Corruption is hampering development and economic prosperity.

Hello readers, welcome back to rsira-economics.com. In this post I thought I would share with you my extended project qualification which is based on the issue of corruption in a developing country. I chose to use Kenya to analyse the effects of corruption as, not only is Kenya a country ravaged by corruption, but because my parents were born in Kenya and I still have active connections and roots there. I have also made frequent visits to Kenya, thus allowing me to use my economic knowledge to explain in a more rigorous and objective manner my observations during these visits.

Within my report I have evaluated the extent of corruption, examined how there are both micro and macro effects and have tried to show show what the economy may have looked like, had it been subject to minimal corruption. The research piece is in excess of 5000 words, so if you don’t fancy sifting through it, I suggest you take a look at some of my other posts instead if you haven’t already read them, or stay tuned and wait for my new posts that will be coming soon. In particular, I will be revisiting Brexit, taking a look at Tesla and Amazon as well as looking at economic principals such as the idea of comparative advantage and trade policy. I will also be examining the roles of key economic institutions such as the IMF and the World Bank, as well as evaluating and reviewing some economics books that I have recently read. I will however give a brief summary of my key findings so that if you aren’t able to read the full report you can still get a flavour as to what the situation is in Kenya and understand some of the main economic implications of corruption. Although if you are really interested in the issue of corruption and would like to examine all my findings as well as see how I presented my research, feel free to give it a read and post any comments/criticisms/ideas below.

Extended Project Qualification

 

Corruption in Kenya in a nutshell:

In terms of my findings, I divided my report into a number of subheadings and presented the information under these.

Overview of corruption in Kenya:

Over the last 20 years, corruption has become ubiquitous in Kenya and it is clear that the issue is not just limited to a few ‘rogue officials at the top’. An anti-corruption commission has been at work in Kenya since 1997, although to date, Kenya is still classified as one of the most corrupt states in the world, with the 2016 Transparency International (TI) report ranking it at 145 out of 173.

Causes of corruption:

Corruption in Kenya has failed to be eradicated, let alone improve, primarily due to poor governance and extreme poverty. There are also people in power who benefit from it, and the existing governance institutions lack both the will and capacity to stop them from doing so. So widespread is the problem in Kenya it is difficult to know how to change the status quo. Does one start with the ‘street-level traffic policeman’, ‘the bureaucratic middle’ or at the ‘very top’? , It is estimated that fraud and corruption costs Kenya 1 billion US dollars a year, although the exact figures are not available. From my research I discovered that there is potential for Kenya from its young population and its well-established export economy; however this is juxtaposed with the reality of widespread corruption and deprivation, hence making the challenge seem impossible.

Impacts on a Microeconomic level (for those who don’t know this considers the behaviour of individuals and firms in making decisions):

One example of corruption on a micro economic level which most Kenyans are familiar with is corruption in the Kenyan Police Force.

Kenyan police officers refer to corruption not as stealing but as eating According to a survey by Transparency international, in 2011, 90% of respondents perceived the Kenyan police to be corrupt or extremely corrupt and there is a 60% probability of being asked for a bribe when interacting with police forces. In 2001 a Transparency International (TI) survey showed that the average urbanite Kenyan paid 16 bribes a month mostly to the police or public works, to secure services they should have received for free.

The obvious solution would be to pay police officers a higher salary, as this would reduce the need for officers to resort to seeking bribes and would therefore reduce the incentive for this form of corruption. The problem is however the Kenyan economy cannot afford to pay more for its public services, suggesting that it is poverty that causes corruption.

There appears to be little incentive for Kenyan officials in power to take steps to reduce corruption. As an example from 2003 to 2006, the then president Kibaki’s cabinet spent 14 million dollars on new Mercedes cars for themselves and in late 2008, several members of Kibaki’s parliament were found to have taken large “allowances”, which were not legally part of their official compensation. The legal system is also impacted upon by corruption and in Kenya the general consensus is that you are guilty until proven rich.

Corruption also poses a security issue as it leads to violent protests and for that reasons Kenya is termed as one of the most dangerous countries in the world.

 

Impacts on a Macroeconomic Level (this looks at the whole economy in terms of employment, growth and inflation etc.)

Kenya’s growth suffered a low 5.6% in 2014 when it could easily be around 7-8%, whilst creating jobs along the way. This was because corruption was capping the extent to which the economy could grow and diverting money away from public services.

Corruption also impacts the economy from decreased tax revenues, as corrupt officials, individuals or firms evade taxes/fines in return for bribes, which instead of contributing to the government’s public purse, fuels the hidden economy.

In terms of education there was a major corruption scandal in the education system in Kenya where 4.2 billion shillings ($46 million) went missing from the Ministry of Education. The UK which contributed about $77 million to Kenya’s free primary education program, demanded a refund of its money and the British High Commissioner to Kenya at the time, stated significant reforms would be needed before the UK would consider contributing to such funds.

Poor schooling has resulted from this lack of investment meaning many of those leaving school are not equipped with sufficient skills exacerbating unemployment.

At a macro level it is clear that corruption is clearly causing poverty since money is being diverted from Kenya and its people.

Foreign Aid

On the face of it, it may seem that foreign aid is the best way to reduce poverty in Kenya and eliminate corruption; however, it can actually exacerbate the problem at hand. In the past fifty years, over $1 trillion in development related aid has been transferred from rich countries to Africa and this has had little effect. Economists like Dambisa Moyo argue for an aid free world although in reality this would be unfeasible and what’s actually needed is more efficient aid.

Solutions

Economically corruption is known as a ‘wicked’ problem. That is, it is so complex that it can only ever be partly solved/controlled it can never be completely eradicated.

Barack Obama said on his visit to Kenya, discussed earlier. There is a need for “visible prosecutions” to show citizens action was being taken. For example Botswana, the least corrupt country in Africa has a prosecution rate well above the international average for corruption related offences.

Social media has also been used effectively as an anticorruption tool. It was actually first introduced in Russia and now Facebook has a ‘Name and shame your corrupt politicians’ facility.

My Conclusion

Major goals for Kenya in the future include addressing the challenges of poverty, inequality, poor governance, low investment and low firm productivity to achieve rapid, sustained growth rates that can transform the lives of ordinary citizens. Kenya’s vision 2030 is one such programme that has been designed with this in mind and has set a realistic aim of 2030 to achieve this. Kenya vision 2030 is an achievable aspiration provided the scourge of corruption in Kenya can be tackled.

 

 

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