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US Corporate Scandals And African Reaction - 2002-08-13

Africans are paying close attention to the recent corporate scandals in the United States. The most prominent have been the telecommunications giant Worldcom and the bankrupt Enron Corporation.

African investors say they're particularly focused on what Enron and its subsidiaries may be up to in sub-Saharan Africa. Currently, the U-S Justice Department is reviewing some of the overseas operations of the Enron Corporation in Ghana, Nigeria and other developing countries, looking for possible irregularities. Claims of corruption have been made against Enron since the mid-1990s over its contracts in developing countries. Now US Federal prosecutors are investigating whether the energy firm may have bribed foreign government officials to win contracts for its international oil, gas and water operations. A recent article in the Wall Street Journal says in some cases Enron won contracts without competitive bidding and assets were acquired at below-market value.

Christopher Eze, is the chairman of a Nigeria-based conglomerate, John Holt PLC. He says Africans should be interested in the scandals for a number of reasons.

He says, "We are worried about corporate governance in generally. And what Enron and Worldcom have demonstrated is lack of good corporate governance. For a businessman, honesty is important and without honesty, you cannot trust the information that companies are giving you. And of course it means that minority shareholders are disadvantaged if people like managing directors can do whatever they like with accounts. The one that concerns Arthur Anderson, who collaborated in these problems: we feel particularly worried that sound international accounting standards are not been observed, and it means that nobody is really safe with their investment and nobody can trust the accounts you read. These things are quite important to developing countries".

Most countries in sub-Saharan Africa have been under pressure to privatize and liberalize their utilities and energy companies. In the past, Enron has denied any suggestion of improper behavior in securing contracts. But the World Bank recently suspended its support for a 100 million-dollar water project in Ghana, after it was awarded without competition to Azurix, a global water company owned by Enron. The Bank cancelled a loan for the project, alleging corruption. The Bank pointed to a five million dollar payment up front by Enron, which Ghanaian newspapers alleged was for government officials.

At the time an Enron spokeswoman denied the bribery charge, but the Ghanaian government of President John Kuffour has since cancelled the contract and put it back out to tender. The World Bank recently confirmed to the Wall Street Journal that the organization had been concerned about the contract in Ghana. Other Enron projects - in Nigeria, Mozambique and India - are also being examined. Christopher Eze of John Holt PLC says he's not aware of an Enron scandal in Nigeria. But last month, congressional investigators focused on a deal there, where Enron owns barge-mounted power plants. They were looking into charges that an investment in the barges by Merrill Lynch bank enabled Enron to disguise loans and inflate earnings.

A number of other international projects have come under scrutiny since Enron spiraled into bankruptcy last year, after admitting that it had been hiding debts off-shore. In India, a 2.9 billion dollar power plant that received US government backing was stalled last June after its single customer, the Maharashtra State Electricity Board, said the price was too high.

Corruption has ruined many countries in Africa and keeps most mired in poverty. Analysts say the West is constantly emphasizing the connection between transparency and development, backing it with threats to cut off aid to poor countries.

Some business people, including Christopher Eze, ask this question: when corruption and massive bankruptcies occur in the developed world, what are Africans supposed to think? They say the collapse of Enron can only encourage Africans who have made billions through monkey schemes to think their lack of social conscience is not such a bad thing after all.