Peace and Justice

We all know corruption is bad. But when it comes to governments, the effects of corruption can be devastating for the world’s poorest. It’s harmful for the rule of law and governance, taking away much-needed money that could be spent on more health clinics, better schools, and new roads. It’s also bad for business and even leads to political instability.

This is why we need to shine a light on corruption. It starts with more transparency from governments and companies. Citizens need to be able to hold their government accountable for delivering important public services across all sectors and help lift themselves out of poverty.

The Challenge

Every year developing countries lose $1,000,000,000,000 — a TRILLION dollars — through a web of shady and corrupt activities that involve phantom firms, money laundering, and illegal tax evasion. That’s money that, if recovered and taxed, could be invested in healthcare or education in the poorest counties. Instead, it fuels inequality and instability, keeping millions of people in developing countries trapped in the cycle of poverty.

In most developing countries there is far too little information available about how governments are spending their money on public services and where it’s ultimately ending up. This makes it impossible to “follow the money” – for citizens, journalists, and civil society to hold their governments to account, strengthen the rule of law and governance, keep corruption in check, and fight poverty.

The Opportunity

All around the world, information is empowering people to uncover corruption and make sure that money is ending up where it should — to end extreme poverty. Here are just a few examples:

  • After 400 children died from lead poisoning linked to gold mining in Bagega, the Nigerian government promised a clean-up and to provide medical care. Two years later, no funding had arrived. Connected Development took notice and launched a social media campaign. Within months the promised $5.3m were released, 1,000 children received treatment and the contamination was cleaned up.
  • Civil society organisations in South Africa analysed budgets and used the data in their campaign to increase support for the poorest children. They found extra funding in budgets and lobbied for the age range to be increased. The number of children receiving support rose from 1.9 million to 11.1 million over 13 years.

Dive Deeper

Over the last decade, Africa has experienced spectacular levels of economic growth and marked increases in financial flows. However, developing countries can only achieve equitable and inclusive growth, provide good public services, and help lift their citizens out of poverty if they are able to make the most of their resources. This includes mobilising domestic resources, primarily tax revenues from citizens and private companies, including natural resource revenues in many developing countries, as well as maximising the impact of aid from donor governments and other organisations. Yet in most developing countries there is far too little information available about these revenue streams, about how governments spend their resources, and about what results they achieve. In many cases, it’s impossible to ‘follow the money’ – limiting people’s ability to hold governments and companies to account for their actions, to keep corruption in check, and to fight poverty.

Improved transparency of revenue streams will shine a light on what resources are available for investing in development, how they are spent, and the results that are achieved, to help ensure resources are invested effectively for development – in better health services, more productive agriculture, higher quality education, and improved infrastructure.

Budgets: One of the first steps to following the money is ensuring that government budgets are available for scrutiny so that citizens and civil society organisations can hold leaders to account for the effective use of public funds. According to the International Budget Partnership’s 2017 Open Budget Index, only one African country – South Africa – publishes sufficient budget information to allow citizens to effectively monitor government spending, and 30 African countries provide little or no budget data at all.

African governments can increase budget transparency substantially by publishing online basic budget documents, enabling citizens to ensure that government expenditures reflect development priorities. Donor governments can help by providing targeted technical assistance to strengthen capacity at relevant government institutions and oversight agencies, by encouraging and supporting African country efforts to make budget processes more transparent, and by opening their own contracting processes with developing countries.

Natural Resources: Natural resources such as minerals, oil, gas and timber represent a source of vast potential wealth for poor countries. 28 countries in Africa have significant natural resources, but due to a lack of transparency, it is extremely difficult for citizens to know if they are getting a fair deal for the use of their country’s natural resources. Only 19 countries worldwide have satisfactory transparency standards in oil, gas and mining, and just two of those are in Africa.

By making public the payments that corporations make to governments, citizens can better track the resources that are due to them for the export of their oil, gas and mineral wealth. Twenty-four African countries are now members of the Extractives Industries Transparency Initiative (EITI), a global standard that compares the receipts of companies and governments to increase the transparency of natural resource revenues. The European Union and Canada have implemented mandatory reporting requirements that will ensure citizens have access to information about the payments their governments receive from oil, gas, and mining companies.

Retaining Resources: Every year, a trillion dollars is siphoned out of developing countries through a web of shady, secret and corrupt activities that involve anonymous shell companies and illegal tax evasion. Instead of being invested to help people, it fuels inequality and instability, keeping millions of people in developing countries trapped in the cycle of poverty. Anonymous shell companies and trusts are used to cover up the identity of the person who really benefits from the company, allowing them to mask illegal activities and hide stolen money, diverting countries’ resources and robbing governments of much-needed revenue. A study by the World Bank of more than 200 major corruption cases found that over 70% involved anonymous shell companies and trusts.

To ensure that developing countries are able to retain and invest more of their own resources, countries should put an end to anonymous structures by requiring public disclosure of who owns and controls companies and trusts and publicly disclose how much tax they pay and other financial information in every country they do business.

Aid: Developing countries, as well as taxpayers in donor countries, need reliable and comprehensive information about aid flows. In many cases, the governments of poor countries are not even given information about how much money is being spent by donors on different sectors (such as health and education) or in different regions in their own countries.

For information on aid flows to be useful, it needs to be published regularly in a standardized and comparable format. The International Aid Transparency Initiative (IATI) has created a common international standard for publishing information about aid spending. The list of signatories to IATI is growing, with over 600 organisations having published so far, but progress on making all aid transparent must continue.