SA companies' greatest corruption risk is in government deals

Johannesburg - South African companies still see the greatest corruption risk in transactions associated with routine governmental transactions, according to an annual corruption survey by Control Risks, a global business risk consultancy.

This risk is seen as very high by 46% of respondents and high by 42% of respondents, according to the International attitudes to corruption survey.

Corruption risk is seen as a major cost to honest companies and corruption is killing deals. About 61% of South African companies indicated that they have already pulled out of a deal at least once due to the risk of corruption.

This was despite already having invested time and money. The global average in this regard is 41% and the average for African respondents 55%.

South African businesses indicated that they are in favour of strong anti-corruption laws. About 85% of respondents are of the opinion that these laws improve the business environment for everyone.

This is higher than the global average of 81%, which is a positive indicator of changing attitudes to corruption in SA, although Control Risks indicated that challenges still remain in SA.

About 55% of South African companies surveyed stated that they avoid certain countries if the corruption risk is perceived to be too high. This is one of the key findings of the annual survey. About 54% of South African companies have procedures in place for corruption risk assessment - the global average is 39% - and 57% have a standard procedure for integrity due diligence on business partners.

Corruption is still a major cost to international business, the survey showed. About 34% of respondents from Africa reported losing out on deals to corrupt competitors.

Corruption risks also continue to deter investors. About 30% of global respondents said they have decided not to conduct business in specific countries, because of the perceived risk of corruption.

The survey also suggested that companies are not setting the right incentives to deter corruption. Respondents cited the fear of negative consequences as the penalty used most commonly to deter corrupt behaviour.

Companies are now more willing to challenge when faced with suspected corruption. The survey showed that 39% of companies said they would complain to a contract awarder if they felt they had lost out due to corruption - this rate is 70% in South Africa. About 60% of respondents in South Africa also said they would try to gather evidence for legal action.

Companies indicated that international anti-corruption legislation is improving the business environment. Most respondents felt these laws made it easier for good companies to operate in high-risk markets (55%) and serve as a deterrent for corrupt competitors (63%). This was particularly true of companies in developing markets.

“Too many businesses are losing out on good opportunities to corrupt competitors, or choosing not to take a risk on an investment or entering a new market in the first place for fear of encountering corrupt practices," explained George Nicholls, senior managing director of Control Risks Southern Africa.

“Companies need to find a balance and spot the points of light in countries that may otherwise appear as no-go areas. Individual regions and businesses within them vary enormously and careful evaluation should be undertaken."

He added that the other concern raised is an overreliance on compliance.

"Often when organisations have comprehensive compliance processes in place, business leaders treat them as a safety net and don’t undertake independent reviews ruthlessly enough, or reward good behaviour and incentivise teams to prioritise ethical behaviour over financial performance,” said Nicholls.