Jacobo García
Senior Specialist on Integrity and Procurement Policies at the OECD
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Insight

Corporate Governance to Remove the Elephant in the Room

Thu, 11/01/2018 - 12:27

The infrastructure industry is particularly vulnerable to risks resulting from lack of transparency and should employ mitigation strategies, says Jacobo García, Senior Specialist on Integrity and Procurement Policies at the OECD. “Everything that deals with public contracts, such as public works or service procurement, is highly susceptible to lack of transparency through all phases of a project,” he says. “Each phase has its particular risks and the OECD suggests the application of risk-mitigation techniques. There has been a slight improvement in Mexico but there is still plenty to do.”
According to the Global Infrastructure Anti-Corruption Center, the industry’s uniqueness, complexity in transaction chains, concealed work, official bureaucracy and large investments make the infrastructure industry particularly prone to corruption and unethical actions. In Mexico, the 2016-2017 WEF Global Competitiveness study indicates that institutional issues continue to delay the country’s development. Diversion of public funds, inefficient government spending, preferential treatment in official government decisions, and the unethical behavior of some firms pushed Mexico’s competitiveness to 123 of 137 in the study. It also estimates that 10-30 percent of the value of construction is lost through corruption, making the construction sector the most vulnerable in the economy.
The OECD recommends that pre- and post-tender phases be transparent since these stages usually do not follow the same strict guidelines as the tender phases. “The chaos between different levels of government often experienced in the planning stages demonstrates why transparency is important at this stage,” García says. “An example of that is the famous sinkhole on the Cuernavaca Expressway, where there was a lack of clarity as to which level of government the project fell under. We see a great weakness in the management of infrastructure at a state and local level and we believe that a good place to start is by strengthening the execution power of these institutions.”
As a way to improve communication between government agencies, it is necessary to stop working on paper and digitalize processes. CompraNet for instance is not connected to the federal budget databases. The government is working to link the systems but at a state level all these processes tend to be done on paper. “Public procurement should be seen as a strategic process that not only boosts development but develops value chains and supports SMEs. It is far more than just an administrative task,” says García.
Infrastructure projects become even more vulnerable during election years, when their continuity is at risk. García believes that continuity directly correlates to governance and long-term planning. A project that has been in the headlines, with question marks hanging over its future, is NAIM. The OECD sees a halt to the project as highly unlikely given the advanced stage it is in but García says it is important to guarantee that the projects are managed professionally.
The OECD has worked alongside GACM since the planning stages of NAIM, drafting three reports on its governance and integrity. García says that it is the only project in Mexico of that magnitude that completely follows open-data standards. “Some risks we have identified deal with the corporate governance of GACM itself as it operates more as a public entity and not a corporation,” he explains. “This opens it up to political turbulence and I believe this must be kept as separate as possible.” GACM has incorporated four independent members to its board, as well as an ethics committee and codes of conduct, and it is working with the companies that are participating in the project to ensure they adopt these standards and practices.
Many believe this kind of oversight is extremely costly, but García says that, rather than being expensive, these types of initiatives require great commitment. Although GACM’s organic structure is limited, making it far more complicated, the will is there, according to García. “The cost of not implementing transparency measures is much higher, since projects could be jeopardized by corruption, scandals and a loss of credibility,” he says.