Episode Description
Corruption in the shipping industry is a persistent challenge for fair trade across the world, estimated by our guests to cost the international economy billions of dollars each year. The Maritime Anti-Corruption Network (MACN) is a global business network of over 200 companies that, since 2011, has become a pre-eminent example of collective action to battle corruption.
On this week’s Democracy that Delivers podcast, CIPE Program Director for Anti-Corruption and Compliance Ekaterina Lysova sits with MACN Associate Director for Collective Action and Partnerships Martin Benderson and owner of QBIS Consulting Thomas Westergaard-Kabelmann. The guests discuss their new, groundbreaking study of the cost of maritime corruption to the shipping industry and society using the example of Nigeria. Martin and Thomas utilize unique data and an innovative methodology to assess both the direct and indirect or hidden costs of corruption in Nigeria’s ports and maritime sector over the period of 2019-2023. Their resulting assessment serves as a powerful case study for the wide-reaching implications of maritime corruption on low- and middle-income countries.
Listen to these experts discuss how they performed their research, what trends the study reveals, and how their approach can be utilized by other researchers and anti-corruption practitioners seeking to understand the true costs of corruption in various industries and economic sectors.
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Transcript
Narrator (00:02):
The Democracy That Delivers podcast is brought to you today by the Anti-Corruption and Governance Center at CIPE. This is the podcast where we talk about corruption in its many forms. And now to your host, Katya Lysova.
Ekaterina Lysova (00:17):
Hello everybody, and welcome to the Democracy That Delivers podcast. My name is Katya Lysova and I’m the program director for business integrity and anti-corruption in the Europe and Eurasia division here at CIPE. I’m delighted today to have a conversation about the amazing work being done by the Maritime Anti-Corruption Network, or MACN, and their upcoming report, the Cost of Maritime Corruption to the Industry and Society.
(00:42):
Joining me are my esteemed guests, Martin Benderson and Thomas Westergaard-Kabelmann. So welcome both to today’s podcast.
Thomas Westergaard-Kabelmann (00:51):
Thank you very much.
Martin Benderson (00:52):
Thank you, Katya.
Ekaterina Lysova (00:52):
Excellent. So I have to say that this is not our first podcast about the MACN work. A couple of years ago, we had a conversation with MACN CEO, Cecilia Müller Torbrand, about the Global Port Integrity Platform, which allows to collect anonymous incidents report, and we know that by now the platform has about 60,000 such reports. However, let me quickly introduce MACN for those who haven’t heard yet about the MACN and our guests before we move on to discussing the upcoming reports on the cost of maritime corruption to the industry and society.
(01:29):
So the Maritime Anti-Corruption Network is really the leading anti-corruption initiative in the maritime industry. It was established back in 2011 by a small group of committed maritime companies and by now, it has grown to include over 200 companies globally and has become one of the preeminent examples of collective action to tackle corruption. MACN and its members work elimination of all forms of maritime corruption by raising awareness of the challenges faced, implementing the MACN anti-corruption principles in co-developing and sharing best practices, collaborating with governments, non-governmental organizations, and civil society to identify and mitigate the root causes of corruption, and creating a culture of integrity within the maritime community. We know that those 200 members that are currently populate MACN account for over 50% of total global tonnage and also another fact about MACN is that 1,270 ports have been captured in the MACN’s anonymous database.
(02:35):
And now, let me just quickly introduce our guests. So Martin Benderson is associate director for collective action and partnerships at MACN. Martin joined the Maritime Anti-Corruption Network secretariat back in 2014 and has since catalyzed and led collective action initiatives and public-private partnerships to tackle corruption in the port and maritime sectors in various countries. He manages MACN’s collective action initiatives in Argentina, Indonesia, and MACN’s collective action initiatives in Nigeria, funded by the Siemens Integrity Initiative. Martin also provides oversight and ensures good governance of MACN grant portfolio. Prior to joining the MACN secretariat, Martin worked as sustainability consultant advising corporate clients, international organizations, and donor agencies. Martin holds a master of science in international economics and a bachelor degree in international relations. Welcome, Martin.
Martin Benderson (03:30):
Thank you.
Ekaterina Lysova (03:31):
Thomas Westergaard-Kabelmann is the owner of QBIS Consultancy which specializes in socioeconomic impact assessments of corporate performance documenting how company’s performances can and do create net benefits for economists and societies. And QBIS stands for quantifying business impact on society. Over the course of his consulting career, Thomas has specialized in impact assessment, feasibility studies, policy evaluations, and audits of policies and investments directed towards trade, markets, and international transport. His country experience covers Europe, Africa, Latin America, and Asia, and he has worked for the UN, EU Commission, World Bank, national governments, and various other professional organizations. Thomas holds a master’s degree in economics from University of Copenhagen. Welcome, Thomas, to our podcast.
Thomas Westergaard-Kabelmann (04:22):
Thank you very much.
Ekaterina Lysova (04:23):
Let’s begin. So we know that there is a very exciting event is coming up, which is the publication of your report on the cost of maritime corruption to the industry and society. And it’s kind of a new type of the report because the report is really seeking to capture not just the direct cost of corruption, but also indirect cost of corruption or hidden cost of corruption. And not just for the industry, but also for the society.
(04:53):
My first question is to really explain what are the direct costs and what are the indirect costs that are being captured in the report for those listeners who do not necessarily understand all the intricacies of the maritime industry. And how about, we’ll start with Martin.
Martin Benderson (05:09):
Let me start by giving a bit of a background on why we did this report and then I think, Thomas, you can supplement me on the more methodology part where your expertise is very strong, of course. So if we take a step back, this is a report we’ve been wanting to do for many years, actually, to look at what are the consequences of the corruption we see in the port sector both for the business sector, for the shipping industry, the private sector more broadly, and also to societies. Because as you may know, shipping is really the hub of the global economy. You have more than 80% of cargo being transported on ships, so most nations out there are actually dependent on shipping, to a certain degree.
(05:48):
And as an initiative, I think you mentioned that in the beginning, Katya, we have collected incident data from the industry. This is industry reports saying, “I faced a bribery request. I’ve been to this port, this is what they asked me to pay. These were the consequences,” and so on. We have been collecting this data for more than 10 years and it captures the direct cost of corruption or the potential direct cost of corruption. I go into this port, I get an inspector on board, they asked me to pay $2,000 to pass that inspection smoothly, for example. We can make the math and we can see the direct cost of corruption. We’ve had that kind of picture for a while, but we haven’t had the fuller picture in the sense of what does that mean in terms of delays and other knock-on effects in the supply chain of that corruption. So this is really what we are looking at here through this report by looking at some of the data we have historically on the indirect cost and then adding a more sophisticated methodology to that to understand some of the indirect costs of corruption.
(06:47):
So I don’t know, I should hand over to you, Thomas, to speak a bit more about the methodology and the definitions, perhaps. So over to you, Thomas.
Thomas Westergaard-Kabelmann (06:54):
Thank you very much, Martin. Well, the methodology that we are using in this study actually started for about 10 years ago when QBIS conducted a series of socioeconomic impact studies for Maersk, the logistics supply, in Africa and Latin America. We wanted to show the value add of Maersk as a service provider but what we came up with was they didn’t have a value added because they were always the most expensive. They were a premium provider. So in terms of shipping costs, transport, inland transport costs, they were typically higher. So we were kind of searching, okay, where is their particular value added? Because we know they had one, we know that customers were willing to pay extra for their services, so that kind of led us to look at their transit times and reliability that was better than competitors. And then we said, “Okay, this is what they’re paying for.” But we didn’t have a methodology to actually measure the dollar and cent value added of shorter transit time and higher reliability.
(07:51):
So together with Maersk, we started interviewing importers and exporters in Africa and Latin America asking, “Why are you willing to pay for shorter transit time, higher reliability?” And some interesting stuff came up that actually laid the foundation for the methodology that we’re using today. Just a few examples. We talked to fruit producers in Latin America. They told us if we are late as according to the contract, we get a reduction in the price paid. We may even get our orders refused altogether, which means we have to pay and sell our products on the spot market losing up to 50% of the original price. So keeping the promise of a certain number of shelf life days for fruit is very important for them and they’re willing to pay extra to get that.
(08:37):
If we look at textiles exporters, they have a just-in-time industry, so they need to deliver precisely on time and if they don’t, they have harsh penalties for late delivery. They may lose orders if they are late several times. So it start making sense. Okay, this is where we need to start to put a dollar and cent on total transit time and delays. And we came up with this methodology called TTLC, total transport and logistics cost methodology, and it measures not only the direct cost, direct transfer cost, like custom clearing agent, custom clearance, inland transport, sea transport, et cetera, but also the indirect cost that comes when you have delay and long transit times. And those are damage, detention, they are higher storage costs in ports and terminals, higher inventory costs to hedge out of stock situations, they are spoilage of products, et cetera, and they’re also time spent negotiating and paying for facilitation and corruption payments.
(09:38):
So that’s where this methodology started, including all the kind of costs that you can incur as an importer and exporter. And that’s when this methodology also became relevant for this study.
Ekaterina Lysova (09:49):
This is fascinating. And my question in the regards of the report and also broader, what is the target audience for your report? Who do you try to get those findings to? Who do you hope will see the results of the report and take certain actions?
Martin Benderson (10:04):
I think as MACN, we have a number of stakeholders that we need to collaborate with to drive progress because our mission is really to reduce and eliminate corruption in the maritime import sector. So the business sector is of course a key audience, but so is also governments as well as funders and investors out there who would like to also see changes in ports and trade and so forth. So I think it has a number of purposes in terms of the audience.
(10:29):
Firstly, there are companies out there who are still sitting on the fence. They may not yet be investing in compliance and anti-corruption programs. They may not recognize that compliance and anti-corruption is making business sense. By putting a dollar value here to the cost of corruption per shipment, then you can really speak their language and say, “This is actually what you’re paying. You may not see all of it, but this is actually the cost.” And it becomes more of a, let’s say, a stronger business case for some of these companies. And I think it’s also fascinating to see that when you speak to business, they may not necessarily agree to all the costs because they are also a very specialized player in that supply chain and they don’t see the full cost of it as you import goods, for example, into a country. So the business sector is clearly one key audience.
(11:14):
But similarly, we get questions from governments and also some of the international donors we work with. “Why should we,” for example, “put tax money into an initiative like this? Is this really good value for money?” And I think with a study like this, you really articulate and also again, you put a price on it and say, “Well, if you have corruption in the supply chain, if you have corruption in the port, it matters to people’s livelihood. It’s making these basic products less affordable, you’re having less economic activity in that country, you’re creating less jobs, and you’re also collecting less revenue, as in tariffs from customs and so on.”
(11:50):
So there are wide implications of not addressing corruption in the ports and maritime sector. So these are, I would say, the two main target groups for our purposes with launching this report. So on the one side, it’s the business sector who really needs to also engage with us and collaborate, but also governments and funders out there who may not recognize always that this is a priority in terms of the fight against corruption.
Ekaterina Lysova (12:14):
Yeah, just this report is that such a great endeavor and effort to really show the business case for anti-corruption. For effective, robust anti-corruption measures put in place by companies and implemented at a state level supported by civil societies, so everyone has a part to play. In our work at CIPE, we sometimes hear that the stakeholders in specialist societies with systemic corruption, they still, they need that information specifically. So show us, or we want to see how our society would benefit from that. We need to make our arguments stronger to convince the governments and other stakeholders to join the collective action. So in that sense, your report is really groundbreaking and very helpful for so many other societies.
(12:59):
And my question to Thomas in terms of methodology, do you think that this methodology that you just described can be used in other sectors, the methodology of capturing the costs, those hidden costs of corruption? And can you think of other sectors or industries where it can be used?
Thomas Westergaard-Kabelmann (13:15):
Yes, absolutely. I think it can be applied to a number of industries because it’s kind of a generic methodology. You need to look into the total cost of trading whatever industry it is. And of course to do so, you need to have very specific industry knowledge. So it’s not like you can replicate it in a second what we have here every time we need to get close into each industry, each product. But in general, yes, it can be used to several sectors.
Ekaterina Lysova (13:43):
This is very helpful to know. So my next question is about the findings from the two scenario-based assessment that I know you used in producing your report. One assessment is a business-as-usual scenario and another is a hypothetical zero-tolerance for corruption scenario. This is a very interesting way of looking at things and identifying, determining the cost of corruption. Can you please tell us more what your findings were from this comparison?
Thomas Westergaard-Kabelmann (14:14):
Well, in the base scenario where we do have corruption payments, we found that on average for all the dry and wet bulk import into Nigeria, there was an average of $6 paid in corruption for each ton, with that amount per shipment, per vessel up to around $182,000 per vessel in corruption payments and on total, $163 million per year.
(14:40):
What we also saw from the main findings, but a lot of the import going into Nigeria, and that was also mentioned by Martin, is actually food products and daily day consumables. That means that whatever is paid on corruption is carried straight to the consumer in most cases. And those consumers are pretty poor. They have no budget surplus. So whenever they have to pay extra for their consumer basket, their demand is likely to reduce according to the amount paid in corruption payments. That means that we are looking at lower household demand. That triggers into lower company sales. That triggers back into GDP and less jobs. What we see from the $163 million paid in corruption payment is a total economic damage of around $350 million in lost business sale and $204 million in lost GDP, $42 million in lost custom revenues, and around 235,000 full-time jobs. So that’s the associated socioeconomic loss from this corruption payment. So it trickles down the economy and actually have a huge damage.
Ekaterina Lysova (15:57):
Yeah, so I think the putting the numbers into the cost makes it really a visual, right? A visual how much is lost. So this is a comparison towards the zero tolerance of corruption, right? Martin, do you have anything to add?
Martin Benderson (16:12):
Yeah, so the first base scenario, the business-as-usual scenario that Thomas just spoke about, that is based on real numbers that we’ve been collecting over the past 10 years. So this is what you can expect to be requested to pay as you’re entering a port in Nigeria. It’s also based on interviews with companies. It all starts with industry data or what business is actually paying to have these products shipped and imported into Nigeria. So this is the starting point.
(16:38):
And then I think another finding is there is, of course, less economic activity and less jobs and so on, but it also is making these products less affordable because it has an impact on the consumer price. And we looked at essential goods like wheat, for example, where everybody needs to buy that and so on. So there is a quite significant cost increase there that do have a bearing on individual households.
(17:03):
And to kind of contrast this, and again, to make the case that maritime corruption matters, we decided to do a second scenario where we say there is zero tolerance, in the sense that governments are not asking for any bribes in the port and the shipping companies are not offering anything as they go into those ports. So this again it’s a fictive scenario, but we use it to say what’s the results then what’s the impact if we have this zero tolerance world where there was actually no corruption being made in the port sector? And here we see some quite interesting results. I think it’s on an annual basis, it’s over one million U.S. dollars per year that you actually are reducing the cost of corruption for the industry itself. So again, this is quite substantial.
(17:54):
And you can also look at the cost per shipment is also going down quite substantially, about 62% or so. So again, there are some clear savings that speaks to a business audience and say, “If you do this right, there is a strong business case that you will actually have a better bottom line at the end of the year.”
Ekaterina Lysova (18:13):
And giving this almost visual, a representation of what the world without corruption would look like and how much could be spent on social economic policies and livelihood and reducing poverty and improving livelihood overall. So do you see that achieving zero tolerance for corruption is feasible?
Martin Benderson (18:34):
I mean, the report itself is not an assessment or our work to date. I just want to clarify that. And it’s based on the case study on Nigeria. We’ve been working there for 10 years and it’s, again, it’s not based on an assessment of that work itself, but we do have very rich data from Nigeria, so we wanted to use that as a case study. But the story of Nigeria is in itself a success story. We have seen over the past 10 years that with the collaboration we forged with both government and also the shipping industry, that we are actually reducing corruption levels in the port quite dramatically. We’re of course not down at zero tolerance and it’s still a challenging country to operate in, but through forceful action from government and by government, I mean all the key agencies in the port, they have now compliance systems in place. You also have law enforcement in the port who have some teeth to also go after both the private sector and public side that may be involved in some of these bribery schemes in the port. That has been a game changer to really drive down corruption.
(19:39):
The other game changer in Nigeria has been the anti-corruption help desk that we put in place in 2019 where you have the private sector reporting corruption as it occurs. So you can pick up the phone and you can report corruption as it happens, and the government stands ready to actually investigate that immediately. And we see that 98% of those reports are being resolved without any corruption being made or paid, any bribery being paid. And none of this would’ve been possible if there was no trust. It comes down to the human elements of trust, I would say. That we have been bridging this gap of distrust over the past 10 years where you now have business being comfortable to speak directly with government and also trust them to investigate and be on their side on this. And of course also, business being committed to say no and so on.
(20:30):
So I think zero tolerance, of course, that’s the vision, and we are on the pathway to zero tolerance, and if we can make it in Nigeria, there’s many other places in the world we can also be successful.
Ekaterina Lysova (20:42):
Thank you so much for that. This is very, very encouraging message. And so what would you, Thomas, given that your company is working on specifically quantifying business impact on society, what is your vision for achieving that goal of zero tolerance of corruption?
Thomas Westergaard-Kabelmann (20:58):
I think this is very difficult to answer that question, but what I can say, what I have seen doing studies around the world, when we actually have been able to reduce corruption and facilitation is when good people get high-ranking positions. Like the general director of customs in a country saying, “No, this is not going to work. We’re going to reduce it.” And he works together with powerful organizations like MACN and other stakeholders. It can actually do some good work, but it requires that we have the right people in the right positions. They need certain leverage to do something about it because it’s so deep in this culture and the economy in many countries that it really needs power to be changed.
Ekaterina Lysova (21:47):
Martin and Thomas, can you please speak about the report itself, when it’s going to be launched and if our listeners, if they’re going to review the report and others, if they have any questions about the report, who can they direct those questions, have a conversations, or invite you to make presentations on this? Because I think these are findings that have to be really promoted because it is such a strong quantifying the business case for combating corruption.
Martin Benderson (22:14):
Thank you, Katya. Yes, we are launching this report now in mid-June, so it will be available on MACN’s website, MACN.dk. And we’re also doing a push through social media and shipping outlets and other industry outlets. So this is happening now. We’re also looking at a launch in Nigeria later on in partnership also with some of the stakeholders we collaborate with in Nigeria, because this is of course a good story to tell for them. It shows somehow why the work we’re driving with the government, with our partners down there, is relevant and some of the impacts we’re having on the broader society itself.
Ekaterina Lysova (22:52):
Excellent. And just to maybe conclude our podcast, I was wondering, so given how much work you’ve conducted in the last half a year or even more, what were the main challenges and how did you overcome them?
Martin Benderson (23:04):
Thomas had an excellent methodology already available, so I was really glad when we met and we saw that there was a match. Given the data we had available, since we had this first-hand data on corruption challenges, it was fairly quickly to get the estimates right there. We had data on the direct cost of corruption, as I mentioned. Then, of course, there has been some back and forth on verifying are these numbers correct and how can we actually use them but overall, it’s been a fairly smooth process. I think data will be the challenge. Good industry data and access to the right industry players who actually operate in these locations, that is key and I think that will be the challenge if we go to other countries where we may have less engagement. But over to you, Thomas, in terms of the methodology and so on, what you see as the main challenges?
Thomas Westergaard-Kabelmann (23:55):
Challenges, we need to verify, we need to verify data, we need to get additional data, we need to interview shipping companies. And they all have very different views. As also mentioned by Martin in the beginning, they see things very different so you need a very high number of interviews before the answers actually start to settle around some kind of average response. So that’s the most challenging part, that’s the interview of stakeholders because they have so different realities, so different experience.
Ekaterina Lysova (25:20):
Yeah, obviously this report is really a result of this great combination of the methodology that you’ve developed, Thomas and your company, and the data that was already accumulated by the MACN using the portal where all this anonymous incident reports were collected. And plus you had access to the direct players, to the ship owners or a vessel, the staff, so you could interview and get this information that produced a robust result presented in the report.
(25:52):
So we, of course, can assume that if we do it in other industry and sectors, the data might not be available. Even if the methodology is there, the data might not be there. However, we need to strive for our listeners who are interested in replicating some of the approaches in capturing the cost of corruption both direct and indirect to both the industry players and society that might utilize the methodology, however they need to think about the data that they will be analyzing.
(26:23):
We would like to congratulate you on producing this report, on the upcoming launch of this report. It’s a great work that will really contribute to fighting corruption around the world, not just within the shipping industry, but I hope many others can use some ideas and approaches that you utilize in their work, as well. It’s been really, really a pleasure to speak with both of you. It’s always wonderful to have MACN on our podcast to showcase your great work for others to replicate, follow your steps, and to promote anti-corruption standards among the private sector players in various sectors. So thank you so much for being with us and for sharing with us the findings of your very, very exciting upcoming reports.
(27:11):
And I’ll repeat, the report will have a name, The Cost of Maritime Corruption to Industry and Society: The Imperative for Businesses and Governments to Combat Maritime Corruption. Look for this report online on the MACN website. Thank you so much.
Narrator (27:28):
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Published Date: June 26, 2024