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Dash me - An anatomy of corruption in the ICT business - an off-the-record briefing
Russell Southwood, Balancing Act's News Update 205
April 26, 2004

Corruption is an ever present reality for most business sectors in Africa and is one factor cited as a barrier to doing business with the continent. In this week's off-the-record briefing Russell Southwood looks at how corruption works in the ICT business in Africa. From large-scale contract transactions to simply getting a phone installed, we look at how it affects the ability of companies to get things done and the additional costs it places on doing business.

There are many kinds of corruption and they affect the way countries do business differently. In the ICT sector there appear to be three main areas: large-scale corruption; endemic business corruption and small-scale corruption.

Large-scale corruption usually involves large sums of money but very small numbers of people. It usually a politician or business executive getting a pay-off. The most wide-open opportunities for this kind of corruption are two-fold: the selling off of an incumbent telco by a government or the letting of large-scale equipment contracts.

In many African countries, politicians have a tendency to regard state-controlled assets as their own. Therefore it is perhaps hardly surprising that they look forward to reaping some of the benefits when they're sold.

As one CEO told us:"We've walked away from deals in (three countries). Why? Because the money we represent is quite shy and conservative. The old regime in (one country) was quite extraordinary. They told us 'thou shalt bribe us'. There was a sense of entitlement and they were quite open about it."
In the case of another company, those wishing to be bribed presented a more audacious scheme:"We had been negotiating with a local partner and government officials. Things had been going well. At the end of the session I said I'll have to take this to my Board and they'll ask: who are our oartners? The negotiated agreement says others - 40%. The government officials said it's us. It was the individuals, not the Government. We walked away politely."

Often corrupt practices are directly connected to the ruling party. In one East African country, the incumbent telco had a separate operation through which a certain proportion of international call revenues went. These funds were paid in dollars and the cash was deposited in offshore bank accounts that could be used by politicians of the ruling party. There was much understandable concern about this scam that was stopped when the new ruling party came to power.

However not so long ago, it was discovered that the same scam was in operation again. An investigation was carried out but was called off when it was revealed that the beneficiary of the new scam was none other than a senior minister in the new government.

Although several developed countries have strict legislation forbidding bribes, the dilemma is: do you get business as others do or do you simply drop out altogether? Last year there was a large controversy over the award of a large equipment contract. The country concerned held an investigation and declared everything was above board. Equipment manufacturers are much more reluctant to talk about how they secure contracts.

Endemic business corruption is where bribes or corrupt practices infect all parts of business life. Often this is simply part of a wider corruption culture in the country concerned. For example, a local ISP in one African country told us that his competitor in one city was paying off a senior manager at the incumbent telco. The local ISP's new customer would go to the incumbent's manager to get a line. He would pass the name of the customer directly to the competitor ISP and delay putting in a new line. The net result was that the customer quickly defected to the competitor company where he could see that he would be able to get a service.

Because international calling minutes are paid in dollars, the temptation to collude with suppliers to divert some of the revenue is enormous. One Chief of International Relations had money paid into a bank account to use a particular supplier and to reduce the international call rates being charged. Because the price differential was so noticeable, he was challenged and eventually fired.
In another case in a West African country, the head of the telco was put in jail for what were alleged to be corrupt practices. Several months later he was released and it was claimed that it had all been an administrative error. So what had happened? He had been failing to pass on kickbacks to his political superiors.

But as they say, it takes "two to tango". A well-known telecoms expert was approached by a company executive and asked whether he knew of any African telecoms officials he could be bribed so that they could get contracts. Bribes at this level often go down in accounts as "marketing" or "facilitation" and often the transaction is arranged through a relative of the official concerned.

Often the regulatory framework of the industry and the slow pace of obtaining licences allows opportunities for regulatory officials to ask for bribes. One business man who was seeking a VSAT licence told us that after his first meeting:"The guy took me into the parking lot and said what's in it for me?" As it turned, the business man did not pay the bribe and was not asked again. All too often corruption thrives on a willingness to take the bait.

Another ISP told us that he had been chased all week by someone from the incumbent telco who was looking for an ISP who would do a "private" deal with him for VOIP traffic. This was happening in the same period when the management of the company were making considerable efforts to root out corruption. But it has to be said that certain kinds of regulation encourage law breaking and corruption: the defence of the telco's international monopoly is almost certainly one of them.

In certain countries all business transactions (including ICT) come with a built-in percentage for the person who's handing out the contract. This kind of automatic charge works against sourcing the most cost-effective solutions. In issue 202, we described how one of the biggest problems in persuading people to switch to Open Source in Burkina Faso was the widespread corruption in government and private sector. With free acquisition and lower maintenance costs, Open Source therefore faces a significant barrier to its adoption. In Nigeria, the practice of equipment passing through the hands of several sellers as it moves across this vast country, ensures that prices are inevitably higher once the equipment arrives.

In some countries, the suppliers put in lower bids because they know that the paid-off contractor will never properly check whether the work has been properly carried out. Nigeria has had a spate of cases in several fields where contractors have been paid but never completed the work.
One ICT business told us that after three years of trading he had not submitted any returns to the tax collecting authority. The tax collector made him an easy offer: "Pay me off and I'll turn a blind eye." In the end he avoided doing so because "once they've got you to pay once, what's to stop them coming back for more."

Another ICT company told us how they keep three sets of books: one for the overseas investor, one for tax man and another showing what was actually happening. This kind of sometimes necessary "triple-think" encourages those involved to be deceptive and makes others think that all business is simply a racket.

Small-scale corruption is having to pay off individuals to get something done. The one most frequently mentioned across the continent is paying a bribe to get a phone installed. Lengthy waiting lists simply breed this kind of petty corruption. One ICT business entrepreneur told us:"There were several times when people sought a bribe from us and we only had to bribe the telephone engineer to get a line from (the incumbent telco). You were made to feel that it was the same as 'tipping' the person - an appreciation for his good work - and it was described as a facilitation fee in the accounts".

All forms of corruption are like a tax on business. They might seem necessary to get things done but actually they make it significantly more expensive to do business. So why does it happen?

A recent journalist's account of Nigeria described it as the "Italy of Africa". European cynics might respond that Italy is the "Nigeria of Europe", only proving that this a problem that goes wider than Africa. But whichever way you take it, there is much to be learned from the comparison. Tobias Jones' recent book The Dark Side of Italy makes much of the fact that the legal and bureaucratic processes are so slow only encourages people to ignore them. Too many processes are politicised, allowing people to think that "things have been fixed": it's always actually very difficult to establish what has actually occurred. Paying taxes is not something any sensible person will do if they can avoid it. Sound familiar? It might easily be a description of Nigeria.

As one business entrepreneur told us: "If it takes 1.5 years to get a building permit, the only logical thing to do is to pay off the inspectors not to inspect until you've got a permit retrospectively once you've done the work". When things don't work, corruption appears the only way to get things done. And once started it acts almost as a reverse incentive. Why make things more efficient when you'll lose all that extra income?

Not everyone in Africa is "on the take". In three years doing business there I have only once been approached by someone asking me for a bribe and I didn't pay it. Some countries like Botswana have as honest a public and private culture as many European countries. Others have started honest and are descending to corruption. Many of those we have spoken to in the ICT sector in Zimbabwe felt that operating in an economy with 600% inflation and exchange controls meant that living outside current laws was inevitable. The current climate of politics meant that corruption was now an inevitable feature of public life. Some like Ghana have gone from a position where the Government was "on the take" to a relatively more honest public administration. All of which goes to show that corruption is not inevitable but that once started, it's far hard to get rid of.

If you have experienced instances of bribery and corruption, please write and let us know "off-the-record" as this is a subject that we will be returning to in forthcoming issues.

For more information, contact:
Russell Southwood, Balancing Act, 71 Crescent Lane, London SW4 9PT
Tel/fax: + 44 20 7720 5993 Cell: 07973 561987 E-mail: info@balancingact-africa.com

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