Tackling corruption in government could save $1 trillion

Tackling corruption in government could save $1 trillion

The International Monetary Fund (IMF), keeps on pressing on all economic and policy issues of the day in every country. Doing so for all these years, it has, in the end, amassed such knowledge and experience that enabled it to have a worldwide view of the latest trends. Tackling corruption in government could save $1 trillion in taxes, but not only that as we were recently told, it could also resolve many of the plethora of all related issues throughout all regions in the developing and developed world alike. A point in case is elaborated on this particular article that is republished here for its obvious importance, especially for those developing countries of the MENA region. 

Tackling Corruption in Government

By Vitor Gaspar, Paolo Mauro and Paulo Medas

No country is immune to corruption. The abuse of public office for private gain erodes people’s trust in government and institutions, makes public policies less effective and fair, and siphons taxpayers’ money away from schools, roads, and hospitals.

While the wasted money is important, the cost is about much more. Corruption corrodes the government’s ability to help grow the economy in a way that benefits all citizens.

But the political will to build strong and transparent institutions can turn the tide against corruption. In our new Fiscal Monitor, we shine a light on fiscal institutions and policies, like tax administration or procurement practices, and show how they can fight corruption.

Political will can turn the tide against corruption.

Corruption helps evade taxes

We analyze more than 180 countries and find that more corrupt countries collect fewer taxes, as people pay bribes to avoid them, including through tax loopholes designed in exchange for kickbacks. Also, when taxpayers believe their governments are corrupt, they are more likely to evade paying taxes.

We show that overall, the least corrupt governments collect 4 percent of GDP more in tax revenues than countries at the same level of economic development with the highest levels of corruption.

A few countries’ reforms generated even higher revenues. Georgia, for example, reduced corruption significantly and tax revenues more than doubled, rising by 13 percentage points of GDP between 2003 and 2008. Rwanda’s reforms to fight corruption since the mid-1990s bore fruit, and tax revenues increased by 6 percentage points of GDP.


Corruption also prevents people from benefiting fully from the wealth created by their country’s natural resources. Because the exploration of oil or mining generates huge profits, it creates strong incentives for corruption. Our research shows that resource-rich countries, on average, have weaker institutions and higher corruption.

Corruption wastes taxpayers’ money

The Fiscal Monitor shows that countries with lower levels of perceived corruption have significantly less waste in public investment projects. We estimate that the most corrupt emerging market economies waste twice as much money as the least corrupt ones.

Governments waste taxpayers’ money when they spend it on cost overruns due to kickbacks or bid rigging in public procurement. So, when a country is less corrupt, it invests money more efficiently and fairly.

Corruption also distorts government priorities. For example, among low-income countries, the share of the budget dedicated to education and health is one-third lower in more corrupt countries. It also impacts the effectiveness of social spending. In more corrupt countries school-age students have lower test scores.

Corruption is also a problem in state-owned enterprises, such as some countries’ oil companies, and public utilities like electric and water companies. Our analysis suggests that these enterprises are less efficient in countries with high levels of corruption.

Where there is political will, there is a way

Fighting corruption requires political will to create strong fiscal institutions that promote integrity and accountability throughout the public sector.

Based on the research, here are some lessons for countries to help them build effective institutions that curb vulnerabilities to corruption:

Invest in high levels of transparency and independent external scrutiny. This allows audit agencies and the public at large to provide effective oversight. For example, Colombia, Costa Rica, and Paraguay are using an online platform that allows citizens to monitor the physical and financial progress of investment projects. Norway has developed a high standard of transparency to manage its natural resources. Our analysis also shows that a free press enhances the benefits of fiscal transparency. In Brazil, the results of audits impacted the reelection prospects of officials suspected of misuse of public money, but the impact was greater in areas with local radio stations.

Reform institutions. The chances for success are greater when countries design reforms to tackle corruption from all angles. For example, reforms to tax administration will have a greater payoff if tax laws are simpler and they reduce officials’ scope for discretion. To help countries, the IMF has built comprehensive diagnostics on the quality of fiscal institutions, including public investment management, revenue administration, and fiscal transparency.

Build a professional civil service. Transparent, merit-based hiring and pay reduce the opportunities for corruption. The heads of agencies, ministries, and public enterprises must promote ethical behavior by setting a clear tone at the top.

Keep pace with new challenges as technology and opportunities for wrongdoing evolve. Focus on areas of higher risk—such as procurement, revenue administration, and management of natural resources—as well as effective internal controls. In Chile and Korea, for example, electronic procurement systems have been powerful tools to curtail corruption by promoting transparency and improving competition.

More cooperation to fight corruption. Countries can also join efforts to make it harder for corruption to cross borders. For example, more than 40 countries have already made it a crime for their companies to pay bribes to gain business abroad under the OECD anti-corruption convention. Countries can also aggressively pursue anti–money laundering activities and reduce transnational opportunities to hide corrupt money in opaque financial centers.

Curbing corruption is a challenge that requires persevering on many fronts, but one that pays huge dividends. It starts with political will, continuously strengthening institutions to promote integrity and accountability, and global cooperation.

Watch a conversation with the authors:

Related links:
Shining a Bright Light into the Dark Corners of Weak Governance and Corruption
Corruption Disruption
Corruption in Latin America: Taking Stock
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MENA debt boom leading to private sector growth

MENA debt boom leading to private sector growth

Mouayed Makhlouf says governments have become more receptive to private sector involvement in economies as debt levels have grown reports Zawya #financial services.

Zawya produced this article dated March 12, 2019, about how the MENA debt boom leading to private sector growth would afterall result in a more sustainable development model.

MENA debt boom provides a route for private sector growth: IFC chief

By Michael Fahy, ZAWYA

Governments in the Middle East are becoming more receptive to growing private sector involvement in their economies because public sector debt in many markets is ballooning, an official from the World Bank’s International Finance Corporation (IFC) has said.

Speaking on an investors’ panel debate at the Global Financial Forum in Dubai on Monday, the IFC’s Middle East and North Africa (MENA) director, Mouayed Makhlouf, said: “For the first time, because of the massive rise in public debt across the region, we see a difference. Our narrative with these governments has changed.  Now, they are coming to us and they are saying ‘can you help us with the reforms?'”

General view of the world’s tallest building Burj Khalifa in Dubai, United Arab Emirates, December 22, 2018. Image for illustrative purposes. REUTERS/Hamad I Mohammed

Makhlouf said that the MENA region needs to create 300 million new jobs – “basically, double the population” by 2050 due to the burgeoning youth population in the region, and that Egypt alone needs to create around 700,000 jobs per year, although he said it is MENA’s fastest growing economy currently, with GDP growth of 5.3 percent, compared with a regional average of around 2-3 percent.

“The social contract in MENA is as such where most of the services (are) provided by the public sector.  But what you have ended up with… is a huge public debt that has been rising for the past few years,” he said, adding that debt-to-GDP ratios stand at around 96 percent in Egypt, 97-98 percent in Jordan and 150 percent in Lebanon.

“For us, the main thing we need to find in this region are… growth and jobs.  And I really believe both of these things can only come through a larger private sector participation,” Makhlouf said.

In a separate panel on the outlook for the region’s banking sector, JP Morgan‘s Asif Raza said that the decline in oil prices that began in 2014 had created opportunities for international banks to advise governments that are looking to diversify on how to embark on “monetisation and privatisation” of assets.

Naveed Kamal, MENA head of corporate banking at Citi, said that governments had run up deficits as oil revenues fell, and had financed these through “various instruments where banks have been involved”.

“And we expect to see that continue over the next 2-3 years.”

Although total GCC fixed income issuance declined by 16 percent year-on-year to $145.3 billion in 2018 as oil prices rallied, according to Kamco Research, JP Morgan’s Raza said the current pipeline is “huge”.

A faster flow

Raza said that at this stage last year, “over $15.4 billion worth of issuance was done in the MENA region – this year, it’s $28 billion”.

He added that in 2018, “the loan market was (at an) all-time high in this region”.  Figures published earlier this month from Acuris showed that syndicated loan activity in the MENA region last year outstripped bond issuance – with $133 billion of syndicated loans issued, compared to $89.5 billion in bonds.

Raza said that at the top end of the corporate banking market, “there’s lots of activity still happening”.

“There’s still quite a decent pipeline of financing and refinancing,” he said.

However, Citi’s Kamal argued that the market has been much tougher for SMEs in recent years.

“I believe that there is room for improvement for all countries in the region as far as creating the right balance for SMEs (is concerned),” he said.

He said that “time and again” in tougher economic times large corporates, government-related entities and even government departments have delayed payments to SMEs, which causes cashflow problems and affects their ability to repay creditors.

Quick exits

“And some of the legal framework that surrounds the corporate sector – we all know about bounced cheques and the consequences of that.  In summary, what happens is SMEs can’t stay back in a number of cases (to) fight through these cycles.  So, we see skips, people leave and that does not leave a very strong impact as far as consumer confidence is concerned.”

Yet funding shortages for private sector firms can also create opportunities – not least for the region’s private equity sector, according to Karim El-Solh.

Speaking on the investment panel, El-Solh said that his firm’s pipeline “has increased dramatically as a result of a lack of availability of funding for businesses elsewhere.

“The IPO market is not open; the bank liquidity has dried up so for us it’s an opportunity to come and be a provider of growth capital.  We are seeing more companies, better quality companies, we’re acquiring controlling stakes at lower valuations,” he said.

Makhlouf said more opportunities need to be created for the private sector, stating that levels of private sector involvement in the economy in the region lag behind other emerging markets.

“MENA region is only one-fifth in terms of private sector participation compared to Latin America,” he said.

© ZAWYA 2019

More Middle East billionaires during 2018-2023

More Middle East billionaires during 2018-2023

11 per cent growth will be seen in Middle East billionaires during 2018-2023.

Why the number of millionaires is set to rise in UAE

By Waheed Abbas / Dubai

March 7, 2019

The number of millionaires in Dubai and Abu Dhabi will increase from 440 last year to 511 in 2023 and from 192 to 223, respectively.

The number of millionaires in the UAE increased last year and this trend will continue over the next five years as growing investment opportunities will generate more millionaires locally as well as political and economic stability will also woo rich individuals and families from foreign countries, say researchers and analysts.

According to the latest report released by global consultancy Knight Frank, the number of millionaires, or high net worth individuals, in the UAE expanded 3 per cent to 53,798 last year from 52,344 in the previous year. The numbers are projected to grow 14 per cent to 61,292 by 2023. Similarly, the number of ultra-high net worth individuals (UHNWIs) – who own more than $30-million wealth – in the UAE grew from 672 in 2017 to 693 last year and will reach 799 by 2023.

The study predicted that the number of UHNWIs in Dubai and Abu Dhabi will increase from 440 last year to 511 in 2023 and from 192 to 223, respectively.

Issam Kassabieh, senior financial analyst at Menacorp, believes that the ultra-rich will continue to flock to the UAE in coming years.

“At the moment, Dubai is attractive for foreigners. Now, it is a place not just for good investments returns but also to stay for long term. Government is focusing on key sector so that the cash comes in and stays in the country through different measures such as longer visas and ease of doing business initiatives,” Kassabieh said.

“The UAE is an attractive place for foreign investors – financial markets are at an early stage and have a long way to go. Real estate was the first to anchor the economy and that brought foreign investors here. Going forward, the focus will be on more diverse sectors. Also, the ease of doing business chart shows the UAE is first in the region and also competitive globally,” he added.

“Dubai offers a full package – good quality of life, healthcare, education and investment opportunities. All these complement each other and attracts high net worth individuals to this country. In addition to that, diversity of population plays a big role in this,” said Kassabieh.

Knight Frank data revealed that Dubai and Abu Dhabi will witness higher growth in UNHWIs as compared to Manama and Riyadh.

Raju Menon, chairman and managing partner, Kreston Menon, said the number of millionaires will undoubtedly continue growing in the UAE in coming years.

“Whatever the business challenges or revenue decline the companies are facing today, it is temporary. We need to look at long-term of 5 to 10 years. Millionaires should grow here in the UAE because money is available here so the investment avenues will be opened. The UAE’s economy offer big opportunities,” he said.

Menon believes that most of the new millionaires will be homegrown mainly in retail, trading, healthcare, real estate, services and shipping sectors. 

Iyad Abu Hweij, Managing Director of Allied Investment Partners, said the UAE, home to over 9.4 million residents, remains an attractive destination for HNWIs in the region.

With investor and business friendly policies, world class infrastructure and a stable outlook, HNWIs are expected to continue to grow in numbers in the country over the next coming years. Such policies and initiatives have played an important role in bolstering the confidence of investors and attracting Foreign Direct Investments in the UAE, which in turn creates jobs for a highly talented workforce,”  Abu Hweij said

Additionally, the UAE, viewed as a regional startup hub and a digital leader, continues to boast more startups than any other country in the region. Naturally, such startups attract more venture capital and private equity investments locally than anywhere else regionally, he added.

“The UAE continues to provide solid investment opportunities for investors locally and globally, which, along with a rapidly developing financial services sector, has played a catalyst like role for the growth of HNWIs in the country.”

Regional performance

The number of millionaires in the Middle East with wealth below $30 million grew three per cent from 446,384 in 2017 to 459,937 last year. The number is projected to grow 18 per cent to 541,311 by 2023. Similarly, the ultra-high net worth individuals with more than $30m assets grew four per cent year-on-year to 8,301 last year. It’s estimated that the number will grow 20 per cent over the next five years to 9,997.

According to Knight Frank forecast, the number of billionaires in the region will grow from 89 last year to 99 by 2023.

Globally, the number of millionaires with less than $30 million assets are projected to expand from 19.6 million in 2018 to 23.4 million by 2023, an increase of 19 per cent. While ultra rich will increase 22 per cent during 2018 to 2023 from 198,342 to 241,053.

waheedabbas@khaleejtimes.com

Fossil Fuel-reliant economies into ‘stranded nations’

Fossil Fuel-reliant economies into ‘stranded nations’

Image: Shutterstock

Decarbonisation ‘could leave fossil-fuel economies stranded’

by Jonny Bairstow

Friday 22 February 2019

These are the findings of a new World Economic Forum study which shows the world’s sovereign wealth funds collectively own $8 trillion

Global decarbonisation could turn fossil fuel-reliant economies into ‘stranded nations’ unable to unlock the value of carbon-based assets and infrastructure.

These are the findings of a new World Economic Forum study, which shows the world’s sovereign wealth funds collectively own $8 trillion (£6.1tn) in assets but currently invest just 0.19% of this figure in green energy.

It says economies that are heavily dependent on fossil fuel resources with more than 10% of their total wealth based in carbon assets could become “stranded” – it says they must act now to develop the “human capital and economic diversification” to continue to thrive.

The report acknowledges some fossil fuel-dependent countries have already begun to diversify their economies for impending energy changes but notes progress is slow.

It says this could pose a serious problem because as much as three-quarters of energy is expected to come from green sources by 2050.

Maha Eltobgy, Head of Shaping the Future of Long-Term Investing, Infrastructure and Development at the WEF, said: “To protect their economic futures, countries whose economies rely on fossil fuels need to prepare now for the impending global shift away from these resources.

“The resource dependent, fossil-fuel-rich nations that have diligently-built large sovereign wealth funds to manage the economic challenges of the Age of Oil must now consider how to use this vast wealth to prepare for the Age of Green Energy.”

assets business carbon Change Climate fossil fuels investors r

Tourism’s importance in Saudi Arabia

Tourism’s importance in Saudi Arabia

Travel and Tour published on Thursday, February 21, 2019, this article on Saudi Arabia that aims to attract 1.5m tourists by 2020 all according to its Prince Mohamed Bin Salman’s Vision 2030. In this prince’s vision, diversification of the economy is emphasised and Tourism as a segment of it, is aimed at increasing the State revenue.

Tourism now holds pivotal importance for Saudi Arabia

Tourism has turned out to be the central development theme in Vision 2030 for Saudi Arabia, and as the Kingdom gradually opens its doors to tourists from around the world, its own citizens are also considered as one the fastest growing segment in the global travel market.

With travel bookings in the Kingdom considered the largest in the Middle East and North Africa (MENA) region, worth more than $25 billion each year, the power of the Saudi traveller is strong, which was reflected in recently concluded Jeddah International Travel and Tourism Exhibition (JTTX), where thousands of Saudis, including women, attended the event.

The show is touted as the largest travel trade show in Kingdom, featuring outbound destinations for Saudi tourists and travel companies showcasing various lucrative options.

The JTTX ninth edition was formally inaugurated by Prince Saud Bin Abdallah Bin Jalawi, Advisor to Makkah Governor and also secretary at Jeddah Governorate. The show was held under patronage of Prince Mishal Bin Majed, Governor of Jeddah.

More than 200 exhibitors from 29 countries took part in JTTX which was held at Hilton Hotel. There were stalls displaying a wide range of tourism facilities such hotels, resorts, airlines, travel technologies, medical and educational tourism.

A majority of the Kingdom’s tourists travel to the UAE, Bahrain, Malaysia, Indonesia, Singapore, Turkey and the UK as top holiday destinations.

However, new destinations like Kerala in India, Sri Lanka, Azerbaijan and Georgia emerge as new destinations for Saudis.

The show also featured eight new destinations: Hong Kong, Finland, Spain, Mauritius, Morocco, Kosovo, Vietnam and New Zealand with Tunisia being the guest of honor of the event.

Global trade war impacting the MENA region

Global trade war impacting the MENA region

Michael Fahy, Business journalist in the UAE and editor of zawya.com with his motto of “My views are both infrequent and my own”, wrote about the global trade war impacting the MENA region.

DP World’s Jebel Ali Port in Dubai, the United Arab Emirates (UAE). Image supplied by DP World. Image used for illustrative purpose.

MENA region will not escape impact of global trade war, says economist

Arab Bank’s Radwan Shaban said oil exporting nations provide 80 percent of region’s GDP

The Middle East and North Africa region is unlikely to escape the impact of a trade war, with the biggest potential impact coming from a decline in oil prices, according to the chief economist of Jordan’s Arab Bank.

Speaking on a panel debate on the global outlook for the MENA region, Arab Bank’s chief economist Radwan Shaban said that falling oil demand from China and other nations, as the result of a prolonged trade dispute, would be “a negative for the region”.

“This is a region in which, yes, we have oil exporting and oil importing countries, but in terms of numbers, oil exporting countries account for 80 percent of GDP of this region in 2018,” Shaban said. “Even the welfare of oil-importing countries is closely tied to oil-exporting countries through trade, tourism, FDI, foreign assistance – a whole bunch of factors.”

He said that oil importing countries such as Jordan witness lower trade, lower investment levels and lower assistance with Gulf neighbours if oil prices decline, which “translates into lower economic growth”.

Monica Malik, chief economist with Abu Dhabi Commercial Bank (ADCB), said that with oil prices maintaining a level above $70 per barrel since the second quarter of this year, “we are more optimistic” of the region’s prospects for growth.

She anticipates that higher revenues from oil will mean the government will enjoy a fiscal surplus in 2018, while Saudi Arabia will “substantially reduce” its deficit to under 5 percent of gross domestic product (GDP), although other nations such as Bahrain, Kuwait and Oman had been less progressive with their reforms.

“But I think with the GCC [Gulf Cooperation Council] support packages to Bahrain, we expect the pace of reforms there to accelerate. We’ve already had parliament approve their VAT law,” Malik said.

Both the United Arab Emirates and Saudi Arabia have shifted fiscal policy from consolidation towards growth, Malik said, and had given indications that they intend to continue doing so throughout next year.

In the UAE, she said the country has benefited from “a number of stimulus packages and support measures which aren’t just for short-term growth support but also to improve the business environment, to bring capital inflight, to bring foreign direct investment.”

“I think the critical driver of economic activity, non-oil activity, in the Gulf is government activity still. So, I think focused growth, supported by investments that will really improve the medium-term environment, will be positive for the private sector, though at this point it’s still weak and tightening monetary policy is one of the key headwinds.”

James McCormack, global head of sovereign and supranational ratings at Fitch Ratings, was less positive about Saudi Arabia’s fortunes.

“If you dig around the numbers a little bit, you see a big increase in oil revenues, which has been matched largely by increases in spending. And the concern there is the increases in spending are in current spending, not capital, so (it’s) a little bit more difficult to bring those back down when oil prices maybe come down,” he argued.

A widening gap
He said that the balance of the non-oil economy as a proportion of GDP was worsening.

“The deficit is getting bigger. So, this is really an oil story in terms of the fiscal recovery that we’re seeing in Saudi Arabia,” McCormack argued.

McCormack also said that he feared the trade dispute between the United States and China could be a prolonged one.

“I think it (dispute) is going to last longer, in part because of the fact that the U.S. has moved the goalposts – in fact, widened the goalposts a couple of times,” McCormack said.

He argued that some of the demands being made by the U.S. are considered to be “non-negotiable” by the Chinese government.

“I don’t see how we’re going to have a discussion that’s going to satisfy both sides. This has the potential to turn into something meaningful from a global macro sense,” McCormack argued.

Shaban said that a slowdown in global trade would hit the region in other ways. For instance, he said that Morocco is a significant supplier to Europe’s automotive sector, while in Egypt revenues from ships passing through the Suez Canal provide the country with an important source of foreign currency revenues.

“As global trade slows, that will affect the Suez Canal activity,” Shaban said.

(Reporting by Michael Fahy; Editing by Shane McGinley)
(michael.fahy@refinitiv.com)