Opinion| Corruption: The Pandemic of Economies
By Marial A. Yol
June 27, 2020 (Thessherald)–Wars, famines and disasters such as earthquakes tsunamis and pandemics provide fertile ground for corruption to breed. Once a disaster strikes, a plethora of all types of malpractices will be unleashed. In South Sudan, known episodes of malpractices include Dura saga, Crisis Management Committee saga, Letters of Credit saga, and Funds Embezzlement saga. These sagas are a manifestation of a serious malady which has infested the country in the absence of robust anti-graft institutions to administer preventive measures.
In South Sudan, corruption is categorized into four sectors:
• The extractive sector: oil sector which is the nation’s largest revenue source which is used as a collateral for the foreign loans seriously lacks any transparency and accountability mechanisms.
• 2- The military: military organization maintains control over the nation’s economy directly by controlling the public budget and indirectly by close ties to businesses and contracts. South Sudan’s military spending is higher than that of any other country in the region. It is believed that there is little oversight of payroll expenses and rare reporting of payroll expenditures.
• 3- State spending: this involves a procurement system that is susceptible to abuse and waste, with lucrative contracts regularly awarded to the suppliers connected to government officials. No-bid (single sourced) contracts, notably for road building and vehicle imports, are regularly awarded to companies at inflated prices with no oversight.
• Money laundering: money dealers exploit the country’s fragile financial industry to launder money and generate revenue. Senior government officials were heavily involved in the financial sector, especially in speculative activities in the parallel currency market. Illegal transfers were rampant with no disclosures. Private FOREX bureaus have been established just to facilitate money laundering.
One important example occurred in 2008 when a corruption of grand scale struck the country as the Government paid nearly SSP 6.0 billion to purchase sorghum for preventing an expected famine in 2009. This transaction became publicly known as the “Dura Saga“. In February 2013, Government solicited the assistance of the World Bank forensic investigators which revealed that 290 firms were paid without ever having signed a contract, and another 151 firms were overpaid significantly. The scam involved the disappearance of several million dollars that had been allocated for the building and repair of grain stores and the purchase of grain, none of which was delivered.
What is Corruption?
Corruption is defined as “the use of public office for unauthorized private gain”. Wikipedia defined corruption as “a form of dishonesty or criminal activity undertaken by a person or organization entrusted with a position of authority, often to acquire illicit benefit”.
The word “corruption” came into the subject literature in early 14th century. In adjective form, “corrupted” meant debased in character”. Senior (2006) defined corruption as an action to (a) secretly provide (b) a good or a service to a third party (c) so that the party can influence certain actions which (d) benefit the corrupt, a third party, or both (e) in which the corrupt agent has authority.
Categories of Corruption
The three categories of corruption identified are:
• Petty corruption: which occurs at a smaller scale at the implementation end of public service projects when public officials meet the public.
• Grand corruption: occurs at the highest levels of government and involves significant subversion of the political, legal and economic systems. This type of corruption is common in authoritarian or dictatorial governments and those without adequate policing of corruption. That’s why government system is divided into three branches: legislative, executive and judiciary in order to provide independent services that are less subject to grand corruption as a result of their independence from one another.
• Systemic corruption: also known as endemic corruption, results from the weaknesses of institutions, an organization or process. It is encouraged by factors such as conflicting incentives, discretionary powers, monopolistic powers; lack of transparency; low pay; and a culture of impunity.
Corruption and politics are intertwined in such a way that one hardly exists without the other. Political corruption is simply defined as “the abuse of public power, office, or resources by elected government officials for personal gain, by extortion, soliciting or offering bribes”. This type of corruption occurs as office holders maintain themselves in office by buying votes or enacting laws which use taxpayers’ money. Any official that uses the power of an elected political office for personal gain or for a personal agenda is abusing the trust of that office, and hence is committing political corruption.
Types of Political Corruption
If the officials overseeing these projects divert some of that money into their personal accounts, they have committed an act of embezzlement, also known as “graft.” It can occur anytime an official chooses to use funds owned by another person or group for their own personal benefit.
• Blackmail and Extortion: this type occurs when officials use the power and influence provided to them to threaten other persons into behaving in a certain way they want.
It also occurs when elected representatives threaten to reveal information that they think might incriminate someone in order to coerce that person into cooperating with them.
This type occurs when officials allow their appointments to be influenced by inappropriate or illegal factors. Nepotism is one type of preferential treatment. It is the practice of giving appointments to family members, rather than basing appointments on the actual qualifications of the appointees. Another type of preferential treatment, known as patronage, occurs when officials make appointments in exchange for votes, payoffs or other benefits.
• Influence peddling: is the illegal practice of using one’s influence in government or connections with persons in authority to obtain favors or preferential treatment for others, usually in return for payment.
Corruption Measures versus South Sudan
Corruption Perception Index or CPI places South Sudan at rank 179 out of 180 nations and a score of 12 out of 100 only above Somalia in 2017. The five countries with the highest scores (and hence the most ‘clean’) are New Zealand (89), Denmark (88), Finland, Norway, and the Switzerland, 85 each. At the other extreme, the countries with the lowest scores (and highest perceived corruption) are Sudan (16), Afghanistan (15), Syria (14), South Sudan (12) and Somalia (9).
Consequences of Corruption on the economy:
Economic Growth: Corruption creates the opportunity for increased inequality, reduces the return of productive activities, and, hence, makes rent-seeking and corruption activities more attractive. This inequality does not only generate psychological frustration to the under-privileged but also reduces productivity growth, investment, and job opportunities. Tani (1998) argued that highly corrupt governments spend less on education and health, thereby limiting human capital building and the potential for economic growth. Corruption may reduce the efficiency of domestic and international aid flow through diversion of funds from intended government projects (Mauro, (1997). He stressed that corruption reduces revenue generated through taxation when parties engage in tax evasion, creating budget deficits for the government. Furthermore, corruption elevates the hidden cost of doing international business (Kehoe, 1998). It is indicated that multinational corporations suffer tarnished reputations in the world marketplace when they engage in corrupt practices (Ghosal and Moran, 2005). It is further argued that corruption undermines development efforts by weakening the institutional foundation on which economic growth stands (Klitgaard, 1988).
Specifically, corruption can cause the following effects:
• Corruption decreases foreign investment: There are many cases in which foreign investors willing to come to developing countries return to their home countries due to heavy corruption in the government bodies.
• Corruption causes delay in growth: A work which can be done in few days may be done in many months. This leads to delay in investment, starting of industries and also growth. Even if started, company growth is hindered as every work linked to officials get delayed due to need to provide bribes or other benefits.
• Corruption retards development: New industries willing to invest in particular region can change their plans if corruption is reported to be rampant in that region. If there is no proper infrastructure, companies will not wish to start up there, and this hinders the economic progress of that region.
• Corruption widens differences in trade ratios: Some countries have inefficient standard control institutions that can approve low-quality products for sale in their country. Other countries do manufacture cheap products which they can dump in big markets. However, they cannot dump these cheap products in countries with strict standard control institutions. They can do so only in countries with chances of corrupt officials in standard control. This widens differences in trade ratios among nations.
Effects of Corruption on Society
i. Corruption leads to disregard for officials: In countries with high levels of corruption, there is high level of public disregard for government officials involved corruption. The public talks negatively about them and this can contribute to the building of distrust. Even lower grade officers will be disrespectful to higher grade officers and may not obey their orders.
ii. Corruption leads to high level of pollution: Corruption in government allows the industry opt to release untreated and harmful waste into rivers and air. If there is no corruption, there can be fair probes. The industry personnel will treat the waste such that it is less toxic and harmless to environment and people in it. So this implies that corruption is also a significant contributor to pollution.
•To combat corruption, there is need to establish strong and robust legal framework, strict law enforcement and independent and effective court system. Civil society support can be sought to buttress the process with initiatives such as Transparency International’s Unmask the Corruption campaign. The following deterrent and preventive measures are recommended:
• Reform of Public Administration and Financial Management: Reforms should focus on improving financial management and strengthening the role of auditing agencies. One such reform is the disclosure of budget information, which prevents waste and misappropriation of resources. For example, Transparency International encourages transparent and participatory budgeting by training local communities to comment on the proposed budgets of their local government.
• Promotion of Transparency and Access to Information: there is need for government openness, freedom of the press, transparency and access to information. Access to information increases the responsiveness of government bodies, while simultaneously positively affecting the levels of public participation in a country.
• Empower Citizens: Strengthening citizens’ demand for anti-corruption and empowering them to hold government accountable can help to build mutual trust between citizens and government.
Close International Loopholes: Without access to the international financial system, corrupt public officials would not be able to launder and hide the proceeds of looted state assets.
Governments need to put in place mechanisms for stopping banks and cooperating offshore financial centers from absorbing illicit flows of money. The European Union 4th Anti-Money Laundering Directive, which requires EU member-states to create registers of the owners of companies established within their borders is one good example.
• Development of robust oversight and accountability mechanisms. Country’s public sector oversight institutions should be the primary entities involved in countering corruption and promoting greater transparency and accountability. Institution-building should prioritize building the capacity and safeguarding the integrity of judicial and governance oversight. Priority institutions such as courts, National Auditing Chamber, Anti-Corruption Commission, and the Public Accounts Committee in the Legislative Assembly should be empowered. Countering political influence and supporting the country’s courts with technical expertise that can support local actors in the effort to investigate and prosecute economic crimes and pursue asset tracking and recovery is critical. Any individual found to have intentionally subverted these institutions should be considered to be “undermining democratic institutions” and should be placed under sanctions.
vi. Creation of a searchable public registry of all corporate entities formed in the country. This measure can prevent the top government officials and their immediate family members from holding stakes in numerous commercial ventures which are not actually accessible to the public.
There is need to establish a searchable corporate registry that makes available certain corporate filings from each company that contain basic information about the firm’s true owners, including their name, date of birth, business address, and identification number. These records should be accessible at a very low cost.
Introduction of a Financial Management System:
This will prevent senior government officials from hijacking state institutions and looting public resources. Additionally, there is need for an oversight mechanism for revenue collection, budgets, revenue allocation, and government spending with technical and advisory support from the regional and international community. To help safeguard the integrity and bolster the capacity of crucial oversight institutions that are designed to review and check public spending, donors and international institutions in the country should work with country’s civil society to establish a financial management mechanism.
• Conduct of retrospective review of the allocation of government contracts and natural resource concessions. Most of the funds targeted by corruption appear to come from the oil, mining, foreign exchange, and banking sectors as well as defense supply contracts from the government. These sectors should be subject to a retrospective review and extensive auditing. Companies and individuals found to have abused their power to secure unfair advantage should lose government contracts and natural resource concessions and face steep penalties.
South Sudan’s National Audit Chamber should be given an authority that extends beyond the chamber’s mandate in order to benefit from partnership with impartial external actors to help further ensure that the review process itself cannot be manipulated for political ends.