from Judy Miriga

Corruption in Sub-Saharan Africa

Gatekeepers Kenya 2009
By Stephanie Hanson
August 06, 2009

Published on the Council on Foreign Relations web site (CFR.org)

Introduction

Africa is widely considered among the world’s most corrupt places, a factor seen as contributing to the stunted development and impoverishment of many African states. Of the ten countries considered most corrupt in the world, six are in sub-Saharan Africa, according to Transparency International, a leading global watchdog on corruption. A 2002 African Union study estimated that corruption cost the continent roughly $150 billion a year. To compare, developed countries gave $22.5 billion in aid to sub-Saharan Africa in 2008, according to the Organization for Economic Cooperation and Development. Some economists argue that African governments need to fight corruption instead of relying on foreign aid. But anti-corruption efforts on the continent have shown mixed results in recent years, and analysts fear that major international partners are unwilling to exert leverage over African governments. An initiative for transparency in the extractive industries shows promise, but is mostly untested. Some experts suggest
African interest in attracting foreign investment will serve to spur more substantive efforts to fight corruption.

African Efforts to Fight Corruption

Corruption in Africa ranges from high-level political graft on the scale of millions of dollars to low-level bribes to police officers or customs officials. While political graft imposes the largest direct financial cost on a country, petty bribes have a corrosive effect on basic institutions and undermine public trust in the government. Over half of East Africans polled paid bribes to access public services that should have been freely available, according to the 2009 East African Bribery Index, compiled by Transparency International. Graft also increases the cost of doing business. Academic research shows that a one-point improvement in a country’s Transparency International corruption score is correlated with a productivity increase equal to 4 percent of gross domestic product (GDP). “If you attack corruption, it’s the best way to attack poverty,” Nuhu Ribadu, the former head of Nigeria’s anti-corruption commission, told BusinessWeek in June 2009. Unaddressed, endemic corruption can also foster unrest. The insurgency in the Niger Delta is fueled by claims that communities in the area do not see tangible benefits from oil extraction on their land; much of the oil revenue meant for the Delta’s citizens is siphoned off by government officials.
The prevalence of corruption also warps the political process. Experts say many public officials in Africa seek reelection because holding office gives them access to the state’s coffers, as well as immunity from prosecution. When the stakes for remaining in office are so high, candidates are more likely to buy votes or rig an election, as happened in Nigeria’s 2007 elections. These “are more reliable and less difficult ways of winning an election than trying to gain voter approval by being a good government,” writes economist Paul Collier.

In the past ten years, African governments have made some efforts to fight corruption. In many cases, they have been spurred by international donors pushing for transparency and good governance as well as domestic pressure to fulfill promises of reform made on the campaign trail. Experts say countries such as Liberia, Rwanda, and Tanzania have made substantive progress on reducing corruption. U.S. President Barack Obama highlighted Ghana’s strong governance record during his visit in July 2009. But many countries, including Nigeria, Kenya, and South Africa, have made meager progress on fighting graft. All three countries have established anti-corruption agencies that sought to prevent, investigate, and prosecute corruption. But a 2008 paper from the UN Economic Commission for Africa says such commissions have been largely inefficient and ineffective due to their uncertain political footing. Often funded and overseen by the executive branch, anti-corruption agencies can be eliminated (as in South Africa, where the Scorpions investigating unit was disbanded in 2009), and their leaders can be sidelined or forced out of the country (as in Nigeria and Kenya).
Kenya as Case Study

The experience of Kenya demonstrates how corruption can tip a seemingly stable country into political crisis. Kenyan analysts widely agree that the violence following the December 2007 elections, in which President Mwai Kibaki claimed victory over opposition candidate Raila Odinga, was in large part caused by the zero-sum nature of Kenyan politics: Unless one’s ethnic group was in office, there were no possibilities for economic or political advancement. As South African analyst Moeletsi Mbeki told journalist Michela Wrong in her book It’s Our Turn to Eat: “What greater corruption could there be than stealing an election?” After years of “eating” the spoils of public office, Kibaki’s inner circle of ethnic Kikuyus was unwilling to relinquish power; after years of watching this graft, Odinga’s supporters, many of whom were ethnically Luo, felt it was their turn to eat. Statistics show that political patronage in Kenya’s public spending has exacerbated economic and regional inequalities (PDF). Nyanza Province,
for instance, which is majority Luo, is the poorest province in Kenya.

In fact, Kenya has a range of legislation on the books that should prevent corruption. A Prevention of Corruption Act has existed in Kenya since 1956, and procurement laws have been revised to increase transparency. Since 2002, an anti-corruption commission has been charged with the prevention and investigation (though not the prosecution) of corruption cases. Most of these efforts, however, have fallen prey to the overwhelming power of the executive branch. Forty-five constitutional amendments have strengthened the executive’s power since independence in 1963; the judiciary is effectively controlled by the president. Kenya’s newspapers regularly investigate and break corruption stories, but the exposure of graft rarely results in legal proceedings. “You get the information by hook or by crook but then nothing happens. It’s like talking to yourself,” says Catherine Gicheru, managing editor of The Star, a daily newspaper based in Nairobi.

The anti-corruption commission’s work has also languished. In 2004, its former head, John Githongo, uncovered evidence that a nonexistent company called Anglo Leasing was awarded several huge government contracts. The scandal reached the highest levels of the Kenyan cabinet and cost the country as much as $1 billion. The attorney-general must approve any prosecutions, however, and he declined to prosecute the case. The United Kingdom wanted to investigate Anglo Leasing itself, but the attorney-general prevented its fraud office from moving forward. Kenyan lawyers and civil society members who advocate for good governance agree that judicial reform is imperative. Some argue that the public must step up as well. “Citizens must put their feet down and demand things from the government,” says Job Ogonda, the head of Transparency International-Kenya.

Options for African Governments

Experts suggest a variety of methods for African governments to battle corruption, with a special emphasis on transparency and accountability. “You want to create millions of auditors in the country,” says Daniel Kaufmann, the former director of the World Bank Institute’s work on governance and anti-corruption. Anti-corruption reforms can be divided into three categories:

– Creating anti-corruption agencies. Given the barriers faced in Kenya, many experts are dubious about the utility of such agencies. According to a 2005 survey by the UN Economic Commission for Africa (PDF), only two countries, Namibia and Malawi, had watchdog groups that were deemed effective by experts. In all but a few cases, experts said these groups were not independent from the executive branch. But in some countries, including Nigeria, they have had some measure of success. Under Nuhu Ribadu, Nigeria’s Economic and Financial Crimes Commission recovered $5 billion in stolen public funds and secured 250 convictions. In addition, it helped pass laws that mandated competitive bidding on government contracts and public audits of the oil revenues sent to state governments (PDF).

– Strengthening existing institutions. Institutional weakness facilitates corruption, particularly imbalances between a strong executive branch and weak legislature and judiciary, experts say. “Rather than dreaming up sexy-sounding short cuts, donors should be pouring their money into the boring old institutions African regimes have deliberately starved of cash over the years: the police force, the judicial system and civil service,” writes journalist Wrong. Economist Collier recommends that government ministries overhaul their method of disbursing funds. In his book Wars, Guns, and Votes, he suggests separating policymaking; allocation of money to specific development activities, whether health services, road building, or schooling; and the supply of such activities. Ministries should be responsible for overall policy only, and a “linking agency” should disburse money on the government’s behalf to appropriate suppliers, whether NGOs, churches, or philanthropists. Collier and others also stress the importance of a strong and free press.

– Reducing dependency on foreign aid. A few economists, such as Dambisa Moyo, argue that African governments should cut off foreign aid completely. By encouraging accountability to donors instead of citizens, foreign aid encourages graft and breaks the fundamental relationship between a state and its people, she argues. For instance, the Democratic Republic of Congo, Chad, and Sierra Leone, which are on Transparency International’s top ten corruption list, receive hundreds of millions of dollars in aid. Some say reducing non-humanitarian aid would force African governments to up tax revenues, increasing accountability at the local level. Leaders such as Rwandan President Paul Kagame have stated their interest in ending dependency on foreign aid.

The Role of Global Partners

There are mixed views on how much influence outside actors can exert over African governments. Some analysts believe the United States and other Western governments have the power to force greater transparency, particularly in countries that receive significant levels of foreign aid. For instance, Kenya established its anti-corruption commission in part to unfreeze $1 billion in aid. But international watchdogs say Western governments and multilateral institutions are often hesitant to use the power they have. For instance, when the World Bank agreed to finance the controversial Chad-Cameroon oil pipeline, it claimed it would ensure the subsequent revenues were used for poverty reduction in both countries. It suspended lending in 2006, but when the Chadian government threatened to cut off oil production, it resumed lending and then relaxed its restrictions on how the government spent oil revenues. In 2008, it withdrew from the pipeline project altogether; the project continues to have private-sector funding.

The United States has attempted to discourage corruption through aid tied to performance on a series of governance indicators. The Millennium Challenge Corporation, which administers these grants, was started by President George W. Bush and President Barack Obama allocated $1.4 billion for the program in his FY2010 budget. Experts say it’s too early to evaluate whether the program has been successful, but many praise its linkage between governance improvements and access to aid dollars. As African governments continue to court foreign investors, including U.S. companies, some experts believe they will make improvements in governance that reduce corruption. The Kenyan government, for instance, is beginning to realize that its reputation for high levels of corruption is discouraging foreign investment. Foreign investment was $2.54 billion in 2008, according to the CIA World Factbook, but financial analysts say the country underperforms in attracting foreign investors.

Some Western donors express concern about the rise in Chinese investment in Africa, suggesting that China’s no-strings-attached approach to aid is undermining anti-corruption efforts. But Chinese academics and some U.S. analysts say China is a relatively new presence in Africa and it will learn that corruption negatively affects its investments. Critics suggest that China will continue to make deals with corrupt governments, such as its multibillion dollar agreement with the Democratic Republic of Congo, as long as it obtains access to prized natural resources.

Transactions and Transparency

Some analysts argue that one of the most effective ways to reduce corruption is targeting transactions related to natural resources extraction, a major source of revenue in many African countries from the Democratic Republic of Congo to Nigeria. Promoted by a number of international NGOs and watchdog groups, one set of guidelines known as the Extractive Industries Transparency Initiative (EITI) has gained traction throughout Africa in the last five years. Signing on to EITI is voluntary. Participating countries agree to publish the payments and revenues they receive from oil and mining companies.

Critics of the initiative charge it doesn’t go far enough. Countries do not have to include all companies and payments in their reporting, nor do they have to break down payments by individual company. EITI also doesn’t provide guidelines for determining whether a government was paid the correct amount by an extractive company. As a 2008 Revenue Watch report (PDF) on EITI notes, the initiative does not provide for the declaration of payments that are not related to production of natural resources, such as taxes on cars and salaries to expatriates. Such payments can be significant.

* Stephanie Hanson traveled to Kenya on an IRP Gatekeeper Editors’ trip organized by the International Reporting Project (IRP) in Washington, DC.

China rejects clean energy probe, calls US unfair

By JOE McDONALD, AP Business Writer Joe Mcdonald, Ap Business Writer – Sun Oct 17, 9:50 am ET

BEIJING – A senior Chinese official rejected a U.S. trade complaint about Beijing’s clean energy policy and said Sunday that Washington might be improperly supporting its own industry.

The U.S. government said Friday it would investigate complaints by a labor union that Beijing unfairly subsidizes its producers of wind and solar equipment.

“Chinese subsidies to new energy companies are much smaller than those of the U.S. government,” said Zhang Guobao, director of the Cabinet’s National Energy Administration, at a news conference. “If the U.S. government can subsidize companies, then why can’t we?”

The complaint by the United Steelworkers adds to strains between Washington and Beijing over trade in tires, steel, chicken, movies and other goods. It says Chinese producers can sell wind and solar equipment at lower prices abroad because they get subsidies that are prohibited by global trade rules.

Zhang countered that Washington might be improperly supporting its own industry. He cited what he said were rules on spending of U.S. government money for solar energy that require equipment to be domestically made.

“If what I said is right, it is the United States that should be sued, not us,” he said.

The unusually prompt, high-level Chinese response reflects Beijing’s growing confidence in rejecting U.S. pressure over trade and other issues, as well as its determination to develop high-tech industry.

The communist government is aggressively promoting wind, solar and other renewable energy to curb surging demand for imported oil and gas. It is trying to build up Chinese equipment suppliers to capture the economic benefits of a fast-growing industry.

In a statement Saturday, the Commerce Ministry said Washington’s complaint signals the U.S. does not support China’s efforts at improving the environment.

Zhang said 50 percent of clean energy equipment installed in China last year was imported and suppliers such as General Electric Co. have made substantial sales.

“Once we reveal these facts to the world, the (U.S.) complaint will be shown to be groundless, and all the American subsidies will be exposed,” he said.

If the U.S. investigation finds the union complaint true, the Obama administration could sue China in the World Trade Organization. A favorable WTO ruling would allow Washington to impose penalties on Chinese imports unless Beijing repealed any support deemed to be improper.

Foreign business groups have long complained that in wind, Beijing is improperly supporting fledgling domestic clean energy producers by restricting access to its market. They say global suppliers of wind turbines are shut out of projects paid for by the central government, which picks equipment based only on its upfront price rather than the long-term cost, which for more durable foreign equipment is much lower.

Zhang rejected their complaints: “Those foreign companies didn’t win the bid because their prices are much higher than Chinese prices.”

In solar power, China’s Suntech Holdings Ltd. is one of the biggest global equipment producers and several other companies also are major suppliers.

In wind, Chinese producers are only starting to export. Industry analysts say they lag in technology but offer prices up to 50 percent lower than foreign rivals.

One turbine maker, Goldwind Science & Technology Ltd., installed three windmills in a Minnesota farmer’s field last year in the first effort by a Chinese producer to break into the U.S. market.

Zhang questioned how such a small market presence abroad could threaten American companies.

“We’ve only exported three windmills to the United States,” he said. “What impact does this have?”

China May Reach Nuclear Capacity Aim Ahead of Schedule, Radio Cites Zhang

China may achieve its long-term plan of having 40,000 megawatts of nuclear power capacity four to five years ahead of schedule, China National Radio said, citing Zhang Guobao, head of the National Energy Administration.

The State Council, or Cabinet, has approved a plan to build 34 reactors with a capacity of 36,920 megawatts, the state-run radio station said, without giving a schedule. Twenty-five units with a capacity totaling 27,730 megawatts are already under construction, according to the report.

China must guard against overcapacity in nuclear power, the state-run radio station said, citing Zhang.

Business News
China shutters 1,355 coal mines
Published: Oct. 15, 2010 at 11:18 AM

BEIJING, Oct. 15 (UPI) — The National Energy Administration said China is ahead of its 2010 target of closing outdated coal mines in an industry the country is attempting to reform.

As of the end of September, China had shuttered 1,355 coal mines this year, Xinhua reported Friday.

The yield capacity of the closed mines is more than 124 million metric tons. The target for closure was a yield capacity of slightly more than 121 million metric tons.

The goal was set to reform the industry by closing dangerous mines and reducing carbon emissions.

Although the yield target was reached, the NEA had said 1,539 smaller mines should close.

The transition has long-range implications for China, which gets three-quarters of its electricity from coal-burning utility plants.