Corruption Drives Up Costs, Almost 15% in Property Development – study

  • 3 months ago
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The study says the costs were then absorbed by buyers down the supply chain.

A new study found that corruption not only marked up prices of goods, but had also incurred a 14.8 percent increase in costs in property developments which was then absorbed by house buyers.

The “Corruption in the Supply Chain: Forms and Impacts on Consumers” report featured an in-depth study on how corruption in three sectors – construction, healthcare, and education took place.

The paper was jointly prepared by Institute for Democracy and Economic Affairs (Ideas) and Coalition for Business Integrity (CBI).

In a webinar on the launching of the report, Ideas research manager Sri Murniati Yusuf said the objective of the study, among others, was to show how corruption could mark-up the prices of goods and services.

“Hundreds of people in the industries were interviewed last year. Additionally, CBI and Ideas held two-day closed-door roundtables with stakeholders from the three sectors,” she said.

“In the construction sector, corruption mainly occurred during the pre-development and development stage.

“We identified multiple payments of bribes to smoothen the land conversion and submission of infrastructure plans. Bribes and kickbacks will be handed out to secure foreign workers and certificates of completion,” she said.



“One of the interviewees said this may represent about four percent to 14 percent of the cost incurred in the construction.

“During the development stage, bribes (will be) given to secure contracts from the main developer, foreign workers and during the procurement of architectural materials. Various payments (will be made) to secure a certificate of completion,” she said.

“Interviewees stated that a typical main contractor can employ about 200 foreign workers for a project and pays between RM500 to RM 1,000 bribe to relevant agencies to secure a five-year contract for their workers,” read the report.

The report showed in one particular case involving a development project worth RM200 million, a total RM29.58 million or 14.8 percent of the development cost were paid in bribes, including RM6 million for permit application.

The report also showed that in another case, a total RM29.08 million of bribes were paid to facilitate the property development projects worth RM500 million. This constitutes 5.8 percent of the total development cost.

The report also showed that many of those who were interviewed, while noting they were burdened by bribery, did not treat “entertainment” and meal treats as a form of bribery, but merely the cost of doing business.

“A frequently mentioned example of extortion mentioned by the interviewees is harassment of foreign workers. The authorities – including police officers – will harass foreign workers by locking them up for two weeks or longer if bribes are not paid up.

“Such tactics are used to intimidate business owners or contractors – and cause losses by disrupting their operation – who then have to comply with their request. This is especially common in the construction sites,” read the report.

In the healthcare sector, Sri Muniati noted interviewees raised concerns over possibly inappropriate incentives for medical practitioners for prescribing certain drugs or medical products.

“As a result, they will be given incentives by pharmaceutical companies. Patients like us, sometimes without doing our own research, will follow whatever that was given to us,” she said.

The report also highlighted incidents where kindergarten operators paid bribes to obtain licences or where businesses bribed public schools for a letter of support in order to win the bid to be the canteen’s operator.

The report urged the government to prioritise public procurement reform by formulating the Government Procurement Act (GPA) with transparency standards and review mechanisms.

It also called for the enactment of freedom of information legislation and to amend the Whistleblower Protection Act to boost the confidence of those coming forward with information on alleged corruption.

Meanwhile, Alex Tan, a cyber and forensics leader at PwC Southeast Asia Consulting, said a country can win in its battle against corruption if the people are empowered to come forward to report corruption cases knowing that they will be taken seriously.

He said this happened in the nations with least corruption where the people are empowered to voice against corruption and injustice.

“This is the premise of fighting corruption,” he said.

“If a country has the worst policies in the world, but the people feel empowered to do so (report cases), you win the battle against corruption,” he said.

The anti-corruption policies drafted by the government, including the whistleblower policies, should be simplified so that the people understand them well, added Tan.


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