UNPACKING CORRUPTION

Survey FindingsAli Salman

Young Entrepreneurs ForumIslamabad Chambers of Commerce and Industry

Background

Young Entrepreneurs Forum and CIPE Purpose of Survey

“to find the opinions of the business community on the perceptions, manifestations, causes, effects and remedies of corruption”

Survey Sample and Methodology Structured Questionnaire , mostly close-ended Face to Face On-line

Issues in Data Collection

Sample

95 valid responses: services sector including professionals (35%) trade sector (15%) manufacturing (17%) and administrative heads of Chambers of Commerce (33%).

Geographically Islamabad city (40%); the representatives of 35 Chambers of Commerce from across

the country did add some diversity (33%). Remaining 27% respondents submitted their response using

our on-line survey and they came from Karachi (16%), Lahore (11%) and Mardan (5%).

In terms of size, small size companies constituted 29%, medium scale 59%, and large scale comprised 12% of the sample.

Business Context of Corruption

Five Most Important Obstacles in Doing BusinessBangladesh India Pakistan Nepal Sri LankaInadequate supply of infrastructure

Inadequate supply of infrastructure

Government instability/coups

Government instability/coups

Tax rates

Corruption Corruption Corruption Inefficient government bureaucracy

Tax regulations

Inefficient government bureaucracy

Inefficient government bureaucracy

Policy instability Policy instability Inflation

Policy instability Tax regulations Inadequate supply of infrastructure

Corruption Inefficient government bureaucracy

Access to financing

Inflation Inefficient government bureaucracy

Inadequate supply of infrastructure

Policy instability

Source: Global Competitiveness Report 2011-12

Definitions of Corruption: An Anthology of Survey Responses

Unfair, unethical means to gain business resulting in profitability Illegal means of fulfilling desires Illegal ways to get things done; could be in monetary terms as

well as in personal favours etc. Using resources to get unfair advantage over others. Dishonest or fraudulent conduct by those in power, typically

involving bribery. Use of office for illicit gain Corruption means gaining something by means forbidden by

Allah Almighty and Islam. Seeking undue return for performing one's duties; unfairly

leveraging a position of power for personal gain When holder of an office or power gets Illegal price to bend the

rules of the game! Use of public/institutional resources for private gain

Definitions of Corruption (contd.)

Any acts to derail justified actions, processes or deals, to abuse powers entrusted with an intention to achieve alternate objectives or stop justified acts by using bribery, fraud, resources or relationship

Corruption is misuse of public money or authority to benefit someone illegally

Any kind of income which earned from illegal means utilizing authority

Using unethical, dishonest means to extort money. Deviant action is corruption either from norms or laws Immoral ways to attain benefits Any unethical means used to get more than the right which they

deserve Exploitation of rules and laws, unethical practice to perform ones

duty Getting undue benefits from your power

Causes of Corruption

020406080

100

Complex and unpredictable

regulations and laws

Non Competetive

incentive structure

Insufficient levels of fines and penalties

Weak and selective law enforcement

Poor standards of

public morality Entrepreneurs

Chambers

Why a regulation may induce corruption?

0%5%

10%15%20%25%30%35%40%45%50%

Regulation is very complex

Compliance cost is high

Compliance procedure is complicated

Entrepreneurs

Chambers

Effects of Corruption

01020304050607080

Increases cost of doing business

because of bribery etc.

Gives unfair advantage to specific

player in a market and erodes

competition

Controls time delays and brings more

efficiency in transactions

Weakens rule of law

Destroys morality

Entrepreneurs

Chambers

Forms of Corruption

020406080

100

Commission/kickback paid to a

government official

Birbery to an inspector for compliance

Commission paid to another private sector executive

Non-monetary exchanges such as

gifts etc.

Entrepreneurs

Chambers

Exhibitions of Corruption

020406080

100

Under-invoicing

Non-payment of duties

Non-transfer of charged RGST (VAT)

Entrepreneurs

Chambers

Incidence of Corruption

37%

16%

47%

11% 7%

82%

Remains Hidden/Informal Formalized/Accounted for Does not Apply (We do not pay bribe)

Entrepreneurs Chambers

Tolerance of CorruptionEntrepreneurs Chambers

Most likely conduct No. %age No. %ageI’ll refrain from paying commission to government officials for contracts only if I know that my competitors are also refraining.

20 32% 7 26%

I’ll refrain from paying commission to government officials for contracts even if I know my competitors are paying commissions.

7 11% 2 7%

I’ll refrain from paying commission to government officials for contracts under any circumstances. 36 57% 18 67%

63 100% 27 100%

Consequences of Refusal

0

20

40

60

80

100

Loss of sales due to a denied business

opportunity

Victimization by government official

Enhancement of reputation among

business community

Enhancement of reputation among

government agencies

Ethical standards within the company

are enhanced Entrepreneurs

Chambers

Strategies to minimize corruption

020406080

100

Reforms in rules and

regulations

Introduce competitive wages and …

Prohibitively high level of

fines or …

Uniform and strong

enforcement …

Black-listing and public

defamation Entrepreneurs

Chambers

Role of private sector

6065707580No bribes

Improve their systems and compliance

Advocate through

chambers …

Work with other civil society …

Entrepreneurs

Chambers

Conclusion

The most important message is that corruption is viewed as a governance issue, which includes poor law enforcement, archaic regulations and weak internal compliance system. Thus it calls for improving both public administration and corporate governance.

Recommended Strategic Plan

Improving internal compliance by devising smarter and customized Codes of Corporate Governance for SMEs;

Advocating regulatory reforms after identifying problematic regulations and;

Building pressure on the state apparatus to exercise uniform and predictable enforcement of law