Russia’s soaring corruption ‘puts investors off’

Russia’s inefficient and corrupt state administration is a key impediment to investment – both foreign and domestic – as well as to the government’s ability to implement any of its policies, according to the Organisation for Economic Development and Co-operation.

Measuring corruption may be difficult, but there is “a widespread consensus that it has been growing in recent years”, the Paris-based think-tank says in its latest economic survey of Russia. Transparency International, the Berlin-based corruption watchdog, also places Russia near the bottom in its corruption perception index, next to Sierra Leone and Nigeria.

A joint survey by the World Bank and the European Bank for Reconstruction and Development has also recorded an increase in the number of “unofficial payments” for licences and state procurement contracts. Bribing tax, fire, construction and almost any other inspectors has become a regular feature of doing business in Russia and kickbacks to officials in return for awarding lucrative state contracts have become particular prominent.

Large Russian businesses regularly contribute to various charity funds run by state enforcement bodies. However, the heaviest burden falls on small and medium-size business, which report that 8.5 per cent of the cost of doing business in Russia goes towards overcoming administrative barriers. “Building an honest, effective public administration is arguably the most important structural reform priority in Russia,” the OECD finds.

The pervasive nature of corruption in Russia means that it affects every aspect of everyday life from renewing a passport to dealing with traffic police, according to the report.

As one Russian observer put it: “In the past you had to pay the bureaucrats to bend the rules. Now you have to pay them to do their job”.

But instead of improving the poor quality of public administration, Moscow has focused more on amassing assets in strategic sectors of the economy, increasing corruption and opacity. The OECD attributes some of the “pathologies” in Russian bureaucracy to its Soviet inheritance, but others have been developed over the past 15 years.

The problem of weak institutions in Russia is combined with unchecked powers in some officials. “The patronage dispensed by individual officials – particularly those managing state property or large financial flows – can be enormous, [allowing them] to pursue narrow private or political ends.” In some cases, “the ties between state bodies and private sector interests are so close as to raise questions about state capture”, the OECD says.

Government attempts to reform the civil and administrative services have been so far limited to reorganising structures and redefining roles, rather than developing civil society institutions. “The biggest single weakness of government’s efforts is the lack of attention devoted to citizens’ ability to defend their rights when in conflict with the bureaucracy,” the OECD says.

The expansion of state ownership – one of the main trends in Russian economy – will contribute to corruption, rent-seeking and opacity, it says.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.