How to address rising corruption risk in sub-Saharan Africa

With economic growth rates in 22 sub-Saharan countries projected to exceed 5% this year, the region remains an investment hotspot for multinationals. But the attractiveness of these fast-growing markets is accompanied by a rising corruption risk.

Foreign direct investment flowing into sub-Saharan Africa reached a six-year record high in 2014, and the International Monetary Fund projects inflows to rise 4.5% in 2015 and 5% in 2016, the second-fastest growth rates worldwide. The region is considered the continent’s growth engine, and foreign investors are particularly interested in tapping natural resources and developing hotels, according to EY’s 2015 Africa attractiveness survey.

Like other high-growth emerging markets, sub-Saharan economies carry risks. Corruption was the second biggest concern (26% of respondents) among the companies polled by EY, behind worries about unstable political environments (54.6%).

Fifty-eight per cent of the more than 40,000 people polled face to face by global watchdog Transparency International in 28 sub-Saharan African countries between March 2014 and September 2015 said they believe corruption in the region has increased in the past 12 months.

The rise in corruption was perceived highest in some of the region’s premier markets – South Africa (83% of respondents), Ghana (76%), and Nigeria (75%).

“If you live and work in Africa, the results are not surprising,” David Stulb, global leader of EY’s Fraud Investigation & Dispute Services practice, said of Transparency International’s survey. “Corruption is often petty in sub-Saharan countries. It’s police officers requesting a bribe to ‘fix’ a ticket, or a utility company employee asking for a back-hander to initiate electrical service.”

Indeed, the Transparency International survey suggests that public services most affected by bribes are the courts, police, utility services, and government offices issuing official documents, such as permits. Respondents considered police most corrupt (47%), followed by business executives (42%), government officials (38%), tax officials (37%), and judges and magistrates (34%).

To avoid running afoul of far-reaching anti-corruption laws, such as the US Foreign Corrupt Practices Act and the UK Bribery Act, Stulb recommended that multinationals doing business in sub-Saharan Africa should:

• Train employees to make them aware of the corruption risk and how to deal with it.
• Develop codes of conduct that guide employees through specific situations, including what to do in life-or-death situations. Customise internal controls according to risks specific to an industry and country. That means drafting work plans based on risks in each specific location and industry.
• Test compliance of anti-corruption efforts and internal controls at operations in the region annually.

—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.