Corruption risks in BRICS

Although the BRICS (Brazil, Russia, India, China and South Africa) countries’ economy has developed a lot in the last few years, corruption is still a huge problem and a recurring practice in these nations. So, international companies which operate in these countries face the potential of corrupt practices in their overseas operations, and corruption risk might compromise business. The risk of facing extortion happens particularly in the public sector, where there is more political inference and excess levels of bureaucracy.

According to consulting group Maplecroft, in case of Brazil, corruption affects all areas of civil, public and corporate life. “Although President Dilma Rousseff has indicated a willingness to take a strong line against corruption, there are constraints in the shape of unwieldy bureaucratic processes and poor prosecution rates, as well as opposition within the political sphere”, says a study by the institution.

Companies face corruption risk especially in areas related to public contracts, given the need for close interaction with potentially corrupt government officials. “The construction industry is noted as a particularly high risk sector (in Brazil)”, says Maplecroft. “Risks in this area could be heightened amid major contracting being conducted ahead of the 2014 World Cup and 2016 Olympics.”

The situation in not different in Russia, and corruption is one of the most significant barriers for business operations in the country. “The business activities at greatest risk from corruption are those requiring engagement with public officials, such as public procurement and the payment of tax or customs duties, where bureaucratic inefficiencies may encourage facilitation payments to expedite official functions”, says the study.

The oil and gas sectors and the pharmaceutical sectors are noted as examples of high risk sectors in Russia. “Despite regulation and policy clearly setting out anti-corruption targets in Russia, implementation of the law is weak”, says Maplecroft. Yet the study recognizes there has been continued articulation of the intention to pursue an anti-corruption agenda. “However, the anticipated return of Prime Minister Vladimir Putin to the Presidency in 2012 signals potentially two more terms of political stagnation and continuing corruption.”

In India, companies might face a complex and inconsistently enforced anti-corruption framework. According to Maplecroft, there are numerous laws criminalizing corruption in its many forms, but the weak capacity of the country’s anti-corruption agencies undermines enforcement. “Recent corruption scandals have highlighted weaknesses in the country’s legal framework, driving demands for legislative changes”, says the consulting group. “In response to the recent scandals, scrutiny of business deals is likely to increase. Construction, extractives, public utilities, finance and healthcare are noted to be among the highest risk sectors.”

To Maplecroft, although the Indian government of Manmohan Singh has vowed to tackle corruption, the seriousness of its efforts has been brought into question by a series of corruption scandals which have surfaced over the past two years.

In China, corruption remains prevalent and a key risk to investors as well. “The risk to business is greatest when engaged with public officials at the regional and local level, where transparency and supervision is most lacking”, says the study. “Despite regulations providing for transparent and equal tendering, corruption is rife in public procurement and contracting.”

According to Maplecroft, facilitation payments are also commonly expected by officials to carry out administrative services for businesses, including in the payment of taxes and customs duty. “Construction, natural resource extraction, finance and healthcare are highlighted as high risk sectors.”

To Maplecroft, the Chinese government has acknowledged that widespread corruption risks compromising China’s goal of economic development, and the prevalence of corruption can undermine government institutions, increase inequality, fuel social unrest and distort the economy. “This realization has dictated recent efforts by the Chinese Communist Party to improve integrity in governance and business”, says the study.

The study does not mention corruption problems in South Africa.


Post a Comment