Tag Archives: Wall Street Journal

Superficial Journalism and Government Corruption in Developing Countries

Doug Hadden, VP Products

 Yet another story about corruption in Africa, this time from The Daily Telegraph [Wikileaks cables: millions in overseas aid to Africa was embezzled]. It’s no wonder, as Owen Barder has pointed out: “many people are worried that aid ends up in the Swiss bank accounts of despots and dictators, or of corrupt consulting and construction firms.”

Perhaps Wikileaks has not exposed the millions in overseas aid to Africa that was not embezzled. Or, more importantly, the millions that were wasted because of high transaction costs and lack of coordination among donors and recipient countries.

I’ve written before about the narrative that permiates the Western press: developing countries are corrupt, therefore, deserve to be under-developed. The current story describes corruption in Sierra Leone while the previous blog post was about a Wall Street Journal investigation in Afghanistan. Both stories missed the point.

Direct Budgetary Support and Corruption

The Paris Declaration and Accra Agenda for Action are designed to improve development outcomes. One of the commitments by donors or International Financial Institutions (IFIs) is to use “country systems“. This means that the majority of donor funding should be funnelled through the country Integrated Financial Management Information Systems (IFMIS). (Yes, the IFMIS is FreeBalance in Sierra Leone and Afghanistan). As Richard Allen has pointed out, many donors are concerned that the IFMIS could be used for corrupt purposes. Yes, as Steven Symansky pointed out, the financial system in Afghanistan has eliminated the opportunity for corruption. That’s because transactions are auditable. There are automated controls. Electronic funds transfer and secure cheque printing can be used to eliminate cash.

This story is more evidence that large-scale corruption occurs outside the financial system.

Direct Budgetary Support and Effectiveness

Corruption reduces the funds available for development. Lack of coordination and administrative costs also reduce aid effectiveness.

Administrative or transaction costs are introduced when there are many donors supporting many projects. Donors require accountability. So, government agencies receiving “off-budget” funds or organizations executing projects outside of the government need to generate frequent reports. In different formats. On different fiscal periods. This decreases the funds available for development.

Multiple donor projects reduces efficiency. Governments cannot effectively plan and coordinate budgets with donors when the information is not available. Countries end up with 2 schools where only 1 is needed. Or a bridge without a road. Or schools without teachers. Donors can often work at cross-puposes.

What the Media Needs to Do

Billions of dollars flying out of Afghanistan. Government ministers buying plasma televisions. Swiss bank accounts. It all makes for sensational headlines.

Where are the stories about what works? Where are the stories on the International Aid Transparency Initiative? [Google News results = 0] Aid effectiveness? [Google News results = 42]. No problem finding stories on corruption in Afghanistan [Google News results = about 2000]. corruption in Africa [Google News results = about 4061].

What about successes to date? For example how Afghanistan, Liberia and Mongolia have improved budget transparency. The media needs to benchmark corruption and development – not with developed countries of today – with developed countries when at the same stage of development. Such as comparing corruption, legal systems, regulations, development in Russia today with the United States in the 1920s.




Afghanistan Successful Financial Management System

Good News about Good Governance in Afghanistan

Doug Hadden, VP Product

AfghanistanI took exception to the sensational reporting on government corruption in Afghanistan last week.  The  Wall Street Journal broke a story about the sacks of money leaving Afghanistan in aircraft.  Predictable moral indignation and blaming the Government of Afghanistan ensued. Yet, none of these funds seemed come on-budget through the government financial system. (That’s the kind of subtle fact that interfers with the media narrative). Just yesterday, the IMF PFM blog  posted a report about the success of the government financial mangaement system! I wonder whether this will be analyzed on cable news channels.

The article describes the successful sequencing of the Afghanistan Financial Management Information System (AFMIS) by the Government.  The system was recently completed the roll-out to all provinces or mustafiats. All national line ministries are also integrated. This means that 100% of all on-budget funds will operate through AFMIS. And, this was accomplished by the Government under difficult circumstances. The IMF article provides good insight into lessons learned, especially in sequencing PFM reform.

Of course, one factor for the success of AFMIS is that it is the FreeBalance Accountability Suite. Government Resource Planning (GRP) systems enable PFM reform. But, reform is the responsibility of the government. There are some factors of why the FreeBalance Accountability Suite enabled reform in Afghanistan – rather than inhibiting reform – one of the problems in the public sector worldwide:

  • Support of simple configurations that can be progressively activated over time to support reform and increased capacity
  • Vendor commitment to add features and use SWAT teams when problems occur – which happened
  • No customization by the client necessary to make systems easier to manage and sustain
  • Experience in similar circumstances built into the software

It is now time to stop blaming the victim for off-budget corruption. It’s also time to recognize the Government of Afghanistan for successes.

Social Responsibility is not about Exploiting an Untapped Market

Cognitive dissonance this morning: it seems that the Wall Street Journal has fallen behind Business World Philippines in understanding Corporate Social Responsibility (CSR).  The Wall Street Journal Monday editoin provided a thought piece on “selling to poor consumers“. Dr. Erik Simanis, a senior researcher at the Center for Sustainable Global Enterprise at Cornell University Johnson School of Management, began his article with:

Around the world, four billion people live in poverty. And Western companies are struggling to turn them into customers.

Meanwhile, one of the CSR RSS feeds we use at FreeBalance for Google News included articles from these so-called emerging nations.  It seems like companies in the West are trying to create markets rather than address social problems.  Examples from Google News included:

To be fair to Dr. Simanis, his case studies are for products that are socially responsible.  Perhaps the article was designed to appeal to CSR skeptics. As we suggested in our previous blog post, it seems odd that social responsibility needs to be justified in so many businesses.

Nevertheless, it should be crystal clear. One should not create markets in order to separate poor people from their money.  If there is a need, then there should be a business model that enables overcoming this social problem at the lowest net cost to poor people. As Dr. Simanis points out, companies should modify products to best meet customer needs.

On the other hand, “to change people’s mind set and behavior”, can be ethically problematic. For example, replacing locally grown food or manufactured products can have dire economic consequences.

We’ve found that there is a need to adapt to the local environment. Our products have changed to meet the needs of emerging economies. The business model has changed to support more local employment and improved civil service capacity.  We partner with local companies and encourage these organizations to take a larger services footprint in order to make our Government Resource Planning (GRP) solutions sustainable.