The infrastructure sector is among the top three most corrupt sectors alongside arms and energy. From planning to budgeting, financing, bidding and constructing – all stages of the infrastructure project cycle are prone to corrupt practices by public officials and private contractors with costly and dangerous consequences for users.
Corruption involves illegal, and looked down upon acts, and is difficult to measure. Corruption is not limited to bribery but is represented by a collection of different ways of misusing power and misallocating funds, such as: nepotism, social exchange practices like brifting, extortion, collusion, lobbying, and others.
According to World Bank estimates, the financial burden of corruption in infrastructure investment and maintenance in developing countries amounts to approximately $18 billion per year. Corruption in public procurement shifts funds to less competitive sectors leading to increased unproductive public spending. Corruption inhibits the value for money of public infrastructure assets and makes infrastructure projects less efficient and much more expensive.
In addition to the financial costs, countries and regions with higher levels of corruption also have lower access to quality infrastructure, which, in turn, results in negative social effects, including exacerbated poverty, lowered rates of education, increased mortality, and aggravated gender inequality.
Corruption in infrastructure can provoke contracting authorities and contractors to use low quality building materials that can significantly increase the costs over the life-cycle of an asset. This is especially evident in long lifetime intended infrastructure projects that depend on the quality of building materials, such as roads, dams, bridges, factories and housing.
Faulty construction, misuse of materials, and falsification of inspections can also lead to deadly structural failures, as demonstrated by 83% of all deaths from building collapse in earthquakes over the past 30 years have occurred in countries that are anomalously corrupt.
In the future, depending on participation from the private sector, public funding for infrastructure will need to increase by $1–1.5 trillion per annum through 2030 to meet the varying infrastructure needs of different states. For this reason, implementation of anti-corruption and transparency mechanisms is crucial to ensure the development of financially sustainable and inclusive infrastructure that creates value for people.
Among the deadliest construction projects associated with corruption are:
People watching the rescue work after collapse of the Rana Plaza garmet factory
Rescue workers and volunteers in a collapsed buildings in Del Valle zone of Mexico City in consecuence of the earthquake of September 19, 2017.
Public infrastructure built on the foundations of corrupt deals and a lack of public oversight and accountability incur higher costs for taxpayers, a lack of value for money and ultimately, fall short to provide people with the quality of infrastructure services that are needed for a prosperous development path. The following practices can support anti-corruption and transparency in infrastructure:
E-procurement:
Digital government in the form of electronic public procurement facilitates the access to information and leads to the formalization of procurement practices thus reducing possibilities for corruption and ensuring a focus on value for money and quality.
Integrity:
Specific standards for procurement officials may mitigate risks related to the complex public procurement process. Many OECD countries have introduced specific codes of conduct, guides, and training for procurement officials to ensure that officials’ private interests do not improperly influence their public duties. The Code of Conduct for Procurement in Canada summarizes laws, key responsibilities, and obligations for public servants and private vendors.
Oversight and Control:
Internal controls in procurement can verify whether legal, administrative and financial procedures are followed, and include financial controls, internal audit and management controls. The Federal Procurement Agency in the Ministry of the Interior in Germany has set up a centralized electronic system that collects and stores all data related to the procurement activities and provides an extensive record of the procurement procedures.
Transparency:
The practices behind infrastructure procurement require regular checks and balances. Public expenditure tracking surveys, government audits, and citizens involvement at critical stages of the procurement process are potential approaches for addressing the misappropriation of government funds.
Stakeholder Participation:
Civil society access to public procurement contracts and increased public oversight can help decrease corruption in infrastructure. For example, a field experiment with a public monitoring intervention in Peru resulted in a 15.05% decrease in the cost of infrastructure development.
The Infrastructure Transparency Index (ITI) can be used to measures the level of transparency of the infrastructure sector and the quality of related participation and accountability processes at national or sub-national level.
RepRisk is an ESG risk database that helps to systematically screen and monitor companies’ portfolios of clients, investments and suppliers, and flag those companies with high ESG risk exposure. The tool systematically captures and analyzes adverse ESG and business conduct data, retrieved from media, stakeholders and other public resources, that can have a reputational, compliance, and financial impact on a company or project.
The ESG Due Diligence Tool aims to provide investors with a transparent view of the ESG risks and opportunities of an infrastructure asset at the due diligence phase.
The Environmental and Social Performance Standards of the International Finance Coalition (IFC) define IFC clients’ responsibilities for managing the environmental and social risks of their projects. The Performance Standards provide guidance on how to identify risks and impacts and are designed to help avoid, mitigate and manage risks and impacts as a way of doing business in a more sustainable way.
