Ending corruption should be a major priority to ensure that aid and development finance contributes to improved development outcomes. This requires greater levels of transparency in public financial management, as well as finding new ways of engaging citizens, particularly in the business community, that have for too long been ignored as key stakeholders in efforts to reduce corruption.
Corruption undermines political, social, and economic development, which is a growing concern in fragile economies in parts of Africa. The distorted system created by corrupt interests stifle inclusive economic growth, aggravating problems of economic inequality and injustice, which fuels frustration and violent instability.
African countries are among those hit hardest, as local entrepreneurs/micro, small and mid-sized businesses (MSMEs) account for nearly 70% of all businesses and employ more than half of the continent’s labor force. Yet, MSMEs are not only the most vulnerable to retail corruption, MSME
development programs are the least scrutinized in most countries and as a result are most prone to mismanagement and graft. According to the World Bank Enterprise Survey on Corruption MSMEs consistently spend a higher percentage of their budget on bribes, compared to large and international companies (retail corruption). While, according to a research paper published by the Carnegie Endowment for Peace and International Studies, Africa’s most populous country, Nigeria has lost over $1 billion to corruption in the administration of MSME development programs between 2014 and 2018.
Regional development financing institutions like the African Development Bank (AfDB) and Africa Export Import Bank (AFREXIM) provide significant development assistance channeled towards MSME development but they have not recognized their unique capacity to address the problem of corruption through private sector led initiatives. Such initiatives could take the form of promoting business integrity, transparency, accountability, and boost competition in African economies. These institutions are best positioned to reinforce and advance a culture of corporate governance, business ethics and integrity across the continent through existing initiatives or by finding new ways to work with private sector development organizations.
Following precedents of development institutions that are making efforts to address corruption in financing, the AfDB has a Debarment and Sanctions procedure that debars companies involved in unethical practices involving AfDB finance. This includes debarment of companies financed by other development banks that are part of a cross debarment agreement. This is laudable, but a sanction strategy alone is never enough or effective in addressing systemic corruption problems. Rather, initiatives that emphasizes changes in corporate behavior, employing a combination of education, empowerment, incentives, and consequences aligned with market driven objectives, would have more sustainable impact.
By incorporating business focused anti-corruption efforts in their development strategies, financing institutions can empower small businesses to implement best practice measure to mitigate corruption, while at the same time aligning market forces with these efforts will increase the attractiveness of local businesses for integration into global value chains, boost competition and shrink the inequality gap.
Committing to instill a culture of business ethics and compliance with anti-corruption laws will have a lasting positive impact, It will help enhance public integrity in order to achieve the sustainable development goals of the countries within the region. Both institutions can start by educating and empowering the business community at conferences, championing collective action initiatives that reduce the corruption risk for small businesses, and incorporate strategies that align anti-corruption efforts of businesses with social and market incentives encouraging greater transparency and integrity. Local businesses are not only the engine of African economies, they are the largest employers of labor but also have the lowest trust in the government services despite being the most dependent on those services.
Therefore, it is essential that regional development finance institutions that bring a unique perspective to addressing development problems on the continent recognize, acknowledge and create opportunities for the local private sectors in Africa to lead on business integrity by holding themselves accountable, and doing the same for public sector.
At the Center for International Private Enterprise (CIPE), we believe democracy should deliver for all, and that local business communities play an essential role in creating inclusive and prosperous economies and societies. CIPE is a non-governmental organization focused on harnessing business- led solutions to combat corruption, strengthen corporate governance, and foster entrepreneurship and public advocacy.
CIPE is helping business communities in middle-income economies to improve integrity standards, increase transparency, and strengthen adherence to best practices through collective action.
Through CIPE’s network of compliance professionals in over 12 countries across Africa, CIPE is increasing access to compliance and risk mitigation solutions that alleviate the prevailing challenges connected to the regulatory risks of cross-border trade.
We call on the Regional institutions in Africa to engage local business communities as key stakeholders in strengthening public integrity and eradicating corruption.
About Author: Lola Adekanye, CIPE Africa Program Officer.