Tainted Links Between the State and Businesses in Albania

Tainted Links between the State and Businesses in Albania

Eduart GJOKUTAJ

Indicators of corruption include the frequency of various types of bribes (both bribes paid for regular administrative dealings with the state and bribes paid by businesses to influence laws and regulations, known as state capture), the share of annual revenues paid in bribes (the "bribe tax"), and managers’ perceptions of the extent to which corruption is an obstacle to business and capture has an impact on the firm.

Mixed Results

Trends in relation to corruption in the Albania are mixed, although there are some encouraging signs. On the positive side, firms view corruption as less of an obstacle to business in 2007 than in 1997.

Significant declines in the perception of corruption as an obstacle occurred in some countries where levels were high, including Azerbaijan, Croatia, Kazakhstan, the Kyrgyz Republic, Lithuania, and Russia. In contrast, ratings of corruption as an obstacle stayed at relatively constant high levels in Bosnia and Herzegovina, Bulgaria, Georgia, FYR Macedonia, Romania, the Slovak Republic, Albania and Ukraine. These modestly favorable results do not, however, mean that corruption ceased to be a major problem in many settings. It continued to rank among the top third of business obstacles in more than half of the countries, most notably in the Balkans and the Caucasus.

Perhaps not surprisingly, in the most advanced EU accession countries, where levels of corruption are relatively low, and in some of the least reform-minded countries of the region, where tight state controls remain in place and private businesses face many other restrictions, corruption was seen as less problematic than most of the other obstacles that firms face in relation to the investment climate.

Incidence of Bribery

Specific trends in the frequency of administrative corruption are more mixed than general perceptions of corruption as an obstacle to business. Overall, we can look a significant reduction in the overall frequency of bribes from 2005 to 2006. The reduction looks much smaller, however, when one looks at the average frequency of bribes for specific public services: bribes paid in connection with dealings with the courts and public service providers appear to have declined in many settings, while bribes in relation to tax collection and public procurement appear to have increased.

Findings concerning the cost of administrative corruption—the bribe taxes—are also mixed. The significant impact of state capture on sample firms in many countries of the region, especially in the southeastern European countries. The impact of capture appears to be most significant in commercial courts and least significant in central banks, with parliaments, political parties, and criminal courts falling in between. The number of firms directly engaging in capture behavior increased in many countries from 2005 to 2006, in some cases significantly. Apparently state capture is changing from a strategy of political influence practiced by only a small share of firms to a more widespread practice, although this does not necessarily translate into capture having a greater impact on the business environment.

Four Major Factors

The report focuses on the following:

 Specific firm characteristics have a strong influence on bribery. Private firms pay a larger share of their revenues in bribes, pay all types of bribes more often, and are more affected by all types of corruption than state-owned firms. Smaller firms tend to pay more bribes and pay them more often than larger ones, and newer firms pay more bribes and pay them more often than older ones, although smaller and younger firms do not appear to be quite as disadvantaged in 2006 as they were in 2004. Foreign firms appear to pay most types of bribes less frequently, but they are equally likely to engage in state capture. Firms located in large cities appear to bribe more often and to perceive corruption as having more of an effect on their business than firms in smaller towns. Manufacturing firms pay more in bribes, particularly for government contracts, but engage in less state capture behavior than firms in other sectors.

 Better public policies and institutions help to reduce corruption over the medium term. Many undertaken policy and institutional reforms in recent years have led to significant changes in the rules of the game. These changes and the resulting declines in corruption should prove sustainable in many cases. This is an important finding that underscores the critical importance of an active, credible, and well-implemented reform process.

 Surveyed managers are optimistic in explaining perceived declines in corruption. Only part of the decline in perceptions of corruption as an obstacle to business can be explained by a fall in actual bribes paid. Much of the decline is explained by managers’ perceptions of improvements in the general business environment.

 In the short term, growth rates have relatively little impact on corruption. Growth rates will only lead to lower corruption in the long term. This is not surprising, because institutional development is a long-term task.