Corruption and Poverty: A Time Bomb in Developing Nations

0
21

By Kenya Confidential Economic Desk, Nairobi – April 4, 2022

Nations where corruption is rampant, like Kenya, also tend to have a large proportion of the population living in poverty – such as the people in shanty settlements in Kenya’s urban areas – while the countries’ leaders divert millions from national wealth to Swiss Credit Suisse Bank accounts and other off-shore havens for their personal benefit – as recent Pandora Papers revealed.

While corruption and bribery may be said to have cultural connotations and roots, with some people claiming it is a reflection of the Kenya Society, they are morally and economically indefensible. This article places its focus on the relationship between corruption and poverty. There are more alcoholics in Kenya than the corrupt but alcoholism is never said to be a reflection of Kenya society.

First and foremost, there is the need for world leaders to address the growing disparities between the rich and poor nations. Leaders in poverty-stricken nations should smell the coffee from their luxurious kitchens amidst the rumbling stomachs of their hungry citizens. Corruption is always cited as the trigger to military coups and government overthrows the world over.

How big is this gap and what are the trends? As Professor of Economics emeritus David Landes, highlights in The Wealth and Poverty of Nations, “The difference in income per head between the richest industrial nation, say Switzerland, and the poorest non-industrial country, Mozambique, is about 400 to 1.

There is urgent need to deal with bribery and corruption

Two hundred and fifty years ago, this gap between richest and poorest was perhaps 5 to 1. It is estimated that in today’s world, 20,000 people perish every day from extreme poverty (some argue that the figure is 50,000 daily deaths from poverty-related causes).

Second, there is urgent need to deal with bribery and corruption, a growing activity that is getting completely out of hand, and one of the key factors that is slowing growth and reducing economic opportunities in the developing world. Bribery paid to gain political leadership in form of handouts to voters is a ticket to loot public coffers by politicians.

The conventional approaches to battling corruption and poverty have not worked in an environment of deceit by politicians who take advantage of poverty during campaigns. It’s high time to begin thinking and acting creatively to develop a new paradigm. Executing corrupt officials as is the case in China seem not be the answer for progressive nations with a respect for human rights and the rule of law. It is however a major deterrent.

The poverty of the world’s poor nations is significantly exacerbated through bribery and corruption. Not only do the problems of income distribution amongst the political elites, the working poor, and the poverty-stricken become more exaggerated, but it saps hope. Corruption also leads to political instability, donor fatigue, and the disappearance of much needed investment capital in many countries.

Corruption creates unnecessary bureaucracy created by public officers to facilitate bribery that in turn discourages investors. The corrupt public officers do not care since their monthly salaries and allowances are guaranteed even without new investors.

We know that disparities between the rich and poor nations are not a function of poverty alone. In fact, corruption is not an unknown phenomenon in the so-called developed world. There are many underlying reasons for the wealth and income disparities. Some of these factors are not controllable, whereas corruption, with political will, can be controlled. Quite clearly, corruption is a disease that impairs every functioning aspect of governments.

Public Governance and a low incidence of development

Countries that have the foundations of good governance continue with their efforts, development will follow. However, good governance is not the only indicator of corruption – poverty plays a role as well.

Governance, Corruption, and Economic Performance published by the IMF, includes studies on the impact of corruption on economic performance. Amongst the findings are the following:

  • Social indicators (e.g. child mortality rate, school drop-out rates) are worse where corruption is high;
  • Countries with higher corruption tend to have lower per capita income, a higher incidence of poverty and greater income inequality;
  • Tax revenue is lower in more corrupt countries;
  • Transition economies that have made more progress on structural reform tend to be less corrupt; and
  • Decentralization of taxation and spending improves governance.

Corruption and Society

In a December 2005 document, “Controlling Corruption: A Handbook for Arab Politicians,” a number of negative impacts of corruption on society were identified:

  • Substitutes personal gain for public good;
  • Prevents or makes it more difficult for governments to implement laws and policies;
  • Changes the image of politicians and encourages people to go into politics for the wrong reasons;
  • Undermines public trust in politicians and in political institutions and processes;
  • Erodes international confidence in the government;
  • Encourages cynicism and discourages political participation;
  • Can contribute to political instability, provoke coups d’etat, and lead to civil wars;
  • Perverts the conduct and results of elections, where they exist;
  • Keeps the poor politically marginalized;
  • Consolidates political power and reduces political competition;
  • Delays and distorts political development and sustains political activity based on patronage, clienteles and money;
  • Limits political access to the advantage of the rich;
  • Reduces the transparency of political decision-making.

For politicians in Mexico, when it comes to dealing with the drug lords, the choices are very clear—take the money and run and turn a blind eye; or have you and your family face the consequences of violence turned against you. It becomes even more difficult for a politician attempting to fight the drug lords when the police themselves are corrupt, and when judges are also bribed. It takes a brave politician to buck this trend. Kenya is drifting towards that direction.

Corruption is not only related to regular crime, however; the downing of a Russian passenger airliner in August 2004 by terrorists highlights how corruption and terrorism can be linked. The terrorist who blew up one of the planes was initially denied boarding the aircraft because of some irregularities with her documentation. However, a bribe approximating US $50 was paid—allowing her to board the aircraft and eventually blow it up, causing the death of 46 people.

In Kenya corruption facilitated the bombing of the United States Embassy on August 7, 1998 by terrorists who entered Kenya illegally, acquired Kenyan passports and identity cards illegally and acquired business licenses – all of them courtesy of corruption. The Minister in charge of immigration himself later died mysteriously.

Several other bombing incidents have been executed by aliens in Kenya thanks to corruption. 213 people were killed in the Nairobi blast, while 11 were killed in Dar es Salaam. An estimated 4,000 in Nairobi were wounded, and another 85 in Dar es Salaam.

Corruption has enormous implications for developing countries. It undermines democratic processes, carries with it a huge economic cost, and corruption can lead to political unrest. But corruption also impacts countries with more developed economies and it is this to aspect that we now turn our attention.

Developed countries are not immune from corruption – it is more a question of order of magnitude, and the level of damage that corruption can cause in the respective jurisdictions. Many or all the negative consequences associated with corruption for developing countries apply to the more developed economies. There are, however, some additional and unique considerations for the industrialized world.

The economic cost of corruption

There is an economic cost of bribery that is reflected in a higher cost of doing business in corrupt countries. This limits levels of foreign direct investment by developed countries in developing and emerging economies.

Corruption in developing countries has undoubtedly changed world migration patterns as people flee their home countries out of disgust and/or the desire to improve the quality of their lives. They may flee their country of birth if they are being persecuted for exposing corrupt practices, or when bribery has caused greater health, safety, and environmental risks.

Corruption compromises people’s futures and their development. It also costs a fortune. Rampant corruption will drain any economy of the resources needed for projects like infrastructure development.

To illustrate, let’s take a look at the misuse of funds from the Kenya government’s 2014 Eurobond, which was believed to be Africa’s largest such issuance at the time.

Reports indicate that some of the money may not have been deposited into the national Treasury. In economic parlance, this would qualify as an illicit financial “outflow”: an illegal cross-border movement of money or capital. The illegal transfer of funds out of African countries is a recognised constraint on the continent’s economic development because it denies local populations the use of that money for national development.

 

Given these observations, what measures can Kenya take to stem the debilitating theft of public resources?

First, a national ethos that inculcates the value of work as the only means to wealth accumulation must be built. A possible way of achieving this is for education policy makers to emphasise social ethics as a compulsory subject right from primary school all the way up to the university.

Second, Kenya’s legal system must make corruption expensive and unattractive for perpetrators by the imposition of stiff fines, and mandatory jail sentences. Another step in the right direction would be to grant both the auditor general and the ethics and anti-corruption commission prosecutorial powers.

Third, the law could be reviewed to ensure that those convicted of economic crimes suffer lasting embarrassment and the greatest possible financial loss. To achieve this, all the proceeds from corruption must be repossessed by the state and channelled back to public use. Convicts would then be barred from holding public office or doing business for several years after their release.

Fourth, strict standards of ethical conduct could be imposed for anyone seeking public office. This would entail full disclosure on the sources of campaign funds, public declarations of wealth and lifestyle audits, and enforcement of voter bribery legislation.

Fifth, the national fight against poverty, ignorance and disease must be intensified to improve quality of life, and empower citizens to perform their civic duties, such as the choice of legislative representatives, in a more meaningful way.

Finally, it is imperative for the Director of Public Prosecutions and Assets Recovery Agency to sign treaties with “tax haven” countries to block and repatriate illicit financial outflows from Kenya.

The Kenya-British government arrangement, known as the Framework for the Return of Assets from Corruption and Crime to Kenya (Fracck), led to the recovery of Ksh 450 million by Jersey government stashed there by Samuel Gichuru and Chris Okemo. It has been hailed by the United Nations as “innovative” and “novel”.