IMF - Middle East Center for Economics and Finance

and

MENA-OECD Investment Programme

Drago KOS

INTEGRITY IN THE BUSINESS SECTOR

Assessing Corruption Risks for Business

Kuwait, 22 – 25 April 2013

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)

5

0% 10% 20% 30% 40% 50% 60% 70% 80%

NGOs

Religious Bodies

The Military

Registry and Permit Service

Education System

Utilities

Medical Service

Media

Tax Revenue

Legal System/Judiciary

Business/Private Sector

Police

Parliament/Legislature

Political Parties

% of respondents reporting the institutions to be corrupt

2004 2007

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

Extent of Corruption

7 Source: Word Bank

0,00

0,10

0,20

0,30

0,40

0,50

0,60

0,70

0,80

OECD Southeast Asia Middle East

and North

Africa

Central and

Eastern Europe

and the Baltics

Latin America Sub-Saharan

Africa

South Asia CIS

Co

rru

pti

on

In

dex

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

24

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