Corruption keeps PHL economy from growing, business leaders say

Widespread corruption, not only in government but also in the business sector, is a stumbling block that keeps the economy from growing, business leaders and analysts said at the 1st Integrity Summit Wednesday.

In particular, small and medium businesses (SMB) suffer the repercussions of corruption practiced by large enterprises and make them unable to compete, said World Bank governance specialistJoel Turkewitz.

“Corruption is a barrier to entry [for SMBs], because they can’t compete on the basis of being better,” Turkewitz said. “If contracts are rigged, SMBs are affected, and they can’t grow.”

The World Bank executive said corruption is “a great concern” especially for developing countries like the Philippines, where more than 90 percent of all businesses are considered SMBs.

On average, an overall decline in corruption in a certain economy can help improve its output by 2 percent to 3 percent, he said.

Turkewitz stressed that the effort to stamp out corruption applies across the board, even to SMBs who would eventually be part of the business suppy chain.

“For SMBs who have the desire to get linked into the global supply chain, it’s fundamental for them to be able to demonstrate clean and ethical behavior [in order to compete],” he said.

Governance risks

Addressing the summit, Manila Water Co. president Gerardo Ablaza said stamping out corruption is a critical component “of a robust and sustainable economic growth.”

“Investment capital gravitates to where perception of governance risk is lower,” Ablaza said. “That is why [eliminating corruption] is important in emerging markets where there are often perceived [governance] risks.”

The risks are influenced by the country’s rule of law, its regulatory consistency, the quality of its governance as well as the level of corruption across all sectors, Ablaza explained.

He stressed that reducing the level of this perceived governance risk “goes a long way in building investor confidence.” “It translates to tangible benefits, such as better valuations of companies as well as lower cost of capital,” he added.

However, anti-corruption efforts must be synchronized among the private and public sectors as well as civil society to impact on the perception of investors, Ablaza said.

“Even when some private sector companies and government agencies might adhere to the highest principles, investors may still worry about the larger environment,” he said.

Government cooperation

Convenors of the Integrity Initiative presented to President Benigno Aquino III the Unified Code of Conduct, which formalizes the private and public sector commitment to uphold high ethical standards in all their business dealings.

To date, at least 700 private companies and government agencies have signed the Integrity Pledge and committed toward implementing the code of conduct in their respective companies.

Aquino, in turn, signified his administration’s intent to uphold government integrity as shown by the efforts to increase transparency among all government agencies.

“In the 2011 budget, for example, we mandated the agencies to publish their budget performance online … [so that people] may see how… their funds [are spent],” he said.

Aquino, whose campaign thrust anchored on the cornerstone of anti-corrupt measures and transparency, stressed that “everybody wins” when businesses practice integrity.

He said companies that “have a reputation of practicing integrity are valued more in the stock market and enjoy the confidence of their stakeholders,” which eventually lead to improvements in the economy.

“The integrity initiative can’t be measured in pesos, but the benefits can be felt by everyone,” he added.

Anti-corruption consultant Tony Kwok stressed the need for government to set up an effective complaint unit and an investigation unit which will probe instances of corruption in both government and private sectors.

Kwok, a former head of operations of the Hong Kong Independent Commission Against Corruption (ICAC), underscored the importance of making an example out of big-fish cases in the government.

“In Singapore, for example, the first major case carried out by the anti-corruption bureau [involved] a cabinet member of Lee Kuan Yew,” Kwok said.

“People actually said that with just one single case, action was taken. They will think, ‘What chance do I have?’ That’s the effect of [prosecuting] a big-fish case,” he added. — OMG/RSJ/, GMA News