Banking on transparency

Lebanon’s ranking in the 2003 Corruption Perception Index of international watchdog organization, Transparency International (TI) was poor. Receiving a rating of 3.0 on a scale ranging from 0 (totally rotten) to 10 (impeccably clean), Lebanon ranked 78th for perceived levels of corruption in 133 countries. However, it did rank significantly higher than the dirty dozen of nations that earned less than two on the scale. According to TI founder and chairman, Peter Eigen, the ranking puts Lebanon on the borderline of highly corrupt countries, and in middle of the pack of the world’s less affluent countries which are all cursed with the affliction. “Five out of ten developing countries score less than 3 out of 10, indicating a high level of corruption,” Eigen said at the release of the 2003 CPI on October 7.

To Mohammed Matar, president of Lebanese TI affiliate La Fasad, the outcome of the poll is useful as a wakeup call. “Having countries such as Syria come out ahead of them will be shocking to the Lebanese,” he said. But he also cautioned that the CPI represents perception levels, not an actual base of statistical evidence on corruption, leaving Lebanese civil society, “to reach our own evaluation of the results.”

Lebanon’s relatively low regional ranking may be less disturbing than at first appears.. The point is technical in nature but as the CPI ranks countries based on a compilation of several indices, each rating reflects a larger or lesser span of divergence. Lebanon’s high-low rating discrepancy is less than those of these neighbors (2.1 to 3.6 for Lebanon, versus 1.8 to 5.3 and 2.0 to 5.0 for Egypt and Syria). In a nutshell, the rating for Lebanon may reflect the actual perception of the polled rather accurately whereas the wider discrepancies between surveys for other countries in the region could be indicative of tendencies to project a positive image against more accurate knowledge. Could this, however, be an excuse for turning a blind eye to the immense threat of corruption? Even as companies here are weary of the damages that a low reputation of Lebanon could cause for their chances to win international clients and investors, they do not actively pursue an anti-corruption stance. What fetters the corruption resistance of companies is the perception that the advantages of paying bribes and swimming with the flow of corruption outweigh the benefits of fighting it. But that, say advocates of transparency and good governance, is the fundamentally wrong idea. Patterns of corrupt dealings divert the power of trust in relationships into a closed system where the first order is self-enrichment at total disregard of greater structures. As such, corruption is based in an amoral attitude of egotism that refuses to take others into consideration or strive for success based on real achievements. This is bad for both company and economy. The latest business wisdom therefore teaches that a base of trust founded upon transparency enables players to achieve mutually beneficial relationships that are profitable in the larger frame of providing added value to market and society.

Not the least factor to drive home the lesson how detrimental corruption is for business was the wave of American corporate accounting and ethics violations that ruined once mighty companies and decimated US stock values over the past few years. Comparing the impact of the 9-11 disaster on the financial world with that of the scandals at Enron, WorldCom, Tyco, Arthur Andersen et al, purely on economic grounds, there is no doubt what impacted most on the US stock market.

All these developments, the scores of company breakdowns and prison sentences handed out to executives found guilty of corruption in the US and elsewhere notwithstanding, when it comes to instigating real changes in business practices, making more money by doing it cleanly could be the biggest motivator. Small and medium enterprises – ie, the overwhelming majority of Lebanese companies – could dramatically improve their funding and profit prospects through greater financial transparency. This proactive message fits well with aims for reducing corruption in the business community, and it has recently been pushed by a coalition ranging from the Association of Lebanese Industrialists and the Kafalat loan guarantee corporation to the Lebanese American University. Small and medium sized, family-owned businesses are vulnerable to corruption, especially if they succumb to shortsighted views on reducing their tax dues by underreporting financial results or mixing company and personal funds, thus opening the way for abusing corporate money for private pleasure, said Josianne Fahed-Sreih, assistant professor at LAU and head of the university’s Institute for Family and Entrepreneurial Business. Family-owned businesses in Lebanon are still lagging on issues of transparency and disclosure and should create structures that fit the requirements for long-term success of good governance for both family and business, she told EXECUTIVE last month during a conference organized at LAU. “Organizations have first to institute rules on the side of the business, but they also have to do so on the side of the family, differentiating between the two.”

At the core of this new initiative promoting financial transparency to Lebanese enterprises is a brochure explaining the pathways by which an SME can acquire funding if it meets the requirements of good governance and accountability.

“In a mathematical equation, the financial benefits of transparency would far outweigh the financial benefits of underreporting. The issue is not preaching to them but highlighting the benefits of financial transparency and accessing varied sources of funding and attractive funding terms,” said George Azar, director of financial consulting firm GAConsult. “If Lebanese SMEs are looking for institutionalization and growth – which is a must for survival in the context of regional integration of the Middle East – it would be foolish not to lure those funds through good governance, cost efficiency and transparency.” Azar, whose firm produced the SME guidebook under a grant from the US Agency for International Development, USAID, noted throughout his career how local businesses encountered growth barriers because of transparency problems. “Companies have felt the pain of financing all their investment needs through debt,” he said. “I look at good governance, transparency and profitability as the three prerequisites for tapping into alternative sources of funding.”

The business sector on its own would nonetheless be overstretched in trying to clean up the national act. It is established that corruption and incompetence breed one another. Public sector implementation of administrative reforms and legislation of measures to support transparency and curb corruption thus are equally indispensable for advancing good governance on a national scale. But under consideration of the national experience in the last decade and in light of a recent World Bank analysis that diagnosed MENA countries with a significant deficiency in good governance, it is hardly surprising that Lebanese analysts and pro-transparency campaigners view civil society as offering better prospects as cornerstones in building transparency.

“Being ranked on the CPI might move businesses to do something more to improve transparency,” Matar said. “But I don’t expect much from the political elite.”

In context of building a wider culture of non-corruption, civil society could play an enormous role in combating the decay of ethics in public and private sectors, said transparency and accountability activist Randa Antoun. “It is a civil society responsibility to make things better. It is easy to complain and criticize; we think this is not good enough,” she told Executive. “We are fighting corruption indirectly, through good governance, by encouraging people to know their rights and supporting a higher role for civil society.”

Antoun, a professor of public administration at AUB, is involved in promoting civil society responsibility through the same US AID funded program that provided the grant for the SME financial transparency brochure. Under the name TAG (Transparency and Accountability Grants) and managed by US-based education and training organization Amideast, the initiative has financed numerous projects by Lebanese NGOs, including a regional study, executed by research firm Information International, that made Lebanon’s inclusion in the 2003 CPI possible. “We are trying to increase the abilities and capacities of local institutions to tackle these issues,” said Amideast Lebanon country director Barbara Batlouni. “We do not work with government departments as such but with NGOs that work with government departments.”

Many of the projects supported by Amideast with funding and advice since March 2001 have helped informing citizens about procedures in dealing with government institutions on all levels. In her quest for better governance, the presence of corruption in itself is not what worries Antoun the most. “The worst thing in Lebanon is that people now have reached a state of apathy in accepting corruption,” she said, diagnosing a sharp contrast to a past where the country and its people had been reputed for hard work and honesty. To Antoun, the years of internal conflict carry much of the blame in explaining the rupture in societal attitudes and spread of lassitude. “Never underestimate the impact of the war,” she said, confessing little hope that structural changes would begin to reduce the presence of corruption here unless the country’s international donors force changes upon the system.

But for a nation tempted to torment itself to death with lamentations over its countless problems, civil society’s interest in transparency and good governance is actually very strong. The NGO sector in Lebanon is dynamic and has much more leverage than in other countries of the region, Batlouni said. “Our assumption in this project is that the Lebanese are not corrupt by nature.”

This high interest in transparency grants is documented in the fact that Amideast in little over two years received 157 proposals for funding TAG projects, of which 59 were granted. Also from the side of donor, US AID, the high response rate drew a positive reaction. “Demand was high,” Antoun acknowledged. “Because of this demand, we were successful in that the program was extended twice.”

In these extensions, US AID raised the budget for the TAG program from an initial $500,000 for one year to $3 million and extending the duration until 2005. Interestingly enough, the entire initiative was ignited by the 1998 inaugural speech of Lebanon’s president, Emile Lahoud, whose strong verbal commitment to a fight against corruption motivated US AID to back and then launch the program.
 

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.

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