Markets thrive on transparency. (Photo: Wikimedia Commons)
Many of the world’s largest and fastest-growing companies now come from emerging markets. But according to a recent report, these companies lag behind their more established peers in transparency — a handicap that could prevent them from becoming true global leaders in their fields.
OpenCorporates, a UK-based enterprise founded by Chris Taggart and Rob McKinnon, was created with a simple yet ambitious goal in mind: to have a web page for every company in the world. How would one go about it? OpenCorporates started with taking a closer look at the basic source of information on companies registered in any given country – that country’s corporate registry.
While in principle corporate registries are a part of the official public record and should be easily accessible to the public, in practice that is not always the case. Some countries have registries that are non-searchable or very difficult to search; some require registration and/or payment to search the registry; some carry a licence that explicitly prohibits the reuse of data. The quality and depth of available data also varies. Some registries are incomplete and out of date. Many provide only very basic information that contains no statutory filings or information about directors and significant shareholders, which does not allow for establishing beneficial ownership.
OpenCorporates, with support from The World Bank Institute through its Open and Collaborative Private Sector initiative, set out to change that through establishing the Open Company Data Index. The idea came out of the Open Government Partnership meeting in Brasilia in 2012 and OpenCorporates has since explored over 100 registers to score the access to data and the ability to reuse that data for over 70 countries around the world. Chris Taggart and WBI’s Benjamin Herzberg explained how the index works and why it is important at a lively event on Monday at the OpenGovHub in Washington, DC.
Corruption is a direct threat to a country’s democratic emergence and an obstacle to a country’s democratic development. In Thailand, for example, corruption was the stated justification for the military’s ousting of an elected government in 2006 and the Supreme Court’s sacking of another elected government in 2008. Competing allegations of corruption were the main drivers of nation-crippling unrest in the country.
In Thailand, as in other new and struggling democracies across the globe, if democracy is to mature and fully take root, more is required than just the ability to vote.
In countries including Russia, Thailand, Columbia and Serbia, CIPE is helping the private sector mobilize to take proactive steps to reduce corruption. These programs demonstrate the transformative impact that private sector Collective Action can have on a country’s fight against corruption.
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.
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.
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:
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.
The CIPE Development Blog provides coverage of the Center for International Private Enterprise and its partner network at work -- highlighting successes, drawing out lessons from failure, and exploring the broader issues of political and economic development. For more information visit CIPE.org.