At the same time, we need to be aware of the limits of our empirical knowledge about corruption in infrastructure, and so the limits to our policy responses. On the one hand, there appears to be very strong anecdotal evidence that bribery for government contracts is the norm in many countries. On the other hand, firm surveys suggest that the frequency or scale of bribes differ dramatically within the same industry in a country. This is a sign of the fragility of our knowledge regarding corruption even in an area where it is widely agreed to be a major development problem. It is possibly a sign that corruption is ‘ad hoc’ and opportunistic suggesting that anticorruption approaches may need to vary considerably within sectors and between countries. As a result, we need to be cautious in drawing cross-country sector policy conclusions from analysis based on corruption perceptions alone or even limited survey evidence.

It may be particularly unwise to use cross-country or cross-time analysis of the extent of corruption based on perceptions as a tool for aid targeting or differential project design requirements especially at the sectoral level. The existing sectoral data is inadequate for such a task and this is unlikely to change in the near term. Again, if corruption indicators are required for targeting or policy requirements, it is likely that objective indirect measures that reflect broader weaknesses of governance will be a better instrument at least until repeated large-scale infrastructure-specific surveys are carried out. Objective input measures might also have a role to play –perhaps including some _Doing Business_ indicators on business regulation, or _Global Integrity_ measures regarding the institutions of good governance.<sup>34</sup> It should be noted, however, that these are not infrastructurespecific, and their relationship to governance outcomes is not firmly established.

Tools for a broad approach to improved governance in infrastructure would focus on improving budget, maintenance and project selection and implementation processes with a primary focus on quality. This will encompass state-owned enterprise reform, improved regulation (including transparency, participation and low-discretion rules) and increased competition (for and in the market as well as yardstick competition). It would highlight improved and more transparent processes for budgeting, project selection and oversight, including community-driven approaches. At both the sectoral and project level, one important element is likely to be a focus on paying for outputs based on independently verified physical audit.

A lens that focuses on the development impact of corruption suggests that a single project-focused and in particular a procurement-focused approach may be inappropriate. O&M budgets in many developing countries are too low to sustain existing stocks of infrastructure –as reflected in poor indicators of quality. At the same time, donor projects are ‘cherry picked’ –the most attractive investment projects from the point of view of economic returns. These two facts help to reconcile high ERRs estimated for donor projects in Africa with very low overall returns to public investment and limited macroeconomic returns to aid. Low O&M budgets and many poor project choices are both likely to be in some part connected to incentives created by poor governance and corruption. Taking a project approach to corruption would miss both of these impacts, which are frequently at the core of corruption’s overall development impact.

> 34 <u>http://www.doingbusiness.org/, http://www.globalintegrity.org/</u>

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