PAS-CERM project on Corruption in Macedonia The extent of Corruption in Macedonia and Macedonia’s performance in International Ranking Measuring Corruption Prof. Dr. Vladimir Petkovski University Ss.Cyril and Methodius Faculty of Economics Skopje, November 17th, 2011

The Structure 1.Private sector position and attitudes 2.The extent of Corruption in Macedonia- Measurements and Assessments from International Institutions and Organization 3.Macedonia’s Performance in International Ranking measuring corruption 4.Expectations from the BAS-CERM Project on Corraption

Why this topic  Corruption – one of the greatest challenges, because:  Major obstacle to development  Damages the fabric of society  Represents business risk  Inflicts economic costs for companies

Why this topic  Not only a moral issue, but an economic one, as well  Cost of corruption for business, but also for governments and society  Avoiding bribery, extortion and other forms of corruption is not enough  Anti-corruption initiatives of the private sector should be coupled with developing policies and concrete programs to address and fight corruption

Why this topic  Business should not remain silent observer  Should play an active role, instead  Pushing and supporting the governments’ work  Drawing attention to issues of importance to the private sector

Why this topic  But, corruption is a problem of both private and public sector  Therefore, both sectors should implement anti- corruption measures  Blaming corruption on the other party does not solve the problem  Anti-corruption measures should not be focused on weeding out single corrupt individuals…..  Instead, should address the root sources of corruption-inefficient institutions  Initiatives to combat corruption should come from the private sector, and from Governments and civil society groups, as well

Demand and Supply sides of corruption  Private sector as a source of corruption  Should be more concerned with what is happening in its back yard, because……  ….bribes and kickbacks have to be offered before they are accepted  Private sector is a victim of corrupt Government officials, but…..  ….often times, facilitates corruption itself

Setting up measures in the private sector  Measures that address the supply side of corruption should be undertaken…..  …..with the aim of limiting the ability of the private sector to willingly engage in corruption  It is necessary to set up a system that makes it hard for the companies to engage in corruption

Setting up measures in the private sector  Good corporate governance – an effective tool to this regard….  …by making companies transparent, and by holding decision makers accountable for their actions  A proper corporate governance makes it harder for the companies to provide bribes

The extent of corruption in Macedonia – measurements and assessments Reports:  Corruption Perception Index (CPI) of the Transparency International (TI),  Doing Business of the World Bank, ;  Business Environment and Enterprise Performance Survey (BEEPS),  World Economic Forum (WEF), Global Competitiveness Index (GCI),  Enterprise Survey, International Finance Corporation (IFC),  BEI

The extent of corruption in Macedonia – measurements and assessments Projects:  World Business Environment Survey (WBES), World Bank and Faculty of Economics, University Ss. Cyril and Methodius, 2003  Survey on Corruption, Institute for Sociological, Political and Legal Issues, Skopje, 2006  Corruption in Macedonia-Bribery as experienced by the population, UNODC, 2011  CIMAP, Establishment of a monitoring based on indicators to assess the progress achieved in fight against corruption in the EU candidate and potential candidate countries

The extent of corruption in Macedonia – measurements and assessments Projects (ongoing : Projects (ongoing :  ALAC’s Center for information and legal advise (TI)  KRINIS – Western Balkans: keeping track of the money flow in politics (TI-TIM) 

The extent of corruption in Macedonia and the Macedonia’s performance in international ranking measuring corruption Main findings Corruption Perception Index (CPI) of the Transparency International (TI), ( Macedonia, Albania, Bosnia Herzegovina, Bulgaria, Croatia, Greece, Montenegro, Romania, Serbia) The TI 2003The TI 2004 countrycountry score country country Score rank rank 50 Greece Greece Bulgaria Bulgaria Bulgaria Bulgaria Croatia Croatia Croatia Croatia BH BH BH BH Romania Romania Romania Romania Albania Macedonia Albania Macedonia Macedonia Serb/Mont Macedonia Serb/Mont Serb/Mont Albania Serb/Mont Albania 2.5

The TI 2005The TI 2006 countrycountry score country country Score rank rank rank rank 47 Greece Greece Bulgaria Bulgaria Bulgaria Bulgaria Croatia Croatia Croatia Croatia Romania Romania Romania Romania BH Serb/Mont 88 BH Serb/Mont 97 Serb/Mont BH 103 Macedonia Macedonia Serb/Mont BH 103 Macedonia Macedonia Albania Albania 2.6

The TI 2007The TI 2008 countrycountry score country country Score rank rank rank rank 56 Greece Greece Bulgaria Croatia Bulgaria Croatia Croatia Romania Romania Bulgaria Romania Bulgaria Serbia Macedonia Serbia Macedonia BH Albania BH Albania Macedonia Montenegro Montenegro Serbia Albania BH 3.2

The TI 2009The TI 2010 countrycountry score country country Score rank rank rank rank 66 Croatia Croatia Croatia Croatia Montenegro Macedonia Montenegro Macedonia Bulgaria Montenegro Bulgaria Montenegro Macedonia Romania Macedonia Romania Greece Bulgaria Greece Bulgaria Romania Greece Romania Greece Serbia Serbia Serbia Serbia Albania Albania Albania Albania BH BH BH BH 3.2

Conclusions:  Between 2003 and 2010Macedonia steadily improved its score on the Corruption Perception Index list  In the first four years ( ) Macedonia’s position on the CPI remained rather low, compared to the eight WB and EU member countries, ranking between 104 and 108 place (exception: 2004 – 99 th place)  But, from 2006 onwards, up to 2010, Macedonia dramatically improved its position, reaching the  first place among the eight observed countries, along with Croatia

 Being 62nd in 2010 Macedonia was able to surpass the three EU member states-Romania (72), Bulgaria (73) and Greece(80)  Also, Macedonia managed to improve its score from the lowest 2.7 in 2003 to the highest 4.1 in 2010, thus becoming the leader, along with Croatia on the TI CPI for 2010 in the region of Western Balkans, including three other EU member states

Business Environment and Corruption Findings from “Doing Business”  10 basic pillars of the business environment:  starting a business  dealing with construction permits  employing workers  registering property  getting credit  protecting investors  paying taxes  trading across borders  enforcing contracts  closing business.

“Doing Business” Why are these 10 pillars relevant for examining corruption?  Because, most of them have a “potential” to provoke corruptive activities, especially the flowing ones:  “dealing with construction permits”  “trading across borders/customs clearance”  “enforcing contracts”  Should keep in mind that these pillars are generally considered as sectors where cases of corruption run rather high.

“Doing Business”, 2010  Up to 2009 Macedonia was considerably falling behind with regard to  “dealing with construction permits”  “trading across borders/customs clearance”  “enforcing contracts”, being positioned on the 138th, 62nd or 64th place, respectively  In 2010, Macedonia achieved an impressive overall progress climbing to the 32 nd place in the world, from 69th a year before.

“Doing Business”, 2011 “Doing Business”, 2011  In 2011 the country achieved even more impressive and most remarkable progress  Ranked a top business reforms leader in the world, along with Morocco and Moldova….  …..reaching the 22 nd place in the world  Consequently, Macedonia features much better than a great majority of the EU member states  Only 5 out of 27 EU member states are ranked higher than Macedonia (Denmark, Ireland, Finland, Sweden and Germany)

 Other countries in the region: Macedonia 22 Montenegro56 Bulgaria59 Romania72 Croatia80 Albania82 Serbia92 Greece100 BH125

Important: good progress achieved with regard to  “dealing with construction permits”  “trading across borders/customs clearance”  “enforcing contracts”  In all these categories, in 2011 compared to 2010 Macedonia considerably improved its position:  “dealing with construction permits” – from 147 th position to 61 st position  “trading across borders/customs clearance” – from 70 th to 67 th position  “enforcing contracts” – from 65th to 60 th position

BEEPS, Macedonia, 2005 and 2008 Problems of Doing Business, Including Corruption (World Bank and EBRD) Ranking of problems 2005 and 2008 Ranking of problems 2005 and 2008 Relative rank of problems measured by the mean score. The most severe problem ranks 1, the least 14. The most severe problem ranks 1, the least 14. Rank in 2005Rank in 2008 Tax rates 3 3 Tax rates 3 3 Corruption 1 4 Corruption 1 4 Customs and trade regulations 7 11 Customs and trade regulations 7 11 Business licensing and permits 6 8 Business licensing and permits 6 8 Courts 2 2 Courts 2 2 Tax Administration 5 6 Tax Administration 5 6

Enterprise Survey – Findings on the Business Environment and Corruption (World Bank and the International Finance Corporation –IFC), Macedonia, country profile, 2009  Enterprise Survey focus on many factors that shape the business environment, including corruption  Provides benchmarking opportunity for Macedonia with the ECA countries and the Lower Middle Income countries  Provides three sets of indicators

 A composite index of corruption (the Graft Index) that reflects the proportion of times a firm was asked or expected to pay a bribe when soliciting six different public services, permits or licenses  The second set identifies the extent to which specific regulatory and administrative officials require bribe payments during meeting with tax inspectors or in order to secure a government contract  The third set of indicators focuses on bribes to obtain specific licenses or permits, and shows the share of firms that are expected to make informal payments to secure import and operating licenses and to obtain a construction permit

Findings: Lower Eastern Europe Middle Eastern Europe Middle Macedonia &Central Asia Income Macedonia &Central Asia Income Corruption indicators Incidence of Graft index % of Firms Expected to Give Gifts in Meetings With Tax Inspectors in Meetings With Tax Inspectors % of Firms Expected to Give Gifts to Secure a Government Contract % of Firms Expected to Give Gifts to a Construction Permit % of Firms Expected to Give Gifts to Get an Import License % of Firms Expected to Give Gifts to Get an Operating License

 In all six indicators (including the Composite Index of Corruption) Macedonia features much better (although to a varying degree) than the ECA countries and the Lower Middle Income countries

BEI  Corruption in public institutions  starting value: 100  1Q2010: 99,8  2Q2010: 99,7  3Q2010: 100,1  4Q2010: 99,9  1Q2011: 100,2  2Q2011: 100,2  3Q2011: 100,9

Corruption (Bribery) in Macedonia as experienced by Population – UNODC, 2011 Key Findings:  Citizens rank corruption as a third most important problem (13%),after unemployment (42%) and poverty/low standard of living (24%)  10.8 per cent of the citizens have been exposed – either directly or through a household member – to a bribery experience with a public official

 The bribery prevalence rate among citizens who had contact with public officials is 6.2 per cent.  There are no significant differences in the prevalence of bribery in urban and rural areas.  The bribery prevalence rate is 5.3 per cent for women, as opposed 7 per cent for men.

 The average cash bribe paid is 28,813 MKD, or the equivalent of approximately 470 Euro.  Almost a half (45%) of bribes are paid in cash and a quarter (25%) as food and drink  In about one third (32%) of bribery incidents, citizens initiate the payment, whereas a bribe is explicitly requested in one in four cases (25%).

 The main purposes of paying bribes are to speed up a procedure (50%), to finalize a procedure (12%), or to receive better treatment (11%). However, 12 pre cent pay a bribe without any specific purpose.  More than a half of all bribe-payers pay kickbacks to doctors (58%), and more than a third to police officers (35%).  Of those who refuse to pay bribes, almost 30 per cent refuse to pay doctors and almost one in five (18%) refuse to pay to police officers.

 Concerns about corruption in public sector are confirmed by the experience of those who (in 2007) secured a job in the public administration: 6 per cent of them was recruited with a help of a bribe  The offer of goods, favours and money to attract voters was evidenced during the last local and national elections in 2008 and 2009: 5 per cent of citizens were approached at local elections and 5 per cent at the last national elections.

Judiciary, Public Administration and Parliament – Anticorruption Requirements of The EU Progress Report, CIMAP (TIM) Key Findings:  The legal framework for anticorruption for all three sectors have been recently strengthened and upgraded with new laws covering various aspects of corruption being enacted  Still, there are some aspects of anti- corruption measures still not legally covered.  There are obvious shortcomings in the implementation of the legal framework.

Judiciary Category Standard Standard being fulfilled being fulfilled being fulfilled being fulfilled legally de facto legally de facto Capacity Resources 90% 65% Independence 89% 60% Independence 89% 60% Management Integrity 80% 60% Transparency 84% 68% Transparency 84% 68% Responsibility 100% 80% Responsibility 100% 80% Total 100% 63%

Public Administration Category Standard Standard being fulfilled being fulfilled being fulfilled being fulfilled legally de facto legally de facto Capacity Resources 87% 40% Independence 100% 47% Independence 100% 47% Management Integrity 70% 30% Transparency 87% 60% Transparency 87% 60% Responsibility 90% 35% Responsibility 90% 35% Total 86% 41%

Parliament Category Standard Standard being fulfilled being fulfilled being fulfilled being fulfilled legally de facto legally de facto Capacity Resources 100% 40% Independence 100% 50% Independence 100% 50% Management Integrity 66% 46% Transparency 87% 93% Transparency 87% 93% Responsibility 93% 60% Responsibility 93% 60% Total 85% 57%

Thank you for your attention !