Employees of customs, trade license, land acquisition also next in line
A new study conducted on foreign companies that invest in Ethiopia indicated that at least half of the government contracts involve unofficial payments.
The survey that looked at corruption and related issues on the foreign direct investment (FDI) of the country stated that 14.3 percent of respondents said they settle unofficial payments from 51-80 percent of the charges of the contract price.
The survey result further revealed that government contracts still need to be improved as some respondents perceived that at least half of these contracts involve unofficial payments averaging 24 percent of the contracts’ value.
The dominant nationalities of the respondents were Chinese and Indians (14 percent and 12 percent, respectively) followed by Americans (7.4 percent), Turkish and Italians (6.6 percent each) and British (5.1 percent). The next higher proportions of the respondents were Dutch (four percent) and Sudanese and Pakistanis (3.7 percent each). There are also Ethiopian-Americans, Ethio-Chinese and Ethio-Pakistani companies that increase the proportions of those countries by two percent, 0.6 percent and 0.3 percent, respectively.
Respondents were also asked to judge on a four point scale from 1 to 4 (no obstacle, minor obstacle, moderate obstacle, and major obstacle) how problematic it was to deal with the 10 regulatory areas, namely; investment licensing, business licensing, customs/foreign trade, labor hiring/firing, foreign currency/exchange, land acquisition, environmental directives, tax regulations, immigration/work permits, and quality and standards for the operation and growth of their company.
The proportion of the respondents that reported there was a major obstacle among the indicated regulatory areas was the highest on foreign currency/exchange (26 percent) followed by land acquisition (23.4 percent) and customs/foreign trade (19.4 percent). Over 12 percent of the respondents reported there was a major obstacle on tax regulations while this proportion was 11.7 percent for immigration/work permit, 9.7 percent for labor hiring/firing, 8.3 percent for quality and standards, 6.9 percent for business licensing, 4.6 percent for investment licensing, and four percent for environmental directives.
Sampled respondents were asked to express their perception regarding the country’s legal framework in terms of its attractiveness for FDI rated as: very attractive, attractive, somehow attractive, not attractive and I don’t know. Greater proportions of the respondents have affirmative responses. The results indicated that 40.6 percent of the respondents reported that the country’s legal framework is attractive, 11.4 percent responded by saying very attractive and 32.6 percent of them think that it is somehow attractive while 12.9 percent reported not attractive.
Perceptions of foreign investors on the mode of communication for initiating corruption was collected and out of the 350 sampled respondents 296 valid responses were obtained. Accordingly, hints provided by government agents were found the most common mode of communication that accounts for 63.9 percent of the respondents.
The response to the follow up question, i.e., whether if they were asked for any unofficial payment puts the Ethiopian Electric Power Corporation (EEPCo) employees as the frontrunners in this regard with an average of 10 bribe money requests per respondent.
On the other hand, traffic police are depicted as requesting most of the respondents for bribe than any of the employees in the other institutions as confirmed by 16.6 percent of the respondents who reported a total count of 370 requests with an average of six bribe money demands per respondent.
By the same token, the next agency is EEPCo whose staff asked about six percent of the respondents a total count of 213 times for bribe.
The Ethiopian Revenue and Customs Authority employees are also in the same line as confirmed by about six percent of the respondents who said that they were asked for a total count of 54 times for customs/trade license and 49 times for tax inspection.
Staff of the Federal/local police and employees involved in issuing construction permits are next in line, with 3.4 percent and four percent requesting a bribe from the respondents, respectively.
Employees in all agencies are being bribed albeit differences in the average amount of bribe money.
According to the presentation, even though the traffic police were found by all measures to be the most corrupt as revealed by about 18 percent of the respondents, the most alarming cases were reported in the case of employees involved with customs and trade license, land acquisition /administration, investment license authorities, tax agency/inspectors and government procurement.
The results reveal that employees in these agencies are collecting an average bribe ranging from 5,000 to 7,000 birr. From the data one could also see that these employees can get paid a maximum amount of bribe money ranging from 20,000 to 50,000 birr.
The calculation of total sum of bribe money shows that customs people are the most corrupt by accepting bribes during the last twelve months and getting 121,660 birr from the respondents, followed by employees working in approval of construction permits and as tax inspectors with total bribe money payment amounting to 43,400 and 41,900 birr, respectively. On the other hand, the data pattern as revealed by the statistical mode as well as the minimum and maximum bribe payments suggests that what is more ubiquitous is petty corruption and not grand corruption as such.
The respondents’ opinion on the rules and regulations of the country with respect to FDI is generally positive. The survey expressed that the consistency and predictability has shown an improvement. It was also learned from the survey that the legal system of the country and legal framework with regard to contract and property rights has won the trust of the foreign companies and is said to be attractive for FDI.
The regulatory areas that are leveled problematic are foreign exchange acquisition, land acquisition and customs/foreign trade. These areas were recommended to be improved. Furthermore, government requirements that are considered to be the most difficult in operating business in Ethiopia are customs/foreign trade (the most difficult one) followed by business licensing, tax regulations and foreign currency/exchange, which calls for improvement.
Investment licensing, environmental directives and quality and standards were taken as areas with no or minor obstacles for foreign companies in the opinion of respondents.
Unofficial payment to government officials and employees is being practiced to have undue influence and get things done. However it is not at a scale of becoming a routine practice since it has not been deep rooted in the country and hence easily controllable if appropriate measures are taken. This has been further verified by the result that most of the government officials have not directly request for payment, gift or favour in exchange for services or problems solved. In most cases foreign firms themselves give unofficial payment without being asked or hinted.
The motives behind corrupt practices is time taking and lengthy processes/procedures and low income of government officials and employees, which implies that the government still needs to work on the reform processes and reviewing the salary of civil servants.
The survey result indicated that most of the foreign companies will not give and even refuse the request to give a bribe to get a service or resolve a problem. Coupled with the practice of reporting to higher level there is a good opportunity to combat corruption.
The survey result indicated that the Ethiopian government has sincere commitment and will to combat corruption as perceived by foreign companies operating in the country.
The respondents’ opinion on the rules and regulations of the country with respect to FDI is generally positive. The consistency and predictability has shown improvement. It was also learned from the survey that the legal system of the country and legal framework with regard to contract and property rights has won the trust of the foreign companies and said to be attractive for FDI.
Investment licensing, environmental directives and quality and standards were taken as areas with no or minor obstacles for foreign companies in the opinion of respondents. However, this has to be cautiously taken and further investigation is required as the activities of foreign companies may compromise environmental impacts and quality and standards of the country unless close follow up and monitoring is instituted.
The survey result further showed that lack of evidence, actions against those that commit corruption and clarity about corruption proceedings are the three top reasons for not reporting corruption to the relevant authorities. Specifically, making corruption reporting easy, protection of those reporting corruption, taking prompt measures on corrupt practices and announcing publicly, awareness creation, providing assistance for foreign investors’ on their rights/obligations (in the area of corruption, anti-corruption legislation and institutions where one may complain about officials’ corrupt behavior, free legal support for collecting information and evidence related to corruption cases, free legal advice to formulate their corruption complaints) are appropriate measures to combat corruption and attract FDI according to the suggestion in the report.
Moreover, on the status of corruption in Ethiopia compared to similar developing countries, the result indicated that corruption is lower in Ethiopia as perceived by foreign companies, which is a good opportunity to strengthen the fight against corruption and attract more FDI. This was further verified by the result that about 80 percent of the foreign companies covered by the survey indicated their plans to expand their investment in Ethiopia.