Doing Business in East Africa: Understanding Kickbacks, Procurement Fraud and Hidden Business Risk
East Africa continues to attract investors, businesses, development organisations and international partners looking for new markets and growth opportunities.
The opportunity is significant. But so is the importance of understanding the risks that sit behind the opportunity.
One of the risks that deserves greater attention is kickbacks and procurement-related fraud.
A kickback may appear to be a simple payment made to influence a business decision. In reality, it can compromise an entire transaction — from supplier selection and pricing to quality, delivery and ultimately the return on investment.
The cost is rarely just the bribe
Consider a supplier who agrees to pay a percentage of a contract to someone involved in securing the business.
The immediate concern may be the payment itself. But the wider commercial consequences can be much greater.
The supplier may attempt to recover the cost through:
- Inflated prices or margins;
- Substandard goods or materials;
- Reduced quantities or incomplete deliveries;
- Less-qualified personnel providing contracted services;
- Unnecessary contract variations and extensions;
- Delayed procurement or implementation; and
- Acceptance of work that does not fully meet contractual requirements.
What initially appears to be a small percentage can therefore become a much larger financial and operational loss.
Why this matters to investors and international businesses
For an organisation entering East Africa, the risk is not limited to its own employees.
It can extend across local partners, distributors, agents, contractors, consultants, suppliers and other third parties.
A business may conduct its own operations with strong controls and still be exposed through a poorly assessed partner or supplier.
This makes third-party due diligence, procurement controls, conflict-of-interest management and ongoing monitoring important components of responsible market entry.
A procurement file can still hide a problem
One of the more difficult issues in fraud reviews and internal audits is that a transaction can appear compliant on paper.
There may be quotations, evaluation documents, approvals, purchase orders, delivery notes and invoices.
Yet the underlying transaction may still have been compromised.
A complete procurement file does not necessarily mean a competitive procurement or a value-for-money transaction.
This is why organisations operating in East Africa need to look beyond documentation and understand how decisions are actually being made.
The questions businesses should be asking
Before committing significant resources, investors and management teams should understand questions such as:
- Who are we actually doing business with?
- Who ultimately owns or controls the local entity?
- Are our suppliers and partners properly vetted?
- Are prices consistent with the market?
- Are procurement decisions genuinely competitive?
- Are there undisclosed relationships between suppliers and decision-makers?
- Are contract variations and emergency procurements properly justified?
- Are goods and services independently verified before payment?
- Can we identify unusual procurement or payment patterns?
These are not questions designed to discourage investment.
They are questions designed to protect investment.
Managing risk without losing the opportunity
East Africa should not be approached simply as a high-risk environment to be avoided.
It should be approached as a market where informed risk management matters.
Businesses that understand their counterparties, establish appropriate controls, conduct meaningful due diligence and monitor transactions are better positioned to distinguish genuine commercial risk from preventable risk.
Good risk management should not become a barrier to doing business.
It should give investors and management the confidence to do business with greater visibility.
The bigger lesson
Kickbacks, procurement fraud and conflicts of interest are not merely compliance issues.
They can directly affect the price an organisation pays, the quality it receives, the time it takes to deliver, the reliability of its partners and ultimately the return it achieves from its investment.
For organisations entering or expanding in East Africa, understanding these risks early is therefore part of protecting the investment itself.
The objective is not to eliminate every business risk. It is to identify the risks that can be understood, controlled and prevented before they become expensive.
For investors, companies and organisations entering East African markets, effective risk management begins with understanding who you are dealing with, how decisions are being made and where value can be lost.
John Kiwewesi, CIA, CFE, CFIP, CAMS
Risk, Fraud, Compliance & Internal Audit Professional