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The Private Sector as Culprit and Victim of Corruption in Africa

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  • Léonce Ndikumana
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    Abstract

    Corruption causes severe waste and misallocation of financial, human, and natural resources, thus retarding growth and social development. It suffocates private sector activity and entrepreneurship, perpetuating the dominance of an inefficient public sector, and undermining economic diversification and structural transformation. While traditionally corruption has been seen as a public sector phenomenon, private sector corruption deserves as much attention as public sector corruption due to its equally debilitating effects on economic activity. In fact private sector operators can be both culprits and victims of corruption. This paper examines the symptoms and impacts of private sector corruption in Africa, from the perspective that corruption arises from both relations between the private sector and the public sector as well as transactions falling strictly within the private sector domain. The paper documents key channels of corporate sector corruption, especially anti-competitive and speculative behavior in key sectors such as banking and services; capital flight and trade misinvoicing; transfer pricing especially in the natural resource industry and the manufacturing sector; and tax evasion by multinational corporations operating in Africa. The consequences of private sector corruption and synergies between private sector corruption and public sector corruption are reviewed. The paper stresses that in their fight against corruption, African countries need to leverage the existing initiatives at regional and international level aimed at tackling the problem of corruption, and it highlights major innovations in these anti-corruption instruments that may serve well the anti-corruption agenda on the continent.

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    Bibliographic Info

    Paper provided by Political Economy Research Institute, University of Massachusetts at Amherst in its series Working Papers with number wp330.

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    Date of creation: 2013
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    Handle: RePEc:uma:periwp:wp330

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    Keywords: corruption; Africa; private sector; public sector;

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    1. De Rosa, Donato & Gooroochurn, Nishaal & Gorg, Holger, 2010. "Corruption and productivity : firm-level evidence from the BEEPS survey," Policy Research Working Paper Series 5348, The World Bank.
    2. J. K. Boyce & L. Ndikumana, 2001. "Is Africa a Net Creditor? New Estimates of Capital Flight from Severely Indebted Sub-Saharan African Countries, 1970-96," Journal of Development Studies, Taylor & Francis Journals, vol. 38(2), pages 27-56.
    3. Léonce Ndikumana, 2002. "Public Debts and Private Assets:Explaining Capital Flight from Sub-Saharan African Countries," Working Papers wp32, Political Economy Research Institute, University of Massachusetts at Amherst.
    4. Tirole, Jean, 1996. "A Theory of Collective Reputations (with Applications to the Persistence of Corruption and to Firm Quality)," Review of Economic Studies, Wiley Blackwell, vol. 63(1), pages 1-22, January.
    5. Kwabena Gyimah-Brempong, 2002. "Corruption, economic growth, and income inequality in Africa," Economics of Governance, Springer, vol. 3(3), pages 183-209, November.
    6. Daron Acemoglu, 2006. "A Simple Model of Inefficient Institutions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(4), pages 515-546, December.
    7. Susan Ariel Aaronson & Jennifer Brinkerhoff, 2009. "Limited Partnership: Business, Government, Civil Society (NGOs) and the Public in the Extractive Industry Transparency Initiative (EITI)," Working Papers 2010-28, The George Washington University, Institute for International Economic Policy.
    8. Paul Collier, 2000. "How to Reduce Corruption," African Development Review, African Development Bank, vol. 12(2), pages 191-205.
    9. Boyce, James K., 1992. "The revolving door? External debt and capital flight: A Philippine case study," World Development, Elsevier, vol. 20(3), pages 335-349, March.
    10. Torvik, Ragnar, 2002. "Natural resources, rent seeking and welfare," Journal of Development Economics, Elsevier, vol. 67(2), pages 455-470, April.
    11. Léonce Ndikumana & James Boyce, 2010. "Measurement of Capital Flight: Methodology and Results for Sub-Saharan African Countries," African Development Review, African Development Bank, vol. 22(4), pages 471-481.
    12. Francisco, Manuela & Pontara, Nicola, 2007. "Does corruption impact on firms'ability to conduct business in Mauritania ? evidence from investment climate survey data," Policy Research Working Paper Series 4439, The World Bank.
    13. Kasekende Louis & Brixova Zuzana & Ndikumana Leonce, 2010. "Africa: Africa's Counter-Cyclical Policy Responses to the Crisis," Journal of Globalization and Development, De Gruyter, vol. 1(1), pages 1-22, January.
    14. Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March.
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