Source: US$5b refinancing offer corruption fears – The Zimbabwe Independent May 10, 2019
A NUMBER of readers of this column have expressed fears that the US$4,5 billion refinancing package that is being spearheaded by London-domiciled ICG Capital and Finance Corp Pvt Ltd UK (ICG) will not yield a positive impact on the economy due to endemic corruption.
Coming from a number of unsolicited independent respondents, it set me thinking deeply on the mechanics of corruption. In this instalment, I share the results of my research into corruption and its intersection with economics.
The graph accompanying this article provides a fundamental scientific relationship between poverty, as indicated by per capita GDP, and corruption. The data show that the lower the per capita GDP, the higher the corruption levels associated with a country.
The relationship is very strong, with an R-squared value of 81,4%, implying a correlation coefficient of 0,81. These two statistics, in simple terms, mean that the relationship between national poverty levels and corruption levels are extremely strong. It is not surprising then that Zimbabwe, with a per capita GDP of US$1 333, has an extremely high corruption index of 22%.
There is a second side to corruption. In an analysis I did and was published in this column, I showed that there is a strong correlation between Ease of Doing Business scores and corruption levels; the lower the Ease of Doing Business score, the higher the level of corruption.
However, these two relationships do not tell us what causes or drives the relationship. We are very lucky in that renowned Harvard management scholar Clayton Christensen in his latest book he co-authored with Efosa Ojomo and Karen Dillion, titled
The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty, we are beginning to understand with a good measure of confidence the causal mechanisms driving corruption in an economy. Christensen argues that corruption is hired for a Job To Be Done (another theory of Christensen’s) – corruption is hired by people to make progress in a specific situation. Christensen says his latest research uncovered three key reasons why individuals hire corruption.
First, according to Christensen, people hire corruption because it is a human desire to want to make progress, either to gain more status or improve personal well-being in terms of finances, social standing and emotional health. His argument is that when a society offers few legitimate options, corruption becomes more enticing to get specific Jobs To Be Done (gaining more status and improving financial, social and emotional well-being) actually done. Applied to Zimbabwe, with formal unemployment levels of above 90% and the erosion of disposable incomes by galloping inflation, there are few legitimate options to get the aforementioned Jobs To Be Done accomplished. It is not surprising then that Zimbabwe’s corruption perception index is a low 22%.
Second, Christensen argues that, similar to companies, individuals have cost structures. As such, if a person’s costs (food, accommodation, transport, medical bills, school fees, for example) exceed their personal revenues, they are more susceptible to corruption and are likely to defy the law for the purposes of balancing their personal cost-revenue mismatch.
Zimbabwe’s intractable and unrelenting economic descent where wages, salaries and other legitimate incomes remain static in the face of the rapid and exponential loss of the value of the local currency, means there is tremendous pressure on the individual’s cost structures in the face of static incomes. This is a recipe for corruption.
Third, Christensen argues that people hire corruption, wilfully subverting the law regardless of income level to make progress if the law stifles personal progress.
In other words, the latent psycho-social force inherent in individuals to make progress is stronger than the force of a progress-inhibiting law. This explains perfectly why nations with the lowest Ease of Doing Business scores are also the most corrupt. Zimbabwe’s Ease of Doing Business Score of 50,44%, which ranks the country 155 out of 190, tells us that our environment makes it cumbersome for entities to do business, predictably, the psycho-social forces of making progress overcome the prohibition of law, with people choosing to engage in corruption to overcome the difficulty of doing business in Zimbabwe.
What is the solution then?
Christensen prefaces his framework for addressing corruption with an interesting observation; he brings to our awareness that the mighty United States at one point in history had corruption levels not too dissimilar to the ones experienced in many of the world’s poorest countries. He then cautions that anti-corruption programmes targeted at arresting corrupt individuals are like a game called Whac-A-Mole, meaning when one corrupt individual is busted, another rises in their place. His argument, drawing from the three drivers of corruption, is that development comes before corruption falls. The smartest and most effective way of bringing down the rampant levels of corruption is to spur significant economic development that increases the legitimate options for individuals to help get the job of enabling financial, social and emotional well-being done.
As long as Zimbabwe fails to make significant progress on the economic front, anti-corruption drives, no matter how sincere they may be, they will fail dismally because anti-corruption does not address the fundamental Jobs
We are now in a position to address the fears that the US$5 billion refinancing offer will be dissipated by corruption. Perhaps the refinancing offer needs to have smart mechanisms informed by the three causal mechanisms of corruption to ensure that the US$5 billion directly funds bankable productive ventures based on thorough due diligence on every project proposal and the persons driving the projects. A formal business case for each project must be done before any money is committed. For starters, struggling or distressed companies that are known to have good management but are being crippled by foreign currency shortages are given funding directly. This will have the immediate impact of stabilising prices and saving jobs. The next phase will be to evaluate agricultural revival projects to enable the country to be food secure, substitute imports and provide local feedstock to the manufacturing sector. We know historically that agriculture, through a powerful economic multiplier effect, contributed 60-70% to our country’s GDP. Since high per capita GDP is associated with low corruption levels as explained by the three causal mechanisms, agricultural revival and upgrading, it provides us with the greatest chance to tame corruption. Good economics kill corruption. The third phase should focus on non-agricultural value chains to capture the remaining 30-40% non-agro-based drivers of GDP.
Brett Chulu is a management consultant and a classic grounded theory researcher who has published research in an academic peer-reviewed international journal. — email@example.com.