34% of African businesses lose out to corrupt competitors
Oct 13, 2015
Corruption remains a major cost for honest companies in Africa with 34% of businesses reported to be losing out on deals to corrupt competitors, a new study has revealed.
By Chris Kiwawulo
Corruption remains a major cost for honest companies in Africa with 34% of businesses reported to be losing out on deals to corrupt competitors, a new study has revealed.
Control Risks Group Holdings Limited, a global risk consultancy specialising in political, security and integrity risk, made the revelation in Berlin, Germany on October 12 while releasing findings of their survey of business attitudes to corruption. The survey dubbed: ‘The Corruption Survey 2015/16’, was done with 824 companies in Africa and other countries worldwide, according to a statement from Control Risks.
“Some 34% of respondents from Africa reported losing out on deals to corrupt competitors. Corruption risks continue to deter investors. 30% say they have decided not to conduct business in specific countries because of the perceived risk of corruption,” revealed the study.
A total of 41% of global respondents reported that the risk of corruption was the primary reason they pulled out of a deal on which they had already spent time and money.
But companies from countries with tight enforcement reported fewer losses than before from corrupt competitors. In 2006, 44% of US companies said they had lost out to corrupt competitors, compared with only 24% in 2015. These figures are echoed for Germany and the UK. A total of 81% of respondents agreed that international anti-corruption laws “improve the business environment for everyone”.
However, there is still more to do. The survey shows that there were still wide variations in the maturity of company programmes. In the worst case, conventional compliance approaches can increase risk because they lead to a misguided sense of complacency.
Control Risks’ survey revealed that companies were now more willing to challenge when faced with suspected corruption. Of the respondent companies, 39% said they would complain to a contract awarder if they felt they had lost out due to corruption (70% in South Africa), compared to just 8% of respondents in 2006.
In 2006, only 6.5% of respondents said they would appeal to law-enforcement authorities, compared with 19% of global respondents in 2015, with 24% of respondents (60% in South Africa) now saying they would try to gather evidence for legal action.
Companies felt that international anti-corruption legislation was improving the business environment. Most respondents felt these laws made it easier for good companies to operate in high-risk markets (55%) and serve as a deterrent for corrupt competitors (63%).
This was particularly true of companies in developing markets. Some 79% of Mexicans agreed or strongly agreed, as well as 68% of Indonesians, 64% of Brazilians and 53% of Nigerians. In the US, 54% of the respondents said tough laws make it easier to operate in high risk markets, while 42% disagreed.
However, despite these positive developments, Control Risks’ survey suggested that companies still needed to do more. Third party risk is still relatively unrecognised. Just 58% of global respondents have procedures in place for due diligence assessments of third parties and only 43% have third-party audit rights.
The survey also suggested that companies were not setting the right incentives to deter corruption. Respondents cited the fear of negative consequences as the penalty used most commonly to deter corrupt behaviour.
On the list of eight deterrents to corruption, in sixth place were company performance criteria that emphasise integrity (along with financial targets). The study also noted that establishing parity between financial targets and anti-corruption targets was vital to ensuring compliance is embedded into companies’ culture.
Commenting on the survey’s findings, Daniel Heal, Senior Managing Director East Africa at Control Risks, said: “Too many businesses are still losing out on good opportunities to corrupt competitors, or choosing not to take a risk on an investment or entering a new market in the first place for fear of encountering corrupt practices.
“Companies need to find a balance and do more due diligence early on in any negotiation or market entry planning, to spot the points of light in countries that may otherwise appear as no-go areas.”
Heal added; “Another concern is an overreliance on compliance. Often when organisations have comprehensive compliance processes in place, business leaders treat them as a safety net and don’t police ruthlessly enough internally. More than half of the businesses we surveyed hadn’t conducted a corruption-related investigation in two years. Given the size and complexity of most organisations this would suggest there is a danger of a false sense of security in compliance departments.”
The survey comes at a time when a Canadian engineering and construction firm, SNC-Lavalin, which was contracted to construct the Kazo-Kamwenge road, has been fined $1.5m (sh5.5b) for bribing Uganda National Roads Authority (UNRA) officials.
African Development Bank (AfDB) fined SNC-Lavalin following an inquiry supervised by the bank’s Integrity and Anti-Corruption Department (IACD) pertaining to contracts awarded to SNC-Lavalin on two AfDB-financed projects in Uganda and Mozambique.
In December 2010, the Canadian firm was awarded another contract by UNRA to supervise the upgrading of the 75-km Kazo-Kamwenge road in western Uganda. SNC-Lavalin was earlier in October 2008 contracted to supervise the construction of the 66-kilometre road and bridge between Marrupa and Litunde in Niassa Province, Mozambique.
Reports indicate that in both projects, SNC-Lavalin included inflated costs equivalent to 7.5% of projects costs disguised as “Project Consultancy Cost (PCC),” to bribe officials.
The code ‘PCC’ payments were discovered in internal budget documents during the construction supervision contracts for the road projects. SNC-Lavalin reportedly inflated billings on employee salaries to hide the 7.5% PCC that was to be paid out to certain officials.
President Yoweri Museveni in August commissioned the sh167b Kazo-Kamwenge road, which was 73% financed by a loan from AfDB and 27% by Government of Uganda.
Besides, the World Bank has also blacklisted SNC-Lavalin from its projects for 10 years beginning on April 17, 2013 to April 17, 2023 for breaching consultant and procurement guidelines, according to the World Bank website. “The period of ineligibility of SNC-Lavalin, Inc. extends to any legal entity that it directly or indirectly controls,” the World Bank noted.
The World Bank banned SNC-Lavalin and its 100 subsidiaries from bidding on any of its projects after scrutinizing ventures in 10 countries. In Bangladesh and Cambodia, World Bank concluded that the Canadian company had committed misconduct after a probe into bribery allegations.
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