Implication of Corruption on Business in Democratic Republic of Congo
This paper looks at the implication of corruption on business in Democratic Republic of the Congo. Cases of corruption are so rampant in the country considering the fact that the Democratic Republic of the Congo is always among the leaders in corruption. Some of the causes of corruption include poor and weak governance structures, political unrest and conflicts. Corruption has generated negative effects for the country`s business sector given that it has led to the collapse of public institutions, prevented investments, and hence deterred economic growth. To address the issue of corruption, it is important to ensure strong governance structures are in place, and awareness programs are promoted. It is also important to address issues of conflicts and political unrest as they aggravate corruption.
With a relatively sparse population with regard to its land size, the Democratic Republic of the Congo is a country that is famous for its diverse amounts of natural resources and minerals (Shah, 2010). It is estimated that the country`s untapped raw materials deposits are worth over 24 trillion US dollars (World Bank, 2013). In 1960, the year in which the country gained its independence, the Democratic Republic of the Congo was rated as Africa`s second most industrialized country after South Africa, considering that its agricultural and mining sectors were thriving (Janet, 1991). However, since then political instability, war and corruption have posed detrimental effects to the country`s economy deterring further growth making it the country with the lowest gross domestic product per capita in the world (World Bank, 2013).
Agriculture is the leading contributor to the Democratic Republic of the Congo`s economy contributing amounting to about 54 % of the country`s gross domestic product (World Bank, 2013). Some of the major cash crops include cotton, cocoa, coffee, tea, rubber and palm oil. Food crops include maize, rice, cassava, groundnuts and plantains. However, since most of the agricultural production is for subsistence, commercial agricultural production is limited. The mining sector leads in terms of formal economy given that minerals are main source of foreign direct investment (World Bank, 2013). Some of the most important metals produced and mined in the country include gold, copper, zinc, cobalt and tin. Gecamines, a mining company owned by the state is the largest actor in cobalt and copper sectors, although its independent production capacity crumpled as a result of many factors, one of them being corruption (World Bank, 2013).
For over decades now, misguided policies and corruption have promoted a clandestine form of economy (Shah, 2010). Businesses and individuals within the formal sector have operated with high costs guided by laws that are enforced arbitrarily. As a result, the country`s economy is now dominated by the informal sector (World Bank, 2013). United States businesses time and again complain of corruption in the Democratic Republic of the Congo, highlighting it as a main restraint to conducting business in the country. Mobutu`s regime that lasted for over 30 years produced a culture of corruption (Janet, 1991). This deep-rooted culture filtered through the administrative, public, business and private environments and has remained a complex menace to root out. In 2011, the Transparency International Corruption Perception Index ranked the Democratic Republic of the Congo 168 out of 182 countries (Graf, 2011). Hypothetically, a number of legal provisions have been put in place to deal with corruption. For instance, despite the fact that the Democratic Republic of the Congo is not a party to the United Nations Anti-Corruption Convention, it did institute its own law in 2004 to deal with corruption. Additional legislation incorporates the Money Laundering Act that was introduced in 2004, where it works with European and African crime-fighting organizations (Shah, 2010).
However, in spite of these reforms, corruption and bribery are still frequent in both private and public business transactions, particularly in matters dealing with taxation, dispute resettlement and government procurement. Additionally, the government has restructured a number of its existing laws and approved new laws, for instances, the agricultural law, the procurement code, investment code, and the public finance law, in an aim to attract investment and provide a transparent and fair business to businesses, an initiative that seems to achieve little as far as the fight against corruption is concerned.
Corruption and bribery has turned into a $ 1 trillion business, as highlighted by the World Bank. Corruption and bribery pose very detrimental impacts on a country`s economy. According to the World Bank, about 0.5 % of the gross domestic product is lost annually through corruption, whereas the FSG Social Impact Advisors cite that corruption costs more than $ 2.6 trillion worldwide (World Bank, 2013). Countless studies conducted globally demonstrate how corruption creates unfavorable environment for investment, reduce economic growth and restrict trade. But the most shocking studies cite a direct link between corruption and income inequality and increased poverty levels, given that the investment levels are down (World Bank, 2013).
Corruption can also deter the opportunities for the small and micro-businesses to thrive. It has been proven around the world, especially among the developing economies, that small enterprises incur over twice as much of their income as the big businesses, thus restraining their capacity to grow and even offer employment services (Graf, 2011). However, considering the fact that corruption generates fiscal distortions, report indicate it is often the poor that bear the brunt most as they are the most who benefit from the government grants. A report compiled by Graf in 2011 indicated that corruption costs government a great deal. He cited an example of South Africa where he highlighted that about 30 billion Rand is lost annually due to corruption. He further highlights that corruption within the procurement sector results not only to a waste of the public resources, but can prevent qualified suppliers from engaging in business dealings in the country (Graf, 2011).
To shed some light to some of the existing research experts, studies conducted by the United Nations, African Union and Transparency International concur that corruption is detrimental to a country`s economy as it hinders both foreign and local direct investment, distorts markets, and depletes resources (Graf, 2011). Investing in a corrupt state is 20 % more expensive as compared to a non-corrupt state (World Bank, 2013). Apparently, the direct economic effect of corruption is on investment, which is a very critical factor as far as job creation is concerned. Besides creating unfavorable environment for business, corruption provides room for organized crimes and malpractices to flourish. It also destabilizes the rule of law, challenges the democratic principles, and weakens trust among public institutions (World Bank, 2013).
The Democratic Republic of the Congo is a country that is well known for its richness in natural resources. Additionally, the country has a good potential for immense agricultural production. However, the potential for this country has not yet been fully exploited, considering for instance that most of the agricultural production is for subsistence purposes. Instability and conflicts in the country have impeded investment and developments in the country, exacerbated by the high rates of corruption in almost all sectors, for instance, procurement and taxation.
Besides, the Democratic Republic of the Congo ranks as the leader in almost every corruption index (Shah, 2010). The country has undergone through decades of conflict that have weakened the institutional and regulatory frameworks of the government institutions. This pervasive and worsening corruption has affected peace prospects negatively by deterring development and undermining competitiveness (Graf, 2011). It also promotes an environment favorable for further conflicts by perpetuating poor governance of the country`s rich natural resource base. Therefore, addressing the issues of corruption and bribery is a very significant step to state building and business development. However, the problems persist because the government may not have the will or capacity to attain sufficient progress promptly. This is exemplified by the weak institutional and regulatory frameworks that have been instituted to deal with corruption in the country (Graf, 2011).
The country`s exports and extractive industries have created lofty nominal rates of economic development, but little broad-based or sustainable growth. Political instability remains high, undermining hopes for diversified growth severely, and diverting most of the population into poverty. There is rampant informal economic activity and businesses are left with little protection for their property. Economic activities initiated by the government have little or no impact, and the essential supply of public goods, especially infrastructure, falls far much below the point s required to facilitate entrepreneurial opportunity and economic growth (World Bank, 2013). The sluggish pace of reform, together with the current political instability, has created a vacuum within the government, given that public institutions have inadequate capacity to support development within the private sector and long-term economic growth (Shah, 2010). The following section looks at some of the initiatives that have been put in place by the government to deal with the issue of corruption, especially in the business sector, in an aim to achieve an environment that is favorable for business and investment.
Initiatives to Address Corruption
Ever since the country`s initial democratic elections that were conducted in 2006, the Democratic Republic of the Congo has made a slow progress in addressing its social, economic, and political challenges. The investment regulations that were incorporated in the investment Code allow foreign investors to carry out their businesses in the country, except for particular matters that concern with labour and other related taxes (Shah, 2010). However, despite the fact that this Code was in place, the foreign investors, just like the local businesses, normally undergo through harassment and opportunistic, subjective interpretation of taxation and regulatory policies. To address these problems and promote investment, a one-stop agency, the National Agency for Investment Promotion was established.
The agency applies the provisions of the Investment Code to promote new investments and make such procedures more transparent. There is also support from the international donors who are interested in implementing credible reforms to enhance the business climate (World Bank, 2013). The government launched a committee in 2009, known as the Steering Committee for the Improvement of Business and Investment Climate to help improve its status in the World Bank ranking report. Its main objectives include enhancing transparency in government procedures, decrease the cost and delays that take place while establishing a business, reduce the red tape and strengthen the country`s judicial security (World Bank, 2013). Other measures that were adopted in an aim to address the issue of corruption in business and promote a conducive environment for investment and business include the revision of the custom law in 2010 and the establishment of the value-added tax that was implemented in 2012 with the aim to enhancing transparency and provide more room for the collection of the fiscal revenues (Shah, 2010). Corruption has also had major effects on the parastatals given that most of them have been declared non-profitable. The process of restructuring these parastatals continues slowly since the change process is complex (Shah, 2010).
In essence, a number of measures and laws have been set up to help address corruption in the Democratic Republic of the Congo. Besides, it is also apparent that the country has received international and regional support from various donors who are willing to help the country fight corruption and provide room for investment for both local and foreign investors (Shah, 2010). However, the main challenge remains implementing these laws and regulations, given that most of these initiatives only exist hypothetically and is not being implemented in real sense. This is well explained by the numerous delays and slow progress in the part of enforcement (Graf, 2011). For instance, despite the recent attempts to modernize the country`s regulatory framework, initiating a business still consumes more than the global averages of 30 days and seven procedures. Most of the prices are controlled by the government (Shah, 2010). This is majorly due to the fact that the bodies that are charged with the responsibility of enforcing and sanctioning such laws are weak and overruled by a culture of impunity.
A number of policies have been put in place to address the issue of corruption but the progress is still very slow, considering the fact that current surveys indicate that the country is still among those that are rated to have high levels of corruption. The biggest challenge is with the public institutions that are charged with the responsibility of enforcing these policies. Therefore, the first step towards addressing the issue of corruption in the Democratic Republic of the Congo is deal with the governance structures. The country should put in place structures that will ensure the initiatives established to address corruption are put into practice. The government can source help from other external sources, for instance from the international organizations to help strengthen the institutional framework. A lasting solution to this issue of corruption will therefore call for significant international, regional and national support to enhance governance, minimize cases of corruption and create an environment for development and economic growth.
It is also important to create public awareness on the effects of corruption to economy of the country. The awareness program should be tailored in such a manner that it incorporates all, targeting those working in the public offices as well as the community members. The awareness program could as well be incorporated into the school teaching curriculum. This will greatly help in changing the perceptions and attitudes of the people towards corruption.
It is also important for the country to address the issue of conflicts and political instability and come up with effective measures to address these issues because they act as catalysts for increased cases of corruption.
The United Nations Global Compact Leaders Summit that took place in 2004 announced that the Global Compact holds a tenth principle to help fight corruption. This principle affirms that businesses have to fight all forms of corruption, including bribery and extortion. In an aim to ensure corruption is dealt with, Transparency International drew an implementation plan that could be adopted by countries. The six-step plan entails
Deciding to take on a No-corruption Policy
The country needs to come up with a decision that entails addressing the issue of corruption. A policy should be drafted to act as a guide, which has to be strictly observed.
Planning how to Implement the Policy
It is important to ensure that all stakeholders are involved in the planning process in order to have a clear understanding of the roles each stakeholder will have in the implementation process.
Develop anti-corruption Program
This step involves coming up with a program that seeks to address corruption. However, it is still important to ensure there is collective action in this stage to ensure effective results are attained.
Implement the Program
Now that all stakeholders understand their roles, it becomes easier implementing the program. However, it is important to ensure that this process is supported by reliable governance structures to ensure the objectives are attained. Furthermore, strong governance will ensure compliance.
Monitor the Program
This is basically to assess whether it is effective or not. This process also helps in identifying the gaps and challenges that can be solved to ensure success of the program.
Evaluate the Performance
This is the last step which involves determining the performance of the program to ascertain its effectiveness addressing the issue of corruption.
Generally, the fight against corruption is a tough battle that calls for concerted and collective support and action. However, having the policies in paper does not assure success if these are not implemented in the right way. What is important to note therefore is that there should be compliance to these policies. Compliance can only be achieved if the programs are supported by strong governance structures that are able to provide good leadership in fight against corruption and castigate those who fail to go by the stipulated regulations. It is only by providing a good climate for business and investments that the country will be able to attract both local and foreign investors who will help develop the country.
The purpose of this paper is to look at the implication of corruption in business, drawing the Democratic Republic of the Congo as an example. Apparently, the country is endowed with natural resources but development is limited. Besides, the issues of political unrest and conflicts, cases or corruption are so rampant, thus discouraging investments and business. Corruption has also distorted the markets and weakened the country`s institutional frameworks. It is also important t point out the fact that almost 60 parastatals have failed to attain profitability, largely due to corruption. However, considering the efforts that have been initiated to address corruption, the progress is still slow because of poor governance. The solution is to therefore strengthen the governance structures to ensure compliance to the policies and programs is attained. Furthermore, collective action should be applied in dealing with this issue. Conflicts and political unrests also have to be addressed as they create room for corruption activities to propel. Therefore, corruption has had detrimental effects on the country`s economy as it has prevented business and investment hence deterring development.
Graf Lambsdorff (2011). Corruption Perceptions Index 2011. Transparency International Report
Janet MacGaffey (1991). The Real Economy of Zaire: The Contribution of Smuggling and Other Unofficial Activities to National Wealth. London: James Currey
Shah, Anup (2010). “The Democratic Republic of Congo.” Global Issues. http://www.globalissues.org/article/87/the-democratic-republic-of-congo. Retrieved 2013
World Bank Report (2013). Economy Profile: Democratic Republic of Congo. Washington, DC. http://www.doingbusiness.org/~/media/giawb/doing%20business/documents/profiles/country/ZAR.p Retrieved 2013