I congratulate my hon. and learned Friend Stephen Phillips on securing the debate on this important subject and on the incredibly powerful way in which he has framed his arguments. He is absolutely right to say that corruption, fraud, tax avoidance and evasion pose serious challenges in the developing world. They put an economic brake on development and help to ensure that nations fail to develop at the speed that we would all want to see. What is more, they are matters of direct interest to this House because of our impressive record in international development. However, he is right to highlight the issue of corruption. I want to turn to his speech and to other comments made in the debate.
As my hon. and learned Friend will know, the Department for International Development works in some of the poorest countries in the world, where governance arrangements are often extremely weak. He highlighted that in his passionate speech. Corruption and fraud are often commonplace. Often, there is a highly sophisticated patronage network of elite engagement. I want to outline DFID’s approach to combating corruption and fraud in sub-Saharan Africa while trying to achieve our development goals for some of the poorest people in the world.
First, however, I want to highlight the extent of the challenge facing us. My hon. and learned Friend is absolutely right that in some countries and locations the problem is endemic. That can even be the case in really good countries. Last week I was in Malawi, a functioning democracy that has been free of war for the last 51 years. Even there the President was telling me that it is difficult to get things done and the state moves at a slow pace. Although he did not mention this, we know corruption is part of that problem.
Although there is evidence that some countries in east Asia have achieved high levels of growth in spite of high levels of corruption, the evidence for sub-Saharan Africa reinforces what our common sense tells us: that corruption has a hugely negative effect on investor confidence in a country. My hon. and learned Friend mentioned $15 billion in lost revenue. In fact the World Economic Forum reported that corruption undermines prosperity by imposing a cost equivalent to 5% of global GDP, or $2.6 trillion, every year.
Corruption is ranked as one of the top two barriers to doing business in two thirds of DFID’s main partner countries, so this is a massive problem. It creates barriers to market entry. Two thirds of foreign bribery cases occurred in just four sectors related to infrastructure: 19% in the extractives sector; 15% in construction; 15% in transport and storage; and 10% in information and communication. That illustrates that corruption is huddled around specific sectors.
There is also increasing uncertainty for investors, to the detriment of long-term investment. The World Bank reports that bribery can add up to 10% to business costs globally. Corruption also limits the potential of business. It limits the growth and productivity of private sector firms, with small and medium-sized enterprises experiencing the most difficulties. Many do not even bother to show up in the first place because it is just too difficult to operate in those markets.
A corrupt society and state puts an unduly negative burden on the poorest. That is why the Prime Minister has gone to such lengths to talk about what he calls the golden thread of development. The idea is that a country can try to do everything else—build the infrastructure, put the right processes in place, sort out its health and education systems—but if it does not deal with corruption, it will never enfranchise its citizens, thereby making them all better off.
The scale and breadth of the challenge is enormous. DFID does three things to stop corruption: we work in countries to help Governments track and trace activities and funds; we build the capacity of institutions to stop behaviours; and we apply pressure on our international partners to ensure they raise their game. Most importantly—this is possibly the one respect in which I diverge from what my hon. and learned Friend said in his excellent speech—we would be wrong to inadvertently characterise the DFID budget as disappearing into some hole of corruption, for one simple reason. In the year 2013-14, DFID spent £9.791 billion—nearly £10 billion—on international development. Of that, 4% was what is known as sector support—it might be for education, for example—whereas just 1% was to general support. In other words, although my hon. and learned Friend is right to point out these problems, we are engaged in the task of making sure we do not give money to Governments who cannot, through their own procurement, be trusted to spend it.