The importance of healthy institutions is a center piece of successful development policies. Everyday citizens are effected by corruption because it takes money from the public treasury that could be spent on maximizing everyone’s well-being, to private bank accounts. In Part 1, Alexei Ivanov discussed the nature of corruption and how it’s one-tailed definition is hurting our abilities to treat it at the source. Using case studies, this part aims to discuss unhealthy institutions and healthy institutions in order to exemplify the equivocal nature of corruption.
A recent major corruption scandal has been the $1 billion oil exploration case by the Nigerian Government against Shell and ENI. These companies were taken to court for supposedly bribing officials in order to get access to an exclusive highly profitable oil block called, OLP235. From the total $1bn fees paid by Shell and ENI to the Nigerian government, $800 million from this deal went to the private accounts of various government officials. What was left of the remaining $1bn, went to a small off-shore oil company belonging to the oil minister of Nigeria, Dan Etete.
While the finer details of the case is in the hands of the Nigeria Judicial System, we can make light assumptions. From the 2009 Worldwide Governance Survey, Nigeria had one of the lowest rankings for accountability, rule of law, violence, and other indicators to signal the health of Nigerian public institutions. Unhealthy practices within the Oil Ministry have allowed for situations such as this, the Head of the Nigerian Oil Ministry, to award his personal company oil fields.
We can make the connection that since the quality of institutions is low and economic freedom is high, this type of corruption has hindered the growth of a country. The role of the Oil Ministry as an institution is vital in this certain case and has obvious economic outcomes. In a country where 2/3 of the population live on $1.25 per day, a billion of dollars into the hands of one man isn’t fair. This money shouldn’t just be given out to people, but spent on social programs.
What could be done?
Textiles and garment are one of Bangladesh’s biggest exports. Informal transactions are a type of corruption, but searching through Bangladesh Garment Manufacturers and Exporters Association’ (BGMEA’s) history, not one case of major corruption has ever shown up. BGMEA more importantly has set out goals of: ‘a healthy business environment for a close and mutually beneficial relationship between the manufacturers, exporters and importers’.
A closer look shows: ‘…foreign buyers were aware of these arrangements and happily participated in them. This meant that arbitration using formal procedures would have been difficult in these cases anyway, and informal arbitration had a great deal of credibility because industry insiders had the knowledge to find acceptable solutions.’
These ‘informal’ dealings of the BGMEA are corrupt by definition. However, from the same 2009 World Governance Survey that rated Nigeria so badly, Bangladesh considerably did better than Nigeria. By allowing for informal ‘talks’ at the BGMEA, the economy has grown through bypassing inefficient regulations, ‘greasing the wheels’. This has made BGMEA to play a major role in rising Bangladesh’s economic development.
Despite the Ugandan government scoring 96 out of 100 on legislative framework for governance and corruption control, 8 out of 10 citizens think that corruption is the countries biggest problem. A recent step taken by the Inspectorate of Government (an NGO) in Uganda was to address the ghost worker problems, people having fake jobs for real salaries(would be nice wouldn’t it?). After a public audit on this payroll, the government first decentralized payroll system to be given to each government agency this power.
This was reinforced by the salaries being put up online and on boards displaying who works for what and for how much. Through this type of transparency, corrupt individuals can’t make up job rolls for their peers anymore, as well adds to the cost of getting caught, making it less appealing. Furthermore, this will save the government at least $20 million in revenue. Uganda has fought corruption by employing technology, but more can still be done.
The effects of corruption can be felt by everyone. From bribing doctors to get better medical care to millions and billions of public money going into private bank accounts. Since corruption is so diverse and depends on the country, the case can be made for the importance institutions. Furthermore, ‘corruption can’t be generalized on all levels in emerging market’s’ because the evidence shows mixed results on corrupt practices, some are beneficial to better business, some are not good and harm the public via the restriction of economic development.
In Nigeria, the evidence suggests that companies and government agencies are involved in shady contracts, but steps are being taken to address these problems. In Bangladesh, we saw that informal negotiations are actually driver of better economic activity. And lastly in Uganda, corruption is strong, but being tackled through technology, opening up to new ways of dealing with corruption. By creating a dynamic understanding of corruption, we can adopt technology and other methods to eradicate the problem at it’s source, the institutions.
The views expressed in this article are those of the author and do not necessarily represent the views of Development in Action.
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