Business in partnership against corruption, out of balance
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From May 2008 ICGFM Conference, Thomas Kelly Senior Director Economic Policy , Millennium Challenge Corporation
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Business in partnership against corruption, out of balance
- 1. Business in Partnership Against Corruption § Miami, Tuesday, May 20, 2008
- 8. Diagram - Inequality Source: “Inequality in Latin America and the Caribbean: Breaking with History?” World Bank, 2003
- 10. Financial Flows to Developing Countries
- 13. Map of corruption According to World Bank Institute estimates, the total volume of bribes paid annually is US$ 1 trillion …… which is nearly twice the gross domestic product (GDP) of Africa. PART I
- 14. Private sector side of corruption Higher costs of doing business Cost of Corruption Resource misallocations Reduced competition, efficiency & Innovation Lower investment Lower employment Loss of reputation Lack of transparency and accountability Weak enforcement of laws and regulations Complex & changing laws & regulations Low public sector wages Mistrust b/w & within sectors Lack of competition Weak enforcement of laws and regulations
- 15. Firms reporting constraints among top three (percent) Source: Current Survey. The question posed to the firm was : “Select Among 14 constraints the five most problematic factor for doing business in your country “ Corruption adds as much as 25% to the cost of public procurement" (UNGC) “ 31% of firms in Latin America have to pay bribes to – get things done -” (WBG) Corruption as a constraint to the private sector
- 16. Private sector NOT just a victim, but also source of corruption Elite Capture, Political Corruption and Inequality of Influence View of the Firm, Percentile Ranks, Higher is better worse best
- 17. Cycle of corruption: companies are both victims and participants Once corruption becomes widespread, it becomes difficult for individual businesses to stand up to the problem. High risk environment PART II They fear that they cannot win projects on the merits of their bids alone and thus engage in corruption, thereby contributing to its spread.
- 29. Web Portal: www.fightingcorruption.org Tools for practitioners Lessons learnt Case studies Country and industry profiles Country and Industry Profiles Events and workshops
- 31. Djordjija Petkoski World Bank Institute § THANK YOU
Notes de l'éditeur
- This slide illustrates population distribution and growth in 2005 (on the left) and in 2025 (on the right) in Egypt, Brazil and Italy. Italy can be used to illustrate the general reality in Japan.
- This slide outlines the main message and structure of this presentation. Main message: Collective action can help to unlock the corruption dilemma by creating incentives to avoid corruption, thereby creating a level playing field and business environment with reduced risk of corruption. While corruption hurts public, private and civil society sector, this presentation focuses especially on the private sector and on what companies can do to fight corruption. Structure: Part I – will outline why corruption matters by highlighting the sources and cost of corruption, especially for companies. Part II – explains the corruption dilemma that companies often face when operating in a high risk environment (how to ensure and enforce anti corruption commitments). Part III – points to potential solutions to corruption dilemma, showing that multi stakeholder partnerships/collective action can create incentives and enforcement mechanism for stakeholder to avoid corruption.
- Let’s start with a GLOBAL MAP of corruption. Which countries and regions are the most corrupt? The percentile rank, developed by the World Bank Institute, indicates the percentage of countries worldwide that rate below the selected country. Dark red indicates a country that is highly corrupt. As you can see, the map shows that corruption is perceived as “most common” in sub-Saharan Africa, Central Asia and South East Asia. The total volume of bribes paid annually, according to World Bank Institute estimates, is 1 trillion US dollars - nearly twice the gross domestic product of Africa. World Bank Institute research also shows that petty bribery hits the poor the hardest, ensuring that they stay poor. It is extremely difficult to assess the extent of worldwide embezzlement of public funds, but it is clear that it is a very serious issue in many settings. Transparency International estimates that former Indonesian leader Suharto embezzled anywhere between 15-35 billion US dollars from his country, while Ferdinand Marcos in the Philippines, Mobutu in Zaire and Abacha in Nigeria may have embezzled up to 5 billion US dollars each. This is only a part of the overall costs of corruption. Corruption can be thought of as a behavior that imposes additional costs on citizens, governments, businesses and entire economies in the long run. In other words, corruption significantly hurts both the public and private sectors. Source: World Bank Institute, Governance Indicators 2006
- This slide shows the cost of corruption for companies (inner circle). It also shows some of the most common causes for corruption (outer circle). Some of the most common causes are associated with inefficiencies, such as red tape.
- Corruption is a key constraint to companies. World Bank research has also shown that corruption is identified as a serious constraint to doing business by over 70% of firms in South Asia and nearly as many in Developing East Asia and the MENA region. Around 60% of firms in Africa and Latin America report corruption as a severe impediment to doing business as well. Source: World Bank Institute, Governance and Anti-Corruption Program, “Governance Matters V: Governance Indicators for 1996-2005”. 2005. World Economic Forum, Global Competitiveness Report, 2005.
- Elites/state capture: The “purchase” of laws and policies by corporations. Public procurement kickbacks: payment made to secure procurement contract. Source: Dani Kaufmann
- Source: Combating Corruption: A Private Sector Approach, Center for International Private Enterprise
- Code of pharmaceutical marketing practices (IFPMA) : Initiative of the International Federation of Pharmaceutical Manufacturers & Associations is a non-profit, non-governmental Organization (NGO) representing national industry associations and 25 research-based pharmaceutical, biotech, and vaccine companies from both developed and developing countries. Key elements include more restrictive provisions on travel, gifts and scientific events, plus the establishment of a Code Complaint Procedure and a Code Compliance Network, bringing together code experts from all over the world. IFPMA shows that it is possible to bring together companies from developed and developing countries to agree on shared principles. Frankfurt waste incinerator: Initiative of AVA GmbH (publicly owned company responsible for revamp and management of waste incinerator) . A nti-corruption declaration without external monitoring with the objective to make a major step towards business environment free of corruption while modernizing the waste incinerator in Frankfurt-Nordweststadt. Declaration was not signed by all bidding companies before tender phase, but by all direct contractors after project award. Initiative aimed preventing unethical cases like contracting overpriced services in exchange for personal benefits for the AVA GmbH employees. Business pact for Integrity and against corruption: Launched in Brazil by Ethos Institute for Business and Social Responsibility, Uniethos – Education for Business Responsibility and Sustainable Development, Patri Government Relations and Public Policy, United Nations Development Program – UNDP; United Nations Office on Drugs and Crime – UNODC, and the Brazilian Committee of the Global Compact. An initiative against corruption and illegal practices in business. Today has more than 400 member companies, both local and multi-national. China business leaders forum: Launched by the International Business Leaders Forum (IBLF) in partnership with the Renmin University of China. Provides a regular quarterly Forum for Chinese and foreign business leaders to discuss the improvement of business standards both in China and internationally. The three focus areas are: Knowledge exchange, Research & Information, Training. CBLF is developed and managed as a corporate-led initiative by the collective action of all companies and organizations who have been identified as having a valid contribution to make and who have committed themselves to supporting the initiative. Pacto Etico Commercial (PEC) Paraguay: Founded in 2005 on initiative of the US ambassador and Paraguayan American Camber of Commerce. Certifying business coalition to promote business principles based upon fulfillment of current laws, ethics principles, quality management, honesty and transparency. Gather most important private business representatives covering all sectors. 150 members signed the pact and currently 100 additional applicants. EMB Bavarian construction industry: Certifying business coalition initiated as part of the Bavarian construction industry association in order to foster integrity in construction sector and to improve industry reputation. Companies can join initiative instantly by filling-in an application form. By signing this application form and thus agreeing on the charter of the initiative they commit themselves to implement an ethics management system based on the initiative’s principles and accept to be audited on the status of this system after one year of membership. Berlin Airport: Integrity-Pact initiated by Berlin-Schönefeld Airport and Transparency International Germany to establish a mandatory feature of the tender for selection of suppliers, construction companies, planners, engineering and consultancy services. Its provisions apply for the entire duration of the contracts. A total investment of ca EUR 2 billion is anticipated into the Berlin Brandenburg Airport between 2005 and the planned opening of the new airport in 2010. Mexico Suburban Train: Initiated buy the Ministry of Communication and Transport and the Transparency Mexico. Declarations of integrity stating under oath that they would abstain from any conduct that could affect an objective evaluation of bids submitted. Objective : to ensure that rules and norms are respected and to detect any deviations and secure a transparent and fair bidding process. Served as an additional element for government officials to resist political pressure and as a buffer to solve problems with less probability of public exposure.