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Citi Perspectives for the Public Sector
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2015 – 2016
5
Overcoming Corruption
Benefits All
Corruption is a major problem for all countries. However, the
creation of a robust financial infrastructure and electronic
workflow, using tools such as e-procurement and purchasing
cards, helps to reduce it, writes Julie Monaco, Global Head
of Public Sector Coverage, and Gary Schneider, Head of
North America Public Sector at Citi.
A quick glance at newspaper headlines in any major international city is enough to reveal that
corruption remains a challenge for almost all countries around the globe. Considerable progress has
been made and many countries have put anti-corruption drives at the heart of their political agenda
and elections. Nevertheless, evidence shows that all too often, corruption remains endemic and is
deeply rooted in government and the economic system.
Corruption — defined as the abuse of public or private office for personal gain, and which includes
acts of bid rigging, bribery, embezzlement, nepotism and fraud — feeds off the $9.5 trillion, or 13%
of global GDP, spent each year by governments on goods and services.
1
This huge level of spending
creates enormous incentives and opportunities. According to World Bank estimates, more than
$1 trillion is paid in bribes alone each year and the total cost of corruption is $2.6 trillion a year —
equal to 5% of global GDP.
2
Corruption is bad simply because it is unfair. In countries where there is little transparency
and no level playing field in terms of competition, government contracts are won by those with
connections within government. That restricts entrepreneurship, creativity and job creation, and
increases inequality by limiting the opportunities of lower income groups, which tend to have fewer
government connections.
Corruption is also economically inefficient because it results in the misallocation of capital
investment to inefficient companies and processes, and increases costs: the World Economic
Forum estimates that corruption increases the cost of doing business by 10%.
3
Overall, corruption
acts as a drag on growth, not least by discouraging foreign direct investment, and by undermining
accountability and the Rule of Law, it weakens a country’s credit rating, increasing its cost of debt.
Despite the best efforts of many countries, corruption remains a challenge for two main reasons.
Firstly, successfully combating corruption requires a global regulatory framework and processes
that, crucially, must be adhered to by all countries. Secondly, anti-corruption efforts continue to
be derailed because, in many countries, the necessary financial infrastructure and monitoring is
not in place.
Julie Monaco
Global Head for
Public Sector Coverage
and ICG KYC and AML
Operations,
Corporate and
Investment Banking,
Citi
Gary Schneider
Head of North America
Public Sector Group,
Corporate and
Investment Banking,
Citi
1
Caroline Spruill, Open Contracting: Factivists fighting Procureaucrats (December 9, 2013):
www.open-contracting.org/open_contracting_factivists_fighting_procureaucrats
2
Source: World Bank cited in The rationale for fighting corruption, CleanGovBiz, OECD, 2014
3
Source: The rationale for fighting corruption, OECD, 2014