SCHOOL OF HUMANITIES AND SOCIAL SCIENCES

RESEARCH PAPER

IMPACT OF PUBLIC SECTOR CORRUPTION ON ECONOMIC DEVELOPMENT

MAJOR DAVIES SAINA KALEPA

DIPLOMA IN DEFENCE AND SECURITY STUDIES

The University of Zambia

SCHOOL OF HUMANITIES AND SOCIAL SCIENCES

DSS 105: RESEARCH PAPER

Name: Davies Saina Kalepa

Programme: Diploma in Defence and Security Studies

Course: DSS 105

Lecturer: Prof BJ Phiri PhD

Subject: Impact of Public Sector Corruption on Economy

Computer No: 12151173

Due Date: 07 November 2012

RESEARCH PAPER

THE CHALLENGES AND IMPACT OF CORRUPTION IN THE PUBLIC SECTOR ON ECONOMIC DEVELOPMENT OF THE COUNTRY

SUBMITTED IN PARTIAL FUFILLIMENT FOR THE AWARD OF THE DIPLOMA IN DEFENCE AND SECURITY STUDIES BY THE UNIVERSITY OF ZAMBIA

SUBMISSION STATEMENT

This Paper is submitted in partial fulfillment for the award of the ‘Diploma in Defence and Security’ awarded by the University of Zambia, Lusaka Zambia.

DECLARATION

This research was done through a high degree of consultation and analysis of available literature and internet sources, which have all otherwise been referenced. I therefore, declare that every effort was made to avoid plagiarism towards other authors’ written works.

Signature: …………………………………………………………………..

Date: ………………………………………………………………………..

ACKNOWLEDGEMENTS

Special appreciation goes to Prof BJ Phiri PhD, for his guidance throughout the research. Special thanks go to the management at Drug Enforcement Commission, Anti-Corruption Commission, Transparency International Zambia, Office of the Auditor General and various organisations that provided me with required information to complete this research; and all those individuals that contributed in one way or another towards the outcome of this research.

CONTENTS

Page

Submission Statement …..………………………………………………………………………i

Declaration …………………………………………………………………………….………..ii

Acknowledgements………………………………………………………………….………….iii

Abbreviations ……………………………………………………………………….………….vi

Abstract……………………………………………………………………………….………...vi

Chapter One……………………………………………………………………………………1

Introduction…………………………………………………………………………………….1

Background……………………………………………………………………………………...2

Statement of the Problem………………………………………………………………………..5

Objectives………………………………………………………………………………………..5

Justification………………………………………………………………………...……………6

Limitations of the Study……………………………………………………………...…………7

Definitions…………………………………………………………………………..…………..7

Methodology………………………………………………………………………...…………..8

Research Questions……………………………………………………………...………………8

Sample Size……………………………………………………………………………...………9

Chapter Two………………………………………………………………………...………...10

Literature Review……………………………………………………………...……………..10

Chapter Three………………………………………………………………...……………….15

Findings……………………………………………………………………...…………………15

The Civil Service…………………………………………………………...…………………...15

Procurement of Goods and Services…………………………………………………………..16

Gaps in the Judiciary……………………………………………………………………...…..16

Forms of Corruption…………………………………………………………………………..17

Policy and Practice……………………………………………………………………………17

Tangible Costs of Corruption…………………………………………………………………18

Distortion of Public Assets Value…………………………………………………………….18

Patronage and Nepotism....……………………………………………………………………18

Main Actors…………………………….……………………………………………………..19

Strategies Used in Fighting Corruption……………………………………………………….19

Causes of Corruption………………………………………………………………………….19

Chapter Four………………………………………………………………………………...23

Analysis of Findings…………………………………………………………………………23

Effects of Corruption on the Economy……………………………………………………….23

Combating Corruption………………………………………………… …………………….24

Chapter Five…………………………………………………………………… …………..26

Conclusion…………………………………………………………………… ……………..26

Recommendations…………………………………………………………… ……………..28

References

Annex A (Questionnaire)…………………………………………………… ……………A-1

ABBREVIATIONS

ACC: Anti-Corruption Commission

DEC: Drug Enforcement Commission

ECZ: Electrol Commission of Zambia

IFMIS: Integrated Financial Management Information System

IMF: International Monetary Fund

MMD: Movement for Multi-Party Democracy

NGO: Non-Governmental Organisations

OAG: Office of the Auditor General

PEMFA: Public Expenditure Management and Financial Accountability

SITET: Special Investigation Team on Economy and Trade

TI: Transparency International

UNDP: United Nations Development Programme

UNIP: United National Independence Party

ZIPS: Zambia Institute of Purchasing and Supply

ZPPA: Zambia Public Procurement Authority

ZRA: Zambia Revanue Authority

ABSTRACT

There had been many anti-corruption attempts in Zambia targeting the Public Sector, but with very little success. Despite the many efforts and good laws (such as the Anti-Corruption Commission Act; Abuse of Authority Clause) meant to fight corruption, incidences of corruption seemed to be on the increase. Reports of the Office of the Auditor General continued to reveal high levels of corruption, and a number of corruption cases were in the courts of law, despite the many convictions of former public workers during the period 2002 to 2012.

This research was conducted to establish the relationship between corruption in the public sector and economic development. The focus of this paper was the impact of corruption in the public sector on the economic development of Zambia. Whilst it is difficult to ascertain the exact impact of corruption on development, in the absence of corruption, even greater and more sustained levels of development can flourish. Despite arguments to the contrary, all corruption is inimical to the process of sustainable development.

This research demonstrated that high scale corruption may have very harmful effects on economic and political development. There are many causes of corruption, and is trigged by factors such as monopoly power, discretionary power and weak accountability of public officials, which may give opportunities for corrupt acts.

The economic gains from reducing corruption in can be increased if anti-corruption interventions are combined with a wider set of policies aimed at improving institutional quality and providing correct incentives for investment in human capital. This systematic review also indicates that levels of corruption in the Public Sector may be higher than in in the Private Sector, but the latter stand to gain more from reducing the incidence of corruption. With respect to implications for future research, innovation is both necessary and feasible with respect to construction of better corruption data, and estimation of indirect effects of corruption in the public sector on growth.

CHAPTER ONE

INTRODUCTION

There have been many anti-corruption attempts in Zambia targeting the Public Sector, but with very little success. Despite the many efforts and good laws (such as the Anti-Corruption Commission Act) meant to fight corruption, incidences of corruption seemed to be on the increase. Reports of the Office of the Auditor General have continued to reveal high levels of corruption, and a number of corruption cases were in the courts of law at the time this research was conducted, even with the many convictions of former public workers during the period 2002 to 2012.

At the global stage, the post Cold War era of the 1990’s saw a renewed interest in corruption fight by Western powers, trying to bring stability and prosperity to global markets. Nonetheless, research on the causes and consequences of corruption recorded a significant increase in the last two decades. According to analysts, countries that undertook liberalisation reforms in the context of rapid globalisation were most affected.

Literature on sub-Sahara Africa reveals that many anti-corruption institutions and integrity systems, although some have had notable success, have not been able to eliminate or significantly reduce corruption in Africa. However, the picture is a bit different in Western Countries (North America and Western Europe) where very low levels of corruption exist due to strong institutions and political will.

Empirical evidence suggests that although strong enforcement and monitoring are needed, they have little long-term effect if the basic conditions that encourage corruption and payoffs are not addressed. Thus anti-corruption efforts should focus on making substantial improvements in the overall efficiency, fairness, and legitimacy of the state, by addressing those underlying incentives to receive or pay bribes through fundamental reforms.

Zambia’s socio-economic and political reforms programmes since independence and in recent times after the reintroduction of multi-party democracy in 1990 have consistently recognized the need for institutions of good governance measures. These measures include accountability and transparency, seeking to reduce the harmful effects of institutional and legal weaknesses that provide opportunities for behaviours and practices that can undermine the country’s socio-economic development through corruption.

These anti-corruption measures, however, have most often been done in isolation, uncoordinated, inactionable, and unfavourable manner. Consequently, their impact on preventing and combating corruption in the country has not been adequately commensurate with the efforts and fiscal resources involved.

Beginning with an analysis of the academic perspectives on corruption, this paper investigated the Zambian Public Sector to establish the impact of corruption on economic development. The public sector comprises departments that implement government economic policy, and thus the impact of corruption directly affects economic factors.

BACKGROUND

Corruption is a contextual issue and evolves over time. In the case of Zambia, it seemed to have evolved over four phases and over four decades as the environment underwent clear patterns of change both in political and economic terms, and gave rise to corruption.

1964 to 1974.

According to available literature, this was a period of relatively no corruption, which was generally rejected or shunned. Soon after independence, nationalism and patriotism were very strong. The economy was still strong and stable, as world prices for copper, a leading foreign exchange earner then, were still good. Generally, unemployment was low, and goods and services were readily available. It is claimed that during this period the government was efficient in delivering services, as government machinery largely functioned well; public officers were adequately remunerated; and employment in public service, promotion, and discipline in public offices were not based on political considerations or influenced by irregular means—they were based on merit, and pay structures were commensurate with responsibility.

The political leadership was strongly against corruption, and this was supported by a strong national moral tone against corruption. Public officers observed high ethical standards of avoiding conflict-of-interest situations, by not engaging in business deals or arrangements for personal gain. Other than the police, there was no other organ specifically charged with the responsibility of dealing with corruption cases.

1975 to 1990.

During this period, the economy was to a large extent centralized, and the state was in charge of strategic economic and commercial enterprises. Key industries, factories, and commercial enterprises were in the hands of the state.

With a narrow export base on copper, the economy became increasingly vulnerable to changes in world prices for the commodity. A mounting external debt burden, increasing budget deficits, and lower GDP growth rates all exerted pressure on the economy and on inflation rates. Shortages and long queues became common as demand for goods and services exceeded supply.

It was at this time that corruption, and concerns about it, began to emerge. However, the Kaunda government responded by introducing a leadership code, which was included in the constitution of Zambia and that of UNIP. The code covered all persons in the employment of UNIP (the only party then), and in the government, local authorities, trade unions, state enterprises, and institutions of higher learning. The code barred leaders in many respects, and made earning extra income while in office illegal, barred public officers from entering into business arrangements for personal gain, and barred leaders from owning property outside Zambia or owning more than one piece of land or more than ten acres of land within Zambia.

All leaders were required to declare their assets to the committee that oversaw the leadership code, within three months of assuming office, or whenever they earned extra income. The leadership committee was appointed by and reported to the president. Penalties were harsh, and could result in dismissal from office.

Subsequently, the Special Investigation Team on Economy and Trade (SITET), a forerunner to the country’s anticorruption commission, was constituted, but it had no meaningful impact. Because of the ineffectiveness of SITET, the UNIP government in 1980 passed the Corrupt Practices Act to deal specifically with the problem of mounting corruption. Unlike previous attempts to combat corruption in the past, the act broadened corruption to include the private sector, and increased penalties for corruption. The act created the Anti-Corruption Commission (ACC), and gave it the power to investigate and prosecute corruption through the traditional judiciary.

1991 to 2001.

Chiluba’s ten-year reign, from 1991 to 2001, is “best remembered” for the worst corruption Zambia had ever experienced. In the earlier years of the Chiluba regime, the leadership code was scrapped and public leaders were allowed to own and run businesses while in office. They were also permitted to earn extra income by whatever means while in office. Restrictions on property ownership were also removed.

The Parliamentary and Ministerial Code of Conduct Act was passed in 1994, followed by the Anti-Corruption Commission Act in 1996, which replaced the Corruption Practices Act of 1980. Also in 1996, but under pressure from donors and civil society, the MMD government adopted the Electoral Code of Conduct Regulations, followed shortly in 2001 by passage of the Prohibition and Prevention of Money Laundering Act.

While these efforts seem to indicate political will to combat corruption at the highest level, the results were dismal. These initiatives were, so it is alleged, merely to appease the international community. There was simply no political will to combat corruption.

2002 to 2012.

In 2002, the government adopted a policy of “Zero Tolerance to Corruption” and the Task Force on Corruption was established to bring to book and prosecute all those that were involved in the plunder of national resources in the previous government. Considerable achievements were made in the fight against corruptions during this period, with the government receiving international praise. However, reports indicate that most of these successes were short lived after the Rupia Banda government (2008 to 2011) removed the Abuse of Authority Clause from the ACC Act, leading to wide spread corruption yet again. The Micheal Sata government which took over power in 2011 promised to strengthen the fight against corruption, and took the Abuse of Authority Clause back to Parliament for reinstatement in the ACC Act.

STATEMENT OF THE PROBLEM

There had been a lot of efforts directed towards fighting corruption in Zambia. A number of laws were put in place, and a number of actors both governmental and non-governmental organisations came forward in order to help fight the scourge. Despite all these efforts, corruption in the Public Sector was reported to be on the increase. This research was conducted to find out the impact and effects of corruption in the public sector on the economy of the country.

OBJECTIVES

General Objective: To establish the challenges and Impact of Corruption in the Public Sector on the Economic Development of Zambia.

Specific Objectives:

1. To establish the main actors in the fight against corruption in Zambia.

2. To review the current strategies in the fight against corruption in the public sector.

3. To identify the challenges in the fight against corruption in Zambia.

4. To establish the Impact of corruption in the Public Sector on the Zambian economy.

5. To recommend measures to help in effectively fighting corruption in Public Sector.

JUSTIFICATION

The public sector had the responsibility of implementing government programmes. I doing so, they were required to account for all resources under their jurisdiction, and prudently commit all resources as per budget to the benefit of the nation. If such resources are abused due to corruption in the public sector, the country will not see the much needed development.

The Auditor General’s reports continued to review wide spread corruption in the public sector. This was backed by reports produced by Transparency International, and corruption related arrests that were being made by the Law Enforcement Agencies.

A number Senior Government Officials have been arrested in the past to answer corruption charges in the recent past, with some cases successfully prosecuted. Since all government resources are well budgeted for, such abuse implies inefficiencies, which surely should have an impact and effects on the economic development of the country. Such corrupt activities needed to be well investigated to find out the impact on the economy. This would help decision makers find lasting solutions to reducing corruption for the benefit of the nation and the future of the country.

The absence of Corruption will lead to:

1. Poverty reduction.

2. Good governance.

3. Improved citizens’ access to public resources and respect for human rights.

4. Effective and efficient government delivery of social services to the citizens.

5. Promotion of social-economic and political development.

6. Economic development in general.

This paper established the relationship between corruption and development. The focus was on the impact of public sector corruption on the economy of Zambia.

LIMITATIONS OF THE STUDY

This study looked at available information with major actors and reviewed available literature, and concentrated in Lusaka due to the time factor and financial implications. All interviews were done within Lusaka, and all questionnaires were distributed to selected actors in Lusaka. Since most government departments and NGOs involved in the fight against corruption were headquartered in Lusaka, it was assumed that the results represented a national character.

The study focused on the government budgetary expenditure on government projects and award of contracts in the procurement of goods, works and services. Whereas activities of government agencies and authorities were investigated, government aided institutions, State Enterprises and Public Private Partnerships did not form part of the study.

DEFINITIONS

For the purpose of this paper, the following words/terms and concepts mean as indicated:

Corruption: All actions and activities where the actor(s) gets a personal benefit, which they are otherwise not entitled to, by taking advantage of their office, position or influence; or abuse of public office for private gains by public sector employees.

Public Sector: Includes all government ministries, agencies, authorities and departments.

Private Sector: Means all enterprises in which the government has no stake.

Legislation: Acts of Parliament of the Republic of Zambia or Legal government directives on corruption and related activities.

Flaws: Weaknesses in the legislation.

Common citizens: Persons not holding public offices or working for agencies or organisations involved in the fight against corruption.

Patronage: The assignment of government positions to political supporters by legal executive officials.

Nepotism: The granting of public office on the bases of family ties by individuals in Senior Government positions.

Shared experience: The patron and client have usually worked together in the past and are on good terms and the patron promotes or has promoted the client on the basis of these past experience and warm relationship.

METHODOLOGY

Rather than examining specific cases of corruption, this research explains the broader phenomena of the coexistence of development and corruption. The investigation relied on secondary evidence from reports, face to face interviews and results of questionnaires.

The scope of the study took the following form:

1. Review of available literature on corruption and corrupt activities.

2. Collection of information through questionnaires and face to face interviews with major stakeholders including ACC, DEC, TI, Zambia Police and Media Organisations.

3. Obtaining information from randomly selected persons in the Government Departments, NGOs, and Specialist Consultants.

The methods of data collection comprised:

1. Face to face (interviews)

2. Group interface.

3. Questionnaire (See Annex A).

RESEARCH QUESTIONS

After studying the current trends and reviewing various literature on corruption in Zambia, it was clear that there was wide spread corruption in the public sector. Whereas the fight was on, questions remained to be answered as to why many more people were still engaging in the scourge. This research answered the following questions:

1. Who are the major actors in the corruption fight in Zambia?

2. What challenges are there in the fight against corruption in Zambia?

3. Why is there wide spread corruption in the Public Sector?

4. What is the impact of corruption in the Public Sector on the economic development of the country?

SAMPLE SIZE

In order to come up with a balanced report, key stakeholders in the fight against corruption were contacted, and key persons in such organisations were given questionnaires to answer, whereas face to face interviews were also conducted with selected middle management staff to get their views. Target organisations included the ACC, TI, Lusaka High Court, DEC, Electrol Commission of Zambia, Zambia Police, Office of the Auditor General, Zambia Institute of Purchasing and Supply, Zambia Institute of Chartered Accountants, Ministry of Justice and United Nations Development Programme.

Selected members of the general public and known commentators from academia and NGOs were also interviewed or given questionnaires for expert opinion.

CHAPTER TWO

LITERATURE REVIEW

Corruption is one of the oldest and most perplexing phenomenon in human society. Political corruption exists in every country in the contemporary world and it is not exclusively a problem of developing countries. The classical concept of corruption was stated by ancient political philosophers Plato and Aristotle. Plato in his theory observed that regimes instead of being guided by the law were serving the interest of the rulers (Arnold Heidenheimer 1993 p.25). He called political corruption a consequence of the struggle for power, and that man had been corrupted by social and political life.

The definition most frequently used by social scientists is Nye’s, that corruption is: “…behaviour which deviates from the normal duties of a public role because of private-regarding (family, close private clique), pecuniary or status gains; or violates rules against the exercise of certain types of private-regarding influence. This includes such behaviour as bribery (use of rewards to pervert the judgment of a person in a position of trust); nepotism (bestowal of patronage by reason of ascriptive relationship rather than merit); and misappropriation (illegal appropriation of public resources for private-regarding uses)” (Nye, J. “Corruption and Political Development: A Cost Benefit Analysis”, The American Political Science Review, 61:2, 1967, p.419). This can be simplified to a general definition that will be used for the purposes of this paper: the abuse of public office for private gain.

Prior to independence, the first law that applied to corruption prevention in Zambia was the Prevention of Corruption Act of 1916. It was cited together with the public body’s Corrupt Practices Act 1889, and the Prevention of Corruption Act 1906.

In Post-Independence Zambia, the legal provisions on corruption were first contained in the Penal Code, Cap 146, Chapter X. This legislation was concerned with corruption offences by persons employed in the public service, and did not cover corruption in the private bodies or agents.

In 1973, the Leadership Code, for leaders, which constituted Part IV of the Republican Constitution, was introduced. The Leadership Code, First Schedule, Regulation 2, covered all persons in the service of the party (UNIP), the Government, Local Authorities, Statutory Corporations including higher Institutions of Learning, any commissions established by Law, and ZCTU and affiliates. The Code required that persons covered by it, declare extra income to the leadership committee appointed by the President. Leaders also had to declare their Assets within three months of assuming office. They were prohibited from receiving gifts, abusing their office and were not allowed to use information acquired while in office for private gain. Failure to comply with the code led to dismissal from office.

The first principle legislation enacted to combat corruption in the post-independence era, however, is the Corrupt Practices Act No 14 of 1980. This legislation made corruption an offence in both the public and private sectors. Further, it provided for establishment of a separate body, the ACC, and in addition mandated the Commission to undertake corruption prevention and education programmes.

In 1996, the Corrupt Practices Act was replaced by the Anti-Corruption Act No 42. This Act is the main body to combat corruption in Zambia.

In the same year, the Parliamentary and Ministerial Code of Conduct Act (Chapter 16 of the Laws of Zambia) was passed to establish a code of conduct for the Vice President, Ministers and Deputy Ministers. The Act provides that in the event of the breach of the code, the member concerned shall lose his seat in the National Assembly.

The Electoral Commission Act No 24 of 1996 embodies the legal framework for conduct of elections in Zambia and seeks to curb corruption during the electoral process.

In 2000, Transparency International rated Zambia among the most corrupt countries in the world ( Source Book. http://www.transparency.org/sourcebook/11.html). And in the same year, the United Nations Global Programme Against Corruption (GPAC) ( Anti-Corruption Tool Kit (CIPP-15), vol. 1. November 2002) observed high corruption levels in Sub Sahara Africa including Zambia.

The Prohibition and Prevention of Money Laundering Act No 14 of 2001 seeks to provide for the disclosure of information on suspicion of money laundering activities by supervisory authorities and regulated institutions, the forfeiture of property by persons convicted of money laundering, local and international cooperation in investigations, prosecution and other legal processes of prohibiting and preventing money laundering.

In due recognition of corruption prevention, the government of Zambia in 2003 set itself on a task of collecting baseline data on corruption in the country. This endeavor culminated into the National Governance Baseline Survey Report of August 2004. The report shows that about two thirds of the respondents considered corruption to be one of the major problems that faced the country.

Bank of Zambia Anti-Money Laundering Directives 2004, require a regulated institution to put in place anti-money laundering measures and adopt such practices as necessary for the detection and prevention of money laundering.

The Anti-Corruption Commission continued to report corruption in the Public Sector. In 2004, they set up a strategic plan to fight corruption with a view to reducing corruption to acceptable levels (Annual Report. 2004. Strategic Plan, 2004–2008). There was political will at that time, and so, the plan was implemented, resulting in arrests of some high level politicians and government officials.

In their book on corruption, Heidenheimer, Arnold J., and Michael Johnson (2001. Political Corruption: Concepts and Context. Third Edition, New Brunswick/London, Transaction Publishers) reported wide spread political corruption in Africa, Zambia inclusive, and how the fight faced a lot of challenges. They observed involvement of politicians, which they said meant many cases going unreported and investigations lacking political will. The Office of the Auditor-General Reports on the Accounts in government departments have continued to reveal abuses of authority by government officials.

In his book, Mauro claims that the sale of government contracts or policy through bribery means that the highest bidder always wins: “The allocation of public procurement contracts through a corrupt system may lead to a lower quality of public infrastructure and services”( Mauro, P. “The Effects of Corruption on Growth and Public Expenditure”, in Political Corruption: Concepts and Contexts, Eds. Heidenheimer A. & Johnson, M. Transaction Publishers, 2002; p.343). Rather than choosing contractors by merit and the best potential outcome, corrupt bureaucrats could harm development by awarding contracts which result in substandard outcomes. Corrupt government officials may be more likely to choose to undertake types of government expenditure that allow them to collect bribes. Rather than seeking projects which would genuinely contribute to development, bureaucrats will look to find large projects where money can easily be siphoned out. (A Heidenheimer & M Johnson, Transaction Publishers, 2002).

If corruption takes the form of a kickback, the total amount available for public purposes is reduced. Shleifer and Vishny noted that because of the need to maintain secrecy, corruption causes a greater distortion in economic activity than taxation. For example, dishonest government officials may favour promoting government activities, where bribery is most easily concealed.

Corruption invariably increases transaction costs and uncertainty in an economy while lowering efficiency by forcing entrepreneurs to divert their scarce time and money to bribery rather than production. Those paying the highest bribes may be those with the best insider information and funding rather than those who would be most productive and reap the best rewards for development.

Corruption encourages competition in bribery, rather than in quality and in the price of goods and services. It inhibits the development of a healthy marketplace and distorts economic and social development. Evidence shows that if corruption is not contained, it will grow exponentially (Transparency International, TI Sourcebook, 2000, p.31).

Corruption reduces opportunities for the government to control the economy and limits potential spending. A Mauro notes: “Corruption may also bring about loss of tax revenue when it takes the form of tax evasion”. It can create fiscal weakness which in order to compensate for decreasing tax revenue, may force an increase in rates of taxation on a diminishing number of taxpayers thus reducing its ability to provide essential public goods and services.

Corruption undermines development by distorting the rule of law and weakening the institutional foundation on which economic growth depends. The harmful effects of corruption are especially severe on the poor, who are hardest hit by economic decline, are most reliant on the provision of public services, and are least capable of paying the extra costs associated with bribery, fraud, and the misappropriation of economic privileges. Thus corruption when anlysed in details can be seen as observed by the World Bank to be’ “…one of the greatest enemies of development.” (http://www1.worldbank.org/publicsector/anticorrupt/index.cfm ).

CHAPTER THREE

FINDINGS

There have been many anti-corruption attempts in Zambia targeting the Public Sector, but with very little success. Despite the many efforts and good laws (such as the Anti-Corruption Commission Act) meant to fight corruption, incidences of corruption was on the increase. Reports of the Office of the Auditor General have continued to reveal high levels of corruption, and a number of corruption cases were in the courts of law at the time of this report, even with the many convictions of former public workers during the period 2002 to 2012.

THE CIVIL SERVICE

The Public Service Commission is responsible for appointments, promotions, and discipline of all civil servants in the government. The head of the civil service is the secretary of the cabinet, who is an appointee of the president.

In ministries, the most senior civil servant is the permanent secretary, who is the controlling officer. The secretary of the cabinet supervises all permanent secretaries, also presidential appointees. Theoretically, all permanent secretaries and other civil servants are supposed to be professionals and nonpartisan.

There were allegations by most respondents that the civil service had been politicised by presidential appointments. They noted that this situation led to reported cases of civil servants having actively participated in partisan politics in the past, and that most of the top officials arrested and prosecuted for corruption had been those connected to politics.

PROCUREMENT OF PUBLIC GOODS AND SERVICES

Procurement of public goods and services had been prone to corruption in Zambia, and consequently the Zambia National Tender Board Act (now Zambia Public Procurement Authority Act) was passed. The Act established the Zambia National Tender Board to regulate, monitor, and control national procurement of public goods and services.

It was believed that the board was not independent of the executive, who could influence decisions in the procurement processes. Such influences could cascade downward to the central tender board and other lower tender committees in ministries, as well as in local government units.

GAPS IN THE JUDICIARY

The retirement age for superior court judges was constitutionally fixed at sixty years, but the president had the power to extend the tenure of any judge for an additional seven years without any ratification. This had been alleged to provide a fertile ground for political patronage and for compromising judicial independence.

FORMS OF CORRUPTION

From preliminary interviews of various personalities and civil societies, and review of various literatures on corruption in Zambia, three categories of corruption were common. First is political corruption, including political patronage. Political corruption involved misuse of public resources to fund elections, commission of electoral irregularities, or misuse of public resources to advance individual and/ or party interests or to secure certain public offices.

The second category of corruption was grand corruption, largely committed by bureaucrats, involving large amounts of money through procurements, misappropriation of public funds, kickbacks from privatization of state enterprises, kickbacks from government agreements or contracts, and the like. In certain other literature reviewed, this category of corruption was sometimes referred to as “bureaucratic corruption,” because mainly bureaucrats or public servants perpetuated it.

The third category of corruption, but by no means harmless, is petty corruption, which was perhaps the most visible and was encountered by ordinary citizens as they go about their daily lives. It was observed by Transparency International–Zambia that this type of corruption was widespread in many public offices and institutions, such as the police service, the courts, immigration, revenue, national registration and pensions, and passport issuance.

POLICY AND PRACTICE

Attempts to reduce the incidence of corruption and improve governance quality in general had been at the centre of policy co-ordination and policy advice led by international organisations such as the United Nations, the World Bank, the IMF and other organisations involved in issues of international development such as the Department for International Development of the UK (DFID).

The IMF commits to work with its members to promote good governance and to prevent and address corruption in areas where it has a mandate and expertise. The most prominent among these were public resource management, tax administration, financial sector soundness and central bank safeguards. The IMF’s stand was that tackling corruption required strong and transparent procedures and institutions that would ensure accountability. Like the World Bank, the IMF too provided technical assistance to Zambia to strengthen the capacity to combat corruption.

TANGIBLE COSTS OF CORRUPTION

The costs of corruption in Zambia have been revealed in a number of studies. Respondents estimated that the government had been paying between ten and fifty percent more for goods than they should have otherwise been paying. Most respondents said that Graft and corruption had strongly affected development efforts negatively, leading to the favouring of inefficient producers, the unfair and inequitable distribution of scarce public resources, and the leakage of revenue from government coffers to private hands. The impact of this on development is that the government is less able to spend on genuine development projects.

DISTORTION OF PUBLIC ASSETS VALUE

Political Corruption tends to distort the allocation of public funds and sale of public assets in a way that produces political rents or unlawful economic rents. Most respondents indicated that the sale of government resources during privatization was one example of this.

FORMS OF CORRUPTION

Patronage. The assignment of government positions to political supporters. This has long been a practice in Zambian politics according to most respondents. While civil service regulations at the national and state level may effectively curtail the number of patronage jobs, political appointments remain at the top levels of government and provide a legitimate way for elected politicians to influence bureaucracy through the appointment of legal executive officials. The process becomes corrupt when appointees are expected to pay for their jobs in one way or another. The custom of rewarding wealthy campaign contributors with appointments as ambassadors has been traditional in presidential politics. This is also supported by Leslie Holmes in his book(1993, p.205).

Nepotism. The granting of public office on the bases of family ties is a form of corruption said to have been practiced in Zambia over a long period of time.

Shared experience. Instances where the patron and client have usually worked together in the past and are on good terms and the patron promotes or has promoted the client on the basis of the past experience and warm relationship, is common practice in Zambia. Over 60% of interviewees mentioned this as a common practice when it comes to government positions, and that it is not considered as corruption.

MAIN ACTORS

The main actors in the fight against corruption in Zambia comprise government institutions, governmental organisations and non-governmental organisations. Government institutions comprise the Anti-Corruption Commission, Drug Enforcement Commission, Office of the Auditor General, Zambia Police and Supervisory Authhorities. Governmental and Non-Governmental Organisations comprise the United Nations System, Transparency International, and local NGOs.

STRATEGIES USED IN FIGHTING CORRUPTION

The Anti-Corruption Commission pays incentives for reported corrupt activities. There is also protection offered to whistle blowers to encourage members of the public to report incidences of corruption. On the other hand, heavy punishments by courts of law are meant to discourage people from engaging in corrupt activities.

CAUSES OF CORRUPTION

Leslie Holmes (1993 p.157) categorises the causes of corruption into three categories:

Cultural factor: Most corruption is because of traditional attitudes towards family, kinship.

The other cultural factor is a weak tradition of the rule of law and low level of respect for the law. In Zambia, tribalism which is said to be widely practiced falls into this category.

Psychological. Some individuals are "naturally evil" and will commit criminal acts, including corrupt ones in any type of system. The external factors, individual's relationship to the group is also important. According to Holmes (1993, p. 165) “the power of both peerpressure and peer-comparison can be great, for instance in the words of one artist - when the best of people take bribes, isn't it the fool who doesn't?” In other words, if individuals see others around them benefiting from corruption, they may well choose to indulge too. Many people interviewed talked of civil servants building big houses around Lusaka using corrupt practices as falling into this category.

Fear. According to Holmes (1993, p.170) “The other psychological factor of fear also can encourage people to act corruptly. For example in a hierarchical situation a subordinate may fear the consequences of not acting in a similar way to his/her corrupt superior. In this case, it is common practice in Zambia, according to respondents for middle managers to get involved in corrupt activities for fear of being fired or losing favour with the boss.

Human weakness. Some people find it difficult to reject offers from a person of a "generous" nature. Some officials will accept gifts because they know they have been particularly helpful to someone and either feels they "deserve" a reward (that is they feel that a reward is not inappropriate), or else genuinely do not want to offend or embarrass a grateful supplicant.

Nepotism. According to Holmes (1993) “nepotism as a form of corruption can be explained in psychological term, "The blood is thicker than water" syndrome wanting to help one's family.

Monopoly Power. This is where officials who have monopoly power over provision of a government good extract bribes from clients. Monopoly power could exist for the legal reason that certain officials are the only ones charged with performing a certain task

Discretion. The greater the amount of discretion which is given to an agent, the more opportunities there will be for agents to give "favorable" interpretations of government rules and regulations to businesses in exchange for illegal payments. For example in terms of the level of discretion, when a custom agent is allowed to apply one of several tariff rates to a product, or when a tax inspector is given substantial room to decide whether companies are given deductions or not, there will be an incentive to demand a bribe in exchange for offering favorable treatment.

Judicial System. The judicial system also has an important role in giving opportunities for corrupt acts. The separation of the three governmental branches in Zambia was meant to avoid this trap. The challenge is that in practice, the executive has obvious dominance over the judiciary branch.

Low Wages. Most of the respondents claimed that low wages in the public sector leads to corruption. This was also confirmed with available literature from research carried out in other countries. "For civil servants, the reward structure within the state administration has traditionally been seen as one of the key determinants in the evolution of corruption. If officials are paid wages comparable to those available to performance, the potential gains from engaging in corruption may not be large enough in relative terms to make it worth the risk. If instead, officials in the public sector are paid wages well below those for similar duties in the private sector, then opportunities for corruption may become the principal reason for choosing a public sector post." (Klitgaard 1998)

Poor drafting of laws and regulations. The poor drafting of laws and regulations also creates many opportunities for corrupt acts. For example, imprecise drafting and ill-defined terminology gives tax inspectors and custom officers a large margin of discretion, which they use to extract bribes. Particularly at the regional and local government level, tax requirements may be undocumented or not publicly available.

High tax rates. The business community in Zambia commonly argued that its total tax burden, as a share of profits, is excessive due to the simultaneous taxation of turnover, wage costs, profits, such that full compliance may leave almost no after-tax profit. Many smaller enterprises do not pay taxes, and larger firms falsify their revenues. Many interviewed businesses suggest that firm’s total tax obligations are widely accepted to be negotiated settlement between a business and its tax inspector. This creates opportunity for corruption.

Foreign Economic Aid. Literature dealing with foreign economic aid recognizes that government-to-government foreign economic assistance often can promote those conditions that foster corruption. This is especially the case when a significant degree of corruption is clearly present in recipient countries. According to Jim Saxton (1999) foreign aid can promote corruption by strengthening the governmental sector relative to the private sector.

CHAPTER FOUR

ANALYSIS OF FINDINGS

Beginning with an analysis of the academic perspectives on corruption, this research investigated the Zambian Public Sector to establish the impact of corruption on economic development. The public sector was chosen as it comprise departments that implement government economic policy and thus the impact of corruption is more readily and clearly identifiable. Extensive reports of corruption in the public sector make government departments well suited to investigation.

EFFECTS OF CORRUPTION

Economic and Political Development: There are many examples where interviewed businessmen assert that there are many cases that tax inspectors from the ZRA without any explanation may keep the imported good in the custom department and return only after the extortion of some extra bribes. Thus corrupt practices in tax and customs administration do great damage to the revenue collection.

Budget Deficit: The other effect of reduced revenue is the budget deficit. Corruption reduces State revenues, which in its place raise the budget deficit. According to Miksell(1995)

“The effects of continuing large budget deficits are expected to be largely long term. Deficits threaten long-term economic growth in the national savings which may be used to finance investment or accommodate government deficits. Given the overall savings rate, the deficits absorbs savings that otherwise could have been productively invested.

On the other hand, continuing large deficits leaves higher interest obligations in the future. Each succeeding government will find a large, usually increasing share of national resources to be already committed, not to provide services to those paying taxes in that year but to cover interest or funds spent to provide service in the past.

Project Selection: Corruption may also affect growth through public investment and expenditure. The effect here may be due to adverse selection of public investment projects or bias in allocation of public funds towards large and capital-intensive projects. In the case of adverse selection, projects with higher political returns may be selected at the expense of projects with higher economic and social returns – with the consequence of inefficiencies and lower (or perhaps negative) growth effects.

Economic Growth: Corruption also affects economic growth through its adverse effects on the quality of governance institutions in general. Corruption affects the optimising decisions of economic actors through the distortions it causes in the cost and incentive structures they face.

COMBATING CORRUPTION

Some scholars believe that corruption cannot be eradicated. For example Yeh (1987, P15) has argued that "the systematic sharing of bribes between cadres at different levels of responsibility have made it hopeless to fight corruption in Mainland China." But if corruption cannot be eradicated it does not mean that corruption cannot be taken under the control.

World Bank View: According to World Bank, institutional strengthening is a key part of country anti-corruption strategies. One of the most important institutions is a professional and well-motivated civil service. The selection and promotion in civil service should be merit based rather than patronage. This system is workable in the Zambian situation.

Judicial System: Enforcement of anti-corruption legislation requires an efficient, accountable judiciary. Reform of judicial system should concentrate on the independence of this branch. The procedures for appointment, extension of contract and removal of judges should be defined properly, or ratified by parliament. The court administration of Cases which sometimes may last for months should be improved. The strict enforcement of rules and regulations, as well as speeding up cases is very important in combating corruption. If an official knows that rules and regulations are strictly and consistently enforced he/she will less likely engage in corrupt behaviour.

Good financial management: Government expenditures should have audit trails, and protect honest staff. Audit and control are a valuable instrument for improving government fiscal management and for increasing the efficiency in the allocation of public financial resources. The introduction or reinforcement of auditing would be particularly important because it intervenes before resources are committed. Therefore, corrupt activities could be stopped before they would have an impact on the use of resources.

Tax and customs: ZRA is the focus of major fraud and corruption, and thus employees are candidates for inclusion in national strategies to control corruption. Tax system must be reformed to reduce the tax burden. The tax law should be simplified and strictly defined because imprecise drafting and ill-defined terminology give tax inspectors a large margin of discretion and facilitate corruption. Organizational restructuring, for example, separating the tax assessment function from the collection function and staff rotation can also help to reduce opportunities for corruption, as can control systems that require supervisors to attest that they have checked the work of subordinates.

Anticorruption Campaigns: Such campaigns can have a legitimizing effect, in that they usually suggest that the state is serious about fighting corruption. But if they are poorly managed, they can have either little or a negative impact. Their impact fades over time if they are too prolonged, since citizens become almost immune to them, and the campaign begins to sound like mere rhetoric. They can even exert a negative influence if they stay merely at the level of declarations and are not accompanied by meaningful action.

CHAPTER FIVE

CONCLUSION

Corruption is a multifaceted issue that pervades all aspects of the public and private sectors, and cannot be addressed through legal reforms and enforcements without tackling the underlying incentives for corruption. This therefore means that the government needs to develop a comprehensive anticorruption strategy.

Zambia’s socio-economic and political reforms and programmes since independence and in recent times after the reintroduction of multi-party democracy in 1990 have consistently recognized the need for institutions of good governance measures. These measures include accountability and transparency, and seek to reduce the harmful effects of institutional and legal weaknesses that provide opportunities for behaviours and practices that can undermine the country’s socio-economic development and political enhancements.

These anti-corruption measures, however, have most often been done in unfavourable manner. Consequently, their impact on preventing and combating corruption in the country has not been adequately commensurate with the efforts and fiscal resources involved.

The presence of corruption has negative implications for economic growth, with greater effect for longer-term sustainability. Transparency International’s views corroborate with these findings. They suggest that “Most importantly, the heaviest cost is typically not so much in the bribes themselves, but rather in the underlying economic distortions they trigger and in the undermining of institutions of administration and governance (Transparency International, TI Sourcebook, 2000, p.32)

The effect of corruption is widespread – not only in administrative, financial and social terms, but also in undermining accountable and democratic government. The impact of corruption on development is incontrovertibly damaging and destructive for all aspects of development.

This research paper identified the challenges and impact of corruption in the Public Sector on the economic development of Zambia as a country, and recommended ways of best fighting corruption in the Public Sector.

RECOMMENDATIONS

1. There should be a professional and well-motivated civil service. The selection and promotion in civil service should be merit based rather than patronage. Pay of civil servants should be comparable to the private sector.

2. The judicial system needs to be reformed. Enforcement of anticorruption legislation requires an efficient and accountable judiciary.

3. Government should develop well-functioning budget processes, allocate resources strategically, and enable programs and projects to be implemented efficiently and effectively.

4. Audit and control should be given more attention. It is very important because it intervenes before resources are committed. Therefore, corrupt activities could be stopped before they would have an impact on the use of resources.

5. The Tax system must be reformed to reduce the tax burden.

6. State should continue conducting anticorruption campaigns to show that the state is serious about fighting corruption.

REFERENCES

Anti-Corruption Commission Act. No. 2, 1996. Constitution of the Republic of Zambia, 24 August 1991, Amended 1996.

Anti-Corruption Commission. 2001. Annual Report.. 2004. Strategic Plan, 2004–2008.

Bank of Zambia Anti-Money Laundering Directives 2004

Electoral Act (Chapter 13 of the Laws of Zambia)

Heidenheimer, Arnold J., and Michael Johnson (eds.). 2001. Political Corruption: Concepts and Context. Third Edition, New Brunswick/London, TransactionPublishers.

Leff, N. “Economic Development Through Bureaucratic Corruption”, in Political Corruption: Concepts and Contexts, Eds. Heidenheimer A. & Johnson, M. (Transaction Publishers, 2002)

Munalula, M.M. 2002. “A Position Paper on the Effectiveness of Government Watchdog Institutions in Zambia.” August 2002.

Mauro, P. “The Effects of Corruption on Growth and Public Expenditure”, in Political Corruption: Concepts and Contexts, Eds. Heidenheimer A. & Johnson, M. (Transaction Publishers, 2002)

National Assembly (Powers and Privileges) Act, Chapter 12

Office of the Auditor-General. 2002. Report on the Accounts. December 31.

Parliament and Ministerial Code of Conduct (Chapter of the Laws of Zambia)

Penal Code (Chapter 87 of the Laws of Zambia)

Prohibition and Prevention of Money Laundering Act No 14 of 2001

Public Finance Act No 15 of 2004

Secrecy of Corruption, JC Kasamanda (Capt)

Transparency International–Zambia. 2001. State of Corruption Report. . 2002. State of Corruption Report.

United Nations Global Programme Against Corruption (GPAC). 2002. Anti-Corruption Tool Kit (CIPP-15), vol. 1. November.

Zambia Public Procurement Authority Act

Journals

Mauro, P. “Corruption and Growth” The Quarterly Journal of Economics, 110:3, 1999

Murphy, K. Shleifer, A. & Vishny, R. “Why is Rent Seeking So Costly to Growth?”
The American Economic Review, 83:2, 1993

Nye, J. “Corruption and Political Development: A Cost Benefit Analysis”,
The American Political Science Review, 61:2, 1967

Online Sources

Bottelier, P. “Corruption and Development”, Remarks for
International Symposium on the Prevention and Control of Financial Fraud http://www.worldbank.org/html/extdr/offrep/eap/pbsp101998.htm 01.05.05

World Bank, Anti-Corruption Homepage

http://www1.worldbank.org/publicsector/anticorrupt/index.cfm 03.05.05

Gray, C. & Kaufmann, D. “Corruption and Development, Finance and Development”, March 1998. http://www.worldbank.org/wbi/governance/pdf/gray.pdf 08.05.05

By Davies Saina Kalepa
Consultant - Procurement Expert

Davies Saina Kalepa

Friday 11 January 2013

IMPACT OF PUBLIC SECTOR CORRUPTION ON ECONOMIC DEVELOPMENT

ABSTRACT

TANGIBLE COSTS OF CORRUPTION

Journals

Online Sources

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