Slow Crawl On Corruption

A long walk to freedom need not mean a slow crawl on combating corrupt government

BY PETER O’BRIEN*

The recent (May 12) London Summit on Anti-Corruption resulted in another small step in the right direction. About 40 countries were represented, along with a number of international sports associations and similar bodies that have come under scrutiny for corruption. No real agreements were made, but some initiatives were announced. The UK Government, which for the last several years has been concerned about that country’s poor reputation due to its role in money-laundering, confirmed its plans to establish a register (with retroactive force) of large property owners. The so-called Beneficial Owners Transparency Initiative will shortly be made law. Despite the efforts to persuade other significant countries to follow the same path, to date only 4 of the G20 countries have committed to ending the practice of Secret Company Ownership. The sports associations present (which did not include FIFA, perhaps because of its major meetings in Mexico the following day) agreed to launch, in 2017, an International Sport Integrity Partnership, though the details of this are still unclear.

La Suisse lave plus blanc

The London meeting sensibly sought to focus on a single dimension only of anti-corruption efforts, namely financial secrecy. It is now some 35 years since the Swiss campaigner, Jean Ziegler, published a fierce tract on money-laundering in his own country, “La Suisse lave plus blanc” (in English translation: “Switzerland Washes Whiter”) , and it was towards the end of the 1980s that activities against the international drug trade started to place priority on tracking down where and how the money had been used (especially through the efforts of the Financial Action Task Force, set up with the participation of both national and international institutions). Notwithstanding the flood of additional information (that will require very careful analysis) provided by the Panama Papers, this route remains a tough one.

There are at least three problems to overcome. First, and most important, the reluctance of countries ( and states/regions within them) to embrace full transparency. Put simply, that elusive animal, political will, is hard to manage. Second, the complexity of legal and other arguments relating to what should be the boundaries separating legitimate claims for privacy from claims designed to shroud illegal behavior. Third, the major practical difficulties in carrying out investigative work on the scale required. To date, no international body has been given the resources adequate to such a task.

Corruption vs. Money

Discussions of corruption and money often mix together issues that should be kept separate. Africa’s countries are faced with two challenges: the use of money to distort decisions (such as those involving public procurement) and the avoidance of payments that should be made to the State (leading to what is variously called the “shadow economy” or the “informal economy”). Both things make governance more difficult, and tend to impede economic growth. Both can lead to money laundering. And at least the former often involves foreign entities.

While the London Summit did not unfortunately shed much new light on these matters, the information made available again underlined how so many other countries are locked into the same battle. For instance, data referring to 2012 and covering 20 EU Member States show that best estimates of the size of the shadow economy in relation to GDP are quite alarming. Of the 20 countries measured, the lowest percentage (shadow to total GDP) was for Austria, at 7.6% while the highest was for Bulgaria (31.9%). The median figure, 15.5%, was for Slovakia, a striking finding given it is a country that for years has had only a single, and low, tax rate (meaning tax evasion might be expected to be small). Indeed, both Germany and Sweden have a shadow economy/legal economy ratio of around 14/15%. In other words: the advanced countries not only have a problem with aggressive corruption (that aimed at particular projects and programs) but also with the silent corruption of the shadow economy.

Governance & Incentives

The governance issues, not really examined in London, remain for Africa at the center of the problems. It is now a full 20 years since the then President of the World Bank declared that governance was the great obstacle to be overcome in the efforts towards development, and further declared that “the cancer of corruption” was the central issue in governance. Since then, it seems that little progress has been made. Or, to put it differently, the efforts of a political and technical nature have been neutralized by the growing sophistication (legal, technological and financial) in the criminal world.

The measures against money laundering operate from the premise that if criminals are faced with a high risk that they will never be able to enjoy the benefits of their actions, they will be much less inclined to behave badly. This is a fair line of policy to follow, yet so far the deterrent effect does not seem to have been too powerful. An opposite way of tackling things is to find ways of reducing the incentives to corrupt behavior to start with. Given that for Africa it is this which would seem to provide the best, if modest, hope for achieving home-grown policies against corruption, future efforts should be made along these lines.

No doubt many countries are already experimenting with their own tentative policies. It might be made worthwhile establishing simple information exchanges among countries about how they have designed and implemented such policies, and the results they are achieving. For some years, it has been normal to use an experimental approach towards assessing and improving various anti-poverty programs. It is perhaps now time to follow the same path with regard to anti-corruption.


* About the author: Peter OBrienPeter O’Brien is economics & trade advisor to Africa consulting boutique Pr1merio. With over 30 years’ international expertise in economic and financial analysis, trade negotiations, and deal making, Peter O’Brien has advised governments, NGOs, and private clients on economics, policy, and diplomacy matters. Peter has worked worked in all regions of Africa, providing advice to clients ranging from South African conglomerates to Ethiopian government ministries.  A native of Ireland, Peter is fluent in English, French, Spanish, Portuguese, Italian and German.

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$1 billion per year lost to corruption: a Nigerian saga

A protester sports an anti-corruption T-shirt in Lagos.

$1 billion per year lost to corruption

Recently, AAF reported on the multi-faceted PR efforts of the new Buhari regime to clean up the soiled image of “corrupt Nigerian politics” — among other things, by staging photo ops with World Bank leaders, charging former government officials with bribery, and moving ahead on basic appointments.

Today, the Guardian reports that the Nigerian Minister for Information, Lai Mohammed, “kicked off a corruption awareness campaign appealing to Nigerians to join the fight,” noting that the previous regime’s embedded corruption had “enriched a small elite but left many Nigerians mired in poverty, despite the country being Africa’s top oil producer and having the continent’s biggest economy.”

AAF spoke with John Oxenham, a legal expert on anti-corruption measures with Africa advisory firm Pr1merio.  Oxenham comments:

“The Buhari administration is finally making good on its promises, it would seem, as it had thus far been slow to implement even the most basic of administrative tasks, such as appointing a proper cabinet.  As previously pointed out on your site, the visit with Ms. Lagarde and her advisors serves to enhance visibility and (hopefully) honest dedication to the anti-corruption efforts.  At Primerio, we work with several foreign private entities that express concern over doing business in Nigera, given its reputation.  While we can advise on compliance and risk-avoidance (keyword FCPA etc.), the Nigerian government’s efforts to stamp out corruption from within are helpful, as well, in developing a more robust foreign-direct-investment climate.”

That said, the Buhari camp must be careful not to create the appearance of using the “war against corruption” as a sham front for silencing the opposition under the guise of rooting out fraud.  “Employing the help of the courts — presumptively more impartial and fair than the political process — is therefore key to the government’s fight against graft in Nigeria,” says Andreas Stargard, also with Primerio.

“The estimated $1 billion per year lost to corrupt dealings over the past 7 years is staggering, especially when taking into account that these are merely the official figures — our Africa economists estimate that the actual loss to corruption amounts to an even larger share of the (significant) Nigerian GDP.”

And so the Nigerian saga continues…

How a Billionaire Changed Corrupt Government: Dangote vs. Mugabe

Did a Nigerian CEO single-handedly wipe out source of Zimbabwean ‘indigenisation’ corruption?

The Zimbabwean economy has been struggling hard under the regime of President Robert Mugabe for years, having contracted as much as 40-50% and suffering from galloping inflation rates of over 79 billion % (so-called hyper-inflation, which is exceedingly rare today).  This has, in turn, led to tremendous human suffering, including famine, a significant exodus from the country, a decline in life expectancy, etc.

One of the oft-cited culprits hindering foreign direct investment (FDI) into Zimbabwe has been the official policy of “indigenisation.”  Andreas Stargard, an advisor on African competition and fraud issues and a Primerio director, comments:

“After the 1979 Lancaster House Agreement set in motion the ultimate Land Reforms and other measures that would allow the new majority rule to eradicate the remnants of the British Empire’s colonisation of the former Rhodesia, the Zanu-PF policy of requiring all FDI to cede 51% or more of the investment’s equity interest to native Zimbabweans, foreign interest in the country has dropped significantly.  The indigenisation policy has sent investors running — well above and beyond their already extant currency worries and the spectre of government-sanctioned expropriation.”

Indigenisation and its effects

The indigenisation rule applies to “any person who before the 18th of April 1980 was disadvantaged by unfair discrimination on the grounds of his or her race, and any descendant of such person.”  This law, the so-called ‘Indigenisation and Economic Empowerment Bill of 2008‘ (IEEB), has not only hindered DFI, but also led to an exacerbation of corruption within the Zimbabwean business and government circles, as it acting as the Zimbabwean majority front-man has become a lucrative calling for otherwise unqualified government officials or their family members.

The Economist has noted, just prior to the 2008 enactment of the Zimbabwean law, that the vagueness of its provisions could be a harbinger of confusion (and, correspondingly, corruption):

Zimbabwe’s bill contains a lot of ambiguity, and gives a lot of loosely-defined discretion to the government. It is unclear whether the transfer would apply only to future mergers, demergers, restructurings and transfers, or to all existing companies. Moreover, the minister for indigenisation and empowerment would have to approve all ownership transfers and would have the power to impose alternative local partners if he disapproves of those involved in the proposed transactions. He would also have the authority to exempt selected companies from the ownership requirements for a certain period.

Dangote to the rescue

The man who has now called into question — and apparently successfully so — the Zimbabwean indigenisation rules is none other than one of  Africa’s foremost Black billionaire businessmen, Aliko Dangote.  He is the CEO of his eponymous company, Dangote Group, which has expanded from being once a mere concrete business to an conglomerate empire of significant proportions and well over $3 billion in annual revenues — enough to make Mr. Mugabe’s ministers now consider reforming (if only silently and unwillingly) the existing policy’s hurdles to FDI.

Although the Zimbabwean Vice President, Mr. Emmerson Mnangagwa, has denied any connection with the suddenly ongoing reforms to indigenisation rules and the Dangote Group’s recent promise to invest up to $400 million of sorely-needed hard, foreign currency into government coffers and domestic commercial banks, this seems to have been precisely the case, in AAF’s view.  Bloomberg has reported that not only Dangote, but also the (decidedly non-Black, despite its name) BlackRhino private-equity infrastructure fund, which is a Blackstone subsidiary, would consider concomitant investing into Zimbabwean power generation.  Other media outlets likewise reported the dramatic change in demeanour over the past two weeks, since Mr. Dangote’s initial visit to the country and his subsequent threat to withdraw his investment promise, if needed reforms were not undertaken swiftly:

When Nigerian billionaire Aliko Dangote arrived in Zimbabwe last month, the red carpet was rolled out for Africa’s richest man.

He was showered with exclusive hospitality and access to ruling elites, including meetings with the two Vice Presidents Emmerson Mnangagwa and Phelekezela Mphoko before seeing President Robert Mugabe.

Since then, after Mr. Dangote strategically “forgot” to mention Zimbabwe as one of his target countries, thereby prompting deservedly worried Zanu-PF reactions, the ruling party has apparently gotten the memo from the mega-CEO: it recently released an official Presidential memorandum announcing reforms to “improve the easy of doing business” in Zimbabwe.  Says Stargard:

“See, under the existing IEEB rules, it’s not enough to be Black in Zim by the Zanu-PF’s standards for doing business — one must also be Zimbabwean by birth (or at least as of the country’s independence day in 1980).  So Mr. Dangote does not qualify for preferential treatment, and therefore would have to cede over half of his local investment value to domestic ‘business interests,’ AKA a vast array of potentially corrupt shell entities or individuals waiting to benefit from the Dangote/BlackRhino investment slush fund.”

A local Harare attorney, Obert Gutu (Twitter), told a Financial Gazette reporter that in his view, the ambiguities and resulting counter-productive effects outweighed the upsides of the law: “The contradictory statements that are being made by different ZANU-PF cabinet ministers are symptomatic of policy incoherence and institutionalised confusion.”

Mr. Dangote would seem to agree with Mr. Gutu’s views, expressed more than a year ago in the Gazette’s aptly titled article “Indigenisation Act Continues To Create Confusion“:

“It is a populist indigenisation policy that is benchmarked on emotive utterances that do not resonate with the reality that is presently obtaining within the global macro-economic architecture.  For as long as the ZANU-PF government trumpets this populist indigenisation policy, Zimbabwe will not attract any meaningful foreign direct investment. Our national economy will remain fragmented, perilous and fragile.”

We conclude by (1) hoping that Mr. Dangote’s influence (or at least that of his U.S. dollar-denominated chequebook) bears fruit and stamps out a good part of the extant corruption in Zimbabwean politics; and we (2) note that Zimbabwean indigenisation stands not alone in Africa — other countries, notably South Africa with its Black Economic Empowerment rules in effect since the early 2000s, have similar (although perhaps less draconian) measures in place to level the playing field in the former European colonies.  The Zanu-PF version of Black economic empowerment is, however, apparently too counter-productive even for Africa’s most influential Black businessman, as we are now beginning to learn…

To be continued

Buhari to the rescue: Tackling corruption in Africa’s largest economy

“The wind of change is blowing through this continent…”

Perhaps reminiscent of the “Winds of Change” (the speech delivered in 1960 by British Prime Minister Harold Macmillan to the Parliament of South Africa in Cape Town), the recent address given by new Nigerian President Muhammadu Buhari at the United Nations represents a political milestone in seeking to eradicate corruption in Africa.

The omnipresent malaise of corruption: Buhari to the rescue?

Were $150 billion ‘stolen’ under aegis of President Jonathan?  Having previously attacked his predecessor’s regime from 2010-15, claiming it embezzled this staggering amount from the Nigerian state coffers and the private sector, Buhari already had made his anti-corruption stance a key component of his campaign against Jonathan.  For instance, back in 2011, he “urged President Jonathan to focus on tackling corruption in government instead of removing fuel subsidies.”

During his 2014 campaign, he lamented in his so-called “2015 Manifesto” that “[a]s a nation, we are paralyzed by … endemic institutionalised corruption,” speaks of “hyper-corruption,” and proposes as its solution that: “I, Muhammadu Buhari have now come to the rescue. This is success by design. It will overcome our failure by design matrix.”  Moreover, his 4th campaign promise has been to “Prevent the abuse and misuse of Executive, Legislative and Public offices, through greater accountability, transparency, strict, and implementable anti-corruption laws, through strengthening and sanitising the EFCC and ICPC as independent entities.”

More recently, the President had a slightly more sober message to deliver to the General Assembly in New York City, yet still zeroing in on the same target, namely corruption:

“Let me reaffirm the Nigerian government’s unwavering commitment to fight corruption and illicit financial flows. By any consideration, corruption and cross-border financial crimes are impediments to development, economic growth, and the realisation of the well-being of citizens across the globe.

“Nigeria is ready and willing to partner with international agencies and individual countries on a bilateral basis to confront crimes and corruption.”

Winds of Change?

Buhari took office only in June 2015, but is far from new to politics in Africa’s largest economy — he was Nigeria’s military ruler in the 1980s, was a former Minister for the key portfolio of Petroleum & Natural Resources, and has concomitantly extensive political and strategic leadership experience under his belt.  For him to have chosen the fight against corruption in Nigeria as a key topic in his U.N. speech foreshadows a major initiative, we believe.

Pr1merio co-founding partner, Andreas Stargard, likewise perceives President Buhari’s message to be an important one, especially for international businesses with Nigerian ties:

“Several African, and in particular West African, countries have historically been seen as far too lax on effectively countering corruption and bribery.  This can often have one of two results for international businesses, neither of which is good for the affected African economies, coincidentally: (1) either the foreign corporation weighs the risks and chooses to avoid Africa for fear of involvement in bribery and resulting liability risk, or (2) it actually decides to participate in the corrupt conduct and seeks to benefit from it, paying scant attention to local anti-corruption legislation, and risking FCPA-like prosecutions in its home country.”

Whether or not Buhari’s pronouncements in international diplomacy will have an actual and measurable impact in the short or even medium term remains to be seen.  Bayo Adaralegbe, also a Primerio advisor, agrees that President Buhari’s speech at the U.N. does heralds potential key turn-around point in West-African anti-corruption efforts.  Adaralegbe notes that, unlike his predecessor Goodluck Jonathan, President Buhari is intent on fulfilling his election promises.  Buhari added in his address to the United Nations that:

“In particular, I call upon the global community to urgently redouble efforts towards strengthening the mechanisms for dismantling safe havens for proceeds of corruption and ensuring the return of stolen funds and assets to their countries of origin.”

As recently reported by AAF (e.g., “Just a math issue”: Anti-Corruption Efforts in Kenya take Center-Stage for Obama), many recent African administrations have attempted to bolster — or at least undertake public-relations efforts on behalf of — their enforcement efforts, particularly in recovering funds stolen by previous administrations.  Buhari’s statements are not different in this regard.  

It is of course difficult to gauge whether the messages above will result in substantial enforcement action.  That said, for many doing business in the region it is noteworthy that the message in fact comes from the top, i.e. the sitting President of Africa’s single-largest economy…