Measuring and Reducing the Impact of Corruption in

Infrastructure

Charles Kenny(IEF)

Licences, Health and Fire Inspections, 28

Tax, 18

Customs, 12

Legislation and Regulation, 2

Utility Connections,

11

Government Contracts, 15

Infrastructure in the Bribe Budget

BEEPS data

Percentage of All Bribe Payments Made for Various Activities

What Construction Firms Bribe For

BEEPS data

Percentage of Revenues Paid in Bribes for Various Activities

0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6

Laws/decrees

Other

Health/fire

Courts

Utilities

Customs

Contracts

Taxes

Licences/Permits

Percentage of Revenues in Bribes

All Firms Construction

Outline

• Problems of Perception

• Surveys: Knowledge with Limits

• Measuring the Economic Impact of Corruption

• What Does this Mean for the Bank?

Outline

• Problems of Perception

• Surveys: Knowledge with Limits

• Measuring the Economic Impact of Corruption

• What Does this Mean for the Bank?

Peru: Corruption and the TI CPI

0

1

2

3

4

5

6

7

1998 1999 2000 2001 2002 2003 2004 2005

3

3.2

3.4

3.6

3.8

4

4.2

4.4

4.6

% Transactions Involving Bribe CPI

Corruption Scandal Sept 2000

0

1

2

3

4

5

1 10 100

% Firms Pay Bribe for Water Connection

TI C

orr

up

tio

nTI Perceptions and Infrastructure

Outline

• Problems of Perception

• Surveys: Knowledge with Limits

• Measuring the Economic Impact of Corruption

• What Does this Mean for the Bank?

Corruption in Construction Across Countries

1

2

3

4

5

Uzbek

istan

Turke

y

Russia

Poland

Ukrain

e

Estonia

Slovak

ia

Czech

Rep

ublic

Azerb

aijan

Co

ntr

ac

t V

alu

e i

n B

rib

es

(1

=0

, 6>

20

%)

Corruption in Construction Across Countries

0

10

20

30

40

50

60

70

80

Sou

th A

frica

El S

alva

dor

Hon

dura

sLe

soth

oIn

done

sia

Cap

e Ve

rde

Uga

nda

Nic

arag

uaP

hilip

pine

sS

eneg

alE

cuad

orG

uyan

aM

alaw

i

Mal

iS

ri La

nka

Egy

ptV

ietn

am

Nig

erB

enin

Leba

non

Gua

tem

ala

Cam

eroo

n

Indi

a

Firms expected to give gifts to get a construction permit (%) Firms expected to give gifts to get an operating license (%)

Firms expected to give gifts in meetings with labor inspector (%)

Outline

• Problems of Perception

• Surveys: Knowledge with Limits

• Measuring the Economic Impact of Corruption

• What Does this Mean for the Bank?

The Economic Costs of Corruption

0

5

10

15

20

Financial Loss (5% Expenditure)

$U

S b

n

The Economic Costs of Corruption

0

5

10

15

20

Financial Loss (5% Expenditure) Economic Cost of Finacial Loss (50%Deadweight of 5 % Expenditure)

$U

S b

n

The Economic Costs of Corruption

0

20

40

60

80

Financial Loss (5%Expenditure)

Economic Cost of FinacialLoss (50% Deadweight of

5 % Expenditure)

Economic Cost ofCorruption Outcomes

(3.41x 5% Financial Cost)

$U

S b

n

?

Bad and Worse Corruption

?0

10

20

30

No Corruption Pay 20% TooMuch

Lose 20%Materials/Work

Divert Moneyfrom O&M

Eco

no

mic

Rat

e o

f R

etu

rn

Outline

• Problems of Perception

• Surveys: Knowledge with Limits

• Measuring the Economic Impact of Corruption

• What Does this Mean for the Bank’s Work?

National Budgeting

Sector Policy

Project Selection

Project Construction

Operation

Sector Reform: The Case of Chile

• Private (Competitive) Provision

• Strong Regulation• Integrated Planning• Output/Performance Based

Contracting

Output Based Aid

• Technology-Neutral

• Limits Uneconomic Investments

• Easy Monitoring

Community-Driven Development

• Reflects Local Priorities

• Participatory Development and Monitoring

• Incentives for Oversight

Additional Tools

• Independent Oversight, External Monitoring

• Publication• Integrity Pacts• Clear Responsibilities, Clear

Sanctions• Audits –Financial and Physical

Paraguay Road Maintenance

• Monitored Results• Accountability• Transparency• Participation

Partnerships

• IFCES

• PACI

• CoST

PACI Process

Measuring and Reducing the Impact of Corruption in

Infrastructure

Charles Kenny(IEF)