bank, that have already launched formal anti-corruption campaigns. Social innovators working in developing markets tend to push for better treatment of workers and greater environmental stewardship. But since corruption is central barrier to development, NGOs need to expand their purview. As Raghuram Rajan (now India’s central bank governor) and Luigi Zingales have argued in their book Saving Capitalism from the Capitalists, the best way to bring about change is to demonstrate that non-corrupt business # # of the country so much that even society’s & # $ will be reluctant to give up any corruptiondriven privileges unless they can see strong evidence that they will do even better under good governance. So the social sector needs to rethink its attitude toward business and help promote companies that are pushing the economy and government in good directions. Ultihelp workers and the ecology is by helping strengthen the institutional foundations of the society through good governance. Fortunately, Nigeria, like much of Africa, now abounds with startup companies of all kinds that are thirsting for this kind of support. The mobile phone revolution has enabled the country to realize many of the advantage of the 21st-century digital economy and thus enable new ventures despite its poor infrastructure. And many of the country’s entrepreneurs, like the leadership teams at Fidelity and the Chair Centre, are combining local savvy with educational and other ties from abroad. Some will succumb to corruption, and some won’t survive simply because starting $ '$ - * already work with multinational companies on validating claims of “fair trade” and environmental protection. It’s time to think more creatively about helping those companies combat corruption.

One reason that corrupt governments don’t change is that local firms usually end up supporting or at least tolerating the abuses