The Private Sector as Culprit and Victim of Corruption in Africa

Corruption causes severe waste and misallocation of financial, human, and natural resources, thus retarding growth and social development. It suffocates private sector activity and entrepreneurship, perpetuating the dominance of an inefficient public sector, and undermining economic diversification and structural transformation. While traditionally corruption has been seen as a public sector phenomenon, private sector corruption deserves as much attention as public sector corruption due to its equally debilitating effects on economic activity. In fact private sector operators can be both culprits and victims of corruption. This paper examines the symptoms and impacts of private sector corruption in Africa, from the perspective that corruption arises from both relations between the private sector and the public sector as well as transactions falling strictly within the private sector domain. The paper documents key channels of corporate sector corruption, especially anti-competitive and speculative behavior in key sectors such as banking and services; capital flight and trade misinvoicing; transfer pricing especially in the natural resource industry and the manufacturing sector; and tax evasion by multinational corporations operating in Africa. The consequences of private sector corruption and synergies between private sector corruption and public sector corruption are reviewed. The paper stresses that in their fight against corruption, African countries need to leverage the existing initiatives at regional and international level aimed at tackling the problem of corruption, and it highlights major innovations in these anti-corruption instruments that may serve well the anti-corruption agenda on the continent.