The Hidden Cost of Corruption
By admin August 5, 2015

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It is widely understood that the culture of corruption facing developing countries worldwide has a seismic affect concerning numerous aspects of the economy; most notably – hindering foreign investment and hampering economic growth. Corruption has also the tendency to distort markets and obstruct sustainable development, with estimates according to the African Development Bank (AfDB) suggesting that the cost of corruption amounts to more than 5 percent of the global GDP.

A 2013 United Nations (UN) General Assembly Resolution analyzed the negative impact of illicit financial flows, noting its potential to hamper equality and long-term social and economic sustainability. “Corruption is a serious barrier to effective resource mobilization and allocation and diverts resources away from activities that are vital for poverty eradication, the fight against hunger and sustainable development.”

Corruption has also the added component of undermining the ability of governments to set clear rules and enforce regulations while also discouraging public investment that could yield higher productivity. And when the government reaches for its wallet, it is nearly empty due to corruption and mismanagement in the tax administration and customs – meaning less social commodities to be passed around.

The decision for investors to invest abroad is also largely determined by the level of corruption of the host country, “considering the estimated 20 per cent “corruption tax” for doing business in these situations,” according to Transparency International (TI).  It is ostensibly clear that corruption is bad for business, government, and a society tackling inequality.

We must keep in mind, however, corruption isn’t synonymous with one region of the world and it widely differs in extent across counties and cultures. In TI 2014 Corruption Perception Index, some of the most corrupt counties in the world are located in Eastern and Central Europe, the Middle East, South America and Southeast Asia (with half of the top ten most corrupt countries spread out in these regions).

Source: Transparency International 2014 Corruption Perceptions Index

Source: Transparency International 2014 Corruption Perception Index


However, focus has been largely placed on Africa, as the regions inability to cope with misconduct, mismanagement, and incompetence pivots an enormous spotlight on its social and economic development.

During US President Barack Obama’s recent trip to Africa, he deplored the “cancer of corruption” facing developing countries alike, and in particular, Kenya, which he highlighted, costs the country nearly 250,000 jobs a year.

“Corruption is not unique to Kenya”, President Obama insisted, “but the fact is too often corruption is tolerated because that’s how things have always been done.”

President Obama’s statements came on the heels of an annual report released last week by Kenya’s Auditor-General Edward Ouko’s, in which he uncovered that only 1 percent of Kenyan government spending can be properly accounted for, even worse, that 1.2 percent of Kenya’s budget for 2013-14 “was incurred lawfully and in an effective way”. It is damming evidence like these that suggest this cancer may be endemic of nations with specific power structures and rooted institutions that withhold transparency and accountability, in which underdevelopment is seen to be conducive to corruption, in turn leaving government officials and elites with more money in their personal bank accounts, undermining the growth and prosperity that have occurred under their purview.

Today, growing calls for transparency has led governments to curb the level of corruption that defines much of the policy and institutions that support the culture, with greater attention placed on combating illicit financial flows in the form of money laundering, tax evasion, bribery, asset recovery and the role of donor agencies. The Organization for Economic Co-operation and Development (OECD) is at the forefront of the anti-corruption movement, underscoring the importance of countering illicit financial flows which depend largely on “the quality of national regulations, their implementation and whether they comply with international best practices.”

If continued, the cost of corruption may not only steal the resources of today, but the potential of the future.

For more information:

WSJ: Obama Challenges Kenya on Human Rights, Corruption

AFP: Kenya auditor uncovers massive government misspending

Oxfam: Africa’s growth must benefit all its citizens

Quartz: African business schools are adding anti-corruption education to their programs

TI: Corruption Perception Index 2014: Results

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