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November 03, 2004
Graphing Graft: Transparency International Finds Rampant Corruption in 60 Countries
    by William Baue

The tenth annual Corruption Perceptions Index highlights the acute problem of corruption in oil-rich countries.


Corruption, defined as the abuse of public office for private gain, is ubiquitous. It registers to some degree in every country examined in the 2004 Corruption Perceptions Index (CPI), a "poll of polls" or composite index issued annually by Transparency International (TI) since 1995.

While some countries (such as index-toppers Finland, New Zealand, Denmark, and Iceland) are relatively "clean," the vast majority (106) of the 146 countries studied score less than 5 on a scale from 0 (most corrupt) to 10 (least corrupt). More than a third (60) of the countries scored less than a 3, and six countries (Bangladesh, Haiti, Nigeria, Chad, Myanmar, Azerbaijan, Paraguay) scored less than 2.

Graft and oil seem to mix especially well, according to Peter Eigen, chair of TI.

"[O]il-rich Angola [which scored 2.0], Azerbaijan [1.9], Chad [1.7], Ecuador [2.4], Indonesia [2.0], Iran [2.9], Iraq [2.1], Kazakhstan [2.2], Libya [2.5], Nigeria [1.6], Russia [2.8], Sudan [2.2], Venezuela [2.3], and Yemen [2.4] all have extremely low scores," said Mr. Eigen. "In these countries, the oil sector is plagued by revenues vanishing into the pockets of western oil executives, middlemen, and local officials."

The convergence of oil and corruption is of particular concern in Iraq, engulfed as it is in a protracted state of war and controversy over the questionable ethics surrounding the awarding of oil-related contracts.

"The future of Iraq, whose economy is dominated by oil, depends on transparency in the oil sector," said Mr. Eigen. "The urgent need to fund postwar reconstruction in Iraq heightens the importance of stringent transparency requirement in all procurement contracts."

The socially responsible investment (SRI) community actively advocates transparency as an antidote to corruption. For example, SRI firms such as UK-based F&C (formerly ISIS) Asset Management, Canada-based Ethical Funds, and South Africa-based Frater Asset Management support the Extractive Industries Transparency Initiative (EITI). This program urges governments of resource-rich countries to disclose payments made by extractive industry companies.

Last year, the Social Investment Forum (SIF), the SRI industry organization in the US, awarded the annual Moskowitz Prize for the outstanding SRI-related research to a paper correlating lower corruption to higher shareowner value across 46 countries. The study was based on CPIs from 1995 to 1998, testament to the significance of TI's compilation of comprehensive global information on corruption.

This year's CPI was based on a three-year (2002 through 2004) rolling average of results of 18 different polls from 12 independent institutions such as Columbia University, Freedom House, Gallup International, and the World Economic Forum (WEF).

"The strength of the CPI is based on the concept that a combination of data sources combined into a single index increases the reliability of each individual figure," states Johann Graf Lambsdorff, professor at the University of Passau, who oversaw the statistical calculations. However, he also notes "the sources do not differ considerably in their assessment of levels of corruption."

TI cautioned against misuse of CPI results.

"Some governments have begun to wonder whether it is useful to provide aid to countries perceived to be corrupt--and have sought to use corruption scores to determine which countries receive aid, and which do not," said Mr. Eigen. "Countries that are perceived as very corrupt should not be punished for starting from a high level of corruption [as this] would amount to penalizing the people twice."

Instead of punishing corrupt countries and their citizens, TI advocates the use of its findings to promote anti-corruption measures.

"If a country is believed to be corrupt, but is willing to reform, this should serve as a signal to donors that investment is needed in systemic approaches to fight corruption," Mr. Eigen said. "And if donors intend to support major development projects in corrupt countries, they should pay particular attention to corruption 'red flags' and make sure appropriate control processes are set up to limit graft."

 

 
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