Corruption: The cost of business progress

The corruption perception index reading for 2020 was recently published, revealing deteriorating corruption levels in a few high-scoring countries. The recent election meltdown in the United States, as well as alleged conflict of interest and abuse of office, contributed to the continued downtrend of the country’s score. This underscores the fact that no country is free of corruption, hence the need to build strong oversight institutions to be able to put corrupt practices in check and better respond to future crises.

Corruption poses a threat to citizen’s lives and livelihoods. The publication strengthens existing evidence of a correlation between corruption and business progress, and by extension poverty. Each mandatory business procedure represents an opportunity for a bribe. The fewer interactions with government bureaucrats, the less the opportunity for corruption.

Plotting the data points of the corruption perception index and the doing business index, over an extended period reveals that to a large extent, countries and/or regions with a high corruption incidence are more likely to experience sluggish business progress or outrightly have it deteriorate. Countries in North America, Oceania, and South America have seen a deterioration in their corruption levels over an eight-year period. This has limited the extent of business progress in North America and caused a deterioration in the business environments in Oceania and South America.

The Asian and European regions, where the anti-corruption fight is taken a bit more seriously, has seen significant progress in their business operations. From the mid-2010s Kazakhstan doubled down on its anti-corruption efforts by carrying out several institutional reorganizations of its anti-corruption agency, embarking on a civil service reform, extending the provisions of its anti-corruption law to prevent and manage conflict of interest, among other notable reforms. Belarus also embarked on procurement reforms, made scapegoats of high-profile perpetrators, and tightened anti-corruption regulations to make punishments more stringent.

Africa, the outlier, has seen a rise in anti-corruption regulation but enforcing penalties has met systemic brick walls. The anti-corruption campaigns in Africa have been more of a populist tool for public service holders rather than an actual will to get rid of the menace. This is further reinforced by the pseudo democracies prevalent in the region that constrain political freedom and have taken the power of consequences away from the people. Therefore, corruption incidences are still prevalent in the region – albeit lower when compared to the Americas and Oceania.

Despite this, Africa still ranks high in the easing of doing business ranking on the regional level. Does this mean that businesses are happy doing business in the region by exploiting its systemic inefficiencies? Corruption eats everything. High levels of corruption act like a further tax on businesses and tend to increase business costs. This has implications for consumer welfare as these costs are typically passed on to consumers (inflation), especially if demand for the associated products or services is less sensitive to changes in prices.