8/10/2019 Economic Impact of Corruption

1/1

Economic impact of corruption

Public money is for government services and projects. Taxes collected, bonds issued, income

from government investments and other means of financing government expenditure are

meant for social grants, education, hospitals, roads, the supply of power and water and to

ensure the personal security of our citizens.

Corruption and bad management practices eat into the nations wealth, channelling money

away from such projects and the very people most dependent on government for support.

Countless studies around the world show how corruption can interrupt investment, restrict

trade, reduce economic growth and distort the facts and figures associated with government

expenditure. ut the most alarming studies are the ones directly lin!ing corruption in certain

countries to increasing levels of poverty and income ine"uality.

Corruption can also harm the chances of success for small and micro#enterprises. $ts been

demonstrated around the world % particularly in developing economies % that smallbusinesses pay more than twice as much of their earnings as larger companies, limiting their

ability to grow and become job creating.

ecause corruption creates fiscal distortions and redirects money allocated to income grants,

eligibility for housing or pensions and wea!ens service delivery, it is usually the poor who

suffer most. $ncome ine"uality has increased in most countries experiencing high levels of

corruption.

$n &ctober '()) *illie +ofmeyr, then head of the pecial $nvestigating -nit $-/ told outh

0fricas Parliament that between 1'2#billion and 13(#billion of governments annualprocurement budget alone was lost to corruption, incompetence and negligence. Corruption

in procurement leads not only to waste of public money and resources, but inferior "uality of

products and services, and can deter more "ualified suppliers from doing business with the

state.

-nderscoring other global researchers, the 0frican -nion, -4 and Transparency $nternational

agree that corrupt activity hinders development, contributes to the depletion of the public

purse and distorts mar!ets # further hindering local and foreign direct investment.

$n broad terms Transparency $nternational calculates that investing in a 5relatively corrupt6

country compared to an 5uncorrupted6 one is some '(7 more costly. The direct economicimpact is obvious8 investment critical to job creation and poverty alleviation goes elsewhere.

That cost is 5hidden6 and defies calculation.

0nother cost to an economy affected by corrupt activities include capital flight, which means

that funds re"uired to ac"uire assets abroad shrin!s a countrys savings pool that could

otherwise have been invested in the local economy.

&ther more general conse"uences that are difficult to "uantify include higher costs and

declining "uality of public sector infrastructure projects9 the slide of the economy towards an

5underground sector69 diminishing economic efficiency and macroeconomic instability and

an increased tendency to be negatively affected by global economic crises.