14 March 2016

East Africa: Traders Welcome New EAC 'Business Code of Conduct'

Business operators in the East African Community (EAC) are optimistic that the Code of Conduct for Business in the region, endorsed by regional leaders recently, will go a long way in curbing corruption and unethical business behaviour that remain serious constraints to economic development of the bloc.

Denis Karera, chairperson the East African Business Council (EABC), the apex body of the private sector in the bloc, last week told reporters that the code of conduct was intended to create a sense of ethical business operations "among us business operators" in the region.

Karera said: "The code of conduct was necessary because we do business in very unethical ways."

"We agreed that corruption was a present danger, keeping lots of people outside jobs, key tenders ... people lose not because they have lost but because they have not carried an envelope for the powers that be."

The code does not replace, but complements, individual company's codes of ethics and other existing national and international level codes. It is a company management's responsibility to ensure that employees understand and comply with the code.

By committing to the code, business operators in the region pledge to treat their stakeholders with respect, to run their businesses responsibly, act in compliance with applicable laws and regulations, and to be actively involved in promoting integrity and preventing corruption.

"We demonstrate our commitment by creating policies, procedures and structures to implement the values and obligations of this code in our companies, and by reporting annually on our implementation of this code," reads part of the code.

Patrick Buchana, the chief executive of local technology company, AC Group Ltd, said the code will create a sense of organisation and structure that is transparent, easy to follow and create room for integration of projects.

"Continuity and expansion of business is highly based on trust and like mindedness. It is easier to invest one's money in a market where they know and trust the ethics and integrity of the business and institutions of that economy," said Buchana.

The EAC leaders' endorsement of the Business Code of Conduct at the just concluded summit in Tanzania came after a report of the "baseline assessment and risk mapping of unethical business conduct in the Community" that was concluded by the EABC.

Study toward the code

Lilian Awinja, the acting EABC executive director, said the business ethics study was conducted by EABC in 2014 at the beginning of the development of the code.

"The study findings informed the development of the code and the interviews formed the beginning of consultations toward development of the code," Awinja said.

The report states that codes of conduct are recognised as an important component of self-regulation and notes that while they cannot make people or companies ethical, they act as a guide for users and provide a point of reference on how to navigate certain situations.

The report, which, among others, sheds light on the extent of unethical business behaviour, ethics management initiatives, and factors that contributed to unethical business practices, also points out that "bribery to access a service, to avoid a regulation and to win a tender was identified as the most problematic factor in doing business in the private sector by chief executive officers, associations and employees with associations describing it as a big problem, while chief executive officers described it as an average problem."

The most prevalent unethical business practices identified by chief executive officers were counterfeiting, parallel imports, bribery - to access a government service and to win a tender -, and embezzlement.

"At least 20 per cent of the chief executives had experienced the above practices within the past year," reads the report.

The survey used non-probability sampling, targeting 100 companies in Kenya, Uganda and Tanzania; and 50 in Rwanda and Burundi in order to get a significant number of responses.

It is estimated that corruption adds up to 10 per cent to the total cost of doing business globally, and up to 25 per cent to the cost of procurement contracts in developing countries.

A survey in 2011 by audit and tax services firm KPMG found that 28 per cent of 214 executives surveyed opted not to do business in a country due to bribery and corruption.

The report states that it has generally been believed that the private sector has been a victim of corruption and, "focus is now shifting" to the private sector as the supplier of corruption.

Furthermore, with cases of counterfeiting and pirating reportedly on the increase in the EAC, Kenya Revenue Authority estimates previously indicated that counterfeiting costs the Government of Kenya about $84 million in lost revenue annually.

The Confederation of Tanzania Industries once estimated that the Tanzanian government lost between 15 and 25 per cent of total domestic revenue annually, and between $343 million and $566 million annually in tax evasion related to counterfeits and substandard goods.

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