World Bank, November 2006 Anticorruption in Transition 3 – Who is Succeeding … And Why?

The Big Questions Is corruption in Eastern Europe and the former Soviet Union – including Moldova – getting better or worse? What explains the changes?

A Tool for Monitoring Corruption “Business Environment and Enterprise Performance Survey” (BEEPS) Joint initiative with EBRD Joint initiative with EBRD 20,000 firms in 3 rounds (1999, 2002, 2005) 20,000 firms in 3 rounds (1999, 2002, 2005) 26 transition countries 26 transition countries 6 European comparators in ‘05: Ireland, Germany, Greece, Portugal, Spain, Turkey (+ Korea and Vietnam) 6 European comparators in ‘05: Ireland, Germany, Greece, Portugal, Spain, Turkey (+ Korea and Vietnam) Focus on corruption in enterprise-state interactions Focus on corruption in enterprise-state interactions

Corruption Indicators used in BEEPS Frequency of bribery Frequency of bribery TaxTax CustomsCustoms Business LicensingBusiness Licensing ProcurementProcurement JudiciaryJudiciary Bribe “tax” Bribe “tax” State capture State capture Corruption as a problem for business Corruption as a problem for business

Is corruption getting better or worse? …and how do transition countries compare with European comparators?

Corruption is falling for the region as a whole (though not yet to W. Europe levels)… Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

… but not in all countries … Bribe Frequency by country, Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

… and not in all sectors. Bribe Frequency by sector, Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

Many Moldovan firms see corruption as a problem for business… but fewer than in Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

Moldovan firms report the highest levels of corruption in the following areas: Customs (improving but still high)Customs (improving but still high) Business licensing (no change over 3 years)Business licensing (no change over 3 years) Tax (major improvement but still significant)Tax (major improvement but still significant) Government procurement (rising)Government procurement (rising) …and state capture is still relatively high in Moldova and other SEE countries.

New private firms continue to pay the most bribes. Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

Why the improvement in ECA?

A Tool for Monitoring Policies and Institutions “Doing Business” Survey of accountants and lawyers on time and cost of: Starting a businessStarting a business Dealing with licensesDealing with licenses Hiring and firingHiring and firing Registering propertyRegistering property Getting creditGetting credit Protecting investorsProtecting investors Paying taxesPaying taxes Trading across bordersTrading across borders Enforcing contractsEnforcing contracts Closing a businessClosing a business

Transition countries lead the world in business-friendly policy reforms… Source: Doing Business in 2007

3 of the top 10 reformers in 2005 were in ECA… 1. Georgia 2. Romania 3. Mexico 4. China 5. Peru 6. France 7. Croatia 8. Guatemala 9. Ghana 10. Tanzania Source: Doing Business, 2007

… and reforms are in many areas. Tax Tax Low rate, broad based taxes (e.g. Baltics and Slovakia)Low rate, broad based taxes (e.g. Baltics and Slovakia) Customs Customs IT, risk-weighted inspections (SE Europe)IT, risk-weighted inspections (SE Europe) Regulatory environment Regulatory environment deregulation; less frequent inspections (Georgia)deregulation; less frequent inspections (Georgia) Courts Courts independence, efficiency, transparency (Romania)independence, efficiency, transparency (Romania) Procurement Procurement transparency and capacity-building (Poland)transparency and capacity-building (Poland)

However, the ease of doing business still varies widely among countries. Source: Doing Business in 2007 Lithuania 16

Moldova ranks well in a few policy areas but not most… [note: lower score is better] Source: Doing Business in 2007

… and some progress has been made in addressing accountability and transparency. Source: World Bank project on Actionable Indicators; update of Dorhoi (2005)

What motivates change?

The “carrot” of EU Accession has been a strong motivator of reform. Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?; based on the Anticorruption Assessment Index in Dorhoi (2005).

Most importantly, every country that has made significant progress has had strong and committed leadership.

To summarize 1. Corruption in enterprise-state relations is falling in many transition countries...including Moldova. but wide variation among sectors but wide variation among sectors 2. Policy and institutional reforms matter. Customs, business licensing, taxation, and public procurement are some key areas for Moldova Customs, business licensing, taxation, and public procurement are some key areas for Moldova 3. Strong leadership is essential, and countries need to continue their efforts. Still a distance from EU normsStill a distance from EU norms Complacency is not an option in today’s globalized worldComplacency is not an option in today’s globalized world

Anticorruption in Transition 3: Who is Succeeding … And Why? For more information on economic policy and governance: