Corruption, procurement and COVID-19 in Africa

  • Publication date: 16 June 2020
  • Author: Professor Sope Williams-Elegbe
Sope

The global crisis caused by the COVID-19 pandemic has placed an unprecedented strain on public health systems and decimated economies, lives and livelihoods. In sub-Saharan Africa, the crisis is already showing signs of having a deeper social impact. Existing inequalities are widening, particularly for those who live hand-to-mouth, amidst increasing unemployment levels and insufficient social security. Without robust oversight and due diligence, the economic cost may be devastating, as the pandemic is exacerbating existing systemic socio-economic challenges.

Apart from the obvious burden placed on healthcare systems, other sectors that are affected by the crises in Africa include the education and public procurement systems. The rapid and emergency purchases of educational equipment in order to meet the immediate transition to online education due to national lockdowns, as well as health care equipment to address the pandemic, has exposed vulnerabilities in procurement systems that were already prone to fraud and corruption.

In addition, the distribution of cash grants and food parcels to food-insecure communities has been wrought with irregularities, some due to the weak underlying infrastructure necessary for distribution and others due to corruption.

Urgency of due diligence now for COVID-19 financial flows

Significant amounts of money are flowing through global financial systems in the form of debt relief, loans from multilateral institutions and government stimulus packages. The International Monetary Fund (IMF) and World Bank have mobilised $57bn to assist Africa to manage the pandemic, with a further $13bn expected from private creditors. Of the larger economies in the region, Nigeria is raising over a trillion naira to mitigate the effects of COVID-19 and is a recent recipient of a $3.4bn IMF rapid relief loan. South Africa has announced a R500bn (approximately $23bn) economic stimulus and social support package for the country, to be potentially financed through the IMF, BRICS and African Development Bank. The urgency of due diligence and oversight in public finance cannot be overstated, given the vast sums at play. Transparency is critical to ensure due diligence in the disbursement of funds and the effectiveness of the response to the pandemic.

Yet, despite the risk presented by the increased monetary flows, there is evidence of a reduction of oversight in emergency and fast tracked public procurement procedures. This has led to uncompetitive purchases; contract awards to anonymous and incompetent contractors; increased spending due to price gouging of personal protective equipment (PPE) and other healthcare items; and the squeezing out of small and medium sized businesses (SMEs) from the procurement system.

This is unfortunate, given that SMEs provide an estimated two-thirds of the continent’s formally employed workforce. In South Africa, SMEs provide employment to roughly 47% of the workforce and account for around 20% of GDP. Pressure on SMEs has a negative effect on growth and employment. In South Africa a fifth of the announced R500bn stimulus package, which is equivalent to 10% GDP, is targeted at the SME sector. Nigeria has announced a N50bn stimulus package to support households and micro, small and medium enterprises. Ensuring that such relief and stimulus measures are provided to the intended beneficiaries and real companies, and are not unduly redirected to companies connected to politically exposed persons, is crucial for the interventions to be effective.

The illicit economy and organised criminal syndicates are, on the other hand, positioning themselves to benefit from the crisis. In some instances, crime syndicates have swooped in to ‘rescue’ vulnerable SMEs with loans, or have been the hidden beneficiaries of rapidly awarded government contracts. Verification of legal persons and beneficial owners in real-time could go some way in mitigating this risk, as anonymous companies are known to be a corruption risk for procurement and illicit financial flows. As has occurred in other parts of the world such as with Brazil’s favelas or Italy’s mafia gangs, gang networks in Cape Town, South Africa have co-opted food parcel distribution in vulnerable communities and used these channels to distribute drugs and small arms, fuelling potential violence in the months to come.

The risk of deferring accountability to after the crisis

The temptation may be to sideline transparency and accountability during the crisis, and treat the pressing needs created by the pandemic as being inconsistent with accountability and transparency measures. However, the consequences of not monitoring in the midst of the crisis could be dire. The Ebola epidemic which affected West Africa between 2013-2016, and led to thousands of deaths and socioeconomic disruption in the region, mainly in Guinea, Liberia and Sierra Leone, provides an indication of the consequences of not monitoring financial flows provided from domestic and development assistance. It is estimated that of the development assistance made available to the government of Sierra Leone, 30% funds were unaccounted for, due to fraud and corruption.

In relation to the COVID-19 funds, the IMF has cautioned that countries should endeavour to ‘keep the receipts’. Indeed, governments must keep clear audit and accounting trails, and not defer accountability to the post COVID-19 crisis period. For lower income and emerging economies, the strain of ex post auditing on already constrained prosecutorial authorities may make this untenable. It may also constrain vital government departments required for rebuilding economies after COVID-19, and stifle action where departments are paralysed due to ongoing investigation at a time when governance capacity will be needed for recovery purposes.

The cost and time of ex post corruption inquiries and prosecutions is also staggering. In the last two years, South Africa’s series of commissions of inquiry into wrongdoing within various arms of the state, linked closely to public procurement, have cost R297million ($16million). This does not include the cost of prosecutions. Such inquiries also have questionable results in exerting accountability, as seen in South Africa with the ‘Arms Procurement Commission’ inquiry.

An appropriate response which saves lives and economies

What is necessary is for governments to ensure that procurement and expenditure of funds is done properly, and that beneficial ownership data is used as a component of due diligence processes. For whatever corrupt activity is flagged, be it anti-competitive behaviour or price gouging, procurement systems need to include measures which will redflag and retain such data. In ensuring the integrity of supply chains and procurement procedures in the future, beneficial ownership data will be necessary for debarring suppliers found to be implicated in COVID-19 related wrongdoing.

While limited data is available on beneficial ownership as it is a relatively new policy area, there are already some countries in Africa moving towards implementation and that have developed the legal and policy frameworks necessary to ascertain beneficial ownership. For instance, in Nigeria, the extractive sector requires companies to disclose ownership through a public central register. Kenya recently passed regulations to set up a central registry of beneficial ownership and also issued a 2018 Executive Order, making disclosure of winning suppliers mandatory in public procurement. Important positive signals have also been issued by some recipients of multilateral funds. For instance, Nigeria has committed to disclosing contracting and beneficial data of the IMF rapid relief loan. In Gabon, the Ministry of Finance has agreed to make disclosure of beneficial ownership data part of oversight mechanisms. The accurate, timely and public availability of the data disclosed is as important as these commitments. Tools such as the Open Ownership Principles for beneficial ownership disclosure can assist in meeting these standards and aid in reducing the corruption risk in distributing financial and non-financial resources, as well as awarding contracts during the pandemic and in the recovery phase. This approach must be at the centre of government responses to save lives and economies in sub-Saharan Africa and globally.

• This article is based on a panel discussion given at Open Ownership’s webinar on “Corruption and COVID-19: transparency’s role in ensuring an effective response and recovery” held on the on the 30 April 2020.

Author Bio

Professor Sope Williams-Elegbe is a Professor and Head of the Department of Mercantile Law, and the deputy director of the African Procurement Law Unit, Stellenbosch University. She specialises in public procurement law, anti-corruption law, sustainable development law and commercial law. She is the author of over 50 publications in the areas of anti-corruption and public procurement law, including the books: Fighting Corruption in Public Procurement: A Comparative Analysis of Disqualification or Debarment Measures (Hart, 2012); Public Procurement and Multilateral Development Banks: Law, Practice and Problems (Bloomsbury/Hart 2017) and Public Procurement Regulation for 21st Century Africa (with G Quinot; Juta, 2018). She is also an NRF B2 rated scholar.

Publication type
Blog post

Topics
Procurement