(Box 14). Under these circumstances, the only justifiable procedure regarding increased focus due to concerns with corruption would be to demand greater oversight on all projects (at significant cost) or a very few where we have particularly strong reasons for concern beyond survey and perceptions indicators. Once more, this suggests that considerably increased focus by donors or governments on individual procurement processes should be a ‘last line’ strategy in cases where broader approaches at the project or sector prove impossible and there are strong reasons to believe that corruption is a particularly severe problem.

# **Box 14: Measuring Progress in Governance and Anticorruption: Do We Have ‘Actionable** **<u>Indicators’ in Infrastructure?</u>**

<mark>Measuring the status and progress of infrastructure governance will be important to evaluate the success of approaches designed to improve it. At the same time, our knowledge of the exact extent of corruption or quality of governance in infrastructure by sector, country or activity is limited. What evidence we have suggests that general perceptions measures are poor proxies for governance weaknesses or levels of corruption in infrastructure. For example, taking construction firms in the 1999-2000 BEEPS dataset which reported on the level of corruption in Eastern European government contracting, only around 14 percent of the variation in answers is accounted for by country of residence (Kenny, 2006). It is clear that we cannot say with any certainty which of these countries is more or less corrupt than average when it comes to government construction contracting, and this on a measure of bribe payments rather than the impact of corruption on development outcomes.</mark> <mark>The available survey evidence covering infrastructure in particular paints a complex picture of withincountry variation in the levels of corruption by activity and area. And that available survey evidence is patchy --not least, it is hard to survey monopoly providers on an anonymous basis as the extent of corruption in their industry, for example. Furthermore, we have almost no evidence regarding the prevalence of different types of corruption –payments for orchestrated collusion versus payments for changes in contract terms after award, as it might be—despite their significantly different potential to derail sector performance and project outcomes.</mark> <mark>This limited granularity of sectoral corruption indicators in particular suggests that it would be a mistake to use the available indicators to decide on infrastructure lending levels or policies towards particular countries. At the same time, we have seen that corruption is a symptom of failed governance, and it is of concern because it can reduce the development impact of infrastructure investments. Given this, the need for accurate measures of corruption per. se. is reduced.</mark> <mark>To measure progress in the effort to improve governance requires measures of the nature of governance institutions (the status of the regulator, the nature of corporatization, transparency regarding concessions and contracts, and so on), and measures of outcomes to determine if governance changes are having a development impact (infrastructure rollout, prices, ‘technical’ losses).</mark><sup>30</sup> <mark>One route through which improved governance will improve outcomes is through a reduction in the impact of corruption, but a measure of corruption itself is not required to judge success or failure of governance initiatives. If ‘actionable indicators’ regarding governance and anticorruption are required to set policy or determine progress, these can be selected from the more objectively verifiable of input and output measures related to institutional progress and outcomes. The role for survey and perceptions indicators of corruption itself should probably be limited to use in analytical work designed to accommodate for the level of noise such indicators contain.</mark> 30 Input measures might include indicators of transparency (contract publication), the presence of a planning document including major sector investment decisions and the extent to which it is followed, estimates of the adequacy of maintenance funding based on international benchmarks, SOE externally audited accounts, indicators of sector structure and competition, and so on. Output indicators might include percentage of roads in good condition, traffic volumes, non-technical losses, percentage of production paid for, extent of access to infrastructure and so on.

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