1. Foreign Direct Investments and Corruption The impact of corruption on foreign investments and trade  Prague, 31 October 2005 Jeppe Kromann Hansen

2. Overview: Introduction Measuring corruption CPI BPI FDI and corruption Statistics Theory Cases: Russia Czech Republic Subjects: Measuring corruption FDI (Foreign Direct Investments) and corruption Cases: –(Denmark) –Czech Republic –Russia Introduction

3. Overview: Introduction Measuring corruption CPI BPI FDI and corruption Statistics Theory Cases: Russia Czech Republic Jeppe Kromann Hansen MA Pol Sci, Pol Eco Consultant, Rambøll Management Public administration reform, anti- corruption, good governance Board member, Transparency International Denmark Introduction

4. Overview: Introduction Measuring corruption CPI BPI FDI and corruption Statistics Theory Cases: Russia Czech Republic Transparency International International NGO fighting corruption Mainstreaming of corruption as an international issue National chapters Indexes, conferences (e.g. IACC), research etc. Measuring corruption

5. Overview: Introduction Measuring corruption CPI BPI FDI and corruption Statistics Theory Cases: Russia Czech Republic Measuring corruption Corruption Perception Index (CPI): Based on up to 13 other indexes Shows only perception of corruption Statistical average Number of countries growing each year Most cited corruption index Politically very important (World Bank etc.) Annually since 1995 (from 41 to 159 countries)

6. Overview: Introduction Measuring corruption CPI BPI FDI and corruption Statistics Theory Cases: Russia Czech Republic Measuring corruption Score Rank Statistical data

7. Overview: Introduction Measuring corruption CPI BPI FDI and corruption Statistics Theory Cases: Russia Czech Republic Measuring corruption

8. Overview: Introduction Measuring corruption CPI BPI FDI and corruption Statistics Theory Cases: Russia Czech Republic Measuring corruption CPI:2002 200320042005 Czech Rep.:3.73.94.24.3 52nd54th51st47th Denmark:9.59.59.59.5 2nd3rd3rd4th Russia:2.72.72.82.4 71st86th90th126th Trends: Rich countries – low corruption Former Soviet Union – high corruption

9. Overview: Introduction Measuring corruption CPI BPI FDI and corruption Statistics Theory Cases: Russia Czech Republic Measuring corruption Bribe Payers’ Index (BPI) (only 2002) Measures a country’s exporters’ bribe- paying abroad

10. Overview: Introduction Measuring corruption CPI BPI FDI and corruption Statistics Theory Cases: Russia Czech Republic Measuring corruption CPI and BPI (Corruption in-country and abroad) Most corrupt Corruption in country Corrupt exporters

11. Overview: Introduction Measuring corruption CPI BPI FDI and corruption Statistics Theory Cases: Russia Czech Republic Foreign investors: Angels or Devils? FDI and corruption Angel? Devil?

12. Overview: Introduction Measuring corruption CPI BPI FDI and corruption Statistics Theory Cases: Russia Czech Republic FDI and corruption Corruption and FDI – Statistics The higher corruption – the less FDI Corruption = tax on foreign firms –Corruption change: Singapore (9.4) to Mexico (3.5) = 24% tax increase Corruption = insecurity –Foreign firms more scared by insecurity

13. Overview: Introduction Measuring corruption CPI BPI FDI and corruption Statistics Theory Cases: Russia Czech Republic FDI and corruption Corruption and FDI – Statistics BUT China/South Korea has high corruption and high FDI AND foreign companies do sometimes takes advantage of corruption

14. Overview: Introduction Measuring corruption CPI BPI FDI and corruption Statistics Theory Cases: Russia Czech Republic FDI and corruption Theory of corrupt markets and FDI: Type Organisation Networks Active Practical Forced Centralised Decentralised OpenClosed Problem for international investors: Major Medium Minor

15. Overview: Introduction Measuring corruption CPI BPI FDI and corruption Statistics Theory Cases: Russia Czech Republic FDI and corruption Foreign firms & corruption: Examples

16. Overview: Introduction Measuring corruption CPI BPI FDI and corruption Statistics Theory Cases: Russia Czech Republic Case: Russia Basic facts:  Very low CPI score: 2,4 (126th)  ~30 bn $ a year  Everywhere: Traffic police, politicians, state administration, universities, courts, hospitals, army (new entry!)  Changed nature since USSR and from Yeltsin to Putin

17. Overview: Introduction Measuring corruption CPI BPI FDI and corruption Statistics Theory Cases: Russia Czech Republic Case: Russia Typology: Type: Forced – all officials free to demand bribes and offer corrupt services Organisation: Decentralised – chaotic; no central control with collection of bribes Networks: Active corruption occurs mostly in closed networks, which are opening up

18. Overview: Introduction Measuring corruption CPI BPI FDI and corruption Statistics Theory Cases: Russia Czech Republic Case: Russia Corruption as problem for foreign companies in Russia: ? ?

19. Overview: Introduction Measuring corruption CPI BPI FDI and corruption Statistics Theory Cases: Russia Czech Republic Case: Czech Republic Corruption in Czech Republic: CPI: 3.7 (2002) to 4.3 (2005) Type? Organisation? Networks? Active Practical Forced Centralised Decentralised OpenClosed

20. Overview: Introduction Measuring corruption CPI BPI FDI and corruption Statistics Theory Cases: Russia Czech Republic Case: Czech Republic Corruption as problem for foreign companies in Czech Republic: