The Effort to Improve Transparency Among African SMEs Faces New Challenges

How will changes in the foreign aid sector impact organizations that sit at the intersection of private sector and donor-funded anti-corruption efforts in emerging markets? To get a better grasp of this issue, I spoke recently with Rob Withagen, Co-Founder and CEO of Asoko Insight. 

For 12 years, Asoko has helped private equity investors, banks, multilaterals, development finance institutions, consulting firms and Fortune 500s engage with African companies. Recognizing that existing global tools were not well-suited to doing business on the continent, Asoko developed an Africa-focused solution. As Withagen explained, the cost of due diligence when dealing with African firms can be high, yet smaller deal sizes may not justify the expense. There was no standard set of metrics to compare transparency and governance across African firms. As a result, the volume of transactions remained low. In response, Asoko built a large database of African SMEs, offering know-your-customer information and deeper-dive due diligence. In turn, those firms can more easily access capital or tap into new commercial opportunities. By lowering the cost of doing business, Asoko aims to increase deal flow between responsible investors and integrity-minded local firms.

Like many in the anti-corruption and international development communities, Withagen is concerned about the evolving landscape. Asoko has a firmly commercial orientation, but it also worked closely with USG donors and USG-funded project implementers. That included supporting USAID-funded investment platforms with access to information about African SMEs, as well as an effort to introduce anti-corruption compliance training for the SMEs in Asoko’s database. Those programs are likely to now be canceled.

Withagen also fears that the move to weaken or eliminate FCPA enforcement will send the wrong signals to the African market, both to local firms and prospective international partners. Not only US companies, but firms from countries that took their cues from the FCPA, could slowly see incentives to doing business transparently in Africa erode. Companies that want to maintain high standards might be discouraged from investing entirely, while others might start to deprioritize integrity. African firms and governments might see fewer reasons to invest in anti-corruption initiatives. Finally, China’s engagement in Africa, particularly in strategic industries such as critical minerals and other extractives, is likely to increase.

Moving forward, as Withagen explained, Asoko seeks to encourage investors to think about compliance not as a cost, but as a long-term investment in growth and profitability. Asoko is well-placed to help investors onboard and monitor small businesses, keeping their due diligence up-to-date. But that requires clients with the right kind of vision. Asoko may need to shift away from US-based investors and multinationals, but Chinese investors are not likely to be Asoko’s new client base. EU-based or other Asian countries’ investors and multinationals may step up to fill the gap, but for now, Asoko is facing new challenges to its successful business model.

Marc Schleifer