Corruption is a systemic problem that plagues many transitional countries across the world, rooted in weak rule of law and lack of private property rights. Not only does corruption erode trust in public institutions, such practices also hinder economic growth and weaken democratic governance.
The corruption challenge can be addressed by building responsive institutions that offer basic assurances of private property rights and ensure law and order. CIPE programs address the root causes of corruption through a multi-pronged approach. CIPE programs mobilize the private sector to raise anti-corruption standards and advocate for reforms; streamline regulations and reduce implementation gaps to limit opportunities for corruption; improve corporate governance to strengthen firm-level integrity; facilitate collective action to level the playing field and coordinate company efforts; and equip small and medium-sized enterprises to resist bribery and meet the requirements of global value chains.
Two recent case studies, described below, show these CIPE approaches in action.
In the first half of 2014, anti-corruption enforcement actions by the U.S. alone cost the business community more than $500 million. It would seem logical that as a result anti-corruption compliance would be at the forefront of every multinational corporation’s activities. But that’s not the case, at least as described in the 2014 Global Fraud Survey, perhaps one of the largest and most credible surveys on the topic, released by Ernst and Young (EY) earlier this summer.
The report indicates that businesses around the world are suffering from what EY has dubbed “compliance fatigue.” After surveying more than 2,700 business executives in 59 countries, EY discovered that “despite the aggressive enforcement environment…the percentage of companies that have anti-bribery/anti-corruption (ABAC) policies has increased by only 1%.”
According to the survey, the reason for such stagnation rests with chief executives who are reluctant to participate in compliance training programs and take other necessary steps. EY does note that “the majority of businesses have put in place many of the building blocks of effective compliance programs.” However, “one-fifth of respondents say that either their business does not have an ABAC policy or that they do not know if there is a policy” representing a “persistent minority” of firms that have yet to adopt any measures to prevent bribery. Within this minority, the report shows that executives are not only apathetic towards compliance, but “are willing to act unethically to win or retain business.”
Because executive officers face greater exposure to corruption risks, EY posits that the best course of action to alleviate this compliance fatigue is for boards of directors to maintain a high level of pressure on C-suite executives to ensure they are taking the necessary precautions. The survey authors state, “This level of scrutiny will drive a higher level of engagement among senior executives.” This solution, however, hinges on the idea that board members have sufficient knowledge and understanding to provide such oversight. Unfortunately, CIPE’s work in emerging markets around the world have shown that this is not always the case.
It is when citizens are well-informed, equipped with facts, and capable of conducting independent analysis that they can better engage in the policymaking process. Access to information at every level is the backbone of an active citizenry that can come together to keep government honest, responsible, and accountable. In Kyrgyzstan, however, most journalists lack the analytical skills to report well on crucial economic issues, and citizens lack the necessary understanding of core social and economic realities (and values) that are needed to keep a democracy in place 365 days a year. This lack of information not only undermines the population’s ability to support basic market-based democratic reform, but detracts from their ability to engage in the development of their country – of their village, of the region, of the nation at large. It is with this in mind that CIPE partner the Development Policy Institute (DPI) began their work several years ago to improve mass media’s capacity to inform the public on economic concepts during Kyrgyzstan’s fragile period of transition to market-based democracy with protected property rights and rule of law.
By Dash Enkhbayar
The West tends to illustrate Mongolia as an “example of a developing country that, despite the odds, managed to accomplish a peaceful transition to democracy.” However, simply achieving an electoral democracy does not complete a country’s democratic transition. Recent years have shed light on the major institutional flaws that still exists in the country’s public and private sectors.
Sandwiched between China and Russia, Mongolia has been attracting significant attention for the past couple of years due to its rapid economic growth and burgeoning mining sector. It recorded the world’s fastest GDP growth rate in 2011 at 17 percent, which put Mongolia in the international spotlight for investment opportunities.
But corruption, poor governance, and unstable government regulations threaten Mongolia’s economic potential. In 2013, due to unfriendly investment laws such as the Strategic Entities Foreign Investment Law, foreign direct investment (FDI) in Mongolia plummeted by 48 percent, which effectively scared away many investors interested in the nation. Mongolia is, in fact, not a model democracy that it seeks to invoke. Instead, the last few years have demonstrated that unless Mongolia seriously starts tackling its institutional weakness it may succumb to the “resource curse,” in which a country with an abundance of natural resources experiences poor economic growth and a worsening political climate.
(Photo: Kyiv Post)
When protesters first took to the streets in Ukraine’s largest cities in 2013, economic concerns were at the top of the agenda. As the geopolitical situation in eastern Ukraine has heated up, economic prospects in the contested regions of the country have only gotten worse. Yet average Ukrainians are still working for a more prosperous and democratic future.
Since the Maidan protests, the business climate in the Donbass, the easternmost, coal-mining region of the country, has taken a turn for the worse. Amid the turmoil, local businesses – in particular small and medium-sized firms – have suffered. Many have been shaken down for so-called “donations,” and in some cases have been looted and ransacked.
A recent article in the local press has documented fines, bribery, and other abuses committed against local businesses by police departments and government officials. Many people have even left the region, heading either for Western Ukraine or even Russia. The owners of small businesses have left their homes and their enterprises behind. They are unsure when they can return, or whether they will find their businesses in the same condition.
As one CIPE partner in the Donbass noted, “Public sector bribes have grown by several times what they were prior to the strife, and not one Grivna [the Ukrainian currency] is going to the budget.” He confirmed that many business owners and heads of banks in the region are being forced to leave their businesses. “Because of roadblocks and military activities, there are just no opportunities to run a business,” he laments.
The pro-European, Kiev-based protests that led to the ouster of former President Viktor Yanukovich made Ukraine a hot topic in international news. Yet in many ways, the situation that set international media ablaze in early February is really a much older story.
When the public and private sectors work together to implement necessary economic reforms, entrepreneurs, businesses and citizens benefit from a more prosperous and vibrant democracy. Businesses possess the know-how and detailed knowledge of economic conditions, obstacles, and opportunities for growth, while governments have the means to pass business-friendly legislation. Public-private dialogue helps these two groups work together to arrive at effective policy solution.
Moldova’s National Business Agenda Network (NBA), comprised of more than 30 business associations and chambers of commerce from across the country, positioned itself as a key stakeholder in policymaking. With CIPE’s support, the Institute for Development and Social Initiatives (IDSI) institutionalized a culture of public-private dialogue where it did not exist before and encouraged greater transparency and inclusiveness in setting reform priorities in the areas of tax and customs law.
Find out how the Moldovan business community successfully built an advocacy coalition to work with the government on reform priorities in the recently-released case study “Public-Private Dialogue in Moldova”, part of a forthcoming case collection Strategies for Policy Reform.
Teodora Mihaylova is a Research Assistant at CIPE.
When Maxim Tsoi, a journalist for the Kyrgyzstan newspaper Vecherny Bishkek, made the four-hour drive last spring to the town of Talas on the border with Kazakhstan, he was expecting to gather some local color to illustrate provincial life for readers in the capital city. What Tsoi came away with was a little different. After interviewing local bean farmers, customs officials, and border guards, he had material for a story on the pros and cons of Kyrgyzstan joining the Eurasian Economic Union.
The issue of whether Kyrgyzstan should join the Russian-led Eurasian Economic Union, which so far includes Kazakhstan and Belarus, is a source of frequent debate in Bishkek. Membership in the Union has significant implications for the country’s political and economic elites. In the border town, Tsoi found farmers in favor of joining the Union and getting privileged access to new markets. Local resellers of Chinese imports, however, were opposed since they would be facing new tariffs.
“Most of media outlets here in the capital only write about what happens in the capital. So, the material from these trips is quite interesting to everyone, to the journalists and to the readers,” said Tsoi in an interview from Bishkek.