NACUBO

My NacuboWhy Join: Benefits of Membership

E-mail:   Password:   

 Remember Me? | Forgot password? | Need an online account?

Business Officer Magazine
Loading

Continental Shift

Planning to expand your institution’s operations to Africa? Take note that the culture, laws, and expectations differ markedly from those in North America.

By Joanne Coville

Within the United States, Sunanda Holmes might need a day or two to register her institution to do business. Accomplishing that same task in most African countries will probably take seven months to one year, reports Holmes, currently the deputy chief administrative officer and associate university counsel at Weill Cornell Medicin–Qatar.

In other words, Africa favors a much slower pace than the one at which U.S. institutions typically move. And that's not the only cultural difference you'll encounter. Much of Africa still considers cash as king, reigning over wire transfers and check payments, perhaps because the degree of automation varies widely. For example, notes Karen Kearney, treasurer of Stanford University, Stanford, Calif., the tax authorities in some African countries have issued handwritten receipts to her institution.

Quaint as that may sound, the African continent continues to improve its climate and conditions for doing business, enhancing long-term growth prospects in the process. According to African Economic Outlook 2015, published by the African Development Bank Group and the OECD Development Centre, the continent is projected to achieve 5 percent economic growth this year. Global businesses have taken note and established Africa-based operations, joining the U.S. Agency for International Development, the Bill & Melinda Gates Foundation, and numerous U.S. educational institutions in boosting local economies. The latter frequently operate programs with a medical or public health focus. 

"Many students want to live and study in Africa," asserts Brendan Murphy, director of global administrative support at Duke University, Durham, N.C., who lived in Africa for many years. For the 2013–14 academic year, approximately 14,600 students from the United States studied abroad on the continent, according to Open Doors 2015, published by the Institute of International Education.

While that total accounts for only 4.4 percent of all U.S. students studying abroad, several countries attract sizable contingents. In 2013–14, South Africa was the top African destination, with nearly 5,000 U.S. students. Next came Ghana, with 2,300 students, followed by Tanzania and Morocco.

Each of these four countries lies in a different region of Africa—the world's second largest continent in land mass and the second most populous. Africa consists of 54 sovereign nations that have few similarities; some remain remarkably poor and undeveloped, while others have built a fairly sophisticated infrastructure. The people in this vast continent speak more than 2,000 languages, further complicating business operations.

Defining Differences

Before deciding whether to expand your institution's research or education programs to Africa, revisit the history books. Familiarizing yourself with the past will help build understanding of how much African countries can differ from the United States and even from
one another.

For example, after being colonized in the late 1880s by various European nations, much of Africa didn't gain independence and self-governance until 50 or 60 years ago. Identifying the original colonial powers offers insight into each country's laws and regulations, which tend to be based upon what was familiar at the time to the people crafting an independent governing structure. For the most part, West Africa has French influence, while Eastern and Southern Africa exhibit British influence. Portugal colonized Angola and Mozambique; Germany colonized Namibia and Tanzania; and Somalia was under Italian control.

Familiarizing yourself with the past will help build understanding of how much African countries can differ from the United States and even from one another.

Particularly during the 1980s and 1990s, civil wars, military coups, and social unrest plagued much of the continent. More recently, notes African Economic Outlook 2015, many African countries have benefited economically from greater political stability, improved policies, and greater demand for their natural resources. It's not surprising, therefore, that more African countries are increasingly exerting oversight and control over foreign entities—including not-for-profit educational institutions—that do business on their soil.

Depending on the country, just opening a bank account, hiring one independent contractor, administering patient care, or buying a vehicle may rise to the level that defines your institution as a permanent establishment (PE) and requires you to register with the particular foreign government. In turn, registration typically calls for filing quarterly or annual reports (both programmatic and financial) with various ministries, paying and filing returns for employment and/or business taxes, and complying with the jurisdiction's other corporate and
labor laws.

To ease the operational and administrative challenges, educational institutions often partner with other U.S. organizations already working in Africa or with local nonprofits, notes Bob Lammey, former director of global business compliance at Harvard University, and now a partner at Ernst & Young LLP. "If you engage a local nonprofit, do your due diligence to understand who you may be partnering with," he advises. "Is the organization who it says it is? Has it registered? Are the business practices compliant with local laws?"

Ask questions and assess whether the answers give you confidence and sound legitimate," Lammey continues. "If necessary, review documentation regarding the organization's registration status and finances—and consider having someone perform a background check on your potential partner."

Another option is to engage a professional employment organization (PEO) as the employer of record and manager of local payroll requirements. Again, says Lammey, you'll need to exercise due diligence: You might hire a global PEO only to find that it uses local "mom-and-pop" providers in some countries. Depending on the project's complexity and estimated length of time, your institution might also consider registering a branch office, creating a nongovernmental organization, or forming a subsidiary.

Right From the Start

Here are general suggestions for making your institution's move into Africa a smooth and uneventful experience:

Develop a generous timetable. "Build in sufficient time to set up your business infrastructure—everything takes much longer than we are used to," says Karen Kearney. In many countries, she notes, local providers are not accustomed to contract-based business relationships and may be overwhelmed by the numerous contract provisions presented by U.S. institutions.

Share such realities with faculty and staff at your home campus, adds Sunanda Holmes, so that they understand how long it takes to register, open a bank account, and lease office space. "Everyone sees the world through their own eyes, so whatever you can do to manage expectations from the beginning can really reduce anxiety," says Holmes.

Look into banking. Often, local banks in Africa want personal information for your board of trustees—such as passport numbers and home addresses—that you may not feel comfortable providing. In addition, some African countries will not allow foreigners as bank signatories. Yet, a U.S. institution may require an administrator's signatory on foreign bank accounts to comply with its internal controls and banking policies. Therefore, you may need to engage in extensive negotiations just to set up a bank account.

Once an account is established, you may find that all the money can be kept only in the local currency and cannot be transferred back to the United States. Finding and building relationships with international banks that have a business presence in Africa can help reduce risk and anxiety levels.

Research labor regulations and tax laws. It's not unusual for a country to protect its own citizens from unemployment by limiting the number and type of expatriate workers who can enter. "In most countries a tourist visa is not appropriate for the work your researchers will be doing, so getting the proper visa is critical" for U.S.-based employees, Kearney observes.

Generally speaking, once university personnel are in a foreign country for more than 183 days, they become liable for local taxes—and they may also be taxed in the United States on that same income. Providing tax equalization can add substantial cost to a project and may not be allowed by a sponsor. An institution planning to send employees on overseas assignments should discuss tax equalization with the sponsor in advance, so that the additional costs can be accommodated in the project budget. 

As for hiring temporary employees or independent contractors within the country itself, don't assume that doing so will avoid the hassles of payroll checks, tax withholdings, and benefit plans. Many African jurisdictions don't recognize the concept of transitory or at-will employment. They may, in fact, assume an employment relationship exists as long as someone is doing work for your institution, no matter how temporary or intermittent the nature of that work. Instead, these countries expect you to hire their citizens through definite or indefinite employment contracts. Your institution may even need to file the employment contracts with local labor authorities.

In Africa, local laws may also dictate the level of compensation and type of benefits the country's citizens receive, in addition to defining an employee's beneficiaries or dependents. For instance, Kearney recalls a project in Zambia that required Stanford to develop employment contracts explicitly identifying employees' dependents. "In many African cultures, it is culturally accepted that the definition of family or dependents is broader than the Euro-centric nuclear family—it includes the wide, extended family," she explains. "For employer-provided benefits, having a contractual definition of what constitutes dependents can protect you from some rather large liabilities."

Pay a visit. Holmes recommends sending people from your home campus to meet with their counterparts in other countries—and vice versa—so that they can understand the challenges that exist and create relationships between offices. 

"If possible, have a professional manage the finances and the project in-country," suggests Brendan Murphy. "If not, send someone to visit periodically to see what's really going on." In other words, don't rely on "management by Skype." You'll need both a fully engaged and committed team based in the United States and competent local support to successfully deliver programs in Africa.

Share the institutional culture. Through site visits and ongoing communications, immerse a project's entire local staff in your organization's mission and values. This reinforces the responsibilities that all employees have to bear for their employer.

"Keep everyone on the same page because there will be conflicting loyalties," says Murphy. "Your in-country employees will give you some loyalty, but they need to live once your funding is gone." He recommends communicating your culture through fun activities and a supportive work environment; in general, a heavy-handed approach does not work in Africa.

Particularly relevant to doing business in another country is the Foreign Corrupt Practices Act (FCPA). Passed in 1977, this legislation essentially forbids U.S. entities from paying bribes to foreign officials to obtain or retain business. While other countries have passed similar laws to stop corruption of public officials, local employees may not be aware of such a law or understand its applicability. They may view giving a holiday gift to a local minister of health as perfectly acceptable given the country's cultural and traditional norms.

Training local staff on the Foreign Corrupt Practices Act—including the definition of a "public official"—is crucial. At the same time, however, in-country employees should not jeopardize their personal safety if pressed for a bribe in a dangerous situation.

Internal Controls

If you hire locally, be prepared to encounter a talent shortage. Attracting and Retaining Executive Talent in Africa—a 2015 survey conducted by the global recruitment firm of Russell Reynolds Associates—reveals that nearly half of the respondents find it challenging to attract executive talent in the African countries with the fastest growing economies. A significant number of Africans have sought higher education and employment abroad, and many have not yet returned to their home countries. Stiff competition for the skilled talent available has already sprung up among local businesses and multinational corporations seeking a foothold in Africa.

This lack of experienced financial professionals, believes Bob Lammey, points to a greater need for internal controls, such as emphasizing the segregation of duties.

To reduce cash transactions and the likelihood of fraud, find ways to pay vendors directly through the banking system or establish a circle of reliable vendors.

—Sunanda Holmes, Weill Cornell Medicine-Qatar

"Make sure the person signing checks isn't also approving and recording transactions. At the home campus, you should be monitoring online transactions, overseeing bank reconciliations, and looking at the nature of reconciling items," he advises.

"In the United States, bank reconciliation is generally automated and done in real time," Lammey continues. "But in Africa, you often find organizations using the monthly bank statement as a basis to record financial transactions, rather than recording transactions as they occur, in a proper general ledger."

Cash transactions are common in Africa, particularly outside the major cities, Lammey adds. "There are fewer ATMs, so you often need to carry large amounts of cash or have it available in the office to pay employees or vendors," he says. Adds Sunanda Holmes, "In some parts of Africa, all office expenditures go through the petty cash, rather than the bank."

To reduce cash transactions and the likelihood of fraud, Holmes recommends finding ways to pay vendors directly through the banking system or establishing a circle of reliable vendors. Also, she notes, guard against being a victim of fraud in vendor selection and bidding processes—say, where one company submits multiple bids or employees form a company as a side business and win the bid. "But this can happen anywhere in the world," notes Holmes, "so preventing it requires awareness, the establishment of good processes, adequate training, and sound administration."

Equally essential as sound written policies and procedures is the assurance that they are actually implemented. Regular site visits—whether conducted by a finance/audit team from the home campus, a local accounting firm, or a trained in-country compliance team—can help determine whether all transactions are reasonable in view of the office's needs. Holmes, for instance, recalls reviewing the costs and expenses for cleaning supplies purchased for one international project. "There were many small purchases of cleaning supplies that, when added up, were exorbitant for the size or the cleanliness of the office," she says. "Small purchases may be a subterfuge for a larger problem."

Of course, fraud, bribery, corruption, and lax internal controls can crop up in any country in which your institution does business. All locations, both foreign and domestic, call for the same attention to risk assessment and reduction. In Africa, you'll just find a different cultural, historical, and legal spin on the same activities and programs undertaken on other continents.

Joanne Coville is a consultant to NACUBO's Advocacy and Issue Analysis staff, specializing in global activities.

^ Top

Critical Checkpoints

Whether your institution is headed for Africa or another continent, Brendan Murphy, director of global administrative support, Duke University, Durham, N.C., suggests developing a checklist to help clarify and organize all the moving parts related to a global endeavor. Your checklist might include such questions as:

  • What kind of activity will our institution be engaging in (for example, a research initiative, a vaccine program, or a communication campaign)?
  • How long is the activity expected to last?
  • Who is the sponsor, and what is the sponsor's goal in the country?
  • Have we operated in the country before? If so, are any contacts still current and viable?
  • Do we currently have other researchers or faculty conducting activities in the country? If so, does every program we operate in the country fall under the same registration?
  • Do we know of other universities or nongovernmental organizations (NGOs) operating programs in the country?
  • How much funding does the activity require?
  • What level of staffing is needed?
  • Will we need to lease space or hire local personnel?
  • Based on local laws, is our activity likely to constitute a legal presence? If so, what other actions must we take? What processes must be put into place?

Duke University recently hired a staff member to review its international research proposals to ensure the proposed budget includes the total cost of business. For example, says Murphy, the person determines whether the university will need to open a bank account in the country, register as a permanent establishment, or handle value-added tax (VAT) or other local taxes. "So many times, you don't realize the extent of the legal and employment costs that you will have until the proposal has been accepted and funded—and by then, it's too late to build an accurate budget," Murphy adds.

^ Top