As my colleague Anna Nadgrodkiewicz recently discussed on this blog, corruption is a preeminent threat to developing countries. In Brazil, corruption has been estimated to cost somewhere around $53 billion (approximately 2.3 percent of GDP) in 2013 alone. Because this loss has a corrosive effect on democratic governance and the country’s ability to deliver continued improvement, Brazilians took to the streets in massive protests. As a result the government of Brazil passed the “Clean Companies Act” which began being enforced on January 29.
The new law, like similar legislation in other countries, establishes corporate liability for corrupt practices committed by Brazilian companies as well as foreign companies that have branches or affiliates within the country. Under the act, companies that bribe public officials (foreign or domestic) can be subjected to civil and administrative sanctions including heavy fines, prohibition on receiving state funds, and even dissolution of the firm. The fact that Brazilian president Dilma Rouseff exercised her line-item veto power to make the law more strict than originally drafted seems to signal to the world that Brazil is serious about reining in corruption.
In the wake of the passage of the Clean Companies Act, much talk erupted over the implications for international trade. Since the law closely resembles existing anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the UK Bribery Act, experts have warned that companies operating in the region can expect Brazilian authorities to cooperate more closely with their counterparts in the US during investigations.
More general discussion has involved the importance of solid compliance programs in multi-national companies (MNCs) if they are to avoid any run-ins with the law. However, such commentary ignores a large audience that should take note of this development: developing countries.
Amid the lingering effects of the global financial crisis, there has been an ongoing debate regarding the strategy behind international aid. The question is whether to continue with traditional projects that seek to alleviate poverty through the provision of basic human needs such as health care, education, and food security, or to refocus efforts on building the capacity of local governance thereby making developing countries capable of addressing these issues on their own. While this debate has been around for at least two decades, current budgetary constraints in donor countries have brought the conversation back into focus.
Speaking in terms of policy, there has long been consensus on the fact that better governance leads to more vigorous economic growth. Regardless of rhetoric, however, donor agencies have continued to channel the majority of their resources toward areas like infrastructure, agricultural development, and education. This must change if the development community wants to meet its goals.
On a panel at the Center for Strategic International Studies, Executive Director of the Center for International Private Enterprise (CIPE) John Sullivan joined three other discussants – including a World Bank VP and U.S. Ambassador – to talk about the nexus between governance and growth. The panelists unanimously agreed that governance, specifically democratic governance, is a crucial element of moving developing countries off of foreign aid. Good governance is an enabler that allows developing countries to better utilize donor funding and develop sustainable, local solutions to challenges.
While delivering the keynote speech at the recent Asia-Pacific Economic Cooperation summit in Bali, Chinese president Xi Jinping stated that the government was drafting a “master plan for reform.” Speaking to a group of leaders who invariably have a stake in China’s continued development, Xi touched upon topics including politics, society, and the environment. Given the recent slowdown in growth, Xi’s remarks mainly aimed to assuage the concerns of economic and business leaders regarding the stability of China’s economy.
Some of the most discussed topics that come to mind when thinking about economic reform in the Middle Kingdom include liberalization of interest rates, freer access to capital for small firms, and correcting market distortions such as real estate prices. These factors are admittedly extremely important to rectify if the economy is to avoid stalling out, but there is also another issue on the minds of many business leaders looking to become or stay involved in China’s economy – corruption.
If knowledge is power, then ensuring access to information is a vital step in empowering civil society to participate in the policy making process. Creating an environment where information, both political and economic, is widely available is also the key to fostering a citizenry that will hold elected officials and economic agents accountable to the public. Without mechanisms that allow for the diffusion of information, individuals cannot effectively participate in democratic processes or be successful actors in any market economy.
A new toolkit from CIPE discusses important elements surrounding access to information and provides a number of examples of how partners have worked to build institutions that allow for greater sharing of knowledge. In addition, the publication identifies core objectives in the field of access to information in an effort to guide the design of information programs. Covering topics such as legal structures like freedom of information laws and alternative sources of information, the toolkit seeks to share key practices and lessons to improve the performance of such programs.
Download the toolkit here.
Frank Stroker is Research Assistant at CIPE.
It has become more and more widely acknowledged that entrepreneurship is an extremely powerful tool for development. Even Bono has been “humbled” by the importance of entrepreneurialism in efforts to reduce poverty. However, building a culture of entrepreneurship in emerging markets takes more than establishing opportunities for financing. There is an entire ecosystem that must be taken into account when trying to foster entrepreneurship.
In the latest Economic Reform Feature Service article Robin Sitoula, executive director of Samriddhi: The Prosperity Foundation, discusses his approach to building an entrepreneurial ecosystem in Nepal. Recognizing that the organization did not have the resources to tackle the whole ecosystem Samriddhi cut across sectors to build partnerships that addressed individual issues. A wide range of partners including business associations, universities, and banks now allow Samriddhi to accomplish much more than originally possible. Organizations such as the Federation of Nepalese Chambers of Commerce and Industry help to advocate for a conducive policy environment, while Mega Bank and Laxmi Bank offer scale up capital for growing ventures. Sitoula argues, “This approach of identifying essential components and specific groups that add value to the ecosystem is a more productive, efficient, and sustainable method of fostering entrepreneurship.”
Read the article here.
Frank Stroker is a Research Assistant at CIPE.
Over the past thirty years, China’s GDP has soared from $140 billion to nearly $6 trillion. This phenomenal growth has been sustained at double-digit rates largely through a reliance on exports from heavy industry. Recently however, slow growth in the US and a renewed crisis in Euro zone countries have shown China that it cannot count on exports forever. The new leadership, headed by Xi Jinping, must now oversee a transition to an economy that relies on domestic consumption over export based industrial production.
With the world’s largest population one would think domestic consumption should not be difficult to achieve. Wang Shiling, who runs a mall in Linyi, perhaps put it best when he said, “people still need to consume living necessities. Toothpaste, notebooks, basins, you name it. Don’t forget that China has 1.3 billion people!” Even with such a large population though, domestic consumption only constitutes about 37% of China’s economy (the rate in developed countries is closer to 70%).
Economic indicators also suggest that China is on the path to rebalancing the economy. Since 2009, wages have been on the rise while government stimulus packages have focused on infrastructure and construction, which not only employ workers but aid the movement of goods and services throughout the country.
For all this though, China still faces many barriers to growing domestic consumption. The average Chinese may be earning more than before and stringent restrictions on the financial sector have recently been (ever so slightly) relaxed, but rebalancing the economy is about more than salaries and interest rates. In order to spur wider consumption, the government must reform current policies to encourage citizens to spend more and local businesses to expand productivity.
Last week the Islamabad Chamber of Commerce and Industry ICCI joined the Center for International Private Enterprise and Kauffman Foundation to celebrate Global Entrepreneurship Week. Aiming to determine obstacles to entrepreneurship, ICCI gathered a large number of young entrepreneurs, established businessmen, and students to discuss key impediments to aspiring entrepreneurs.
Amid their discussion, many participants voiced the opinion that the main objective should be to foster an entrepreneurial culture among youth. CIPE Deputy Country Director Hammad Siddiqui asserts that the only way Pakistan can take advantage of its bulging youth population and push through the hard times of a sluggish economy and few jobs is to provide an environment that encourages youth towards entrepreneurial careers. Some attendees expressed the need for the curriculum in schools to stoke interest in students. While this is absolutely a vital part of building an entrepreneurial ecosystem, it is also important to advocate on the policy side as well.
Earlier this year, ICCI won second place in CIPE’s 2012 Leading Practices contest for its efforts to not only increase interest in entrepreneurship, but to advocate for a supportive policy environment. Being the first chamber in Pakistan to focus on youth development, ICCI created the Youth Entrepreneurship Forum and organized numerous conferences, forums, and seminars inviting youth and university students to attend. ICCI went a step farther to include policymakers, academics, and young professionals in the events in order to identify existing barriers and craft plausible solutions. Many of the recommendations that emerged from such events have been adopted by the government and incorporated into the National Youth Policy.
Currently, the Young Entrepreneurs Forum continues to grow and has established connections with universities and other chambers throughout the country. ICCI also sends youth delegations on international trips to meet with similar youth groups around the world and participate in international forums such as World Chambers Congress. With the support of CIPE, ICCI has established an Entrepreneurship Development Center that provides aspiring entrepreneurs with access to requisite tools and mentorship.
Through such efforts, ICCI has sparked an amazing interest in entrepreneurship and provides support for those who aspire to start their own enterprises. Numerous competitions in Pakistan now reward startup teams by matching them with experienced mentors or even helping to secure capital from investors. But more importantly, ICCI recognizes the importance of also providing a supportive policy environment, a crucial part of any entrepreneurial ecosystem, in which youth have access to the economy. Regardless of the amount of interest or access to tools and financing youth have, if the environment lacks sound policies, youth will remain excluded and unable to participate in the economy.