November 10, 2010

Corruption in Kenya

Adapted from The World Bank - Africa

On October 26, we learned that Kenya’s rank in Transparency Interational's Corruption Perceptions Index dropped seven places since 2009. Kenya now ranks 154 out of 178 countries—well below most of its EAC neighbors. But how bad is it, in fact? Will the new Constitution do anything to make the situation better?

In Kenya, no one seriously doubts that corruption is a key constraint to greater growth and prosperity.

Corruption comes in two forms. Petty corruption occurs when citizens are asked for kitu kidogo (“a little something”): to get a document stamped, a service provided, or an infraction overlooked. The amounts are small, but hardly petty to the many victims living on less than $1 a day. Kenya also has large-scale corruption—public purchases made at inflated prices; public benefits handed out to people who are not entitled; fictitious companies being paid for contracts that they never executed.

We read about such things in the paper day after day, and we hear large sums of money associated with behaviors of this kind. Mention Kenya and corruption, and talk about the unresolved Goldenberg and Anglo Leasing scandals is never far behind.

Corruption is clearly happening in Kenya, and it involves not only the public sector, but also the private sector and civil society. It is certainly a drag on economic growth and poverty reduction. But exactly how serious a drag? How bad is the situation in Kenya, compared for example to the situation in neighboring countries? The answer is surprising difficult to ascertain.

When people want to answer these questions, they usually turn to corruption indices prepared by organizations like TI. These indices, which cover many countries and so provide comparability, generally show Kenya ranking much lower than its neighbors.

But how reliable are these indices?

They typically aggregate perceptions, and perceptions are notoriously difficult to compare. Is the perception that corruption is really bad in Kenya, and not so bad in its neighbors, partly a consequence of the much higher level of press freedom in Kenya? Many business leaders in Kenya think so; they believe that the situation for businesses is no worse in Kenya, and in some ways much better. Are the business people right, or are the indices?

Unsatisfied with qualitative data, some people have tried to obtain more solid quantitative data. But hard data are not easy to find. Often we have specific indicators that fraud or corruption has occurred—auditors find companies or contracts that appear to be fictitious; whistleblowers say that contractors are paying bribes or kickbacks; high bid prices suggest that companies are colluding to inflate prices and share the rent gained; civil works exhibit poor quality or lack equipment, suggesting that the contractor has skimmed off the savings.

These facts are not in themselves proof of fraud or corruption, even if they are often correlated with it. But even if we investigate and prove the fraud and corruption, it is notoriously difficult to quantify its extent. If someone pays $500,000 in bribes to get a $60,000,000 contract, and then uses substandard concrete to execute the works, what is the total loss? Poor concrete on a terrace may not be too serious—but in the walls and ceilings it may impair the entire building and everything inside it. And if it is difficult to quantify the cost of corruption in specific cases, it is so much more difficult to quantify it across many cases across a whole economy. Hence, meaningful cross-country comparisons are virtually impossible.

When you look at more objective measures of budgetary management and institutional capacity, there are some well-known objective indicators—and with these indicators, paradoxically, Kenya appears to do quite well. Kenya’s Public Expenditure and Financial Accountability rating is solidly in line with the other EAC countries. Its Country Policy and Institutional Assessment rating is a bit lower than the other EAC countries—but significantly higher than the average for all IDA countries and for all lower-income countries.

Kenya scores higher than most of its neighbors in voice, regulatory quality, and budget openness. Its macroeconomic management has been exemplary—its debt-to-GDP ratio fell from 60% in 2002 to 40% in 2008, even though it has never received HIPC debt relief. It is hard to square these objective measures of capacity and management with the perceptions of rampant corruption.

Moreover, the Government of Kenya collects about 22% of GDP in revenues—one of the highest revenue mobilizations in sub-Saharan Africa. I have always been puzzled how that could occur in a country with rampant corruption. If corruption is so pervasive, why aren’t Kenyan taxpayers using corrupt means to avoid their tax obligations—thereby bringing tax receipts down? And why is tax collection so much lower in ostensibly less corrupt countries?

Another way to compare Kenya’s situation to its neighbors is to look at what the Government is doing to fight corruption. There are three things that any government needs to do to have an impact, and Kenya’s track record is mixed: strong in two areas, but relatively weak in the crucial third.

First, a government that is serious about fighting corruption needs to eliminate opportunities for corruption. This involves reforming institutions to minimize discretion and create checks and balances. A lot has already been done in Kenya in this respect, e.g., in the road, water and power sectors, and the new Constitution will help to get more of this important work done.

Second, a government needs to be able to detect corruption when it occurs. This requires strong auditing mechanisms. There is no better deterrent to corruption than regular professional audits—particularly when audit results are also shared with the public, which can then help to hold errant officials to account. We have seen some successes in this area recently in Kenya, for example with the maize and education scandals in 2009. The new Constitution strengths checks and balances as well as the independence of oversight agencies, so it will help in this area as well.

Third, and most important, a government needs to punish corrupt individuals to the full extent of the law.

If audits indicate possibly corrupt behavior, the evidence of that behavior needs to be referred to competent investigators, who (as warranted) need to present the results of their investigations to prosecutors, who in turn need to pursue corruption cases aggressively through the courts. Judges need to have the courage to convict, when the facts and the law require it. Public officials who are under suspicion need to step aside so that investigations can go forward without interference.

These steps are critical, and this is where Kenya so far has not met the standards that law-abiding citizens can reasonably expect to be met. But the new Constitution may change that. Chapter Six of the new Constitution sets out high standards for leadership and integrity in Kenya, and we have recently seen Government officials acting in accordance with those higher standards.

1 comment: