Businesses in dilemma over corruption in African ports

Businesses engaged in transporting maritime cargo in Africa are often caught between the mill and the millstone. Clearance periods at African ports are already some of the slowest in the world; add to this widespread corruption and the whole process can become a nightmare. If companies pay ‘facilitation’ fees to speed up the process, they risk large fines; if they don’t, they have to pay demurrage penalties. What should companies do? Report by Control Risks’ Corporate Investigations Senior Consultant, Jonathan Bray.

The rapid rise in shipping container traffic in sub-Saharan Africa over the past two decades underlines the lucrative opportunities for businesses on the continent. However, this development also exposes companies to risks of corruption as they expand deeper into emerging markets.

Serious bottlenecks caused by poor infrastructure and lack of capacity, combined with widespread corruption in the customs administration at many ports are major issues for businesses transporting maritime cargo. In parallel, anti-corruption enforcement has recently shown greater focus on small and operational bribes. This creates significant dilemmas for businesses transporting maritime cargo in Africa. While it is increasingly hazardous to pay operational bribes, failure to make such payments can lead to significant and costly delays in navigating standard port and customs procedures. Addressing the issue of corruption through a customs compliance strategy has become of integral importance for businesses transporting maritime cargo in Africa.

Maritime trade has grown markedly in Africa since the 1990s. West Africa has seen the greatest increase in shipping container traffic: a 364% rise from 1995 to 2005. This increase has led to significant port congestion and long waiting times at African ports.

A 2012 World Bank study found that, with the exception of Durban, cargo spent an average of 20 days in African ports, compared with three to four days in most other international ports.

The most commonly cited reasons for bottlenecks at African ports are lack of capacity; outdated and inefficient port infrastructure; administrative blockages; and corruption in port and customs authorities.

Many countries in sub-Saharan Africa are starting to seriously address the infrastructural and institutional deficiencies within the ports sector, in line with growing awareness of the importance of facilitating trade.

Institutional reform of the ports sector, spearheaded particularly in Nigeria, has led to increasing use of the ‘landlord’ model of port management, which is widely regarded as the preferred institutional set-up for the sector. Under this model, the public-sector withdraws from cargo-handling operations, allowing these to be concessioned to the private sector.

In line with these changes, many customs administrations are in the process of being reformed, with systems becoming increasingly automated and some functions subcontracted to the private sector. This has brought significant improvements in operational
efficiency at certain ports.

The automation of customs administration and introduction of a ‘one-stop shop’ for clearance procedures at Douala port in Cameroon led to a reduction of average customs clearance time from almost 15 days in 2000 to just over three days in 2009, according to a 2011 World Bank working paper.

Institutional reforms, particularly combined with increased levels of automation, have had the further effect of reducing opportunities for corrupt officials to demand bribes.

The importance of automation in the context of bribery and corruption was illustrated in an investigation into bribes paid at the ports of Durban in South Africa and Maputo in Mozambique (On the Waterfront: An Empirical Study of Corruption in Ports by Sandra Sequeira and Simeon Djankov, December 2008).

The study highlighted the degree to which the level of automation had an inverse correlation with propensity to demand bribes. In Maputo, 80% of bribes were paid to customs rather than port authorities. The customs service in Mozambique is an arm of government and its processes lack automation, in contrast with the privately managed port. The situation in Durban is reversed, with customs authorities run by an independent regulator that has implemented a high level of automation.

Yet despite some progress, where opportunities exist for individual customs or port officers to solicit unofficial payments and while low salaries create an incentive, the risk of receiving demands for operational bribes to complete standard ports and customs procedures is likely to remain significant. This is reflected in surveys of business leaders.

An April 2013 survey of international business attitudes to corruption conducted by Control Risks and the Economist Intelligence Unit found that demands for operational bribes or facilitation payments to have customs agencies process goods were a significant concern for a large proportion of business leaders.