Talking Points…Corruption, entrepreneurship and economic growth (Part one)

Entrepreneurship as a prerequisite for economic growth
“Jobs are a priority for every country. Doing more to improve regulation and help entrepreneurs is the key to creating jobs. Entrepre-neurial activities are critical to economic growth, their innovations playing a key role in driving economic growth. Entrepreneurs significantly impact economic activity by creating jobs, increasing wealth and incomes, and connecting local economies to the larger, global economy.

Corruption – an obstacle to entrepreneurship
A common challenge facing entrepreneurs in their wealth-creating pursuits are the various instances of official harassment and ‘shakedowns’ particularly in countries with archaic labour laws and an absence of various forms of oversight. In those circumstances entrepreneurs seeking to build new businesses or restructure existing ones often become helpless pawns in circumstances where the economic and political environment facilitate graft and corruption. Often, these entrepreneurs are compelled to ‘shell out’ hard – earned and frequently limited finances in order to ‘grease palms’ if they are to overcome bureaucratic hurdles.

A 2005 study of the causes of corruption (Gurgur and Shah) concludes that corruption is likely to be more prevalent in societies where is (1) a lack of service orientation in the public sector: (2) weak democratic institutions: (3) economic isolation; (4) internal bureaucratic controls; (5) centralized decision-making…typically associated with poorly managed public sectors in developing countries.

Transparency International (TI) 2009 Global Corruption Report titled “Corruption and the Private Sector” shows how corrupt practices undermine fair competition, stifles economic growth and ultimately undercuts businesses’ existence. The report posits where an independent judiciary and a framework of company law to enforce contracts, define property rights and impose accountability are lacking, economic development is more difficult to achieve.

TI’s 2008 Bribe Payers Survey found that almost 20% of business executives surveyed in 26 countries claimed they were requested to pay bribes. In developing countries and countries in transition, politicians and officials are estimated to have received bribes of up to US$40 billion annually. The Global Corruption Report found the one in five      managers lost business to a    competitor who had paid a bribe. In effect, corrupt practices distort competition.

Corruption and Small Businesses
Small and medium-sized enterprises (SMEs) are a significant contributors to the global economy, representing between 90-95 per cent of businesses across the globe. They are responsible for 70 percent of employment in Organisation for Economic Cooperation on Development (OECD) economies. The CARICOM Secretariat credits SMEs as significant contributors to Caribbean economies, contributing about 40 percent of the region’s GDP and accounting for about 50 percent of employment. SMEs’ contribution to Guyana’s GDP in 1998 was estimated at around 28%, with approximately 22,000 micro and small firms in operation and contributing 40% to the overall employment. Small business owners, therefore, are potentially critical to Guyana’s economic advancement.

Transparency International’s 2009 Global Corruption Report,states that 70 percent of SMEs perceive corruption as an impediment to their business, compared to around 60 percent of large companies. The Georgetown Chamber of Commerce and Industry (GCCI) 2013 Attitudinal Survey found that 74%of members surveyed perceive levels of public  sector corruption to be high and 88% felt government is not doing enough to curb corruption. In Guyana as in other countries, corruption discourages the establishment of new entrepreneurial ventures or expansion of existing ventures.

This is the first instalment of an article submitted by Transparency Institute Guyana Inc. (TIGI)  for publication as part of the Talking Points series. Part two will be published in the Friday June 21 issue of the Stabroek Business.

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