Personal contracting
Exercise
A manager of Lonrho, a major African firm, says that “Africa is all about relationships. Africa does not trust commerce—it’s all done on relationships. It’s the only way to succeed.” (“Africa: Je-Setting to Business as Usual,” The Economist, November 8, 2008, pp. 44-45).
How would you explain this comment? Does it make sense that many new businesses of Lonrho in Africa are joint ventures with governments?
Analysis
Africa lacks stable and functional institutions. Transactions are based on personal relationships. By doing business with government they are trying to reduce political risk: “They are less likely to nationalize you if they already own you”.
← Go back