Four Key Areas for Compliance in Africa for 2024

Most of the world's economy is supported by the activities of corporations and major businesses. With billions of dollars transacted daily, reliance on these corporations poses a significant threat to the social welfare of the African population.

To try and mitigate the potential risk to welfare security, governments have implemented strategies that all businesses and corporations must comply with to stay afloat in the financial market. 

Misconduct of financial crimes has a broad reach on the African economy, geopolitics, and social landscape. Governments and international policymakers have devised regulations to keep businesses and corporations in check.

These measures are geared directly or indirectly to control the institutional activities by providing corporation regulations, a code of conduct, and prosecution if the business activities do not comply.

Explore the key compliance areas that will benefit African companies in 2024 below. 

Critical Areas of Compliance

1. Financial Crimes and Fraud

Fraud and financial crimes are significant issues. According to Nasdaq, an estimated $3.1 trillion in illegal funds were transacted through financial systems in 2023. Additionally, 63% of organisations in East Africa experienced one form of fraud.

Governments are beefing up measures against these incidents, including money laundering and investment scams, which also extend to businesses and how they handle transactions in Africa and the world. 

On the bright side, businesses can take advantage of advancing technology to reduce financial crime risk. Machine learning and AI technology have become valuable tools for identifying and preventing financial crimes.

Likewise, biometric and multi-factor authentication technology decreases the risk of financial fraud and data breaches. 

Compliance considerations include:

• Conducting regular team training: Businesses should train employees to spot any irregularities to flag down money laundering schemes and financial crimes
• Conducting risk assessment: Organisations should run a background check on entities they are about to engage in business.  
• Explore the use of technology: To ensure compliance, corporations should adopt technologies like machine learning and AI to identify and prevent potential financial crimes. 
• Review control parameters: Businesses should reevaluate the control parameters that help them identify fraud and financial crimes. 

2. Tax Compliance

Tax compliance obligations are important for any business that wants to venture into the African market. With the main revenue of governments pegged on taxation, countries have implemented targeted policies for companies and corporations to be tax compliant.

However, the tax compliance regulations vary depending on the country. All business owners must have extensive knowledge of tax regulations. Any business that is not compliant might get penalised or even prosecuted for tax evasion. 

Compliance considerations include:

• Understanding the local tax laws: Businesses should take time to evaluate tax laws and obligations to ensure they will be compliant.
• Restoration with a tax authority: Corporations should register with the local tax authority physically or through an online portal. 
• Understanding tax withholding and remittance: Corporations need to understand what amount of money they can deduct from their employees and directly pay the government. 
• Keep accurate financial records: Businesses should keep accurate financial records, including all receipts and invoices, to ensure that they can pay their taxes accurately and avoid penalties. 
• Explore tax exemption options: Organisations should look at the tax exemption regulations offered by the local tax authorities and the specific requirements needed for particular businesses. 
• Understanding VAT/GST compliance: Corporations that provide products and services should understand VAT and GST regulations for the country in which they engage in business.

3. Environmental, Social, and Governance (ESG) Principles

In Africa, pollution and unpredictable climate cycles have had a considerable impact on business supply chains and the cost of production. For most countries, dealing with climate change issues has become imperative before it gets out of hand. 

With the increasing droughts, heatwaves, heavy rains, and floods, production has become unpredictable, affecting most nations' profitability. The growing pressure to cut carbon emissions has led to the creation of regulations to control emissions. This means businesses must formulate ESG strategies to reduce carbon emissions. 

Compliance considerations include:

• Assess the cost of climate change to the supply chain: Businesses must evaluate and analyse the effect of climate change on production lines and create mitigation measures.  
• Provide a comprehensive report to customers and stakeholders: Companies should create comprehensive reports about climate change effects on the supply chain and production costs. 
• Explain the importance of ESG principles to business sustainability: Companies should provide detailed information about their ESG strategies to all stakeholders. 
• Implement ESG strategies: A team should be selected to spearhead the implementation of ESG strategies throughout the organisation, using the proper tools. 
• Provide products and services that align with ESG: Products or services should align with the intended ESG strategies put in place and should be safe for consumption. 
• Monitor and modify ESG strategies as needed: Corporations should monitor the ESG tools and make appropriate modifications to the plan if they see any shortcomings. 

4. Geopolitical Pressure

Geopolitical pressure is another factor most African corporations should consider when doing business. The escalating war in Asia and the Middle East, plus trade wars, have led to significant tension and supply issues worldwide. 

As tension continues into 2024, many companies should avoid business in volatile countries and entities. These high-risk jurisdictions are usually under heavy economic sanctions, which might affect the businesses' profitability.

Likewise, there is a potential to ruin the company’s brand if they are perceived to take sides in volatile situations. 

Compliance considerations include:

• Review potential exposure to risk in volatile regions: African companies should explore the risks of doing business in volatile areas and companies, especially those sanctioned or undermining sustainability efforts. 
• Use proper risk management tools: Corporations should find tools to help them decide which regions or companies to work with. 
• Adapt to the current supply chain: Management should find a way to adapt to the existing supply chain, limiting their exposure to risky ventures and sanctions. 
• Conduct rigorous research before doing business: Companies should conduct thorough background checks on any country or entity subject to sanctions before doing any business. 

Final Observation

Compliance regulations have a broad reach on an organisation’s structure and resources. In a dynamic business environment, these changes can be felt in almost all sectors of the organisation. 

One of the leading compliance areas African companies should focus on is creating ESG strategies to help prevent climate change and reduce carbon emissions. They should also look into tax compliance and the role geopolitical pressure has on business. Lastly, corporations should also implement measures that reduce financial crime and fraud. 

Companies that comply with these regulations avoid litigations and prosecutions, protect the brand image, and increase profitability. Check out Workpay’s blogs for more information about business compliance in Kenya and Africa.

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