The True Cost of Corruption



The global cost of corruption has been estimated to stand at more than $2.6 trillion, equivalent to 5 per cent of global gross domestic product (GDP). Within this, analysis published by the United Nations Economic Commission for Africa (UNECA) suggests the continent is losing as much as $60bn annually to illicit financial flows.


The true cost of corruption is likely much greater, however. After all, each act of bribery, extortion, patronage, graft and embezzlement has a number of knock on effects, many of which are not easily observed or quantifiable.


In this article Spotlight East Africa takes a look at four of the major ways in which corruption in the region comes at a cost.


Lost tax revenues

Where there is corruption tax revenues tend to be lower. This is both because people can find ways to avoid paying up, for example through loopholes or kickbacks, and because the incentives to pay are also lower. This statement is supported by analysis of more than 180 countries conducted by the International Monetary Fund (IMF) that found that more corrupt countries collect fewer taxes. According to their analysis the least corrupt governments collect 4 per cent of GDP more in revenues than in similarly developed countries with high levels of corruption. In East Africa we have the striking example of Rwanda where reforms in the mid-1990s precipitated a 6 per cent increase.


Inequality

As the World Bank has stated, “Corruption has a disproportionate impact on the poor and most vulnerable, increasing costs and reducing access to services, including health, education and justice.” Not only is the budget of a corrupt nation likely to be smaller over a time, due to lower revenues, the spending priorities of the government will be distorted. This is because budget is often allocated to areas in which it is easier for officials to secure kickbacks. As a result spending on areas such as defence are generally boosted at the cost of public service provision in the form of healthcare and education. Corruption therefore not only inhibits growth, but specifically undermines attempts to promote sustainable and inclusive growth.


The next generation

Corruption hurts the next generation. Not only will they suffer from underfunded public services and a smaller economy, but there is also evidence that children in more corrupt countries tend to be less well educated as a result in the form of lower test scores. According to the IMF students in these countries are likely to receive lower quality tuition, either as a result of underfunding or corruption in the process of teacher recruitment. A generation that is less well educated is likely to be less efficient and less innovative, with a further knock on impact for economic growth.


Public trust

Corruption undermines the trust of the citizenry in its government. Where trust breaks down violence and instability are more likely to arise. As UN Secretary General António Guterres recently put it “Corruption breeds disillusion with Government and governance and is often at the root of political dysfunction and social disunity.”

Try as we might it is hard to put an exact figure on the true cost of corruption. The likelihood is that it is far greater than we might ever imagine.

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