Doing Business Blog - The World Bank Group

São Tomé's Possible New Revenues

On a recent trip to Africa, I had the chance to visit one of the continent’s smallest countries. São Tomé and Príncipe – comprised of two volcanic islands in the Gulf of Guinea – is also the smallest African economy covered by Doing Business. A veritable tropical paradise, the islands abound in natural beauty. Although poor and no Gini coefficient seems to have been calculated for São Tomé, I would expect it to turn out relatively low.

But all that might be about to change – or not. The pristine waters surrounding the islands are believed to contain vast quantities of hydrocarbons, which, if discovered in commercially viable quantities, would transform the country’s economy. Fortunately, there has been a significant effort, aided by a team from Columbia University, to create a legal framework conducive to the transparent and sustainable use of the expected oil revenues. The new Oil Revenue Management Law stipulates, inter alia, that all oil contracts shall be public and that any bribe paid in connection with a contract award shall constitute sufficient cause for annulment on the part of the State.

Transparency provisions such as those adopted by São Tomé are important. Whether the measures already taken turn out to be enough if and when production starts remains to be seen. The stakes are high – the small population and the estimated size of the oil reserves mean that every São Tomean citizen is potentially poor no longer.

Exposing Corrupt Mayors in Brazil

A recent paper by Claudio Ferraz (IPEA, Brazil) and Federico Finan (UCLA) finds that the disclosure of corrupt practices at the municipal level in Brazil reduced the mayor's likelihood of re-election by 20%, and by nearly 40% in municipalities with local radio stations. The latter effect also helps honest mayors: when disclosures did not identify corrupt practices and local radio reported on this, mayor's chance of re-election shot up.

The program of random auditing of municipal government's expenditure started in May 2003. The findings from each audit are posted on the internet and presented to the media. President Lula, in opening the audit program, remarked: "I think the Brazilian society needs to understand once and for all, that we are only going to be able to truly fight corruption once the civil society, with the instruments made available, can act as a watch dog."

The municipalities to be audited are selected randomly through a lottery, that takes place alongside the national lottery drawings. The press and civil society are all invited at the drawings. The audit last a week, with approximately 15 auditors going through the documentation of the use of government funds.

Corrupt practices vary. In one case, a bid was constructed in a way that only one firm could plausibly qualify - the one that was later discovered to have bribed the mayor. In another case, a $300,000 contract was awarded to a phantom company. In a third case, federal money received for rural road construction was used to build a first-class road ... to the farm of the mayor.

Given the success of the program, the federal government has expanded the draw to 60 municipalities a month. Other countries may want to learn from this experience.

What Do Corruption Indices Measure?

Apparently, not the level of corruption. This is the finding of a new paper (What_do_corruption_indices_measure?) by Dilyan Donchev (Harvard) and Gergely Ujhelyi (University of Houston).

The authors use data on actual corruption experiences and correlate it to reported corruption perceptions in surveys by Transparency International and the International Country Risk Guide. There is no correlation. Some of the factors commonly found to "reduce" corruption, such as economic development, democratic institutions or Protestant traditions, systematically bias corruption perception downward from corruption experience. In other words, people assume that there would be less corruption in rich countries or democratic countries, regardless of the actual experience.

In addition, perception indices are influenced by absolute (as opposed to relative) levels of corruption, which penalizes large countries. Why is that the case? Because in large countries the media reports more stories of corruption (in terms of absolute numbers) and so people who answer the surveys in, say, Brazil, think the country is more corrupt than, say, Argentina, even if in terms of the number of corruption instances per adult population Argentina may have more.

In sum, perceptions indices are like the king's new clothes: they are only in the eyes of the beholder.

A Picture Worth A Thousand Words

As part of the on-going Doing Business research on transparency, I have come across very interesting anti-corruption material and web-pages. After surfing many public institutions' sites, I noticed that governments tend to take an arid approach when presenting anti-corruption content. Complicated words, not very dynamic web pages, and weak educational content for their citizen are quite common. This seems to make complete sense considering the seriousness and sensitivity of the topic. But, they always left me wondering if there could be a way of dealing with anti-corruption issues in a more user-friendly manner.

My wondering found a pleasant response while surfing the Anti-Corruption Commission web-page of the Royal Government of Bhutan. More specifically, while browsing through the pages of their last annual bulletin. With an Anti-Corruption Act that was recently approved in 2006, this country seems to be making an important push to ensure the law’s full implementation and overall compliance. What you see here is the poster that accompanied the reminder of the deadline to submit the required asset declaration for public officials.

With Power Comes Accountability

Bugattis paid for in cash at more than 1million Euro a piece. Mansions in Paris. Villas in Nice…

This is not the latest James Bond movie, but the beginning of a long list of properties and bank accounts in the name of five African heads of state and their close relatives. The list of assets was published by Le Monde last week on an investigative expose about an ongoing inquiry by the French Office on Grand Financial Crimes. The presidents of Angola, Burkina Faso, Gabon, Congo, and Guinea are the target of the investigation. The article describes at length how they own a large number of real state properties in some of the nicest and most expensive neighborhoods in Paris and other French cities.

Declaring Assets, Liabilities and Babysitting

Asset and business interest disclosure for policymakers is an area of ongoing research of the Doing Business team. In the course of obtaining information on national legislation, I came across an interesting article on Colorado’s disclosure law for public officials. It is a good illustration of some of the challenges of disclosure legislation and entails useful lessons for both regional and national legislations across the world.

At first glance, the law looks like a textbook example. It requires officeholders to disclose their sources of income, financial assets, real estate, directorships and business interests. The disclosures must be submitted on an annual basis and are made available to the public. Transparency at its best, or so you might think!

Let the Public React

As fighting corruption is heralded as a main panacea of economic development, increased involvement of families in the politics of many countries may, at first blush, appear to increase chances of conflicts of interest. Kaczynski in Poland, Kirchner in Argentina, Abe and Fukuda in Japan. Also, the candidates: Clinton, Royal...

Corruption can be prevented through imposing restrictions, supports one approach. The World Bank, for example, prohibits employment of close relatives. It allows, however, employment of spouses/partners, as long as one of them does not report to the other.

The Doing Business approach to preventing corruption advocates disclosure of

On Transparency Policies and Politics

Ecuador’s Constitutional Assembly was in the news headlines last week. This was not primarily for the new constitution they are debating, but, rather, for the expulsion of one of its members. Opposition leader Alvaro Noboa was expelled for failing to provide his declaration of assets.

The 130 members of the Assembly had until Friday January 11th to submit a declaration of their personal assets as part of the body’s rules. According to Ecuador’s media, Noboa, who is also considered the richest man in the country, was the only member that refused to comply with the obligation. Even his wife, who is also a member of the Assembly, had complied.