"Participation Builds Unity"
"MADE IN AFRICA - FOR AFRICA"
"Participation Builds Unity"
"MADE IN AFRICA - FOR AFRICA"
PRESENTS
OECD SUMMARY REPORT
Alliance for Integrity
Government and Business Roles in Enhancing African Standards of Living
07 - 08 MARCH 2005
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Jointly organised by the Investment Committee of the Organisation for Economic Cooperation and
Development (OECD), the New Partnership for African Development (NEPAD) and the United Nations
Global Compact in partnership with Transparency International - Alliance for Integrity - Government and Business Roles in Enhancing African Standards of Living
SUMMARY REPORT
Background – Venue, Participation and Context
2. The main objective of the two-day conference was to strengthen alliances between business, civil
society and governments to fight corruption and foster positive frameworks for investment and job
creation. In the words of Peter Eigen, Chairman of Transparency International, “Africa is on the path to
liberate itself for a second time, not from colonialism, but from corruption, poverty and violence.”
Participants showed a clear sense of urgency to seize on the present momentum.
3. K.Y. Amoako, Executive Director of the Economic Commission for Africa (ECA) called
attention to the important African initiatives. In June, UNECA will publish its African Governance Report
2005 surveying the progress in 28 countries based on information gathered by hundreds of researchers. The
fight against corruption, he noted, “cuts across all the main issues Africa faces today -- Aids, trade and debt
-- it is necessary to find synergies to overcome them all.” The Report of the Commission for Africa cites
the role of NEPAD, the OECD integrity instruments (including many references to the OECD Guidelines
for Multinational Enterprises, a government-backed code of conduct for international business) and the UN
Global Compact as the basis for partnerships that aim to improve public and private governance in Africa.
4. Africa is moving forward in the fight against corruption – the discussions revealed a wealth of
national, regional and international initiatives. Although experience with these initiatives has been variable,
the emerging framework was viewed as holding great promise for the countries of Africa, 32 of which
have signed the UN Convention. Discussion focused on the emerging framework supporting transparency
and integrity at the national, regional and international levels.
5. The UN and African Union Conventions and the ongoing work in support of the OEC Anti-Bribery
Convention were seen as supporting for the fight against corruption in Africa, but many questions
were raised as to the process of implementation and monitoring:
The multitude of questions and the diverging opinions in the discussion that ensued indicate that actors from all walks of life will need to work together
to see that the momentum – so readily observable in the fight against corruption -- is seized and used to
maximum advantage. While the discussion identified much scope for cooperation and mutual
reinforcement, it also underlined the urgent need for more dialogue and cooperation among the four
international organizations.
Voluntary Initiatives
6. Samuel Sitta, Executive Director of the Tanzania Investment Center, described the process in his
country which started with a country-wide assessment of the current situation leading to the development
of numerous institutions mandated with fighting corruption. He mentioned open communication and
genuine ‘ownership’ from the country enacting reforms - both with the public and government - as
essential elements in the process. Similarly, several participants from a variety of other African countries
reiterated the need for changing the mentality of the bureaucracy, strengthening the judiciary system and a
coherent tax structure.
7. Both Mr. Oni and Soji Apampa, Managing Director of SAP Nigeria, described the Convention on
Business Integrity in Nigeria, a voluntary anti-corruption initiative which requires companies to publicly
denounce corruption, adopt a code of conduct and a road map for its implementation. The convention also
includes a peer review system to promote compliance.
8. Rory More O’Ferrall, Director External Affairs of De Beers Group of Companies, described the
Kimberly Process. It was the result of a joint effort by the South African government, the diamond industry
and civil society organizations to stem the flow of conflict diamonds - rough diamonds that are used by
rebel movements to finance wars against legitimate governments.
9. The success of these initiatives demonstrated the potential power of collective action and
voluntary approaches, particularly in cases where business, civil society and governments work together.
The Informal and State-Owned Enterprise Sectors
10. All participants acknowledged the importance of the informal sector in the daily lives of
Africans. However, there was general agreement that this sector – especially the many large and well
organised companies that flourish there – were focal points for corruption. Mr. Oni called the informal sector
“Weapons of Mass Diversion” and noted that the informal economy grows from the failure of the
formal system. What emerged from the discussion was the notion that, in Africa today, there are many
different types of informal economies. As one example, a participant described the “shadow state” in her
country where the informal sector operates in the absence of any formal system.
11. Martin Kisuu of Deloitte Touche Tohmatsu East Africa outlined another example where the
informal sector is embedded into the formal structure with key business leaders and politicians holding
ownership of informal networks, importing goods, funnelling proceeds through bank accounts and using
the money to buy property and invest in legal operations. While Mr. Kisuu believed that this type of
informal sector could be reached by anti-corruption efforts, he said criticized the lack of political will to do
so. He also underlined the role of middlemen who acted as brokers between the business and the political
class. The role of agents, middlemen and facilitation payments were identified by all participants as issues
were there was urgent need for further action.
12. State-owned enterprises (SOEs) were also seen as a focal point for corrupt practices in many
African economies. The Addis Ababa conference provided an opportunity to survey country experiences
with SOEs (countries covered were the DRC, Ethiopia, Namibia, Nigeria, Senegal, South Africa and
Tanzania). The sector was described by conference participants as “obstacle to development” and as a
“liability to the African economy”. Thus, the Addis Ababa conference underscored the significance that
African actors attach to the SOE sector, both as a target for promoting corporate responsibility and as an
integrity issue for private companies conducting business with it.
13. Although the tour de table showed some differences among countries in terms of the degree of
privatisation realised to date, the overall picture painted was one of serious, but strikingly similar problems
(including inefficiency and corruption, especially political corruption). SOE governance problems
mentioned by conference participants include:
Conference participants agreed that state-owned enterprises present integrity risks for any private
company wishing to conduct business for them. Some felt that business transactions should be evaluated
on a case-by-case basis to ensure that the reputation of the company would not be undermined because of
its relations with SOEs. Others favoured looking at the degree to which SOEs adhere to international
governance standards (the OECD Corporate Governance The OECD Corporate Governance Principles and
the second King Report on Corporate Governance for South Africa were mentioned) and then taking steps
to promote improvements in SOE governance.
Access to Financing and Creating the Institution
14. Lack of access to financing was identified as a factor that leads entrepreneurs to seek “informal
channels.” This applied to market vendors who had neither time nor the knowledge necessary to go
through the complicated processes required of applying for loans, to small entrepreneurs who lacked the
necessary collateral. Problems with securing proper land or property titles only exacerbated this problem.
15. Lemma Argaw, the Auditor General of Ethiopia, explained that the Institute of General Auditors
had as its main objective to assure the integrity of internal audits through the development of tools and
standards. This type of professional association, he noted, had a direct impact on creating greater
transparency. Along the same lines, Mr. Kisuu underlined the role of external auditors and the importance
of integrity policies by the accounting firms.
Regions with Weak Governments or no Governments
16. While participants described a variety of different levels of corruption, the situation which
appeared to be most challenging were those in which the state itself was so weak and ineffective that it had
no capacity to address the issue at all. Sierra Leone and Liberia were described as dramatic examples of
failed states where millions of dollars in aid or trade revenues had disappeared without a trace.
17. The discussion on the situation in the DRC made it clear that companies themselves are at a loss
on how to operate in zones with no effective government. Accordingly, Mr. O’Ferrall called for the
development of a practical code of conduct which sets out criteria for how companies should operate in
regions with weak governance. He went further to argue for the need for proper mechanisms to deal with
breaches of such standards and international monitoring.
18. One of the goals of the conference was to collect African inputs into the OECD Investment
Committee's work on the development of a risk management tool for investors in weak governance zones.
The development of this tool – scheduled for publication in mid-2005 -- is part of the Committee’s follow
up on the UN Expert Panel’s references to the OECD Guidelines for Multinational Enterprises in its
reports to the UN Security Council on illegal exploitation of natural resources in the Democratic Republic
of Congo. The conference provided inputs in the area of appropriate corporate governance practices when
supporting institutions are weak and in structuring business relations with state-owned enterprises.
Conclusions and Next Steps
19. Speaking for the institutions charged with implementing the OECD Guidelines for Multinational
Enterprises, Anna-Maj Hultgaard (Swedish Ministry for Foreign Affairs and Chair of the Working Party of
the OECD Investment Committee) promised to integrate conference participants' comments into the risk
management tool being developed by the OECD Investment Committee as follow up to the UN process on
illegal exploitation of natural resources in the DRC. Conference participants will have an opportunity to
comment on the draft after it has been discussed by the Working Party of the Investment Committee in
April, 2005.
20. NEPAD reiterated their commitment to work on fighting corruption, an issue they have clearly
incorporated into their peer review process. In addition, they indicated a strong interest in working with the
OECD, the Global Compact and the business community especially through their Investment Climate
facility. The possibility of a jointly organized conference to bring together all African countries that have
ratified the UN Convention against Corruption was also presented.
21. The UN Global Compact is planning to put a stronger emphasis on Africa and is opening its first
regional office in South Africa in March. Furthermore, follow up meetings to exchange experiences and
foster learning on the implementation the 10th principle against corruption will be held in various African
countries.
22. In his concluding remarks, Peter Eigen emphasized the fact that all sectors and actors shared
responsibility for the problems created by corruption and failed governance. Governments of the North, he
stated, had acknowledged the negative effect of their companies and organizations in the supply side, and,
through national legislation and international instruments such as the UN and the OECD Convention and
the OECD Guidelines for Multinational Enterprises, had put into place mechanism to combat corruption.
He went on to state that in Africa, through the African Union Convention and the NEPAD process,
governments were also tackling the demand side. He called upon participants and the many organizations
they represent, to work together to further such efforts. In Africa, he noted, leadership can only come from
Africa itself.
1. More than 90 participants representing African business, civil society and labour organizations,
international organizations and governments, gathered in Addis Ababa on 7-8 March for “Alliance for
Integrity – Government and Business Roles in Enhancing African Standards of Living”. About 70 of the
participants were Africa-based – they included representatives from business, business associations, state-owned
enterprises, trade unions, civil society, national governments and regional organisations. Co-organized
by the OECD Investment Secretariat, the UN Global Compact, the New Partnership for Africa’s
Development (NEPAD) and Transparency International, the conference took place at the facilities of the
Economic Commission for Africa (ECA). The final agenda for the event is provided in the Annex to this
summary.
The importance of NEPAD’s African Peer Review Mechanism (“APRM”) and signing up of several
African governments to the Extractive Industry Transparency Initiative (“EITI”) were also noted. Against
this backdrop, the conference participants focused their efforts on the root causes of corruption and on
identifying areas where business, civil society and government can best work together to find solutions.
Emerging National, Regional and International Frameworks
How will the NEPAD APRM link into the monitoring of the conventions?
How will the upcoming UN monitoring system of the UN convention link into the system of the other conventions?
Did African Union heads of state intend that monitoring be restricted exclusively to the national level and that signatories of the AU Convention be allowed to opt out of specific clauses?
How can OECD home governments improve their anti-corruption record with respect to development assistance and export credit programmes?
• Regulator and ownership roles of the state not separated. SOE relations with Ministries and top
political actors are generally close. This gives rise to conflicts of interest in the formulation of a
number of policies, including regulation, competition and procurement. Many SOEs enjoy
monopoly powers in their sectors.
• Ineffective Boards of Directors. Boards of directors often do not have de facto rights to exercise
their responsibility to set the strategic direction of the company and to ensure that management
acts in the best interest of the shareholders (for example, real control may reside outside the
Board with political parties or top government officials). Board appointments are made on the
basis of political connections, not business competence. SOE Board nominations can be a
channel for political patronage and Boards are often beset with conflicts of interest.
• Slack Internal Management Systems and Other Controls. SOEs’ internal control systems are
often defective or non-existent. SOEs are frequently “excluded from the Auditor General’s
purview” and sometimes hire their own auditors, who do not follow international audit standards
and are subject to conflicts of interest.
• Low standards of disclosure. One participant suggested that SOEs, because they act in trust for
the public, should adhere to higher transparency standards than privately owned companies. In
reality, however, the average standard of information disclosure observed by SOEs in most
countries surveyed is low.
For More Information See:
OECD
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