Posted by David Fellows[1]

The value and limitations of perception indices 

There are numerous corruption perception indices. They provide an outsider’s impression of the prevalence of corruption across the various branches of government. Some indices focus on issues of bribery, others are more general in scope. Some indices aim to engage with the general public, and others with businesses or NGOs. Perception indices can incentivise governments to tackle corruption given the reputational damage that they can inflict.

The shortcomings of perception indices, however, have been widely recognised, including in recent studies by UNDP and the IMF[2]. Their evidential base is limited; survey samples are generally small; within the same index a variety of methodologies may apply so they can lack internal consistency; methodologies change so trends can be questionable; standardisation is difficult to achieve between or even within countries and, as a result, the ranking of countries can vary from one perception index to another.

The relevance of objective data     

Those agencies and officials responsible for preparing these indices are aware of the deficiencies and make considerable efforts to mitigate them. Their key deficiencies are unassailable, however. Perception indices are based on impression, personal experience and hearsay rather than hard fact. In a multi-faceted study of villagers’ perceptions of corruption affecting road building in Indonesia, Olken finds that perceptions are a good indicator of the presence but not the quantum of corruption. He concludes that “there is little alternative to continuing to collect more objective measures of corruption, difficult though that may be”[3]. These factors can allow governments to diminish the importance of the messages that perception surveys contain.

An alternative approach has been proposed in a recent paper by Fazekas[4]. The paper gives an account of recent research into public procurement in which legal, regulatory and administrative records have been analysed to reveal the presence of corruption. Relevant factors include: the characteristics of the tendering process; the political affiliations and personal connections of suppliers; and the location and transparency of information about the ownership of these supplier companies. Fazekas correlates these various data sets to reveal behaviour that indicates a skewing of contract awards toward suppliers with particular characteristics.

Fazekas uses the term ‘objective’ to refer to factual data that are not mediated by stakeholders’ perceptions, judgments, or self-reported experiences. Nevertheless, the data are based on provable characteristics (e.g., from suppliers and procurement agencies). This approach, however, can provide some significant challenges. Databases may not be available electronically, thus hampering data collection, and information is not collected on a systematic basis across countries. Despite these reservations, the approach can produce valuable evidence identifying areas of public administration that are especially prone to corruption, the role of officials in facilitating corruption, and the means by which corruption is being perpetrated.

Objective data analysis and developing countries

European countries and the USA have been at the forefront of this kind of work, but it also has potential for guiding administrative scrutiny and reform in developing countries. The necessary analysis could be undertaken by internal auditors, anti-corruption agencies, or other oversight bodies. These agencies could use the results to improve system design, and commission detailed forensic investigations of those concerned.

Fazekas uses sophisticated statistical techniques, but simpler methods could also be employed to measure inappropriate administrative processes, potentially illicit flow of funds between parties with close personal ties, the unexplained accumulation of personal wealth, citizens’ complaints, and other indicators of corruption. These results could then be used to identify potential levels and sources of corruption and, if acted on, lend credence to the government’s anti-corruption commitments.

The approach outlined above is relevant to national and local government, as well as public corporations where significant levels of corruption can occur at the highest levels. Such work could be enhanced through external moderation and research collaboration across national boundaries, perhaps at regional level. A recent piece by the present author, published here, discusses the growing relevance of digital media to governance reform.

The importance of national leadership

Objective data analysis can offer a clearer insight into the systemic nature of corrupt behaviour, thus providing a more precise indication of the corrupt parts of an administration, the number of external parties that are engaged in corruption, and features of the PFM system that need to be strengthened. It can provide data to support a vigilant administration that wishes to maintain pressure on corruption, complementing efforts to increase prosecutions or administrative reforms.

Whatever ideas are advanced, they will all require commitment from national leaders if they are to succeed.

[1] David Fellows is Co-principal of PFMConnect. He is an accountant and PFM specialist with significant interests in digital service development and performance management. His thanks are extended to Cornelia Körtl and Domenico Polloni for their invaluable contribution to this article.

[2] UNDPs Guide to Measuring Corruption and Anti-Corruption (2015). See also IMF 2017, “The Role of the Fund in Governance Issues – Review of the Guidance Note, Preliminary Considerations”.

[3] Benjamin A Olken, “Corruption Perceptions vs Reality” –  https://economics.mit.edu/files/3931

[4] Mihály Fazekas “A Comprehensive Review of Objective Corruption Proxies in Public Procurement”  https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2891017.

We have prepared a SlideShare presentation that discusses the results of PFMConnect’s recent online survey of members of Kenya’s Federation of Women Entrepreneurs Associations (FEWA) that addressed FEWA members’ perceptions of the government’s current public procurement policies. FEWA members responded during August and September 2015.

The survey demonstrates the impact of Kenya’s present high levels of corruption on women entrepreneur’s perceptions of current public procurement policies. Details of FEWA members’ suggestions for improving current public procurement policies are also presented.

You can view the presentation at Kenya’s public procurement policy: A women’s perspective. This supplements the material presented in our recent blog Public sector procurement in Kenya.

By: David Fellows, John Leonardo [1]

Earlier this year, PFMConnect launched a global survey programme of public sector procurement practice. The first project was in collaboration with the Kenyan Federation of Women Entrepreneur Associations[2] (FEWA). The initiative commenced with questions directed at a group of FEWA members and the results were then compared with evidence gathered by other organisations.

The FEWA responses are summarised in the table below:

This made it clear that there are serious concerns about the integrity of Government procurement processes with regards to bidding invitations, the awarding of contracts, the handling of complaints, the fairness of the approvals process and failure to prevent collusion between bidders. It would seem that there is discontent within the contractor community about these issues and an awareness that similar concerns are shared by some official bodies. There is also a feeling that the legal measures taken to improve opportunities for women owned businesses are not yet achieving the hope for impact.

FEWA members were asked to suggest improvements to the Government’s approach to purchasing goods and services. Their suggestions included:

• Better access to credit
• Company vetting to weed out collusion
• Fairness in administration
• Transparency including support from a centralised online computer system

Corruption, credit and good administration                                                                                  The recent World Economic Forum Report on African Competitiveness for 2015 deals with some of these issues. It identified the most problematic inhibitors to doing business in Kenya as being:

These factors, amounting to 44% of the impediments to trade, lend weight to the concerns reflected in our survey. The report suggests a deteriorating situation compared to 2013 when concern for corruption and access to financing stood at 13% and 14% respectively. Overall the report ranks Kenya ninth most competitive amongst African countries, ninetieth worldwide.

Kenya’s ranking in Transparency International’s Corruption Perceptions Index has deteriorated over the last two years with its ranking declining from 139^th equal to 145^th equal. The Kenya Institute for Public Policy Research and Analysis (KIPPRA) in its 2014 report on the national economy makes the telling point that corruption has a direct impact on poverty levels and the entire quality of life for citizens.

Progress for the disadvantaged                                                                                                      As from September 2013 under the provisions of the Public Procurement and Disposal Act 2005, the Kenyan Government directed that a rather ambitious 30% of all government tenders should be awarded to micro and small enterprises (MSEs) owned by women, youth and the disabled and directed that such MSEs should be paid by public sector organisations within 30 Days. Subsequently, prequalification registration stipulations and surety requirements for such groups were simplified and a minimum allocation was set for disabled tenderers with a maximum allocation of 15% to any one of the three groups. Youths were defined as those between the ages of eighteen and thirty-five years. Government has admitted that at present only 3% of procurements are being awarded to preferential groups.

KIPPRA suggests that the Government should allow micro and small enterprise (MSE) associations to organise group bids for public procurement tenders involving MSEs with the Government’s public procurement technical advice service lending support.

Regulation 34 stipulates that payments made under the Act shall be made within thirty days. A circular of the Public procurement Oversight Authority issued earlier this year advised that the main preferment conditions were often being ignored. What hope therefore for the thirty day rule? Prompt payment is essential to mitigate the problems of access to credit identified by disadvantaged groups. It is noteworthy that FEWA has recently taken the initiative of establishing a credit facilitation operation, SACCO, to support its members with professional advice on business funding.

FEWA members also offered two ideas not suggested by KIPPRA. One was the need to simplify tender documentation requirements, at least for smaller contracts; the other was the need to give formal recognition to the role of women’s representative bodies in an engagement process with Government during the introductory phase of the new MSE arrangements. These measures would make a major statement by government about its commitment to MSEs and its support for women in business.

Problems and possibilities                                                                                                           The Kenyan Parliament passed a Bill on 27^th May 2015 that sets out new enabling legislation for public procurement but the President refused to assent the Bill into law. This Bill has been returned to Parliament for reconsideration but the Parliament has not completed this action. The Bill confirms the role of the Public Procurement Oversight Authority to drive procurement reform and establishes an Administrative Review Board to deal with complaints. It also provides for special arrangements being made in support of disadvantaged groups. There is some concern amongst women’s representative bodies that they may lose the specially defined status they already have because women are not specifically mentioned in the Bill as a necessary component of disadvantage.

The modern world runs on enabling legislation to give governments flexibility to address changing circumstances but the Government and the President will obviously need to give the necessary reassurances of their continued commitment to the support of women-owned businesses. Perhaps they would also hear the calls for the simplification of tendering documentation for smaller contracts, further work on bidding arrangements and strong representation of women within the designated oversight structures.

Kenyan media coverage over the last few months suggests that the implementation of an enhanced procurement regulatory framework will continue to be constrained by corruption. Ambassadors to Kenya have on several recent occasions banded together to warn the Kenyan government and public of the grave dangers posed by the current levels of corruption and have threatened to refuse visas to Kenyan nationals engaged in such practices. Kenyan corruption is widely documented[3] and toxic.

Conclusions                                                                                                                                     Most governments are beginning to regard small business development and the increased prominence of women entrepreneurs as essential contributors to economic diversification and growth. Public sector procurement is clearly an important tool to help facilitate this yet the Government of Kenya has not followed up effectively behind their preferential procurement initiative and needs to do so.

Rampant corruption must also be effectively addressed. We shall return to this and to the subject of procurement administration in a more general context in coming months.

As for the ambitions of women entrepreneurs, their voices are essential to rallying the preferential groups behind the Government’s initiative. We wonder whether they should also demand from Government a clear commitment to a 50% minimum allocation to female-owned MSEs within the preferential allocations to the youth and disability groups.

Postscript

As we write, the Kenyan President has just set out a series of additional measures to combat corruption and has called on religious leaders to support his campaign. The test of the intent will clearly be in the number of prosecutions that flow through the courts and particularly those of high officials and politicians.

[1] The authors David Fellows and John Leonardo are Principals of PFMConnect. They have been engaged on projects in Africa, Asia and the Pacific funded by the World Bank, EU, ADB and DfID.

[2] See: http://fewa.or.ke

[3] Kenya’s corruption problem: causes & consequences, Sr Kempe Ronald Hope; Dfid’s anti-corruption strategy for Kenya ‘13