The other side of corruption

Bruno Gurtner, Alliance Sud

That corruption hampers development is a commonplace. That corruption always takes two partners, however, is often overlooked. If the Transparency International Corruption Perceptions Index were to include the aiding and abetting of corruption and tax evasion, the «geography of corruption» would look rather different.

«Corruption is keeping millions of people in the poverty trap», writes Huguette Labelle, Chair of Transparency International, in the latest «2006 Corruption Perceptions Index». There is a strong correlation between corruption and poverty. The new Transparency International rankings feature all African countries far down on the list. The sole exception is Botswana, which comes in at No. 37 (of 163).
There is no shortage of proof that corruption hampers development. In Africa, corruption is making goods at least 20 per cent more expensive, the Accra Daily Mail recently stated, quoting the former President of Botswana Quett Ketumile Masire. The primary victims are poor people. The United Nations Development Programme (UNDP) too, in its latest Human Development Report, points out that the glaring undersupply of water to over one billion people is not merely attributable to water shortage, but to poverty, inequality, bad governance and, precisely, corruption.

One-sided Transparency Index

The Transparency International Corruption Perceptions Index focuses on the perception of corruption in the government sector in individual countries. It covers both the so-called «petty corruption» of ordinary civil servants as well as the «big» kleptocrats sitting in the Government. The World Bank's anti-corruption drive also targets mainly «public» corruption in developing countries and if need be, instances within the Bank itself.
John Christensen, Director of the International Secretariat of the Tax Justice Network (TJN), fears that this fixation on individual countries and the government sector could reinforce stereotypical prejudices about the geography of corruption. The TJN does not dispute that the rampant corruption is placing major constraints on the fight against poverty. But both the World Bank's anti-corruption campaign and the Transparency International Index are contributing to the insufficient perception of the «other» side. For corruption too, always needs two partners: one who takes the money, and one who gives it.

Billions lost to Africa

 What is Africa losing through corruption? The «Africa Report 2006» published by Jeune Afrique cites bank estimates that capital flight from Africa now runs at USD 30 billion per year. That is more than official development assistance (USD 25 billion in 2004 according to the OECD). In the same report, Nigerian President Obasanjo speaks of USD 148 billion per year – about one-fourth of Africa's GDP. The two African researchers J. K. Boyce and L. Ndikumana estimate that between 1970 and 1996, 30 African countries lost a total of 187 billion USD in flight capital.  Africa's assets abroad exceed its foreign debts. The problem is that African assets abroad are mostly in private hands, whilst the debts are passed on to the public.

Corporations and governments hand-in-hand

Raymond W. Baker, author of the renowned book «Capitalism’s Achilles Heel», speaks of «dirty money» and points out that corruption in the narrow sense of bribery accounts for just a small portion of all the dirty money flowing out of Africa. One-third of the dirty money comes from bribes, trafficking in drugs and human beings, as well as other types of trafficking. However, two-thirds are bound up with commercial (and partly illegal) activities, including transfer mis-pricing. These funds are flowing into international financial centres and their associated offshore tax havens.

Africa Confidential's editor-in-chief Patrick Smith estimates illicit sales of small arms to developing countries to be no less than USD 1 billion, and those of conventional weapons as much as USD 10 billion. Nigeria is losing at least 100,000 barrels of crude oil per day from illegal and secret shipments. The shipping companies and commercial firms are located in Amsterdam (Netherlands), Zug (Switzerland) and elsewhere in the North.

Babatunde Olugboji is the Director of the Africa Policy Division at the British charity Christian Aid. He explains that the authorities in many countries in Africa are finding it increasingly difficult to operate public services using local resources and to mobilise new investments because of unwritten agreements between big companies and governments. In many African countries, especially those rich in raw materials, powerful transnational corporations have managed to negotiate substantial tax reductions. Mostly by arrangement with corrupt government offices, others transfer concealed, unpaid taxes to third countries, mostly to tax havens. At the same time, the local «partners» also find loopholes through which to transfer their share abroad.

The helpers in the North

In its study «The Other Side of the Coin. The UK and Corruption in Africa», published in March 2006, the British Africa All Party Parliamentary Group investigated the «other side» of corruption: the «supply-side». It finds that the UK and other wealthy countries are no less responsible for corruption in Africa and in other developing countries than their local «partners». Thanks to tax havens, offshore centres, banking secrecy and murky business practices, it is child's play for international companies to spirit large amounts of dirty money out of developing countries. Such corruption reduces tax revenue in African countries by one-half.  British TJN Director John Christensen has no hesitation about placing his own country high on the list of those aiding and abetting corruption.

Switzerland categorically denies being an accessory to capital and tax flight. It points instead to the «home-made» causes of capital flight from developing countries. A look at the statistics from the National Bank exposes the weakness of this argument: At the end of 2005 over 13 billion francs in trust funds originated in Africa. At the end of 2001 it had still been less than 10 billion. Trust funds are a perfect illustration of capital flight.

If the Transparency International Index were also to include and assign the «supply-side» – the aiding and abetting of corruption – to individual countries, it would look rather different: Countries currently designated as being amongst the least corrupt, such as Singapore (now No. 5), Switzerland (7), UK (11), Luxembourg (13), Hong Kong (15), Germany (16), USA (17), Belgium and Ireland (19) would slip some way down the list.

Contact: Alliance Sud