Anas’ exposé on judiciary shocks investors

Foreign investors in the country are deeply worried about the alleged corruption in the judiciary as revealed through the investigative work of ace journalist Anas Aremeyaw Anas. They say the revelations have the potential to negatively affect foreign direct investments into Ghana.

They described the unfolding saga as unfortunate, saying it is one that must be resolved quickly as it has put the judiciary in focus.

“The judiciary is critical because you want to know if you can rely on the judiciary in time of any dispute,” one of the said.

While commending the Chief Justice for the swift actions taken so far, the investors said: “This exposé might be a big blow, but what people will be looking for is the speed and manner in which it is dealt with.”

The World Bank identified corruption as the biggest impediment to investment in an investment survey of nine African countries.

More than 35% of companies surveyed had been deterred by an otherwise attractive investment because of the host country’s reputation for corruption.

Corruption’s negative impact on foreign direct investment can amount to an extra 20% in tax, thus discouraging investment and reducing profit margins.

IMF research suggests that corruption reduces investment by around 5% and that an "increase of 1 percentage point in the corruption index can result in a reduction of foreign investment by as much as 8%."

Speaking to The Finder in separate interviews in Accra on condition of anonymity, they explained that a number of factors come into play when investors decide to invest in a particular country.

According to them, anything that brings factors such as corruption, stability of the economy, the level of democracy and the rule of law in a particular country into question can impact negatively on the decision of investors.

They cautioned that several countries around the world are actively pushing investors to make direct investment in their countries; therefore, it is important for any country that wants to attract foreign direct investment to manage the negative impact of the factors of investment.

While describing the Anas Aremeyaw Anas exposé as unfortunate, they warned against casting aspersions on the entire judicial system because of the actions of a few.

The 34 judges accused represent less than 10% of the total number of judges in the country, and in this light, the investors said, “There are still hardworking judges with integrity.”

The investors noted that in the past, Ghana had a good reputation of attracting foreign direct investments, and as a result, the speed and manner in which the exposé is dealt with is critical to restoring the damaged confidence.

They complained bitterly that bribery and extortion are so common in Ghana to the extent that the undocumented flow of money into the personal pockets of government workers virtually assures perpetual corruption.

“We have to be careful of institutionalising corruption under the explanation that this is Africa,” one investor warned, describing corruption as stealing and disenfranchising the poor.

Resources that otherwise could be directed towards production of goods and services are often devoted to corruption.

This include direct resources involved in cash transfers and indirect ones, such as maintaining contact with government officials or providing an operation or production license to a less efficient firm.

Corruption also misallocates resources that could otherwise be used for provision of public services.

Funds for licenses or tax income, instead of contributing to the budget, may simply end up in the pockets of corrupt government employees.

Also, resources are not used most efficiently, as it is not the most efficient but, rather, the best-connected firm that gets a government contract.

Corruption has negative effects on the levels of both foreign and domestic investment.

Investors will ultimately avoid environments where corruption is rampant because it increases the cost of doing business and undermines the rule of law.

Corruption is also often associated with a high degree of uncertainty, something that always drives investors away.

Government officials who demand bribes for providing or denying services like licenses or permits limit the number of firms able to enter the market, thereby creating a "rent-seeking" environment that forces companies that are unwilling or unable to pay bribes into the informal economy.

Overall, the lack of competition hurts consumers, who receive fewer technologically advanced goods and goods of otherwise lower quality and pay higher prices for these goods.

Tax evasion, one of the biggest threats to government revenue flow, is widespread in corrupt countries because firms that are informal do not report their profits and, subsequently, do not pay taxes.

Also, firms that operate in the formal economy will pay bribes instead of taxes when the tax administration is corrupt or opportunities for abuse of the tax code are widespread.

Moreover, corrupt government agents take for themselves fees and payments they collect from firms for the state budget, thus depriving government of funds needed to provide essential goods and services.

Public investment projects often offer opportunities for government officials to get bribes.

Simply put, faced with the possibility to directly benefit from awarding contracts to cronies, government officials will promote as many public investment projects as possible.

It is sometimes the case that projects awarded to cronies are never finished as funds simply get stolen.

Corruption also causes mismanagement of public investment projects and thus contributes to larger fiscal deficits, jeopardising sound fiscal policy.

In corrupt systems, individuals and firms spend time and resources engaging in corruption (paying bribes, nurturing relationships with corrupt agents, etc.) rather than in growth-enhancing activities.

Also, corruption discourages innovation, as corrupt systems lack rule of law institutions that protect property rights.

Time and money spent on bribing government officials and dealing with complex regulations increases the costs of doing business.

These costs are either passed on to the consumers through increased prices or products of lower quality, or serve as a barrier to market entry by firms.

Also, corrupt judicial systems limit the ability of business to enforce contracts, thereby hindering normal operation and blocking new opportunities.

Corruption hurts small enterprises because the high costs of corruption (time and money) are harder to sustain for smaller firms than for larger firms.

Generally, small firms have less power to avoid corruption, and they tend to operate in highly competitive environments and, thus, cannot pass on the costs of corruption to customers.

Thus, in corrupt environments, it is harder for small businesses to survive, and this hurts an economy's growth rate because small firms are the engine of growth in most economies.

By forcing business into the informal sector, creating barriers to entry and increasing the costs of doing business, corruption essentially reduces private sector employment because firms are less likely to grow and expand.

Corrupt governments often offer many low-paying jobs to patronise key constituents.

Also, the quality of public jobs suffers in corrupt systems because government officials spend resources on extorting bribes rather than providing services.

Corruption lowers the income-earning potential of the poor because there are fewer private sector opportunities.

Also, by limiting spending on public sector services, corruption facilitates inequality—it limits access to such essential resources as healthcare and education.

Corruption creates a culture where government officials are not held accountable for their actions.

Also, in corrupt systems, laws and regulations on paper are not enforced consistently and fairly.

Therefore, what matters is not the law but whom you know and how much you are willing to pay.

In order to be successful in building market economies and democratic societies, countries have to build and develop institutions that provide the enforcement of laws and ensure a transparent and inclusive policy-making process.

In corrupt systems, developing such sound and well-designed institutions is an arduous task.

Corrupt government officials responsible for reforms are less likely to take measures that will directly limit their ability to personally benefit from bribes and kickbacks.

Corruption also undermines the legitimacy of public office and hurts the democratic process by discouraging people from participation.

Widespread corruption contributes to political instability because citizens are encouraged to oust leaders who are corrupt and who can't effectively represent the interests of people.

Corruption fosters a system with a high disregard for the rule of law and creates a society where legal, judicial and enforcement institutions are ineffective.

In corrupt systems, it is easy for crooks to buy their way out of punishment. Corruption not only leads to political and corporate crime, but it is also responsible for fostering organised crime.