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The burden of public sector corruption on private business

Business

Bereng Mpaki

Businesses in Lesotho face a significant corruption challenge at the hands of some unscrupulous public officials, a World Bank survey has revealed. 

Among its findings, the Enterprise Survey (ES) revealed that 20 percent of interviewed business owners said they had been requested to pay bribes to obtain a construction permit, while four percent said they experienced the same thing while seeking to pay taxes.

Seven percent of the interviewees claimed they had experienced “at least one request from public officials across six different transactions including paying taxes, obtaining permits or licenses, and obtaining utility connections.”

A total of 150 Lesotho business owners and top managers were interviewed between May 2023 and December 2023 during the survey, which focuses on many aspects of the business environment.

By tracking changes in the business environment, the survey results allow policymakers and researchers to see the effects of policy and regulatory reforms on firm performance.

The questions asked during the survey covered a wide range of topics including infrastructure, trade, finance, regulations, taxes and business licensing, corruption, management practices, and informality, access to finance, innovation, labor, and perceptions about obstacles to doing business.

These factors are seen as either accommodating or constraining for business enterprises, and play an important role in whether an economy’s private sector will thrive or not.

An accommodating business environment is one that encourages firms to operate efficiently. Such conditions strengthen incentives for firms to innovate and to increase productivity — key factors for sustainable development.

A more productive private sector, in turn, expands employment and contributes taxes necessary for public investment in health, education, and other services. The ES is repeated every three years for a particular economy.

The survey noted that corruption places a heavy burden on businesses by increasing operating costs and creating a new layer of bureaucratic red tape that stifles business development.

“The corruption by public officials can be a major administrative and financial burden on firms. It creates an unfavorable business environment by undermining operational efficiency and raising the costs and risks associated with running a private firm,” the survey said.

It added, however, that corruption by the officials may be fueled by bad business regulations.

“Inefficient regulations constrain firms’ operations as they present opportunities for soliciting bribes, where firms are required to make ‘unofficial’ payments to public officials to get things done. In many economies, bribes are common and quite high and they add to the bureaucratic costs in obtaining required permits and licenses.”

Apart from corruption, the survey also revealed the nine most common business environment constraints. According to the survey, 36 percent of interviewed business operators said access to finance was their major challenge, while 12 percent said political instability and tax rates were their business challenges.

Electricity connection (nine percent), inadequately educated workforce (six percent), crime theft and disorder (six percent), practices of the informal sector (five percent), customs and trade regulations (four percent), and access to land (three percent) are the other top doing business obstacles, according to the survey.

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