IMF - Middle East Center for Economics and Finance and MENA-OECD Investment Programme INTEGRITY IN THE BUSINESS SECTOR Assessing Corruption Risks for Business Kuwait, 22 25 April 2013 Drago KOS
If we want to fight corruption (in the business sector).. we have to: - understand the problems, - identify and analyse their consequences, - identify countermeasures = prepare a strategy 2
How to find information on the extent of corruption? - National and international surveys - Interviews with experts and public - Different types of analyses - Comparisons with other countries/sectors - Other means 3
Transparency International CPI 4
Corruption-Free World? (by 63 199 respondents of TI in 2007) Political Parties Parliament/Legislature Police Business/Private Sector Legal System/Judiciary Tax Revenue Media Medical Service Utilities Education System Registry and Permit Service The Military Religious Bodies NGOs 0% 10% 20% 30% 40% 50% 60% 70% 80% % of respondents reporting the institutions to be corrupt 2004 2007 5
TI Global Corruption Barometer Transparency International s Global Corruption Barometer is the largest cross-country survey to collect the general public s views on, and experiences of, corruption. In 2010 and 2011 the Barometer interviewed more than 100,000 people in 100 countries on three questions: - In the past 3 years, how has the level of corruption in your country changed? - To what extent do you perceive the following institutions in your country to be affected by corruption? - How would you assessed your current government s action in the fight against corruption? Results: http://gcb.transparency.org/gcb201011/results/ 6
Corruption Index Extent of Corruption 0,80 0,70 0,60 0,50 0,40 0,30 0,20 0,10 0,00 OECD Southeast Asia Middle East and North Africa Central and Eastern Europe and the Baltics Latin America Sub-Saharan Africa South Asia CIS Source: Word Bank 7
TI Bribe Payers Index The Bribe Payers Index ranks world s largest economies according to the perceived likelihood of companies from these countries to pay bribes abroad. It is based on the views of business executives as captured by Transparency International s Bribe Payers Survey. 2011, countries: 1. Netherlands (8,8), 22. Saudi Arabia (7,4), 23. UAE (7,3), 28. Russian Federation (6,1) 2011, sectors: 1. Agriculture (7,1), 5. Banking and Finance (6,9), 10. Defence (6,6), 15. Mining (6,3), 16. Oil and gas (6,2), 17. Real estate (6,1), 17. Utilities (6,1), 19. Public works and construction (5,3) All results: http://bpi.transparency.org/bpi2011/results/ 8
World Bank Doing Business Indicators DBI* It measures the burden of selected business regulations ( ease of doing business ) in 185 countries and ranks the countries on 10 dimensions: - starting a business - getting credit - dealing with c. permits - enforcing contracts - getting electricity - trading across borders - registering property - paying taxes - protecting investors - resolving insolvency * For 2013 see: http://www.doingbusiness.org/data 9
World Bank DBI 2013 MENA countries: 1. (22) Saudi Arabia 14. (135) West B. and Gaza 2. (26) UAE 15. (144) Syria 3. (40) Qatar 16. (145) Iran 4. (42) Bahrain 17. (152) Algeria 5. (47) Oman 18. (165) Iraq 6. (50) Tunisia 19. (171) Djibouti 7. (82) Kuwait 8. (97) Morocco 9. (102) Malta 10. (106) Jordan 11. (109) Egypt 12. (115) Lebanon 13. (118) Yemen 10
Consequences of Corruption We have to understand the extent of corruption, its nature, consequences, likelihood,.. = its danger(s) 11
Consequences of Corruption Social Economic (direct, indirect) 12
Social Consequences I. Misguided and unresponsive policies and regulations Lower acceptance of public institutions Reduced number of quality public sector jobs Poor performance of public sector Exacerbated poverty and inequality Reduced school enrolment (1 index point increase of corruption = 5 perc. points decrease of school enrolment ) Reduced life expectancy (1 index point increase of corruption = 2,5 years decrease of life expectancy ) 13
Social Consequences II. Undermined rule of law Hindered democratic, market-oriented reforms Weakened political stability Increased crime rates Biased decision-making Infringed civil and political rights Infringed fundamental right to fair treatment 14
Direct Economic Consequences I. Decrease of investments 1 index point increase of corruption =2,5 (2,9/4,5) perc. points decrease of investments Increase of the tax rate (= decrease of FDI) 1 index point increase of corruption =7,5 perc. points increase of the tax rate 15
Direct Economic Consequences II. Reduction of public expenditures 1 index point increase of corruption = 1,3 3 perc. point decrease of public expenditure 16
Direct Economic Consequences III. Reduction of the GDP growth (1 index point increase of corruption = 0,13 perc. points decrease of the GDP growth) Average yearly reduction of the GDP growth in perc. points: Liberia 1,66 United A. Emirates 0,39 Kazakhstan 0,34 Haiti 1,33 Zambia 0,27 Indonesia 1,17 Ukraine 0,24 Panama 0,76 Kenya 0,18 Russian Fed. 0,55 Cuba 0,12 Saudi Arabia 0,55 India 0,11 Philippines 0,50 Turkey 0,06 Jamaica 0,41 17
Direct Economic Consequences IV. Decrease of the GDP per capita (1 index point increase of corruption = 425 $ decrease of the per capita GDP) Average yearly reduction in per capita GDP in $: Liberia 1363 Haiti 1097 Indonesia 964 Panama 623 Russian Fed. 452 Saudi Arabia 452 Philippines 414 Jamaica 338 United A. Emirates 319 Kazakhstan 281 Zambia 224 Ukraine 195 Kenya 148 Cuba 101 India 91 Turkey 53 18
Indirect Economic Consequences I. Increase of income inequality Increase of aid per capita inflows Misallocation of resources and talents Change in the structure of public expenditures Decrease in public revenues for essential goods/services Lower productivity and innovative thinking Increase of shadow economy 19
Indirect Economic Consequences II. Disadvantages for exporters from less corrupt countries in highly corrupt import countries Reduction of competition and efficiency Favoring of inefficient producers 20
Preparing countermeasures = AC strategy On the basis of the information acquired and on the basis of the corruption threat assessment for the business sector, each government has to prepare a comprehensive anti-corruption strategy, dealing with the most urgent issues first BUT ONLY WITH MANDATORY INCLUSION OF THE REPRESENTATIVES OF THE BUSINESS SECTOR!! 21
UNCAC Article 5, Para 1 Each State Party shall, in accordance with the fundamental principles of its legal system, develop and implement or maintain effective, coordinated anti-corruption policies that promote the participation of society and reflect the principles of the rule of law, proper management of public affairs and public property, integrity, transparency and accountability. UNCAC, Article 12, describes main requirements for the ethical private sector. 22
THANK YOU! QUESTIONS? COMMENTS? REMARKS? 23
Additional References Bose, Niloy, Capasso,Salvatore, Murshid, Antu Panini (2007). Threshold effects of corruption: theory and evidence, World Development Vol. 36, No.7 (pp. 1173-1191),www.elsevier.com/locate/worlddev Carr, Indira, Outhwaite, Opi (2008). Surveying corruption in international business, Manchester Journal of International Economic Law, Vol. 5, Issue 2 (pp. 3-70), Dreher, Axel, Herzfeld, Thomas (2005), The economic costs of corruption: a survey and new evidence, Thurgau Institute of Economics, Switzerland, Evans, Bryan R., The cost of corruption, Tearfund Christian action with the world s poor, Teddington, UK, Guerrero, Manuel Alejandro, Rodriguez-Oreggia, Eduardo (2008). On the individual decision to commit corruption: a methodological complement, Journal of Economic Behaviour & Organization. Vol. 65 (2008) (pp. 357-372), Ivanchevich, John M., Konopaske, Robert, Gilbert, Jacqueline A. (2008). Formally shaming white-collar criminals, Business Horizons (2008) 51 (pp. 401 410), Kelley School of Business, Indiana University, Kingston, Christofer (2007). Social structure and cultures of corruption, Journal of Economic Behaviour & Organization 67 (2008), (pp. 90-102), www.elseviere.com/locate/econbase, Rothstein, Bo (2007). Anti-corruption a big bang theory, The Quality of Government Institute, ISSN 1653-8919, Göteborg University, Göteborg, Sullivan, John, Shkolnikov, Alexandr (2008). The costs of corruption, Democracy around the world, www.america.gov/st/democracy, Torgler, Benno, Schneider, Friedrich (2008). The impact of tax morale and institutional quality on the shadow economy, Journal of Economic Psychology (2008), doi:10.1016/j.joep.2008.08.004 Transparency International Global Corruption Barometer 2007, www.transparency.org/policy_research/surveys_indices/gcb 24