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Tackling Corruption

What steps are necessary for developing countries to break the cycle of corruption?

July 26, 2007

Developing countries need to take ownership of the fight against corruption themselves as they can least afford to be corrupt given their resource constraints.

A frontal assault on corruption requires a comprehensive strategy as any piecemeal approaches may only serve to re-direct corruption to other sectors of the economy.

A comprehensive strategy must be comprised of three components: a diagnostic survey to assess the dominant areas of corruption, sustained political will to tackle corruption and developing institutions to help change incentives (that is, stronger sanctions for corruption and improved benefits for ‘clean’ practices).

Political corruption must be tackled centrally as part and parcel of the reform and should include reform of electoral cycles and systems as well as political party and campaign finance reform.

A move towards use of public monies for political party and campaign finance would facilitate greater transparency and accountability.

If we say that democracy and good governance are important pillars of our society, then we must be prepared to set aside monies annually from the budget to openly and transparently finance democracies and minimize political corruption.

All this action on corruption should be implemented in the context of a larger economic and political reform program. One cannot, for instance, address corruption in the customs service without a comprehensive review of trade and tariff policies.

And similarly, discretionary practices, rent-seeking and elite capture of government enterprises will continue until government reduces its presence in economic activities it has no business in by transparently privatizing or deregulating some key economic sectors.

Failure to address and reform political finance feeds directly back to diversions from the state treasury or creation of private monopolies to help fund elections. Failure to reform the civil service and pay workers a living wage increases the temptation to engage in petty corruption.

The issue of institutions is central to this discussion for developing countries, and clearly, any long-term solutions to address corruption must improve the domestic institutions needed to help change incentives.

Economists have argued that institutions matter big time — and recent empirical studies have demonstrated the importance of institutions in explaining long-run growth differences among developing countries.

Institutions, systems and processes are particularly needed to support any long-term anticorruption drive — and they must be transparent, have the teeth to sanction corrupt behavior and also be able to reward or recognize clean practices.

Well-functioning courts and a clean judiciary, transparent budgets and fiscal regimes, as well as a clear competitive procurement rules are examples of good institutions and processes. In addition, any new institutions must be backed by appropriate legislation to ensure their long-term sustainability.

In summary, developing countries need to focus on building or improving the quality of all institutions of governance — both economic and political — in order to lower the incentives for corruption.

In particular, countries should consider evolving democratic processes that require fewer resources in the way of financing, and look at transparent budgeting and payment for campaign finance and elections in a more direct and publicly accountable fashion.

I believe civil society in developed and developing countries can also play a vital part in these efforts.

Many civil society NGOs played a key role in the campaign for debt relief for developing countries. That same energy can be directed at the campaign for repatriation of stolen assets. The benefits of such an exercise could be significant.

For example, in the case of Nigeria alone, it is estimated that about $1 billion of funds looted by the Abacha family is still outstanding. This projected sum is equivalent to the annual savings which the country obtained from debt relief.

That is more than enough reason for civil society organizations — both in developing countries and also abroad — to join actively in this campaign on asset recovery.

Civil society can also assist by pushing for greater transparency in government budgets. There is the example from the Uganda school survey for the period 1991-1994. Although the Ugandan government had increased allocations for education, only 13% of non-wage funds reached schools.

About 87% of funds “leaked” either as private payments or were used by local officials for non-education purposes.

By publishing education budgets and discussing with parents and teachers, the leakages declined from about 87% to 15%.

I strongly believe that corruption in developing countries, particularly Africa, can be reduced if we tackle it aggressively and comprehensively, building strong institutions, providing incentives and enforcing laws.

I believe the African continent can and will transcend the corruption obstacle and regain its image as observed by Winston Churchill (following his visit to Africa in 1908) as a land in which the beauty of the landscape, richness of the soil, abundance of running water and, I might add, resourcefulness and endurance of its peoples were defining characteristics.

Editor’s Note: This feature is adapted from the Second Annual Center for Global Development (CGD) Richard “Dick” Sabot Memorial Lecture given by Dr. Ngozi Okonjo-Iweala on June 20, 2007.

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