Tag Archives: World Bank

Reducing Corruption in the Use of Development Aid: The Payment by Results Model

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Corrupt diversion of development aid in recipient countries affects both the efficacy of the intended development programs and the willingness to supply aid in donor countries. Mismanagement of development funds has spurred debate over the ability of our current aid models to achieve development goals (improved healthcare, poverty alleviation, etc.). Many possible solutions for reducing corruption’s effect on development have been tested over the years with varying degrees of success. Various approaches have been tried, including conditioning aid or loans on “good governance” policy reforms, allocating development aid to local governments or local NGOs rather than national institutions, improving oversight and tracking of aid money, and supplying loans exclusively to countries that already have relatively favorable corruption scores (called performance-based lending). Each of these models has its own limitations: Conditionality is often viewed as an affront to sovereignty and has not been terribly effective. The local approach does not address governance issues, and local actors have not always proved to be less corrupt. Oversight of funds is important but costly and imperfect. Performance-based lending seems to leave behind many poor countries that cannot jump the corruption “hurdle.”

In searching for alternative models for distributing aid in light of the aid-corruption paradox, some donors have turned to yet another approach: payments by results (PbR). PbR has been supported by the Center for Global Development (see here and here) and has gained significant traction in the past two years by bilateral donors, such as the UK and Norway, and multilateral donors, such as the World Bank. The basic premise of PbR is that payment to the recipient depends on achieved results. The donor and recipient first define the desired outcomes (e.g., increased TB vaccinations, construction of an infrastructure project, etc.) and determine the amount that the donor will give once the desired outcome is met. The donor may provide some money up front to implement the program, but the rest of the payment is contingent upon performance: The recipient carries out the project independently, the donor measures the results, and, if the results meet the agreed-upon objective, the donor releases the remaining funds. This approach stands in contrast to the traditional input model, in which a donor gives the recipient money for inputs and provides a detailed action plan along with significant oversight for achieving results. Continue reading →

Guest Post: Aid Agencies Need to Improve Their Anticorruption Strategies and Implementation in Fragile States

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GAB is pleased to welcome back Jesper Johnson, who contributes the following guest post:

Last year, Nils Taxell, Thor Olav Iversen and I contributed a guest post about the EU’s anticorruption strategy and its implementation (calling development aid a blind spot for EU anticorruption efforts), based on a report which was presented twice in the European Parliament. This material was part of a wider comparative study of the anticorruption strategies of the World Bank, European Commission, and UNDP that has just been published as a book by Edward Elgar. The book is the first major comparative study of work to help governments in fragile states counter corruption by the three multilateral aid agencies. The focus is on fragile states, where aid agencies face the greatest challenges in terms of both strategy and implementation. Although many recent reports and agreements, including the OECD’s New Deal for Engagement in Fragile States and the World Bank’s 2011 World Development Report, have emphasized that agencies need to change the way they work in fragile states—in particular, the traditional policy frameworks cannot be uncritically copied from a non-fragile contexts—this message has not yet trickled down to the way these three multilateral aid agencies do anticorruption. Anticorruption and state-building policies are often disconnected or incoherent, and challenges rooted in the organization of the agencies prevent strategies from translating into results. More specifically, all three aid agencies shared a number of characteristics that inhibited their ability to address corruption in fragile states more effectively: Continue reading →

Are Better Principals the Answer to the Corruption Problem?

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Those in the business of giving policy advice know the surest way to guarantee a policymaker ignores their counsel is to say the problem is “complicated” or “there are no easy solutions” and that the best way to see the advice is accepted is to cast it in the form of a simple, straightforward solution that fits easily onto a single power point slide. World Bank economists have learned this lesson well as their recent report on how developing countries can cure corruption and related governance ills demonstrates.  Making Politics Work for Development: Harnessing Transparency and Citizen Engagement manages to state the solution to the corruption problem in one sentence: Give citizens more information about politicians so they will know which ones to vote out and which ones to keep at the next election.

The authors are able boil the complex problems of corruption and bad governance down into such a neat solution thanks to application of principal-agent theory.  But in avoiding the “it’s complicated”/“no easy solution” Scylla have they veered into the Charybdis of oversimplification?

Continue reading →

Corruption’s Gendered Double Standard

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On November 8, 2016 the United States almost elected Hillary Clinton as its first female president. But, if Donald Trump and many of his supporters were to be believed, Secretary Clinton was also one of the most corrupt politicians of all time. This argument appears to have swayed many American voters, who ended up electing Donald Trump (who might actually be the most corrupt person recently elected to the presidency, see here, here, and here). That Trump’s unprecedented accusations of corruption were leveled against the first female presidential candidate nominated by a major political party was not a coincidence.

A great deal of commentary has considered whether women (and especially female politicians and public officials) behave less corruptly than men. (For some prior discussion on this blog, see here.) But I’d like to focus on a different question: Are female politicians accused of corruption treated differently—and judged more harshly—than male politicians? Existing research suggests that they are, which in turn may explain both why allegations of corruption can be more damaging to female politicians, and why female public officials are on the whole less corrupt. Continue reading →

Community Development Agreements: A New Anticorruption Tool?

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Projects in the extractive industries are often enormous, long-lasting, multi-billion dollar affairs. Given the disruption, potential for environmental disaster, and permanent changes in the state of the land, these projects tend to generate conflict and controversy, especially in low-income countries, where citizens may enjoy fewer legal protections. As a way to mitigate these risks, some nations require extractive firms to enter into “Community Development Agreements” (CDAs) with local communities. (CDAs—which are also sometimes known as Benefit Sharing Agreements, Impact Benefit Agreements, or Community Joint Ventures—are sometimes voluntary corporate social responsibility initiatives, but my focus here is on CDAs that are required by, and incorporated into, national regulatory frameworks.) At the most general level, CDAs are created through a process that engages local populations in important decision-making about the project and its profits. The process varies, but usually includes the following steps:

  • Identify the people who will be affected
  • Allow those identified to determine what the community could gain from the project (whether that be jobs, money, education, infrastructure, long-term benefits, etc.)
  • Write a CDA that encompasses the demands of the community and aligns with regulatory requirements
  • Provide monitoring tools to the affected population
  • Set up dispute resolution systems
  • Strategize for how to prepare the population for the end of the project’s lifespan.

This process takes time and can be expensive. But extractive projects typically last for decades, and so building a sustainable relationship with the local population is vital to the project’s success. After all, many corporations fund similar stakeholder engagement processes without being required by law to do so. That is because CDAs can be a good business decision: empowering the community allows the company to avoid violent conflict and signaling that the firm is a good corporate citizen.

For those countries that do require a CDA for extractive projects, the law also regulates the substantive terms, requiring CDA contracts to contain certain clauses–typically monitoring components, dispute resolution mechanisms, and local spending or employment quotas. However, one thing that is never included in a CDA is an anticorruption clause. The words “bribery” or “corruption” appear nowhere in the World Bank’s model CDA agreement, and the Columbia Center on Sustainable Investment (CCSI) is silent on the issue. Building on recent work by Abiola Makinwa and James Gathii, I posit that CDAs should include anticorruption clauses, to empower private citizens in fighting corruption in public contracts. The basic idea is to allow the recognized community members—those covered by the CDAs—as “third party beneficiaries” to the contract between the government and the extractive company. The community members would then be entitled to sue if there was corruption in the making or execution of the contract.
Continue reading →

Canada’s Supreme Court Hands Corruption Fighters a Victory Worth Savoring

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In its April 29 opinion in World Bank Group v. Wallace the Canadian Supreme Court upheld the use of a growing practice in the fight against transnational corruption, ruling that World Bank investigators can provide information to the Royal Canadian Mounted Police about corruption in Bank projects and that it can do so without becoming subject to Canadian law.  The investigators had provided material suggesting executives of a Canadian company had paid bribes to win a Bank-financed contract in Bangladesh.  After being charged, the executives sought to depose the investigators and inspect Bank files in Washington.  Had the Court ruled for defendants, the World Bank and other development banks would almost certainly have halted further information sharing with national law enforcement agencies.  In ruling for the Bank, the Court not only endorsed information sharing arrangements but explained why it was essential that national authorities have unimpeded access to information from the Bank and other development finance institutions: “multilateral banks . . . are particularly well placed to investigate corruption and to serve at the frontlines of international anticorruption efforts” (¶94).

In Wallace the Court had to decide two questions:  1) Did the Bank’s immunity from Canadian law apply when it cooperated with the RCMP?  2) Would defendants be denied a right to a fair trial if they were not allowed to depose the investigators and search Bank records?  The Court’s reasoning in answering both questions in the Bank’s favor  offers valuable guidance that development banks will want to consider when entering into sharing arrangements with national law enforcement agencies in the future.    Continue reading →

When Should Governments Keep Stolen Assets?

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The Swiss government agreed in early March to return $321 million to the Nigerian government that was stolen by the late Sanni Abacha during his kleptocratic reign as the country’s president.   The agreement provides that the funds will be used for programs to benefit the Nigerian people in “an efficient and accountable way” and, to ensure the funds do indeed go to such programs, the World Bank will monitor their use.

World Bank oversight is one way to ensure returned assets are not again stolen, and in the case of Nigeria — a relatively open society with an elected government, a lively, unconstrained media, and a vibrant civil society – World Bank monitoring, when coupled with these conditions, may be sufficient to guarantee the funds are put to good use.  But what about in closed societies?  Those without elections, free media, an independent civil society.  Countries where the same tight-knit, authoritarian group which stole the assets in the first place remains in power?  Is there any way to ensure stolen assets returned to these countries will be used to benefit the nation’s citizens rather than going straight back into the pockets of the thieves? Continue reading →

A Modest Proposal for Improving Supervision in World Bank Infrastructure Projects

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Infrastructure funding is a massive component of international development—in 2014, the World Bank alone allocated $24 billion to infrastructure, amounting to roughly 40% of its total lending. Yet as has been widely documented (see here, here and here), infrastructure construction and development projects are particularly susceptible to corruption. Compared with other areas of development lending, such as education and public administration, large construction projects require more specialized contractors and consultants, increasing the points of access for corruption or collusion schemes. Furthermore, labor-intensive industries like construction are often captured by organized crime, which increases their susceptibility to corruption.

Corruption schemes in infrastructure projects often take the following form: a contractor pays government officials a bribe to secure a contract, and in an effort to preserve profits, the bribe-paying contractor compensates for the expense of the bribe by failing to build the project to specification. The supervision consultant—the person or entity responsible for evaluating whether the project has in fact been built to specifications—therefore plays a critical role in stopping or enabling infrastructure construction.

However, when the World Bank funds an infrastructure project, whether through a grant or a loan, the recipient country’s government is responsible for hiring the project’s contractors and consultants—including supervision consultants—subject only to arm’s length World Bank supervision. While this process is also subject to the World Bank’s procurement guidelines, these have been criticized as ineffective in addressing corruption (as previously discussed on this blog). Under the current system, if a project has not been adequately completed because of a corruption scheme, government officials have every incentive to retain inspectors willing to mask the abuse of funds. And if the Bank does discover fraud or corruption after the fact, its remedies are limited: the Bank can suspend or bar contractors from future contracts, and can refer matters to national prosecuting authorities, but successful convictions amount to fewer than 10% of sanctioned parties.

The World Bank must therefore prioritize prevention of these situations. Given the existing system, one measure that the World Bank could take to help prevent corruption in infrastructure projects, is to fund independent supervision consultants. Continue reading →

It’s Time to Abandon the “$2.6 Trillion/5% of Global GDP” Corruption-Cost Estimate

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In my post a couple weeks back, I expressed some puzzlement about the source of the widely-quoted estimate that corruption costs the global economy approximately $2.6 trillion, or roughly 5% of global GDP. I was hoping that someone out there in GAB Reader-Land would be able to point me to the source for this figure (as several GAB readers helpfully did when I expressed similar puzzlement last year about the source for the related estimate that there are approximately $1 trillion in annual bribe payments). Alas, although several people made some very insightful comments (some of which are in the public comment thread with the original post), this time it seems that nobody out there has been able to point me to a definitive source.

I’ve done a bit more poking around (with the help of GAB readers and contributors), and here’s my best guess as to where the $2.6 trillion/5% of GDP number comes from: Continue reading →

Where Does the $2.6 Trillion Corruption Cost Estimate Come From?

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Last year, I published a post expressing my puzzlement regarding the source of the widely-cited statistic that over $1 trillion dollars are paid annually. I was pleasantly surprised by the speed with which several GAB readers pointed me to the original source that described the methods and data used to calculate that number—and while I wasn’t entirely satisfied, it was at least nice to know where the number came from.

I’m hoping someone out there can help me with a very similar question: Within the last few months, I’ve been at several conferences and meetings where someone has quoted the figure that worldwide corruption (not just bribery) imposes annual costs to the global economy of approximately $2.6 trillion, roughly 5% of global GDP. I’ve looked and looked, and I cannot for the life of me figure out where this number comes from. Continue reading →