Corruption in South Africa is scaring global businesses away

 ·14 Oct 2015

A new survey by global risk consultancy firm ControlRisk shows that more than half of global businesses surveyed would avoid South Africa due to perceived levels of corruption.

The ControlRisk Corruption report for 2015 surveyed over 1,600 legal and compliance professionals in companies across the world – including 60 from South Africa.

30% said they have decided not to conduct business in a particular country because of the perceived risk of corruption. Corruption does not deter investors completely, but many good companies stay away, the group said.

55% of respondents said they would avoid doing business in South Africa because of the risks – the highest rate out of all countries surveyed.

Looking at the local levels of corruption, of all South Africa respondents, 61% said that business deals in which they had already spent time and money had terminated over the risk of corruption.

This was far higher than the 41% global average, and matched only by Indonesia.

“In too many emerging markets, demands for so-called ‘facilitation payments’ – small bribes to speed routine governmental transactions – are commonplace,” ContrlRisk said.

“They are pernicious because they are typically accompanied by an implicit threat: ‘You need to pay or your business will suffer’.”

According to the survey, 36% of South African companies believe that if these payments aren’t made, it would lead to major costs. 10% of respondents said their businesses would grind to a halt without the payments.

This may have been in reference to South African companies doing business elsewhere in Sub-Saharan Africa, ControlRisk noted – though its own findings show that 35% of companies reported failing to win contracts, where a competitor may have paid a bribe.

The survey did point to a general sense across the globe that compliance to anti-corruption polices is working, but that it’s not enough, and also taking too long.

“Tough anti-corruption laws are effective in the sense that they set the compliance agenda for international companies,” the group said.

“But a legalistic approach to business integrity is not sufficient – and could even be counterproductive.”

A big problem is that companies are not setting the right incentives – with most companies wanting to stop corrupt practices out of fear for legal ramifications, rather than putting performance and ethical criteria first.

“In our view, company performance criteria where ethical behaviour is as important as financial targets – ranked sixth out of eight options – should be much higher on the list,” ControlRisk said.

Corruption is rife in South Africa, with a number of high-profile corruption scandals coming to the fore in recent years. The problem has become so widespread that even the ruling ANC has admitted it has a problem.

In the party’s most recent national general council (NGC) meeting, rooting out corruption was one of the main talking points, where it laid out a plan to minimize corrupt activities within government.

The party also challenged the private sector to subject itself to financial interest disclosure, vetting, and lifestyle audits.

More on corruption in SA

10 corruption scandals that rocked South Africa

7 things the ANC wants to do that you should know about

ANC admits it has a corruption problem         

SA corruption “almost out of control”

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