By Mark Lowcock | 29 May 2012

Rich nations such as the UK must help poor countries to introduce transparent public finances and root out corruption. The benefits are clear to see, says the permanent secretary of the Department for International Development

Strong, robust and transparent public finances have always been the bedrock of economic development. At the same time, corruption is a cancer across the developing world. It is cheating the poorest out of the support they need to grow and develop. It deters investment and private sector growth, preventing poor people from working and trading themselves out of poverty. Tackling it is not simply about protecting our aid. Rooting it out will give the poorest the best chance to escape poverty.

Britain, led by International Development Secretary Andrew Mitchell, is making every effort to crack down on corruption and improve the public finances of the poorest countries. Rich countries must help poor countries tackle the corruption they face, improve their tax systems and manage their ­natural resources better.

Our recent shake-up of aid ­programmes has given full accountability to British taxpayers, showing them how their money is spent. Detailed plans and tough safeguards have been put in place to track where the money has gone and be sure it is making a difference.

We know aid can help. For many ­people across the planet, life is now much less nasty, brutish and short than it used to be. Life expectancy has surged from about 47 in 1955 to about 67 years in 2005. At the same time, the Millennium Development Goal to reduce the proportion of people living on less than $1.25 a day has been achieved five years early. Well-targeted aid has been vital in ­helping to secure this.

However, there are still a billion ­people who go to bed hungry every night, millions of children who die every year from ­completely avoidable diseases and at least 60 million children who never see the inside of a classroom. The main determinants of any country’s progress are the policies and actions of its own leaders, people and institutions. Openness to markets, investment flows and the terms of trade matter more for most countries than aid. Corruption and other illicit cash flows are holding back the developing world.

Earlier this year Britain published its comprehensive anti-corruption ­strategy. All the investments we finance are professionally appraised to identify risk and put in place mitigation measures. We are increasing the financial and corruption checks we make on our partners before we put money through them. We are involving beneficiaries and recipients more in checking money gets to where it should. We have increased the staffing in our internal audit department, and in particular changed the balance so that we have more highly qualified professional accountants to track and monitor spending. I am currently recruiting a new head of internal audit, who will report directly to me. Protecting the money for which I have a personal responsibility is a major priority for me.

Corruption isn’t just – or even mostly – about aid. It is a much wider problem that encompasses drugs, organised crime, piracy, tax evasion and money laundering.

Twenty years ago almost no-one even dared mention the C word. There is now a consensus that corruption is a brake on economic development. More countries are signing up to international legislation tackling it. India last year joined the UN Convention Against Corruption. China has adopted legislation making it illegal to pay a bribe to a public official in another country. People in developing countries are speaking out, marching in the streets and expressing their frustration with the extent of corruption. Last month we saw uproar and outrage in the Nigerian National Assembly at the finding of a parliamentary inquiry, assisted by Britain, that £4bn was stolen through a fuel subsidy scheme.

There are three other ways in which we can help developing countries on this issue. First, we can improve the systems and institutions safeguarding their own taxpayers’ resources.

The Department for International Development supports the National Audit Offices and the Public Accounts Committees in many of the countries in which we work. I have seen these programmes on my recent visits to Tanzania, Nigeria, the Democratic Republic of Congo, Zimbabwe and elsewhere. They are quite wide-ranging. For example, we funded the UK National Audit Office to help the State Audit of Vietnam with its Development Action Plan, ­implementation of which started in early 2011.

We supported the Ghanaian Public Accounts Committee, providing funding for public sittings. The broadcast of hearings on radio and TV got people talking about corruption, and the standard of questions – and answers – improved.

Our public financial management work extends beyond audit and oversight. It includes, for example, helping to strengthen the budget process in Afghanistan and Bangladesh, to introduce a new integrated financial management information system in Ghana and to strengthen procurement in Zambia.

We also help international law ­enforcement and tracing stolen funds. We finance the Metropolitan Police and the City of London Police to hunt down money launderers and those who pay or receive bribes. These units have recovered more than £160m. So far, £20m has been returned to developing countries.

Most recently, we helped bring James Ibori to justice. Formally governor of Delta State in Nigeria, Ibori began a 13- year jail term earlier this year after he admitted stealing from the very people he was elected to serve. This is someone who had previously worked in a DIY store in Ruislip, had a salary as the state governor of $25,000 and was found to have tens of millions of pounds in his bank account. He lived a life of luxury after he embezzled what the Met estimates to be $250m of Nigerian public funds – equal to £38 from every person living in the state at the time of his crimes.

No British aid was compromised, but his crimes have had a devastating effect on his fellow Nigerians as the money was meant to improve the lives of some of the world’s poorest people. The money Ibori and his co-conspirators stole during his eight years as governor could have provided books, uniforms and education for 400,000 girls or hand pumps to provide clean water for 450,000 households. His sentence sends a strong and important message to those who seek to use Britain as a refuge for their crimes.

Secondly, we must bring greater ­transparency into extractive industries. Many developing countries, especially in Africa, are in the early years of a mineral boom. Africa’s income from extractive industries is already six times greater than its income from aid. There is a ­clamour across the developing world to clamp down on corruption in the oil and gas industry.

Transparency is key. Without knowing how much money is coming in, people in developing countries have little chance of ensuring that the benefits accrue to the many rather than the corrupt few.

A voluntary initiative established ten years ago has started to address this. Oil, gas and mining companies, aid agencies and governments are all part of the Extractive Industries Transparency Initiative. Under the scheme, companies disclose their payments and governments disclose the money they receive. Public visibility means that discrepancies can be followed up. It has led to more than 150 companies reporting $130bn of payments in Africa by 2008. We will continue to champion the power of transparency and openness in improving public policy.

Thirdly, we must improve the tax ­system in poorer countries. Tax, together with private investment, both domestic and foreign, is the main source of finance for any country’s development. Many European countries collect 40% or more of national income in tax. In countries such as Afghanistan, Pakistan and Sierra Leone, it is around 8%–10%. In Zambia and Kenya, it is 17%–20%. Developing countries tend to have a small tax base, weak tax-collecting institutions and a fragile tax-paying culture.

We have also played a key role in the establishment of the highly successful revenue authority in Rwanda, are doing the same in Burundi and have financed an award-winning programme in Afghanistan that has helped increase the revenue take from essentially nothing in 2001 to 11% of national income in 2010/11. We will build on our work in this area.

Striking at the heart of corruption and strengthening public finances will give the poorest countries the tools they need to properly marshall their resources. That is good for them; and it’s also good for us.

Mark Lowcock is permanent secretary at the Department for International Development. This feature is based on a recent speech he gave to the Public Management & Policy Association

This article first appeared in the June Edition of Public Finance