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Corrosive Capital

Opaque capital flows lacking market orientation with motives to exploit governance gaps to influence economic, political, and social developments in recipient countries.

CIPE Objective

To mitigate Corrosive Capital’s effects on democratic governance and human rights by mapping foreign investment activities and identifying key characteristics of investment to design programs that increase global awareness, strengthen democratic institutions, safeguard citizens’ interests, and ensure a fair playing field for all businesses.

Brief History

Historically, Corrosive Capital flows have stemmed from authoritarian regimes and are inextricably linked to adverse governance outcomes in recipient countries. Corrosive Capital infiltrates vulnerable democracies with the goals of inciting debt dependencies, achieving underlying political motives, and yielding negative impacts on local communities and private sectors. These flows enter recipient countries via opaque legal structures and are safeguarded by corruption and cronyism. As a result, recipient countries frequently fall into economic coercion and political manipulation, and private sectors become less secure and more volatile. Over time, Corrosive Capital begets more Corrosive Capital and crowds out Constructive Capital, leaving recipient countries exposed to the subversion of their interests.

Public and private sectors can work together to identify and neutralize Corrosive Capital flows by following recommendations made by CIPE and its regional partners. These recommendations include:

  • Ensuring public procurement and bidding processes are competitive and publicly transparent
  • Mandating frequent audits of significant-size projects with public funding
  • Instilling measures in place to ensure greater oversight of government-linked companies (GLC)
  • Passing legislation requiring firms to abide by Organization for Economic Cooperation and Development (OECD) guidelines on export credit assistance

Indicators

  • Lack of transparency and accountability
  • Terms yielding adverse impacts on local business communities
  • Contracts awarded without public tender or competitive bidding
  • Contracts that do not meet local environmental standards and cause ecological damage
  • Contracts involve actors who have previously engaged in corruption
  • Projects that contribute to democratic backsliding over time