Remarks by MEC Committee Chair Mr. Matthew Murray at the EU Anti-Corruption Conference

Matthew 1April 24, 2018, Kabul, Afghanistan: 
It is my honor to participate on this Panel today as the Chairman of the MEC and to join this esteemed audience and group of experts for the fourth annual EU conference on corruption in Afghanistan.

On behalf of the MEC, let me extend my sincere thanks to the President of Afghanistan, His Excellency Ashraf Ghani, for hosting this conference. I had the honor of participating in President Ghani’s National Procurement Council meeting on April 21 and it was a privilege to watch the President in action. So let me thank him for setting the highest tone from the very top as President of Afghanistan -- for his values, vision, and skill a one of the world’s most active anti-corruption leaders.

Let me also thank the EU Ambassador Pierre Mayaudon for hosting this important conference and for his personal commitment to bring all stakeholders together today to make sure that we are collaborating, cooperating and leveraging the tools, skills, values and commitments that we share.

The subject of our Panel today – Anti-Corruption and the Private Sector – could not be more timely, nor more challenging. We all agree -- for Afghanistan to realize its goal of economic growth and sovereignty, political stability and peace, it must build an economy that is transparent driven by an independent private sector and based on a rule of law.

At the MEC our mission is to recommend, monitor and evaluate anti-corruption reforms – and we measure our success in part by how the MEC can play its role in economic reform, progress and growth. Corruption interrupts market mechanisms and results in economic loss through inefficiency and misallocation of resources. Corruption creates administrative barriers and imposes high “transaction costs” on business. It deters both local and foreign investment.

MEC’s Engagement

MEC is mandated by Presidential Decree 115 to independently monitor and evaluate the anti-corruption goals and programs of the Afghan Government and the International Donor Community. As an independent institution, we play a pivotal role in Afghanistan’s new National Anti-Corruption Strategy.

As part of this mission, we seek to help the government build institutions of good governance. We seek to help the people of Afghanistan gain increased access to jobs and economic opportunity for entrepreneurs, for small business, for large companies. We seek to help reduce corruption risk with the goal of increasing foreign direct investment.

How? We perform this role strategically – by strengthening the linkage between anti-corruption and pro-business reforms.

Let me give you some concrete examples of how the MEC seeks to achieve these objectives, how we see the linkage between anti-corruption and economic growth, and how we seek to strengthen this linkage:

Helping to Remove Bad Actors from the Health Sector

First, MEC has supported the Ministry of Public Health’s objectives to impose standards for managing quality. MEC has supported the Afghan National Medicines and Health Products Regulatory Authority to revise the National Medicines Law and Health Products Regulations. These legal changes have reduced Afghanistan's overall exposure to fraudulent pharmaceuticals. In 2017 and 2018, over 800 importation firms were declared illegal by MoPH and their licenses for importation were cancelled.

Public Procurement as an Means to Increase Business Competition

Second, MEC also supports the work of the National Procurement Authority and will soon conduct an assessment of the public procurement regime. In Afghanistan, government procurement is an important part of the economy and accounts for 19% of GDP and almost 50% of the national budget.

Under the leadership of President Ghani, the NPA has done extensive work to create a state of the art system for fair, competitive and transparent bidding. They have increased the number of companies that win contracts from the Government. Our focus will be to help the NPA assess how the biding and contracting requirements of the public sector can be designed to promote additional market entries by new businesses and entrepreneurs. New businesses mean more competition and that means productivity and efficiency, jobs and growth.

Tackling Systemic Corruption in the Mining Sector

Third, MEC is currently conducting a large vulnerability to corruption assessment of the mining sector in Afghanistan. Afghanistan is rich with natural resources and there lies huge potential for economic growth. Afghanistan’s mineral resources are estimated between USD one trillion - USD 3trillion, based on several geological assessments. We also know that the potential for fraud and embezzlement is very high in that sector. The Government of Afghanistan and other independent sources have reported that there are approximately 1200 – 1400 illegal mines in the country. The loss in revenue for the Government is estimated in the 100s of millions USD.

While security is one reason for the underdevelopment of the extractive sector, the weaknesses in the processes for gaining access to the resources is also an obstacle. These include: an unclear and weak contract awards process; inadequate bidding process; opaque and compromised contract negotiations; inappropriate contract content with unclear and inappropriate renewal; transfer and termination conditions as well as poor market conditions.

The MEC’s assessment will identify corruption risks along the entire Value Chain of the Extractive Sector (from the legal and institutional arrangements over the contracting and regulating practice to the collection and use to taxes and royalties). We believe that the Ministry of Mines and Petroleum will continue the cooperation and use our findings and launch the necessary reforms.

Engaging Government, Business and Civil Society in Multi-Stakeholder Initiatives

Finally, as one of our collaboration activities, last year we launched MEC’s Business Forum to which we invite investors and traders from different sectors. In our first session last October, we saw that the business community does acknowledge their contribution to the corruption phenomenon. However, they suffer from the “willful” lengthy administrative processes – the administrative barriers -- of the government and the bribes that are required in each step.

These barriers include process weaknesses that the MEC has identified in its prior assessments of the Ministry of Commerce and Industry and Ministry of Finance, including onerous registration procedures, tax clearance requirements, and customs clearance requirements. As a means of lowering these administrative barriers, MEC’s recommends centralizing the existing electronic registration systems of Finance Ministry’s Revenue Directorate (SIGTAS), the Customs (ASYCODA) with the Commerce Ministry’s license registry.

At the same time, business leaders themselves can play a vital role in the fight against corruption, but only if they recognize the license to operate in Afghanistan comes with the responsibility to put in place the necessary corporate social responsibility policies, programs and practices. The most effective way for the private sector to counter corruption in Afghanistan is to self-organize and self-regulate and use their market power to demand the reduction in administrative barriers.

For example, following the MEC’s recommendation, in October 2013, the Islamic Republic of Afghanistan formerly joined the international Infrastructure Transparency Initiative (CoST) program through Ministry of Economy. The COST Program aims to improve the value for money spent on public infrastructure by increasing transparency in the delivery of public sector construction projects. Core to this aim is disclosing infrastructure projects information into the public domain. The CoST Disclosure Process requires procuring entities to ensure that information about the purpose, scope, costs and execution of publicly-financed construction projects is open and accessible to the public, and that it is disclosed in a timely manner.

Ultimately, to strengthen the linkage between anti-corruption and pro-business reforms, government, business and civil society can and must work together to increase transparency is by adopting norms and rules on a voluntary basis.