Anticorruption in Transition 3 – Who is Succeeding … And Why?

World Bank, November 2006World Bank, November 2006

Anticorruption in Transition 3 Anticorruption in Transition 3 – Who is Succeeding … And Why?– Who is Succeeding … And Why?

www.worldbank.org/eca/act3www.worldbank.org/eca/act3

The Big QuestionsThe Big Questions

Is corruption in Eastern Europe Is corruption in Eastern Europe and the former Soviet Union and the former Soviet Union

– – including Moldova – including Moldova –

getting better or worse?getting better or worse?

What explains the changes?What explains the changes?

A Tool for Monitoring CorruptionA Tool for Monitoring Corruption

““Business Environment and Business Environment and Enterprise Performance Survey” (BEEPS)Enterprise Performance Survey” (BEEPS)

Joint initiative with EBRDJoint initiative with EBRD 20,000 firms in 3 rounds (1999, 2002, 2005)20,000 firms in 3 rounds (1999, 2002, 2005) 26 transition countries26 transition countries 6 European comparators in ‘05: Ireland, Germany, 6 European comparators in ‘05: Ireland, Germany,

Greece, Portugal, Spain, Turkey (+ Korea and Vietnam)Greece, Portugal, Spain, Turkey (+ Korea and Vietnam) Focus on corruption in enterprise-state interactionsFocus on corruption in enterprise-state interactions

Corruption Indicators used in BEEPSCorruption Indicators used in BEEPS

Frequency of bribery Frequency of bribery • TaxTax• CustomsCustoms• Business LicensingBusiness Licensing• ProcurementProcurement• JudiciaryJudiciary

Bribe “tax”Bribe “tax” State captureState capture Corruption as a problem for businessCorruption as a problem for business

Is corruption getting Is corruption getting better or worse?better or worse?

……and how do transition countries and how do transition countries compare with European comparators?compare with European comparators?

Corruption is falling for the Corruption is falling for the region as a wholeregion as a whole

(though not yet to W. Europe levels)…(though not yet to W. Europe levels)…

2.7 2.62.4

1.8

1

2

3

4

5

6

1999 2002 2005

ind

ex

of

bri

be

fre

qu

en

cy

1=

ne

ve

r

6=

alw

ay

s

Transition Countries

Comparator Countries

Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

… … but not in all countries …but not in all countries …Bribe Frequency by country, Bribe Frequency by country,

2002-20052002-2005

0%

25%

50%

75%

100%

Geo Slk Bul Mol Rom SAM Alb Kyr

pe

rce

nt

"fre

qu

en

t"

Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

… … and not in all sectors.and not in all sectors.Bribe Frequency by sector, 2002-2005Bribe Frequency by sector, 2002-2005

0%

5%

10%

15%

20%

Fire andBlg Insp.

Courts Customs Bus.Licenses

Taxes Gov.Contracts

per

cen

t "f

req

uen

t"

comparator countries

2005

transition countries

2002-2005

Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

Many Moldovan firms see corruption Many Moldovan firms see corruption as a problem for business…as a problem for business…

but fewer than in 2005.but fewer than in 2005.

59%

32%

41%50%

30%37%

0%

25%

50%

75%

100%

Mol EU-8 CISperc

en

t o

f fi

rms s

ayin

g c

orr

up

tio

n i

s a

p

rob

lem

Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

Moldovan firms report the highest levels Moldovan firms report the highest levels of corruption in the following areas:of corruption in the following areas:

• CustomsCustoms (improving but still high)(improving but still high)

• Business licensingBusiness licensing (no change over 3 years)(no change over 3 years)

• TaxTax (major improvement but still significant)(major improvement but still significant)

• Government procurementGovernment procurement (rising)(rising)

……and state capture is still relatively high and state capture is still relatively high in Moldova and other SEE countries.in Moldova and other SEE countries.

New private firms continue to pay New private firms continue to pay the most bribes.the most bribes.

0%

5%

10%

15%

20%

25%

30%

35%

small, new private,domestic, firms in the

city

larger,older, state orforeign, firms outside of

the city

Pe

rce

nt

of

firm

s s

ay

ing

th

at

bri

be

ry is

fre

qu

en

t

transition countries 2002

transition countries 2005 comparators countries 2005

Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

Why the improvement Why the improvement in ECA?in ECA?

A Tool for Monitoring A Tool for Monitoring Policies and InstitutionsPolicies and Institutions

“Doing Business”

Survey of accountants and lawyers on Survey of accountants and lawyers on time and cost of:time and cost of:

• Starting a businessStarting a business• Dealing with licensesDealing with licenses• Hiring and firingHiring and firing• Registering propertyRegistering property• Getting creditGetting credit• Protecting investorsProtecting investors• Paying taxesPaying taxes• Trading across bordersTrading across borders• Enforcing contractsEnforcing contracts• Closing a businessClosing a business

Transition countries lead the world in Transition countries lead the world in business-friendly policy reforms…business-friendly policy reforms…

0 25 50 75 100

South Asia

East Asia & Pacific

Latin America and Caribbean

Middle East & North Africa

Sub-Saharan Africa

OECD high-income

Eastern Europe and Central Asia

Percent of Countries that Made at Least One Reform in 2005

Source: Doing Business in 2007

3 of the top 10 reformers in 2005 3 of the top 10 reformers in 2005 were in ECA…were in ECA…

1.1. Georgia Georgia2. Romania2. Romania3. Mexico3. Mexico4. China4. China5. Peru5. Peru6. France6. France7. Croatia7. Croatia8.8. GuatemalaGuatemala9. Ghana9. Ghana10. Tanzania10. Tanzania

Source: Doing Business, 2007

… … and reforms are in many areas.and reforms are in many areas.

Tax Tax • Low rate, broad based taxes (e.g. Baltics and Slovakia)Low rate, broad based taxes (e.g. Baltics and Slovakia)

Customs Customs • IT, risk-weighted inspections (SE Europe)IT, risk-weighted inspections (SE Europe)

RegulatoryRegulatory environmentenvironment• deregulation; less frequent inspections (Georgia)deregulation; less frequent inspections (Georgia)

CourtsCourts• independence, efficiency, transparency (Romania) independence, efficiency, transparency (Romania)

ProcurementProcurement • transparency and capacity-building (Poland)transparency and capacity-building (Poland)

However, the ease of doing business However, the ease of doing business still varies widely among countries.still varies widely among countries.

Ukraine

Moldova

Poland

Hungary

Slovenia Bulgaria

Czech Republic

Slovakia

Latvia Estonia

Lithuania

rank for ease of doing business1=best 175=worst

rest of ECABulgariaEU-8

Moldova 103

Uzbekistan=147

Source: Doing Business in 2007

Lithuania 16Lithuania 16

Moldova ranks well in a fewMoldova ranks well in a fewpolicy areas but not most…policy areas but not most…

[note: lower score is better][note: lower score is better]

1

88

175

Labor Licenses Taxes InternationalTrade

Credit InvestorProtection

Startup ClosingDown

Courts Registration

Do

ing

Bu

sin

es

s R

an

k

EU-8 (median)

Moldova

Source: Doing Business in 2007

… … and some progress has been made in and some progress has been made in addressing accountability and transparency.addressing accountability and transparency.

0

4

8

12

AssetMonitoring

Conflict ofinterest

Freedom ofInformation

Immunity

Qu

ali

ty o

f A

nti

co

rru

pti

on

La

ws

MD

EU-8 average

RO

LT

Source: World Bank project on Actionable Indicators; update of Dorhoi (2005)

What motivates What motivates change?change?

The “carrot” of EU Accession has The “carrot” of EU Accession has been a strong motivator of reform.been a strong motivator of reform.

0

25

50

75

Cze, Est, Hun,Pol, Sln

Lat, Lit, Slk Bul, Rom Cro, Mac Alb, Mol, Ukr

Imp

rove

men

t in

an

tico

rru

pti

on

in

stit

uti

on

s

1995-2002

2002-2003

Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?; based on the Anticorruption Assessment Index in Dorhoi (2005).

Most importantly, every country that has Most importantly, every country that has made significant progress has hadmade significant progress has had strong and committed leadership.strong and committed leadership.

To summarizeTo summarize

1.1. Corruption in enterprise-state relations is falling in Corruption in enterprise-state relations is falling in many transition countries...including Moldova.many transition countries...including Moldova.

• but wide variation among sectorsbut wide variation among sectors

2.2. Policy and institutional reforms matter.Policy and institutional reforms matter.• Customs, business licensing, taxation, and public Customs, business licensing, taxation, and public

procurement are some key areas for Moldovaprocurement are some key areas for Moldova

3.3. Strong leadership is essential, and countries need to Strong leadership is essential, and countries need to continue their efforts.continue their efforts.

• Still a distance from EU normsStill a distance from EU norms• Complacency is not an option in today’s globalized Complacency is not an option in today’s globalized

world world

Anticorruption in Transition 3:Anticorruption in Transition 3:Who is Succeeding … And Why?Who is Succeeding … And Why?

www.worldbank.org/eca/act3www.worldbank.org/eca/act3

For more information on For more information on economic policy and governance:economic policy and governance:

www.worldbank.org/eca/econwww.worldbank.org/eca/econ