World Economy

Crime, Corruption Increases Countries Costs by 20-25%

Bribes, often paid by investors, are added to the final costs of the projects and products, which in turn lead to price increase and to a drop in investment return
The Ritz-Carlton Hotel in the Saudi capital Riyadh had morphed into a makeshift prison after the kingdom’s crackdown on the coddled elite.The Ritz-Carlton Hotel in the Saudi capital Riyadh had morphed into a makeshift prison after the kingdom’s crackdown on the coddled elite.

The World Bank estimates that, on the global level, illegal revenues generated by corruption, crimes and tax evasion range between $1.5 to $1.8 trillion annually, which represents 4% to 6% of the overall global economy.

In its report on global corruption, Transparency International mentioned that systematic corruption in public procurement increases governmental costs by 20% to 25% and reduces at the same time the quality of requested goods and services, AMEinfo reported.

A World Bank report on world development signals that more than $300 billion are being robbed and subject to corruption every year in the Arab world and cites the impacts and repercussions of corruption.

Corruption affects the performance of different economic sectors and negatively impacts economic growth, because it represents a toxic environment for investments and investors and increases the project costs, in addition to its destructive social impacts.

In fact, bribes, often paid by investors, are added to the final costs of the projects and products, which in turn lead to price increase and to a drop in investment return.

Corruption also weakens the quality of infrastructure and public services, negatively affecting maintenance and limits the government’s capability to increase revenues.

In an interview with Saneou al-Hadath,or SAH, an AMEinfo sister company, Partner in International Administration Consultancy Company, A. T. Kearney, said:

Financial corruption levels are rampant in the (Persian) Gulf Cooperation Council countries (Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman), "as the UAE is listed among the first 50 countries on the Corruption Perceptions Index.

"However, there is a dire need to more transparency in financial transactions within the (P)GCC, as the Corruption Perception Index signals that, first and foremost, there is a lack of transparency in practices and complex legal systems as well as a drop in the levels of openness to public accountability, which leads to a drop in investments in the region, notably in direct foreign investments.

“This reality keeps the SMEs and innovative companies from launching their projects in the region, and banks start refusing to freely offer loans and ask for more guarantees and documents to deal with these risks, which negatively impacts economic growth as well as the efforts of economic diversification and recruitment levels in the (P)GCC.”

Transparency a Challenge

During the “Top CEO Conference and Awards” in Saudi Arabia, SAH asked Xavier Anglada, managing director, Accenture Digital Lead, MENAT, how companies can be transparent and resist corruption.

He said: “Maintaining transparency in companies is considered a challenge everywhere. To accomplish it, the right balance between all administrations and employees should be established and concerns of employees should be answered.

"Any instability will be damaging on the long run, which will lead to corruption, thus negatively impacting the company’s competitiveness, disrupting its new project and preventing it from entering new labor markets or even from persisting in the markets in which it operates.”

The Mentality Level

Khaled Almaeena, managing partner, Quartz Communications, said: “To fight, reduce or get rid of corruption, the real change has to be on the mentality level. There should be a focus on productivity, and good and transparent performance, but that does not mean that top management can be passive and stop monitoring, because huge projects need skilled and precise surveillance. A professional approached should also be adopted because bureaucracy and corruption are the development’s arch enemies.”

During a roundtable hosted by Pearl Initiative in partnership with Siemens Kuwait, experts signaled that corruption was increasing business costs by approximately 10% on average.

Thomson Reuters published in late May a global survey on the value of financial crimes and the losses resulting from corruption and revealed that 47% of respondents around the world were victims of financial crime in one way or another in the 12 months preceding the survey. This percentage reached 45% in the Middle East and North Africa.

According to Nadim Najjar, General Manager, Thomson Reuters, 96% of the survey participants think that corruption and bribes are a significant case that should be dealt with, whereas 97% of them support the idea of sharing the best company compliance practices.

In Saudi Arabia

Saudi Arabia arrested a ministry of defense official for accepting a bribe of one million riyals ($266,670) in early July, Saudi state news agency reported then.

Authorities claim the bribe came from a company looking to ease procedures and “secure government pay-outs”.

The unnamed official, along with two others believed to be involved in the transaction, have been charged with bribery and abusing their position for self-benefit.

The arrest came more than a year after Crown Prince Mohammed bin Salman, who also serves as minister of defense, pledged to hold all accused of bribery accountable in the kingdom.

This dispels claims the corruption crackdown in Saudi Arabia has drawn to a close after seeing more than 300 of the kingdom’s elite rounded up last November.

Those held accountable were said to have embezzled $107 billion from government funds.

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