'Afro-Pessimism'vs. 'Irrational Exuberance' …or a New Day for by tym76564

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									 ‘Afro-Pessimism’ vs. ‘Irrational Exuberance’
   …or a New Day for Africa Governance?:
   A comparative empirical perspective on
       governance in African countries
Daniel Kaufmann & colleagues, World Bank Institute
       www.worldbank.org/wbi/governance
   Presentation at the JJ/WBGSP Scaling-Up Program
  Conference, by the Joint Japan/World Bank Scholarship
     Program, Washington, DC, November 12th, 2007
                    ………………………………………………………………………….


 ‘If it cannot be measured, it cannot be controlled’
                        Lord Kelvin
 ‘Not everything that counts, can be counted, and
  not everything that can be counted, counts’
                                                       1
                        Einstein
          Evidence challenges Myths…
Moving Away from Myths and Fallacies:
• Afro-pessimism – from focusing too long on poor
  perfomers, failures, or on long term averages…
• ‘Irrational Exuberance’ – by focusing on the recent short
  term, declaring premature victory (‘elevator economics’)
• Generalizations about the whole African continent –
  excessive averaging & stereotypes
• Old notions of what drives investment
Towards a new Reality:
• ‘Governance Matters’ for investment climate
• Understanding the rich complexity, variety and contrasts
  across the continent, from one country to the next
• Learning from good performers: some leaders, countries,
  and institutions are showing ‘the possible’
                                                        2
• Role of the International Community and Private Sector
                         GDP growth Rates, 1960-2006 (WDI)
                    10
                    9                                                          East Asia & Pacific
                    8
                    7
                    6                                                          Low income
 GDP growth rates




                                                                               Countries
                    5
                    4
                    3                                                          Sub-Saharan Africa
                                                                               Avg
                    2
                    1
                    0                                                          Sub-Saharan Africa
                                                                               nonoil exporters
                    -1
                    -2
                         1960-9   1970-9   1980-9   1990-4   1995-9   2000-6                 3
Source for data: WDI.
GDP Per Capita Growth Rates, WDI 1960-2006
                               10
                               9                                                          East Asia & Pacific
                               8
                               7
 GDP per capita growth rates




                               6                                                          Low income
                               5
                               4
                               3                                                          Sub-Saharan Africa
                               2
                               1
                               0                                                          Sub-Saharan Africa
                                                                                          nonoil exporters
                               -1
                               -2
                                    1960-9   1970-9   1980-9   1990-4   1995-9   2000-6                 4
Source for data: WDI.
AFRICA’S FIVE FASTEST GROWING ECONOMIES
        STACK UP WELL WITH ASIA…
                                    12%
                                          Africa Average   Africa top performers   Asia top performers     China
                                    10%
Annual GDP growth, simple average




                                    8%



                                    6%



                                    4%



                                    2%



                                    0%
                                           1960's          1970's        1980's          1990's          2000~2005



                                                                                                                     5
…BUT HIGH POPULATION GROWTH TAKES ITS TOLL
           ON PER CAPITA INCOME.
                                               10%
                                                     Africa Average     Africa top performers   Asia top performers   China
                                               9%
Annual GDP per capita growth, simple average




                                               8%

                                               7%

                                               6%

                                               5%

                                               4%

                                               3%

                                               2%

                                               1%

                                               0%

                                               -1%
                                                     1960's           1970's         1980's         1990's       2000~2005




                                                                                                                              6
 The ‘Long View’– Sobering but some hope…
  While Africa Stagnated, East Asia Soared
                                               GDP per capita: Africa & East Asia, 1960-2006
                                 1600

                                                                                                                   1473
 GDP per capita index 1960=100




                                 1400


                                 1200
                                                        East Asia & Pacific
                                                        Low income
                                 1000
                                                        Sub-Saharan Africa
                                  800

                                  600                                                                              583
                                                                                                                   509
                                  400


                                  200

                                   0
                                        1960     1965      1970   1975   1980   1985   1990   1995   2000   2005


-- Chart depicts income per capita in 2000 constant terms. In 1960, actual per capita income of East
Asia region was $141, while Sub-Saharan Africa average was $432; in 1974 it was $202 and $595,
respectively, in 1994 it was $677 and $486, and in 2006 it was $1473 for East Asia and $583 for Africa.
-- Source: WDI, Low-income economies are those in which 2006 GNI per capita was $905 or less (53     7
countries of which 33 from Sub-Saharan Africa).
      While Africa Stagnated, East Asia Soared
                                              GDP per capita: Africa & East Asia, 1960-2007
                                    1600

                                                                                                                    1473
    GDP per capita index 1960=100



                                    1400


                                    1200
                                                         East Asia & Pacific
                                                         Low income
                                    1000
                                                         Sub-Saharan Africa
                                     800

                                     600                                                                             605
                                                                                                                    509
                                     400


                                     200

                                      0
                                           1960   1965      1970   1975   1980   1985   1990   1995   2000   2005


-- Chart depicts income per capita in 2000 constant terms. In 1960, actual per capita
income of East Asia region was $141, while Sub-Saharan Africa average was $432; in 1974
it was $202 and $595, respectively, in 1994 it was $677 and $486, and in 2006 it was $1473
for East Asia and $583 for Africa (and projected to $605 for 2007).
-- Source: WDI, Low-income economies are those in which 2006 GNI per capita was $905   8
or less (53 countries of which 33 from Sub-Saharan Africa).
Economic Performance has improved in Africa,
       and is Becoming More Diverse




                                          9
Macroeconomic Management has improved
                   (and also trade policy for instance)
                                          Inflation, 2000-06 (in %)
26




22

                                                                      Oil Exporting
                                                                       Oil-
                                                                      Countries
18



                                                        SSA
14                              Oil-
                       importing
                        countries
10




 6
           2000                         2001          2002     2003        2004       2005   2006
     Source: IMF, SSA Regional Economic Outlook.


                                                   …Now, what is the Governance Situation...?       10
Africa’s Share of World Trade is Falling




                                           11
                                       Structural policies have
                                              improved
                                                    Trends in African CPIA Scores: 2000-2005
Simple average CPIA scores for Sub-




                                      3.30



                                      3.25
          Saharan Africa




                                      3.20



                                      3.15



                                      3.10
                                             2000         2001       2002       2003       2004            2005



                                                                                               A structural shift?
                                                                                                                     12
  Worldwide Governance Indicators Project:
        Defining Governance Broadly

 Governance consists of the traditions and
institutions by which authority in a country is
                  exercised.
               This includes:
– the process by which governments are
  selected, monitored and replaced,
– the capacity of the government to effectively
  formulate and implement sound policies, and
– the respect of citizens and the state for the
  institutions that govern economic and social
  interactions among them.
                                             13
  Worldwide Governance Indicators
• Six aggregate governance indicators covering
  213 countries over past decade
        –Voice and Accountability
        –Political Stability/Absence of Violence
        –Government Effectiveness
        –Regulatory Quality
        –Rule of Law
        –Control of Corruption
• Based on 31 data sources from 25 organizations,
  capturing views of tens of thousands of informed
  stakeholders
• Widely used by analysts, officials, civil society,
  and researchers to monitory governance and 14
  study its causes and consequences
                            2006 Governance Indicators, Selected Regions
                                     Voice & Accountability                                             Political Stability / Lack of Violence
                                     Government Effectiveness                                           Regulatory Quality
                            100      Rule of Law                                                        Control of Corruption
                             90
                             80
  Percentile Rank (0-100)




                             70
                             60
                             50
                             40
                             30
                             20
                             10
                              0
                                  East Asia NICs         East Asia                  Sub-saharan                   Former Soviet               Eastern Europe
                                    ('T igers')         developing                     Africa                        Union
                                                                                                                                                              15
Source for data: 'Governance Matters VI: Governance Indicators for 1996-2006’, by D. Kaufmann, A.Kraay and M. Mastruzzi, June 2007 - www.govindicators.org.
                             Sub-Saharan Africa Average, 1998-2006
                            80

                                                       1998                        2002                        2006
  Percentile Rank (0-100)




                            60


                            40


                            20


                            0
                                    Voice &        Political     Government                       Regulatory               Rule of Law               Control of
                                 Accountability Stability / Lack Effectiveness                     Quality                                           Corruption
                                                  of Violence                                                                                                 16
Source for data: 'Governance Matters VI: Governance Indicators for 1996-2006’, by D. Kaufmann, A.Kraay and M. Mastruzzi, June 2007 - www.govindicators.org.
                    Sub-Saharan Africa Over Time - High Growth Performers,
                          Non Resource-Rich Countries, 1998-2006
                    80
                                                                           1998                            2002                            2006
  Percentile Rank (0-100)




                            60


                            40


                            20


                            0
                                    Voice &        Political     Government                      Regulatory              Rule of Law               Control of
                                 Accountability Stability / Lack Effectiveness                    Quality                                          Corruption
                                                  of Violence                                                                                               17
Source for data: 'Governance Matters VI: Governance Indicators for 1996-2006’, by D. Kaufmann, A.Kraay and M. Mastruzzi, June 2007 - www.govindicators.org. High
Performers, Non Oil Rich countries included Mozambique, Rwanda, Cape Verde, Uganda, Mali, Botswana, Ethiopia, Tanzania, Mauritius, Mauritania, Benin, Ghana, Senegal,
Burkina Faso, Gambia, Cameroon and Namibia.
                                  Sub-Saharan Africa Over Time
                                Resource-Rich Countries, 1998-2006
                           80
                           70                                                    1998                            2002                            2006
 Percentile Rank (0-100)




                           60
                           50
                           40
                           30
                           20
                           10
                           0
                                   Voice &        Political     Government                       Regulatory               Rule of Law               Control of
                                Accountability Stability / Lack Effectiveness                     Quality                                           Corruption
                                                 of Violence
                                                                                                                                                              18
Source for data: 'Governance Matters VI: Governance Indicators for 1996-2006’, by D. Kaufmann, A.Kraay and M. Mastruzzi, June 2007 - www.govindicators.org. Oil Rich
countries included Gabon, Congo, Nigeria, Chad, Sudan, Angola and Equatorial Guinea.
                            Sub-Saharan Africa Over Time - Low Performers
                              Non-Resource Rich Countries, 1998-2006
                            60
                                                                                                                               1998                           2002

                            50                                                                                                 2004                           2006
  Percentile Rank (0-100)




                            40

                            30

                            20

                            10

                             0
                                    Voice &         Political    Government                       Regulatory               Rule of Law               Control of
                                 Accountability Stability / Lack Effectiveness                     Quality                                           Corruption
                                                  of Violence                                                                                            19
Source for data: 'Governance Matters VI: Governance Indicators for 1996-2006’, by D. Kaufmann, A.Kraay and M. Mastruzzi, June 2007 - www.govindicators.org.
   Sub-Saharan Africa – Resource-Rich vs. Non
         Resource Rich Countries, 2006
                            60
                                                                     OIL RICH
                                                                     NON RESOURCE RICH
                            50
  Percentile Rank (0-100)




                            40

                            30

                            20

                            10

                             0
                                    Voice &         Political    Government                       Regulatory               Rule of Law               Control of
                                 Accountability Stability / Lack Effectiveness                     Quality                                           Corruption
                                                  of Violence                                                                                                 20
Source for data: 'Governance Matters VI: Governance Indicators for 1996-2006’, by D. Kaufmann, A.Kraay and M. Mastruzzi, June 2007 - www.govindicators.org. Oil Rich
countries included Gabon, Congo, Nigeria, Chad, Sudan, Angola and Equatorial Guinea
 Higher Growth and governance ratings differ significantly
          among groups of countries, WGI 2006
Good
                             2
                                                                High growth countries                     Low growth countries
                                                                Oil-Rich
 Average Governance Scores




                             0




                             -2
                                    Voice &        Control of   Government      Political Stability       Regulatory    Rule of Law
                                  Accountability   Corruption   Effectiveness    / No Violence             quality
Bad
Chart shows average WBI governance scores by the AAP categories of countries. Oil rich countries consistently have the worst
scores, followed by low performers, and finally by high performing countries. Statistically, high performers have better scores across
all governance categories than other countries. Interestingly, and in contrast to The Economist’s generalization, oil rich countries
have statistically equal scores to other countries in voice and accountability, control of corruption, and rule of law. But oil producers
have significantly lower scores on the remaining indicators.                                                                      21
Source: A Note on Governance and Economic Performance in Sub-Saharan Africa, World Bank, page 1 – August 2007.
    Governance has improved in higher growth countries,
Improvement          WGI 1996-2006
                   0.5
                                        High growth countries             Low growth countries                         Oil-Rich
  Governance Change, 2006-1996




                                 0




       -0.5
                                     Voice &    Control of   Government        Political Stability        Regulatory   Rule of Law
WorsenAccountability            Corruption         Effectiveness      / No Violence            quality
ing performing countries had both a growth acceleration and improvements in all governance indicators. Slow growers experienced
High
growth and governance deteriorations. Oil rich countries present a mixed picture. They had a significant jump in growth rates,
accompanied by improvements in political stability, regulatory quality and rule of law and deteriorations in voice and accountability,
control of corruption, and government effectiveness.
                                                                                                                               22
Source: A Note on Governance and Economic Performance in Sub-Saharan Africa, World Bank, page 2 – August 2007.
           Control of Corruption, 2006: Africa Map




Source for data: : 'Governance Matters VI: Governance Indicators for 1996-2006’, D. Kaufmann, A. Kraay and M. Mastruzzi, July 2007
                                                                                                                                              23
(http://www.worldbank.org/wbi/governance/govdata/); Colors are assigned according to the following criteria: Dark Red, bottom 10th percentile rank; Light
Red between 10th and 25th ; Orange, between 25th and 50th ; Yellow, between 50th and 75th ; Light Green between 75th and 90th ; Dark Green above 90th.
            Government Effectiveness, 2006: Africa Map




Source for data: : 'Governance Matters VI: Governance Indicators for 1996-2006’, D. Kaufmann, A. Kraay and M. Mastruzzi, July 2007
                                                                                                                                              24
(http://www.worldbank.org/wbi/governance/govdata/); Colors are assigned according to the following criteria: Dark Red, bottom 10th percentile rank; Light
Red between 10th and 25th ; Orange, between 25th and 50th ; Yellow, between 50th and 75th ; Light Green between 75th and 90th ; Dark Green above 90th.
Control of Corruption, 2006: Selected Countries




                                             25
Voice & Accountability, 2006: Selected Countries




                                              26
Government Effectiveness, 2006: Selected Countries




                                              27
Regulatory Quality, 2006: Selected Countries




                                         28
            Governance Indicators for Ghana, 1998-2006




Source for data: : 'Governance Matters VI: Governance Indicators for 1996-2006’, D. Kaufmann, A. Kraay and M. Mastruzzi, July 2007
                                                                                                                                              29
(http://www.worldbank.org/wbi/governance/govdata/); Colors are assigned according to the following criteria: Dark Red, bottom 10th percentile rank; Light
Red between 10th and 25th ; Orange, between 25th and 50th ; Yellow, between 50th and 75th ; Light Green between 75th and 90th ; Dark Green above 90th.
   Governance Indicators for Mozambique, 1998-2006




Source for data: : 'Governance Matters VI: Governance Indicators for 1996-2006’, D. Kaufmann, A. Kraay and M. Mastruzzi, July 2007
                                                                                                                                              30
(http://www.worldbank.org/wbi/governance/govdata/); Colors are assigned according to the following criteria: Dark Red, bottom 10th percentile rank; Light
Red between 10th and 25th ; Orange, between 25th and 50th ; Yellow, between 50th and 75th ; Light Green between 75th and 90th ; Dark Green above 90th.
      Governance Indicators for Zimbabwe, 1998-2006




Source for data: : 'Governance Matters VI: Governance Indicators for 1996-2006’, D. Kaufmann, A. Kraay and M. Mastruzzi, July 2007
                                                                                                                                              31
(http://www.worldbank.org/wbi/governance/govdata/); Colors are assigned according to the following criteria: Dark Red, bottom 10th percentile rank; Light
Red between 10th and 25th ; Orange, between 25th and 50th ; Yellow, between 50th and 75th ; Light Green between 75th and 90th ; Dark Green above 90th.
      Governance Indicators for Cameroon, 1998-2006




Source for data: : 'Governance Matters VI: Governance Indicators for 1996-2006’, D. Kaufmann, A. Kraay and M. Mastruzzi, July 2007
                                                                                                                                              32
(http://www.worldbank.org/wbi/governance/govdata/); Colors are assigned according to the following criteria: Dark Red, bottom 10th percentile rank; Light
Red between 10th and 25th ; Orange, between 25th and 50th ; Yellow, between 50th and 75th ; Light Green between 75th and 90th ; Dark Green above 90th.
  Careful about generalizations, because of
     enormous Variance, at many levels…
Already observed:
-- Variance across countries in Africa
-- Variance over time
-- Variance across different dimensions of
   Governance within the same country
Now:
-- Variance across different institutions
   within the same country
-- Variance across different manifestations
   of bribery, of types of corruption…     33
                      Quality of Institutions, 2006
% Firms reporting satisfactory quality
  100
                                    Independence of Judiciary    Parliament    Police

   80


   60


   40


   20


     0
            Sub-saharan             Botswana        Mozambique      Tanzania      Zimbabwe
              Africa
                                                                                        34
Source: EOS firm survey, WEF2006.
   Unbundling Different Manifestations of Bribery,
% Firm Report High Bribery (1-3)
                                 EOS 2006
             100
High
Bribery                                Sub-saharan Africa                                       Mozambique
                                       Tanzania                                                 Zimbabwe
                     80
  Frequency of Bribery




                     60



                     40



                     20
Low
Bribery
                         0
  Bribery in:                Permits               Utility                    Taxation                 Procurement                    Judiciary
Source: EOS firm survey, WEF2006. Questions: In your industry, how commonly firms make undocumented extra payments or bribes connected with permits /
                                                                                                                                                  35
utilities / taxation / awarding of public contracts / judiciary? (common…never occurs). How commonly do firms like yours make undocumented extra payments to
lower level public servants / high ranking politicians, political parties, and senior public servants to secure business?
                   Top Constraints to Business, EOS 2006
% firms reporting constraint among top 3:
100
                    Foreign Currency                                  Infrastructure                                     Corruption
                    Tax Regulations                                   Inflation
 80




 60




 40




 20




  0
              Sub-saharan Africa                         Mozambique                                Tanzania                              Zimbabwe
                                                                                                                                                       36
Source: EOS 2006. The question posed to the firm was: Select among the above 14 constraints the five most problematic factors for doing business in your country.
Note that the overall EOS sample covers 125 countries.
                                     ‘De Jure’: Index of Doing Business
                  BEST
                            100
                                                                                           2005         2006        2007
  Doing Business Index (Rank)




                                80

                                60

                                40

                                20

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Source for data: Doing Business, 2005-2007. The Index is an average across 10 indicators: starting a business,
                                                                                                              37
dealing with licenses, employing workers, registering property, getting credit, protecting investors, paying taxes,
trading across borders, enforcing contract, and closing a business.
                                       ‘De Jure’ Index of Doing Business
   BEST
                            100
    Doing Business Index (Rank)

                                                                                                                                                            2005                  2007

                                  80

                                  60

                                  40

                                  20

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Source for data: Doing Business, 2005-2007. The Index is an average across 10 indicators: starting a business,
                                                                                                              38
dealing with licenses, employing workers, registering property, getting credit, protecting investors, paying taxes,
trading across borders, enforcing contract, and closing a business.
          Press Freedom (FRH) in Sub-Saharan Africa,
                        1995 vs. 2006
                                9




      Not Free
      Part Free                                          47
      Free
                   44
                                                                                     % countries in 2006
                                                                                       15



                    % countries in 1995
                                                              Not Free
                                                              Part Free                                                 45

                                                              Free


                                                                                40



Source: 2006 Freedom House. Y axis measures percentage of countries in the region with free press (rating of 30 or below), partly
                                                                                                                              39
free (ratings between 30 and 60) and not free (rating above 60). In 1995 there were 45 countries divided into red (21), yellow (20)
and green (4). In 2006 there were 47 countries divided into red (21), yellow (19) and green (7).
          Freedom of the Press is associated with
           better Control of Corruption (& civil liberties
 more generally is associated with better performance of World
 Good   Bank-funded projects – see WBER article 1997)
                         1.5-
 Control of Corruption




                         1.0-
                                  r = .66
                         0.5-

                           0-


                         -0.5-

                         -1.0-

                         -1.5- _________________________________________________________________
Press Freedom                           Not Free of                                                          Free
    Status:                            Partially Free
Source for control of corruption: : 'Governance Matters V: Governance Indicators for 1996-2005’, D. Kaufmann, A. Kraay and M. Mastruzzi, September
                                                                                                                                           40
2006 (http://www.govindicators.org/). Source for Press Freedom: 2006 Freedom House’s Press Freedom Report. Terciles divided according to Press
Freedom ratings (190 countries total). Free: 0-30 (69); Partly Free: 31-60 (54); Not Free: 61-100 (67).
                          Income per Capita vs. Freedom of the Press, 2005

High
                      5
                               r = 0.50
                                                                                                                                                                    LUX
                                                                                                                                                           USA
                                                                                                                                                         SMR
                                                                                SGP                                                    HKG
  Income per Capita




                                                                                                 KWT                                                JPNCAN
                                                                                                                                                     AUS DEU        CHE
                                                                                                                                                                      DNK
                                                                                                                              ITA                 AUT
                                                                                                                                                  FRA      MCO      NLDISL
                                                                                                                                                                      SWE
                                                                                                                                                                    BEL FIN
                                                                                        QAT
                                                                                                                                                            IRL LIE
                                                                         OMN     ARE                                                    ISR      CYPTWN
                                                                                                                                                  ESP      BHS NZL
                                                            BRN                                                                       KOR                BRB ADO
                                                                                                                                                    CZEMLT    PRT
                                                                      BHR                                                ATG            GRC         SVN
                                                          SAU                                                                               MUS   KNA
                                                                                                               ARG
                      4                                                          MYS
                                                                               GAB        SYC                                           URY TTO
                                                                                                                                            CHL
                                                                                                                                                    SVK
                                                                                                                                                  HUN
                                                                                                                        HRV               ZAF     POL      ESTPCI
                                                                      RUS
                                                                      VEN                               THAMEX          BRA                          DMA
                                LBY                                                                        TUR                                         LTU
                                                                                                                                                  BLZLVA VCT
                                                                                                                                                       LCA
                                            BLR     TUN         KAZ                                               PAN         BWA
                                                                                                                                BGR
                                CUB               IRN         SWZ                       COL PRY                                         FJI            CRI
                                                                                          LBN
                                                                                        DZA                     ROM                             GRD
                                TKM                                                            GEO   UKR MKD      SLV   PER           NAM
                                                  SYR                                   J OR IDN
                                                                                        MAR GTM                      ECU   DOM        NRU                JAM
                                                                                        EGY                                            PNG
                                                                        MDV                  LKA        ALB           PHL          CPV
                                       ZWE
                                       UZB         CHN                                                                                 SAMGUY   SUR
                                                                            GIN KGZ                                               BOL
                                                                                 ARM
                                                                               MDA
                                                                 AZEIRQ DJI    CIV               HND                   IND
                                                                         HTI
                                                                               BTN
                                                                               CMR PAK                      NIC    YUG              TON
                                                        VNM                                        COG
                                                                         BGD                            COM SEN                                         FSM
                                            GNQ      LAO NPL                   AGO                        BIH                          SLBGHA
                                                                                     KHM KEN
                                                                                           MRT                  LSO              MNG    STP                    MHL
                                MMR             SDN                                                                                    BEN
                      3                                  TGO
                                                            TJ K GMB
                                                                 TCD             LBR CAFSLE    NGA                    BFA
                                                                                                                                               VUT
                                                                                                                                              TUV
                               PRK    ERI       RWA YEM
                                              WBG                                ZMB        NER UGA MDG GNB   MOZ                                MLI
                                                                                             MWI                                          KIR
                                                                BDI     AFG
                                                              ETH
                                                   SOM                                              TZA
                                                                                                                    TMP
                                                        ZAR




Low
                      2
                          0   Low                   20                                 40                           60                             80
                                                                                                                                                                     High      100
                                                                            Press Freedom                                                                                 41
Source for income per capita: Heston-Summers. Source for Press Freedom: Freedom House, 2006.
 Voice & Accountability Matters for Development
                                                   200
                                                   180

                                                   160
         Infant Mortality




                                                   140

                                                   120
                                                   100

                                                    80
                                                    60

                                                    40
                                                    20
                                                                           Finland
                                                     0
                            -2           -1              0           1               2
                                 'Voice' (including freedom of the press), Civil
                                           Liberties and Accountability              42
Source: KKZ 1999
     Governance Matters: The 300% ‘Dividend’

1.    Large Development Dividend of Good Governance:
      a one-standard-deviation improvement in governance
      raise incomes per capita in a country by about 300%
      in long-run
2.    But is such a decline in corruption unrealistically
      large?:   NO -- One S.D. is the difference from: Eq.
      Guinea → Iran or Uganda → Mauritius → Portugal →
      Finland or New Zealand
3.    The impact is from governance to incomes, and not
      vice versa -- higher incomes alone will not do
4.    Urgency of interventions to improve governance        43
  Development Dividend From Good Governance
$30,000


                        Control of Corruption




$3,000




 $300


               Low Governance                   Medium Governance                       High Governance
                                                                                                                 44
Data Source for calculations: KK 2004. Y-axis measures predicted GDP per capita on the basis of Instrumental Variable (IV)
results for each of the 3 categories. Estimations based on various authors’ studies, including Kaufmann and Kraay.
     Global Competitiveness Index vs. Control
High
               of Corruption, 2006
                  100                                                                                                                                         CHE
                                                                                                                                                               SWE          FIN
                                                                                                                                     USA
                                                                                                                                     JPN
                                                                                                                                                                  DNK
                                                                                                                                                                SGP
                                                                                                                                                  DEU
                                                                                                                                                   NOR NLD
                                                                                                                                                 HKG GBR
                                                                                                                TWN                                                   ISL
                                                                                                                       I SR
   Global Competitive Index


                                                                                                                                                    CAN
                                                                                                                                                      AUT
                                                                                                                                        FRA
                                              r = 0.86                                               KOR
                                                                                                                                       BEL IRL    AUS   LUX      NZL
                              80                                                                       MYS             EST
                                                                                                                                 CHL
                                                                                                                               ESP
                                                                                                   TUN CZE                     BRB
                                                                                                                        SVN    ARE
                                                                                 THA                                          PRT
                                                                                                          LVA
                                                                                                         SVK         QAT       MLT
                                                                                              LTU            HUN
                                                                                      IND               ITA
                                                                                                              ZAFKWT CYP
                                                                                                  POL    GRC
                                                                                                               BHR
                              60                                 IDN                        HRV          JOR
                                                                                                         CRI
                                                                         CHN                             MUS
                                                           KAZ                   PAN
                                                                               MEX           TUR
                                                                               JAM SLV
                                                                 RUS
                                                         AZE                  COL
                                                                           BRA TTO
                                                                       ARG     ROM
                                                                  PHL             MAR
                                                                                  BGR                                 URY
                                                                          PER
                              40                                  GTM
                                                                   VNM
                                                                   UKR
                                                                         DZA
                                                                            LKA
                                                                          MKD                                         BWA
                                                                        DOM                       NAM
                                                                       MDA     GEO
                                                        VEN                    YUG
                                                                                BIH
                                                           PAK ECU MNG
                                                          KEN HND
                                                            TJK NIC BOL
                                                  BGD              ALB
                              20                  NGA
                                                    KHM             GMB
                                                                               SUR
                                                                          TZA
                                                         PRY BEN
                                                      KGZ CMR
                                                                 NPL GUY      MDG
                                                                  UGA              LSO
                                                                ZMB MRT BFA
                                                                 MWI MLI
                                                ZWE                   ETH
                                                             TMP      MOZ
                                                    TCD
                              0                       BDI


                                   -2   Low                                                               1
                                                                                                                                                                        High 3
                                                                       Control of Corruption                                                                                      45
Source: EOS firm survey, WEF 2006 and 'Governance Matters VI: Governance Indicators for 1996-2006’, D. Kaufmann, A. Kraay and M. Mastruzzi,
July 2007 (http://www.govindicators.org/).
          Responsibility of the Private Sector &
           Multinationals on Anti-Corruption
         (% of Firms Reporting Procurement Bribery, 2006)
      70-


      60-

      50-

      40-


      30-

      20-

    10-_________________________________________________________________
  Location Multinational in     Multinational        Domestic Firms in NON
  of Firm: OECD, HQ in        operating outside       OECD Countries                                                                    (comparable)


                   another OECD                         OECD, HQ in OECD
                                                                                                                                                  46
Source: EOS2006. Questions: When firms like yours do business with the government, how much of the contract value must they offer in additional payments
to secure the contract?”. Y-axis shows percentage of firms who admitted paying bribes. Last bar excludes small with less than 50 employees.
   Country-specific, in-depth Governance
   and Anti-Corruption diagnostic surveys
• A demand-driven process to improve governance and
  build local capacity
• Key features:
   –   Three surveys: households, firms, and public officials
   –   Questions focus both on experience and perceptions
   –   Questions are tested and adapted to local realities
   –   Rigorous technical requirements in implementation
   –   Local institution implements, with guidance from international
       experts
• Outcomes: greater local capacity, baseline governance
  data, and action plan for policy reform

                                                                    47
  The power of diagnostic data and
    key dimensions for analysis
1. Participatory and Transparency Tool, for all
   stakeholders within the country to be involved
2. ‘Unpackage’ corruption – administrative, state
   capture, bidding, theft of public resources,
   purchase of licenses
3. Identify weak and strong institutions
4. Assess the costs of corruption on different
   stakeholders
5. Identify key determinants of good governance
6. Input to develop concrete policy
   recommendations                              48
 Corruption penalizes especially the
poorest citizens (% of monthly income paid
  for bribes as reported by households who
      sought a public service, 2000-2005
    25.0

    20.0

    15.0

    10.0

     5.0

     0.0
                     0)




                                                      )
                                                   04
                  00




                                                20
                  (2




                                                a(
                na




                                              ne
             ha




                                          ui
            G




                                          G



           Low Income     Middle income   High income     49
Corruption acts as a regressive tax, and
small firms pay more in bribes, 2000-2005
(% of gross monthly revenue paid in bribes, as reported by
                         firms)

      9
      8
      7
      6
      5
      4                                                  Small
      3                                                  Medium
      2                                                  Large
      1
      0
                                          0)
                       )
                      04




                                         00
                 20




                                     (2
                 a(




                                    na
               ne




                                                             50
                                ha
            ui




                                G
           G
                       Governance Indicators, by agency
                        (based on responses of public officials from 20
                                   agencies, Guinea 2004)
                                                                Audit   Enforcement of Quality of                                       Citizen Wage                State   Overall
                                                                                                  Politicization Resources Transparency                    Service
                                                             Mechanisms     Rules       Rules                                           Voice Satisfaction         Capture Corruption

M inistère de la justice                                         63           51           55         44         37          47         72        19        67      44         39
M inistère de la Sécurité                                        62           50           57         44         38          47         74        18        69      38         35
M inistère de l’Adm  inistration et de la Décentralisation       61           53           54         42         39          49         75        29        70      45         45
M inistère des Finances                                          76           72           60         40         43          58         80        28        67      51         30
M                            ent
  inistère de l’Enseignem Supérieurs et Recherche
                                                                 62           50           56         44         35          46         74        20        69      47         42
Scientifique
M                          e
  inistère de l’Urbanism et Habitat                                           76                      42         33                     64        75        38       5
M inistère de la Santé Publique                                  70           63           57         43         35          60         70        30        58      40         44
              m
Service Com unal                                                              62           51         34         40          52         64        13        49      49
Service Sous Préfectoral                                         58           43           55         45         32          43         72        13        64      52         37
M                      m
  inistère de la Com unication                                                52           61         44         38          46         75        42        65      69
M inistère de la Jeunesse et Sports                              60           52           56         42         42          53         73        11        71      52         42
            ique
Ligue Islam Nationale                                            62           60           59         41         41          49         75        28        64      43         33
M inistère de l’Agriculture                                      61           58           57         42         38          45         77        30        65      36         36
M                             ent
  inistère de l’enseignem Pré Universitaire                      67           69           57         41         50          50         72        42        76      45         31
M inistère de la Fonction Publique                                            44           60         45         44          44         71        25        56      10
Organisation Non Gouvernem         entale (ONG)                               59           53         41         48          44         82         8        70      54
              icro
Entreprise M – Finance                                                                                           32                     73         8        80      13
M                           ines
  inistère de l’Energie, M et Environnem        ent                           70                      49         55                     52        25        74
 hole
W Country                                                        62           50           57         45         34          46         75        20        68      42         37

         The indicators above take values between 0-100. To interpret them please keep in mind that:
         -The higher the value of the governance indicator the better the quality of that dimension .                                                                 51
         -The higher the value of the corruption index, the more severe the problem.
Country Diagnostics: a few salient lessons
• Governance and A-C (GAC) diagnosticc affect
  the policy debate and serve as an input in the
  design of a National A-C Strategy
• Transparency and public dissemination of the
  results are key
• The approach must be participatory at each
  stage of the process
• To unbundle corruption and institutional
  weaknesses allows to identify key areas for
  reform
• Quality control and use of rigorous analytical
  methods enhance the credibility of the results
                                               52
                     Synthesis
• Governance and Corruption Control is fundamental
  for Development and Growth
• Data, Analysis, and formulation of action programs:
  all very important.. Also lessons from others, but…
• Concrete Reforms and country leadership is key
• World Bank & rich countries can (and do) assist
  countries in governance reforms, capacity building,
  supporting civil society, media, etc. (incl. StAR)
• But international community only plays supportive
  role – the country leads (executive, legislative, civil
  society, media, private sector, competitiveness…)
• Key: Political, Judiciary & Procurement Reforms
• Role of the Private Sector and Multinationals
• Transparency, Voice, Press Freedom are key         53
Concretely: 10 Transparency Reform Components
1. Public Disclosure of Assets & Incomes of Candidates, Public
    Officials, Politicians, Legislators - & dependents
2. Public Disclosure of Political Campaign contributions by
    individuals and firms, and of campaign expenditures
3. Public Disclosure of Parliamentary Votes, w/out exceptions
4. Effective Implementation of Conflict of Interest Laws,
    separating business, politics, legislation, & government
5. Publicly blacklisting firms bribing in public procurement
6. Effective Implementation of Freedom of Information Law,
    with easy access to all to government information
7. Fiscal/Financial transparency: EITI, budgets, ROSCs
8. E*procurement: transparency (web) and competition
9. Media Freedoms & Media Development
10. Country Diagnostic (& Scorecard) on Transparency &
    Governance                            And GAC, and StAR… 54
Power of Data, Transparency and Citizen Oversight
            Tracking Education spending in Uganda
equiv. US$ per student

 3.5

 3.0
                                                    Public info campaign
 2.5

 2.0

 1.5

 1.0

 0.5

 0.0
           1990       1991          1993            1994          1995         1999

              Intended grant           Actual grant received by primary school (means)
                                                                                55
          Source: Uganda Public Expenditure Tracking Surveys
                                    Most effective Anticorruption Measures?
Responses from Officials and Leaders in 62 countries
% of respondents that mark 'high'




                                    70%




                                    40%




                                    10%
                                           Anti-Corruption   Privatization   Civil Liberties/   Public Sector   Transparent    Economic      Leadership
                                            Commissions                           Voice           Reform          Budget      Deregulation    Example
                                                                                                                                                   56
                                    Source: D. Kaufmann, ‘Corruption: The Facts’, Foreign Policy, Summer, 1997
 Data for Analysis and Informing Policy Advice,
           Not for Precise Rankings
    Any data on Governance, Institutions, and Investment
    Climate are subject to a margin of error. They are not
   intended for precise country rankings, but to highlight
relative strengths and weaknesses and draw analytical and
policy lessons. The data and indicators do not necessarily
 reflect official views on rankings by the World Bank or its
  Board of Directors. Errors are responsibility of the main
   author. This presentation draws from collaboration and
  inputs from Aart Kray and Massimo Mastruzzi as well as
                  staff from the Africa region.

    Further materials & access to interactive data:
    General: www.worldbank.org/wbi/governance
            Data: www.govindicators.org                  57

								
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