Tag Archives: transparency

Improving Transparency and Integrity in Kosovo’s Public Procurement

Posted on 3 April, 2013 by | Leave a comment
Panelists at a Riinvest public procurement conference in 2011. (Photo: CIPE)

Panelists at a Riinvest public procurement conference in 2012. (Photo: Riinvest)

In February this year, Kosovo celebrated  five years since its declaration of independence. The new country is working to establish a viable democracy with well-governed institutions conducive to economic development and prosperity. Persistent corruption, weak rule of law, and poor quality of public institutions have undermined Kosovo’s reform efforts and sewn distrust in the government among citizens. Much of this is due to the political system that condones patronage relationships between politicians and business cronies who rely on weak institutions to secure control of the economy.

At the core of the problem is lack of accountability within government agencies and limited mechanisms for oversight by civil society and the private sector. Public procurement tenders, for instance, are awarded based on privilege and political loyalty rather than free and fair competition. Furthermore, government employees in charge of managing public tenders are left unaccountable for their flawed decisions and the resultant inefficiencies and corruption. In order to dismantle this crony system, Kosovo’s civil society and private sector need to take action to bring greater transparency and accountability to the public procurement process.

Since public tenders make up roughly one fifth of Kosovo’s GDP, it is crucial to strengthen the management of public funds and build a transparent and accountable implementation system that guarantees fair competition for everyone in the private sector. CIPE and its partner, the Riinvest Institute for Development Research, a leading think tank in Kosovo, have been working since 2011 to address the weaknesses in the public procurement process.

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Promoting Budget Transparency in Kyrgyzstan

Posted on 19 February, 2013 by | Comments Off

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Budget transparency strengthens a government’s accountability to its constituents. The public has a right to be informed about how taxes are allocated and spent, as such decisions directly impact a country’s political and economic development.

The International Budget Partnership (IBP) ranks countries based on the level of budget transparency and public participation in the budget-making process. IBP’s recently-released 2012 Open Budget Survey found that only 23 of the 100 countries surveyed provide sufficient budgetary information to the public. To improve transparency, IBP stresses the need for mechanisms that allow civil society to participate in and monitor the budget-making process to hold government officials accountable for use of public funds.

According to IBP’s report, Kyrgyzstan scored in the bottom percentile (20 out of 100), receiving the same score as Zimbabwe. In fall 2012, the Kyrgyz Parliament held hearings and debates on the 2013 budget. Pressing issues for the population, such as poor infrastructure and waste management, were among the topics discussed. CIPE’s partner, the Development Policy Institute (DPI), noted that parliamentary hearings were not widely covered in the media and the public remained largely unaware of the decisions being made. To address this, DPI used CIPE/NED support to organize two press conferences with 24 Kyrgyz journalists on the 2013 budget.

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Capacity Building Continued with 4th All-Pakistan Secretary Generals’ Conference

Posted on 4 May, 2012 by | 3 Comments

Participants at the 4th All-Pakistan Secretary Generals' Conference. (Photo: Staff)

“The Secretary Generals’ Conference provides an excellent platform for networking with fellow SGs from all over Pakistan, an opportunity for which we wait for the whole year. This year’s conference was particularly important for us because we realized the importance of governing documents and possible consequences of not having those” – Majid Shabbir, Secretary General, Islamabad Chamber of Commerce & Industry

To be effective organizations that serve their members professionally and act as advocates for policy change, Pakistani business associations need to have strong governance systems and policies in place. CIPE’s work in the area of Chambers and sectoral trade association capacity building has been well recognized in Pakistan. In addition to the Chamber President’s Conference, the Annual Secretary General’s Conference is one of CIPE’s flagship events.

Based on a business association diagnostic conducted in 2006 and reviewed in 2009-10, CIPE’s past three interventions in Secretary General Conferences were mainly focused at developing membership, revenue generation and advocacy. As a result, a number of business associations have reported an increase in membership, and, more interestingly, improved member retention rates and also increases in revenue through better charged services.

Participants at the latest conference were taken a step further with a focus on governance systems, particularly policy advocacy, financial management and fraud prevention, and legal compliance. These themes were selected based on CIPE Pakistan learning that business associations are still struggling to adapt these policies, particularly those related to financial management, human resource and advocacy. This year, the CIPE Pakistan team experimented with an online registration process that also included a questionnaire to understand if registering organizations have key policy documents such an accounting manual, a whistle blower policy, and an HR policy. The questionnaire also asked about standard operating procedures (SOPs) for membership development, media relations, and revenue generation.

The survey results were surprising for the CIPE Pakistan team. Twenty three out of 37 respondents claimed to have an accounting manual; 15 respondents claimed to have a whistle blower policy; 26 claimed to have an HR policy; 35 claimed to have SOPs for membership development; 31 claimed to have SOPs for media relations; and 31 claimed to have SOPs for revenue generation.

However, when conference participants were challenged to confirm these claims, we learned that they did not have those specific document or standard operating procedures, and instead memorandums and articles of association, which are overarching documents, were being referred to as policy documents.

Based on this, participants were engaged in discussion on the repercussions of not having these governing documents, particularly in case of fraud. They were then taken through the process of creating an effective accounting manual, a whistle blower policy, and an HR manual.

Feedback revealed that all participants agreed to develop and adapt policy manuals within the next couple of months and get these documents endorsed immediately after their next elections in September of this year.

At this year’s conference, we showed some glimpses of last year’s conference and asked repeating participants to introduce CIPE. The four best introductions are shown in this short video:

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Making public procurement in Kosovo more transparent

Posted on 17 April, 2012 by | Comments Off

Panelists at the Riinvest's conference on public procurement

Pubic procurement on average accounts for 14 to 20% of countries’ GDP, which translates into a massive amount of spending on the global scale. In principle, procurement funds are supposed to go to crucial social investments such as infrastructure or education. However, public procurement commonly is one of the most corrupt areas of public spending. World Bank estimates that corruption adds on average 20% to the cost of public procurement – or significantly more in some cases.

Given the importance of public procurement to development prospects – and the potential it carries for corruption-related waste – it is crucial for countries to examine how their procurement funds are spent and how the transparency of the process can be improved. That is precisely what CIPE partner Riinvest Institute for Development Research set out to do in Kosovo.

Last year, Kosovo passed an amended Public Procurement Law that has largely brought its procurement legislative framework in line with European Union’s norms. However, the implementation of the law still leaves a lot to be desired, with procurement all too often being used as a tool of political patronage. As a result, favored bidders enjoy disproportionate benefits in public tenders while many other businesses are disqualified on a technicality or simply choose not to bid. Breaking this dynamic is a challenging but not impossible task provided that more transparency and accountability is injected into the process. The necessary first step is to make the need for such reforms the subject of an open public debate involving both the government and non-governmental actors.

Riinvest has been doing just that. In the past several months, the Institute has been conducting research focused on examining not just the procurement laws and regulations on the books but also how they are being implemented (or not) in practice. In the course of that research Riinvest has been talking to various stakeholders, including a survey of 600 enterprises, to gauge their experience in the public procurement process and formulate concrete recommendations for reform.

On April 5, Riinvest organized a conference in Pristina titled “Improving the transparency and governance of public funds in Kosovo,” which was the continuation of this work. The conference gathered public procurement officials from various agencies as well as representatives from the business community and the private sector. As one of the presenters, Ilaz Duli who is a board member of the Public Procurement Regulatory Commission, emphasized, the event was the first time when all those actors came together to discuss problems with procurement transparency and potential solutions.

The work continues, as Riinvest is finalizing its research and incorporating key takeaways from the conference in a forthcoming report on the state of public procurement transparency in Kosovo. Public procurement makes up close to one fifth of the country’s GDP and this makes it one of the key drivers of the economy. As such, greater transparency is of key significance to making sure the Kosovar taxpayers’ money is spent in an efficient way – and it must be an important focus of reforms.

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Posted in Eastern Europe

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The True Costs of Corruption

Posted on 9 December, 2011 by | Comments Off

Anti-Corruption posters in Kenya. (Photo: Staff)

The World Bank estimates that corruption may cost the world economy about a $1 trillion a year. In more practical terms, as the chart below shows, corruption in some countries is robbing the world’s poorest people of up to three quarters of their economic potential. This means less money to feed their families, send their children to school, buy medicine, or start a business with.

A taboo subject for decades, corruption is now recognized as one of the biggest obstacles to both economic development and the growth of democracy. Today the global development community will be focusing its attention on this vital issue for International Anti-Corruption Day.

The cost of corruption (chart)

The cost of corruption.

To fight against corruption, it is important to first understand what “corruption” actually means. Corruption is notoriously hard to measure, since it takes place in the shadows, but it can also be surprisingly difficult to define. Most people would agree that a police officer accepting a bribe to let a criminal go free is corrupt (and  deplorable). But corruption in government procurements can also cost countries – even developed ones – billions of dollars a year. Corruption in the private sector distorts competition and harms consumers, shareholders, and entrepreneurs trying to start new businesses. And political corruption skews elections and undermines government policy-making all over the world. To make things even more confusing, behavior that would be considered corrupt in one country may be perfectly legal, or at least socially acceptable, in another.

Because of this complexity – or perhaps simply because it is more visible – discussions about corruption tend to focus on so-called “petty” corruption, like traffic police who shake down motorists, or building inspectors who take bribes to certify faulty structures. “Petty” is a misnomer, of course: this kind of corruption impedes growth all over the world – not to mention the human costs when, for example, those faulty structures fall down in an earthquake. But this kind of corruption can still be seen as a symptom of a larger disease. When people at the bottom are openly taking bribes, one can expect to find even more brazen corruption at the top.

Like corruption itself, the battle against corruption takes many forms, from simple posters (like the ones above) to complex  international agreements aimed at curbing bribe-paying by multinational corporations. However, too many of these efforts focus on exposing and punishing corruption after the fact, rather than fighting the underlying, structural causes of corruption. All of the kinds of corruption described above are rooted in perverse incentives and flawed institutions, institutions which it will take committed local stakeholders to truly improve. As CIPE regional director Abdu Alkebsi writes at RealClearWorld today, focusing on Iraq, “It is true that you cannot stop wolves from eating sheep by shaming, punishing, or educating them. Through comprehensive institutional reform, however, Iraqi society can build the ‘fences’ necessary to keep its sheep safe.”

That’s why CIPE works with its local partners around the world  to help civil society develop its voice and use that voice to combat the structural roots of corruption, such as bad regulatory policies, lack of accountability, and weak enforcement of existing rules.

In Thailand, for example, CIPE works with its partners to encourage the private sector to take collective action against corruption, helping to attack the problem from the “supply side.” CIPE also supports the UN Global Compact, which encourages important initiatives for businesses to help fight corruption.

On the “demand” side, CIPE has worked with Transparency International and local partner organizations to encourage the adoption of APEC’s procurement standards, bringing much-needed transparency to the $10 trillion government procurement sector not only in Asia, but also in Mexico, Peru, and other countries.

The fact that the development community is finally recognizing corruption as one of the biggest roadblocks to development is heartening. But in the end, it is only the people and organizations in developing countries that can truly transform their societies and institutions and excise the cancer of corruption.

For an in-depth look at the toll that abuse of power, neglect, and bribery have taken on economic growth and development in Yemen, watch the trailer for the CIPE-sponsored documentary Destructive Beast. You can also find out more about CIPE’s anti-corruption programs at our main Web site.

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Corporate governance: Russia vs. the world

Posted on 3 November, 2011 by | Comments Off

Photo via http://stephenfpeak.blogspot.com/

Corporate governance is a subject still grabbing the headlines, especially as the global economy continues to struggle in the wake of the financial crisis. In understanding corporate governance, it is important to keep in mind that the term itself has different meanings in different parts of the world.

During our early work in the Middle East, for instance, we found that there was no agreed-upon term for the concept of corporate governance in Arabic. This certainly complicated reforms, because unless people spoke English, they’d spend more time arguing about the proper meaning in Arabic rather than specific changes in how companies operate.

Simply put – how can you effect change if you are not sure what is it exactly you are trying to change? Luckily, the Middle East issue was eventually resolved, and a common term with a same meaning eventually took root.

In Russia, similarly, the concept of corporate governance is not exactly the same as we’ve come to know it in Western companies – where it’s focused on broad governance, risk management, and strategic planning. In fact, the Russian translation for governance is closer to “control” and “management” and experts often point out that corporate governance there gets into the daily management of enterprises much more so than in the West.

But beyond the perception and understanding of corporate governance, what is the state of it in Russia? How does it differ from the rest of the world? Has the country’s corporate governance climate improved since the financial crisis? What are some of the areas still lagging?

In a recently conducted interview with CIPE, four Russian corporate governance experts (Igor Belikov, Director of the Russian Institute of Directors; Mark Mobius, Executive Director of the Templeton Emerging Markets Group; Roger Munnings, Independent Director and Chairman of the Audit Committee, JFSC Sistema; and Vladimir Verbitsky
Deputy Director of the Russian Institute of Directors) provide their reflections on the state of governance practices in Russian enterprises.

They touch on some interesting issues, including conflicts between minority and majority shareholders, state participation in the corporate sector, and transparency in decision-making. For instance, Igor Belikov unpacks corporate governance challenges of Russia’s state-owned companies:

The main problems for state owned companies are at both the operational and board levels. At the operational level, the problem is inefficiency and rent extraction. At board level, there are problems when the board is not focused on achieving maximum benefit for the country’s population but on political aims or, worse, maximizing the benefit to individuals involved in governance and management.

Vladimir Verbitsky highlights the problem of selective use of corporate governance tools:

I think the main problem of corporate governance practices in Russian companies is the non-systemic and non-comprehensive nature of these practices. By “non-systemic” I mean the implementation of only certain governance practices from a model for a given company, rather than the use of as many international best practice components as possible.

Roger Munnings points out a key problem – a focus on individuals, not institutions:

Within many Russian companies, therefore, decision-making is “stove piped” to the General Director and personal relationships with the General Director can take precedence over structures, systems, or processes.

Want to know more about how Russia’s corporate governance practices differ from the rest of the world? You can read the article here.

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Corruption in tax system discourages business

Posted on 27 September, 2011 by | Comments Off

Image source: www.tribune.com.pk

Pakistan has one of the lowest tax to GDP ratios in the world: it has been hovering around 9% for the last several years. This means that the tax base remains narrow and a small section of the economy is heavily taxed compared to global trends. Corporate tax rate in Pakistan, 42%, is much higher than the global average of 25.5% and regional ASEAN average of 27.5%.

A recently concluded Economic Summit organized by the American Business Council of Pakistan (ABC) stressed that the Federal Board of Revenue (FBR) should introduce appropriate policies to bring tax to GDP ratio to 15%. ABC also highlighted the importance of expanding the tax base in the country and one possible way recommended was to bring the agricultural sector in the tax-net. Agriculture is a major contributor in the GDP but successive governments, while reforming the tax system in the country, kept this sector out of the tax system.

Speakers also expressed business community’s concerns in dealing with the officials of Federal Board of Revenue — corruption being one of the key problems. The issue of corruption was also highlighted in the recent World Bank report in which Pakistan’s existing tax system was considered as opportunity provider for corrupt practices.

The report further said that,

“More than half of firms in Pakistan beside Bangladesh and India are expected to pay bribes during tax inspections. The tax systems in these countries are complex and create not only high costs of compliance but also opportunities for corruption. The high frequency of bribes faced in connecting to power supply is another dimension of the issue of access to electricity and could be related to businesses having to compete to secure much needed power. The firms expected to give gifts to public officials, by different type of interactions. According to the report 71 percent companies expected to give “gifts” to public officials for electrical connections adding that 62 percent companies for getting water connections, 59 percent for tax meetings, 32 percent companies for getting phone connections, 22 percent companies for getting construction permits, 15 percent for government contracts and 12 percent for operating license in Pakistan.”

The fact that more than half of Pakistani firms expect to have to pay bribes during tax inspections is striking. There is no doubt that in the past tax reforms have improved the efficiency of FBR, but a lot more is required to encourage more businesses to enter the formal economy and become taxpayers without a fear of extortion or imposition of unfair taxes. However, for the last three years, the reforms have been halted by the current political climate, and since elections are expected in 2012, the government is highly unlikely to take action to reform the tax system before that.

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