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. But the most alarming studies are the ones directly linking corruption in certain
countries to increasing levels of poverty and income inequality.
Corruption can also harm the chances of success for small and micro-enterprises. Its been
demonstrated around the world particularly in developing economies that small
businesses pay more than twice as much of their earnings as larger companies, limiting their
ability to grow and become job creating.
Because corruption creates fiscal distortions and redirects money allocated to income grants,
eligibility for housing or pensions and weakens service delivery, it is usually the poor who
suffer most. Income inequality has increased in most countries experiencing high levels of
corruption.
In October 2011 Willie Hofmeyr, then head of the Special Investigating Unit (SIU) told South
Africas Parliament that between R25-billion and R30-billion of governments annual
procurement budget alone was lost to corruption, incompetence and negligence. Corruption
in procurement leads not only to waste of public money and resources, but inferior quality of
products and services, and can deter more qualified suppliers from doing business with the
state.
Underscoring other global researchers, the African Union, UN and Transparency International
agree that corrupt activity hinders development, contributes to the depletion of the public
purse and distorts markets - further hindering local and foreign direct investment.
In broad terms Transparency International calculates that investing in a relatively corrupt
country compared to an uncorrupted one is some 20% more costly. The direct economic
impact is obvious: investment critical to job creation and poverty alleviation goes elsewhere.
That cost is hidden and defies calculation.
Another cost to an economy affected by corrupt activities include capital flight, which means
that funds required to acquire assets abroad shrinks a countrys savings pool that could
otherwise have been invested in the local economy.
Other more general consequences that are difficult to quantify include higher costs and
declining quality of public sector infrastructure projects; the slide of the economy towards an
underground sector; diminishing economic efficiency and macroeconomic instability and
an increased tendency to be negatively affected by global economic crises.