Peter Hain – 2000 Speech on Corruption in South Africa

The speech made by Peter Hain, the then Minister of State at the Foreign Office, at the Royal Institute of International Affairs on 10 July 2000.

Can I begin by congratulating Transparency International on its role as a scourge of corruption and bad governance, and for organising this important conference.

Corruption is of course not unique to Southern Africa: it happens the world over and always has done. But the African continent has a particularly bad dose of it. And whereas in the past this was accepted as a fact of life – one of the legacies of colonialism and economic exploitation from which Africa has suffered so badly – today it can no longer be tolerated.

This is not simply a moral imperative. The new factor is globalisation. Modern communications mean it is less easy to cover up. And whereas foreign investors have happily colluded with corrupt governments or public officials through the ages, today’s global investors have less interest to do so. Modern capital is so mobile it prefers to invest where corruption does not take a slice of profits. It is also much more at risk of exposure in today’s transparent and highly competitive environment.

In Southern Africa today destabilising civil conflicts such as in Angola and the Democratic Republic of Congo have hit the region as a whole. HIV/AIDS threatens to wipe out large swathes of Southern Africa’s productive population. Drought – and more recently flooding in Mozambique and neighbouring countries – has devastated the agricultural output of the region and diverted scarce resources away from productive activities to rebuilding infrastructure and rural communities.

These serious problems have been hugely debilitating and contributed equally hugely to Africa’s main problem: poverty. But, resolving conflicts, and eradicating poverty is badly hampered by corruption. Sustained poverty in Southern Africa is partly due to failure of governments and corruption is a central feature of this failure.

REDUCING POVERTY THROUGH INVESTMENT

The British government is committed to halving the proportion of people living in extreme poverty by 2015. But ultimately poverty reduction requires sustained economic growth and a key element in this is attracting foreign investment. Foreign investment delivers clear benefits: the transfer of capital and resources (including skills and know-how), new jobs, and a boost to the rest of the economy. Some African countries, such as South Africa, Botswana and Mauritius have been relatively successful in attracting Foreign Direct Investment (FDI).

Yet Sub-Saharan Africa receives only 0.4 per cent of global FDI. And that figure is falling. Greater investment flows will only be possible if the investment climate improves, raising business confidence.

The reasons given by businesses for not investing in Africa vary, but corruption is almost always on the list. It is difficult to quantify, although in Eastern Europe this is an extra 10 per cent tax on business according to the World Bank and EBRD. Just as important as the financial cost is that doing business is much more complex and confusing in a corrupt country. Many foreign investors will simply walk away if the environment is too difficult. Globalisation gives them plenty of alternatives.

THE IMPACT OF CORRUPTION

Corruption is the abuse of a position for private gain. We can draw a distinction between petty corruption and what George Moody Stuart calls ‘grand corruption’. Clearly it is right to start tackling the problem at the top with the big fish. But ultimately the aim must be to change cultures where petty corruption is viewed as normal. The causes of corruption are complex. Certain economic policies can inadvertently promote corruption. Foreign exchange or import controls often encourage corruption. There are obvious risks attached to uncontrolled deregulation as well. Too much economic power in the hands of political elites is undesirable. Africa’s leaders must shoulder some of the responsibility; Western Governments must hold their hands up and accept their share of the blame too.

The consequences are widespread. When the law is for sale, why obey it? If your political leaders are only interested in enriching themselves, why respect them? If an official demands a bribe to perform the simplest service, why bother? The insidious result is a society whose members do not trust its institutions or even each other. Individuals and groups therefore act regardless of the consequences for others. The rule of law and with it any sense of a coherent society breaks down.

If government decisions can be influenced by illegal or improper means, they are unlikely to be good ones. Hospitals or roads may be built in the wrong place; incompetent contractors may be given contracts which they never complete; friends and family members end up running businesses into the ground. In brief, corrupt governments do not do their job as well as honest ones.

In the last few years – pushed and prodded by organisations such as Transparency International – we have all come to realise that corruption (and good governance in general) is not an optional extra. Without tackling corruption, the task of encouraging sustainable economic growth in Southern Africa is impossible. So what can be done?

COMBATING CORRUPTION

All Southern African countries should develop their own national strategies to promote good governance and eradicate corruption. Only if there is an internal drive led from the top is an anti-corruption initiative likely to be successful. Without it, no amount of help from outside experts will secure the demonstrable change necessary. There is no one model. But any strategy should include all the key players in society, public and private sectors, NGOs, civil society, political parties, foreign investors, religious leaders and financial institutions.

Some African countries have taken the first step towards such a strategy by agreeing the Global Coalition for Africa’s Anti-Corruption Principles. I hope that other African countries sign up to these and that they can form the basis for a coherent set of national strategies. Excellent work is being done by the World Bank Institute in seven African countries to develop national anti-corruption strategies. The Institute’s approach of trying to work with a wide range of interests in each country is commendable and I understand that our Department for International Development is looking at ways to build on this work.

Signing up to the international instruments is, while a welcome first step, is not enough. A corruption free environment must be supported by the enforcement of national laws against corruption. Those laws need to have real teeth. There will be genuine public support if serious and high level corruption is tackled vigorously.

It is by no means an easy task, but real progress is possible, as a number of African countries have shown, for example Kenya.

In July 1999, after years of criticism from both inside and outside the country, and a steadily declining economy, President Moi announced an Economic Recovery Strategy designed to root out corruption and inefficiency in the civil service. The Strategy included the establishment of a Change Team headed by Cabinet Secretary and Head of the Civil Service, Richard Leakey. The Team has implemented wide-ranging economic management and governance reforms. These have included:

• the establishment of an autonomous Kenya anti-corruption authority (KACA). It is now fully operational, with 50 staff and has received 800 complaints to date;
• dismissals and prosecution of corrupt officials, including one serving and one past Permanent Secretary;
• key public agencies have been reorganised and management changed in response to complaints and investigation about corruption e.g. a Nairobi City Council oversight Board has been established. Top officials in the Ministry of Land have been replaced and past decisions on land disposal are being reviewed. Top managers of the ports, Kenya Coffee Board, Kenya Tea development Authority and Central Tender Board have been replaced;
• there has been high profile naming of alleged corrupt officials in the Parliamentary Select Committee report on Anti-Corruption;
• Cabinet approval has been given to a new public service code of conduct and declaration of assets bill;
• There is a commitment to introduce a new Anti-Corruption and Economic Crimes Bill which substantially enhances the prosecution and investigation powers of the Kenya Anti-Corruption Authority, strengthens its preventive and advisory functions and establishes a corruption court and a Parliamentary Ethics and Integrity Committee. The statute of limitations (currently 3 years) will be abolished for serious fraud, embezzlement and corruption;
• civil service reform (rightsizing, pay reform, improved management and performance appraisal);
• procurement reform: restructuring of the tendering and procurement system and revamping of the Central Tender Board including the establishment of an appeals board and quarterly reporting of activities including bids received and acted upon. Development of new legislation to amend current procurement regulations and the establishment of a new independent Public Procurement Agency.

These tough measures have already brought benefits to Kenya. As a direct result, the IMF/World Bank have resumed negotiations with the Government of Kenya for a Poverty Reduction and Growth Facility (PRGF) – the previous ESAF having lapsed in 1997 because of governance concerns.

Although there is a long way to go, and there is obstruction by vested interests, including some Kenyan Ministers, the country has made a start and President Moi and his team deserve to be both congratulated and supported for this.

BRITIAN’S ROLE IN FIGHTING INTERNATIONAL CORRUPTION

Meanwhile we are looking at ourselves. Britain is in the process of reviewing the UK’s laws on corruption, and last month, the Home Office issued a discussion paper. Partly this is to ensure we meet the highest international standards, but primarily it is to ensure that we are effective in deterring British citizens from involvement in corrupt practices wherever they take place.

We are playing a leading role internationally to promote greater efforts by all countries to stamp out corrupt practices. We strongly support the OECD’s Convention on Combating Bribery and urge all countries to sign up to it. We are also exploring with our G8 partners what else we might do to drive this work forward. Corruption will be one of the subjects discussed at the G8 Summit in Okinawa next week.

Our Secretary of State for International Development, Clare Short, has made quite clear that tackling corruption is a very high priority for UK development assistance. Practical help for tackling corruption is now a major part of her Department’s (DFID’s) strategy in Africa and elsewhere, as indicated by their support for this event.

Britain is a leading player within the G8 and the EU in tackling corruption and illegal diamond trade that is fuelling Angolan War. I have just returned from Angola where I pressed the Government of Angola to encourage more transparency and accountability within its budgetary process. We are also working with them to ensure that the proceeds of the legal diamond trade and oil exports are not diverted elsewhere and are channelled directly to benefit the Angolan people, not just individuals within the country. And of course, we are working with the Government of Sierra Leone to try to stop the proceeds of diamond sales financing the rebel military campaign.

I should say that African diamonds are not synonymous with conflict. Just look at what Botswana, the world’s leading diamond producer, has achieved in using its diamond wealth to promote development. With growth of 9 per cent, it is one of the fastest growing economies in the world. What is the secret of Botswana’s success? Good governance, transparency and an uncompromising approach to corruption.

A GLOBAL ISSUE

Corruption is a global issue. Corruption in Southern Africa often involves participation by foreign entities, including major corporations and individuals seeking contracts and business opportunities. The UK accepts its responsibility for trying to ensure that UK nationals are discouraged from corrupt practices and we will change our legislation to be more effective in doing so. Most of our European and OECD partners do the same. All should.

The UK is working with its partners in the IMF, World Bank and other multilateral and bilateral aid agencies to encourage them to use their influence to promote anti-corruption systems in the countries where they are working, particularly in Southern Africa. It is important that clear guidelines for promoting good governance, such as those developed by the IMF in 1998, are replicated by all organisations, including NGOs, procurement agents and other service delivery participants. Country assistance programmes and strategies should take into account and promote anti-corruption strategies at the national level. Particular attention should be paid to the level of transparency and accountability in government decision-making. There are a number of international initiatives to tackle corruption. Apart from the OECD’s Bribery Convention, there are also the Council of Europe’s Criminal and Civil Law Conventions on Corruption covering active and passive bribery of domestic and foreign public and private sector officials, including judges and members of public assemblies. I hope that Southern African countries will consider introducing similar provisions in their own legislation which explicitly criminalise corruption. Britain is willing to help.

The Commonwealth Framework sets out some clear principles to address governance and corruption in member countries. Commonwealth Heads of Government signed up to the Framework at the Durban Summit last year. A proposed ‘code of conduct’, which could apply equally to government ministers and civil servants as well as parastatal companies and their employees, is particularly worthy of implementation. The code of conduct needs to be legally enforceable, with appropriate and robust sanctions for breaches of the code.

The profits from corruption can be huge. But if they are to be safe, they need to be laundered and then hidden away out of reach of the domestic authorities. A key element in fighting corruption is therefore to be able to trace and seize the proceeds both to reimburse the country and to reduce the financial incentive.

Britain has played a leading role in international efforts to tackle large-scale money laundering, whether linked to corruption or other crimes. We are supporting the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), established last year to strengthen legislation and regional cooperation to tackle money laundering.

CONCLUSION

The key role of corruption has been ignored for too long. For those of us who love Africa, it is painful to imagine what might have been achieved over the last thirty years without corruption. Honest governments working for the benefit of their people could have brought great prosperity to that continent. Instead, corrupt, selfish regimes have blocked their people from finding their way out of poverty and misery.

But Africa can still turn itself around. If it can tackle the central problems of governance, then globalisation offers unlimited scope for attracting investment and beginning the process of catching up with the Asian Tiger economies and establishing its own successful Lion economies. The global growth in information and communication technologies will force governments to become more transparent, helping cut out corruption. As we have seen in the last two months in Zimbabwe, growing use of the internet by the Opposition MDC has helped lead to a more open, inclusive society, with stronger institutions, and a greater voice for civil society. IT can improve information flows to foreign investors. New technology (for example mobile telephones and solar panels) may provide ways round traditional obstacles to growth. African governments must look to these new ways of doing business if their development plans are to succeed.

For, while the rest of the world has been getting richer, Africa has got poorer. We must build a new partnership between African Governments, bilateral partners and international financial institutions to find solutions for Africa’s economic problems and give the people of Africa the chance for success.