China and India in Africa: Implications of New Private Sector Actors on Bribe Paying Incidence

By Sankalp Gowda
The Developing Economist
2015, Vol. 2 No. 1 | pg. 3/3 |

VII. Conclusion and Policy Implications

The rise of India and China as global powers has changed the status quo in the private sectors of several key African economies. The Western response has been acute and critical; Secretary Clinton's stark words in 2012 leave no confusion surrounding the West's protectionist not to be confused for altruistic attitude. However, despite the West's preferences, the sheer volume and trends in Indian and Chinese trade and investment in the continent show that they will remain major actors in the region for the foreseeable future. A 2014 report by McKinsey & Company predicts that Africa will become the fastest growing region in the next few decades and shows that Indian and Chinese involvement will be instrumental in leading that growth.

That said, Western concerns that imported Indian and Chinese management techniques will weaken governance are not entirely off the mark. Anecdotal evidence presented in this paper shows that even the "cleanest" Indian and Chinese firms have been caught up in corruption allegations at home, if not in Africa. Although these cases are far more common for large Chinese state owned enterprises with fewer accountability and transparency checks, Indian firms have had their own issues in recent years. However, it is important to remember that despite Western anti-corruption legislation, Western firms have also been found guilty of their own share of questionable deals in Africa. Legislation or not, bribe paying (and taking) remains a part of the business environment in virtually every African country. The empirical results support the idea that corruption is primarily driven by demand-side institutional factors that are met by supply-side firm practices.

The surprising finding that firms in countries with heavy Indian and Chinese involvement are 30% less likely to pay a bribe is, however, promising preliminary evidence that these new actors are not worsening the situation. Contrary to Western claims of a "race to the bottom" scenario, this might actually indicate an opposite trend in which an increased supply of investment funds gives African governments more bargaining power to strike better deals with more responsible corporate actors. Understandably, this process also creates greater opportunities for bribe taking, and anti-corruption efforts will need to continue at the country level.

Notably, these results include the caveat that the Enterprise Surveys do not include data from firms operating in extractive industries, where much of the criticism regarding the corrupt practices of Indian and Chinese firms has been focused. Functionally, this means that the findings of this paper could be skewed toward a more favorable representation of Indian and Chinese involvement on the African continent. However, as I note in the literature review, firms operating in these extractive industries have increasingly become the minority among Indian and Chinese companies interested in doing business in Africa. As business opportunities become more widespread in a larger variety of industries, the trends highlighted by this paper will likely become even more relevant.

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Additionally, efforts to promote strong corporate governance should be undertaken at the firm level in order to solve the collective action problem of ending corruption in the private sector. Because refusing to pay a bribe can put a firm at a disadvantage to a direct competitor, it is difficult to convince its managers to maintain their anti-corruption position. Coordinated efforts like the UN Global Compact (which includes several Indian and Chinese firms) and the IFC's Africa Corporate Governance Network represent promising first steps and should continue to be supported (United Nations, 2010; IFC, 2013).

As the Indian and Chinese presence in Africa continues to grow, there is room for further research regarding its impact on governance and corruption. The World Bank Enterprise Surveys have provided a good starting point, but a more detailed firm level dataset will be required to draw convincing conclusions in one direction or the other. Too much emphasis has been placed on the new East-West rivalry in Africa and the discussion has been colored by platitudes rather than by hard empirical evidence. However, as this data becomes increasingly available, firms whether Indian, Chinese, European, or American and African government officials alike will hopefully be held more accountable for positive governance outcomes.

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Appendix

Table 1: Correlation matrix of all independent variables considered for the empirical model specifications

Table 2: Parameter estimates from the probit regression [Dependent Variable = BD]

1 2 3
 

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