New Internationalist

Bribery and poverty

Issue 358

Susan Hawley reveals the links via the most corrupt deal in Bangladesh’s history.

Manucher Towhidi is still fuming. The former managing director of Bangladesh’s flagship foreign investment project, the KAFCO Fertilizer Complex, saw enough to make his blood boil. Towhidi says: ‘KAFCO is the story of a poor nation raped by a group of multinationals in the name of industrialization, while three so-called enlightened and helpful governments stood by.’

Japanese, Danish and Italian companies built the urea-and-ammonia-producing Complex. The governments of Japan, Denmark and Britain gave it financial support. Yet KAFCO has been an unmitigated disaster for Bangladesh. Contracts were written entirely to the benefit of the foreign companies. When the Complex opened in 1995, the equipment was so shoddy that it held things up for five years. It cost $150 million more than agreed and $480 million more than a similar fertilizer plant at another location in Bangladesh. The fertilizer plant has drained one of the poorest countries in Southeast Asia of $350 million. The reason for this disaster: corruption.

All of the contracts for the Complex were signed in the last days of Bangladesh’s former dictator, General Hussain Mohammad Ershad. Local Bangladeshi sources, including one insider, allege foreign companies paid bribes in order to win such favorable deals. The chief government negotiator on the deal still receives personal financial support from one of the companies involved. A government minister who investigated concludes that KAFCO was ‘the most corrupt deal in Bangladesh’s history.’

KAFCO is not unique. Every year, Western business pays millions of dollars’ worth of bribes. Between 1994 and 2001, the US Government (the only government to prohibit bribery abroad) received reports of 400 international contracts worth $200 billion between governments and businesses worldwide purportedly involving bribery. Some 70 per cent involved companies from the richest industrialized nations.

Western governments are increasingly demanding that poor countries like Bangladesh clean up corruption as a condition for aid and loans. Yet these same governments turn a blind eye when their own companies give bribes. With the exception of the US and the tiny African kingdom of Lesotho (which caught a Canadian company bribing decision-makers on a dam project) there have been no prosecutions of Western companies for bribery.

Poor people pick up the tab

According to Donald Strombom, former procurement chief at the World Bank, ‘Corruption is not a charitable game. Winners have every intention of recovering their bribery costs.’ Companies paying a bribe aim to recover it by charging governments more for what they provide. Corruption can add on average 20-30 per cent to the cost of government procurement. This means that millions of dollars’ worth of public money is wasted every year on over-inflated contracts. This is money that could be spent on education, health and poverty eradication.

Corruption doesn’t just add to the cost of projects. It also leads to the wrong projects. The global South is littered with ‘white elephant’ projects born out of bribery. The Bataan nuclear plant in the Philippines never worked because it was built at the base of a volcano and on several earthquake faultlines. The Turkwell Dam in Kenya has only ever worked at half capacity because it was built, against all advice, on a drought-prone river.

Corruption also leads to projects that, like KAFCO, benefit the companies involved at the expense of the countries concerned. In the energy sector there are numerous instances of contracts awarded in dubious circumstances that locked governments and poor consumers into paying excessive rates for electricity.

Corruption increases the debt burden of poor countries. Most projects in the global South are financed by loans from institutions like the World Bank or the export credit agencies of Western countries. When projects go wrong, the Third World country still has to cough up, whatever the circumstances in which the contract was awarded. Bribery, it appears, is essentially a tax on development – a tax ultimately paid for by the people who can least afford it.

Susan Hawley is a UK-based journalist.

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