Cost of corruption in developing countries

Corruption considerably reduces the economic success of countries in the South, according to a study compiled by the Committee on Development of the European Parliament. Despite numerous initiatives against illegal money transfers, the situation has not improved over the last few years.

An analysis by the non-governmental organisation ONE indicates that around a trillion US dollars is siphoned off the developing countries through corruption, money laundering, tax evasion or the use of shell companies. This draining of resources even appears to be increasing by ten per cent each year. It is estimated that as a result, an annual five per cent of the gross world product is lost. The contexts are closely linked – and form a portfolio opening channels for illicit earnings. For example, it has become clear that the degree of corruption drops as the options for tax evasion increase.

The impacts have already largely been examined. Households with a low income have to pay more on bribes than households with a higher income. Therefore, bribery acts as a regressive tax, raising inequality in countries. It has a negative effect on public services. In countries with a high corruption index, the literacy rate is lower, mortality is higher, and less progress is made in development.

Initiatives against corruption

A large number of initiatives have been launched to combat corruption and illicit financial outflows. The list is headed by the United Nations Convention against Corruption, followed by the Anti-Bribery Convention of the Organisation for Economic Cooperation and Development, the Anti-Corruption Working Group (ACWG) of the G20 countries and the Extractive Industries Transparency Initiative (EITI). In addition, regional associations of the Financial Action Task Force (FATF) have been set up to establish finance standards since 1989.

The study “Cost of corruption in developing countries – how effectively is aid being spent?”, published by the Committee on Development of the European Parliament, shows that, as yet, no substantial progress has been made by  the initiatives. One of the reasons for this is that most of them are still far too young. Also, there is a lack of indicators for qualitative measurements. And the European Union itself has no coherent strategy to combat corruption and the outflow of cash, despite its being an important player in the global finance business that can exert considerable pressure on making the existing initiatives effective, according to ONE.
To set a good example, the EU should therefore allocate aid more efficiently in accordance with defined standards that allow no bribery, the authors of the study maintain. While some control mechanisms do exist, they are not being implemented by the staff owing to an excessive amount of work to be dealt with, considerable pressure to pay funds approved or a lack of communication with executives. Here, it recommends remedies such as a clearly defined work routine, specialising staff in the field of anti-corruption activities, better project planning and the elimination of tax havens.

Roland Krieg, journalist, Berlin/Germany

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