Markets & Finance

Kenyan firms ranked among the most corrupt

Kenya’s private sector has been listed among the world’s most corrupt, presenting the Uhuru Kenyatta government with yet another daunting task to tackle in the quest to make East Africa’s largest economy the region’s preferred investment destination.

International audit firm Ernst and Young says in a report released on Thursday that one in every three Kenyan companies surveyed had paid bribes to win contracts.

The survey conducted in 59 countries ranks Kenya behind Egypt, Nigeria and Namibia as economies where private sector corruption is most pervasive and distorting of tender award processes.

More than a quarter or 27 per cent of the chief executives, financial controllers and internal auditors surveyed in Kenya cited high levels of fraud in their companies — only lower than 44 per cent in Egypt, 30 per cent in Nigeria and 28 per cent in Namibia.

E&Y says private sector bribery, fraud and corruption is mainly driven by middle-level managers, especially men aged between 35 and 45.

“Their actions are mainly driven by pressure to perform and achieve set targets,” said Miriam Gaituri, the associate director at Ernst and Young.

The study found that most recipients of bribes do not ask for it but act in a manner that signals their hands need to be greased.

“We found that when someone wants a bribe they delay services and so you feel you have to grease their hands for things to move faster,” said Peter Kahi, a partner at the audit firm, adding that up to 90 per cent of the interviewees said they have never been asked for a bribe directly.

READ: Tender fraud passes bribery on Kenya’s economic crimes list

The survey found that entertainment was the most common method of bribery that companies use to acquire and retain business. Half of the executives interviewed said it was justified. Another 27 per cent of those surveyed justified offering personal gifts to get business.

The survey found South Korea’s private sector the most virtuous, with none of the executives interviewed citing significant levels of fraud or bribery.

The small European nation of Luxembourg, Poland, Philippines and Argentina make the list of five countries with the least private sector corruption — a distinction that continues to earn them competitive advantage in the race to attract investments.

E&Y found that private sector corruption was most rampant in transactions between business associates, including suppliers and much less when doing business with the government.

The survey does not reveal the amount of money paid out as bribes to win contracts or lost in fraud and the auditors said it was futile to ask because of rampant understating.

Other studies have estimated that companies lose between seven and eight per cent of their revenues to corruption, translating to loss of millions of jobs every year.

The report names financial services sector as the most affected by fraud because of their handling of large amounts of hard currency on a regular basis.

Kenya’s industry captains said corruption has intensified in the past couple of years with 86 per cent reporting rampant bribery and corrupt practices in their business transactions up from 76 per cent in 2012.

Kenya’s public sector has consistently ranked poorly in global corruption surveys but the latest revelation that the private sector is no better casts a dark cloud over the country’s ambition to attract investments and speed up its economic advancement. 

Transparency International’s Corruption Perception Index, 2013 ranked Kenya at position 136 out of 177 countries and territories surveyed, with a score of 27 on a scale of 0 to 100. Zero indicates highly corrupt while 100 is for top integrity.

More recently, Kenyan companies have fought bruising court battles over the award of tenders giving the public a glimpse into the mostly secret world of deal-making.

Kenya’s corruption has defied the many layers of regulatory and oversight mechanisms that have been put in place to curb it, leaving the practice to continue unabated.

The depth of Kenya’s corruption was recently revealed in a London court where the UK’s Serious Fraud Office has charged senior managers of a security printing firm Smith and Ouzman with massive bribery of Kenyan officials to win contracts.

READ: UK court exposes corruption ring at Kenya poll agency

Court documents show that Smith and Ouzman paid millions of shillings in bribes and organised lavish annual trips for Kenyan officials to the UK in exchange for multi-million-shilling contracts.

Some of the officials are said to have received electronic gifts for themselves and their children.

Meanwhile, E&Y found that the fraud and corruption industry regularly asks customers or partners to make charitable contributions to identified causes. More than half of the executives said there is nothing wrong with the arrangement.

In Kenya, businesses have been asked to participate in fundraisers organised by politicians — a form of corruption that the country has tried to tackle with the passing of a law that bars politicians from participating in such fundraisers. Poor enforcement of the law remains its weakest point.

E&Y found that companies have more recently become complacent in their dealing with corruption, leading to a big drop in the number of institutions that have a written anti-corruption policy and code of conduct.

Only 88 per cent of companies have a policy compared to 96 per cent two years ago.

Board members are expected to enforce integrity in the institutions they lead but are not actively engaged, the survey found.

E&Y recommended that boards ensure they put in place whistleblowing mechanisms in their companies while recruiting officers are made to conduct background checks on new employees.

A profile on fraudsters’ survey conducted by E&Y shows that it tends to be a repetitive habit with the perpetrator being lured more and more.

Fraud incidences were also said to be on the rise and were mainly driven by technological advancements.