From Awareness Times Newspaper in Freetown

COMMENTS & OPINIONS
WHY CORRUPTION IS A BARRIER TO GROWTH
By Titus Boye-Thompson, Strategic Media & Development Communications Unit
Apr 16, 2013, 17:00

Corruption is a phenomenon that pervades most societies but its degree and eventual spread can result in very serious detriment to good social order and in the extreme impede political and social development.It is the sum total of nefarious and illegal practices that tend to raise the cost of doing business. Its institutional reward is determined as rent because like land, it is a tangible cost but non-transferable in nature. The mechanics of corruption is played out within a fractured economic system usually referred to as a parallel market although it is sometimes a misnomer in terms. The commonality of symptoms exhibited by developing countries with respect to corruption makes it a very easy target for a constraints analysis but the difficulties in garnering quantifiable data and statistical evidence frustrates a robust exploration of its ramifications in growth diagnostics. The HRV approach requires the use of indicators, data and other contextual information and analysis to establish whether the market for the factor in question is primarily supply constrained or demand constrained; and, if supply constrained, to assess the likely magnitude of that constraint given the economyís structure and trends. Applying this test to Sierra Leone produces a supply scenario given the widespread nature of corruption as manifested in the economy. That corruption is prevalent in the economy is not in question but the control of corruption replaces the alternative aspiration to eradicate corruption all together.

 

Transparency International, a worldwide agency measures corruption and monitors how it is addressed in various countries across the world. Their findings are propagated by ranking of various countries. One of their indices speaks to the control of corruption index. Although Sierra Leone has significantly improved on its rankings over a period, it is still ranking low even as assessed against some comparator countries with similar GNIs. The Transparency International Indices are indicative of good governance and the enabling environment for economic agents to operate smoothly if not optimally. An analysis of these indices provides an opportunity to benchmark corruption as a thematic area of concern for growth diagnostics based on cross country panel measures. The prevalence of corruption may well manifest itself in the exercise of discretion in the distribution of benefits or the allocation of resources. The tax system has for long been a target of institutionalised corruption whereby tax incentives, tax rebates and duty waivers are disbursed to the net disadvantage of the economy. In such a system, the exercise of discretion plays a great role in dispossessing the public from public revenue that would have ultimately translated into better public services, better roads, schools, hospitals and other vital needs provided by Government.

 

There is a broad consensus on the implications for corruption by the exercise of discretion. The Asian Miracle is a testing point for the hypotheses and in its practical and wider application, the control of corruption by the Asian Tigers have been a significant lessening of the leverage that corruption possessed within the matrix of their growth potential. Broadly put, corruption is endemic where discretion is concentrated on a single point. Where that single point is disaggregated, then the exercise of discretion is weakened because the decision to allocate resources is concomitantly divided. A complementary principle is for corruption to be institutionalized as rent, rendering the collection of a bribe more costly to the extent that the eventual cost of offering or otherwise paying the bribe renders the resource uneconomical. For example, in the institutionalizing of a service, the State imposes a cost for the service. This cost is deemed to be the economic rent payable to reduce the prevalence of corruption in the economy by diverting its incidence as a tax. The tax is collected within a formal process imbued with transparency and accountability. The process of securing the resource will subsequently be divided up into distinct units of operations such that no single unit determines the progress of the delivery on its own accord. The incentive to offer the bribe is therefore removed because for that to be effective, you would have to bribe every department, rendering the entire exercise futile. On the other hand, the tax is paid and the service delivered as a matter of mandatory entitlement but where previously the discretion had engendered the offer or supply of corruption, now it is no longer feasible for that supply to exist. However, the incremental cost paid for the disaggregation of the discretion is now institutionalized as economic rent that accrue to the delivery of the service. In a broadened scenario, the reduction of corruption therefore reduces the leverage that corruption had on the economy thereby increasing demand for the service as well as attracting investment into that environment.

 

In Sierra Leone, corruption can be adjudged to have a twofold effect, hitting the two high end nodes on the Diagnostic Tree, namely low investment and cost of credit. It directly impacts on investment (both private and institutional) while its ramifications eventually raises or add a disproportionate value to the cost of credit. There are instances of fraud, misappropriation of donor funds and bad contracts caused by improper negotiations that have historically resulted in bad press for investments and development assistance to the economy thus restricting its potential for growth. Evidence for these can be secured through a gander of local newspapers and social media forums.

 

The Millennium Challenge Corporation has recommended Sierra Leone to enter into a  Compact that will secure funds for the development of key sectors that would improve the chances for this economy to grow in a sustainable way. The recent visit of President Ernest Bai Koroma to the USA on the invitation of the US President Barack Obama was to underscore the importance of this process to both governments and to use the opportunity for President Obama to publicly applaud the strides taken by President Koroma and his other three colleagues that had culminated in the achievement of a compact status. The compact process requires Sierra Leone to identify some of its most serious and binding constraints to growth to be presented as an empirical analysis backed up by data and using the established approach of a constraints analysis. Corruption has been one of the more pressing issues of concern for President Koroma. It was his disdain for corruption that caused him to proactively deter its spread which resulted in Sierra Leone passing the control of corruption assessment for the first time.

 

Structured as a demand and supply side analysis, the possible ways in which corruption is demonstrated in the economy speaks to the supply side while the possible root causes alludes more to the demand side. It is clear that the supply side is characteristic of a malfunctioning regulatory system in addition to a weak framework for enforcing control. The high incidence of informal businesses correlates to the high incidence of tax avoidance. The concomitant effect to the economy is the loss of revenue and the low appropriability of social gains. Corruption erodes tax revenues, reduces the quantum available for public expenditure and therefore affects the quality of service delivery, thus impeding growth. The complementarity of these distortions embed corruption as a binding constraint to growth. Its removal or otherwise eradication will greatly affect the growth trajectory of this country.



© Copyright 2005, Freetown, Sierra Leone.