Among the most important tasks for Latin America and the Caribbean is to achieve greater growth rates, and a fundamental part of this is investing in infrastructure. The most viable way to accomplish this investment is a significant increase in the number of public-private partnerships (PPPs), and this can only be happen if corruption is eradicated from public contracting.
Currently, around 2.5% of the region’s GDP is invested in infrastructure development. Overall, the region should invest at least twice as much, meaning there is a $150bn annual shortfall. This situation is the result of a long and unfavourable trend that began four decades ago. At the beginning of this period capital investment in public works represented around 29% of public spending, today it is only around 19%. To a great extent this drop in public investment reflects fiscal adjustments undertaken by countries to overcome economic crises. When it comes to cutting budgets, it is typically easier from a political standpoint to cancel or postpone infrastructure projects than it is to cut subsidies or reduce public employment.
In order to bridge the gap, many governments have, in recent years, implemented public-private alliances as catalysts for public works. Such models have helped channel billions of dollars towards projects in transport, energy and other sectors. Nevertheless, as irregularities in the issuance of contracts to large multinationals were exposed in a number of countries, this wave of PPPs has practically halted. Public outcry against corruption has pushed governments to keep their distance from such models, while private companies are very careful not to participate in public works bids that could jeopardise their reputation. This situation limits competitiveness and increases risk perception among investors.
It is a mistake to believe that corruption is an endemic cultural problem in the region. In fact, many regional states are strengthening their accountability and sanctions systems and creating strong disincentives. Indeed, the magnitude of recent corruption scandals reflects a historic improvement in the capacity and independence of the courts, who now do not hesitate to prosecute businessmen and legislators. Meanwhile, the digital revolution offers new tools to fight corruption, decreasing the opportunities in which public servants can request payments or favours in exchange for approving permits or processing technical dossiers. Technologies such as blockchain can prevent the adulteration of documents such as the ones used in import and export operations – which often occurs in ports and Customs offices. Digital tools can even be used to empower citizens, who perceive corruption as one of the main challenges.
When analysing corruption in public works, it becomes evident that innovative solutions are needed beyond official and civic control mechanisms. In recent years, collective action mechanisms have gained popularity. Under these, groups of companies or industries agree to adopt codes of conduct that publicly commit them to compete with one another in terms of transparency and probity. These mechanisms are widely used in both developed and developing countries, and they create incentives for companies to denounce corrupt public servants who can then be prosecuted. Furthermore, they help generate greater trust, not only among competitors but also in society at large.
Significantly, during the Summit of the Americas – that took place in Lima in April 2018 – several of the largest companies publicly positioned themselves in favour of integrity and against corruption. Their leaders made public commitments to not make illegal contributions to political campaigns, send gifts or grant favours to public officials, or pay to be awarded state contracts. While some might argue that such declarations are the minimum that any company should do to protect their prestige, the reality is that these type of commitments are unprecedented in the region. As more companies adhere to business ethics, our societies will become more open to public-private alliances. Only then will we be able to enhance investments in infrastructure.
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