The 2016 ASEAN Business Outlook Survey offers a fascinating insight into the hopes, fears and commercial aspirations of international companies operating in South-east Asia, one of few regions where economic growth is expected to remain relatively brisk in 2016.

The survey, conducted by AmCham Singapore and the US Chamber of Commerce with analytical support from Control Risks, received responses from 471 AmCham member companies in all ten ASEAN countries, making it possible to draw out broad regional comparisons.

Two points stand out. First, respondents express continuing concern about corruption as a “hindrance to business” across the region. Secondly, though, there is a broad sense of optimism about the prospects for commercial expansion. If these expansion plans are going to succeed, companies need to take a nuanced approach to corruption risk, taking account both of location and of the kinds of demand they are likely to face.

Widespread concerns about corruption…

The responses to a question about satisfaction levels with “lack of corruption” point to a clear regional divide: Singapore andBrunei versus the rest.

"Satisfied" or "Extremely Satisfied" with lack of corruption in Respondent's ASEAN Country

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The surprising feature of the findings is not so much that frontier economies such as Cambodia and Laos perform poorly, but rather that there is little differentiation between them and more advanced developing economies such as Malaysia, thePhilippines and Thailand.  Part of the reason is that all these countries have been plagued by a series of high profile political scandals, notably including Malaysia’s current 1MDB case. The fact that these scandals are widely reported may be seen as a sign of progress. However, failure to address deep-seated institutional weaknesses gives rise to a sense of pessimism.

The same point applies to Indonesia where the Anti-Corruption Commission (KPK), the country’s lead anti-graft agency, has made considerable progress in tackling a number of high-profile cases. Currently, though, there are widespread concerns about the extent to which the KPK still has access to the resources and political support that it needs. In Vietnam, anti-corruption has a clear place on the political agenda, but there are major challenges in practice.  As for Myanmar, the country’s still unfinished political transition gives rise to a degree of optimism, but the country still at the beginning of a lengthy process of legal and judicial reform.

…but optimism about growth

Despite these concerns, the survey points to a broad sense of commercial optimism: 74% of the companies surveyed expect to expand their regional operations in the coming year. Even more strikingly, IndonesiaMyanmar and Vietnam – the three countries slated for the highest corruption risks—also rank as the countries with the most attractive prospects for US commercial expansion.

Into which ASEAN country or countries, if any, does your company plan to expand?

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So does this mean that investors don’t really care about corruption?  In Control Risks’ view, the answer is more nuanced. It is true that corruption risks are only one factor that decision-makers take into account. However, the answers to a further set of survey questions show that it is still a major one.

Demands for bribes in public and private contracts

A question about demands for bribes in public and private sector contracts elicits a broad set of responses. In Laos 61.5% of respondents cite pressure to pay bribes in government contracts as a “serious hindrance”, followed by 50% in the Philippines and 44% in Cambodia.

"Serious Hindrance" to Business from Pressure to Bribe Public/Private Sector Clients for Contracts

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Singapore falls near the bottom of the table but, given the country’s tightly regulated economy, it is still a surprise to find that as many as 17.1% of respondents regard pressure to pay bribes for public sector contracts as a serious hindrance, while 17.9% say the same for the private sector. Singapore is well known as a regional hub, and it is likely that these respondents are thinking of their wider exposure across South-east Asia, and not simply about their operations within the country.

In all countries except Singapore, public sector bribery ranks as a greater concern than private sector graft. The US Foreign Corrupt Practices Act (FCPA) focuses specifically on bribes to government officials, and this may be one reason for the emphasis on public sector bribery. Nevertheless, the UK Bribery Act makes no distinction between public and private corruption.

In Control Risks’ experience of working with clients in South-east Asia, there is no reason to think that private sector bribery – for example demands for kickbacks from company purchasing officers – is any less frequent than official corruption. In our view, companies need to send a consistent message: all forms of bribery are unacceptable.

Demands for bribes for essential and routine government services

The final question concerns pressure to bribe officials for essential licenses and permits, and for routine services such as applications for visas and utility connections.

Laos and Cambodia come top of the list of countries where pressure to pay bribes for essential or routine government services is seen as a “serious hindrance” to business. This is perhaps to be expected given that officials in both countries are notoriously underpaid. However, similar problems apply to a lesser extent elsewhere in the region.

"Serious Hindrance" to Business from Pressure to Bribe Officials for Essential/Routine Services

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In the recent past, many international companies have accepted so-called “facilitation payments” to speed up routine governmental services as an inescapable cost of doing business. Such views are now much less likely to be considered acceptable.

It is true that FCPA excludes payments to speed up “routine governmental services” from its definition of the criminal offence of foreign bribery. However, the UK Bribery Act makes no such distinction, and more and more international companies—including US-based firms—forbid all kinds of bribery, regardless of the FCPA exception. Demands for smaller ‘operational’ bribes to officials are therefore rising up the compliance agenda.

This is particularly true of South-east Asia. If companies are to take effective action against demands for routine bribes, they need to map out the pattern of demands, and assess the impact on their business of refusal to pay. In the short term, these impacts may include significant delays. This is by no means a reason to hold back on business expansion in the region: it is a reason to take the time to do things properly.