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Sub-Saharan Africa (Corruption and the Economy)

– in the House of Commons at 6:43 pm on 1st July 2015.

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Motion made, and Question proposed, That this House do now adjourn.—(Kris Hopkins.)

Photo of Stephen Phillips Stephen Phillips Conservative, Sleaford and North Hykeham 7:12 pm, 1st July 2015

Let us begin our journey in almost any country—certainly far too many countries—on the world’s poorest continent, a continent bordering Europe: that of Africa. We sit in the office of the procurement manager of a Government Department—it matters not which one, for they are all much the same. Outside, not 100 feet away, a mother sits in the stifling heat with her children engaged in whatever business she has, selling mangoes, or coconuts, or smoked fish to passers-by perhaps. She survives and provides for her family on an income of less than a dollar a day. There is no father, for he passed away some time ago from a virus with which many in the developed world live full and long lives. Whether the mother has HIV, whether she will survive to see her sons grow to manhood, neither she nor we know. But our world, and even the world of our procurement manager, is a world wholly unknown to her experience.

In the office in which we sit, the procurement manager, who is tasked with spending donor funds from the developed world, is negotiating a contract for the supply of expensive photocopiers to the Department in which the brother who appointed him is the Minister. His salary is a few thousand dollars a year, a fortune to the vast majority of the citizens he is supposed to serve. Any yet below the cuff of his crisp white shirt, we find the essential element of the uniform of the Government procurement manager in any sub-Saharan African country: the gold, diamond-encrusted Rolex, yours for only $40,000 at any good airport en route to the nation in which we find ourselves. How on earth was it paid for? Was it perhaps a gift? No. It was paid for by the official himself from cash given to him, which secured another lucrative Government contract for another supplier—funds paid not to the Government, but to the official himself. It is, we are told, something we must accept; it is the way things are. But it is the way things have been for far, far too long.

Across sub-Saharan Africa, if you want to do business, you must pay to oil the wheels. You must pay if you want to avoid the consequences of laws designed to protect the most vulnerable from the exploitation of the natural resources that lie adjacent to homes. You must pay if you want to drive unmolested past makeshift roadblocks manned by real police officers employed by the state. You must pay for almost any interaction with the officials of the state. For if you do not, you will find your life much more difficult than it needs to be—if, that is, you are fortunate enough to have the cash to ease your path.

If you are rich enough, you can change that; if you are rich enough and you want to—and many businesses do—you can change the laws that inconveniently prevent you from exploiting the resources Africa possesses and, even better, from paying tax on your profits. If you are rich enough, you can always buy yourself out of any trouble you find yourself in.

Corruption in sub-Saharan Africa is therefore endemic; it is part of the way of life; it is how things are. But—and this is the point with which the House needs to be troubled—corruption stifles legitimate investment, kills economic growth, maintains and supports poverty, and because it does all those things, it also threatens the security of this country and of the developed world as a whole.

The poorest people—and it is the very poorest and the most vulnerable in our world that we are talking about—will risk all in an attempt to make their way to the developed world. And some of them, seeing the quality of life we have and they do not, are also ripe for a radicalisation that endangers the security of our citizens overseas and, as we have seen, here at home as well.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Health), Shadow DUP Spokesperson (Transport), Shadow DUP Spokesperson (Equality)

I sought permission beforehand to intervene. Does the hon. and learned Gentleman feel that there is perhaps a need for Department for International Development projects that come from the backing of this Government—my and his Government—to be monitored in respect of project delivery for the people on the ground to ensure that they are correct? Does there need to be oversight of DFID projects by the Government to stop corruption?

Photo of Stephen Phillips Stephen Phillips Conservative, Sleaford and North Hykeham

I am grateful to the hon. Gentleman for his intervention, and he is absolutely right. I shall come on to his point in due course.

Corruption in the developing world has been a hidden problem for too long, though it is now beginning to be brought home to us by the constant threat to our security and by an untrammelled immigration that sees fires set at the entrance to the channel tunnel in France. It is something that requires effort from every Government across the world to challenge, but it is also something that I fear is still too far down the political agenda across the world to be effectively tackled.

Nothing much is changing in terms of advancing the anti-corruption agenda. On 9 December 2013, on international anti-corruption day, the UN Secretary-General pointed out that

“corruption suppresses economic growth by driving up costs, and undermines the sustainable management of the environment and natural resources. It breaches fundamental human rights, exacerbates poverty and increases inequality by diverting funds from health care, education and other essential services. The malignant effects of corruption are felt by billions of people everywhere.”

Photo of Pauline Latham Pauline Latham Conservative, Mid Derbyshire

Does my hon. and learned Friend agree that until all Governments have zero tolerance of corruption, they will never be able to invest what they need to invest in health and education, as he said? They should take a leaf out of Rwanda’s book, as that is what it has done, and it is investing consistently, which other countries are not.

Photo of Stephen Phillips Stephen Phillips Conservative, Sleaford and North Hykeham

My hon. Friend is right. I cannot speak specifically about Rwanda, but unless and until all countries bear down on corruption, this will be a problem that endures.

Very little progress has been made since the Secretary-General made those remarks two years ago. Still the procurement managers sit in their air-conditioned offices marking the passage of time on their gold Rolexes; still corporate interests buy their way out of laws designed to protect the environment and to ensure that they pay proper amounts of taxation; still wealthy individuals and businesses ease their passage through difficult lawsuits by ensuring that the judiciary across Africa knows which side is more likely to pay more for the “right” result.

Let us take but one area. In its report “Making a Killing”, published this year, Save the Children estimated that the lost tax revenues to developing countries in sub-Saharan Africa due to illicit financial flows was in the order of $15 billion—a figure that dwarfs this country’s annual aid budget and would pay for 1.8 million healthcare workers. That is a loss of revenue to sub-Saharan Africa in just one area, which is largely made possible by a corruption that allows the maintaining of tax laws and treaties that favour rich corporations which are prepared to bribe Governments and parliamentarians to secure their favoured status. The report fails to take account of perhaps even larger revenues that are lost because a blind eye is turned—once it has been paid for—to direct tax evasion. That is morally wrong. It sustains endemic poverty, and, as I have said, it threatens our own security.

We are not without an international framework within which to deal with the issue. In 2003, the United Nations opened for signature the international anti-corruption convention, which the majority of countries in the world have now ratified. It established some common standards in relation to, for example, criminalisation and law enforcement in chapter III, and international co-operation in chapter IV. However, although monitoring finally began in about 2010, it has been patchy and inconsistent. It also suffers from the major failing that review takes place principally “in region”, thus opening up a whole new field to corruption as non-compliant countries with mutual interests are able to score one another for compliance. One issue that the Minister could usefully discuss with his counterparts in the Foreign and Commonwealth Office is how the convention can be updated to ensure proper monitoring.

I believe that the OECD anti-bribery convention has been ratified by only 41 countries. What efforts are the Government making to ensure not only that it is more broadly adopted, but that it is actually enforced by those who have signed it? In its most recent report on the implementation of the convention in 2015, Transparency International found that there was “little or no enforcement” of it in many states, including the Republic of Ireland. There was “active enforcement” only in the United Kingdom, the United States, Germany and Switzerland.

The conventions are, however, only part of the solution. They assist in establishing common international standards, but without enforcement—or, for that matter, the institutions that are necessary to ensure enforcement—they are essentially meaningless.

Photo of Richard Fuller Richard Fuller Conservative, Bedford

My hon. and learned Friend has mentioned the Foreign Office and other Departments. Is he satisfied with the current position, or does he believe there is an opportunity for greater understanding and co-operation between the Foreign Office and the Department for International Development when it comes to tackling some of the problems that he is outlining?

Photo of Stephen Phillips Stephen Phillips Conservative, Sleaford and North Hykeham

Co-operation between the two Departments is obviously critical. Indeed, the Government as a whole must focus on the need to bear down on corruption where it exists, whether here or anywhere else in the world.

One of the problems is that very little effort appears to have been devoted to ensuring that institution building is carried out by donors who too often prefer to focus on the sexier aspects of development, such as education and health—funding areas that are, in any event, losing more money than they are receiving because of the corruption that pervades the region. So it is, although he may not know it, that the Minister is funding education programmes which pay teachers who do not exist; so it is that he is paying for the planting of crops which cannot grow in soil that cannot be maintained; and so it is that he funds programmes as a result of which money routinely finds itself in the hands of the governing class, despite the best efforts of those in his Department who work so hard to ensure that that does not happen.

Unless and until there is an unrelenting focus on changing the institutional environment throughout sub-Saharan Africa, which at present there is not, very little will change. As Dr John Mukum Mbaku argued in his 2007 book on corruption in Africa,

“the institutional environment, not cultural norms, determine a society’s propensity to engage in corruption and other forms of opportunism ...The incentive structures that a country’s market participants face—which are determined by the country’s institutional arrangements, may create opportunities for corruption and provide an environment in which even honest and highly ethical individuals may be forced to engage in corrupt activities in order to survive. Such perverse incentive structures can be changed or modified through democratic constitutional reforms.”

Photo of Patrick Grady Patrick Grady Shadow SNP Spokesperson (International Development)

May I take up that point about “getting our own house in order”? Does the hon. and learned Gentleman accept that, while some of the corruption that he is describing may not exist in this country, we operate certain systems of patronage about which we must be very careful in view of the example that they might set developing countries?

Photo of Stephen Phillips Stephen Phillips Conservative, Sleaford and North Hykeham

I think that I agree with the hon. Gentleman, although unless he gives some specific examples it is a bit difficult for me to know. However, corruption plainly does not exist in this country to the extent that it exists in large parts of Africa. I would not want to equate the two, or, indeed, give solace to those who engage in corruption in Africa on the basis that there is anything similar going on here, for the simple reason that there is not.

What steps is the Minister taking in this area—not just because it is the right thing to do, but because it is essential for our own security—to ensure there is institution building within sub-Saharan Africa to discourage individual Government officials from engaging in corruption? What structural reforms do the Government intend to make our aid dependent on, in order to root out those who enrich themselves at the expense of those they are supposed to serve? To what extent is our international aid delivered in a manner designed to ensure that it does not find itself in the wrong places and, more importantly, in the wrong pockets?

DFID’s role is crucial. Having met, indeed enshrined in law, our commitment to spend 0.7% of GNI on international aid—a decision not always popular, but again essential for our national security—DFID’s efforts in stamping out corruption, while well meaning, none the less give cause for concern in some areas. As the

Independent Commission for Aid Impact pointed out in its 2014 report “DFID’s Approach to Anti-Corruption and its Impact on the Poor”,

“DFID’s anti-corruption activities have demonstrated certain achievements but have had little success in reducing the effects of corruption, especially as directly experienced by the poor.”

The report went on to point out that DFID had

“little understanding of what is working with respect to its anti-corruption activities” and

“does not fully understand which of its activities are addressing corruption or how they will make a difference.”

I appreciate that the Minister is new to his job, and that the Department is always well meaning and more often than not effective in delivering its objectives, but he has to tell the House how it is that, rather than merely paying lip service to the anti-corruption agenda, he now intends to bear down on something that hits the very poorest people in the world the hardest. More bilateral aid must, I say to him, go to the anti-corruption effort. All bilateral aid must be conditional on corruption, in all its forms, being stamped out in the countries to which it is given. If we really want to tackle poverty in the developing world and improve our security, adopting the sustainable development goals this year is all well and good, but part of that effort has to focus, in a way in which it has seemingly not to date, on the eradication of corruption as a way of life, and as a way of government, across the whole of Africa.

Why is that? Let me end where I began, for I must tell the House that the procurement manager and the mother with whom I began my speech are real people. I have spoken to them. I have witnessed the wealth of one and the poverty of the other, and I have played football with the sons. Like other boys across the developing world, theirs will not be an easy life, but it will be a great deal easier and more likely to be worth while if, in growing up, they do not need to bribe their way through school, university and into a job, paying teachers, university professors, lawyers, policemen, judges, healthcare workers and managers to perform the functions for which the state in which they live is already paying on their behalf.

Morally, we owe such boys an obligation to do all we can to stamp out the corruption that robs them and their fellows of their futures, and keeps them in poverty. Lest it be thought that it is not in our interests or not our problem, I end merely by pointing out that, if we do not act, it is they a future Home Secretary will be dealing with at Calais or, worse, on the beaches of some foreign shore where a poverty of existence made possible by corruption has given rise to a radicalisation which is at once both perverse and avoidable.

Photo of Grant Shapps Grant Shapps The Minister of State, Department for International Development 7:28 pm, 1st July 2015

I congratulate my hon. and learned Friend Stephen Phillips on securing the debate on this important subject and on the incredibly powerful way in which he has framed his arguments. He is absolutely right to say that corruption, fraud, tax avoidance and evasion pose serious challenges in the developing world. They put an economic brake on development and help to ensure that nations fail to develop at the speed that we would all want to see. What is more, they are matters of direct interest to this House because of our impressive record in international development. However, he is right to highlight the issue of corruption. I want to turn to his speech and to other comments made in the debate.

As my hon. and learned Friend will know, the Department for International Development works in some of the poorest countries in the world, where governance arrangements are often extremely weak. He highlighted that in his passionate speech. Corruption and fraud are often commonplace. Often, there is a highly sophisticated patronage network of elite engagement. I want to outline DFID’s approach to combating corruption and fraud in sub-Saharan Africa while trying to achieve our development goals for some of the poorest people in the world.

First, however, I want to highlight the extent of the challenge facing us. My hon. and learned Friend is absolutely right that in some countries and locations the problem is endemic. That can even be the case in really good countries. Last week I was in Malawi, a functioning democracy that has been free of war for the last 51 years. Even there the President was telling me that it is difficult to get things done and the state moves at a slow pace. Although he did not mention this, we know corruption is part of that problem.

Although there is evidence that some countries in east Asia have achieved high levels of growth in spite of high levels of corruption, the evidence for sub-Saharan Africa reinforces what our common sense tells us: that corruption has a hugely negative effect on investor confidence in a country. My hon. and learned Friend mentioned $15 billion in lost revenue. In fact the World Economic Forum reported that corruption undermines prosperity by imposing a cost equivalent to 5% of global GDP, or $2.6 trillion, every year.

Corruption is ranked as one of the top two barriers to doing business in two thirds of DFID’s main partner countries, so this is a massive problem. It creates barriers to market entry. Two thirds of foreign bribery cases occurred in just four sectors related to infrastructure: 19% in the extractives sector; 15% in construction; 15% in transport and storage; and 10% in information and communication. That illustrates that corruption is huddled around specific sectors.

There is also increasing uncertainty for investors, to the detriment of long-term investment. The World Bank reports that bribery can add up to 10% to business costs globally. Corruption also limits the potential of business. It limits the growth and productivity of private sector firms, with small and medium-sized enterprises experiencing the most difficulties. Many do not even bother to show up in the first place because it is just too difficult to operate in those markets.

A corrupt society and state puts an unduly negative burden on the poorest. That is why the Prime Minister has gone to such lengths to talk about what he calls the golden thread of development. The idea is that a country can try to do everything else—build the infrastructure, put the right processes in place, sort out its health and education systems—but if it does not deal with corruption, it will never enfranchise its citizens, thereby making them all better off.

The scale and breadth of the challenge is enormous. DFID does three things to stop corruption: we work in countries to help Governments track and trace activities and funds; we build the capacity of institutions to stop behaviours; and we apply pressure on our international partners to ensure they raise their game. Most importantly—this is possibly the one respect in which I diverge from what my hon. and learned Friend said in his excellent speech—we would be wrong to inadvertently characterise the DFID budget as disappearing into some hole of corruption, for one simple reason. In the year 2013-14, DFID spent £9.791 billion—nearly £10 billion—on international development. Of that, 4% was what is known as sector support—it might be for education, for example—whereas just 1% was to general support. In other words, although my hon. and learned Friend is right to point out these problems, we are engaged in the task of making sure we do not give money to Governments who cannot, through their own procurement, be trusted to spend it.

Photo of Stephen Phillips Stephen Phillips Conservative, Sleaford and North Hykeham

I understand that point, but let us consider the 4% we spend on education. When we build a school, DFID rightly secures three tenders, but they are essentially agreed between the tendering companies, and the British taxpayer ends up paying probably 10 times more than the actual cost. That form of corruption is hidden in the DFID budget.

Photo of Grant Shapps Grant Shapps The Minister of State, Department for International Development

Once again, my hon. and learned Friend is right to point out these problems, which indeed exist in many places in the world, and particularly in some of these markets. Last week, however, I was in a school in Zomba in Malawi announcing £11.6 million in DFID budget. In that case we have chosen to work with USAID, because it has an established programme. It has the contractors in place and we can be certain, as it is properly audited, that the money is being well spent. He is right to point out these issues and it is right that the Department works to clamp down on all these practices. Clearly, we must protect British taxpayers’ funds and we must, for the reasons he outlined, ensure that the worst-off people in the world—Malawi is in the world’s bottom five for income, with an average income of £179 a year—are not being subsidised, through corruption, by one of the wealthiest countries in the world, which we are fortunate enough to live in.

Photo of Jeremy Lefroy Jeremy Lefroy Conservative, Stafford

Does the Minister agree that some of the most effective international development work is often done by small, local, community organisations? We may be talking about building schools, working in community health centres or other such things. One problem they find is accessing the funds that DFID or others provide. We often hear people say, “We would like to work with these people but we cannot do so because the grant size is too small.” Yet these organisations are probably the least corrupt and often the most effective.

Photo of Grant Shapps Grant Shapps The Minister of State, Department for International Development

My hon. Friend will be interested to hear that we were having that conversation in the Department only yesterday, and he is right to highlight it.

Let me turn to some of the things we are doing to combat these problems of corruption. First, we track and trace activities and funds. DFID works in and with developing countries to ensure that public bodies and public funds are serving the people. Over recent months, DFID country teams have been undertaking analyses of some of the constraints to growth, and the message is clear: corruption negatively influences investor confidence, as we have already established. To address that, we fund track and trace activities to shine a light on corruption and recover stolen assets. DFID has been supporting the extractives industry transparency initiative since 2002, working in 23 sub-Saharan African countries. DFID supports the International Centre for Asset Recovery, which provides practical legal assistance to countries trying to track, trace and recover funds; it has cases worth potentially $235 million in Kenya, $227 million in Tanzania, which I visited and where I discussed some of this just a few weeks ago, and $30 million in Malawi, which I was in last week. An awful lot of work is going on in track and trace.

We have also built capacity to stop behaviours and reduce the opportunities for corruption. We work with partners on the ground to build the capacity of civil society organisations and partner agencies. For example, in Nigeria, DFID has worked to reduce government funds being lost or stolen. That has resulted in some £1.5 billion of assets being recovered, and DFID is supporting 2,670 investigation cases. My hon. and learned Friend will rightly point out that that must have something to do with the scale of the problem, but none the less he will be pleased to know that UK-based police and intelligence units, and many other organs of the British state, are helping in the swift recovery of assets.

Thirdly, we are applying pressure to our international partners, and that is at the heart of this matter. We are working on that UN convention against corruption in partner countries and with the World Bank and the International Monetary Fund on strengthening financial action taskforces around the globe. We have been taking real leadership in these areas. DFID works with other G8 and G20 members, and through the UN, to strengthen the international architecture to combat corruption and illicit financial flows. I remind the House that the United Kingdom took the lead when we chaired the G8 in 2013, implementing a number of measures which have put the UK in a leadership position.

It is, however, important to continue raising our game and it goes without saying that we also take our responsibilities very seriously. All DFID offices must complete and regularly refresh anti-corruption and counter-fraud country strategies that highlight the critical barriers. I can provide my hon. and learned Friend with the assurance that as a result of this evening’s debate I will be taking even more interest in that matter over the coming weeks and months.

My hon. and learned Friend mentioned the ICAI report on DFID’s work in this area in 2014, when DFID’s resources on counter-fraud and anti-corruption were said to have been “fragmented”. We have taken a number of steps since then to address these things, but because of a lack of time I will not produce the entire list.

I want to touch on tax—the issue of tackling tax avoidance and tax evasion in developing countries—to which my hon. and learned Friend referred. As I mentioned, the UK led on the issue during its G8 presidency. What I did not mention was that more than 90 countries have now signed up to principles such as automatic tax information exchange and helping to tackle offshore tax evasion. We are working to champion the OECD’s base erosion and profit-shifting project. This is in relation to multinational companies moving profits in order not to pay tax where it should be paid.

A huge amount of work is going on across Whitehall. The Minister of State, Department for International Development, my right hon. Friend Mr Swayne, sits on a body that is responsible, across Whitehall, for trying to build the capacity to monitor these areas. The body has done a huge amount of work already in Britain to prevent corruption, and it is now turning its attention internationally.

Tackling global poverty is the right thing to do, and it is also in Britain’s interests. We will continue to insist that every Department and organisation that we fund adopt a zero-tolerance approach to corruption. We will also continue with our focus on tackling tax avoidance and tax evasion in the developing world. As I mentioned to the House a moment ago, as a product of this debate, my own attention will be more highly focused on the matter.

Question put and agreed to.

House adjourned.