Corrup�on

Percep�on

Study

March 2018

Rrotullo për shqip

 

CorruptionPerceptionStudy

Authors:

ArianZEKA,M.Sc.

VisarHAPÇIU

Publishedby:

TheAmericanChamberofCommerceinKosovo,undertheFightingofCorruptionandBusinessEthicsproject,supportedbyUnitedNationsDevelopmentProgramme(UNDP)SupporttoAnti‐CorruptionEffortsinKosovo(SAEK).

ThestudydoesnotnecessarilyrepresenttheviewsoftheAmericanChamberofCommerceinKosovo,UNDP,orSAEKProject.

Prishtina, March 2018 

“Changewillnotcomeifwewaitforsomeotherpersonorsomeothertime.Wearetheoneswe'vebeenwaitingfor.Wearethechangethatweseek.”

BarackObama

Content

ExecutiveSummary ............................................................................................................................... 6 

Introduction ........................................................................................................................................... 8 

Businesses’knowledgeoncorruptionanditstypesinKosovo ....................................................... 10 

EncounteringCorruption .................................................................................................................... 18 

Reportingandfightingofcorruption ................................................................................................. 20 

Theimpactofcorruptioninthelevelofinvestments ...................................................................... 25 

Corporategovernanceandthefightagainstcorruption .................................................................. 27 

Conclusions .......................................................................................................................................... 28 

ExecutiveSummary

CorruptioninKosovoremainsathighandworryinglevels,bothforregularcitizensandbusinesses.ManylocalandinternationalreportsrankcorruptionasoneofthebiggestproblemsinKosovo’ssociety.Havingthis inmind, the American Chamber of Commerce in Kosovo has been vocal both in terms of eventsorganized and position papers issued calling institutions to increase their efforts in the fight againstcorruption

Inordertomeasurebusinesses’perceptiononcorruption, institutionswherethisphenomenonismorepresent,andto identifystepswhich institutionsneedtoundertaketo fightcorruptionmoreeffectively,AmChamhasconductedasurveywith214businessesfromvarioussectors,whereby35%ofrespondentscomefromthemanufacturingsector,30%fromthetradesector,20%fromprofessionalservices,6%fromtheITsector,5%fromconstructionand5%fromothersectors.TheresearchhasbeenconductedwithinaframeworkofaprojectimplementedwiththesupportoftheUnitedNationsDevelopmentProgram(UNDP)SupporttoAnti‐CorruptionEffortsinKosovoProject(SAEK).

Businesseswhichwerepartofthisstudyvaryintermsoftheirsize,whereby7.48%ofrespondentsemployover 250 people, 27.10% employ 51‐250 employees, 31.78% employ 11‐50 employees, while theremaining33.64%employupto10people.

Intermsofregionaldistributionofthesample,themajorityofrespondents(i.e.56%)arebasedinPrishtina,followedbyPejawith12%,PrizrenandFerizajwith7.5%,GjilanandMitrovicawith3.7%,Gjakovawith1.9%andothersaccountfor8%oftherespondents’base.

Theresearchshowsthat98%ofbusinessesassescorruptioninKosovoasbeingaseriousproblem,someofwhichconsideritasbeingveryworryingissue,whileothersseenoreasonforbeingalarmed.Averysmallnumberofrespondentsclaimthatcorruptionisnotaseriousproblemandthatthelevelofcorruptionisalmostinexistent,namely2%.Asregardstothetypesofcorruption,75%ofrespondentsbelievethatthecorruptioninKosovoissystemic,while20%believethatcorruptioninKosovoisonlysporadic.Only3%believethatthelevelofcorruptionisnegligible.

Giventhatcorruptiontakesplaceundercertaincircumstances,businesseshavelistedweakruleoflawandcontractenforcement(80.85%), lackofpoliticalwill tofightthisoccurrence(71.28%), lowsalariesandpoverty (31.91%)and incomplete legal framework (29.79%)as factors that can cause corruption. It isworthnotingthatbusinessesranklowsalariesonlyasthethirdmostimportantfactor.

Withregardstotheefficiencyoftheeffortsforfightingcorruption,54%ofbusinessesbelievethatthelevelofcorruptioninKosovohasremainedthesamecomparedto5yearsago,whilearound22%believethatactually the level has increased. A smaller percentage of respondents (13%) believe that the level ofcorruptionhasdecreasedinthisperiod.

Reasonswhich stimulate businesses to engage in corruption are all in linewith the very definition ofcorruption, which is the generation of personal or business gains through illegal means. 75% ofrespondentshighlighttheneedtohaveafavorabletreatmentinopen/competitiveproceduresasthemaincauseofcorruption.Thisisfollowedbytheneedtoacceleratebureaucraticproceduresasthesecondmostselectedoption(60%).

Businessesseemtobewellawareofexistingmechanismsforreportingcorruption,giventhat75%ofthemstate that they are informed about the possibility to report cases anonymously at the Anti‐CorruptionAgency.

While there is an overwhelming response with regards to the perceived level of corruption amongbusinesses,thepercentageofbusinessesthatinfacthavefacedwithcorruptionistwicesmaller.Intermsofinstitutionswherebusinesseshavefacedcorruptionthemost,theynamelineministries(35%),followedbypublicenterprises,TaxAdministrationofKosovo,municipalitiesandtheIndependentReviewBoard.

6

 

Amongareaswherethepresenceofcorruptionishigher,53%ofrespondentsbelievethatcorruptionispresentinpublicprocurementactivities,while35%claimthatcorruptionisinfacthighlypresentinsuchactivities,whichbrings thepercentageof respondents that linkcorruptionwithpublicprocurement to88%.

Intermsofreportingcorruption,adiscouragingfindingoftheresearchisthat85%ofbusinesseshavenotreportedcorruptionintheappropriateauthorities.Mainreasonswhybusinesseshesitatetodosoisthefearofretaliationinthefuturefromtheinstitutionatwhichcorruptionwasidentified(75%),followedbythelackofconfidenceinjudicialinstitutions(72%)andlackofresultsinthefightagainstcorruption(58%).Thisgoestoshowthatthehesitationislinkedtothelackofefficiencyofinstitutionsinthefightagainstcorruption,giventhat42%ofrespondentsclaimthatinstitutionshavenotbeeneffectiveatall,43%believethatinstitutionshavenotbeenveryeffective,whileonly14%believethatinstitutionsweremoderatelyeffective.Additionally,aworryingfindingisthat36%ofrespondentsdonothaveconfidencein judicialinstitutions while 62% have partial confidence in them. A similar trend is followed for other lawenforcement agencies, whereby 35% of respondents claim that they have not been at all efficient incombatingcorruption,while50%statethattheyhavebeenonlypartiallyefficientindoingso.

Withregardstotheimpactofcorruption,79%ofrespondentsbelievethatcorruptionaffectsthelevelofFDIinKosovo.Furthermore,companiesrespondingtothesurveyclaimthatthelevelofcorruptionalsoplayedaroleintheleveloftheirinvestmentsinKosovoaswell.

7

CHAPTER1

Introduction

Formanyyears, thehigh levelofcorruptionhasbeenconsideredasoneof thebiggest impediments tosustainable economic development in Kosovo. Corruption not only leads to a misuse of taxpayers’contribution,butitalsoleadstolowqualityservices,unequaltreatmentamongcitizensandbusinesses,generationofwealththroughillicitmeansforpublicofficialsandacontinuousdeteriorationofcitizens’wellbeing.

As the US Ambassador to Kosovo, Gregory T. Delawie, would explain, corruption erodes public trust,deteriorates foreign direct investments, and discourages innovation and risk‐taking so that smallbusinesses could grow. Above all, Ambassador Delawie emphasizes that corruption incites young andtalentedpeopletoleaveKosovoandseekopportunitieselsewhere.Healsoassessesthatthatanumberofsystematicissuesdampeningeconomicdevelopmentareissuesrelatedtoproperties,constructionpermitsandpublicprocurement,whileempoweringruleoflawisessentialforfightingcorruption.

Kosovohasanadvancedlegislationintermsofreportingandfightingcorruption,butsimilarlytootherareas,thelevelofimplementationofthislegislationisunsatisfactoryandspecificresultsareyettobenoted.On the other hand, the lack of results discourages citizens and businesses to make use of existingmechanisms.InanumberofroundtablesorganizedbyAmChamwiththesupportofUNDP’sSupporttoAntiCorruptionEffortinKosovoProject(SAEK),withtheaimofinformingbusinessesregardinglegalandinstitutionalmechanisms in place, a large number of businesses claimed that businesses’ hesitation toreportcorruptionisaresultofthefactthatresponsibleinstitutionsinthefightagainstcorruptiondonotundertakenecessarystepstopenalizethoseengagedinsuchactivities.Andwhilethereistruthtothisclaiminmanyaspects,thisatnowayshouldcreateaculturewherebycitizensandbusinessturnablindeyetocrime and corruption. In fact, thismay aswell be the goal of thosewhohavea tendency to engage incorruption!

TheresearchconductedwithbusinessesbyAmChamreveal thatcorruptionisseenasthesecondmostworryingissuefacingKosovo,with42.57%ofrespondentsselectingthisoption.Onlytheinefficientjudicialsystem is considered by businesses to be evenmore alarming, whereby 47.52% of respondents haveidentifiedthisasakeyimpediment.Consideringthefactthat judicial institutionsisthemost importantpillarthatwillgivethefinalverdictforpenalizingcorruptiveaffairsandthoseengagedincorruption,itisnosurprisethattheperceptionlevelandtheactuallevelofcorruptionissohigh.OthersignificantproblemsfacingKosovocanbeseeninfigure1.1ofthisdocument.

Speaking for corruption as an illness, Andrew Russell, Resident Representative of United NationsDevelopmentProgram(UNDP)wouldsaythatKosovo’ssocietypaysaveryhighpriceforthisillness.Hehasoftencalledjournaliststohelpineradicatingthisphenomenonthroughinvestigativejournalism.

However,inadditiontojournalists,allstakeholdersinKosovoshouldunderstandtheneedtogetinvolvedin the fight against corruption: young people to steer andprotect their future, the elderly for a betterwellbeing,studentsforabettereducation,workerstoprotecttheirrightsandbusinessestohaveanequaltreatmentbeforethelaw.

Businessescanhelpinreducingcorruptionbyadoptingcorporategovernanceprinciplesandsayingnotocorruption,byrefusingtoengageinactivitiesthatleadtoaquickprofitbutdamagestheirsafetyandtheirsustainabilityinthelongterm.

8

 

Figure1.1.ThemostpressingissuesKosovofaceswithaccordingtobusinesses

Asfarasjustificationsthatitisnotworthtoreportcorruptionareconcerned,itmustbestatedthatoverthe last years tens of officials have been suspended, dismissed and arrested as a result of engaging incorruption in some of the institutions which businesses interact with the most, including TaxAdministrationofKosovo,KosovoCustoms,LaborInspectorateetc.Casessuchasthis,albeitnotresultinginthedeservedoutcome,shouldserveasanencouragementthatcorruptionshouldbereportedandthatweshouldmakeuseofourrights.Furthermore,creatingacultureoftolerancetocorruptioninthefuturewouldbemuchmoredamagingthanthenon‐penalizationofthisphenomenonatpresenttimes.

Under"other",themostfrequentoptionprovidedbyrespondentsisabouttheunqualifiedlaborforceandthelargeskillsgapinthemarketareamongthelargestchallengesfacingKosovointhefuture.

32.67%

2.97%

47.52%

20.79%

4.95% 4.95%

34.65%

42.57%

6.93%

9

 

CHAPTER2

Businesses’knowledgeoncorruptionanditstypesinKosovo

Businesses appear to have a very satisfactory level of information on damages, consequences andprevalenceofcorruptioninKosovo.Researchresultssuggestthatbusinesseshavesufficientawarenessonexistinginstitutionalmechanismsforreportingandfightingcorruption.

As important stakeholders in thismatter and considering the significant impact that the high level ofcorruption has on their activities, businesses arewell informed on the types of corruption present inKosovo,aswellasonwhichinstitutionsiscorruptionpresentinlargerdegrees.IntermsoftheextenttowhichcorruptionisseenasaproblematicissueinKosovo,over70%ofsurveyedbusinessesclaimthatcorruption is a very pressing issue, while 28% state that corruption is an important issue, but not inalarminglevels.

Overall, theresearchshows that98%ofbusinessesbelieve thatcorruption isan important issue tobetackled.NoneofbusinessesthatrespondedtothesurveyclaimsthatcorruptionisalmostnonexistentinKosovoorthattheydonotknowaboutthepresenceofthisphenomenon,whileaverysmallnumberofthem(i.e.2%)claimthatcorruptionisnotaverypressingissue,asseeninfigure2.1below.

Figure2.1.ThedegreeofpresenceofcorruptioninKosovo

Giventhatthereisanalmosttotalagreementwithregardstothefactthatcorruptionisapressingissue,businesses have made their voice made in this regard as well. Roughly every 3 out of 4 businessrespondentsbelievethatcorruptioninKosovoissystemic,whileroughly20%believethatcorruptionisonly sporadic. The cause for this differencemay be related to the nature and activities of businesses,wherebysomeofthemmayhavelessfrequentinteractionwithinstitutionsthatcanbeconsideredasbeingmorepronetocorruption.

A very small portionof respondents, namely 3%,believe that the level of corruption is negligible, andsimilarly only 3% of respondents claim that they do not have enough information to make such a

70.30%

27.72%

1.98% 0.00% 0.00%0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

Corruption is avery pressingissue in Kosovo

Corruption is animportant issue,

but not inalarming levels

Corruption isnot a very

significant issuein Kosovo

Corruption isalmost non‐existent inKosovo

I don't know

10

 

determination.ThesmallpercentageofbusinessesclaimingthattheydonothaveinformationisafurtherevidenceofthehighlevelofawarenessofbusinessesinKosovovis‐à‐vistheexistenceofcorruptionandthemaintypesofthisphenomenon.

Figure2.2.TypesofCorruptioninKosovo

Corruptionoccursasaresultofpersonsthataimtomaximizeprofitsoftheirbusinessesortheirincomethroughillicitmeans.However,forthistooccurthereneedtoexistcertainconditionswhichdonothindertheseindividualsfromengaginginsuchactivities.Intermsoftheseconditions,namelyfactorswhichenabletheoccurrenceofcorruptioninKosovo,thevastmajorityofbusinesses(i.e.80.85%)believethatweakruleof law and lack of implementation of existing laws is a key factorwhich provides the opportunity forcorruptiontoboom.Thisfactorhasbeenoftencitedasoneofthemaindeterminantsbyotherspectrumsofsocietyaswell,includingcivilsocietyorganizations,internationalorganizationsanddiplomaticofficesinKosovo.ThisisrivaledonlybyanotherdeterminantwhichisoftenmentionedasanimportantfactorwhichenablestheprevalenceofcorruptioninKosovo,namelythelackofpoliticalwilltofightcorruption.71.28%ofrespondentstothesurveyhaveattributedthisasacauseoftheexistingsituation.Amongotherfactorsthatcreatetheconditionsfortheoccurrenceofcorruption,respondentstothesurveyalsolistlowsalariesandpoverty(31.91%ofrespondents),incompletelegalframework(29.79%),politicalinstability(14.89%) and other factors (6.38%). Among other factors respondents list cultural attitude towardcorruption,lowpenaltiesforthoseengagedincorruptionandlackofcorporategovernancelaws,codes,educationandbestpractices.

Civil societyorganizationshavecontinuouslyheld responsible the leadersand institutions fora lackofpolitical will to fight this phenomenon, which has resulted in tame and incomplete efforts to fightcorruptionatalllevels.Regardingthedatamentionedpreviouslywhichhavealsobeendepictedgraphicallyinfigure2.3below,itisinterestingtonotethatlessthanone‐thirdofbusinessesbelievethatlowsalariesandpovertycausecorruption inKosovo. In thisaspect, thereappears tobeadiscrepancybetween thesalaryincrease‐especiallyinthepublicsector‐andthelevelofcorruption,consideringthatsince2011,salarieshaveincreasedcontinuously.Ontheotherhand,theperceptionofcorruptionhasremainedmoreorlessthesame,despitesomeimprovementsnotedinTransparencyInternational’sCorruptionPerceptionIndexfor2018.

Thefactthattherehasbeenlittleprogressinthefightagainstcorruptionisconfirmedbythesurveyaswell,giventhatonly13%ofrespondentsbelievethatthelevelofcorruptionhasdecreasedinthelast5years.Asdepictedinfigure2.4below,themajorityofrespondents(55%)believethatthelevelofcorruptionhasremainedthesame,whileaconsiderablenumber,namely22%,believe that the levelofcorruptionhasincreased.Only11%ofsurveyrespondentsstatethattheydonothaveenoughinformationonthelevelofcorruptioninKosovointheperiodof2012‐2017.

Corruption in Kosovo issporadic

Corruption in Kosovo issystemic

The level of corruption isnegligible

I don't know

11

 

Figure2.3.FactorsfacilitatingthepresenceofcorruptioninKosovo

Figure2.4.LevelofCorruptioninKosovocomparedto5yearsago

The research reveals interesting information also with regards to the presence of different types ofcorruption in Kosovo. In this aspect, nepotism and clientelism dominates the list, whereby 53% ofrespondentsstronglyagreethatthisphenomenoniswidelypresentinthecountry,and36%agreewiththeproposition. Additionally, almost half of respondents (namely 47%) strongly agree that technicalspecificationsforpublicprocurementsareoftendraftedtofavorspecificbidders,and46%agreewiththisconclusion.AsimilarproportionofbusinessesstatethatanothertypeofcorruptionprevalentinKosovoisnon‐declarationofconflictofinterest.48%ofrespondentsstronglyagreeand43%agreethatthemisuseof public wealth is another type of corruption widely spread in Kosovo. In terms of bribery, thecorresponding figures are 43% and 33% respectively (“Strongly agree” and “agree”). Results on thisindicatorhavebeendepictedinfigure2.5a.below.

29.79%

80.85%

31.91%

71.28%

14.89%6.38%

Incompletelegal

framework

Weak rule oflaw

Low salariesand poverty

Lack of politicalwill to fight

Politicaluncertainty

Other

22%

54%

13%

11%

Increased

Remained the same

Decreased

I don't know

12

 

Figure2.5a.Businesses’evaluationontheexistenceofdifferenttypesofcorruption

To create a clearer picture of the types of corruption businesses feel aremorepresent inKosovo, theanswersinthequestionhavebeencodedtocreateaweightedaverage(stronglyagree=5;agree=4;partiallyagree=3andsoon).TheresultswhichhavebeendepictedinFigure2.5bshowasimilarpicturetotheoneportrayedabove,wherebynepotismandclientelismappeartobethemostdominanttypeofcorruption.

Figure2.5b.Businesses’evaluationontheexistenceofdifferenttypesofcorruption(weightedaverage)

Whilethepreviousparagraphselaboratedfactorsthat facilitatecorruptioninKosovo, it is importanttoanalyzethereasonswhybusinessesmightbepronetoengageinillegal/corruptiveaffairs.Roughly74.47%ofrespondentsstatethatwhatdrivesbusinessestotaketheriskoffacinglegalactionsinthefutureisthedesire to gain a favorable treatment in an open/competitive process. This is followed by the need toacceleratebureaucraticprocedures,whichhasbeenselectedasaviablereasonby59.57%ofrespondents.Roughly45%ofbusinessesbelievethatanotherreasontoengageincorruptionistogainaccesstocertainservices,while44%seecorruptionasameanstoescapepenaltiesandfees.Under"other"respondentshavestatedthatbusinessesmaybeinclinedtoengageincorruptiontofindasolutiontoproblemstheymayencounterintheiroperations.

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

Strongly Agree

Agree

Partially agree

Don't agree

I don't know

3.473.65

3.94 4.02 4.04

4.29 4.34 4.37

Extortion Misuse ofnatural

resources

Bribery Non‐disclosureof  conflict of

interest

Delayingresponses to

officialinquiries withthe aim ofreceiving a

compensation

Specification ofpublic

procurementto favor

specific bidders

Misuse ofpublic wealth

Nepotism,clientelism

13

Regardless of the reasons provided above (which have been depicted in Figure 2.6), the commondenominatorofallthefactorsistheverydefinitionofcorruptionwhichhasbeenmentionedinpreviouspartofthedocument:creationofpersonalorbusinessgainsthroughillegalmeans.However,thesituationappearsevenmoreseriousthantheonedepictedbybusinesses.Usingcorruptiontogainacompetitiveedgeinopen/competitiveprocedures,togainaccesstocertainservices(whichshouldbetakenforgrantedby institutions), or to speed up a bureaucratic procedure, implies that other businesses in will beimmediatelyputatadisadvantage(unlawfullyandunfairly),despitethefactthatfreemarketeconomyandnon‐discriminationarevaluesembodiedintheconstitutionofKosovo.

Creatingalevel‐playingfieldforallbusinesseshasbeenaconstantrequestofmanylocalorganizationsrepresentingtheinterestsofthebusinesscommunity;arequestwhichhasalsofoundthesupportofcivilsocietyorganizationsandinternationalcommunity.Inthissituation,theprospectforthegrowthofsmallenterprisesandtheprospecttoattractforeigndirectinvestmentsisalmostinexistent.AclearindicatorinthisregardisthefactthatFDIinflowsinthecountryhavebeenindeclinesince2008.Additionally,alsothestructureofforeigninvestmentsisalsonotverypromisingintermsofensuringlongtermandsustainableeconomicgrowth.

Figure2.6.Reasonswhybusinessesareinvolvedincorruption

Intermsofthelevelofawarenessregardingmeansandmechanismsforreportingcorruption,theresearchshowsthatbusinessesareverywellinformed.Forexample,themajorityofrespondentstothesurveyclaimthat they had prior knowledge that businesses and citizen can report cases of corruption at the Anti‐CorruptionAgency(ACA)anonymously.Only26%ofrespondentsclaimtobeunawareofsuchapossibility.Despitethis,anonymousreportingshouldbefurtherpromoted, inordertoencouragepartiestoreportcorruption cases, especially in caseswhen businesses hesitate as a result of fear of revenge from theinstitutioninthefuture.Thisfearofrevengeistobeexpectedconsideringthelackofpunitivemeasurestowardsofficials(regardlessoftheirranks)thathavebeenengagedincorruptioninthepast.

44.68%

59.57%

74.47%

43.62%

6.38%

To have access toa particularservice

To accelerate abureaucraticprocedure

To have afavorable

treatment in anopen/competitive

procedure

To avoid a penalty Other (pleasespecify)

14

 

Figure2.7.AwarenessofthepossibilitytoreportcasestoACAanonymously

Inrelationtoallfindingsfromtheresearch,businessesappeartohavecredibleinformationsources,giventhattheybasetheirperceptiononcorruptionmainlyintheexperienceoftheirfriendsand/orpartners,orin their own experience. In this aspect, 73% of respondents have selected “Experience of myfriends/partners”astheirsourceofinformationforassessingthelevelofcorruption,while53.19%explainthattheirperceptionisbuiltbasedonpersonalexperience.Additionally,mediareports(41.5%),reportsofinternational organizations (around 40%) and reports of local organizations (around 30%) are othersourcesofinformationforthecreationofbusinesses’perceptiontowardscorruptioninKosovo.However,theresearchshows that localmediaand localorganizationscanplayamuchbiggerrole in thisaspect,notingthatthefightagainstcorruptionisanassignmentwhichmustbesharedbetweeninstitutionsandtheentireKosovosociety.

Figure2.8.Sourceofinformationfortheassessmentofthelevelofcorruption

 Asregardstotheirperceptionfortheexistenceofcorruptionindifferentpublicentities,businessesassessthatcorruptionishighlypresentinvariousinstitutions,includingCourts(40%),Prosecutorsoffice(over30%), IndependentReviewBoard (around30%), andpublicenterprises (around29%).This finding isquitediscouraging,knowing that these institutionshaveavery important role in theadministrationofjustice.

74%

26%Yes

No

53.19%

73.40%

40.43%

29.79%

41.49%

1.06%

Personal experience Experience of myfriends/partners

Reports prepared byinternationalorganizations

Reports prepared bylocal organizations

Media reports Other (please specify)

15

 

Thisnegativeperceptionfor these institutionscanalsobearesultof the low levelofconfidencewhichbusinesseshaveinthem.Andthelackoftrustistranslatedtoadiscouragementforreportingcorruptioncasesatrespectiveauthorities.Withoutdoubt,afactorthathascausedthislevelofcorruptionisalsothelackofactionstowardsthoseengagedincorruptionthusfar.

In termsof institutionswhich businesses feel that corruption is notpresent, the ranking is as follows:BusinessRegistrationAgency(30%),KosovoCustoms(10%),KosovoAssembly(10%),President’sOffice(10%), andTaxAdministration (7%).Noting the reformsundertakenbyKosovoBusinessRegistrationAgencywhichfunctionsundertheframeworkoftheMinistryofTradeandIndustryforthereductionofadministrativeandbureaucraticprocedure for theregistrationofbusinesses, thepositiveevaluationofbusinessesistobeexpected.

On theotherhand, a very small percentage of respondents claim that corruption is notpresent in theIndependentReviewBoard(2%),Prosecutor’sOffice(3%)andlineministries(3%).

Figure2.9a.Perceptiononthepresenceofcorruptioninvariousinstitutions

Tocreateabetterpictureontheevaluationofbusinessesregardingthepresenceofcorruption,Figure2.9brevealstheweightedaverageoftheresultsfollowingthesamecodinglogicusedin2.5b.Thisgoestoprovethattheperceptionofcorruptionisthehighestinthejudicialsector.

 

 Figure2.9b.Perceptiononthepresenceofcorruptioninvariousinstitutions(weightedaverage)

0.00%

10.00%20.00%

30.00%

40.00%

50.00%

60.00%

Highly present Present Slightly present

Not at all present I don't know

2

2.5

3

3.5

4

16

 

Respondents to the survey have been asked to provide their evaluation with regards to the level oftransparencyinanumberofinstitutions.Theresultsshowthatbusinessesagainassesstransparencyinjudicialinstitutionsasverylow(2.39outof5),whichwasalsoreflectedinthelowscoresgivenintermsoftrust/confidencetowardstheseinstitutions.AsacentralpiecetothefightagainstcorruptioninKosovo,thisresultisdiscouragingtosaytheleast,anditcertainlyimpactsthewillingnessofcitizensandbusinessestoreportcorruption.Also,itimpactstheperceptionofbusinessesregardingtheefficiencyofinstitutionswhicharetaskedwithimplementationofthelawandthefightagainstcorruption,aswillbeseeninchapter4.Similarly,businesseshaveaverynegativeevaluationforpublicenterprises,prosecutorsofficeandheIndependentReviewBoard.Ontheotherhand,businesseshaveaverygoodevaluationforKosovoBusinessRegistrationAgencyintermsoftransparency.

Figure2.10.Evaluationofinstitutionsintermsoftransparency

00.51

1.52

2.53

3.54

Weighted Average

17

 

CHAPTER3

EncounteringCorruptionTheresearchshowsthatthereisacleardiscrepancybetweenthelevelofperceptiononcorruptionandtheactual experience that businesses had in facing this phenomenon.Out of 94 businesses that agreed torespondtothisquestion,only48%ofthemclaimtohaveencounteredcorruptionduringtheiractivities.

Themostcommontypeofcorruptionreportedbyrespondentsisbribery,followedbyextortion,nepotismand non‐declaration of conflict of interest. Many respondents show that they encountered corruptionduringpublicprocurementprocedures,whichcertainlyistobeexpectedgiventhatinmanydiscussionspeoplepointtoanaturalcorrelationbetweencorruptionandpublicprocurement.Ontheotherhand,allreformsinprocurementlegislationandpracticeshavebeendoneinordertoincreasetransparencyandreduceirregularities,andconsequentlyhelpinfightingcorruption.

Figure3.1.Haveyouencounteredcorruption

Companiesthatreportedtohavefacedcorruptionfirsthandwereconsequentlyaskedtonameinstitutionswherecorruptionwasencountered,wherebythemostcommonresponsewas“lineministries”,in34%ofcases,closelyfollowedbypublicenterprisesin32%.OthercommonresponsesselectedbyrespondentsincludemunicipalitiesandTaxAdministrationofKosovo,whileveryfewhavestatedthattheyhavefacedcorruptionininstitutionssuchasAssembly,President’sOfficeandBusinessRegistrationAgency.

Anotherworryingfindingisthat20%ofrespondentsoutofthoseansweringthesequestionsclaimtohavefacedcorruption incourts, institutions incharge for fighting thisoccurrence,whichalso is in linewithpreviouspartsofthisstudy.

52%48%No

Yes

18

 

Figure3.2.Institutionswhichbusinesseshaveencounteredcorruptionat

ConsideringthataconsiderablepartofthebudgetofKosovoisspentthroughpublicprocurementactivities,respondentswerealsoaskedontheirperceptionforthepresenceofcorruptioninsuchactivities.Avastmajorityofrespondents,i.e.88%,ingeneralopinethatcorruptioniseitherlargelypresentorpresentinpublicprocurement.Specifically,52%ofbusinessesrespondingtothesurveybelievethatcorruption ispresentinpublicprocurement,whereas35%ofthembelievethatcorruptionintheseactivitiesislargelyspread.

Ontheotherhand,anegligibleproportionofrespondents(i.e.3%)statethatcorruptionishardlypresentornotatallpresentinpublicprocurement.Thisgoestotestifythatthefightagainstcorruptioniscloselyrelatedtoaddressingthenumerousproblemswhichcompaniesreportinpublicprocurementactivities.Lessthan10%ofrespondentsstatethattheydonotknowwhetherornotthereiscorruptioninpublicprocurement activities, which is to be expected given that some businesses do not compete in publiccontracts,andassuchdonothavepersonalexperienceinpublicprocurement.

Figure3.3.Presenceofcorruptioninpublicprocurementactivities

21.95%

29.27%

21.95%

9.76%2.44%

34.15%

2.44%2.44%

31.71%

21.95%

9.76%

29.27%

14.63%

35%

53%

2%1%

9%

Largely present

Present

Present in small scale

Not at all present

I don't know

19

 

CHAPTER4

Reportingandfightingofcorruption

A very discouraging finding from the study is the fact that among companies that have encounteredcorruption,only15%ofthemclaimtohavereportedthosecasestorespectiveauthorities.Thiscanleadtoasituationwherethisphenomenonisconsideredanormaloccurrenceinsociety;asituationtobeavoidedatallcosts.Theprivatesectormustbeencouragedtoreportallcasesofcorruptionwithoutexception.

Figure4.1.Havebusinessesreportedcorruptioncasestorespectiveauthorities

Based on the limited number of respondents who claim to have reported corruption, in most casesbusinesseshavereportedtheseinstancesintheinstitutionwheretheyhaveencounteredtheirregularity,followedbyAntiCorruptionagencyand lawenforcementagencies(policeandprosecutorsoffice).Thisfinding isvery logical,given thatbusinesses insuchcaseswouldwant to findasolutiondirectlyat theresponsible institution, if forexamplethecorruptionorthesuspicionforcorruptionrelates toapublicprocurementactivity.

Notingthediscouragingfindingonthelownumberofcasesreported,respondentswereaskedontheiropinion as to what they believe might cause businesses to hesitate in reporting corruption. Fear ofretaliationfromtheinstitutionwherecorruptionwasencounteredisnamedasapossiblereasonby75%of respondents in the survey, closely followed by the lack of trust in judicial institutions (73% ofrespondents).Additionally,58%ofrespondentsbelievethatapossiblecauseforthehesitationmightbethelackofresultsinthefightagainstcorruption.Thisleadstotheconclusionthatbusinessesarenotveryoptimisticinthesuccessonthefightagainstcorruption.Roughly16%ofrespondentsclaimthatcorruptionisseenasanormaloccurrence,while12.5%ofrespondentsbelievethataportionoftheblameforthelownumber of denunciations might be because of lack of information on existing reporting mechanisms.Responsestointhisquestionfurtheremphasizetheimportanceforincreasingtheefficiencyandthetrustinjudicialsector,asapreconditiontoaneffectivefightagainstcorruption.Oneoftherespondentsstatedthatlackofproofmaybeareasonbehindsomeone'shesitation,whileanotherclaimedthatthecorruptioninKosovoissystemic,andbusinesses"havenoplacetohide".

15%

85%

Yes

No

20

 

Figure4.2.Institutionswherethecaseswerereported

Figure4.2.abovecontainsthefindingsoftheresearchregardingtheinstitutionsinwhichcorruptionhasbeenreportedbybusinesses,whoclaimtohavedonethis.Haldofrespondentssaidthat theyreportedcorruptioninrespectiveinstitutionsinwhichthecorruptivecasehastakeplace.Ontheotherhand,onethird of respondents have knocked on the doors of the Anti‐Corruption Agency to report corruption.Whereas, only 17%of respondents have reported corruption inpolice andprosecutor’s office. Lackofcontactsandmutualtrustbetweenprosecutor’sandinvestigationbodies,maybeoneofthereasonswhyreporting of corruption with police and prosecutor’s office is lower. This may also be related to theperceptionthatbusinesseshaveonthelowlevelofefficiencyoflaw‐enforcementinstitutionsinfightingofcorruption,asmaybeseenbelow,onthefigure4.5.

Figure4.3.Reasonswhybusinessesmighthesitatetoreportcorruption

50%

33%

17%At the institution wherethe corruption occurred

At the Anti‐CorruptionAgency

In Kosovo Police/Prosecutor's office

75.00%

57.95%

12.50%

72.73%

15.91% 4.55%

Fear ofretaliationagainst thebusiness by

that institutionin the future

Results on thefight againstcorruption are

notsatisfactoryuntil now

Businesses donot havesufficient

information onhow to reportcorruption

There is a lackof trust injudicial

institutions

Corruption isseen as anormal

phenomenon

Other (pleasespecify)

21

 

Figure4.4.Probabilityofreportingcorruptioninthefuture

Optimisticdatawererevealedregardingthelikelihoodofreportingofcorruptioninthefuture,with50%ofrespondentssayingthattheywillnecessarilyreportanycaseofcorruptiontheywillbefacing,followedbyonethirdofrespondentssayingthattheywillreportanycaseofcorruptiontheywillbefacingifitwillhaveasignificantimpactontheircompany.

Asmallerpercentageofrespondents,around17%ofthemsaidthatmostprobablytheywillnotreportcorruption,whereasitisworthnotingthatnoneofrespondentssaidinabsolutetermsthattheywillnotreportthecorruptivecases.

Figure4.5.Efficiencyofinstitutionsincombatingcorruption

Giventhattheefficiencyoflawenforcementagenciesandthejudicialsectorareveryimportantinthefightagainstcorruption,respondentswereaskedintheiropinioninthisaspect.Noneoftherespondentsclaimsthattheseinstitutionsareveryefficientintheirwork,whileonly9%aresatisfiedwiththelevelofefficiency.Ontheotherhand,approximately85%ofrespondentsbelievethattheseinstitutionsareeithersomewhatefficientornotefficientatallinaddressingcorruption,certainlyaverydiscouragingfindingwhichcallsforimmediateactions.

50.00%

33.33%

16.67%

0.00%

Yes, we will reportall cases ofcorruption

We will only reportit if it has a

significant impact toour company

Most probably wewill not report it

We will definitelynot report it

0% 14%

43%

42%

1%

Very efficient

Efficient

Not very efficient

Not at all efficient(inefficient)

I don't know

22

 

Figure4.6.Efficiencyoflawenforcementagenciesinfightingcorruption

Inadditiontotheefficiencyoflawenforcementagencies,businesseswereaskedontheirtrustinthejudicialsector in the country. In this regard, themajority of respondents (62%) claim that they are partiallyconfidentintheworkofthispillarinKosovo,whereas36%claimthattheydonottrustjudicialinstitutionsatall.Only2%ofrespondentshaveacompleteconfidenceintheintegrityofjudicialsector.

Figure4.7.LevelofconfidenceinthejudicialsysteminKosovo

Businesseshaveasplitopinionwithregardstowhetherornotthecurrentlegislationissatisfactoryforfightingcorruption.24%ofrespondentsthinkthatthe legislationinpowerisadequate,37%thinkthatlegislationisappropriatetosomeextent,whereas26%believethatthelegislationneedtobeimproved.Around14%ofrespondentsdonothaveenoughinformationtogiveanopiniononthissubject.EuropeanCommission’sProgressReportforKosovohasunderlinedtheneedtoamendtheexistinglegislationforanumberofyears,particularlyinprovisionsregulatingconflictofinterest.

Very efficient Efficient Not veryefficient

Not efficient atall

I don't know

2%

62%

36%

Yes

Partially

No

23

 

Figure4.8.Isthelegislationinpowersuitableforfightingcorruption

E‐procurementplatformhasbeguntobeimplementedinallpublicprocurementsinKosovofrom2018.Thisprojecthasbeenseenasagoodopportunitytoincreasetransparency,accountabilityandcompetitioninprocurementactivities.26%ofrespondentsstatethatthefullimplementationof“e‐procurement”willhelpinfightingcorruptiontoagreatextent,while43%believethattheimpactofthisinitiativewillhelpinaddressingtheproblemtosomeextent.Therearealsothosethatdonotbelievethate‐procurementwillhaveanyimpactinfightingcorruption.Roughly6%ofrespondentshaveselectedthisoption.

Figure4.9.Impactofe‐procurementinfightingcorruption

24%

36%

26%

14%

Yes

Yes, to some extent

No

I don't know

26%

43%

25%

6%

It will help in fightingcorruption to a greatextent

It will help in fightingcorruption to some extent

It will help in fightingcorruption to a smallextent

It will not impact the fightagainst corruption at all

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CHAPTER5

Theimpactofcorruptioninthelevelofinvestments

In the second chapted of this study, it was stated that theremight be a correlation between the highperceptionofcorruptionandthenegativetrendfortheattractionofforeigndirectinvestmentsinKosovo.However, it is important to have the thought of businesses in this topic as well. 79% of businessrespondentsexpressthattheybelievethatcorruptionhasanimpactonFDIinflowinthecountry.

20%ofrespondentsstatethatlevelofcorruptiondoesplayaroleintheattractionofFDI,butitisnotadetrimental factor.This coupledwith the result that corruption impacts the level of FDI inflow largelyconfirmsthenegativeimpactthatcorruptionhasinthedecisionmakingprocessofforeigninvestorsforextendingtheiroperationsinKosovo.Onlyasmallfractionofbusinesses(1%)believethatcorruptiondoesnothavesuchanimpact.

Figure5.1.DoescorruptionimpactFDIinflows

Figure5.2. HasthepresenceofcorruptionimpactedyourinvestmentdecisionsinKosovo

79%

20%1%

Yes

Yes, but it is not adetrimental factor

The impact is negligible

36%

56%

8%No

The presence ofcorruption has increasedour hesitation, but wehave carried out ourplans anyway

25

 

Inadditiontotheimpactonforeigndirectinvestments,corruptionalsoimpactsthedecisionofexistingcompaniesinKosovointermsoffutureinvestments.Theresearchpointsoutthat64%ofbusinessesclaimthatcorruptionimpactsdecision‐makingoninvestmentstosomedegree,outofwhichonly8%claimthatthey altered investment plans significantly, while 56% continued their investment plans despite theincreasedhesitation.

On the other hand, 1/3 of respondents, namely 36%, claim that corruption has not impacted theirinvestment decisions at all. Figure 5.2 reveals the full picture of the impact that corruption had inrespondents’decisionontheirinvestmentsinKosovo.

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CHAPTER6

Corporategovernanceandthefightagainstcorruption

Overall,thereappearstobeapositivetrendintermsofbusinessesgettingtounderstandgoodcorporategovernanceprinciplesandtheirimportanceinbusiness.Only20%ofrespondentssaythattheydonothaveinformation on corporate governance principles, while 39% claim that they already implement suchpractices.Ontheotherhand,17%ofbusinessesstatethattheyhavethenecessaryinformation,buttheyare yet to implement such principles in their business. It must be noted that the implementation ofcorporategovernanceprinciplescanhelpinfightingcorruptiontoagreatextent,inadditiontotheimpactonthelong‐termdevelopmentofcompanies.Thus,institutionsincooperationwithbusinessorganizationsneedtoincreaseeffortsforraisingtheawarenessofbusinessesinthistopic.

Figure6.1.Levelofawarenessongoodcorporategovernanceprinciples

 ThesituationappearstobeevenbetterwithregardstotheexistenceofCodeofEthicsamongstcompanies.66%ofrespondentsclaimthattheyhaveanEthicsCodeandtheyimplementitproperly,whileonly18%admitthattheyhavethisasadocument,butareyettoimplementit.Only7%ofrespondentsstatethattheydonothaveanEthicsCode,withoutstatingwhetherornottheyplantoadoptoneinthefuture.

Figure6.2.DoesthecompanyhaveaCodeofEthics

39%

17%

24%

20%

Yes, and we haveimplemented them in ourcompany

Yes, but we are yet toimplement them in ourcompany

I only have partialinformation on theseprinciples

No

66%

18%

7%9%

Po, dhe zbatohet si duhet

Po, mirëpo ende nukzbatohet si duhet

Jo

Jo, mirëpo kemi plan takrijojmë atë

27

CHAPTER7

Conclusions

• BusinessesrankcorruptionasthesecondmostseriousproblemthatKosovofaces,afterinefficient courtsystem.

• 70.30%ofrespondentsbelievethatcorruptionisaveryseriousproblem,followedby27.72%who believethatcorruptionisaseriousproblembutnotinalarminglevels.Intotal,98%ofbusinesses considercorruptiontobeaseriousproblem.

• 75%ofrespondentsbelievethatthereissystematiccorruptioninKosovo,followedby19%who believethatcorruptioninKosovoissporadic.

• Beingaskedtorankthefactorsthatenablecorruption,80.85%rankweakruleoflawandpoor implementationofexistinglawsasnumberonefactor.Whereas71.28%ofrespondentsconsider lackofpoliticalwilltofightthisoccurrenceassecondfactorenablingcorruptioninKosovo.

• Assessingcurrentcorruptionrateswiththoseoffiveyearsago,54%ofrespondentsbelieveitis the same. 22% of them believe that corruption has increased. Only 13% believeit has been reduced.

• Around75%ofbusinessesbelievethatthereasonwhybusinessesareinvolvedincorruptionin ordertogetafavorabletreatmentinanyopencompetitiveprocedures.

• Regarding reporting mechanisms, 74% of businesses are aware of tools enabling anonymous reportingofcorruptioninAnti‐CorruptionAgency.

• Courtsarerankedasinstitutionswithveryhighpresenceofcorruption,followedbyprosecutor’s offices,andProcurementReviewingBody.

• Withregardstomosttransparentinstitutions,businessesrankBusinessRegistryAgencyasthe most transparent institution, followed by Tax Administration of Kosovo, Customs and Kosovo Assembly,andOfficeofthePresident.

• 48%haveactuallyencounteredcorruption• 34.15%ofrespondentshavefacedcorruptioninrespectivelineministries,followedby31.71%of

themwhohaveencounteredcorruptioninpublicenterprises.• 88%ofbusinessesbelievethatcorruptionispresentinpublicprocurementactivities.• Aconcerningfactisthat85%ofthemhavenotreportedcorruption.• Reluctancetoreportcorruptionisbasedonthefearofretaliationbytheinstitutioninthe

future (75%),followedby72.73%whoclaimthattheydonottrustcourtinstitutionsand57.95%who believethattherearenoeffectiveresultsinfightingofcorruption.

• Withregardstoefficiencyofinstitutionsinfightingofcorruption,43%ofbusinessesbelievethat theinstitutionshavenotbeenveryefficient,while42%ofthembelievethatinstitutionshavenot beenefficientatall.

• 36%ofrespondentsdonottrustcourts,whereas62%ofthemonlypartiallytrustcourts.• Withregardstoelectronicprocurement,26%ofrespondentsbelievethatthelatterwill largely

helpinfightingcorruption,whereas43%believethate‐procurementwillhelpfightingcorruption tosomeextent.

• 79%ofrespondentsbelievethatcorruptionhasanimpactonForeignDirectInvestments.• Businessesarewellawareoftheroleofthepropercorporategovernanceinavoidingcorruption,

with66%ofthemhavinginternalcorporategovernanceregulationsandbusinessethicscodes.

28