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Maplecroft releases new Corruption Risk Briefings for Ethiopia, Namibia and Zambia

28/07/2011

Stringent legislation has increased the responsibility of multinational companies to act with integrity when operating overseas. Maplecroft’s Corruption Risk Briefings review the extent to which corruption is a common feature of a country’s political economy and the risk that it might compromise a company’s ability to comply with new legislation at home. The briefings also provide guidance on how business might employ comprehensive internal compliance policies and procedures as a means of mitigating the risks of operating in a corrupt environment, with no level playing field.

Ethiopia

Steps have been taken in recent years to strengthen Ethiopia’s legal framework to tackle corruption. For example, corruption and extortion by officials and by third parties is explicitly criminalised in the dedicated Anti-Corruption Law passed in 2005 and various forms of corruption and illicit financial activity are laid out as criminal offences in the Criminal Code. However, the strong anti-corruption criminal law framework is hampered by inefficient and under-resourced law enforcement and a lack of adequate training, as well as a tendency to target middle-ranking officials rather than higher officials. Moreover, the dominance of the ruling party and associated elites effectively means that where outright corruption is not taking place, clientelism and cronyism may be acting as a brake on transparent governance and open competition.

Cumbersome and non-transparent bureaucratic processes continue to place a burden on foreign businesses in Ethiopia and encourage corrupt practices as a means of facilitating their business activities. A largely unregulated private sector means that protection offered to investors is minimal. Although the system has improved, with the setting up of the Ethiopian Investment Agency, which provides foreign businesses with easier access to information and services, companies investing in Ethiopia remain at risk of business practices which do not meet international standards. High risk sectors include: construction, land administration and government procurement.

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Namibia

The risk to investors from corruption may not be as great in Namibia as in many other African countries, but the degree to which corrupt practices do take place leaves business exposed to potential violations of Namibian or foreign anti-corruption laws. The business activities at greatest risk from corruption are those requiring engagement with public officials, such as public procurement and the payment of tax or customs duty, where bureaucratic inefficiencies may encourage facilitation payments to expedite official functions. High risk sectors include: extractives; banking and finance; and construction.

Recent oil finds off the coast of Namibia could encourage further corruption in the sector. The discovery, in July 2011, of an estimated 11bn barrels in oil reserves could fuel a surge in license applications for oil exploration and investment in related industries, from which corrupt officials could seek to extract bribes in return for contracts.

Namibia has made concerted efforts to address corrupt practices to ensure an investor-friendly business climate. The Anti-Corruption Act, passed in 2003, has been supported by an anti-corruption drive initiated by President Hifikepunye Pohamba upon inauguration in 2005. The anti-corruption laws in place have been lauded as sufficiently strong to tackle corruption under its many auspices and as living up to international standards. Nevertheless, anti-corruption enforcement remains weak. This is primarily due to the inadequate investigative capacities of the country’s enforcement agencies and the dominance of the ruling SWAPO party as a political force, which has caused them to focus on cases of small-scale corruption rather than seek out cases of grand corruption by senior public officials.

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Zambia

Zambia’s legal framework in the area of anti-corruption is well developed, but implementation is extremely lacking. As a result, corruption is prevalent across all branches of the government, at the state and local levels, and in the private sector. Prosecutions and convictions are rare and mainly related to shifts in domestic politics. The politicisation of anti-corruption efforts means that corruption charges may be used as a political tool, mainly against political rivals though companies could also be impacted.

In Zambia, corruption has hindered economic and social development by limiting the country’s growth potential and undermining initiatives against poverty and equality. Foreign investments – particularly in the mining sector – have also failed to benefit local communities as revenues are misappropriated and mismanaged by the political elite.

Corruption remains a significant obstacle to investment in Zambia, because it creates significant risks and burdens on business. Bribes are demanded systematically to obtain licenses and permits, or to have utilities connected or repaired. Corruption scandals involving public procurement are common in Zambia, with the government favouring well-connected companies or individuals. Facilitation payments are also asked for to speed up or bypass burdensome regulations. High risk sectors include mining and banking and finance.

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Corruption Risk Briefings are available for all countries. Register for trial access to see examples.