Study Shows Corruption Can Drive Up Costs Of Property Developments By Almost 15%

June 23, 2021

Study Shows Corruption Can Drive Up Costs Of Property Developments By Almost 15%

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

The “Corruption in the Supply Chain: Forms and Impacts on Consumers” report, which was jointly prepared by Institute for Democracy and Economic Affairs (IDEAS) and Coalition for Business Integrity (CBI), featured an in-depth study on how corruption in three sectors – construction, healthcare, and education took place.

During the webinar to launch the report, IDEAS research manager Sri Murniati Yusuf said the objective of the survey was, among others, to show how corruption could raise the prices of goods and services, reported Malaysiakini.

“Hundreds of people in the industry were interviewed last year. In addition, the CBI and IDEAS held a two-day closed-door roundtable discussion with stakeholders from these three sectors.

“In the construction sector, corruption takes place especially during and prior to the development.

“We have identified a number of bribes to facilitate land conversion and submission of construction plans. Bribes that are given to obtain foreign workers and completion certificates,” she said as quoted by Malaysiakini.

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She added that one of the interviewees said the amount could cover about four to 14 per cent of the cost for property development.

“During the development stage, bribes are given to obtain contracts from major developers, foreign workers and during the procurement of construction materials. Various payments (will be made) to obtain certificates of completion,” she said.

According to the report, interviewees said that the main developer could hire about 200 foreign workers for a project and bribe between RM500 to RM1,000 to the agencies involved to get a five-year contract for the workers.

The report showed one case involved a development project worth RM100 million, with a total of RM29.58 million (14.8%) of the cost involving bribe payments, including RM6 million for permit applications.

It also showed another case, where a total of RM29.08 million in bribes was given to facilitate the running of property development projects worth RM500 million. That amount accounts for 5.8% of the total cost.

The report also noted that many interviewees – despite being aware of being burdened with corrupt practices – did not consider “entertainment” and food spending as a form of corruption, but simply a cost of doing business.

“An example of extortion that many interviewees cite is harassment of foreign workers. Authorities – including police officers – will harass foreign workers by detaining them for two weeks or more if bribes are not paid.

“Such tactics are used to intimidate contractors and businessmen – and cause losses by disrupting their operations – who then have to comply with the demand. This is common especially at construction sites,” according to the report.

The report urged the government to prioritize public procurement reform by drafting the Government Procurement Act with reviewed mechanisms and transparency standards.

It also called for the gazetting of legislation on freedom of information and for the Whistleblower Protection Act to be amended to increase public confidence to come forward if they have information on allegations of corruption.

 

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