On the 11th August 2015, while Andrew Mwenda was on NTV news night, he intimated that there is no evidence that corruption is an impediment to economic development anywhere in the World. This statement is quite fallacious and ill-informed. 

Mwenda's arguments were premised on largely correlation to argue causality. Correlation however doesn't mean causality. Secondly, while economic growth and economic development are interchangeably used, they don’t mean the same. Economic development encompasses economic growth plus social economic transformation like poverty reduction, income inequality and improved human development indicators. A simplistic measure of economic development is GDP per capita with countries that have a GDP per capita of USD 1045 are considered as low Income countries.

In Mwenda's recent facebook post, he argues that estimated corruption of about 10% of the annual budget is not the cause of bad services. He also argues that recent efforts by Uganda’s Ministry of Finance cleanup of the register to remove ghost workers saved UGshs 230 billion in a wage bill of 3 trillion. That is about 7%.  While, poor service delivery is a manifestation of many factors including corruption, both are indicative of institutional and regulatory weakness. These arguably are very costly to a nation.

To start with, 10% of the 2015/16 budget is UGX 1.85 trillion shillings and only 3 sectors of works and transport, energy and education have more. This amount compares favorably amount of interest payments by government for its debts and more than the amount government intends to borrow from the domestic market of UGX 1.4 trillion. The latter at current interest rates will attract interest payments above UGX 200 billion (50% of the agriculture budget). In short, if 10% of the budget is lost annually, a full year of the budget is lost every 10%.

Common in literature and Mwenda's citation is the high-growth countries in East Asia exhibiting corruption tendencies inter alia of - bribery, patrimonialism, cronyism, and rent-seeking. What however, is often missed is the primary growth drivers; inter alia the institutional strength and factor productivity reforms that were encountered in these economies. A recent study compares the Sub-Saharan Africa which includes many countries that are stagnating in the category of low-income countries; the same characteristics that were in many East Asian economies in the 1960s before exhibiting spectacular growth performances onwards. This study shows that East Asia has been characterized by growth-oriented governments and strong states, which have had the capacity to contain corruption and prevent threshold effects and the fall into lower equilibria.

In East Asia, corruption exists but is controlled, channeled, and submitted to growth objectives because states have the capacity to achieve this. For example, successful anticorruption campaigns in both Singapore and Hong Kong, China were implemented when they were both still relatively poor.  In contrast, in Sub- Saharan Africa, vicious circles and endogenous causalities may have created poverty traps, where weak states, predatory political regimes, generalized corruption, commodity-based market structures and windfall gains reinforce each other.

Corruption however is often intrinsically difficult to define and measure, so institutional and regulatory capacity can be used as proxy for corruption. Another commonly used is the Transparency International corruption Index which examines over 175 countries. In the top 21 countries, only 5 countries (New Zealand, Luxemburg, Iceland, Uruguay and Barbados) have a GDP of less than USD 200 billion. Of the 21 most corrupt countries, 19 of them have an annual GDP of less than $100 billion. The other two of Venezuela and Iraq each have GDP of above USD 200 billion.  The majority of low income countries are associated with high corruption perception and this negative correlation provides prima facie evidence of the negative impact corruption has on value creation.

The corruption and economic growth consensus however remains mixed, with a few studies indicating corruption can actually spur economic growth at least in the short run. Essentially corruption (public) spurs private sector creation-as exhibited by the growing private infrastructure and businesses but at the cost of public infrastructure which is too is a fundamental driver of growth.

Corruption breeds ironies, for example, officials of the Ministry of Education taking their kids to private schools. Corruption may have considerable adverse effects on economic growth, largely by reducing private investment, and perhaps by worsening the composition of public expenditure and revenue, thereby undermining public trust in the government. This diminishes its ability to fulfil its core task of providing adequate public services and a conducive environment for private sector development.

In the long run, corruption associated growth may dwindle and wealth distribution challenges may entail the delegitimization of the state, leading to severe political and economic instability. Corruption in Uganda has to be dealt with head on, net in the small or big fish involved, and addressing the inefficiencies in public entities that are rated highest in receiving bribes. Welfare audits may also come handy. Removing the institutional and regulatory impediments to growth is better than circumventing them by corruption. 

By Enock Nyorekwa Twinoburyo-Economist

The author is a PhD Research Fellow, University of South Africa.