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Report No. 23257-KZ

KAZAKHSTANGOVERNANCE AND SERVICE DELIVERY:A DIAGNOSTIC REPORT

May 22, 2002

Poverty Reduction and Economic Management Unit (ECSPE)Europe and Central Asia Region

Document of the World Bank

CURRENCY EQUIVALENTS

Currency Unit = Kazakhstan Tenge (KZT)

US$ 1 = KZT 153(as of April 30, 2002)

Fiscal YearJanuary 1 to December 31

ACRONYMS AND ABBREVIATIONS

ACSI American Customer Satisfaction IndexACS Agency for Civil ServiceAMC Anti-Monopoly Commission BEEPS Business Environment and Enterprise Performance SurveyCAS Country Assistance StrategyCPC Caspian Pipeline ConsortiumEU European UnionFIAS Foreign Investment Advisory ServiceFSU Former Soviet UnionGPC Gross Domestic ProductICAC Independent Commission Against CorruptionIFI International Financial InstitutionsIMF International Monetary FundINTOSAI International Organization of Supreme Audit InstitutionsNGO Non-Governmental OrganizationSAI Supreme Audit InstitutionSAL Structural Adjustment LoanSCPC State Committee on Prevention of CorruptionSMEs Small and Medium EnterprisesSPA State Procurement AgencyUSAID United States Agency for International DevelopmentWTO World Trade Organization

Vice President: Johannes LinnCountry Director: Dennis de TraySector Manager: Helga MullerTeam Leader: Amitabha Mukherjee

Acknowledgements

This report was prepared by James Anderson and Amitabha Mukherjee (Task Team Leader) of the World Bank (Poverty Reduction and Economic Management Department, Europe and Central Asia Region).

The team is grateful to the authorities of Kazakhstan and especially to Messrs. Alexandr Pavlov, Deputy Prime Minister and Minister of Finance; Oraz Jandosov, former Deputy Prime Minister; Erzhan Utembayev, former Deputy Prime Minister; and Alikhan Baimenov, former Minister of Labor and Social Protection for encouraging and facilitating this report. The team expresses its grateful thanks to Mr. Zautbek Turisbekov, former Chairman of the Agency for Civil Service and to his team, for providing valuable data on the civil service reforms. This report would not have been possible without the cooperation of 600 public officials at the central and local levels, 400 enterprise managers, and 1,000 citizens of Kazakhstan who agreed to be surveyed. Their willing participation is greatly appreciated.

The team gratefully acknowledges the collaboration of Alexander Ruzanov, Tatyana Startseva, Eduard Vinokurov, Elena Grigoryeva, Marina Zuyeva, L. Ja. Simakova, Elya Muratalieva and other staff of Brif Central Asia, Almaty, Kazakhstan for administering the surveys.

The peer reviewers were Messrs./Mmes. Navin Girishankar, Omer Gokcekus, Maureen Lewis and Andrew Stone. The report has benefited greatly from contributions to successive drafts by Zhanar Abdildina, Konstantin Atanesyan, Elene Imnadze, Alma Kanani, Yerbol Orynbayev and Roman Solodchenko. Helpful comments were provided by Anthony Cholst, Hamid Davoodi, Joel Hellman, Paul Mathieu, Helga Muller, Randi Ryterman, Shekhar Shah and Tanju Yurukoglu. The team is grateful to Mala Johnson for her assistance in the preparation of the report.

Kazakhstan: Governance and Service Delivery Table of Contents

Table of Contents

Table of Contents.................................................................................................................i

Executive Summary.............................................................................................................iPerformance of the Public Administration..............................................................................................iiiThe Consequences of Weak Performance......................................................................................xivThe Organization of The Public Administration............................................................................xv

1. Introduction....................................................................................................................1The Economic Context................................................................................................................1

The Institutional Context...........................................................................................................2

Surveys And Public Sector Effectiveness..................................................................................4

Improving Governance and Service Delivery: Key Messages................................................5

2. The Performance Of The Public Administration In Kazakhstan.................................7Access...........................................................................................................................................8

Quality........................................................................................................................................11

Corruption.................................................................................................................................14

Performance of Selected Sectors..............................................................................................24Health.....................................................................................................................................................24Education................................................................................................................................................25Courts.....................................................................................................................................................27Police......................................................................................................................................................28Enterprise Registration...........................................................................................................................29International Trade – Customs, Border Crossing, and Trade Licenses..................................................31

3. The Consequences of Weak Performance...................................................................33Poverty and Inequality.............................................................................................................34

Fiscal Cost..................................................................................................................................37

Business Environment..............................................................................................................39

4. The Organization of The Public Administration in Kazakhstan................................42Organizing Human Resources.................................................................................................42

Training..................................................................................................................................................43Implementation of Civil Service Law....................................................................................................43Code of Ethics........................................................................................................................................45Salaries...................................................................................................................................................47

Organizing Financial Resources..............................................................................................48Budgets and the Budget Process.............................................................................................................48Public Procurement................................................................................................................................50

Detection and Suppression of Corrupt Behavior...................................................................52

5. The Way Forward...................................................................................................54Medium-Term Institutional Reform Priorities......................................................................54

The Need For Credibility..........................................................................................................58

Annex 1. Sample Description and Methodology............................................................61

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Summary of Methodology......................................................................................................................61Households Survey.................................................................................................................................63Enterprise Survey...................................................................................................................................65Public Officials Survey...........................................................................................................................66

Annex 2. What is Corruption?........................................................................................69

Annex 3. Governance and Public Administration—Details..........................................74Approach and Definitions.......................................................................................................................74Accessibility...........................................................................................................................................77Quality....................................................................................................................................................79Corruption...............................................................................................................................................81

Annex 4. The Government’s Development Program......................................................87

Annex 5. Summary of Public Sector Institutional Reforms Undertaken.......................93

Annex 6. Notes on Figures and Tables............................................................................96

End Notes.........................................................................................................................125

List of Figures

Figure 1. Perceptions of Accessibility..............................................................................................................vFigure 2. Perceptions of Quality....................................................................................................................viiFigure 3. The Rich Pay More Often, but the Poor Pay More Dearly............................................................viiiFigure 4. Perceptions of Corruption.................................................................................................................xFigure 5. Encounters with Bribery..................................................................................................................xiFigure 6. Experiences with Unofficial Payments...........................................................................................xiiFigure 7. Perception of Improvements Since the New Civil Service Law....................................................xviFigure 8. Perceptions of the Commitment to Reform...................................................................................xixFigure 9. Mechanisms to Enhance Public Sector Effectiveness.......................................................................4Figure 10. Perceptions of Accessibility............................................................................................................9Figure 11. Services the Poor Use and Do Not Use........................................................................................10Figure 12. Perceptions of Quality...................................................................................................................12Figure 13. Satisfaction with Government Services and Treatment -- Actual User Perspectives...................13Figure 14. Perceptions of Widespread Corruption.........................................................................................16Figure 15. Sources of Information about Corruption.....................................................................................17Figure 16. Perceptions of Corruption.............................................................................................................18Figure 17. Encounters with Bribery...............................................................................................................19Figure 18. Enterprise Experiences with Bribery............................................................................................20Figure 19. Household Experiences with Bribery...........................................................................................22Figure 20. Bribery and Complexity in Enterprise Registrations....................................................................30Figure 21. Encounters with Bribery during Registration...............................................................................31Figure 22. Top Ten Problems Reported by Enterprises and Households.......................................................33Figure 23. The Rich Pay More Often, But The Poor Pay More Dearly.........................................................36Figure 24. Services: The Rich Bribe For Speed, The Poor Bribe For Access...............................................37Figure 25. Little Willingness to Pursue Legal Rights....................................................................................43Figure 26. Perception of Improvements Since the New Civil Service Law...................................................44Figure 27. Evaluations of Competitive Recruitment (by those who went through it)...................................45Figure 28. Evaluations of Code of Ethics.......................................................................................................46Figure 29. Divergent Understandings of Which Gifts are "Trivial"...............................................................47Figure 30. Evaluation of Budget Processes...................................................................................................49Figure 31. Participation in Public Hearings on Budget Execution.................................................................50Figure 32. Evaluations of Procurement Rules and Procedures......................................................................51

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Figure 33. Perceptions of the Commitment to Reform..................................................................................59Figure 34. What is Corruption? Ordered Probit Results from All Three Sample Groups.............................71Figure 35. What is Corruption? Ordered Probit Results from Households....................................................73Figure 36. Performance and Procurement Policies........................................................................................83Figure 37. Performance and Provision of Information to the Public.............................................................83Figure 38. Performance and the Level of Salary............................................................................................84Figure 39. Performance and the Use of Extra-Salary Premia........................................................................84Figure 40. Performance and Enforcement of Anticorruption Repression......................................................84Figure 41. Performance and the Quality of Budget Processes.......................................................................84Figure 42. Performance and the Quality of Internal Information Flows........................................................85Figure 43. Performance and the Quality of Internal Procedures and Administration....................................85Figure 44. Performance and Personnel Policies.............................................................................................86Figure 45. Performance and Acceptance of Mission and Objectives.............................................................86

List of Tables

Table 1. The Implicit Tax on Firms................................................................................................................38Table 2. Methods of Procurement..................................................................................................................50Table 3. Enterprise Evaluations of State Tenders..........................................................................................52Table 4. Household Sample by Region and Settlement Type........................................................................64Table 5. Socio Demographic Characteristics of the Household Sample and the General Population...........65Table 6. Enterprise Sample by Region and Size............................................................................................66Table 7. What is Corruption?........................................................................................................................69Table 8. Means for Indexes of Performance and Qualities of Public Administration...................................76Table 9. Accessibility of Services and the Qualities of Public Administration—Respondent-level Regressions.....................................................................................................................................................78Table 10. Accessibility of Services and the Qualities of Public Administration—Institution-level Regressions.....................................................................................................................................................78Table 11. Accessibility of Services and the Qualities of Public Administration—Respondent-level Regressions, Correcting for Respondent-level Biases....................................................................................79Table 12. Quality of Services and the Qualities of Public Administration—Respondent-level Regressions 80Table 13. Quality of Services and the Qualities of Public Administration—Institution-level Regressions. .80Table 14. Quality of Services and the Qualities of Public Administration—Respondent-level Regressions, Correcting for Respondent-level Biases.........................................................................................................81Table 15. Corruption and Qualities of Public Administration—Respondent-level Regressions...................82Table 16. Corruption and Qualities of Public Administration—Institution-level Regressions......................82Table 17. Corruption and Qualities of Public Administration—Respondent-level Regressions, Correcting for Respondent-level Biases...........................................................................................................................83Table 18. Alternative Calculations for the Percentage of Households Encountering Bribery.....................104Table 19. Alternative Calculations for the Percentage of Enterprises Encountering Bribery......................105Table 20. Alternative Calculations for the Impact of Unofficial Payments on the Poor..............................109Table 21. Alternative Calculations for the Perceptions on the Civil Service Law.......................................111Table 22. What Constitutes a “Trivial” Gift?...............................................................................................113

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List of Text Boxes

Text Box 1. Access, Quality, and Corruption...............................................................................................6Text Box 2. Customer Satisfaction Surveys for the Public Sector in the United State.................................12Text Box 3. What is Corruption?..................................................................................................................13Text Box 4. Unbundling Corruption.............................................................................................................22Text Box 5. Health Care: Unofficial Payments in Eastern Europe and Central Asia...................................25Text Box 6. Corruption in Education............................................................................................................32Text Box 7. A Minister’s Experience with Corruption.................................................................................27Text Box 7. Regional Cooperation for Reducing Corruption in Customs....................................................29Text Box 9. Poverty in Transition.................................................................................................................32Text Box 10. The Immeasurable Cost of “Petty” Corruption in the United States.......................................33Text Box 11. The Cumulative Cost of Administrative Delays in Kazakhstan.............................................37Text Box 12. The Immeasurable Cost of Poorly Implemented Regulations in India...................................38Text Box 13. Kazakhstan – The Civil Service and the Reforms...................................................................40Text Box 14. Confronting the Challenge of State Capture and Administrative Corruption.........................53

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Kazakhstan: Governance and Service Delivery Executive Summary

EXECUTIVE SUMMARY

Governance plays a key role in ensuring economic development and improvements in the standard of living. Recognizing this, the Government of Kazakhstan requested a survey-based analytic report on governance and service delivery. The objective was to assist in enhancing state effectiveness and improving public sector performance, especially in respect of services for the poorest and most vulnerable.

A well-functioning state is critical for good governance and adequate delivery of quality public services. The 1997 World Development Report highlighted three mechanisms critical for promoting good governance: (i) “voice” (i.e. consultations and feedback) and partnerships (e.g., service delivery surveys to solicit user feedback, and decentralization to empower communities); (ii) internal rules and restraints (such as civil service and budgeting rules, internal accounting and financial controls, public procurement rules, and codes of ethics); and (iii) competition (e.g., competitive social service delivery, and privatization of certain market-driven activities). These mechanisms interact with and reinforce each other in enhancing public sector effectiveness by providing impulses and incentives for reform.

The role, structure and capacity of the public sector are still evolving in Kazakhstan. Strengthening its performance can enhance the efficient allocation and management of public resources, diminish the cost of doing business, unleash private sector growth, and directly impact the accessibility of the population to basic services. This focus on the economic and social benefits of improving governance and service delivery – and of the consequences of not doing so - is therefore apposite. For the purposes of this report, corruption is defined as the abuse of public office for private gain.

This diagnostic assessment is based on three sets of surveys of key groups in Kazakhstan. Four hundred enterprise managers and one thousand households were surveyed about their interactions with state bodies; their responses provide external assessments of the quality of the services provided by various government bodies, and about their experiences with corruption, from the perspective of the users of these services. Six hundred public officials were also surveyed, providing an insider’s perspective, as well as self-evaluations of the quality of their work. The public officials’ survey also highlights progress in implementation of reforms, such as competitive recruitment of civil servants, and provides information on the business culture of government offices. The three surveys complement each other.

The surveys make it possible to identify links between performance and weaknesses in public administration. The rich tapestry of information provided by the survey respondents is a means to improve the delivery of basic public services by enhancing the transparency and accountability of state functioning. The overarching messages from the survey results are:

a) Capitalize on successes. Significant progress has been made in instituting some difficult institutional reforms, e.g. in public expenditure management, public procurement, and in establishing a professional and merit-based civil service. Most publicly provided services are viewed as easily accessible. Bodies with the most open and thorough systems of providing information to the public were also those that were the most accessible (post

i


office, mass media, electricity). Competitive recruitment of civil servants is largely viewed as fair, transparent, and an improvement over the previous system. Public budget hearings are well-attended and produce meaningful changes in the budgets. Enterprise registration is reported to be simpler and improving.

b) Weak governance is hurting the ability of the poor to access basic services; weaknesses in responsiveness and integrity of state entities need to be urgently addressed. Services crucial for households, such as education, social benefits, state housing assistance, and the police, are perceived to be of low quality and prone to corruption. Households generally provided lower assessments of quality and accessibility than did enterprise managers or public officials. Twenty-nine percent of household respondents in the poorest third of the country said that they had been sick to the point of needing medical attention but did not see a physician, and 65 percent of them cited the high official costs as the reason. Corruption is reported to be widespread: while the rich appear to bribe for speed of service, the poor need to bribe for access to public services. It must be stressed that are two separate issues here: (i) problems in health care financing which may have different reasons such as insufficient state revenues, unequal distribution of those revenues, problems specific to health care financing, etc. (these reasons may be common to Kazakhstan and other countries), and (ii) weak governance and corruption – with characteristics and causes specific to Kazakhstan. Both state capture and administrative corruption are prevalent in Kazakhstan: 51 percent of enterprises, and 31 percent of households, encountered bribery in the last 12 months. Enterprises have to contend with both state capture (exemplified by political contributions, sale of legislative votes, and sale of administrative decrees) as well as administrative corruption (exemplified by bribery of public officials, nepotism, and sale of judicial decisions).

c) The credibility gap between official and private perceptions of commitment to improving service delivery and combating corruption needs to be addressed. Most public officials expressed support for numerous proposed or ongoing reforms. Yet, the public perception is considerably pessimistic, with much of the population unconvinced of the state’s commitment to improve quality of public services and reduce corruption. Few are willing to complain of poor treatment by public officials, and even fewer actually file official complaints against bribe requests by public officials.

d) The reorientation of policy makers and civil servants from a top-down hierarchical mentality to one focusing on service delivery must be continued. The results point to the importance of developing a client-focused culture of service in the public administration – bodies in which officials identified with the organizational mandate and viewed citizens and enterprises as clients were the ones that were most accessible and delivered the highest quality services. While an attitude change of policy makers and civil servants from one of command to one of service will inevitably take time, important first steps have been initiated. The survey indicates some future directions – such as the need to establish performance standards for organizations and individuals, and benchmarks against which progress can be assessed.

e) Continued institutional reforms are essential to consolidate and protect past successes, and for further improving state and private sector functioning. The results highlight the importance of core civil service and public administration reforms allied to budget management reforms– bodies with lower levels of corruption tend to be those with the most transparent and merit-oriented personnel practices. The survey underscore the correctness of the government strategy of continuing with public sector institutional reforms – aimed at improving the financing and delivery of public services, and reducing

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public sector obstacles to the development of the private sector. Such reforms will also promote transparency and accountability. However, the involvement of civil society in the reform process requires to be strengthened – as much for consultative and monitoring purposes as to address the credibility gap referred to above.

f) Improving governance is not only about enforcement-oriented anticorruption initiatives – it involves preventive measures, public education and public awareness. Improving governance does involve tackling corruption associated with state structures. This will of necessity include enforcement-oriented actions, including investigation and penalization of offenders. However, the policies and practices of state bodies and public officials also require review from the preventive standpoint, to minimize the opportunities for corruption – such as by eliminating unnecessary inspections and over-regulation. Improving governance also involves strengthening transparency, accountability and efficiency, with active assistance and monitoring of civil society, and based on feedback from the users of services.

g) Institutionalizing such surveys, and disseminating the results, can be a powerful means to improve public sector performance and diminish cynicism about the authorities’ commitment to improve governance and service delivery. Periodic administration of such or similar surveys at the republican, oblast and rayon levels can be used for performance evaluation purposes, and to generate competition as part of the quest for improving performance. Additionally, frequent survey administration and public dissemination of the results can address the credibility issue, and raise awareness about the authorities’ commitment to improve governance and service delivery.

Performance of the Public Administration

The state – through its policies and the public sector – plays an important role in achieving society’s objectives of equity, development, and improvements in the standard of living. A public sector that performs well can more effectively work to reduce poverty and stimulate growth. Three particular aspects of performance of the public administration in Kazakhstan are examined: access to selected publicly provided services, the quality of delivery of such services, and the level of corruption within key public sector entities involved in policy-making, implementation or oversight in respect of these services.

The evaluations of performance are based on both general perceptions and specific experiences related by survey respondents. Both types of assessments provide useful, and complementary, information. Perceptions can and often do form the basis for decision-making. It is also important to understand and report on the real experiences of firms and households that actually use public services. The evaluations provided by these respondents constitute a “report card” of the actual performance of the public sector by those in the best position to make such evaluations. Such a “report card” serves both the static purpose of spotlighting public sector bodies reported to have the best and worst performance, and the dynamic purpose of providing a benchmark against which to measure future improvements or deterioration.

Access

Most enterprise managers and households surveyed reported that most publicly provided services are easily accessible, although there is a clear divergence in overall opinions between households and enterprises. Although most enterprise managers (73 percent) find courts to be easily accessible, few households (26 percent) feel the same. (Figure 1).

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From the enterprise perspective, the post office, utilities (such as electricity, water, and telephone service), and private and quasi-private services (such as notaries and banking) receive the highest marks for overall access. Households tended to give less favorable assessments of accessibility—only about 25 percent of households surveyed reported that the airline, social protection services and the courts were accessible to their families. Even such crucially important services as education and health were only described as easily accessible by less than 40 percent of the respondents.

Controlling authorities and broad institutions of state received relatively lower ratings by both enterprises and households. Lower levels of government are reported to be relatively more accessible. Responses from households are starker, especially for higher levels of administration. Fewer than one in twenty households reported that they would be able to provide feedback and obtain answers from higher levels of administration. The lower ratings of accessibility for bodies such as the presidential administration are not surprising – citizens of most countries would likewise rate the accessibility of local government to be higher than that of the national executive.

Complaints

The perception that state institutions are not accessible to ordinary persons is suggested by other survey results as well. Four percent of household survey respondents said they had filed an official complaint regarding lack of services that they felt entitled to, 1.5 percent had complained of poor treatment by a public official, and five respondents out of a thousand said they had filed an official complaint regarding a request for a bribe by a public official. Eleven percent of respondents could even countenance the idea of filing an official, non-anonymous complaint about a demand for a bribe. Such responses do not necessarily imply a lack of access – they may suggest that the public has not yet gained widespread understanding of their rights and the avenues they have for redress.

The public’s lack of willingness to complain stands in stark contrast to the responses of many public officials: most report the presence of a variety of modes of providing information on their activities to the general public, and two out of three report that their institution has a special department or designated person to whom citizens and businessmen can complain when they encounter difficulties. Among institutions with such a department or designated person, 45 percent said that instructions for providing comments and complaints are publicly posted, and a further 28 percent said that instructions are printed and actively distributed to citizens and entrepreneurs.

Efforts to publicize complaint and grievance procedures seem to have had some success in the case of the private sector. Enterprise managers are less reticent about complaining, relative to the general public, perhaps because they have a better understanding of rights and procedures. Eighty-three percent said they would know where to file an official complaint regarding government service, and 18 percent said they had actually filed official complaints regarding lack of services they felt entitled to. 12 percent and 3 percent said they had filed official complaints regarding poor treatment by a public official and requests for bribes, respectively.

Consultation and Feedback

Among the positive steps toward openness and citizen feedback that have been taken in recent years is the requirement that public hearings be held for discussions of rayon or oblast budgets. The results of the surveys show that although there is room for improvement, public hearings are in fact taking hold. Twenty-five percent of household respondents said they had, in fact, seen notices of such public hearings in the past twelve months, and 19 percent had seen such

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notices of public hearings on the functioning of state entities that provide public services. Of those who had seen such notices, many said that action had been taken as a result of the public hearing, an encouraging finding. Since wide publicity of such hearings is the goal, these numbers suggest much room for improvement. Yet the existence of non-trivial participation by the public and follow-up actions resulting from public discussions is encouraging. Indeed, the fact that actions are taken as a result of the public discussions may help to build the credibility of the impartiality of such hearings.

Figure 1. Perceptions of Accessibility

A. Enterprises

18%

20%

18%

25%

48%

57%

62%

62%

62%

77%

70%

65%

68%

73%

76%

83%

87%

89%

91%

91%

93%

94%

Presidential administration

Parliament

Government

Ministries

Customs authorities

State licensing bodies

Tax authorities and inspectors

Oblast or Rayon-level elected officials

City administration

Labor regulators

National airline

Business information services

Procuracy

Courts

Police

Railway services

Banking services

Water

Electricity

Telephone

Notary services

Post Office

B. Households

3%

3%

3%

4%

5%

9%

14%

32%

25%

24%

26%

36%

33%

46%

39%

53%

49%

58%

52%

55%

59%

62%

68%

68%

69%

74%

76%


Government

Parliament

Ministries

Republican administration

Oblast administration

Rayon administration

Aul administration

National airline

Social protection benefits

Courts

State housing assistance

Health services

Railway services

Education services

Banking services

Property Valuation

Telephone

Police

Notary services

Water

Garbage collection, street cleaning

Public transportation

Agricultural services

Electricity

Post Office

Mass-media

"service is easily

accessible"

"body is easily accessible if there are

comments, questions, or complaints"

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Enterprises, again, seem to be much more active in expressing their opinions to policy makers. One in three said that they usually try to comment or affect the outcome when a new law, rule, or decree, is proposed that would have a substantial impact on the firm. Of those, two of three said they would use their direct ties to public officials, rather than formal channels such as trade associations or lobby groups.

Quality

The surveys make clear the wide variation in the quality of government services (Figure 2). Most respondents perceive the quality of postal and telephone services to be high, for example, while few respondents said the same of the courts or the police. From the perspective of the actual users of government services, evaluating specific recent instances of interaction with the state, the story is similar. Although satisfaction with many services is high – 80 percent of households that received veterinary services were satisfied with the quality – for other bodies it is very low. Courts and the police received low satisfaction ratings from both households and enterprises. Businessmen further reported problems with customs, and households with social benefits.

Enterprises provided the highest assessments of quality to private or quasi-public services and bodies, such as banking services, notary services, the post office and telephone service. At the other end of the scale, relatively few enterprise managers described the courts, police, or procuracy as providers of quality service. Similarly, controlling bodies such as customs received low ratings for quality work. Only a fifth to a third of enterprise managers provided favorable ratings for broad institutions of state, such as Government and Parliament.

The quality assessments provided by households were generally lower than those provided by enterprise managers. Mass media, post office, and telephone services received the highest marks. Like enterprise managers, few households gave favorable quality ratings to the work of the courts or the police. It is notable that several services that are of particular importance to households received poor ratings. Social protection benefits, state housing assistance, health and education were all toward the bottom end of the scale. These state entities generally received poor evaluations by households, with only 14 to 22 percent of respondents rating their work as good.

The assessments of quality provided by public officials can be thought of as peer assessments – public officials evaluating each other and themselves. Public officials’ evaluations of the quality of services are not as favorable as one might have expected. Only a half dozen services received favorable ratings by more than half of the respondents. The responses largely mirrored those provided by households and enterprises: private and quasi-public services, such as banking and notary services, mass media and telephone services were most likely to receive favorable assessments, while state housing assistance, police, health and social services, the courts and education receive the least favorable ratings.

Although public officials’ perceptions of public services are similar to those reported by households and enterprises, there is a marked difference in their assessments of the broader institutions of state. Parliament, the Presidential Administration, and central and local executive bodies all receive more favorable ratings by public officials than by either of the other two sample groups.

Most enterprises reported being satisfied with most of their actual experiences with state and private bodies. The satisfaction ratings, provided only by enterprises that interacted with the body or service in the previous 12 months, are similar to the perceptions of quality in that private or quasi-public services receive the highest ratings: notaries, banking services, and private

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accounting and auditing services receive the best ratings from enterprises. At the other end of the scale, less than half of the affected enterprises reported being satisfied with their experiences with customs, courts, police, traffic police, etc.

Households were generally satisfied with most of the interactions they had with state bodies – veterinary services topped the list. They were least satisfied with the police and courts, and with their interactions regarding social benefits, unemployment benefits, and jobs through the labor exchange or directly through the state.

Figure 2. Perceptions of Quality

A. Enterprises

24%

32%

33%

35%

35%

38%

39%

40%

45%

47%

28%

30%

31%

48%

60%

62%

63%

66%

69%

71%

76%

79%

Customs authorities

Government

Parliament

Ministries

Tax authorities andinspectors


Labor regulators

Presidentialadministration

City administration

Oblast or Rayon-levelelected officials

Courts

Police

Procuracy

Business informationservices

National airline

Railway services

Electricity

Water

Telephone

Post Office

Notary services

Banking services

"quality of work

undertaken by the body"

B. Households

14%

15%

16%

16%

16%

17%

19%

22%

15%

15%

15%

17%

19%

29%

36%

38%

38%

38%

45%

45%

47%

48%

50%

50%

52%

58%

65%

Republicanadministration



Aul administration

Parliament

Ministries

Government


Police

Courts

Social protectionbenefits

State housingassistance

Health services

Education services

Property Valuation

National airline

Railway services

Garbage collection,street cleaning


Water

Notary services

Banking services


Electricity

Telephone

Post Office

Mass-media

C. Public Officials

23%

30%

34%

34%

40%

43%

47%

50%

52%

56%

17%

20%

22%

24%

25%

32%

36%

40%

43%

46%

50%

50%

52%

54%

54%

61%

62%

71%

Customs authorities

Tax authorities

State licensing andpermitting bodies

Inspections (fire,sanitary, etc.)

Accounting Chamber

Parliament

Ministries,Government

City Administration

Oblast or Rayon levelelected officials



Police

Health services

Social services

Courts

Education services


Property valuation

National airline

Railway services


Post Office

Water

Electricity

Telephone

Mass-media

Notary services

Banking services

"quality of service is 'good'"

"quality of work

undertaken by the body is 'good'"

Corruption

One particular aspect of governance that has received increasing attention throughout the world is that of corruption. In many transition economies, the tradition of gift-giving and under-the-table payments has grown in the near absence of institutions of accountability. Yet there is also increasing recognition of the harmful effects of corruption for development and for poverty

vii


and inequality. Many countries, such as Kazakhstan, are moving anticorruption to places of prominence on the reform agenda.

In Kazakhstan, many respondents professed that corruption is widespread and, indeed, a part of everyday life. The police, the courts, customs and tax authorities were identified as having the most widespread problems of corruption. This perception of widespread corruption is fueled by media reports, but many respondents also said that their knowledge of corruption comes from personal experience – 43 percent of enterprise managers said they obtain information on corruption from personal experience, and over half said they had encountered bribery in dealings with public officials in the previous year.

Bribe payments for government services are but one form of corruption. The enterprise survey also highlighted a particularly pernicious form of corruption known as “state capture,” which entails corruption surrounding the formulation of laws and decrees. Large numbers of firms said they are affected by the sale to private interests of court decisions, Parliamentary votes and executive decrees. Addressing this form of corruption is particularly challenging in light of the resistance that will inevitably come from the vested economic interests that benefit from state capture.

Both state capture and administrative corruption are prevalent in Kazakhstan, as the survey findings show. 51 percent of enterprises and 31 percent of households encountered bribery in the last 12 months. Figure 3 indicates the disproportionate effect of corruption on the poor.

Figure 3. The Rich Pay More Often, But The Poor Pay More Dearly

11%

8%

5%

16%

20%

33%

poorest third middle third richest third

median percent of household income paid in bribes (among those that paid)

percent of households that reported paying bribes in the previous 12 months

Figure 4 indicates assessments of the degree of corruption in public services and the public administration from the perspective of each of the three sample groups. Enterprise managers were likely to select customs, police, tax authorities and inspectors, and the courts as the most corrupt

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Administrative corruption refers to corruption surrounding the implementation of laws, rules, and regulations (e.g., a bribe to an inspector).

State capture describes corruption that affects the formulation of the laws and regulations (e.g., a bribe to buy a vote for a favorable law).


bodies. Public officials identified the police, customs, tax authorities, and courts as the most corrupt. Households have similar perceptions regarding the courts and police, but were much more likely to also point to broad institutions of state, such as the national and local administrations, ministries and Parliament, as institutions they perceive to be corrupt. All sample groups identified telephone services and the post office as among the least corrupt.

Figure 5 provides summary measures of encounters with bribery from all three sample groups. Nearly one in three respondents to the household survey, and half of the enterprise managers surveyed, said they had made an unofficial payment to a state official in the previous twelve months. Public officials were not asked about acceptance of bribes – they would have no incentive to admit to such a practice – but they were asked whether they had been offered gifts or money in the previous 12 months. Eighteen percent said they had.

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Figure 4. Perceptions of Corruption

A. Enterprises

3%

5%

7%

8%

9%

10%

11%

15%

30%

34%

1%

1%

3%

3%

3%

3%

4%

5%

9%

16%

20%

33%

Labor regulators


Ministries

Parliament


Government

City administration

State licensingbodies


Customs authorities

Post Office

Telephone


Notary services

Electricity

Water

National airline

Banking services

Railway services

Procuracy

Courts

Police

B. Households

11%

17%

19%

20%

21%

21%

21%

22%

3%

3%

3%

5%

5%

6%

7%

7%

7%

10%

12%

12%

12%

14%

16%

18%

18%

35%

43%

Aul administration



Parliament


Ministries


Government



Post Office

Telephone


National airline

Mass-media

Water

Property Valuation


Electricity

Banking services

Notary services

Railway services

Health services


Education services

Courts

Police

C. Public Officials

5%

7%

8%

9%

9%

10%

15%

18%

34%

39%

1%

2%

3%

4%

5%

6%

6%

7%

8%

9%

9%

9%

12%

14%

15%

15%

34%

43%

Accounting Chamber


Parliament

Oblast or Rayonlevel elected officials

City Administration




Tax authorities

Customs authorities

Post Office


Water

Telephone


Mass-media


Electricity

National airline

Health services

Notary services

Social services

Banking services

Property valuation

Railway services

Education services

Courts

Police

percent saying corruption is "widespread"

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Figure 5. Encounters with Bribery

18%

52%

31%

Public Officials Households Enterprises

Percentage of respondents who encountered bribery during last 12 months*

*Note: For households this is the percentage that reported having made some unofficial payment. For enterprises this is the percentage who were made to feel that bribes were necessary by public officials. For public officials it is the percentage that reported having been offered large or small gifts or money.

Figure 6 summarizes enterprise and household encounters with bribery with specific state-provided services and bodies, and shows the percentage of respondents who actually encountered bribery with public officials from all those who had official contact with such persons.

Enterprise managers were asked how many times their firm had visited each of 26 bodies and services, mostly state, and on how many of those occasions they paid a bribe or had it made known to them that they should pay a bribe. Figure 6A presents the percentage of enterprises that said they encountered bribery on at least one occasion in the previous 12 months with the respective agency: 39 percent of firms that interacted with the traffic police said they had encountered bribery, 34 percent for customs, etc. It is notable that of the 26 bodies and services, there was only a single body or service (social insurance fund) for which no enterprise had encountered bribery.

Many enterprises reported being affected by a wide range of forms of corruption and state capture. Over half of the surveyed enterprises reported being affected by the use of corruption by their competitors, and by the sale of decisions of courts deciding business disputes. Several other forms of corruption – relating to appointment of public officials, judgments of criminal courts, administrative decrees/resolutions and legislative enactments – were reported to have an impact on over 40 percent of enterprises.

Figure 6B shows the percentage of households that provided some gift, money, or service to the service provider. The state bodies to which unofficial payments appear to have been made most often – as evidenced by the survey findings - were educational institutions. It is clear from other evidence, however, that at lower levels of education most of these gifts are not viewed by the respondents as “bribes” – payments at the university level were much more likely to be considered bribes. Households also reported unofficial payments to be common in dealings with the traffic police, vehicle registrations, for hospital stays, and when dealing with gas installation and repair.

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Figure 6. Experiences with Unofficial Payments

B. Households

3%

3%

3%

6%

7%

7%

8%

9%

12%

12%

12%

13%

13%

13%

15%

16%

25%

26%

29%

30%

32%

38%

51%

Emergency HealthCare

Job through theState

Telephone

Job through LaborExchange

Police (criminalinvestigations)

Passport

Other Health Care

Clinic

UnemploymentBenefits

Real Estate

Water

Social Benefits

Power

VeterinaryServices

Driving Licence

Courts

Gas

Hospital

VehicleRegistration

Traffic Police

University

High School

Elementary School

made unofficial payment

A. Enterprises

0%

1%

5%

5%

6%

6%

6%

7%

8%

9%

10%

12%

13%

14%

14%

14%

16%

16%

19%

20%

21%

23%

26%

27%

34%

39%

Social insurance fund

Notary offices

National level revision and inspectioncommissions

Telecommunications

Bank services

Private accounting and auditing service

Utilities (water, gas, electricity, heating)

Other oblast level administration

City administration

Border Guards

Central Architecture and PlanningCommission

Construction permissions

Business Registration

Oblast level revision and inspectioncommissions

Organized crime bodies

Environmental protection

Other rayon or aul level administration

Courts

Licenses and permits

Rayon or Aul level revision and inspectioncommissions

Sanitary and Epidemiological Inspectors

Tax Inspectors

Fire Inspectors

Police

Custom authorities

Traffic police

encountered bribery

Performance in Selected Sectors

Health. Only 33 percent of households said that health services were easily accessible, and only 19 percent of the overall population said that the quality of health services was good. Public officials gave even lower evaluations, relative to other state services and bodies, placing health care together with customs, the police, and state housing assistance among the lowest in terms of quality. However, in many countries health sector performance is viewed even more negatively. One reason, perhaps, is that Kazakhstan’s health system includes

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official payments that are relatively clear, transparent, and set by the state and health care providers. Other countries that have universal “free” health care but under-funded health systems compel unofficial payments to play a relatively larger role. The financing system that has developed, relying heavily on quasi-official charges, may have benefits in terms of transparency and financing compared to systems in other countries, but the high official fees may have a deleterious effect on access to health care for the poor – poor households are more likely to avoid treatment, primarily because of the high official fees for treatment.

Education. Thirty-nine percent of households said that educational services were easily accessible, and 25 percent evaluated the quality of educational services as good. However, education services are perceived to be relatively corrupt, with 18 percent of households saying corruption was very widespread. Excluding the evaluations of the broader institutions of state, only the courts and the police were perceived to be more corrupt.

Courts. Twenty-six percent of household respondents said that the courts were easily accessible, and 6 percent had interacted with the courts in the 12 months before the survey. Among enterprise managers, nearly three in four said courts were easily accessible, but less than one in four said the courts provide quality service. Only customs received a lower rating. Public officials similarly placed the courts among the worst state bodies in terms of quality, with only one in five evaluating the quality as good. Moreover, the survey findings show that courts are widely perceived to be corrupt and respondents’ actual experiences with the courts seem to bear this out. Sixteen percent of households and 16 percent of enterprises that had been to court said they had provided a gift, money or service to court personnel during the trial—nine out of ten were paid before or during the proceedings. More than half of the unofficial payments made by households were made to ensure that a certain person was assigned to the case or to influence the court decision.

Police. Roughly half of the households surveyed said that the police were easily accessible if their family had a problem. Twelve percent, among the lowest of the state bodies and services evaluated, said the police provide quality services. The police are generally perceived to be the most corrupt state body, with 43 percent of household respondents saying corruption was very widespread among the police. Enterprise reactions were similar to those of households. Three out of four enterprise managers reported that the police were easily accessible. One in four gave a positive evaluation of the quality of service provided by the police. Corruption is perceived by all sample groups to be relatively widespread in the police. Both households and enterprises placed the traffic police among the state bodies most likely to extract bribes: 30 percent of households and 39 percent of enterprises that came into contact with the traffic police reported that they encountered bribery.

Nearly half of the victims of crimes said they did not make a report to the police; the most common reasons cited were that it would be worthless (43 percent), that complaining would cause them problems (20 percent), and that they did not trust the police (16 percent). Especially worrying is that victims of violent crime were three times as likely than victims of property crime to cite “lack of trust” as the reason they did not report the crime to police.

Enterprise Registration. The survey of enterprises asked firms to evaluate their registration process. Thirty-four percent of firms described the process as complicated. Nineteen percent of firms said that it was necessary to pay a bribe. One in five firms also said that it was necessary to use an intermediary, such as a law firm, in order to officially register. The trend over the last 5-6 years seems to be that the level of complexity of registration is declining, while the need to pay bribes is holding steady or even increasing. This result shows that although making registration less cumbersome is certainly critical for reducing corruption, it is not sufficient – building mechanisms of accountability must also play an important role.

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International Trade – Customs and Trade Licenses. The customs authorities receive low ratings across the board by enterprises. Customs received the lowest assessment of quality by enterprises: one firm in five said that the quality of work was good. Public officials provided similar responses. In their actual experiences with customs, the level of satisfaction by firms was among the lowest, with only 41 percent of firms saying they were satisfied with their dealings with customs. The customs authorities are at or near the top both in terms of enterprise perceptions of corruption and in terms of actual experiences. One out of three enterprises that had dealt with customs in the 12 months before the survey said they had encountered bribery.

The Consequences of Weak Performance

The costs of not addressing performance can be formidable. The survey results on this issue can be grouped into three categories:

a) Weak performance hampers poverty alleviation and exacerbates inequality. Two issues need to be distinguished here – unofficial and official payments. In respect of the former, corruption has a disproportionate impact on the poor (see the left bar of Figure 3): poor households that paid bribes paid more than twice as much in bribes as a share of income compared to rich households. Enterprises and households recognize that corruption is harmful for the standard of living and the distribution of income. When asked for the two main consequences of corruption, half of all household respondents indicated that the “rich get richer and the poor get poorer.” Another 40 percent pointed to the negative impact that corruption exerts on the standard of living. When we turn to official payments, however, these may actually have a more damaging effect: poor households may not even seek public services because of their inability to pay for them (this includes official payments as well). Twenty-nine percent of household respondents in the poorest third of the country said that they had been sick to the point of needing medical attention but did not see a physician, and 65 percent of them cited the high official costs as the reason.

b) There are clear fiscal costs to weak performance. On the revenue side, weak governance affects the collection of revenues (taxes and other revenues such as fees) from individuals and firms. Corruption in the tax and customs authorities impedes revenue collection. Weak governance also facilitates the existence of the underground economy which deprives the state of needed revenues. Ultimately, the costs that weak performance imposes on firms far exceed the level of unofficial payments, since bureaucracy and delays hinder a firm’s ability to conduct business. Between crime, corruption, and excessive regulations, firms said they were most willing to pay for the elimination of corruption: on average, firms would be willing to pay 8.5 percent of their revenues if such a corruption-free world could be found (see Table 1). On the expenditure side, weak performance leads to inefficient and more expensive delivery of services. For example, although the procurement reforms already implemented have reportedly saved 5 billion Tenge, the survey shows that procurement rules and procedures are not always followed, are not always effective at reducing corruption, and the transparency and fairness of the tender process are sometimes open to question. In addition, weaknesses in financial management facilitate waste and diversion of public resources into private pockets. State capture can lead to the direction of large state subsidies or the assignment of monopoly rights to well-connected enterprises.

c) Weak performance negatively impacts the creation of a competitive business environment, and especially hurts small and medium enterprises. Weak performance –

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low quality of services and excessive levels of corruption – weakens small to mid-sized rapidly growing companies, the very firms that power employment growth and income generation. It is not surprising, therefore, to find that the costs that weak public sector performance impose on firms cascades into a generally weaker macroeconomic environment as well. Enterprises deemed tax regulations nearly as problematic as the rates, and uncertainty in the legal environment, bureaucratic delays, and ambiguous legal standards were noted as problematic for a large number of firms. Kazakhstan has made progress in recent years toward regulatory simplification, but bribery is reportedly common. There is also room for improvement toward ensuring efficient and transparent regulation. Inspectors for various state bodies are vested with considerable powers over firms found to be in violation of the law. Bribery was found to be frequent among fire inspectors (26 percent of firms encountered bribery) and sanitary and epidemiological inspectors (21 percent), outranked only by customs and the police.

The Organization of The Public Administration

The authorities in Kazakhstan embarked on the first stage of a major public sector institutional reform program from about 1996. This included territorial and administrative reorganization, streamlining and consolidation of the central executive entities, establishment of a professional civil service, reforms of the budget process, reform of audit and financial controls, streamlining public procurement, and reform of housing and utilities.

The public officials’ survey offers a view into the inner workings of state bodies and allows evaluations of actual practices of public administration. The results suggest that reforms already undertaken are having a positive impact. Most officials, from hiring managers to job candidates, said that the hiring, promotion, discipline and dismissal practices have become more transparent and fair since the new Civil Service Law took effect – most also said that the new procedures ensure that the most qualified applicant is hired.

These positive responses are encouraging. However, weaknesses do remain. The public officials’ survey makes it possible to identify the link between poor performance and weaknesses in public administration. The results highlight the importance of continued core civil service and public administration reforms allied – as in the past - with public expenditure management reforms.

Kazakhstan has separated its political appointees from its professional civil servants. The latter – comprising about 66,000 personnel subject to oversight by the Agency for Civil Service - are now recruited by competitive recruitment, have a revised salary policy, are on the path to higher salary levels, and are subject to modernization in attitudes, orientation and status.

The authorities realize the importance of developing public sector human capital. The passage of the Civil Service Law in 1999 was a watershed in the modernization of the public service. That law – applicable to the 66,000 civil servants in apparat positions – has been under implementation for about 2 years. The survey focused on selected aspects of the operation of the Law. Key findings were:

Training. Seventy-seven percent of respondents reported that their institutions organize training activities for staff to improve their qualifications and professionalism, and nearly all described the activities as useful. Sixty-one percent reported having actually participated in training. Decisions regarding training were described in mostly positive terms—only 8 percent reported them to be non-transparent.

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Implementation of Civil Service Law. The Civil Service Law marked an important milestone in Kazakhstan’s efforts to reform the public sector. The surveys show that most public servants are familiar with the law. Two out of three public officials said they are very familiar with their rights if they feel they have been treated unfairly with regard to a personnel decision. Despite the officials’ professed knowledge of the Civil Service Law and their rights, many expressed an unwillingness to avail themselves of those rights. Indeed, when asked whether they had the right to request that superiors provide instructions in writing, only 40 percent said that this was definitely their right. Even when the law provides a right and protection, civil servants seem to be unwilling or reluctant to exercise it for fear of adverse consequences.

Public officials were asked to evaluate the changes in recruitment and personnel decisions since the new law took effect. The results are positive – large numbers state that the situation improved (see Figure 7). Even among job applicants who were not successful in obtaining the positions they sought, more than 40 percent said the process was fair and “ensured that the most qualified applicant got the job,” and roughly 60 percent said the process was transparent and fast.

Figure 7. Perception of Improvements Since the New Civil Service Law

1%

8%

48%

39%

4%

1%

8%

41%

46%

5%

got much worse got somewhat worse no change got better got much better

fairness of recruitment and personneldecisions

ability to ensure that the best people gethired

Attestation is the periodic process (usually once in one or two years) by which a civil servant’s qualification and performance are assessed by a body of reviewers, and the candidate is either recommended for promotion, confirmed or reconfirmed in the grade/title, or advised to upgrade the qualifications. Most of the officials who passed through attestation reported the process to be transparent, fair, and fast. Forty-two percent of public officials said they know of specific cases when someone at their institution has been promoted or demoted as a result of the attestation process, and 33 percent said their know of specific cases when the institution took remedial action (e.g., providing training) to help staff improve skills following a poor attestation.

Code of Ethics. Following the enactment of the Civil Service Law, a Code of Ethics, designed to establish clear guidelines for acceptable and unacceptable behavior for civil servants, was adopted. The survey found that republican level officials are less likely to be familiar with

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the Code of Ethics. A key reason for this difference is that institutions at the republican level apparently make relatively less effort to actively disseminate the Code of Ethics.

Although most public officials reported that the Code of Ethics was clear and easy to understand, relatively few report that it is widely followed or that it helps reduce corruption. Assessments by republican level officials were generally more negative. Most officials report that the Code of Ethics is useful for them in clarifying what behaviors are acceptable and unacceptable. However, a key finding is that the instruction in the Code of Ethics specifying that only “trivial” gifts may be accepted required refinement or more detailed guidelines – the understanding of “trivial” varies tremendously. Public officials generally have a lower threshold for acceptability of gifts than do households or enterprises.

Civil Service Salaries. In Kazakhstan, average monthly government wages amount to about US$50. What is significant is that average government wages are increasing in absolute terms (the average wage seems to have risen from about US$35 per month in the early nineties) as well as relative terms. Across state bodies, the levels of salary do not appear highly correlated with organizational levels of performance. Similarly, the use of extra-salary premia is generally not a good predictor of performance. While it is undeniable that low salaries might tempt an otherwise honest official to engage in corruption, the findings illustrate the relative importance of other institutions of accountability in the public sector.

Budget Formulation. Forty-six percent of public officials said they are familiar with the practices of budget formulation within their institutions. Of them, about 85 percent report that the budget formulation process involves close consultation between budget managers and department or division managers. The qualities of formal rules of budget management received high marks by public officials familiar with them. The main area of concern surrounds the stability of the rules: half to two-thirds of respondents agree that the written principles of budget management are stable.

Budget Execution and Oversight. Of the respondents who professed some knowledge about audit, over 75 percent had been audited in the previous twelve months by at least one audit body. By law, elected bodies or their revision commissions are required to hold public hearings on budget execution – this includes actions taken in respect of provision of public services. The survey of public officials found that 30 percent of officials know of this requirement, and 20 percent maintained that such laws or regulations do not exist. (The remainder admitted that they do not know.)

Public Procurement. Survey respondents reported using a variety of different procurement methods. Public tenders were most widely used by institutions at the republican level, with an average of nearly 60 percent of the value of goods and services procured through tenders. Among procurement-oriented officials at all levels of government, most reported that procurement policies are formally written and widely known within their institutions. The overwhelming majority also declared that the policies were transparent and easy to understand. Roughly one in three did not agree that the procurement policies were effective for limiting corruption or for ensuring the procurement of high quality goods and services at low cost. Many reported that the procurement policies were not always followed.

The enterprise survey provided additional information on procurement. Many firms reported that there were tenders that they considered but ultimately did not participate in, primarily due to the belief that it is difficult to win if one does not have personal connections with the organizers (24 percent of firms cited this as the primary reason). Nearly as many complained that the process was too complicated and not transparent.

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The Need to Build Credibility

The outcome and success of the government’s anti-corruption initiative so far has been mixed. The strategy is still evolving. Much more remains to be done to broaden the reform program, to ensure the sustainable implementation of reform measures, and especially to address issues of state capture and administrative corruption. The government’s own commitment to further institutional reform, and an indication of the authorities’ reform priorities, can be found in the governance triggers in the February 2001 Country Assistance Strategy (CAS), which reflect an emphasis on strengthening accountability and transparency. Underlying the triggers are specific monitorable implementation measures. The triggers comprise: (i) submission of annual declaration of assets and incomes of civil servants to the tax authorities; (ii) establishment of clear rules for the interests of public sector officials and their direct families in the private sector, and development and enforcement of regulations dealing with conflicts of interest; (iii) effective enforcement of code of ethics for civil servants; (iv) public declaration of all significant new government contracts (defined, for example, by size, procurement, privatization, etc.); and (v) assessment of public financial accountability by 2001 followed by implementation of reforms.

The survey responses on perceptions of the commitment to reform are depicted in Figure 8 below. Although most public officials believe that the Government is committed to reforms, enterprise managers and the general public expressed much less confidence. Less than one in three household respondents said that they believe the Government is committed to improving the quality of services provided by the state. Among public officials, the commitment to improve efficiency, improve the business environment and even reduce corruption were all viewed as credible by more officials than the commitment to improve the quality of public services.

Figure 8. Perceptions of the Commitment to Reform

31%

40%

29%

36%

43% 44%40%

42%

66% 67%

57%62%

0%

25%

50%

75%

100%

improving efficiencyof the public sector

and stateadministration

improving thebusiness and

regulatoryenvironment

improving the qualityof services providedby the state to the

population

fighting corruption inthe public sector and

state institutions

perc

ept b

elie

ving

Gov

ernm

ent i

s co

mm

itted

to ..

.

Households Enterprises Public Officials

What is significant in Kazakhstan is that high level policy makers seem acutely aware of , and readily acknowledge, the public distrust of government’s stated commitment to improving

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governance and service delivery (see, for example, paragraph 168). Given also the Government’s promise to regularly conduct such surveys and publish the results, it will be interesting to see whether the Government succeeds in keeping this commitment, and what impact it has on public sector performance and accountability, especially at the service delivery level. The success of this exercise can have a significant impact on the credibility of the central executive.

A country with high levels of state capture and administrative corruption faces the particular challenge of restraining concentrated economic interests and disentangling politics from business—or at least making the links transparent—while at the same time building the capacity of the state to provide high quality public services. These challenges will not be overcome easily in Kazakhstan. Yet the costs of not addressing both forms of corruption are extremely high. Reform and progress are possible, but only through concerted efforts that treat the underlying weaknesses that feed state capture and administrative corruption.

The state alone cannot perform this task. The private sector, NGOs and the public all need to play their roles in reducing improving governance. Yet their involvement depends, in part, on the credibility of the state. Although more than a third of enterprises and households said that the Government’s commitment to reduce corruption is credible, the respondents’ own commitment to assist is less sure. In answer to a hypothetical question, only 17 percent of households said unambiguously that they would report or complain about a bribe demand, and a further 30 percent said, “it depends.” Over half said unambiguously that they would not report it. Among those who said they might report it, only about a quarter said they would be willing to do so non-anonymously. Stated another way, only 11 percent of the population stated unambiguously that they would report bribe requests non-anonymously. By way of contrast, a 1997 survey by the Hong Kong Independent Commission Against Corruption showed that, of those willing to report, 80 percent were prepared to do so non-anonymously.

State credibility can be improved by tackling the twin challenges of improving accountability and transparency. Pivotal to improving accountability at the organizational level will be measures to tackle the institutional dysfunctions in specific entities such as customs, police, tax administration, courts, and entities that deliver basic social services such as education, health, and housing assistance. At the individual level, the authorities have indicated (in the CAS triggers) some critical steps against which the credibility of the state’s commitment to improve governance can be assessed and monitored. Transparency issues can be tackled through further civil service and public administration reforms, and through reforms in public expenditure management: it will be critical here – as in the past – to synchronize and coordinate these reforms for mutual sustainability and effectiveness.

All of this seems to indicate – as the authorities have been largely espousing - a three-pronged institutional reform strategy going forward:

Deepening of Institutional Reforms. Reform of internal and external audit has only just begun, and its importance in respect of management of public resources is now being realized by the authorities. Further institutional strengthening of the civil service is critical for continued improvements in policy formulation and execution. The judicial reforms initiated recently will require sustained follow-up.

Extending the Reform Process to the Local Level. Most of the important reforms now require to be extended to the regional and local level, to put them on a sustainable footing. Examples include (i) budget reforms to ensure more effective management of budgetary resources and more responsive delivery of public services; (ii) streamlining regional and local administrations to achieve the objectives of economy, accountability and more effective service delivery; (ii) extending merit-based civil service reforms to the

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regional and local governmental levels to enhance performance and professionalism at those levels; (iii) capacity building at the local level, and (iv) developing and implementing explicit measures to enhance accountability and integrity of regional and local public officials and the involvement of civil society.

Expanding the Reform Agenda. The need to attract foreign investment and to facilitate the speedy development of small and medium enterprises is a key government priority (the latter especially to counter the adverse effects of unemployment, and to promote economic growth). For both priorities, a necessary condition is the removal of public sector obstacles to the growth of the private sector – in the form of liberalization and streamlining of licenses, permits and other forms of control.

In order to improve service delivery and address the issues that the survey brings out, the next stage of reforms will need to focus on the following:

Improving accountability and transparency. This is the most central issue, and the key to improving management of public resources and the functioning of the public sector. The authorities believe that continued public sector reforms are the best means to freeing the economy from the shackles of bureaucracy, and for more effective financing and delivery of basic public services to the poorest and most vulnerable. Until such key institutional reforms are implemented, the state will remain vulnerable to social tension.

The surveys suggest that pivotal to improving accountability will be measures to tackle the institutional dysfunctions in specific entities such as customs, police, tax, courts, and entities that deliver basic social services such as education, health, and housing assistance. Transparency issues can be tackled through further civil service and public administration reforms, and through reforms in public expenditure management: it will be critical – as in the past – to synchronize and coordinate these reforms for mutual sustainability and effectiveness. Key focus areas in public administration and civil service reform could comprise: (i) strengthening civil servants’ accountability to the law (e.g. through an effective system for declaration of assets and incomes of civil servants, and on developing measures for enforcing compliance), and to the users of public services1; (ii) improvement of pay and benefits of apparat civil servants at all levels to reduce staff turnover and to enable staff to perform on a professional basis; (iii) rightsizing budgetary employment on an ongoing basis; (iv) addressing training needs of central and local civil servants; and (v) institutional strengthening of key entities involved in civil service reform. The Government Action Plan for 2002 includes the drafting of a Law on Public Service, which is expected to regulate the rights, responsibilities and obligations of employees of budgetary entities (e.g. doctors, teachers, etc.) who do not fall within the definition of ‘civil servants’.2

Implementing an improved system of intergovernmental financial relations which will enable deepening of state assistance to the poorest. This is essential for improving the financing of public services, and for enhancing accountability at the local level. Households have rated public services very conservatively in terms of access, quality, and also in terms of the prevalence of corruption. The authorities’ plan to enhance the pace and depth of decentralization suggests that urgent steps need to be taken on this politically and institutionally challenging front. Competitive elections, community participation in sub-national decision-making, independent

1 Periodic surveys of the users of such services and the publication of survey results can be a powerful force for involving civil society in the reform process, for increasing administrative transparency and accountability, for establishing effective feedback and monitoring mechanisms, for reducing corruption in service delivery, and for focusing scarce resources on priority reform areas.2 Legislative drafting plan of the Government of the Republic of Kazakhstan for 2002, approved by Government Regulation no. 218 of February 14, 2002 (mentioned in letter no. 15-4-1-7/3449 dated March 25, 2002 addressed to the World Bank from Mr. Kelimbetov, First Vice Minister of Finance, Ministry of Finance of the Republic of Kazakhstan).

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media assessments and communication of local public performance, transparent budget processes and financial reporting, together with sensible and fair legal and regulatory systems, all can contribute to creating an accountable public sector, at any level of government.

An important step towards improving the system of intergovernmental finances was taken through the establishment of a State Commission in October 2001 through a Presidential Order3. The Commission’s mandate is to review the distribution of powers between the levels of government and recommend improvements to the system of intergovernmental finances. Meanwhile, pending any substantial adjustment to the existing system of intergovernmental finances – to obtain consensus on which will be politically and technically challenging – and in order to improve the financing and delivery of social services in the short run, it has been agreed between the executive and the legislature that delivery of basic social services by state entities will be carried out in accordance with ‘social norms and regulations’4 – the objective seems to be to improve the predictability of financing such public services and to avoid disruption in their provision. It is envisaged that the population – especially the poor and vulnerable – will find it easier to receive health, education and other social services irrespective of residence and status.

In Kazakhstan, however, decentralization will only be effective if local-level accountability and transparency mechanisms substantially improve. Decentralization has to be a step-by step process to improve government's ability to handle tasks while increasing transparency and accountability to local beneficiaries. Sequencing is crucial and decentralization has to be a process through which political, administrative and fiscal powers are gradually transferred to sub-national units in order to create accountability and authority. In this context, the recent establishment of a commission with representatives from the central and local governments (to develop a work plan and next steps) is an important step in the right direction. It must be stressed that there is no single right or wrong intergovernmental system: what is important is that the system needs to be tailored to the country’s need, and that it is important to realize that decisions on equalization between regions/localities are intensely political and will require careful and well thought-out tradeoffs.

Improving the investment climate for private business. The survey findings provide pointers to the improvements necessary to reduce public sector obstacles to private sector development. Anecdotal evidence suggests that de novo companies have been constrained by an unfriendly business environment arising from corruption, weak legal enforcement, and high transaction costs. While small businesses have a significant potential role in creating employment and raising the living standards of the population, they suffer the most from numerous licensing and other requirements of various state controlling bodies and are the least protected from the arbitrary treatment of government officials.

Examples of steps that could be taken over the medium term include: (i) coordinating the legal drafting activity of various ministries, agencies, and local authorities that affect the private sector, (ii) impartial and non-discretionary enforcement of laws and regulations, especially at the local level, (iii) raising entrepreneurs’ awareness of their rights, (iv) enabling better access to market information, including extending opportunities for small businesses to bid for involvement in public procurement contracts at central and local levels, (v) promoting government-entrepreneur interaction in policy development, and (vi) improvement of the legal and institutional arrangements which underpin longer term commitments, both between private parties and between the state and private sector investors.

Seeking and using citizens’ feedback. The survey discloses that households’ ratings of public services reflect a general dissatisfaction with access to and quality of public services. This reflects the institutional dysfunctions which inhibit performance improvements by service delivery entities, but also discloses the need for public officials to inculcate a service delivery

xxi


orientation from one of command and control. Responses from enterprises also indicate specific problem areas which require addressing in order for the private sector to flourish and generate employment. Regular feedback from the users of public services therefore becomes essential in any plan to improve institutional functioning. The push for decentralization adds a further dimension of urgency: in the longer run, decentralization in itself might create a higher level of accountability and awareness since it empowers citizens. If citizens become used to having a tangible impact on local services and on the level of waste and corruption at the local level, they will not stop there: they will speak up and try to have an impact on other services/waste or corruption at higher levels of government. Steps to institutionalize the obtaining and use of feedback should form an integral element of a plan to improve the delivery of public services.

The Government itself is on record that “the conduct of such surveys and the dissemination of their results will facilitate improvement of public sector performance and reduce the population’s distrust of the Government’s commitment to improving governance and service delivery.”5 This is encouraging: future surveys, and the publication of the results, will be keenly awaited by development partners and by civil society.

Building institutional capacity. The next phase of institutional reforms will have to factor in development of institutional capacity – in the executive branch and outside, and indeed outside of government itself. What is now urgently required is to develop the institutional capacity for the reform measures to be implemented across the central government, through training and professional development. The technical assistance/implementation support needs to address the agenda outlined above are immense, and will require careful planning and coordination. Additionally, the government’s recent change in stance on financing technical assistance for capacity-building (i.e. deciding to stop borrowing for technical assistance from 2002, and instead to rely on own sources and donor grant funding for such assistance) poses a further challenge to the attainment of the institutional reforms being sought by the government.

Reform of state procurement and of audit, for example, are areas with strong links to governance, transparency and effective financial management. Capacity for auditing, financial management, procurement and a treasury system has been created at the center, but has not yet trickled down to the regions. Implementation of a medium term expenditure framework may require substantial technical assistance. The new Law on Civil Service will require substantial capacity development at the central and local levels.

Continued public sector reform will be required to focus on, and improve, the efficiency and equity of public service provision, so that state revenues are used most effectively to promote better living standards for all citizens of Kazakhstan. Equally, donor coordination and involvement of donor partners and civil society in the development and monitoring of outcome indicators by which progress on institutional reforms can be assessed will be crucial in the coming years. A reformed public sector underpinned by strong and reinvigorated institutions can efficiently and equitably manage public resources, provide a level playing field for economic growth and help equitably distribute the gains from the growth.

It is heartening that policy makers seem to be aware of prevailing public distrust of government commitment to reform and of the power of surveys to inform public opinion. The sobering feedback from households and enterprises (Figure 34), however, etches in sharp relief the magnitude of the actions to be taken for the credibility gap to be bridged. At the same time, Kazakhstan’s track record on selected aspects of institutional reform despite opposition from entrenched interests, and the technical capacity and competence of its public administration, provide cause for hope.

xxii


The road ahead is long and arduous, and staying the course will require reserves of political sagacity, institutional capacity, technical competence and stamina that will be tested repeatedly. As Kazakhstan’s enlightened policy makers have found in the past, such challenges are easier to surmount if the state works hand in hand with civil society and development partners towards a common goal: to improve the quality of life through better access to and greater satisfaction with the provision of basic social services – especially for the poor, the vulnerable, and the disadvantaged. Kazakhstan’s development partners stand ready to extend all assistance in this worthy quest.

xxiii

Chapter 1. Introduction 1

1. INTRODUCTION

1. Governance plays a key role in ensuring economic development and improvements in the standard of living. Recognizing this, the Government of Kazakhstan requested a survey-based analytic report on governance and service delivery. The objective was to assist in enhancing state effectiveness and improving public sector performance, especially in respect of services for the poorest and most vulnerable.

2. As in many transition countries, macroeconomic stabilization and policy reforms – which dominated reformers’ attention in the first decade of transition – have for some time shared center stage in Kazakhstan with institutional reforms necessary for more effective, transparent and accountable state functioning, and for facilitating private sector development. This focus on the economic and social benefits of improving governance and service delivery comes at a time when the institutions and legal framework of a market-oriented economy are still evolving, and when significant weaknesses in governance and public sector accountability continue to impede the efficient allocation, management and utilization of public resources. Corruption and opacity directly impact access to basic services, raise the cost of doing business, and constrain private sector development. Continued attention to public sector institutional reforms is both apposite and timely.

THE ECONOMIC CONTEXT

3. Kazakhstan has been one of the fastest reformers in the Europe and Central Asia region. Major strides in privatization, price liberalization, and finance and banking system reform have been accompanied by reform of the pension, revenue and budget systems; civil service and public administration reform; streamlining of public procurement; and greater attention to community services. Kazakhstan’s existing legislation reasonably supports and attracts foreign direct investment, though mostly to the oil and mining sectors. Kazakhstan has developed a sustainable approach to external and internal borrowing, and built up a good credit history through Eurobond issues.

4. The economy is in the midst of a recovery, which started in mid-1999. Part of the recovery is due to sharp increases in the price and volume of Kazakhstan’s oil exports, but policy actions such as the devaluation of the Tenge in April 1999 were also instrumental. Government data showed GDP growth of 9.8 percent in 2000 and 13.2 per cent in 2001. The Government projects GDP growth of 7 percent in 2002. Inflation is in check, the exchange rate is stable, and the fiscal deficit is shrinking. The debt service ratio fell from 36 per cent in 2000 to 24 per cent in 2001.

5. The steadily increasing oil production from vast oil reserves in the Caspian, stable oil prices, and completion of the Caspian Pipeline Consortium (CPC) in September 2001, all contributed to large and growing oil export earnings. The recent discovery of large oil reserves in the Caspian area raises the possibility of a continued oil boom. In February 2001, a National (Oil) Fund was established to accumulate oil sector revenues for medium-term stabilization and asset accumulation for future generations. Favorable weather conditions during the last three years propelled growth in agriculture. Construction also picked up, mostly due to the development


program in Astana, the new capital. As a result, Kazakhstan, for the first time since independence, recorded an annualized economic growth rate of 9.8 per cent in 2000 and 13.2 per cent in 2001.

6. The pace of reforms, however, has slowed, endangering the gains from growth. Since the early nineties, the authorities have conducted with significant success a series of public sector institutional reforms (see next section). However, since about mid-2000, the economic reform momentum has slowed, including on key issues such as privatizing blue chip companies, deepening financial markets, ensuring agricultural property rights, and sustainable infrastructure development. On the public sector institutional reform front, too, there has been a perceptible slackening – in, for instance, easing licensing and registration controls over small and medium enterprises (SMEs), increasing the independence of judicial, legal and financial institutions, and enhancing the accountability of state agencies and public officials. The economy, although still growing, remains vulnerable since growth is not yet broad-based6. The still-fragile gains from – and indeed the very sustainability of – the reforms so far implemented are at some risk of dissipation.

7. The authorities, in public statements and in interaction with development partners, have indicated the main directions of institutional reform in the next phase. However, official views on this issue are still evolving. This report is intended to assist the process of establishing strategic priorities for public sector institutional reform, by taking account of the views and experiences of public officials, enterprises, and households in the monitoring of public sector performance. Before doing so, an overview of the key reforms undertaken, and the rationale for this set of surveys in the Kazakhstan-specific context, will help set the stage.

THE INSTITUTIONAL CONTEXT

8. It seems clear that continued economic growth should not be an excuse for slowing the reform momentum. A second phase of institutional reform – carefully designed, sequenced, financed and monitored – is necessary to protect the gains so far made, and to extend the benefits of growth to the poorer and more vulnerable sections of the population.

9. Confronting the challenges of the next phase of institutional reforms, however, is likely to be more difficult than the first, because (i) continuing economic growth may diminish the perceived need for continuing institutional reforms; (ii) the inflow of oil revenues may make it more difficult to inculcate fiscal discipline and transparency; and (iii) the ongoing political initiative to devolve political and administrative powers and responsibilities to elected akims at the lowest tier of administration (i.e. in the rural rayons) may focus attention initially on roles and responsibilities of elected and appointed officials, thereby distracting attention from the urgent need to develop institutional capacity and accountability at the local level.

10. Key institutional reforms undertaken include:

Realigning the role of the state by defunding unnecessary, obsolete or duplicated functions. A first phase of functional and structural reviews of budgetary entities covered about 800 republican budget-funded entities. Of these, 558 were converted into state enterprises, 12 into closed joint stock companies, 13 into open joint stock companies, and 4 were privatized or liquidated. A similar initial exercise was conducted for state entities funded from local budgets: about 2000 former state entities were corporatized in the initial stages.

Streamlining the central executive. Functional consolidation based on the above reviews resulted in a slimmer central executive: from more than 75 ministries, state committees

6 World Bank, 2001, Growth Study.


and other central bodies in 1997, the number was brought down to about 21 in 1999, and continues to run at about 25 thereafter.

Increased Budget Coverage. Several special resource funds are now channeled through the treasury system, which is very important for budgetary control.

Improving the Auditing System. Audit standards for internal auditors have been completed. A review of internal audit reports has been undertaken and an action plan on how to improve these reports has been prepared. An internal audit unit has been established in the treasury. A draft law on internal and external audit has been prepared. The Accounting Committee has applied to the International Organization of Supreme Audit Institutions (INTOSAI) to be designated the Supreme Audit Institution (SAI) for Kazakhstan.

Treasury Modernization. The Government’s Treasury Modernization project, supported by the World Bank, is now considered to be one of the most successful such projects in the former Soviet Union, and implementation of the final treasury system has progressed rapidly. The system has been used to implement key policy objectives, including: (a) introduction of a new budget classification system based on the IMF-GFS methodology, and a new chart of accounts and (b) centralizing republican budget payments and receipts through the treasury and using a treasury single account at the National Bank of Kazakhstan. The legal framework required for implementing these changes is also in place. The system is being used to monitor the state budget and produce timely fiscal reports. The new budget classification system has now been extended to the local governments. Budget organizations are now not allowed to enter into contracts without adequate budget allocations. A commitment system has been introduced from fiscal 2000.

Consolidation and territorial reorganization of oblasts and rayons has been accompanied by the move of the capital from Almaty to Astana.

Civil service reform. A new Civil Service Law came into effect from January 2000, and has resulted in: (i) separation of political and professional positions; (ii) the establishment of an independent civil service oversight agency (the Agency for Civil Service); (iii) introduction of competitive and relatively transparent recruitment to the civil service; (iv) revision of remuneration policy and levels; and (v) creation of a unified database for civil service personnel management. The oversight agency has been instrumental in drafting extensive implementing regulations which, though not yet perfect, nevertheless form the most comprehensive and modern legislative foundation for a professional civil service in the FSU. Several rounds of competitive recruitment have been initiated since mid-1999.

State Procurement. The public procurement law has been revised, and enabling regulations and standard bidding documents promulgated. The new procurement system: (i) enhances transparency and accountability; (ii) established and defined the functions of a central regulatory and oversight agency; and (iii) brought the procurement regime into substantial conformity with international practices and norms, with the World Trade Organization (WTO) agreement on government procurement, and with the policy and procedures of international financial institutions (IFI). Procurement is now taking place under the revised procedures and an oversight agency has been established.


SURVEYS AND PUBLIC SECTOR EFFECTIVENESS

11. A well-functioning state is critical for good governance and adequate delivery of quality public services. The 1997 World Development Report highlighted three mechanisms critical for promoting good governance:

(i) “voice” (i.e. consultation and feedback) and partnerships, for example service delivery surveys to solicit user feedback, and decentralization to empower communities;

(ii) internal rules and restraints, such as civil service and budgeting rules, internal accounting and financial controls, public procurement rules, and codes of ethics; and

(iii) competition, for example, competitive social service delivery, and privatization of certain market-driven activities.

12. Figure 9 indicates how these mechanisms interact with and reinforce each other in enhancing public sector effectiveness by providing signals, impulses and incentives for reform. It also demonstrates the two critical roles that surveys can play in this regard. On the one hand, surveys of the users of public services (i.e. households and enterprises) can strengthen competitive pressures, provide a basis for incorporating consultations and feedback in monitoring public sector performance, and enable state entities to take users’ views into account in improving their performance. Such surveys can highlight the nature of public sector obstacles to private sector development, especially those relating to small and medium enterprises, whose recovery and reinvigoration is critical for employment generation. On the other hand, surveys of public officials can be helpful in assessing how public sector rules and restraints (i.e. policies, laws, procedures and processes) actually work in practice. Survey results can also highlight pressing issues for the delivery of public services and help determine priorities for improvement.

Figure 9. Mechanisms to Enhance Public Sector Effectiveness

Rules and Restraints

• Judicial independence• Watchdog bodies• Budgeting rules• Public accounting rules

• Merit-based recruitment-promotion• Decen-

tralization• Surveys of users and public officials

• Competitive service delivery

• Community action• Public-privatedeliberation councils• NGO support

Competitive Pressures“Voice”

and PartnershipAdapted from World Bank, 2000, Reforming Public

Institutions and Strengthening Governance


13. This diagnostic assessment of governance and service delivery relies on three sets of surveys of key groups in Kazakhstan. Enterprise managers and the general population were surveyed about their interactions with state bodies; their responses provide external assessments of the quality of the services provided by various government bodies, and about their experiences with corruption, from the perspective of the users of these services. Public officials were also surveyed, providing insiders’ perspectives, as well as self-evaluations of the quality of their work. The public officials’ survey also highlights progress in implementation of reforms, such as competitive recruitment of civil servants, and provides information on the business culture of government offices. These surveys complement each other.

IMPROVING GOVERNANCE AND SERVICE DELIVERY: KEY MESSAGES

14. The surveys make it possible to identify links between poor performance and weaknesses in public administration. The rich tapestry of information provided by the survey respondents is not an end in itself, but a means to improve the delivery of basic public services by enhancing the transparency and accountability of state functioning. Certain overarching themes are apparent from the results:

Capitalize on successes. Significant progress has been made in instituting some difficult institutional reforms - in public expenditure management, public procurement, and in establishing a professional and merit-based civil service. Most publicly provided services are viewed as easily accessible. Bodies with the most open and thorough systems of providing information to the public were also those that were the most accessible (e.g. post office, mass media).

Weak governance is hurting the ability of the poor to access basic services; weaknesses in responsiveness and integrity of state entities need to be urgently addressed. Services crucial for households, such as education, social benefits, state housing assistance, and the police, are perceived to be of low quality and prone to corruption. Households generally provided lower assessments of quality and accessibility than did enterprise managers or public officials. There is wide variation in the quality of government services. Corruption is reported to be widespread: while the rich appear to bribe for speed of service, the poor need to bribe for access to public services.

The credibility gap between official and private perceptions of commitment to improve service delivery and combat corruption needs to be addressed. Most public officials expressed support for many of the key reforms that are proposed or already underway. Yet, the public’s perception is considerably pessimistic, with much of the population unconvinced of the state’s commitment to improve quality and reduce corruption. This may also explain why few respondents are willing to complain of poor treatment by public officials, and even fewer have filed official complaints against requests for bribes by public officials.

The reorientation of policy makers and civil servants from a top-down mentality to one focusing on service delivery must be continued. The results point to the importance of developing a client-focused culture of service in the public administration – bodies in which officials identified with the organizational mandate and viewed citizens and enterprises as clients were the ones that were most accessible and delivered the highest quality services. While a change in the attitude of policy makers and civil servants from one of command to one of service will inevitably take time, some first steps have been initiated. The survey indicates some future directions – such as the need to establish performance standards for organizations and individual civil servants, and benchmarks against which progress can be assessed.


Continued institutional reforms are essential to consolidate and protect past successes, and for further improving state and private sector functioning. The results highlight the importance of core civil service and public administration reforms allied to budget management reforms– bodies with lower levels of corruption tend to be those with the most transparent and merit-oriented personnel practices. The survey results underscore the correctness of the government strategy of continuing with public sector institutional reforms – aimed at improving the financing and delivery of public services, and reducing public sector obstacles to the development of the private sector. Such reforms will also promote transparency and accountability – and strengthen the involvement of civil society in the reform process.

Improving governance is not only about enforcement-oriented anticorruption initiatives – it involves preventive measures, public education and public awareness. Improving governance does involve tackling corruption associated with state structures. This will of necessity involve enforcement-oriented actions, including investigation and penalization of offenders. However, the policies and practices of state bodies and public officials require review from the preventive standpoint, to minimize the opportunities for corruption – such as by eliminating unnecessary inspections and over-regulation. Improving governance also involves strengthening transparency, accountability and efficiency, with active assistance and monitoring of civil society, and based on feedback from the users of services.

Institutionalizing such surveys, and disseminating the results, can be a powerful means to improve public sector performance and diminish cynicism about the authorities’ commitment to improve governance and service delivery. Periodic administration of such or similar surveys at the republican, oblast and rayon levels can be used for performance evaluation purposes, and to generate competition as part of the quest for improving performance. Additionally, frequent survey administration and public dissemination of the results can address the credibility issue, and raise awareness about the authorities’ commitment to improve governance and service delivery.

15. The tripartite challenge of increasing access to and quality of public services while reducing corruption will be difficult to meet – further reforms are likely to encounter resistance from interests that benefit from the status quo. But the importance of these reforms for Kazakhstan’s development and for the well-being of its population is compelling. A concerted effort to increase public officials’ accountability and client orientation will be required to restore public confidence, enhance state credibility on the service delivery front, and build momentum for reforms.

16. Chapter 2 outlines the performance of the public administration in Kazakhstan in terms of access to and quality of services and in terms of corruption. Chapter 3 describes some of the consequences of weak performance. Chapter 4 examines the organization of the public administration in Kazakhstan, reviewing the organization of human and financial resources, and the efficacy of enforcement as the hallmark of the anticorruption strategy. The concluding chapter suggests the way forward.

Chapter 2. The Performance Of The Public Administration 7

2. THE PERFORMANCE OF THE PUBLIC ADMINISTRATION IN KAZAKHSTAN

17. The state – through its policies and the public sector - plays an important role in achieving society’s objective of an equitable improvement in the standard of living. There are many modes by which the state delivers services to the population. Core services, such as defense and public order, are most often directly delivered by the state. The state may also wholly or partially finance the delivery of certain services, or it may actually provide such services itself. In some cases, the state may finance and regulate certain services, leaving actual delivery to private providers. In other cases, the state may only regulate service provision, leaving the financing and delivery to private providers. Some core state functions, such as the provision of public order and the administration of justice, also indirectly support private interactions, and facilitate an amenable business environment. The canvas in Kazakhstan – a work in progress – covers the entire spectrum outlined above. A public sector that performs well can more effectively work to reduce poverty and stimulate growth.

18. While the market mechanism usually imposes considerable discipline on private sector enterprises to perform well, the public sector is usually not subject to competition and faces less external pressure to perform or reform. Assessing performance is therefore a key challenge of public sector development, and can indicate key reform priorities.

19. This section of the report presents assessments of performance provided by the surveys. Three particular aspects of performance are examined: access to selected publicly provided services, the quality of delivery of such services, and the level of corruption within key public sector entities involved in policy-making, implementation or oversight in respect of these services. These three goals – access, quality, and low levels of corruption – will be used throughout the report to structure the discussion of the performance of public administration in Kazakhstan. Text Box 1 provides a description of how these three measures are related.7

20. The evaluations of performance presented here are based on both general perceptions and specific experiences related by survey respondents. Both types of assessments provide useful, and complementary, information. Perceptions, too easily dismissed by many, can and often do form the basis for decision-making. For example, when a firm is making decisions on where and

7 Some examples cited in the text box: (i) The correlation between perceptions of quality and corruption in Parliament is –0.43, compared to correlations of –0.01 for access and corruption, and 0.13 for access and quality. (ii) The correlation between perceptions of quality and access in water services is 0.65, compared to correlations of –0.11 for access and corruption, and -0.14 for corruption and quality. (iii) The correlation between perceptions of quality and corruption in education is –0.27, compared to correlations of –0.25 for access and corruption, and 0.26 for access and quality. See the notes for Figure 10, Figure 12, and Figure 16 in Annex 6.3 Order no. 713 of the President of the Republic of Kazakhstan of October 20, 2001.4 Report of the Prime Minister of the Republic of Kazakhstan on the Government Action Plan for 2002-2004, approved by the joint session of the Parliament of the Republic of Kazakhstan on February 25, 2002 (vide letter no. 15-4-1-7/3449 dated March 25, 2002 addressed to the World Bank from Mr. Kelimbetov, First Vice Minister of Finance, Ministry of Finance of the Republic of Kazakhstan).5 Letter no. 15-4-1-7/3449 dated March 25, 2002 addressed to the World Bank from Mr. Kelimbetov, First Vice Minister of Finance, Ministry of Finance of the Republic of Kazakhstan.


whether to invest, when a sick person is deciding whether to seek treatment, or when a party to a dispute decides whether or not to pursue the case in court or use alternate means of dispute resolution, these decisions are often made on the basis of their perceptions.

21. Although perceptions can form the basis of decision making, it is also important to understand and report on the real experiences of firms and households that actually use public services. The evaluations provided by these respondents constitute a “report card” of the actual performance of the public sector by those in the best position to make such evaluations. Such a

report card serves both the static purpose of spotlighting public sector bodies reported to have the best and worst performance, and the dynamic purpose of providing a benchmark against which to measure future improvements or deterioration. More importantly, by placing the ordinary person and firm in the role of evaluator, their importance as clients and users of services becomes explicit.

ACCESS

22. From the ordinary person to the managers of large enterprises, reliable access to public services can play a pivotal role in improving the living standards and ensuring growth of businesses. This report first examines the extent to which households and enterprises, as users and clients, have access to a service or the entities that provide them. Both sample groups were surveyed about accessibility of various services that they use, including some privately provided services for the sake of comparison. The results are presented in Figure 10.

23. Respondents were also asked to provide evaluations of not only entities which actually provide public services, but also of entities involved in policy-making and legislation, such as Parliament, the Government, and the Presidential Administration. For this latter category of entities, respondents were asked to assess how accessible the bodies would be if the respondent had a comment or question. (Tax inspectors, labor regulators, licensing bodies, and customs

Text Box 1. Access, Quality, and Corruption

The paradigm of public sector performance used in this report consists of three social goals of public sector service delivery: unhindered access to services, high quality of services, and a low level of corruption. Parsing performance in this way helps sharpen our understanding of the dimensions of performance in Kazakhstan. However, these three dimensions are very closely linked, each depending on the other. It could be argued that one measure of the quality of a service is access itself. For example, the provision of social benefits and income support can only be deemed successful if it is made available to those who need it the most. Similarly, corruption in the provision of a service may limit access for those who can not afford the unofficial payments. Quality and corruption are similarly linked: If a doctor only provides quality services to those who provide unofficial payments, the average level of quality will be lower in the most corrupt bodies.

The household surveys in Kazakhstan make clear that access, quality and corruption are clearly linked in the minds of the average person. For the broad levels of government (Parliament, Government, Presidential Administration, etc.), perceived quality is most closely associated with perceptions of the level of corruption in those bodies. By contrast, perceived quality of utilities (telephone, electricity, water, etc.) and transportation services is most closely associated with access. For social services, such as education and health, perceived quality is more evenly linked to both corruption and accessibility. Clearly, the three dimensions of public sector performance – access, quality, and low levels of corruption – each support each other; yet, policies geared for one but not the others will have limited success in improving performance.


authorities were included in the latter group since, as controlling authorities, they are not likely to be viewed as “service providers” by enterprise managers.)

24. Several conclusions are immediately apparent from Figure 10. From the enterprise perspective, the post office, utilities (such as electricity, water, and telephone service), and private and quasi-private services (such as notaries and banking) receive the highest marks for overall access. Indeed, most services provided to enterprises receive favorable marks for access. Even controlling authorities, such as tax inspectors, are reported to be easily accessible by half or more of the enterprises surveyed in case they have a question or comment. Even such key services as education and health were described as easily accessible by less than 40 percent of the respondents. By contrast, households tended to give less favorable assessments of accessibility—about 25 percent of households surveyed reported that the airline, social protection services and the courts were accessible to their families.



A. Enterprises

18%

20%

18%

25%

48%

57%

62%

62%

62%

77%

70%

65%

68%

73%

76%

83%

87%

89%

91%

91%

93%

94%


Parliament

Government

Ministries

Customs authorities


Tax authorities and inspectors

Oblast or Rayon-level elected officials

City administration

Labor regulators

National airline

Business information services

Procuracy

Courts

Police

Railway services

Banking services

Water

Electricity

Telephone

Notary services

Post Office

B. Households

3%

3%

3%

4%

5%

9%

14%

32%

25%

24%

26%

36%

33%

46%

39%

53%

49%

58%

52%

55%

59%

62%

68%

68%

69%

74%

76%


Government

Parliament

Ministries

Republican administration



Aul administration

National airline

Social protection benefits

Courts

State housing assistance

Health services

Railway services

Education services

Banking services

Property Valuation

Telephone

Police

Notary services

Water

Garbage collection, street cleaning



Electricity

Post Office

Mass-media

"service is easily

accessible"

"body is easily accessible if there are

comments, questions, or complaints"

25. At the other end of the scale, controlling authorities and broad institutions of state received relatively lower ratings from both enterprises and households. One in five firms said that they would have no difficulty providing comments or getting answers from Government, Parliament, or the Presidency. Lower levels of government are reported to be relatively more accessible. Responses from households are even starker. Although lower levels of the administration received better marks for accessibility than the higher levels, only a small percentage of respondents reported that they would have no difficulty providing comments or getting feedback


(33 percent for aul level administration and 9 percent for oblast level administration). For higher levels of administration the responses were more negative: fewer than one in twenty households reported that they would be able to provide feedback and obtain answers from higher levels of administration.

26. Access to frontline services, such as healthcare or electricity, may be limited due to physical or economic factors. For example, access to hospitals may be defined in terms of the distance to a hospital, and economic constraints on access may be imposed by the costs of treatment.8 The survey of households makes clear that both factors constrain access to many state services. Perceptions of access were significantly lower for poorer households for nearly every frontline service listed in Figure 10. In most cases this is because physical and economic limitations work in concert since services tend to be located in the populous areas. However, it is clear that the economic restraints exist even when the services are proximate. In healthcare the income effect is particularly strong.9 As discussed later in this report, official payments seem to remain high enough for poorer households to view healthcare as inaccessible.

Figure 11. Services the Poor Use and Do Not Use

Social Protection Benefits

6%

5%

2%


perc

ent i

ndic

atin

g so

cial

pro

tect

ion

bene

fits

as im

port

ant i

nter

actio

n w

ith

stat

e

Labor Exchange

11%

9%

6%


perc

ent i

ndic

atin

g vi

sit t

o la

bor

exch

ange

in s

earc

h of

job

as im

port

ant

inte

ract

ion

with

sta

te

Running Water

56% 58%

76%


perc

ent w

ith ru

nnin

g w

ater

University

4%5%

17%


perc

ent w

ith u

nive

rsity

stu

dent

Notes: The scales are different for each of the four charts. For other notes, please see the Annex.

27. The finding that households tend to perceive access to state services and bodies as being low begs the question whether such perceptions are rooted in actual experience. The surveys do not measure access directly, but they do make clear the types of services that tend to be used most often by richer and poorer households.10 Services such as running water, electricity, telephone lines, and university education were consistently accessed more often by wealthier households than by poorer households. By contrast, certain other services were more often accessed by poorer households: the poor were more likely to apply for unemployment or social benefits, and to visit a labor exchange in search of a job. Figure 11 shows the incidence of services among households of varying income levels.


QUALITY

28. The second dimension of performance examined for this report is the quality of the service provided by public sector entities. All three sample groups were asked about the quality of services provided by a large number of state, and a few non-state, entities; the specific services listed on the household and enterprise questionnaires corresponded to the kinds of services that households and enterprises are likely to use. For higher levels of public administration, respondents were asked to assess the quality of the work performed by those bodies. The results are presented in Figure 12.

29. Enterprises provided the highest assessments of quality to private or quasi-public services and bodies, such as banking services, notary services, post office and telephone service. At the other end of the scale, relatively few enterprise managers described the courts, police, or procuracy as providers of quality service. Similarly, controlling bodies such as customs received poor ratings for quality work. Only a fifth to a third of enterprise managers provided favorable ratings for broad institutions of state, such as Government and Parliament.

30. The quality assessments provided by households were generally lower than those provided by enterprise managers. Mass media, post office, and telephone services received the highest marks. Like enterprise managers, few households gave favorable quality ratings to the work of the courts or the police. Several services of particular importance to households received poor ratings: social protection benefits, state housing assistance, health and education were all toward the bottom end of the scale. The broad institutions of state generally received poor evaluations by households, with only 14 to 22 percent of respondents rating their work as good.

31. The assessments of quality provided by the public officials can be thought of as peer assessments – public officials evaluating each other and themselves. Public officials’ evaluations of the quality of services are not as favorable as one might have expected. Only a half dozen services received favorable ratings by more than half of the respondents. The responses largely mirrored those provided by households and enterprises: private and quasi-public services, such as banking and notary services, mass media and telephone services were most likely to receive favorable assessments, while state housing assistance, police, health and social services, the courts and education receive the least favorable ratings.

32. Although public officials’ perceptions of public services are similar to those reported by households and enterprises, there is a marked difference in their assessments of the broader institutions of state: Parliament, the Presidential Administration, and central and local executive bodies all receive more favorable ratings by public officials than by either of the other two sample groups. This dissonance may suggest a fundamental divergence in what constitutes “quality” governance in the eyes of officials on the one hand, and the users on the other hand. Reconciling this dissonance should be an underlying theme of future reforms in the public sector.



A. Enterprises

24%

32%

33%

35%

35%

38%

39%

40%

45%

47%

28%

30%

31%

48%

60%

62%

63%

66%

69%

71%

76%

79%

Customs authorities

Government

Parliament

Ministries



Labor regulators


City administration


Courts

Police

Procuracy


National airline

Railway services

Electricity

Water

Telephone

Post Office

Notary services

Banking services

"quality of work

undertaken by the body"

B. Households

14%

15%

16%

16%

16%

17%

19%

22%

15%

15%

15%

17%

19%

29%

36%

38%

38%

38%

45%

45%

47%

48%

50%

50%

52%

58%

65%




Aul administration

Parliament

Ministries

Government


Police

Courts



Health services

Education services

Property Valuation

National airline

Railway services



Water

Notary services

Banking services


Electricity

Telephone

Post Office

Mass-media

C. Public Officials

23%

30%

34%

34%

40%

43%

47%

50%

52%

56%

17%

20%

22%

24%

25%

32%

36%

40%

43%

46%

50%

50%

52%

54%

54%

61%

62%

71%

Customs authorities

Tax authorities



Accounting Chamber

Parliament


City Administration

Oblast or Rayon levelelected officials



Police

Health services

Social services

Courts

Education services


Property valuation

National airline

Railway services


Post Office

Water

Electricity

Telephone

Mass-media

Notary services

Banking services

"quality of service is 'good'"

"quality of work

undertaken by the body is 'good'"

33. Discussions of quality thus far have centered on the perceptions of respondents. The surveys, however, also provide assessments specifically by the enterprises and households that actually use those services. Both sample groups were asked about their actual experiences with a large number of public sector bodies and services (and a few privately provided services for comparison) and the results are presented in Figure 13.11 Most enterprises reported being satisfied with most of their experiences. The satisfaction ratings, provided only by enterprises that interacted with the body or service in the previous 12 months, are similar to the perceptions of quality in that private or quasi-public services receive the highest ratings: notaries, banking services, and private accounting and auditing services receive the highest ratings from enterprises. At the other end of the scale, less than half of the affected enterprises reported being satisfied with their experiences with customs, courts, police, traffic police, etc.12


Figure 13. Satisfaction with Government Services and Treatment -- Actual User Perspectives

A. Enterprises

34%

36%

38%

41%

41%

48%

51%

52%

53%

55%

56%

57%

58%

58%

60%

60%

61%

61%

62%

62%

65%

68%

70%

80%

84%

90%

Traffic police


Police

Courts

Custom authorities

Rayon or Aul level revision and inspectioncommissions

Border Guards

Tax Inspectors

Oblast level revision and inspectioncommissions




Central Architecture and PlanningCommission



National level revision and inspectioncommissions


Fire Inspectors


City administration


Telecommunications



Bank services

Notary offices

percent satisfied

B. Households

16%

17%

18%

24%

33%

33%

44%

46%

47%

48%

51%

53%

54%

55%

55%

56%

57%

57%

61%

62%

64%

72%

80%

Traffic Police

Social Benefits

Police (criminalinvestigations)

Job throughLabor

Exchange

UnemploymentBenefits

Job through theState

Courts

Power

Water

VehicleRegistration

ElementarySchool

Clinic

Gas

Passport

High School

EmergencyHealth Care

Driving Licence

Real Estate

Hospital

Telephone

University

Other HealthCare

VeterinaryServices

percent satisfied


34. Households were generally satisfied with most of the interactions they had with state bodies – veterinary services topped the list. They were least satisfied with the police and courts, and with their interactions regarding social benefits, unemployment benefits, and jobs through the labor exchange or directly through the state. Keeping in mind that the labor exchange and social benefits offices are bodies of particular importance to the poor, as is clear from Figure 11, the negative evaluations of experiences with these bodies suggest much scope for improvement in areas of direct importance to poor households.

35. Developing a culture of quality state services could be made easier with the introduction of a regular system of feedback from clients to providers. Text Box 2 describes how client surveys designed for private clients have been adapted for the users of government services.

CORRUPTION

36. The third aspect of public sector performance examined in this report is corruption. A convenient and widely cited definition of corruption is “abuse of public office for private gain” (see Text Boxes 1 and 3).

37. The questionnaires of households, enterprises, and public officials included questions about both perceptions of, and actual experiences with, corruption. As discussed earlier, an understanding of how widespread corruption is perceived to be is important for several reasons. First, perceptions form the basis on which decisions are often made. For example, when a firm decides where and whether to invest, it often does so based on its perceptions of the probable costs and benefits, regardless of whether those perceptions are correct or not. Similarly, when an individual decides whether or not to seek treatment for an ailment, it may be on the basis of the perceived quality and cost, both official and unofficial. Second, an approach focusing solely on experiences would certainly underestimate certain forms of corruption, including high-level corruption, details of which would not ordinarily be publicly available.

38. Annex 2 provides an analysis of what Kazakh citizens consider to be “corruption.” It is based on a series of hypothetical situations. Respondents from all three sample groups were asked to indicate whether the exchange described in the situation was “definitely corruption,” “in some ways corruption, in other ways not,” or “definitely not corruption.” The hypothetical situations and summary statistics are provided in Table 7. shows a simple assessment of the perception of corruption in Kazakhstan for all three sample groups. Most respondents reported their perception that corruption is a problem, and 33 to 43 percent said that corruption is “very widespread.” Moreover, many respondents seem to feel that corruption has achieved a state of normalcy in Kazakhstan. Among public officials, the least critical of the three sample groups, one third said

Text Box 2. Customer Satisfaction Surveys for the Public Sector in the United States

In the absence of competitive market pressures, how can a state provider of services evaluate the quality of their work? One approach, employed in the USA since 1999, is to simply survey the users of the services and publicize the results. The American Customer Satisfaction Index (ACSI) is an economic indicator of quality that has been used in the private sector since 1994, and has been adapted and used for the evaluation of the public sector in 1999 and 2000. The actual clients of 31 Federal agencies are surveyed about their experiences – the results provide valuable feedback for the managers of those agencies and a measure of competitive pressure as well, since no one wants poor ratings.

Source: American Customer Satisfaction Index, Federal Agencies Government-wide Customer Satisfaction Report for the General Services Administration, December 2000. University of Michigan Business School, American Society for Quality, and Arthur Andersen.


that “bribery is altogether a part of contemporary life”, while 18 percent said bribery is unnecessary.

39. What are the main sources of information from which respondents formed their perceptions of corruption? Respondents were asked to state the two most important sources of information about corruption. The source selected by most respondents was the mass media, with over 80 percent of respondents identifying it as an important source of information about corruption (see Figure 15). Relatives and friends, followed by personal experience, were next. It is instructive that 26 percent of households, and 43 percent of enterprise managers, said that “personal experience” is an important source of information about corruption. Nineteen and 33 percent, respectively, selected personal experience as their most important source of information. One in five public officials said that personal experience is an important source of information about corruption.

40. The overall perceptions of widespread corruption reported in Figure 14 mask the great diversity of assessments across state-provided services. Figure 16 indicates assessments of the degree of corruption in public services and the public administration from the perspective of each of the three sample groups.

41. Enterprise managers were likely to select customs, police, tax authorities and inspectors, and the courts as the most corrupt bodies. Public officials identified the police, customs, tax authorities, and courts as the most corrupt. Households have similar perceptions regarding the

Text Box 3. What is Corruption?

A convenient and widely cited definition of corruption is “abuse of public office for private gain”. This is a strong standard that could brand even small gifts to be corruption if perceived to be illegal. Indeed Kazakhstan’s Civil Service Code of Ethics forbids all but the most trivial gifts.

All three sample groups were presented with certain hypothetical situations and asked to assess whether the activity was (a) definitely corruption, (b) in some ways corruption and in other ways not, or (c) definitely not corruption. While few respondents described a box of chocolates given to a doctor after a visit as definitely corruption (5 to 8 percent), they were less tolerant if money was requested by hospital staff, with 58 to 74 percent of respondents saying this was definitely corruption. 60 percent of households said that a student giving a university professor a gift in order to influence his grade is definitely corruption, and 67 percent of households said that a driver’s offer to a give a traffic policeman cash, with no receipt, in lieu of a fine was “definitely corruption.”

The responses (analyzed in detail in Annex 2) help identify the types of transactions most likely to be viewed by respondents as corruption:

when the transaction is in cash, rather than in kind; when the payment is demanded or requested, rather than offered; and when it takes place before, rather than after, the provision of the service.

The survey responses indicate that, other things being equal, the population has least tolerance for the acceptance of gifts by judges, and most tolerance for the acceptance of gifts by doctors and nurses. This could be due to the customary and traditional practice of giving a gift to a doctor by a patient as a token of gratitude. Encouragingly, public officials were the most likely of the three sample groups to declare a transaction to be corrupt. Enterprise managers were significantly less likely than either households or public officials to say that a given exchange of gifts or money for favors was corrupt.

While understanding these subtleties in perception highlights the possible benefits of a public information campaign, it must be remembered that any exchange of unofficial gifts or money for favors or public services by public officials constitutes corruption and is illegal by the laws of Kazakhstan.

Source: Annex 2.


courts and police, but were much more likely to also point to broad institutions of state, such as the national and local administrations, ministries and Parliament, as institutions they perceive to be corrupt. Telephone services and the post office were identified by all three sample groups as among the least corrupt.

Figure 14. Perceptions of Widespread Corruption

43%

40%

33%

40%

47%

26%


Think that corruption is 'very widespread' in Kazakhstan

Think that bribery is part of everyday life

Percentage of respondents who:

42. Immediately apparent from Figure 16 is the fact that the households in Kazakhstan are much more likely than businessmen or public officials to view the broad institutions of state as corrupt. Although these perceptions may be based more on media reports than on personal experience, the disparity between the views of officials and those of the general public suggests that much of the population views the state with a degree of cynicism.13 Less than 6 percent of respondents stated their affirmative confidence that there was no corruption in broad institutions of state.


Figure 15. Sources of Information about Corruption

5%

6%

6%

13%

43%

51%

75%

1%

1%

4%

6%

26%

77%

83%

5%

10%

14%

15%

21%

50%

84%

Internet

NGOs

Police

Public officials withwhich they interact

Personal experience

Relatives and friends

Mass media (journals,TV, radio)

Public Officials

Households

Enterprises

Percentage of respondents who indicate each choice as either the

most important or second most important source of information

about corruption



A. Enterprises

3%

5%

7%

8%

9%

10%

11%

15%

30%

34%

1%

1%

3%

3%

3%

3%

4%

5%

9%

16%

20%

33%

Labor regulators


Ministries

Parliament


Government

City administration

State licensingbodies


Customs authorities

Post Office

Telephone


Notary services

Electricity

Water

National airline

Banking services

Railway services

Procuracy

Courts

Police

B. Households

11%

17%

19%

20%

21%

21%

21%

22%

3%

3%

3%

5%

5%

6%

7%

7%

7%

10%

12%

12%

12%

14%

16%

18%

18%

35%

43%

Aul administration



Parliament


Ministries


Government



Post Office

Telephone


National airline

Mass-media

Water

Property Valuation


Electricity

Banking services

Notary services

Railway services

Health services


Education services

Courts

Police

C. Public Officials

5%

7%

8%

9%

9%

10%

15%

18%

34%

39%

1%

2%

3%

4%

5%

6%

6%

7%

8%

9%

9%

9%

12%

14%

15%

15%

34%

43%

Accounting Chamber


Parliament

Oblast or Rayonlevel elected officials

City Administration




Tax authorities

Customs authorities

Post Office


Water

Telephone


Mass-media


Electricity

National airline

Health services

Notary services

Social services

Banking services

Property valuation

Railway services

Education services

Courts

Police

percent saying corruption is "widespread"

43. The discussion thus far highlights the perception that corruption is widespread, and indicates the diversity of perceptions about the degree of corruption in various public services and bodies. Figure 15 makes clear that some of these perceptions are likely fueled by media stories; the same figure shows that many respondents get their information from personal experiences as well. The discussion now turns to actual experiences with corruption, as reported in the survey.

44. Figure 17 provides summary measures of encounters with bribery from all three sample groups. Nearly one in three respondents to the household survey, and half of the enterprise managers surveyed, said they had made an unofficial payment to a state official in the previous twelve months. Public officials were not asked about acceptance of bribes – they would have no


incentive to admit to such a practice – but they were asked whether they had been offered gifts or money in the previous 12 months. Eighteen percent said they had.14


18%

52%

31%

Public Officials Households Enterprises

Percentage of respondents who encountered bribery during last 12 months*

*Note: For households this is the percentage that reported having made some unofficial payment. For enterprises this is the percentage who were made to feel that bribes were necessary by public officials. For public officials it is the percentage that reported having been offered large or small gifts or money.

45. Summary measures such as those in Figure 17, while useful for clarifying the overall reach of unofficial payments, tend to mask the diversity of actual experience across state bodies. Figure18 and Figure 19 summarize enterprise and household encounters with bribery with specific state-provided services and bodies. These charts show the percentage of respondents, from among those who had official contact with those officials, who actually encountered bribery.

46. Figure 18 presents three indicators of enterprise experiences with bribery with specific bodies and services. Enterprise managers were asked how many times their firm had visited each of 26 bodies and services, mostly state, and on how many of those occasions they paid a bribe or had it made known to them that they should pay a bribe. Each bar in Figure 18 presents an estimate, subject to statistical margin of error. Hence the rank orderings should be considered approximate.

47. The top bar shows the percentage of enterprises that said they encountered bribery on at least one occasion in the previous 12 months with the respective agency: 39 percent of firms that interacted with the traffic police said they had encountered bribery, 34 percent for customs, etc. It is notable that for every single one of the 28 bodies and services, at least one enterprise had paid a bribe or encountered a request for a bribe.

48. The second and third bars provide alternative indicators of firm experience with bribery. The second bar can be interpreted as the estimated likelihood that a firm needing a particular service would encounter bribery, while the third bar shows the percentage of all dealings with the state where bribery was encountered. (Annex 6 describes the calculation of these three bars in greater detail.) These three measures are highly correlated with each other15 and all point squarely to problems with controlling authorities such as the police, customs, fire, tax and sanitary inspectors,


and local revision and inspection commissions. It is notable that each was also high on the enterprise rankings for general perceptions of corruption, as depicted in Figure 16.

Figure 18. Enterprise Experiences with Bribery

0%

0%

3%

1%

1%

4%

2%

2%

2%

6%

4%

5%

7%

17%

4%

8%

17%

6%

10%

29%

16%

9%

19%

22%

18%

41%

0%

0%

4%

3%

2%

4%

4%

3%

5%

7%

6%

9%

10%

10%

8%

9%

14%

10%

14%

14%

12%

13%

20%

21%

26%

31%

0%

1%

5%

5%

6%

6%

6%

7%

8%

9%

10%

12%

13%

14%

14%

14%

16%

16%

19%

20%

21%

23%

26%

27%

34%

39%


Notary offices

National level revision and inspection commissions

Telecommunications

Bank services




City administration

Border Guards

Central Architecture and Planning Commission



Oblast level revision and inspection commissions




Courts


Rayon or Aul level revision and inspection commissions


Tax Inspectors

Fire Inspectors

Police

Custom authorities

Traffic police

percent of enterprises paying bribes

average percent of times bribe paid

percent ot total encounters with bribe

49. A closer examination of the alternative measures of corruption presented in Figure 18 provides insights into the modus operandi of unofficial payments. For some agencies (e.g., customs, tax inspectors, and the courts) the percent of encounters involving bribery is much lower than the percent of firms that encountered bribery. This may be interpreted in two ways. One interpretation is that firms that interact with these bodies less frequently are less likely to know the proper procedures and channels, and are therefore more likely to resort to bribery to smooth the process along than are better informed firms. A second, more worrisome, interpretation is that repeat players establish long-term arrangements or make use of facilitators who serve as


intermediaries for bribery. Such arrangements would be difficult for bodies such as the police, where interactions are likely to be random, so this explanation is consistent with the similarity between the first and third bars for the police. But for customs, tax inspectors, and the courts, the divergence between the first and third bars could be interpreted to suggest that such troublesome long-term clientelistic arrangements may be a source of concern.

50. Bribery for administrative matters is only one form of corruption. Other types of corruption may be equally or more worrisome. Indeed, the harm that corruption causes comes about not just as a result of the firms directly affected but through other means as well. Many enterprises reported being affected by a several forms of corruption and state capture. Over half of the surveyed enterprises, for example, reported being affected by the use of corruption by their competitors, and by the sale of decisions by courts deciding business disputes. Several other forms of corruption – in the appointment of public officials, judgments of criminal courts, presidential and parliamentary decrees – were reported to have an impact on over 40 percent of enterprises.

51. This finding, described in greater detail in Text Box 4, shows how special interests can influence the levers of legislative and executive power to frame policies to serve their own, rather than the public, interest. Such opaque influence, extant throughout the world, may be bought not only through the purchase of legislators’ votes or presidential decrees, but through non-transparent contributions to political parties and election campaigns as well. The damage to society may be even more severe than is the case for other forms of corruption, since perversions in the rules of business conduct can be codified into the formal institutions that regulate businesses.

52. While Figure 18 makes clear that businesses frequently encounter bribery, Figure 19 shows that many households are also affected. In the household survey, respondents were asked about their experiences with a wide range of services and public administration bodies. There is an important challenge in identifying corruption in such interactions, since gifts are often given merely as tokens of appreciation or for customary or traditional reasons. Distinguishing these from bribes is empirically difficult. Indeed, the difficulty one has in clearly identifying what is a “bribe” is illustrative for the difficulties that service providers and users will have in making the same determination.

53. It may be hypothesized that any unofficial payment that could be perceived as having a quid pro quo is unacceptable. With this in mind, the basic measure employed is whether an unofficial payment was made. The first bar in Figure 19 shows the percentage of households that provided some gift, money, or service to the service provider. This measure was supplemented with two additional (imperfect) indicators of whether the payment constituted an outright bribe or something more innocuous. First, payments that were offered completely unilaterally were not included in the second bar. Note that this may bias the estimates downward since bona fide bribes may indeed be completely voluntary.16 Second, respondents were asked to identify whether or not the payment was in some ways a “bribe.” The third bar in the figure excludes unofficial payments that the respondent declares are definitely not bribes. Again, this may bias estimates downward since a respondent may not describe a payment as a bribe, but still feel it is necessary to receive proper service, which is the usual definition of a bribe.17


Figure 19. Household Experiences with Bribery

3%

3%

1%

4%

5%

5%

8%

5%

7%

10%

10%

13%

13%

5%

12%

16%

25%

14%

19%

30%

25%

12%

16%

3%

3%

3%

4%

5%

6%

4%

6%

9%

10%

11%

13%

13%

7%

11%

11%

25%

15%

19%

0%

26%

33%

32%

3%

3%

3%

6%

7%

7%

8%

9%

12%

12%

12%

13%

13%

13%

15%

16%

25%

26%

29%

30%

32%

38%

51%

Emergency Health Care

Job through the State

Telephone

Job through Labor Exchange

Police (criminal investigations)

Passport

Other Health Care

Clinic

Unemployment Benefits

Real Estate

Water

Social Benefits

Power

Veterinary Services

Driving Licence

Courts

Gas

Hospital

Vehicle Registration

Traffic Police

University

High School

Elementary School

made unofficial payment

made a non-voluntary unofficial payment

made a payment that was in some ways a bribe


54. The state bodies to which unofficial payments appear to have been made most often – as evidenced by the survey findings - were educational institutions. It is clear, however, that at lower levels of education most of these gifts are not viewed by the respondents as “bribes” – payments at the university level were much more likely to be considered bribes. Households also reported unofficial payments to be common in dealings with the traffic police, vehicle registrations, for hospital stays, and when dealing with gas installation and repair.

Text Box 4. Unbundling Corruption

Corruption has been earlier defined as the abuse of public office for private gain. To better understand this phenomenon, corruption can be unbundled into state capture and administrative corruption:

State capture refers to the actions of individuals, groups or firms in both public and private sectors to influence the formulation of laws, regulations, decrees and other governmental policies to their own advantage as a result of the illicit and non-transparent provision of private benefits to public officials. State capture relies on the distortion of the basic legal and regulatory framework of the state to facilitate the extraction of rents from the state for the benefit of a narrow group of actors. It tends to thrive where economic power is highly concentrated, countervailing social interests are weak, and formal channels of political influence and intermediation of interests are underdeveloped. Although a serious problem in transition economies, state capture is also endemic in most societies.

Administrative corruption refers to the intentional imposition of distortions in the prescribed implementation of existing policies, laws, rules, regulations and procedures to provide advantages to either state or non-state actors as a result of the illicit and non-transparent provision of private gains to public officials. Classic examples include extortionary unofficial payments demanded by inspectors and regulators as a price for favorable interpretation of regulations or for turning a blind eye to infractions, and ‘speed money’ for processing licenses and permits. Excessive state regulation and unfettered discretion of public officials lie at the heart of administrative corruption.

Both forms of corruption can cut across different levels of government, and can be initiated by state officials, entrepreneurs or other non-state actors. The difference lies in the nature of the political relationship underlying each form of corruption: in the case of state capture, a small group of private interests can prejudice the framing of the very rules of the game to their own advantage and so constrain the actions of other actors in the economy; in the case of administrative corruption, individual actors obtain individualized exceptions to, or favorable interpretations of, the rules.

The transition countries of Central and Eastern Europe and the Former Soviet Union have faced persistent difficulties with both state capture and administrative corruption. Estimates of the levels of both forms of corruption across countries have relied on a cross-country survey carried out in 1999, known as the Business Environment and Enterprise Performance Survey (BEEPS). This survey of over 3,000 enterprises in 22 former communist countries asked managers to what degree they are affected by other firms’ use of corruption to influence laws, rules, and regulations (state capture), and the impact that unofficial payments have on their firm’s revenues.

The 147 firms in Kazakhstan that provided interviews for the 1999 BEEPS reported relatively high levels of administrative corruption and moderate levels of state capture. However, the 2001 survey of 400 enterprises tells a very different story on state capture. Over 40 percent of firms said they are significantly affected by various forms of state capture. The combination of high levels of both state capture and administration corruption poses particular challenges for reformers.

Sources: World Bank, 2000, Anticorruption in Transition—A Contribution to the Policy Debate; and Joel Hellman, Geraint Jones, and Daniel Kaufmann, 2000, Seize the State, Seize the Day: State Capture, Corruption and Influence in Transition Economies, World Bank Policy Research Working Paper 2444. The BEEPS was a joint initiative of the World Bank and the European Bank for Reconstruction and Development.


55. The survey findings indicate that those public services examined in this report – and the entities that provide, finance or oversee them – elicit responses on issues of access, quality and corruption that are common across all three groups of respondents. The data also indicate that it is possible to interpret the survey results from another perspective, namely about the nature of the impediments to improving governance – and its flip side, the nature of the phenomenon of corruption - in Kazakhstan (see Text Box 3).

56. Both state capture and administrative corruption are prevalent in Kazakhstan, as evidenced from the survey findings. Figure 15 showed that 51 percent of enterprises, and 31 percent of households, encountered bribery in the last 12 months. Figure 15 also shows that enterprises have to contend with both state capture (exemplified by political contributions, sale of legislative votes, and sale of administrative decrees) as well as administrative corruption (exemplified by bribery of public officials, nepotism, and sale of judicial decisions).

PERFORMANCE OF SELECTED SECTORS

Health

57. Effectively delivery of health services has come to be recognized as an essential condition for economic development, and research has found that that good health has a very strong effect on economic growth.18 An equitable distribution of health services is clearly key for poverty reduction. Getting incentives in the financing of health care to ensure that high quality affordable care is widely available is an issue the world over. In Kazakhstan, an attempt at compulsory medical insurance undertaken in 1996. The system introduced the concept of medical insurance and separated financing from service provision functions of health care. However, inefficiencies from the previous system remained, including perverse incentives, and compulsory health insurance system was abandoned in 1998.19 The system that emerged in it place maintained some positive features, but has still not effectively dealt with the revenue collection problems of its predecessor. The health care system in Kazakhstan became effectively decentralized in 2000.

58. The Kazakhstan data confirm that the health sector touches a large proportion of the population. Over half of the households surveyed had a member visit a polyclinic, physician, or hospital in the 12 months before the survey. The overall perceptions of the sector demonstrate room for improvement: only 33 percent of households said that health services were easily accessible, and 19 percent said that the quality of health services was good. Public officials gave lower evaluations relative to other state services and bodies, placing health care (together with customs, the police, and state housing assistance) among the lowest in terms of quality. It must be stressed, though, that are two separate issues here: (i) problems in health care financing which may have different root causes, such as insufficient state revenues, unequal distribution of such revenues, problems specific to health care financing, etc. (these reasons may be common to Kazakhstan and other countries), and (ii) weak governance and corruption – with characteristics and causes specific to Kazakhstan.

59. Despite the low ratings for quality and accessibility, it must be noted that in many countries health sector performance is viewed even more negatively. This is particularly true when it comes to corruption.20 In Kazakhstan, a long list of bodies was reported to be more corrupt by both households and public officials. Although one in four visits to the hospital involved an unofficial payment, as did one in eleven visits to a clinic, these percentages are not high relative to health sectors in other countries.21 One reason, perhaps, is that Kazakhstan’s system of health care financing that emerged in the wake of the abandoned compulsory insurance system includes official payments that are relatively clear, transparent, and approved by the Antimonopoly Committee. Other countries, which have universal “free” health care but under-funded health


systems, compel unofficial payments to play a relatively larger role (see Text Box 5 for an example).

60. Although the system of relatively transparent official payments may be limiting the spread of corruption, such payments can have a deleterious impact on access to health care for the poor: 30 percent of household respondents said that in the previous 12 months they had been sick to the point of needing medical attention, but did not go to see a physician. When asked the main reason, some cited lack of access (14 percent) and high unofficial fees (9 percent), but by far the most important reason cited was the high “official” cost of treatment (65 percent). The financing

system that has developed, relying heavily on these quasi-official charges, may have benefits in terms of transparency and financing compared to systems in other countries, but the high official fees have an important deterrent effect or households, especially the poorest.

Education

Text Box 5. Health Care: Unofficial Payments in Eastern Europe and Central Asia

Throughout the former communist world, unofficial payments in the health sector have emerged as a fundamental aspect of health care financing and a serious impediment to reform. Such payments for health care are too often viewed as acceptable systems of funding an under-funded sector. Yet unofficial payments to public employees in any sector are unacceptable. Rather than perpetuating a regime of unofficial payments, it is better to improve management and address the fundamental imbalances in the funding of health care:The inherited public health systems are bloated and inefficient. Strategies for downsizing may include voluntary severance packages and the introduction of standards for modern medical practices.Comprehensive, free services cannot persist in a budget constrained environment. Limiting the range of free services, and introducing user fees can add to the realism of the health care system.Health care systems require basic oversight and accountability for all providers and swift punishment for violations.Private alternatives need to be allowed (with appropriate regulation) and promoted for those who chose to use them.

A recent study in Armenia illustrates how unofficial payments can become the norm in an underfunded health care system charged with the mandate of universal free access. In the example detailed below, childbirth is supposed to be free of charge, but ultimately costs the equivalent of about $200, or four monthly salaries.

Childbirth in a women’s hospital. All such hospitals are supposed to be free of charge.Unofficial payments for delivery:

To the doctor on duty =$50To an acquaintance of the doctor =$50To the midwife =$20To a hospital orderly =$10

Unofficial payments for the 15-day stay in hospital:To the nurse - 1,000 dram per day =15,000 dram.To the nurse looking after the child - 1,000 dram per day =15,000 dram. To the non-medical assistant – 500 dram per day =7,500 dram.

Total: $130 + 37,500dram (= $200, or 107,000 dram)

Abstracted from Maureen Lewis, Who is Paying for Health Care in Eastern Europe and Central Asia, World Bank, 2000, Washington, DC; and Armenia Institutional and Governance Review, Report No. 20269, World Bank, 2000.


61. Like health care, education is associated with economic development and poverty reduction. 22

Enrollment rates, however, have fallen dramatically, with adverse consequences for accessibility.23 Two recognized challenges of the financing of the education sector in Kazakhstan are to address the increasing inequities in access to education and the deterioration in quality of education.24 The survey of households confirms the importance of addressing these challenges.

62. In terms of both perceptions and actual experiences, the education sector in Kazakhstan performs poorly. Thirty-nine percent of households reported that educational services were easily accessible, and 25 percent evaluated the quality of educational services as good. Education services are perceived to be relatively corrupt, with 18 percent of households saying corruption was very widespread. Excluding the evaluations of the broader institutions of state, only the courts and the police were perceived to be more corrupt.

63. Households that actually have students enrolled in a state educational institution gave more favorable assessments of satisfaction than suggested by the perceptions of quality among the population as a whole. More than half of those with students in elementary or high school reported being satisfied with the experiences, and nearly two thirds of those with university students were satisfied.

64. However, informal payments are prevalent at each level, and they are paid at higher rates for elementary and secondary schools than for many other state bodies. Despite the constitutional guarantee of free education, many households are providing unofficial financial support either to individual teachers or for the budgets of the institutions. At elementary and secondary schools, 75 and 90 percent of unofficial payments were for general budgetary support for the institutions. When asked why people give gifts and unofficial money to schools (excluding universities), the top two answers were to get a place for the children in school (26 percent), and to get the teacher to give more

22 Kevin Watkins, Breaking the Cycle of Poverty, Oxfam, 1999.23 One study argues that any expected efficiency gains from decentralization have been more than outweighed by reduced financing for education and that the net effects have had an adverse effect on equity of access.” Jeni Klugman, “Financing and Governance of Education in Central Asia,” MOCT-MOST 9, 1999:423.24 World Bank, 2000, Kazakhstan—Public Expenditure Review, p. 142.18 David E. Bloom, David Canning, and Jaypee Sevilla, “The Effect Of Health On Economic Growth: Theory And Evidence,” NBER Working Paper 8587, November 2001. They find that a year’s increase in the population’s life expectancy increases output by 4 percent.19 World Bank, 2000, Kazakhstan – Public Expenditure Review, pp. 121-122. See also World Health Organization, 1999, Highlights on Health in Kazakhstan, and Yevgeniya Pugach, “Health Care System of Kazakhstan in Hands of Private Health Insurance Companies,” Almaty Herald 228, July 6-13, 2000.20 In Slovakia, for example, Hospitals topped the list of bodies that receive unofficial payments (equivalent to Figure 19 of this report) and healthcare topped the list of bodies perceived to be the most corrupt (equivalent to Figure 16). World Bank, 2000, Corruption in Slovakia – Results of Diagnostic Surveys.21 In Slovakia, more than half of the visits to households reported in the survey included unofficial payments. World Bank, 2000, Corruption in Slovakia – Results of Diagnostic Surveys.14 There is no reason to expect the three bars of Figure 5 to be similar. It is conceivable, for example, that many enterprises are paying bribes to a relative small number of officials. In such a case, the percentage of enterprises paying bribes could be large while the percentage of public officials receiving bribes is low.15 The correlation coefficients between the statistics in the three bars are between 0.86 and 0.98.

Text Box 6. Corruption in Education

Corruption in education has emerged as important challenge in the post-communist world. At the recent International Anticorruption Conference in Prague, one university student from Kazakhstan described the situation: “It is a very big factor in Kazakhstan – we had that discussion yesterday. Basically, you can buy a diploma. It’s not a secret. It can cost much, but it’s not a secret. You can buy tests for entrance exams and it normally costs about the same as enrolling on a commercial basis at university. Before it was more about connections, and now it’s more that people who have money can buy it. Under the Soviet Union, not that many people had money and could buy it. Now, more and more people who are in banking and in the oil business, for instance, in


attention to the children (26 percent).25 Even though many unofficial payments are not directly considered to be “bribes”, the perception of relatively widespread corruption in the education sector suggests that this system of informally supporting teachers and educational institutions is not viewed in a positive light by much of the population.

65. For university education, most of the informal payments were recognized directly to be “bribes.” The only state sector or body to whom households paid bribes more often was the traffic police. One out of four households with a student in university said they had made an unofficial payment that was in some ways a “bribe.” In contrast to the case of lower levels of education, 74 percent of the unofficial payments went to a specific person rather than for general budgetary support. When asked why people provide unofficial payments at universities, 69 percent said the main reason is to get the students admitted, and 10 percent said it was to get better grades for the student. (A further 25 percent said that a secondary reason was to get better grade.) Bribes are believed to be paid most frequently for admission to universities of law, and economics. Bribes are apparently paid not just for admission, but even for diplomas, as described in Text Box 8.

Courts

66. The administration of justice has been a core state function throughout history, and access to justice is now viewed the world over as a fundamental human right. The establishment of courts and legal definitions of rights are crucial steps toward ensuring such rights. Effective administration of justice requires equality of access to the law and to a well-functioning, independent and impartial judicial system.

67. Twenty-six percent of household respondents said that the courts were easily accessible. 6 percent of households had interacted with the courts in the 12 months preceding the survey. Enterprise managers were more positive in their assessments of accessibility – nearly three in four said courts were easily accessible – but they rated the quality of the work performed by the courts dismally, with less than one in four saying the courts provide quality service. Only customs received a lower rating. Public officials similarly placed the courts among the worst state bodies in terms of quality, with only one in five evaluating the quality as good.

68. The survey findings show that courts are widely perceived to be corrupt. 35 percent of household respondents and 20 percent of enterprise managers said that corruption in the courts is very widespread. Public officials also ranked the courts among the most corrupt of state bodies, with one in three officials saying corruption is very widespread.

69. Sixty-one respondents to the household survey had interacted with the courts. Roughly two thirds were involved in civil cases (divorce, family disputes, property disputes, etc.), and the other third in criminal cases. Similarly, about two thirds said they were the plaintiffs or complainants (the party bringing the case), and the other third were defendants or accused.26 Roughly half had won their cases. Although the sample of households that interacted with the courts is relatively small, the responses they provided are illuminating.

70. Of the 61 households that had been to court, 8 percent said they had provided a gift to court personnel during the trial, 7 percent had provided money, and 2 percent had provided both.27 The value of the gifts and money ranged from 2,000 to 20,000 Tenge (i.e. about US$15-150 at current exchange rates). The respondents themselves said all of these were in some ways bribes 28, and nine out of ten were paid before or during the proceedings.

71. The unofficial payments during judicial proceedings were reportedly mostly paid to attorneys: in this respect they simply resemble attorneys’ fees. However, in two of the ten cases,


the payments were reportedly made directly to the judge, and in another it was made to the attorney, who reportedly passed it on to a judge. In all three of these cases the payment was apparently made before or during the proceedings, and all respondents thought that such payment was necessary to obtain ‘proper treatment’. All were plaintiffs in civil suits.

72. Enterprise managers also provided detail on their interactions with the courts. Enterprises were much more likely to have interacted with the courts in the 12 months prior to the survey: thirty-seven percent of enterprises had been to court as either plaintiff or defendant. 54 percent of these enterprises said they found the process to be fair and objective, while 56 percent stated that the process was not corrupt. 37 percent said it was fast and without unnecessary delays.

73. Sixteen percent of enterprises that had come in contact with the courts said they had encountered bribery. The bribe sizes ranged from 300 Tenge to over 700,000 (i.e. about US$2-3000). The average of 118,000 Tenge is by far the largest of all of the average bribe sizes reported by enterprises, and the median of 10,000 Tenge is among the highest.

74. Corruption in the courts can be associated with both inefficiency and with biased outcomes. When courts are inefficient and there is a long backlog of cases, bribes may be encouraged to speed the disposal of pending cases, to get one’s case decided before others, etc. Bribery to affect the outcomes of cases, however, is arguably the more damaging form of corruption in the courts, since it tilts the scales of justice and casts doubt on the integrity of the court’s decisions. In Kazakhstan, more than half of the unofficial payments in the courts were made to ensure that a certain person was assigned to the case or to influence the court decision.

75. Some people do not appeal to the courts to settle their disputes even when they apparently have reason to. According to household respondents, corruption per se is not the most important reason that people do not use the courts. Respondents were more likely to cite the high official trial and attorney’s fees or the lack of availability of legal assistance. However, 27 percent said that the necessity to give bribes was one of the two main reasons that people do not avail themselves of the courts.

Police

76. The survey of households makes clear that many households have direct interactions with the police. Ten percent of respondents to the household survey said that a member of the household had been a victim of a property-related crime such as fraud or theft, and two percent said someone in the household had been a victim of violent crime. Roughly half of these crimes were reported to the police for investigation. 20 percent of the respondents to the survey said that they drive a car; of those, 37 percent said they had been stopped by the traffic police in the previous month, most of them multiple times. The police regularly interact directly with a significant portion of the population.

77. Roughly half of the households surveyed said that the police were easily accessible if their family had a problem, but only 12 percent, among the lowest of the state bodies and services evaluated, said the police provide quality services. The police are generally perceived to be the most corrupt state body, with 43 percent of household respondents saying corruption was very widespread among the police. Enterprise reactions were similar to those of households. Three out of four enterprise managers reported that the police were easily accessible, but in a pattern similar to that of the courts, only one in four gave a positive evaluation of the quality of service provided by the police. Corruption is perceived to be relatively widespread in the police, with one in three enterprises reporting it to be “very widespread.” The public officials surveyed were equally


critical of the police: 19 percent said they offered quality service and 43 percent (the lowest of the services and bodies rated by public officials) said corruption was very widespread in the police.

78. In terms of actual experiences, both households and enterprises placed the traffic police among the state bodies most likely to extract bribes. 30 percent of households and 39 percent of enterprises that came into contact with the traffic police reported that they encountered bribery. The median bribe size was relatively small: 1,000 Tenge. According to one third of the respondents who paid a bribe, the traffic policeman simply made up a violation so he could extract a bribe. The other two thirds admitted that they had committed a violation and that it was simply easier and cheaper to pay a bribe. Although the traffic policeman and the driver may find such an arrangement mutually advantageous, the costs to society are clear: the “fines” flow into private pockets rather than to the state, where they could be put to more efficient use.

79. Both enterprise managers and households rated their experiences with the traffic police at the bottom of all of their interactions with state services and bodies. The approach that the traffic

police take in dealing with citizens certainly accounts for much of this dissatisfaction. 23 percent of drivers who had been stopped by the police reported that the police did not even explain the reason for stopping them – these drivers were twice as likely to say they were very dissatisfied with the police than those that were properly informed.

80. The ordinary police force did not fare much better in terms of the satisfaction ratings of the enterprises and households that had to deal with them. 38 percent of enterprises that dealt with the police were satisfied with the experience. Among households that had been victims of crimes, nearly 80 percent said they were dissatisfied with the investigation. Even among the subset for which the investigations were successful, 39 percent said they were not satisfied.

81. The percentage of crime victims who provided some gift or money, 3.3 percent each, was low relative to some of the other services and bodies. However, this is not a satisfactory indicator of overall corruption since it only includes bribes paid by crime victims. Bribes paid by the criminals themselves are not captured, not are other forms of corrupt behavior.

Text Box 7. A Minister’s Experience With Corruption

Dozens of corrupt traffic police and customs officials across the ex-Soviet republic of Kazakhstan demanded bribes from the wrong man - their boss. In 2000, Interior minister Kairbek Suleymenov traveled incognito by truck across the Kazakh steppes to find out for himself the level of corruption which motorists have to deal with.

"In (the main commercial city) Almaty I got into the truck without telling anybody so that none of my regional chiefs would know me and we set off," Suleymenov told a news conference in the Kazakh capital Astana on Wednesday. The truck's driver, who was transporting nine tons of melons, had to pay bribes to 36 different officials en route, more than half of them to the traffic police, he said. Suleymenov, who filmed the bribe-taking on a video camera, said each official would take a few dollars and that the final cost of the journey to the driver totaled USD 225.

After reaching Astana, Suleymenov dismissed all the officials found to have taken bribes during his journey. However, he could not bring criminal proceedings against them because under Kazakh law a formal complaint has to be made on the spot in such cases and he had not wanted to reveal his identity, fearing the officials would alert comrades further on. Suleymenov said that in future cases the district chiefs of the traffic police would themselves lose their jobs.

Source: Reuters Press report, Almaty, September 21, 2000.


82. Although the experiences of victims in dealing with the police investigations are informative, the responses provided by households that were victims of crimes but did not even report the crimes to the police are also telling. Nearly half of the victims of crimes said they did not report to the police. When asked why, the most common reasons cited were that they thought it would be worthless (43 percent), that complaining would cause them problems (20 percent), and that they did not trust the police (16 percent). Especially worrying is that victims of violent crime were three times as likely than victims of property crime to cite lack of trust as the reason they did not report the crime to police.

Enterprise Registration

83. The potential benefits of private sector development are many: an enabling environment where entrepreneurial dynamism is unleashed, leading in turn to employment growth, income generation, enhanced availability of goods and services, to name a few. But the ability of society to reap these benefits can be curtailed when the business environment chokes off the entrepreneurial energies of the business community through excessive inspections, weak appeals processes, and cumbersome licensing and registration procedures. Indeed, an onerous registration process can short-circuit a company’s development before it even begins.

84. The survey of enterprise asked firms to evaluate their registration process, and the results are presented in Figure 20. Overall, 34 percent of firms described the process as complicated and 19 percent of firms said that it was necessary to pay a bribe. One in five firms also said that it was necessary to use an intermediary, such as a law firm, in order to officially register. Of those that did use intermediaries, the average cost was over 20,000 Tenge.

85. The trend over the last 5-6 years seems to be that the level of complexity is declining, while the need to pay bribes is holding steady or even increasing. This result shows that although making registration less cumbersome is certainly key for reducing corruption, it is not sufficient – building mechanisms of accountability must also play an important role. Standardizing the processes and forms required for registration of different forms of business activity could also go a long way in reducing expense – and corruption.

Figure 20. Bribery and Complexity in Enterprise Registrations

13%

8%

18%

24%

21%19%

25% 26%

38%

23%

36%

39%

34% 34%

31%30%

to 1993 1994 1995 1996 1997 1998 1999 2000

year of registration

percent of firms that needed to pay bribe

percent of firms saying the process was complicated


86. To operate legally as a business enterprise in Kazakhstan, a firm must register with a number of entities, and the experience with bribery varies across these bodies. Figure 21 shows the percentage of firms that reported bribery when dealing with various bodies during the registrations process. The State Committee on Licenses and Standards tops the list, with one out of seven firms that registered in the past two years saying it was necessary to pay a bribe, along with the Tax Administration and sector-specific permissions such as fire and sanitation. The Social Fund and the National Committee on Statistics were the least likely to require bribes.

Figure 21. Encounters with Bribery during Registration

1%

2%

6%

13%

9%

10%

1%

3%

7%

10%

12%

14%

Social Fund

National Committee onStatistics

Ministry of Justice

Permissions from fire,sanitation and other such

bodies

Tax Administration

State Committee onLicenses and Standards

firms that registered since 1999

all firms

percent of firms encountering bribery during registration with body

87. A FIAS study on the cumulative costs of delays to foreign investors in the country has been recently completed. Commissioned by the Foreign Investors Council, chaired by the President of the Republic, the study: (a) assesses the main causes of delays and other transactions costs involved in implementing investment projects in the country, and (b) provides indicative estimates of the private and public sector costs resulting from these costs based on an in-depth evaluation of a subset of investment projects.

International Trade – Customs, Border Crossing, and Trade Licenses

88. The gains from trade are well known. Expanded markets allows greater specialization and economies of scale; firms benefit with the ability to export and to import raw materials, and consumers benefit from the lower prices brought about by the competitive pressures of imports. A development-oriented state recognizes the gains from trade and designs its policies and administrative procedures to try to reap them. But realizing the gains from trade requires more than just low tariffs and quotas. It means setting up transparent procedures that allow legal imports and exports to proceed unhindered (see Text Box 5).

Text Box 8. Regional Cooperation for Reducing Corruption in Customs in Southeast Europe

A project on Trade and Transport Facilitation in Southeast Europe (TTFSE), a regional project of several countries in Southeast Eurport, has as its key objective reducing non-tariff costs of transport and reducing corruption at borders. The project combines modernization of customs administration with institutional reform and aims to bring


transparency to border crossing procedures. Key aspects of the project are the focus on performance monitoring through user surveys and the use of an inclusive approach, involving customs and other border agencies and key stakeholders, as well as firms and business associations in consultations.

Source: World Bank, 2000, press release “World Bank supports more efficient trade flows in Southeast Europe.” The TTFSE is a collaborative effort of the Governments, the World Bank, the European Union, and the United States.

89. In Kazakhstan, the customs authorities receive poor ratings by enterprise, across the board. Customs receives the lowest assessment of quality by enterprises; only one firm in five said that the quality of work is good. Public officials provided similar responses. In their actual experiences with customs, the level of satisfaction by firms was among the lowest, with 41 percent of firms saying they were satisfied with their dealings with customs.

90. Excluding the broad institutions of state, customs received the lowest overall rating for accessibility; less than half the firms said that Customs is accessible in the event the firm had comments, questions, or complaints.

91. In terms of corruption, customs is at or near the top both in terms of enterprise perceptions of corruption and in terms of actual experiences. One out of three enterprises that had dealt with customs in the 12 months before the survey said they had encountered bribery.

92. The enterprise survey also collected information on dealings with import and export licenses. Thirteen percent of firms had tried to get an import or export license in the two years before the survey. Slightly more than half of these firms said that received all of the licenses they had applied for, a fourth said they were successful some of the time, and a fourth said they did not receive any of the licenses they applied for.

93. The enterprise survey also queried firms on the means used to get import or export licenses. Of the firms that had applied for a license, 15 percent said they had used political influence, 15 percent had used the influence of friends or relatives, and 21 percent said they had paid bribes.

Chapter 3. The Consequences Of Weak Performance 34

3. THE CONSEQUENCES OF WEAK PERFORMANCE94. Although there have been notable improvements in several aspects of public administration in Kazakhstan – reviewed in the next chapter – the surveys make clear that significant challenges remain. Improving the quality and accessibility of public services, and reducing corruption, will require a concerted effort. But the costs of not addressing performance are also formidable. This chapter explores the consequences of weak performance. A full taxonomy of the consequences of poor performance would stretch beyond the bounds of this report. What follows is a flavoring of the myriad problems that result from weak public sector performance, as evidenced by the survey results. The results are grouped roughly into three categories: (i) the impact on poverty and inequality; (ii) the fiscal cost to the state, and (iii) the impact on the business environment, and therefore on investment and growth.

Figure 22. Top Ten Problems Reported by Enterprises and Households

A. Enterprises

48%

49%

53%

57%

58%

60%

63%

64%

68%

70%

5%

7%

4%

4%

3%

5%

6%

14%

16%

12%

Unfair competition andobstacles by existing firms

Shortage of loan resources

Low professionalism andcapabilities of state officials

Inflation

Ambiguous legal standardsrelating to business

Bureaucratic delays

Uncertainty and constantchanges on laws, rules, and

regs

Tax regulations

Tax rates

Low purchasing power of thepopulation

percentage selecting as the mostimportant problem

overall percentage saying importantproblem for that firm

B. Households

68%

78%

83%

84%

90%

90%

91%

92%

94%

98%

0%

1%

4%

5%

8%

7%

14%

13%

5%

36%

Bad roads

High cost ofeducation

High cost of healthcare

Corruption in statestructures

Drug abuse /Trafficking

Poverty

High cost of living

Small salaries andpensions

Crime

Unemployment

percentage selecting as the mostimportant problem

overall percentage saying importantproblem for that Kazakhstan


95.

POVERTY AND INEQUALITY

96. Figure 22B summarizes the views of households about the main problems of Kazakhstan today. Many problems were cited by over 90 percent of respondents as major problems for Kazakhstan. Unemployment was selected most often as the single biggest problem, followed by the high cost of living, small salaries and pensions, drug abuse and trafficking, and poverty. Clearly, the population is concerned about the current state of living standards for much of the population. The extremely high place occupied by unemployment is notable. To the extent that weak governance is hindering business development and job growth, as is argued below, it contributes to the national problem most often cited by households as the single biggest problem for Kazakhstan.

97. Enterprises and households alike recognize that corruption is harmful for the standard of living and the distribution of income. When asked for the two main consequences of corruption, half of all household respondents indicated that the “rich get richer and the poor get poorer.” Another 40 percent pointed to the negative impact that corruption exerts on the standard of living. Interestingly, although researchers and advisors often cite corruption’s deterrent effect on foreign investment as its most important consequence, only two percent of the population of Kazakhstan agreed. Clearly, the human costs of poverty and inequality hold primacy in the minds of most.

98. A growing body of cross-country research supports these perceptions.29 There are several mechanisms through which corruption exacerbates poverty and inequality. State capture, by its nature, affords selective benefits to the few at the expense of the rest of society and can only feed inequality. Corruption has been shown empirically to reduce investment and growth, as described in more detail below. Since sustained growth generally provides rising incomes for the poor, the retardation of growth due to corruption limits opportunities for countries to grow out of poverty. It has been argued that the rent seeking associated with corruption leads to distortions in budget allocations, for example away from pro-poor investments such as primary education and healthcare30 and in favor of large-scale, and arguably more corruptible, public works projects.31

Corruption has also been linked to the unofficial economy and both directly and indirectly results

Text Box 9. Poverty in Transition

World Bank poverty assessments in Europe and Central Asia contain numerous references to state corruption, government failure, and the poor’s sense of abandonment by their leaders. Poor individuals have little reason to believe that the state represents their interests, and they feel hopeless, voiceless, and powerless, feeding their alienation and disengagement from civil society and political life. “The state steals from us all the time,” complained a person in the Ukraine, “so deceiving the state is not a sin” (Narayan 2000, 92). “They have been plundering everything and eating so much that they cannot carry their own stomachs,” a Latvian reported (Narayan 2000, 82).

The poor often blame the government for their impoverishment and report widespread corruption and helplessness. In Georgia, poor farmers equate privatization with theft and complain that the best land is distributed to those who work for the police, courts, school directors, and business people. In Moldova the poor equate independence, democracy, and the transition to market with lack of social justice. Workers on collective farms report being cheated out of their share of grains and denied access to equipment by those in control.


in lower tax revenues, which the state might otherwise use for stimulating economic development or direct poverty reduction measures.

99. Corruption has a disproportionate impact on the poor. When examining the impact of weak performance on poverty, it is useful to distinguish the issue of unofficial payments from that of official payments, since many public services are now subject to official user charges. In respect of unofficial payments, although the rich are more likely to have paid bribes, owing to the greater frequency with which they use government services,32 the burden of informal payments is regressive, with poorer households paying a larger portion of their income33 in the form of bribes (see the left bar of Figure 23).34 The regressive nature of bribes is not surprising since many bribes behave as a flat “fee” that costs households of all income levels the same. While the left bar of Figure 23 is based on the relatively few households which actually reported the level of bribes they paid during the previous year, these results are consistent with findings in other countries.35 In Kazakhstan, poor households pay more than twice as much in bribes as a share of income compared to rich households.

100. The incidence of bribery is but one of the ways that weak governance hurts the poor. Studies in other countries suggest that the more damaging effect may be that poor households do not even seek public services because of their inability to pay for them, including because of the need to make unofficial payments. The Kazakhstan data for health care provides a clear example. The household survey asks respondents that had not been to a health facility in the previous 12 months whether they had been sick to the point of needing medical attention, but did not see a physician. Poor households were more than twice as likely as rich households to say they had not sought medical attention even though it was needed, specifically because they could not afford the official fees.36

Text Box 10. The Immeasurable Cost of “Petty” Corruption in the United

States

The costs imposed by “petty” corruption can be far larger than just the size of the bribe. A scandal in the state of Illinois in the United States provides a clear example. The scandal involved the issuance of licenses in exchange for bribes. A couple whose six children were killed in an accident involving a truck driver who had gotten his license illegally came to the court room when one of the official was sentenced to jail. For this couple, the consequences of even “petty” corruption were immeasurable.

Source: Steve Warmbir, “Bauer Gets a Year and a Day in Jail.” Chicago Sun-Times, April 25, 2001.



11%

8%

5%

16%

20%

33%


median percent of household income paid in bribes (among those that paid)

percent of households that reported paying bribes in the previous 12 months

101. The governance structure in health care following the dismantling of the state health insurance system has had the unintended effect of limiting access to health care through prohibitive fees. Twenty-nine percent of household respondents in the poorest third of the country said that they had been sick to the point of needing medical attention but did not see a physician, and 65 percent of them cited the high official costs as the reason. The consequences of weak governance are many – limiting access of the poor to basic services is certainly one of the most disconcerting.

102.The household survey shows how access, quality, and corruption are closely related when governance is weak. Respondents said they had made unofficial payments were asked to describe why they had done so. Most respondents said that the most important reason was to obtain speedier service. However, there were marked differences in the responses of the poor from those of other sample groups. The poor were much more likely to say that they were paying bribes in order to receive the benefits that they are entitled to and to avoid problems, while the rich were more likely to bribe for speed of service. Thus corruption limits access to basic benefits for the poor.


Figure 24. Services: The Rich Bribe For Speed, The Poor Bribe For Access

50%

67%

77%

22%

6%9%

39%

30%

17%

11%

36%

23%

0%

25%

50%

75%

100%


Speed

Benefits

Avoid Problems

Gratefulness

Notes: This chart is restricted to those respondents who made unofficial payments that they felt were necessary in order to receive proper service. Thus the designation "gratefulness" not not imply an innocuous token of appreciation or tradition.

FISCAL COST

103. Profits, value added, and personal income are all squeezed by the implicit tax imposed on firms by bureaucracy and unofficial payments: there is a clear fiscal cost to weak performance. Perhaps more troubling is the possibility that firms will avoid the difficulties posed by a weak business environment altogether and operate unofficially. A growing body of research has linked corruption to the “underground economy”,37 and it is not hard to see why. Enterprises that are operating unofficially usually could not do so without the complicity of officials who turn a blind eye to the practice.

104. The underground economy is an issue that the Kazakh authorities know well. The amnesty on shadow capital, which took place earlier this year, brought US$480 million back into the banking system.38 Even top officials took advantage of the amnesty, clear testimony to the widespread participation in the underground economy. While such amnesties might bring previously hidden funds back into the system, without fundamental shifts in the incentives to firms and households to honestly declare incomes and pay taxes there is no reason to believe that the shadow economy will not continue to thrive.39 The Kazakhstan Statistics Agency estimates the shadow economy to be 30 percent of GDP and it is believed that 70 percent of the population conceals at least part of their income from the authorities.40 Given the common perception that corruption is rife in the tax authorities, it is not hard to see why (see Figure 16).

105. But the underground economy is just one of the ways that weak governance deprives the state – and ultimately the populace – of needed revenues. The survey of enterprises found that customs and tax inspectors were among the bodies with whom firms were most likely to encounter bribery: 34 percent of firms that dealt with customs said they encountered bribery, and 23 percent of those who dealt with tax inspectors said likewise (see Figure 18). Moreover, the


highest median bribe sizes (12,000 Tenge) were reported for customs.41 Even paying off a traffic policeman diverts funds from the state coffers into private pockets. When the Minister of the Interior took a single truck ride from Almaty to Astana, the driver had to pay bribes to 36 different officials, totaling US$225 for the single trip (see Text Box 6).

106. Ultimately, the costs that weak performance imposes on firms far exceed the level of unofficial payments, since bureaucracy and delays hinder a firm’s ability to conduct business. The enterprise survey asked managers hypothetically the value to their firm of the elimination of crime, corruption, and excessive regulations. The majority of firms indicated that the value of such imaginary scenarios was high enough that they would be willing to pay a percentage of their firm’s revenues to achieve them. Of the three – crime, corruption, and excessive regulations – firms were most willing to pay for the elimination of corruption: on average, firms would be willing to pay 8.5 percent of their revenues if such a corruption-free world could be found (see Table 1). While the levels that firms would be willing to pay for the elimination of crime, corruption, and excessive regulations illustrate the magnitude of the costs of weak governance to firms, they also illustrate the fiscal cost of these implicit taxes.42

Table 1. The Implicit Tax on Firms

Crime Corruption Excessive Regulations

Enterprises willing to pay some percentage of firm revenues to eliminate …

56% 65% 57%

Additional amount of firm’s revenues that the firms would be willing to pay (of those willing to pay) to eliminate …

13% 13% 11%

Additional amount of firm’s revenues that the firms would be willing to pay (of all firms) to eliminate …

7% 9% 6%

107. The fiscal cost of weak performance is not limited to the revenue side of the state budget. Weak performance also exacts a toll on the expenditure side. The procurement reforms already underway (discussed in the next chapter) have reportedly saved the treasury 5 billion Tenge. However, up to a third of officials familiar with procurement practices reported on the public officials survey that procurement rules and procedures are not always followed and are not effective at reducing corruption. (See Figure 32 below.) Moreover, less than half of the firms that had participated in state tenders reported being satisfied with the transparency and fairness of the tender process. (See Table 3.) Deepening the procurement reforms within the central government and extending them to the oblast and lower levels of government would help mitigate the fiscal costs of weak performance.

108. There are many other fiscal costs of weak governance that require vigilance to avoid in every country. Most directly, weaknesses in financial management facilitate waste as well as diversion of public resources into private pockets. Twenty-seven percent of surveyed public officials in Kazakhstan said that embezzlement sometimes occurs where they work, and a small number said that it happens very often.43 Moreover, state capture can lead to the direction of large state subsidies or the assignment of monopoly rights to well-connected enterprises. In addition to the perverse effect that such a practice has on competition, such practices can lead to a drain on the state coffers, adding to the fiscal costs of weak governance.


BUSINESS ENVIRONMENT

109. Figure 22A indicates the top problems faced by enterprises in the existing business environment in Kazakhstan. Topping the list are problems that have the most direct impact on a firm’s performance: tax rates and the low purchasing power of the population. Several of the other problems cited by firms point to weaknesses in governance over the business environment. Tax regulations were deemed nearly as problematic as the rates, and uncertainty in the legal environment, bureaucratic delays, and ambiguous legal standards were noted as problematic for a large number of firms. More than one in four firms selected one of these four weaknesses in the business environment as their single biggest problem in doing business.

110. Certain societal imperatives, such as public health and safety, justify state supervision of the activities of private sector firms. However, heavy-handed control over firms also exacts a considerable cost by adding uncertainty to the business environment and distracting management’s attention from the fundamental work of creating wealth. A well-designed system of regulation must therefore address two key goals: regulate only when appropriate, and when regulation is appropriate, do so in a transparent and efficient manner.

111. Toward the first goal of limiting regulation (including licensing, permits, and inspections) Kazakhstan has made progress in recent years toward simplification. As described earlier, two out of three firms that registered in recent years said the process was not complicated. Yet the fact that 30 percent felt otherwise, and nearly as many reported paying a bribe during the process, shows room for improvement (see Figure 20 and Figure 21.) Due to the complexity of the process and the number of state bodies involved, the approval process can be lengthy, and the cumulative cost of these delays for firms can be substantial (see Text Box 10.) The costs of delay constitute a portion of the toll exacted on firms by weaknesses in the quality of the business environment.

112. The surveys make clear that Kazakhstan also has room for improvement toward the second goal of ensuring efficient and transparent regulation. Inspectors for various state bodies are vested with considerable powers over firms found to be in violation of the law. This power is often appropriate since unsafe practices – violations of fire or building codes, unsanitary food storage, and so forth – can have disastrous consequences (see Text Box 11). Yet, the powers vested in state inspectors can also be misused to extract bribes from firms that are not in violation of the law, or (perhaps worse) to accept bribes from firms that are in violation. The survey of enterprises found bribery to be frequent among fire inspectors (26 percent of firms encountered bribery) and sanitary and epidemiological inspectors (21 percent), outranked only by customs and

Text Box 11. The Cumulative Cost of Administrative Delays in Kazakhstan

Individually, transactions costs and administrative delays might not seem too arduous. However, if there are many of them, they can add up, and cumulatively, increase costs, delays and uncertainty to a significant degree, for investors. A delay of a few weeks at each of several government agencies may seem of little consequence to the responsible official in each agency, and they may even profit a little from the delay, but cumulatively it can cost an investor considerably in terms of wasted time and lost revenues. A 2001 study by the Foreign Investment Advisory Service (FIAS) suggests that the overall impacts of administrative delays on Kazakhstan’s economy can be very significant. In the oil and gas sector, one of four studied in the report, the FIAS analysis indicates that the economic impact of cumulative delays on GDP could be fairly substantial and could range from 3% to 6% over the next five years if the regulatory processes are not streamlined. The study also finds that delays are not confined to a single sector and are clearly systemic.

Source: Foreign Investment Advisory Service, Kazakhstan – Costs of Unnecessary Bureaucratic Procedures and Delays. Draft, October 2001. p. vii.


the police. Many firms reported being satisfied with their experiences with the inspectors; three out of four firms said they had been visited by fire inspectors only once or twice a year, and half the firms said the same about sanitary inspectors. Yet a substantial sub-set of firms said they are visited at least bi-monthly by these inspectors.44 The median bribe sizes were in the 2-3,000 Tenge range, with some firms reporting bribes as large as 50,000 Tenge for fire inspectors and 15,000 Tenge for sanitary inspectors. Moreover, the satisfaction ratings reported in Figure 13A would be much higher without the bribes, since bribe payers were (understandably) twice as likely to be dissatisfied with inspectors compared to non-bribe payers.45 In the case of fire, sanitary and epidemiological inspections, the justification for discretion and power on the part of inspectors is clear. But it is equally clear that improving transparency and accountability on the part of inspectors could make the regulations more effective and less costly for firms.

113. While inspections may be problematic for many firms, the survey of enterprises suggests that the system of licensing and permits is even more burdensome. Bribes were paid nearly as frequently (19 percent of firms), and when they are paid, they tend to be much larger: the median bribe size for “licenses and permits” was 10,000 Tenge, with four firms saying they had paid over 100,000 Tenge.46

114. Weaknesses in the business environment have obvious costs to firms, but how do these costs translate into weaker performance for the firms themselves? Interestingly, the survey of enterprises finds that firms that have paid bribes are more likely to have made significant investment in buildings or technology in the past two years, and are more likely to be planning future investment.47 Firms that have paid bribes also tended to be the faster growing firms.48

These results do not show that bribery is useful. To the contrary, they reflect the fact that growing firms tend to have more interactions with state bodies than firms that are stagnant or in decline. (Indeed, a corrupt official seeking deep pockets might prey upon a growing firm.) In fact, growing firms were on average much more likely than non-growing firms to interact with customs (10 times during the year versus 4 times), visit the state for licenses and permits (3.4 times versus 1.6 times), and deal with the traffic police (14.7 times versus 6.2 times). Even stronger evidence that bribes are not useful “grease” can be found by revisiting the “problems doing business” in Figure 22A. Firms that had paid bribes were much more likely than other firms to view corruption as an important obstacle to development (57 percent versus 35 percent).49 Firms do not view corruption as a useful means for escaping an otherwise obtrusive bureaucracy; rather they view both the bureaucracy and the corruption itself with disdain.

115. In short, weak performance – low quality of services and excessive levels of corruption – weakens small to mid-sized rapidly growing companies, the very firms that power employment growth and income generation. It is not surprising, therefore, to find that the costs that weak public sector performance impose on firms cascades into a generally weaker macroeconomic environment, as well. Studies in other countries have found that corruption translates into worse macroeconomic performance in terms of growth and investment.50 Among the transition

Text Box 12. The Immeasurable Cost of Poorly Implemented Regulations in

India

While unnecessary regulation imposes costs on firms, poorly implemented regulations – due to lack of capacity or to corruption – can be even more disastrous. One official in India lamented that although the government must approve construction plans, “the people who give the approval have no expertise. Anyway, most builders want to do things as cheaply as possible, and they can get their plans approved by greasing the right palms.” Weak implementation of earthquake-resistant building principles can have immeasurable costs. “We had an earthquake in Latur that killed 9,700 people; an earthquake of the same intensity in California killed five.”

Source: Barry Bearak, “India’s Predictable Disaster: Poor Construction Despite Sturdy Advice.” New York


countries, the relationship between corruption and growth has been clear: countries with the highest levels of state capture and administrative corruption had an average output decline of 50 percent between 1989 and 1998, while those with moderate levels of both forms of corruption had an average output decline of less than 3 percent.51

Chapter 4. Organization of Public Administration 43

4. THE ORGANIZATION OF THE PUBLIC ADMINISTRATION IN KAZAKHSTAN

116. The authorities in Kazakhstan embarked on the first stage of a major public sector institutional reform program from about 1996. This included territorial and administrative reorganization, streamlining and consolidation of the central executive entities, first steps towards establishing a professional civil service, reforms of the budget process, reform of audit and financial controls, streamlining public procurement, and reform of housing and utilities.

117. This section examines Kazakhstan’s public resources, human and financial, and uses the survey results to assess selected aspects of how the management and financing of public resources are perceived – by the users of services as well as by those who provide them. The paragraphs that follow are broadly divided into three parts: organization of human resources, organization of financial resources, and the public-private interface. The survey also examined progress on selected reforms.

ORGANIZING HUMAN RESOURCES

118. The authorities realize the importance of human capital in the public sector. Kazakhstan has separated its political appointees from its professional civil servants. The latter – comprising more than 66,000 personnel subject to oversight by the Agency for Civil Service - are now recruited by competitive recruitment, have a revised salary policy, are on the path to higher salary levels, and are being modernized in skills, attitudes and orientation.


119.The passage of the Civil Service Law of 1999 was a watershed in the modernization of the

public service. The law – applicable to the 66,000 civil servants in apparat positions – has been under implementation for about 2 years. The survey examines several aspects of the operation of the Law, such as recruitment, attestation, etc. This allows assessment of progress in civil service reform and areas where improvement can still be made.

Training

120. Seventy-seven percent of respondents reported that their institutions organize training activities for workers to improve their qualifications and professionalism, and nearly all described the activities as useful. However, only 61 percent reported ever having actually participated in training. Decisions regarding training were described in mostly positive term—only 8 percent reported them to be non-transparent. However, nearly 40 percent having not participated in any training indicates there is considerable room for enhancing training programs. The key difference is at the republican level: nearly half of the respondents at the republican level have not participated in training. Also, evaluations of transparency are significantly lower at the republican level: 60 percent responded ‘very transparent’ as against 75 percent for other levels.

Implementation of Civil Service Law

121. The Civil Service Law that took effect in January 2000 marked an important milestone in Kazakhstan’s efforts to reform the public sector. The surveys show that most public servants are familiar with the law: 54 percent said they are “fairly familiar” and a further 43 percent said they are “very familiar” with the content of the law. Two out of three public officials said they are very familiar with their rights if they feel they have been treated unfairly with regard to a personnel decision. District level officials were less likely to describe themselves as familiar with the Civil Service Law.

Text Box 13. Kazakhstan – The Civil Service and The Reforms

At end-2000 there were 66,603 civil servants in Kazakhstan, including 54,921 at the local level. Women, comprising 54 percent of all civil servants, accounted for only 0.8 percent of political appointees.

Competitive recruitment. In the first ten months of 2000, competitive recruitment was made to 12,342 vacant public administration positions. Of these vacancies, about 10,200 were at the local level and 2,118 at the central level. There were 22,151 applicants for these vacancies. 8,818 persons were finally selected. Of the successful candidates, 48 percent were women, and 25 percent came from the private sector.

Improving access to, and transparency in, competitive recruitment. Civil service vacancies did not – until the passage of the Civil Service Law – require open advertisement. In addition to mandatory publication in the mass media, vacancies are now also advertised on the web-sites of large mass media agencies and through the ACS web-site. Since 2000, civil service entry-level examinations are conducted through computer testing (for republican entities); 3 remote testing centers were also established to allow candidates from all over Kazakhstan easier access to the examinations. 3 more centers are under creation.

Education and training for civil servants. A medium-term government strategy for civil service education and training approved in 2000 envisages – among other things - better coordination of programs for education abroad, creation of a National Center on Civil Service Education in Astana. The EU may provide about 1 million Euro. Eight educational regional centers have been created.

Source: Agency on Civil Service, Kazakhstan.


Figure 25. Little Willingness to Pursue Legal Rights

29%

35%

17%

0%

25%

50%

75%

100%

if you were not promoted when youbelieve you should have been

if you were pressured to hiresomeone even if the person was not

the best candidate

if you were pressured to make adonation to a charity event

perc

ent w

ho w

ould

pro

babl

y ap

peal

if s

ituat

ion

enco

unte

red

122. Despite the officials’ professed knowledge of the Civil Service Law and their rights, many expressed an unwillingness to avail themselves of those rights (see Figure 25). Indeed, when asked whether they had the right to request that superiors provide instructions in writing, only 40 percent said that this was definitely their right. Among those believing they have this right, 82 percent said they would request instructions be given in writing, compared to only 13 percent among officials that do not know of the existence of this right. Knowledge of this right is highest among officials at the republican level. An understanding of the existence of these rights is sometimes a good predictor of the willingness to request written instructions, but the legacy of the past also implies that even when the law provides this right and protection, civil servants are unwilling or reluctant to exercise it for fear of adverse consequences.

123. Recruitment and personnel decisions appear to be positively viewed – large numbers state that the situation has improved (see Figure 26). The survey results show no real differences in these responses by level of government.



1%

8%

48%

39%

4%

1%

8%

41%

46%

5%

got much worse got somewhat worse no change got better got much better

fairness of recruitment and personneldecisions

ability to ensure that the best people gethired

124. Twenty-nine percent of respondents have gone through competitive recruitment since the new Civil Service Law took effect. Not surprisingly, successful applicants provided higher evaluations of the process than unsuccessful applicants. Yet even among the latter group, more than 40 percent said the process was fair and “ensured that the most qualified applicant got the job,” and roughly 60 percent said the process was transparent and fast.

125. The survey of public officials provides another perspective on the implementation of the new Civil Service Law. Included in the sample were 120 officials who reported that they had responsibility for hiring staff since the Civil Service Law took effect in January 2000.52 Most reported the process to be transparent (80 percent) and fair (78 percent). Only 44 percent said the process was fast, and perhaps most importantly from the perspective of a hiring manager, only 68 percent said that the process helped ensure that the most qualified applicant got the job. Those at the republican level were the most critical—27 percent thought the process was fast and 46 percent said it helped ensure that the most qualified applicant got the job. Although this is speculation, it is not unreasonable to imagine that this reluctance on the part of republican level hiring managers is leading them to take shortcuts, thus leading to the generally lower assessments of employees at the republican level.

126. Attestation is the periodic process (usually once in one or two years) by which a civil servant’s qualification and performance are assessed by a body of reviewers, and the candidate is either recommended for promotion, confirmed or reconfirmed in the grade/title, or advised to upgrade the qualifications. Forty-five percent of respondents went through attestation since the law took effect. Most of the officials who passed through attestation reported the process to be transparent (86 percent), fair (91 percent), and fast (74 percent). The surveys further provide encouraging evidence that the attestation process is having the desired effect. Forty-two percent of public officials said they know of specific cases when someone at their institution has been promoted or demoted at their institution as a result of the attestation process, and 33 percent said they know of specific cases when the institution took remedial action (e.g., providing training) to help improve staff skills following a poor attestation.

52 Twenty-six were from the Republican level of government, 48 from the regional level and 46 from the district level.


Figure 27. Evaluations of Competitive Recruitment (by those who went through it)

74%77%

73%

64%

85% 88%

56%

83%78%

91%

53%

91%

0%

25%

50%

75%

100%

transparency fairness speed ensured most qualifiedapplicant got job

perc

ent a

gree

ing

that

the

proc

ess

had

thes

e qu

aliti

es

Republican level Regional level District level

Code of Ethics

127. Following the enactment of the Civil Service Law, a Code of Ethics was adopted. The Code of Ethics is designed to establish clear guidelines for acceptable and unacceptable behavior for civil servants.

128. Republican level officials are less likely to be familiar with the Code of Ethics: only 49 percent at the republican level said they were “very familiar,” compared to 59 percent at the other two levels (difference significant at the 5 percent level). A key reason for this difference is that institutions at the republican level apparently make relatively less effort to actively disseminate the Code of Ethics. Although 80 to 90 percent of public officials at all levels reported learning of the Code of Ethics from written materials, only 19 percent of public officials at the republican level reported learning of the Code of Ethics through training and seminars, compared to 47 percent for the regional level and 42 percent for the local level.

129. Public officials familiar with the Code of Ethics were asked to provide evaluations in terms of clarity, degree of understanding and adherence, the degree to which the Code of Ethics helps reduce corruption, and whether the respondent found it useful (Figure 28). Although most public officials reported that the Code of Ethics was widely understood and was clear and easy to understand, relatively fewer report that it is widely followed or that it helps reduce corruption. Assessments by republican level officials were generally more negative.


Figure 28. Evaluations of Code of Ethics

77%82%

52%

41%

73%

84%

92%

66%

61%

89%

76%

88%

65%

55%

91%

0%

25%

50%

75%

100%

clear and easy tounderstand

widely understoodwithin institution

widely followed withininstitution

helps to reducecorruption

useful for clarifyingacceptable behavior

perc

ent a

gree

ing

that

the

Cod

e of

Eth

ics

has

thes

e qu

aliti

es


130. Most officials report that the Code of Ethics is useful for them in clarifying what behaviors are acceptable and unacceptable (Figure 28). Indeed, the detailed procedures for handling certain ethical conundrums help reduce discretion and clarify proper behavior. As described elsewhere in this report, civil servants in Kazakhstan (and most other countries) are often faced with a situation in which they may be offered gifts. Some of these gifts, no doubt, are merely tokens of appreciation, offered as a matter of courtesy and/or tradition. Others may be clearly designed to influence the behavior or decisions of the civil servant. One important function of the Code of Ethics is to help civil servants distinguish between the two.

131. The Code of Ethics specifies that civil servants may not “accept, directly or indirectly, any gift, reward, payment, bonus, commission, service, or benefit from any member of the public or organization with whom he has been brought into contact by reason of his duties,” except “isolated gifts of a trivial nature or inexpensive seasonal gifts.”53 Such language is standard in the Codes of Ethics of many countries. However, the subjective definition of what constitutes a “trivial” gift leaves room for a great deal of interpretation.

132. Each of the three surveys asked respondents what constituted for them a “trivial” gift. 54

The responses varied tremendously. On average, enterprise managers said that gifts up to 3,000 tenge should be considered trivial and perfectly acceptable, compared to 1,000 and 600 for households and public officials, respectively. (Several enterprise managers said that gifts of up to 50,000 tenge should be considered trivial and acceptable.) Figure 29 presents a histogram of responses from each of the three surveys.

53 Civil Servant’s Code of Ethics, Article 5.0. The article also provides exceptions for reasonable hospitality.


Figure 29. Divergent Understandings of Which Gifts are "Trivial"

26%

21%

30%

18%

5%

1%

16% 16%

37%

20%

10%

1%

13%

6%

25% 25%26%

7%

0%

10%

20%

30%

40%

50%

0 - 100 101 - 200 201 - 500 501 - 1,000 1,001 - 10,000 > 10,000

size of gift (tenge)

perc

ent o

f res

pond

ents

say

ing

this

siz

e gi

ft is

triv

ial

public officials

households

enterprises

133. Figure 29 makes clear that different respondents interpret the subjective term “trivial” in vastly different ways. While 12 percent of public officials said that no gift of any size would be acceptable, 20 percent said that gifts exceeding 800 tenge would be acceptable. Similar patterns were observed for the other two sample groups. Moreover, the subjective perceptions of what constitutes an acceptable gift are significantly correlated with the level of income of the respondent.55 The Code of Ethics, for all its merits, has not successfully introduced a uniform understanding of the size of gifts that are prohibited under the Code. On a positive note, it is encouraging that public officials generally have a lower threshold for acceptability of gifts than do households or enterprises.

Salaries

134. In Kazakhstan, average monthly government wages currently amount to about US$50. What is significant is that average government wages are increasing in absolute terms (the average wage seems to have risen from about US$35 per month in the early nineties) as well as relative terms (e.g., the ratio of average government wages to per capita GDP has increased from about 0.13 in 1994 to about 0.9 in 1999). For countries in the Europe and Central Asia (ECA) region, the government wage bill amounted to about 6.6 percent of GDP in 1999 (up from 5.6 percent in 1994) – compared to 4.9 and 2.8 percent for Kazakhstan respectively. Wages are being increased in recent years, albeit slowly, but are still very low compared to the private sector: at the beginning of 2000, the average government salary was 98,196 tenge compared to more than 149,000 tenge in the manufacturing sector.

135. Across state bodies, the levels of salary do not appear highly correlated with the levels of performance of the organizations. Similarly, the use of extra-salary premia are generally not good predictors of performance. While it is undeniable that low salaries might tempt an otherwise honest official to engage in corruption, the findings illustrate the relative importance of other institutions of accountability in the public sector (see Annex 3).


ORGANIZING FINANCIAL RESOURCES

Budgets and the Budget Process

136. In light of the budget reforms that have been implemented over the last several years (see next chapter and Annex 5 for an outline), the survey examined how issues relating to budget formulation, execution, procurement and audit were perceived by public officials.

137. By law, public hearings must be held for discussions of rayon or oblast budgets. Twenty-five percent of household respondents said they had, in fact, seen notices of such public hearings in the past twelve months, and 19 percent had seen such notices of public hearings on the functioning of state entities that provide public services. Of those who had seen such notices, 10 percent had attended the hearings, and 37 percent of those said that action had been taken as a result of the public hearing. Since wide publicity of such hearings is the goal, these numbers suggest room for improvement. Yet the existence of non-trivial participation by the public and follow-up actions resulting from public discussions is encouraging. Indeed, the fact that actions are taken as a result of the public discussions may help to build credibility about the impartiality of such hearings.56

Budget Formulation

138. Forty-six percent of public officials said they are familiar with the practices of budget formulation within their institutions. Only these observations were used for the subsequent discussions of budget processes.

139. At all levels of administration, around 85 percent of respondents report that the budget formulation process involves a close consultation between budget managers and department or division managers. Those familiar with budget processes report that budget proposals frequently change after review by the President’s Administration. This was reported most widely at the local level, with 47 percent of respondents saying this happened in the most recent budget cycle. At the republican and regional levels, 31 and 44 percent reported such experience, respectively. These findings seem to be at variance with prescribed procedure and anecdotal evidence, though, and require closer examination – since it is possible that these are perceptions rather than statements of fact. At the regional and local levels, the interventions were more likely to lead to increases in the budget allocations, rather than decreases, by a margin of roughly 3 to 1. At the republican level, increases and decreases were equally likely.

140. The quality of formal rules of budget management received high marks by public officials familiar with them (see Figure 30). The main area of concern surrounds the stability of the rules, with only half to two-thirds of respondents agreeing that written principles of budget management are stable.

56 It must be noted that since these are the responses of only the small subset of households that had actually attended such public hearings, the percentage of cases where action was taken as a result represents only 0.6 percent of the overall sample.


Figure 30. Evaluation of Budget Processes

83%

89%94%

100%

65%

85% 83%86%

96%

54%

83% 83%

91%

98%

51%

0%

25%

50%

75%

100%

always strictlyimplemented

specified correctly,leaving no room for

interpretation

include anappropriate number

of steps

approved by officialsof appropriate rank

stableperc

ent a

gree

ing

that

writ

ten

prin

cipl

es o

f bud

get m

anag

emen

t hav

e th

ese

qual

ities


Budget Execution and Oversight

141. Audit of public expenditures at the central and local level is an important instrument of accountability and transparency. The supreme audit institution in Kazakhstan is the Accounting Committee, which performs external audit of republican budget entities. The Committee of Financial Control of the Ministry of Finance performs the internal audit function for republican budget entities. It also performs the audit function for entities funded from local budgets. The Accounting Committee reports its findings to Parliament. The elected legislative bodies at the oblast level (maslikhats) have Revision Commissions – these bodies perform the external audit function for all entities funded from the local budget.

142. Of the respondents who professed some knowledge of audit, over 75 percent had been audited in the previous twelve months by at least one body. By law, elected bodies or their revision commissions are required to hold public hearings on budget execution – this includes actions taken in respect of provision of public services. The survey of public officials found, however, that only 30 percent of officials even know of this requirement, and 20 percent maintained that such laws or regulations do not exist. (The remainder admitted that they do not know.) Of those familiar with such hearings, nearly 60 percent said that someone from their institution had been called to testify at a hearing and roughly half said that the institution was required to take some action as a result of the hearing. Both participation in public hearings and the need to take action were more prevalent among local governmental bodies.


Figure 31. Participation in Public Hearings on Budget Execution

39%

33%

53%

44%

71%

57%

0%

25%

50%

75%

100%

called to public hearing on execution of budget required to take action as a result of public hearings


Public Procurement

143. The authorities have undertaken a series of sustained reforms in public procurement. The public procurement law has been revised, and enabling regulations and standard bidding documents drafted. The reforms to the public procurement regime were intended to: (i) enhance transparency and accountability; (ii) clearly define the functions of the regulatory and oversight agency; and (iii) bring the law in substantial conformity with international practices and norms, with the World Trade Organization (WTO) agreement on government procurement, and with the policy and procedures of international financial institutions.

144. An independent State Procurement Agency (SPA) was established, to function as the oversight entity in respect of budgetary entities undertaking procurement. The SPA reported cost savings in 1999 of 4.5 billion tenge, roughly 5 percent of the volume of procurements it supervised, an amount that was two hundred and fifty times the amount of the Agency’s budget. As a result of the procurement reforms, the SPA estimated that (i) savings to the state exchequer rose from 4.5 billion tenge in 1999 to 5 billion tenge in 2000, and (ii) if state-owned enterprises are brought under the purview of the law on state procurement, the likely savings may amount to as much as 14-15 billion tenge per year. In late 1999 the SPA was converted into a Committee under the Ministry of Finance – but the authorities are apparently reviewing this decision.

Table 2. Methods of Procurement

Republican Regional District

Sole Source

Percent of respondents saying method is used

72 43 32

Average share of value of procured goods and services

21 19 16

Shopping


72 73 67


21 45 35


Public Tenders


96 61 76


58 35 46

145. Although it has received clearance to establish regional offices, the SPA remains understaffed and its budget is still inadequate. Furthermore, more than half of total state procurement spending in Kazakhstan occurs at the oblast level or below. There is a clear need for deepening the procurement reforms within the central government and extending them to the oblast level and below.

146. Survey respondents reported using a variety of different procurement methods (see Table2). Public tenders were most widely used by institutions at the republican level, with an average of nearly 60 percent of the value of goods and services procured through tenders.57

Figure 32. Evaluations of Procurement Rules and Procedures

92%

84%

96%

80%

68%

64%

60%

77%

76%

90%

79%

62%

71%

62%

64%

76%

98%

84%

58%

61%

69%

Formally written

Widely known

Know where to get information

Transparent and easy to understand

Effective for ensuring high quality/lowcost goods and services

Effective for limiting corruption

Always followed

percent agreeing that procurement rules and procedures are ...

District-level bodiesRegional-level bodiesRepublican-level bodies

Based on the subset of public officials who described themselves as “very familiar” with procurement practices within their institutions.

147. Among procurement-oriented officials at all levels of government, most reported that procurement policies are formally written and widely known within their institutions (Figure 32). The overwhelming majority also declared that the policies were transparent and easy to understand. There was relatively less optimism, however, that the polices were effective in achieving the desired outcomes. Roughly one in three did not agree that the procurement policies were effective for limiting corruption or for ensuring the procurement of high quality goods and services at low cost. Similarly, many reported that the policies are not always followed. Indeed, when restricting the sample to the sub-set of officials who have significant responsibility in the area of procurement, only a little more than half of the respondents at the district and region levels reported that the procurement policies are always followed.


148. Enterprise evaluations indicate that large companies are more likely to sell to the state. Table 3 summarizes how enterprises evaluate tenders organized by each level of government. Tenders organized by ministries tended to receive lower marks across the board.

149. Understanding the weaknesses in state tenders requires not just an evaluation of the merits of the system by firms active in selling to the state, it also requires an examination of the opinions of firms that did not participate in the tenders. Nearly one in four firms said there were other tenders that they considered but ultimately did not participate in. The primary reason given was the belief that it is difficult to win if one does not have personal connections with the organizers (24 percent of firms cited this as the primary reason). Nearly as many complained that the process was too complicated (22 percent) and not transparent (22 percent).

Table 3. Enterprise Evaluations of State Tenders

(percent satisfied)Transparency Fairness Efficiency

Ministries 43.2 36.4 36.4Local bodies of state administration 51.8 41.2 49.4Oblast or Rayon governments 48.5 42.6 50.0State enterprises 49.3 44.0 47.4Others 56.3 50.0 50.0The table above includes only evaluations of firms that actually participated in tenders organized by the respective levels of government. Sample sizes range from 32 to 85 for each cell in the table.

DETECTION AND SUPPRESSION OF CORRUPT BEHAVIOR

150. A substantial part of Kazakhstan’s institutional reforms was, and is, aimed at increasing accountability and controls. However, Kazakhstan’s levels of corruption have come out as very high in several comparative studies, especially in areas related to doing business in the country (tax, customs, licensing etc.)

151. Recognizing these issues, and starting in early 1999, the Government began to address anti-corruption more directly. One of the agenda items in Kazakhstan’s medium-term strategy document (Kazakhstan 2030) related to measures to control corruption. A State Committee on Prevention of Corruption (SCPC) was established in late 1998, and became operational from January 1999. The SCPC was the central agency in Kazakhstan vested with the task of reviewing policies and procedures with a view to simplify them and thereby attack the root causes of corruption58.

152. The SCPC’s broad mandate included:i) reviewing the regulatory system and making recommendations to simplify it;

ii) reviewing economic policies to reduce the scope for rent-seeking behavior;iii) conducting surveys of enterprises and individuals on the prevalence and extent of

corruption, and on the effectiveness of anti-corruption programs;iv) overseeing development and implementation of codes of conduct and declaration of

assets and incomes of public officials (operational responsibility for this task was vested with the Agency for Civil Service); and

v) conduct of enquiries into large corruption cases at request. However, adequate and transparent safeguards to prevent harassment or victimization were lacking.

58 The SCPC had a full-time Chairman and two full-time members; there were three other members. Their backgrounds were varied: economists, prosecutors, legal experts, and financial experts. Other staff of the SCPC numbered about 23.


153. Donors were somewhat reluctant to endorse the SCPC’s enforcement-oriented approach and its plea for greater authority, feeling that its track record and reports about its apparent priorities did not justify improving its enforcement capacity. Many civil servants also did not seem to agree with the approach being taken by the SCPC. The SCPC was later abolished.

154. The Agency for Civil Service is currently charged with implementing preventive aspects of anti-corruption such as declaration of incomes and assets, discipline of civil servants, and inspection of executive entities to assess implementation and adequacy of anti-corruption measures. The procuracy and other investigative agencies are responsible for investigation and prosecution of corrupt acts that constitute criminal offences.

155. The outcome and success so far is very mixed and the evolution of the strategy remains to be seen. Much more remains to be done to broaden the reform program, to ensure the sustainable implementation of reform measures, and especially to address issues of state capture and administrative corruption.

Chapter 5. The Way Forward 56

5. THE WAY FORWARD

MEDIUM-TERM INSTITUTIONAL REFORM PRIORITIES

156. Chapter 1 outlined the key messages from the surveys, and set these in the context of the recent institutional reforms, which addressed some of the causes of poor governance. However, these reforms are still fragile and need follow-up – at the central, provincial and local levels. This seems to indicate a three-pronged institutional reform strategy going forward:

Deepening of Institutional Reforms. Some of the reforms initiated have begun to take root at the central level, and require further deepening to strengthen the foundations – and impact governance. For example, further institutional strengthening of the civil service is critical for continued improvements in policy formulation and execution. Similarly, reform of internal and external audit has only just begun, and its importance in respect of management of public resources is now being realized by the authorities. Again, the judicial reforms initiated recently will require sustained follow-up.

Extending the Reform Process to the Local Level. Most of the important reforms now require to be extended to the regional and local level, to put them on a sustainable footing. Examples include (i) budget reforms, including intergovernmental finance reforms, to ensure more effective management of budgetary resources and more responsive delivery of public services; (ii) streamlining regional and local administrations to achieve the objectives of economy, accountability and more effective service delivery; (ii) extending merit-based civil service reforms to the regional and local governmental levels to enhance performance and professionalism at those levels; (iii) capacity building at the local level, and (iv) developing and implementing explicit measures to enhance accountability and integrity of regional and local public officials and the involvement of civil society.

Expanding the Reform Agenda. Public sector institutional reforms so far have not touched upon several key areas (such as reform of licensing and business registration, and streamlining of the system of controls) for various reasons. Some of these reforms have now become both urgent and important. For example, the government’s priorities include the need to attract foreign investment and to facilitate the speedy development of small and medium enterprises (the latter especially to counter the adverse effects of unemployment, and to promote economic growth). For both these priorities, a necessary condition is the removal of public sector obstacles to the growth of the private sector – in the form of liberalization and streamlining of licenses, permits and other forms of control.

157. The authorities envisage that the next stage of reforms will need to: (i) improve accountability and transparency, (ii) put in place an improved system of intergovernmental financial relations which will enable deepening of state assistance to the poorest, and (iii) improve the investment climate for private business. The survey suggests that added to these are (a) the need to involve civil society in the reform process, by seeking feedback from households and enterprises on the implementation of the reforms, and on the access to and quality of public services, and (b) strengthening institutional capacity at the central and local levels to enable the


state to perform its core functions – including financing and delivery of basic public services - effectively and efficiently. These areas of emphasis are also the ones needed to credibly and successfully confront the twin challenges of state capture administrative and corruption (see Text Box 9), and improve governance and delivery of public services.

158. Improving accountability and transparency is the most central issue, and the key to improving management of public resources and the functioning of the public sector. The authorities believe – as do development partners - that continued public sector reforms are the best means to freeing the economy from the shackles of bureaucracy, and for more effective financing and delivery of basic public services to the poorest and most vulnerable. Until such key institutional reforms are implemented, the state will remain vulnerable to social tension.

159. The surveys suggest that pivotal to improving accountability will be measures to tackle the institutional dysfunctions in specific entities such as customs, police, tax, courts, and entities that deliver basic social services such as education, health, and housing assistance. Transparency issues can be tackled through further civil service and public administration reforms, and through reforms in public expenditure management: it will be critical – as in the past – to synchronize and coordinate these reforms for mutual sustainability and effectiveness.

160. Key focus areas in public administration and civil service reform will comprise: (i) strengthening civil servants’ accountability to the law (e.g. through an effective system for declaration of assets and incomes of civil servants, and on developing measures for enforcing

Text Box 14. Confronting the Challenge of State Capture and Administrative Corruption

In countries where state institutions with weak administrative capacity coexist with a high concentration of vested interests and a state highly susceptible to capture, the challenge of improving governance is particularly difficult. Powerful private interests have the capacity to block institutional reforms that would limit their capacity to extract rents from the state and eliminate market distortions that work to their advantage. Governments in such countries often lack sufficient mechanisms of control and accountability needed to implement institutional and policy reforms. Nascent civil societies and intermediary associations do not have sufficient power to counterbalance the weight of concentrated vested interests. This is the most difficult environment in which to design an effective program to improve governance.

Targeting state capture requires measures on two fronts: decreasing the gains to firms that engage in state capture and increasing the costs to politicians of state capture. Decreasing the gains to captors entails de-concentrating vested economic interests through competitive restructuring of monopolies, reducing barriers to entry, and increasing transparency in corporate governance. Increasing the costs to politicians requires efforts to foster collective action among potential countervailing interests, such as “second-tier” companies and small- and medium-sized enterprises, to obtain political access. This could entail the development of business and trade associations and formal (well-regulated) lobby groups to increase the range of interests with access to government, to foster competition in an effort to reduce the concentration of existing rent streams, and to strengthen formal and transparent channels of political influence. The goal is to promote a greater number and diversity of economic actors competing through more transparent and open conduits of political access for a limited pool of rents.


compliance), and to the users of public services59; (ii) improvement of pay and benefits of apparat civil servants at all levels to reduce staff turnover and to enable staff to perform on a professional basis; (iii) rightsizing budgetary employment on an ongoing basis; (iv) addressing training needs of central, regional and local civil servants; and (v) institutional strengthening of the key entities involved in civil service reform. The Government Action Plan for 2002 includes the drafting of a Law on Public Service, which is expected to regulate the rights, responsibilities and obligations of employees of budgetary entities (e.g. doctors, teachers, etc.) who do not fall within the definition of ‘civil servants’.60

161. Putting in place an improved system of intergovernmental finances is essential for improving the financing of public services, and for enhancing accountability at the local level. As the survey results amply demonstrate, households have rated public services very conservatively in terms of access, quality, and also in terms of the prevalence of corruption.

162. An important step towards improving the system of intergovernmental finances was taken through the establishment of a State Commission in October 2001 through a Presidential Order61. The Commission’s mandate is to review the distribution of powers between the levels of government and recommend improvements to the system of intergovernmental finances. Meanwhile, pending any substantial adjustment to the existing system of intergovernmental finances – to obtain consensus on which will be politically and technically challenging – and in order to improve the financing and delivery of social services in the short run, it has been agreed between the executive and the legislature that delivery of basic social services by state entities will be carried out in accordance with ‘social norms and regulations’62 – the objective seems to be to improve the predictability of financing such public services and avoiding disruption in their provision. It is envisaged that the population – especially the poor and vulnerable – will find it easier to receive health, education and other social services irrespective of their residence and status.

163. The authorities’ plan to enhance the pace and depth of decentralization suggests that urgent steps need to be taken on this politically and institutionally challenging front. Decentralization is a way to match public services more closely with local demands and preferences and build more responsive and accountable government from below. In principle, bringing policymaking and implementation closer to the communities and involving citizens directly can lead to greater accountability and improved local checks and balances. Competitive elections, community participation in sub-national decision-making, independent media assessments and communication of local public performance, transparent budget processes and financial reporting, together with sensible and fair legal and regulatory systems, all can contribute to creating an accountable public sector, at any level of government. However, in Kazakhstan, decentralization will only be effective if accountability and transparency mechanisms at the local level are substantially improved.

59 Periodic surveys of the users of such services and the publication of survey results can be a powerful force for involving civil society in the reform process, for increasing administrative transparency and accountability, for establishing effective feedback and monitoring mechanisms, for reducing corruption in service delivery, and for focusing scarce resources on priority reform areas.60 Legislative drafting plan of the Government of the Republic of Kazakhstan for 2002, approved by Government Regulation no. 218 of February 14, 2002 (mentioned in letter no. 15-4-1-7/3449 dated March 25, 2002 addressed to the World Bank from Mr. Kelimbetov, First Vice Minister of Finance, Ministry of Finance of the Republic of Kazakhstan).61 Order no. 713 of the President of the Republic of Kazakhstan of October 20, 2001.62 Report of the Prime Minister of the Republic of Kazakhstan on the Government Action Plan for 2002-2004, approved by the joint session of the Parliament of the Republic of Kazakhstan on February 25, 2002 (vide letter no. 15-4-1-7/3449 dated March 25, 2002 addressed to the World Bank from Mr. Kelimbetov, First Vice Minister of Finance, Ministry of Finance of the Republic of Kazakhstan).


164. Decentralization will have to be a step-by step process in order to improve government's ability to handle tasks while increasing transparency and accountability to local beneficiaries. Sequencing is crucial and decentralization has to be a process in which political, administrative and fiscal powers are gradually transferred to sub-national units in order to create accountability and authority. In this context, the recent establishment of a commission with representatives from the central and local governments (to develop a work plan and next steps) is an important step in the right direction. It must be stressed that there is no single right or wrong intergovernmental system: what is important is that the system needs to be tailored to the country’s need, and that it is important to realize that decisions on equalization between regions/localities are intensely political and require careful and well thought-out tradeoffs.

165. Improving the investment climate for private businesses. The survey findings disclose the problems that entrepreneurs still encounter, and provide pointers to the improvements necessary to reduce public sector obstacles to private sector development. Anecdotal evidence suggests that de novo companies have been constrained by an unfriendly business environment arising from corruption, weak legal enforcement, and high transaction costs. While small businesses have a significant potential role in creating employment and raising the living standards of the population, they suffer the most from numerous licensing and other requirements of various state controlling bodies and are the least protected from the arbitrary treatment of government officials.

166. Examples of steps that could be taken over the medium term include: (i) coordinating the legal drafting activity of various ministries, agencies, and local authorities that affect the private sector, (ii) impartial and non-discretionary enforcement of laws and regulations, especially at the local level, (iii) raising entrepreneurs’ awareness of their rights, (iv) enabling better access to market information, including extending opportunities for small businesses to bid for involvement in public procurement contracts at central and local levels, (v) promoting government-entrepreneur interaction in policy development, and (vi) improvement of the legal and institutional arrangements which underpin longer term commitments, both between private parties and between the state and private sector investors. Examples include: a stronger regulatory, legal and institutional framework; improved public access to legal information; better trained judiciary and legal staff; improved enforceability of contracts and greater public awareness of their legal rights.

167. Seeking and using citizens’ feedback. The survey discloses that households’ ratings of public services reflect a general dissatisfaction with access to and quality of public services. This reflects the institutional dysfunctions which inhibit performance improvements by service delivery entities, but also discloses the need for public officials to inculcate a service delivery orientation from one of command and control. Responses from enterprises also indicate specific problem areas that require addressing in order for the private sector to flourish and generate employment. Regular feedback from the users of public services therefore becomes essential in any plan to improve institutional functioning. The push for decentralization adds a further dimension of urgency: in the longer run, decentralization in itself might create a higher level of accountability and awareness since it empowers citizens. If citizens become used to having a tangible impact on local services and on the level of waste and corruption at the local level, they will not stop there: they will speak up and try to have an impact on other services/waste or corruption at higher levels of government. Steps to institutionalize the obtaining and use of feedback should form an integral element of any plan to improve the delivery of public services.

168. The Government itself is on record that “the conduct of such surveys and the dissemination of their results will facilitate improvement of public sector performance and reduce the population’s distrust of the Government’s commitment to improving governance and service


delivery.”63 This is encouraging: future surveys, and the publication of the results, will be keenly awaited by development partners and by civil society.

169. Building institutional capacity. The next phase of institutional reforms will have to factor in development of institutional capacity – in the executive branch and outside, and indeed outside of government itself. What is now urgently required is to develop the institutional capacity for the reform measures to be implemented across the central government, through training and professional development. The technical assistance/implementation support needs to address the agenda outlined above are immense, and will require careful planning and coordination.

170. Reform of state procurement and of audit, for example, have strong links to governance, transparency and effective financial management. Capacity for auditing, financial management, procurement and a treasury system has been created at the center, but has not yet trickled down to the regions. Implementation of a medium term expenditure framework may require substantial technical assistance. The new Law on Civil Service will require substantial capacity development at the central and local levels.

171. The government’s recent change in stance on financing technical assistance for capacity-building (i.e. deciding to stop borrowing for technical assistance from 2002, and instead to rely on own sources and donor grant funding for such assistance) poses a further challenge to the attainment of the institutional reforms being sought by the government. Donor coordination and involvement of donor partners and civil society in the development and monitoring of outcome indicators by which progress on institutional reforms can be assessed will be crucial in the coming years.

172. Commitment to reform. The government’s own commitment to further institutional reform, and an indication of the authorities’ reform priorities, can be found in the governance triggers in the February 2001 Country Assistance Strategy (CAS) of the World Bank Group. These triggers reflect an emphasis on strengthening accountability and transparency. Underlying the triggers are specific monitorable implementation measures. The triggers comprise:

(i) Submission of annual declaration of assets and incomes by civil servants to tax authorities;

(ii) Establishment of clear rules for the interests of public sector officials and their direct families in the private sector, and development and enforcement of regulations dealing with conflicts of interest;

(iii) Effective enforcement of code of ethics for civil service;(iv) Public declaration of all significant new government contracts (defined, for example, by

size, procurement, privatization, etc.); and(v) Assessment of public financial accountability by 2001 followed by implementation of

reforms.

173. A more recent expression of the Government’s commitment to improving governance and service delivery has already been mentioned in paragraph 168 above.

THE NEED FOR CREDIBILITY

174. The implementation of the reform agenda outlined in the previous section requires that it be credible, so that it will receive the willing and committed support of civil servants (responsible for its implementation) as well as the public (who will receive the services).

175. The survey sought respondents’ perceptions of the commitment to reform. The results are depicted in Figure 33. Although most public officials believe that the Government is


committed to reforms, enterprise managers and the general public expressed much less confidence. Less than one in three household respondents said that they believe the Government is committed to improving the quality of services provided by the state. Among public officials, the commitment to improve efficiency, improve the business environment and even reduce corruption were all viewed as credible by more officials than the commitment to improve the quality of public services. The link between more effective state functioning and better delivery of public services remains to be better established among civil servants.


31%

40%

29%

36%

43% 44%40%

42%

66% 67%

57%62%

0%

25%

50%

75%

100%

improving efficiencyof the public sector

and stateadministration

improving thebusiness and

regulatoryenvironment

improving the qualityof services providedby the state to the

population

fighting corruption inthe public sector and

state institutions

perc

ept b

elie

ving

Gov

ernm

ent i

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.


176. What is significant in the Kazakhstan context is that the government at the highest levels seems aware of the public distrust of government commitment to improving governance and service delivery (see, for example, paragraph 168). Given also the Government’s promise to regularly conduct such surveys and publish the results, it will be interesting to see whether the Government succeeds in keeping this commitment, and what impact it has on public sector performance and accountability, especially at the service delivery level. The success of this exercise can have a significant impact on the credibility of the central executive.

177. Building credibility is especially challenging in countries with high levels of state capture and administrative corruption. Restraining concentrated economic interests and disentangling politics from business—or at least making the links transparent—while at the same time building the capacity of the state to provide high quality services for enterprises and the population are challenges that will not be easily overcome. Yet the costs of not addressing both forms of corruption are extremely high. Reform and progress are possible, but only through concerted efforts that treat the underlying weaknesses that feed state capture and administrative corruption.

178. This effort is not the state’s alone. Businesses, NGOs and the public all have important roles to play in reducing corruption and demanding quality government services. Yet their involvement depends, in part, on the credibility of the state. Although more than a third of


enterprises and households said that the Government’s commitment to reduce corruption is credible, respondents’ own commitment to assist is less sure. In answer to a hypothetical question, 17 percent of households said unambiguously that they would report or complain about a bribe demand, and a further 30 percent said “it depends.” Over half said unambiguously that they would not report it. Among those who said they might report it, about a quarter said they would be willing to do so non-anonymously. Stated another way, 11 percent of the population stated unambiguously that they would report bribe requests non-anonymously. By way of contrast, a 1997 survey by Hong Kong’s Independent Commission Against Corruption (ICAC) showed that, of those willing to report, 80 percent are prepared to do so non-anonymously.

179. The state needs to demonstrate its commitment to reform – and especially to improving the delivery of public services – more convincingly to civil servants as well as to households and enterprises. As the results above show, cynicism may otherwise prevail, and derail reform efforts. This would be a pity, since the authorities do realize, through the articulation of their reform priorities, that continued public sector reform – by contributing to more efficient and equitable management of public resources and providing a level playing field for economic growth -- is necessary to improve the efficiency and equity of public service provision, equitably distribute the gains from growth and promote better living standards.

180. Institutionalizing such surveys, and disseminating the results, can be a powerful means to improve public sector performance. Periodic administration of such or similar surveys at the republican, oblast and rayon levels can be used for performance evaluation purposes, and to generate competition as part of the quest for improving performance. Additionally, frequent survey administration and public dissemination of the results can address the credibility issue, and raise awareness about the authorities’ commitment to improve governance and service delivery.

181. It is heartening that policy makers seem to be aware of prevailing public distrust of government commitment to reform, as paragraph 168 demonstrates, and of the power of surveys to inform public opinion. The sobering feedback from households and enterprises (Figure 34), however, etches in sharp relief the magnitude of the actions to be taken for the credibility gap to be bridged. At the same time, Kazakhstan’s track record on selected aspects of institutional reform despite opposition from entrenched interests, and the technical capacity and competence of its public administration, provide cause for hope.

182. The road ahead is long and arduous, and staying the course will require reserves of institutional, political and technical sagacity, capacity, sustenance and stamina that will be tested repeatedly. As Kazakhstan’s enlightened policy makers have found in the past, such challenges are easier to surmount if the state works hand in hand with civil society and development partners towards a common goal: to improve the quality of life through better access to and greater satisfaction with the provision of basic social services – especially for the poor, the vulnerable, and the disadvantaged. Kazakhstan’s development partners stand ready to extend all assistance in this worthy quest.

Annex 1 – Sample Description and Methodology

ANNEX 1. SAMPLE DESCRIPTION AND METHODOLOGY

The surveys of households, enterprises, and public officials were carried out the social and marketing research agency “Brif Central Asia” in the winter and spring of 2001. This Annex summarizes the survey methodology and samples.64

Summary of Methodology

Three groups of respondents were interviewed in Kazakhstan during the surveys conduct: Households65 (1000 respondents), Enterprise Managers (400 respondents), and Public Officials (600) respondents. All the three groups were surveyed nation-wide. All interviews were conducted face-to-face, with nobody else presenting in the room during the interview, except a respondent and an interviewer. Strict confidentiality was guaranteed to the respondents.

Pilot Interviews

Pilot pre-testing interviews were conducted before an actual fieldwork aimed at refining the questionnaires and training both interviewers and supervisors. Draft version of the developed questionnaires were then used in pilot interviews, were respondents actually represented the surveys’ target groups.

The following respondents were interviewed during the pilot:

- 55 representatives of the General Public (30 interviews were held in Almaty, 10 interviews in KIZ collective farm (sovkhoz), and 10 interviews in Panfilovo village; all in Russian. Additionally, 5 respondents were surveyed in Almaty in Kazakh, using Kazakh language questionnaires);

- 30 representatives of the Public Officials (all interviews were held in Almaty, 28 in Russian, and 2 in Kazakh language);

- 14 representatives of the Enterprise Managers. (all interviews were held in Almaty, 10 in Russian, and 4 in Kazakh language);

The pilot interviews were held in January 2001, and a report on pilot interviewing was prepared for each of the respondent groups. The questionnaires were then revised to reflect the experience of the pilot interviews.

64 The Annex is based on the Technical Report prepared by Brif Central Asia. The full Technical Report is available on request.65 The term “household survey” reflects the fact that responds often provided responses for the entire household, for example whether any household member has been a victim of a crime. Certain questions, however, refer specifically to the respondent, as in a survey of the general public. For clarity of exposition, we will refer to this simply as the household survey.

63


Training of Supervisors

To ensure a consistent understanding of the questionnaires and a consistent methodology in administering the surveys, several training workshops were conducted before the actual fieldwork began: One training workshop for fieldwork supervisors and three different training workshops for the interviewers. Three workshops were required because of the three different target groups and were to be surveyed and three different questionnaires were to be used.

Experience and skills of fieldwork supervisors significantly influence the overall quality of the fieldwork in Kazakhstan, particularly in the regions outside Almaty. Therefore, special training workshop with fieldwork supervisors from the regions was held before the survey began. The key objective of the workshop was to prepare fieldwork supervisors for efficient work within the scope of this project. The supervisors were also able to participate in the training workshop for the interviewers in Almaty. This experience has helped them to arrange similar training workshops in the regions later on.

Written instructions for the fieldwork conduct were developed and distributed among the regional supervisors before the workshop, including

- general requirement for the survey for each category;- precise requirement for the sample building and sampling procedures for each category and

every region;- fieldwork reporting documentation;- detailed schedule of the fieldwork.

All the above documents were not only widely used during the training workshop but also later used during the real fieldwork implementation. The training workshop was held in Almaty in January, 2001.

Training of Interviewers

Before the fieldwork commenced, the supervisors conducted training workshops with all the interviewers participating in the surveys. Although similar in structure, separate workshops were conducted for the different surveys.

Written fieldwork instructions for the interviewers were developed, and distributed among the interviewers in advance, to better prepare them for the training. A thorough evaluation of all interviewers concluded the training, in particular, with regard to understanding of the questionnaire and sampling procedures. Interviewers who did not pass this evaluation were additionally trained or excluded and replaced by others.

Fieldwork Quality Control

To guarantee high quality of the fieldwork, the following activities were undertaken:

- Field supervisors attended one of the first three interviews for most interviewers;- Field supervisors were checking all the completed questionnaires during the fieldwork, and

made sure the absence of any errors and inconsistencies;- About 40 percent of all Household Survey interviews were checked through a back-visit to

the respondents’ houses (or a telephone call);- The interview’s’ double-check was arranged by independent controllers in each of survey

regions;

64


- All the questionnaires were checked in the BRIF’s main office in Almaty before their entering to the database;

- Statistical analysis of logical inconsistencies in the filled questionnaires was made, and those inconsistencies found were eliminated, through double-check of the paper questionnaires if necessary.

In total, 40 percent of all Household Survey interviews were double-checked, 30 percent of them through a back-visit to the respondents’ houses and 10 percent through a telephone call. Household selection, respondent’s selection according to the Kish Card, and responses to the questionnaire were check during these control procedures. No misconduct was revealed at this stage.

No back-visits or call were conducted for enterprise managers or public officials. Participants from these groups were not only difficult to reach, but also very sensitive to the issue of the survey. One of the major prerequisites for the participation in the survey was strict confidentiality of the responses, guaranteed by the interviewers. The very fact of back-checking would be perceived as a break of confidentiality.

Instead, the fieldwork preparation and conduct were designed in such a way to guarantee high quality and reliability of the data without a necessity of back-check. These goals were achieved via;

- Thorough selection and training of the interviewers; and- Strict control during the fieldwork stage, by both fieldwork supervisors and research

executives.

Quite often potential respondents called to the BRIF’s main office in Almaty to learn more about the survey goals and procedures. Also, because of the relatively high refusal rate supervisors had to call to the main office and discuss respondents’ replacements. These activities indicated that the fieldwork for the public officials and enterprise managers have been conducted properly.

Households Survey

Interviews for this category were held in the respondents’ households, selected as indicated in the sampling procedures. 989 interviews were conducted in Russian language, and 11 in Kazakh language. Kazakh language interviews were conducted in Zhambyl, Kyzylorda, and Southern-Kazakhstan regions. The overall response rate was 75 percent, comparable to the average in Kazakhstan for a survey of this type.

The total sample size for the Household (General Public) survey was 1,000 respondents, chosen by multistage stratified probability sampling was used in this survey. The overall sample was divided into six stratum: Almaty, the largest city of the country, with over 1 million inhibitors, was defined as a separate self-representing strata; and five mega-regions of the country in accordance with geographical disposition and economical specialization.

Each of the five regional strata was divided into three sub-strata: urban population in the cities (with population 90,000 +); urban population in the towns (with population less than 90,000); and rural population (population of villages). Table 4 presents the sample breakdown by region and type of settlement.

65


Table 4. Household Sample by Region and Settlement Type

Population structure of Kazakhstan by the regions (1999) Number of interviews

Urban population Rural population

Urban population Rural population

Large cities with 90,000+

people

Smaller towns with less than 90,000 people

Villages Large cities with 90,000+

people

Smaller towns with less than 90,000 people

Villages

N/% N/% N/% N= N= N=1. Almaty 1,130.1/

100.0%0.0/

0.0%0.0/

0.0% 80 0 0

2. South Region 1,085.2/ 21.2%

1,330.4/ 26.0%

2,700.9/ 52.8% 70 90 180

3. North Region 1,369.4/ 37.0

567.4/15.3%

1,769.6 47.7% 90 40 120

4. West Region 699.1/ 34.0%

338.9/16.5%

1,019.2/ 49.5% 50 20 70

5. East Region 545.1/ 35.6%

252.8/16.5%

732.9/ 47.9% 40 20 50

6. Central Region 663.0/ 47.0%

395.8/28.0%

353.3/ 25.0% 40 20 20

TOTAL: 5,492.1/ 36.7%

2,885.2/ 19.3%

6,575.8/ 44.0% 370 190 440

Source for population data: Kazakhstan State Statistical Committee, 1999.

66


Individual survey respondents were selected according to the Kish Card method. If the selected respondent was not at home at the initial visit, the interviewer visited back up to three times. The characteristics of respondents, and comparable census data, are presented in Table 5. The primary deviations between census and sample proportions are related to ethnicity and level of education.

Table 5. Socio Demographic Characteristics of the Household Sample and the General Population

National Census 1999 Survey GapN1= %1 N2= %2 %2-%1

GenderMale

Female46003435240923

46.753.3

439561

43.956.1

-2.8%+2.8%

Age18-2120-2930-3940-4950-59

60+

53859524133332298550189704910870141606725

5.524.523.419.311.016.3

30191220192128239

3.019.122.019.212.823.9

-2.5%-5.4%-1.4%-0.1%+1.8%+7.6%

EducationPrimary

SecondaryHigher

203737163025231501372

20.764.015.3

151679170

15.167.917.0

-5.6%+3.9%+1.7%

EthnicityRussian

KazakhsOther

335456945421711944526

34.146.219.8

409374217

40.937.421.7

+6.8%-8.8%+1.9%

Enterprise Survey

Interviews for this category were conducted in the respondents' offices, in face-to-face interviews. Using a screening questionnaire, respondent’s organizations were identified and selected from the lists of registered organizations. All interviewers were supplied with the list of enterprises with a position of the person to be interviewed. Lists of the substitute companies (respondents) were also available, in case of a selected company or respondent was not available or refused to participate. However, such lists were used by interviewer only with approval of the project managers.

In all, 400 interviews were conducted, with the overall response rate of 83 per cent (comparable to the average in Kazakhstan for a business survey). As a rule, respondents who refused to participate in the survey either immediately declined the participation or postponed the interview few times. In such cases, a replacement was made from the earlier prepared lists.

The sample was drawn from a database of all officially registered Kazakhstani enterprises. The source of the database of enterprises was the Kazakhstan State Statistical Committee. According to this database there are 61,500 enterprises of various forms in Kazakhstan.

The sample for the enterprise survey was stratified first by geographical area and then by size. Six geographical strata were used. Almaty was defined as a self-representing stratum, and five sub-

67


strata were based on the five mega-regions of the country shaped according to their geographical position and economical profile.

The second level of stratification was based on the size of the enterprises in terms of employees. The three subdivisions were:

Small Enterprises 50 employees and less

Medium Enterprises 51-250 employees

Large Enterprises more than 250 employees

Each of the six geographical strata was divided into three enterprise size substrata, thus resulting in 18 substrata in total. Since only 2 percent of enterprises in Kazakhstan had more than 250 employees, a survey that defined the probability of being sampled in terms of the legal definition of a firm, thus allowing all enterprises to have an equal probability of being sampled regardless of size, would have resulted in only a small number of large firms. 66 To ensure that the survey adequately reflect the experience of all enterprises, large and small, the sample proportions were set in a quasi-ad hoc way to favor large enterprises and ensure a statistically reasonable sample size for each of the three groups. Only directors or top-managers of the selected enterprises were interviewed during the survey.

Table 6. Enterprise Sample by Region and Size

Strata Total Large Medium Small1. Almaty 80 8 24 482. South Region 88 9 26 533. North Region 116 12 35 694. West Region 48 5 14 295. East Region 32 3 10 196. Central Region 36 4 11 11Total: 400 41 120 239

Public Officials Survey

Interviews with the respondents of this group were conducted on three levels - republican, oblast (regional), and local. Because of the very sensitive issue of the survey, an official letter was obtained from the Kazakhstan Agency of Public Service. The letter confirming that the survey is being conducted on behalf of the Government of Kazakhstan, was shown to the survey respondents and in many cases did help in arranging interviews with the public officials.

599 interviews were conducted in Russian language, and 1 in Kazakh language, with the overall response rate of 77 percent (comparable to the average in Kazakhstan for a survey of this kind). Among the major reasons for refusals were the following:

66 It can be argued that a sampling scheme allowing each enterprise an equal probability of being sampled biases the sample in favor of small enterprises, since a firm with a single employee would have the same chance of being sampled as one with a thousand. A reasonable alternative sampling scheme would be to weight the probability of being sampled by the number of employees. Under this alternative scheme, the share of large firms in the sample would be even higher than actually resulted from our quasi-ad hoc approach. This, the size stratification used for the enterprise survey can be viewed as an intermediate approach.63 Letter no. 15-4-1-7/3449 dated March 25, 2002 addressed to the World Bank from Mr. Kelimbetov, First Vice Minister of Finance, Ministry of Finance of the Republic of Kazakhstan.

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Lack of time – 130 cases (72 per cent);

Fear of the boss or supervisors – 44 cases (25 per cent);

Supervisors of bosses did not allow respondents to participate in the survey– 6 cases (3 per cent)

The sample was designed to reflect three major levels of state organizations in Kazakhstan; 200 respondents were surveyed from each of the following groups:

1. Republic level (includes central governmental establishments)2. Regional level (includes regional governmental establishments)3. Local level (includes local governmental establishments)

Quota sampling was used for this category, for all three groups. Quotas were defined according to the type of organization and position of the respondents. The following information was used to define the quotas.

“Data on the number of governmental officials in the Republic of Kazakhstan as of November 1, 2000” (available only for the Republican Ministries);

Telephone directories;

“Standards of the amount of governmental employees and senior employees in the governmental agencies of the Republic of Kazakhstan”.

Republic level

At the Republic level, the total number of interviews to be conducted (200) was proportionally divided between different organizations of the republican level (based on the amount of employees). To construct a representative sample, nearly all organizations and establishments of this level were included into the sample (with a few exception agreed with the Client, such as Agency of National Security or Agency of Governmental Secrets Protection).

The Administration of President had refused to participate in the survey. Therefore, 10 potential respondents from this body were replaced by 3 respondents from the Ministry of Foreign Affairs, 2 from the Ministry of Trade, 4 from the Administration of President’s Affairs, and 1 from the Ministry of Justice.

Regional level

All regional centers of Kazakhstan and Almaty, as a city with republican status, were included into the sample, 15 sample points in total. (All of Almaty’s governmental offices are considered as regional ones, due to a special status of the city).

There were selected those governmental organizations that have regional offices (representative offices or branches). For each of the selected organizations an estimated number of employees was calculated, according to the “Standards of the amount of governmental employees and senior employees in the governmental agencies of the Republic of Kazakhstan”.

Separately, similar figures were calculated for akimats (regional governmental offices), based on.

Figures on the number of employees obtained from few akimats;

Information from the telephone directories.

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Based on these estimates, percentage and actual number of interviews for each regional establishment were calculated; these figures were then distributed by the regions (regional centers).

Local level

At the local level, the 200 interviews were evenly distributed between two major strata:

Urban settlements (towns with population of 90.000 and more)

100 interviews; and

Rural settlements (raytsent67r) – 100 interviews.

37 Studies of the unofficial economy and its link to corruption include Johnson, Kaufmann and Shleifer, 1997 “The Unofficial Economy in Transition”, Brookings Papers on Economic Activity 2, pp. 159-239; Johnson, Kaufmann, Zoido-Lobaton, 1998, “Corruption, Public Finances and the Unofficial Economy”, Mimeo; Johnson, Kaufmann, McMillan, Woodruff, 2000, “Why Do Firms Hide? Bribes and Unofficial Activity after Communism” Journal of Public Economics, 76, pp. 495-520; Friedman, Johnson, Kaufmann, Zoido-Lobaton, 2000, “Dodging the Grabbing Hand: The Determinants of Unofficial Activity in 69 Countries,” Journal of Public Economics, 76, pp. 459-493.46 One firms reported a bribe of 725,000 Tenge for a license or permit.43 Five officials said embezzlement occurs very often, and a further 17 officials said that it happens often.50 Hellman, Jones, and Kaufmann, (2000, “Seize the State, Seize the Day: An Empirical Analysis of State Capture and Corruption in Transition,” World Bank mimeo) use cross-country data to examine (with controlled regressions) the impact of corruption on investment at the firm level. Additional empirical studies on the relationship between corruption and growth and investment include: Mauro, 1995, “Corruption and Growth”, Quarterly Journal of Economics, 110 (3), pp. 681-712; Mauro, 1997, “The Effects of Corruption on Growth, Investment, and Government Expenditure: A Cross-Country Analysis”, in Kimberly Ann Elliot, ed., 1997, Corruption and the Global Economy, Washington, DC: Institute for International Economics; Kaufmann, 1997, “Corruption: The Facts” Foreign Policy, Summer 1997, pp. 114-130; World Bank, 1997, World Development Report: The State in a Changing World. Oxford University Press; Tanzi, 1998, “Corruption Around the World: Causes, Consequences, Scope and Cures”, IMF Working Paper; Kaufmann, Shang-Jin Wei, 1999, “Does “Grease Money” Speed Up the Wheels of Commerce?” National Bureau of Economic Research Working Paper 7093, Cambridge, MA: Harvard University; Campos, Lien, and Pradhan, 1999, “The Impact of Corruption on Investment: Predictability Matters”. World Development, Vol. 27, No. 6, pp. 1059-1067; Wei, 1999, “How Taxing is Corruption on International Investors?” The Review of Economics and Statistics, Vol. 81, No. 4, pp. 1-12; Wei, 1999, “Corruption in Economic Development: Beneficial Grease, Minor Annoyance or Major Obstacle”, World Bank: Policy Research Working Paper No. 2048, Wei, 2000, “Bribery in the Economies: Grease or Sand?” Harvard University, NBER, and the World Bank. February 3. Mimeo.51 See World Bank, 2000, Anticorruption in Transition – A Contribution to the Policy Debate, Figure 2.1.25 Four percent said the unofficial payments are made to support teachers who are insufficiently paid, and 14 percent said it was to express thanks.26 Since suits may be raised by citizens against enterprises, it is not surprising that the number of plaintiffs is different from the number of defendants.27 These do not add to 16 percent due to rounding, due to the fact that a few respondents refused to answer the question about unofficial payments, and due to the fact that some respondents provided both gift and money.28 Six said the payments were “definitely bribes” and four said “in some ways it was a bribe, but not as bad as a bribe.”29 For the relationship between corruption and poverty and inequality, Stephen Knack, and Gary Anderson, 1999, Is “Good Governance” Progressive? Institutions, Inequality, and Poverty Reduction, paper presented at the 1999 Annual Meeting of the American Political Science Association, Atlanta; Sanjeev Gupta, Hamid Davoodi, and Rosa Alonso-Terme, 1998, Does Corruption Affect Income Inequality and Poverty? IMF Working Paper; Daniel Kaufmann, Aart Kraay, and Pablo Zoido-Lobaton, 1999, Governance Matters, World Bank Policy Research Paper No. 2196.30 An ancillary effect is that healthcare is associated with economic development. David E. Bloom, David Canning, and Jaypee Sevilla, “The Effect of Health on Economic Growth: Theory and Evidence,” NBER Working Paper 8587, November 2001.31 See Paolo Mauro, 1998, Corruption and the Composition of Government Expenditure, Journal of Public Economics, 69, pp. 263-279.36 A probit regression of the decision not to seek medical attention on income and the perception of corruption in health care yields coefficients that are significant at the 10 and 5 percent levels, respectively.

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The 100 interviews to be conducted in the urban settlements were distributed between 10 following cities (selected randomly).

Almaty (Almatinskaya obl.) Karaghandy (Karagandinskaya obl.) Zhezgazgan (Karagandinskaya obl.) Kokshetau (Northern-Kazakhstan obl.) Kostanay (Kostanayskaya obl.) Petropavlovsk (Northern-Kazakhstan obl.) Semipalatinsk (Eastern-Kazakhstan obl.) Taraz (Zhambilskaya obl.) Uralsk (Western-Kazakhstan obl.)

8 See, for example, Partnerships for Health Reform, Measuring Results of Health Sector Reform: A Handbook of Indicators, Abt Associates, and Others, September 1997. 9 To attempt to isolate the physical from the economic constraints on access, perceptions of access were regressed on (i) income, (ii) on income and location dummies, and (iii) on income with the sample restricted to Almaty. Income was defined as household income, and log of household income in separate regressions. When access is regressed on income and log income, the coefficients were positive and significant for every frontline service, most at the very high levels. When income was used directly, the only services for which accessibility was not related to income at a 5 percent level of significance were the police, social benefits, and agricultural services. (Accessibility to the broad levels of government were generally not related to income of respondent and so will not be discussed further here.) When the log of income was used, courts and state housing assistance were also not significant at conventional levels. These results generally hold true even when dummies for type of settlement were used. When the sample is restricted to households in Almaty, thereby controlling to some degree for the collinearity between economic and physical limitations to access, the services for which economic factors remain important are the state-owned airline, railway, and health services. The first two are not at all surprising, but such robust economic restraints on access to healthcare poses a challenge to healthcare reformers.10 See the notes for Figure 11 in Annex 6.11 Clarification: In the list of entities in this and some other figures, there are references to “Oblast level revision and inspection commissions” and “rayon or aul level revision and inspection commissions”. In actuality, these commissions exist only at the oblast level, and are part of the oblast level elected body, the maslikhat. These commissions perform the external audit function for those budget entities that are funded by the local budget – at the oblast, rayon and aul levels. However, even though these commissions perform such a critical oversight function, the nature of their mandate does not seem to be well known among households and enterprises: many respondents were under the impression that there were separate commissions at the oblast level and below. That is why they have been depicted as they have been in the figures.12 Interestingly, more than one in three enterprises that had interacted with organized crime bodies provided favorable ratings. One may speculate that this is because organized crime is not seen only as extortionary but also as providing services that the state has failed to effectively provide, such as conflict resolution and prevention of harassment by state entities and personnel. Such speculation would be in line with the experience in several countries in the region, where organized crime provides a “roof” to entrepreneurs and households, “protects” them from arbitrary state action, and also obviates their clients’ obligation to pay their legitimate dues – such as taxes – to the state.13 Figure 16 shows the overall percentage of the sample indicating that corruption is “very widespread.” The actual frequencies from the household sample are:Percent of respondents Corruption does not exist in this fieldCorruption does exist, but is not very widespreadCorruption does exist and it is very widespreadCorruption does exist but I cannot tell how widespread it isI don’t know whether there is corruption in this fieldParliament46203437Government37223633Presidential Administration66173041Oblast administration31421362716 For example, all of those who provided unofficial payments to the traffic police described the payments as unilaterally offered, yet all also described them as bribes.17 As outlined in Text Box 1 and detailed in Annex 2, a significant fraction of the population does not define certain activities to be corruption, even though they clearly fit the definition. When asked whether unofficial payments to doctors and nurses “to ensure proper care” was corruption, only 35 percent said this was definitely corruption. Only 68 percent said that gifts or money given to a government official “to avoid waiting in long lines” was definitely corruption. One in eleven respondents said that a student giving gifts to a university professor “in order to influence his grade” was definitely not corruption.32 Indeed, a large portion of the income effect can be explained by the fact that the rich are more likely to own cars and are thus more likely to deal with the traffic police.

71


Shymkent (Southern-Kazakhstan obl.)

The 100 interviews to be conducted in rural areas were distributed between 25 settlements (raytsentr), selected randomly from the total list of such settlements. As a rule, these settlements are small towns which are administrative centers of the rural regions (rayon).

For each selected organization an estimated number of employees was calculated, according to the “Standards of the amount of governmental employees and senior employees in the governmental agencies of the Republic of Kazakhstan”, available figures on the number of employees obtained from few akimats, and information from the telephone directories. Based on these estimates, the percentage and actual number of interviews for each local establishment were calculated; these figures were then distributed by the regions (regional centers).

33 The chart shows the median percentage of income paid in bribes. For alternative measures and for a detailed description of the methodology used in the chart, see Annex 6.34 Regressing bribes as a share of income on the actual level of income yields a negative coefficient that is significant at the 10 percent level. When the log of income is placed on the right-hand side, the coefficient is significant at the 1 percent level.35 Surveys in Romania also found that bribe payments are regressive. World Bank, 2001, Diagnostic Surveys of Corruption in Romania The average bribe size as a share of income is higher in Kazakhstan for each of the three income strata.; however, cross-country comparisons are complicated due to minor variations in methodology, so the differences are merely illustrative.38 Bruce Pannier, “Kazakhstan: Ethics Still in Question As ‘Shadow Capital’ Amnesty Ends,” RFE/RL, July 10, 2001; and NTV (Moscow), “Kazakh Officials Announce Results of Capital Amnesty”, July 17, 2001, BBC Monitoring.39 Moreover, amnesties in general are one time affairs. The success of a tax amnesty in the U.S. Sstate of Maryland in 1987 led to high expectations for a similar amnesty this year. But only US$13 million was collected, far short of the US$70 million expected. (Gus G. Sentementes, “State Tax Amnesty Fizzles,” The Baltimore Sun, November 2, 2001. More frequent amnesties also raise the risk of moral hazard, whereby firms would intentionally remain underground precisely because they know they will eventually be given amnesty.40 Kazakhstan Today, April 5, 2001.41 The mean bribe size for customs was 40,000 Tenge. Thirty-six enterprises reported the sizes of bribes to customs.42 Similar survey questions found that 53 percent of firms in Albania, 71 percent of firms in Georgia, and 30 percent of firms in Latvia were willing to pay higher taxes to eliminate corruption. In Albania, Georgia, and Latvia, firms were willing to pay 6, 16, and 4 percent, respectively, for the elimination of corruption. Daniel Kaufmann, Sanjay Pradhan, and Randi S. Ryterman, 1998, “New Frontiers in Diagnosing and Combating Corruption,” World Bank: PREM Note No. 7.44 Ten percent of firms said they were visited by fire inspectors at least 6 times in the previous 12 months; 20 percent of firms said the same of sanitary and epidemiological inspectors.45 Forty percent of firms that encountered bribery with fire inspectors were satisfied, compared to 68 percent of firms that did not encounter bribery.; 33 percent of firms that encountered bribery with sanitary and epidemiological inspectors were satisfied, compared to 70 percent of firms that did not encounter bribery.47 These correlations are significant at the 1 percent level in both cases.48 Although this result is only true at the 15 percent level of significance.49 This difference is significant at the 0.01 percent level. Other “problems” for which the difference is significant at the same level include: procedures for obtaining an import/export licenses, customs/foreign trade regulations, certifications, frequent inspections by state bodies, bureaucratic delays, ambiguous legal standards relating to business, favoritism and clientelism, uncertainty and constant changes on laws, rules, and regulations, low professionalism and capabilities of state officials. These differences between bribe payers and non-bribe payers do not simply reflect a proclivity to complain among bribe payers. Other “problems” that could not be solved by bribes, such as “shortage of qualified workers,” and “inflation” were not rated significantly differently between the two classes.54 “People sometimes give ‘trivial’ gifts to public officials to express appreciation for their assistance. What size gift would you say is ‘trivial’? A gift of less than ___________ Tenge is trivial and should be considered perfectly acceptable.”55 The log of total income was use for public officials and households and the (grouped) level of turnover was used for enterprises. The level of significance was 10 percent for households and public officials and 5 percent for enterprise managers.57 Based on the assessments of officials who described themselves as “very familiar” with the procurement practices at their institutions. The statistics in the table able based on sample sizes ranging from 25 to 54.

72


Due to refusals the following replacements were made:

1. Semipalatinsk Local Department of the Agency of Natural Monopolies Regulations to City Committee on Small and Medium-Size Enterprises;

2. Kostanay City Military Commissariat to City Prosecutor Office

73

Annex 2. What is Corruption? 74

ANNEX 2. WHAT IS CORRUPTION?1. The word “corruption” means different things to different people. While most agree that large-scale bribes to win public tenders are corruption, for example, other situations are more ambiguous. At what point does a simple expression of gratitude, or offer of flowers become “corruption?”

2. This Annex provides an analysis of what Kazakh citizens consider to be “corruption.” It is based on a series of hypothetical situations. Respondents from all three sample groups were asked to indicate whether the exchange described in the situation was “definitely corruption,” “in some ways corruption, in other ways not,” or “definitely not corruption.” The hypothetical situations and summary statistics are provided in Table 7.

Table 7. What is Corruption?


After a visit to a doctor, the doctor is given a box of chocolates.

Definitely corruption 8% 5% 6%Some ways yes, some ways no 28% 18% 28%Definitely not corruption 64% 78% 66%

After a visit to a doctor, the doctor is given money (in addition to the official payments).


At the beginning of a visit to the doctor, the doctor is given a box of chocolates.


At the beginning of a visit to the doctor, the doctor is given money (in addition to the official payments).


During a visit at the hospital, money (in addition to the official payments) is offered to doctors and nurses to ensure proper care.


During a visit at the hospital, money (in addition to the official payments) is requested by doctors and nurses to ensure proper care.


A student gives a gift to a university professor in order to influence his grade.


A company gives some gift or money (in addition to the official payments) to a government official to avoid waiting in a long line.


A company gives some gift or money (in addition to the official

Definitely corruption 86% 86% 94%Some ways yes, some ways no 12% 10% 4%


payments) to a tax inspector to Definitely not corruption 2% 4% 2%

At the beginning of a court case, one of the parties to the suit gives the judge a gift.


A traffic policeman fines someone for an infraction; the driver offers a smaller amount and indicates that no receipt is required.


3. From the responses regarding healthcare it is immediately apparent that the circumstances of the exchange are tremendously important for identifying what respondents consider to be corruption. While only a small percentage of respondents said that a box of chocolates provided to a doctor after a visit is corruption, 3-4 times as many consider it corruption if given prior to the visit. Similarly, transactions involving money, as opposed to gifts, are much more likely to be considered corruption. During hospital visits, twice as many view unofficial payments as corruption if it was requested rather than unilaterally offered. For many of the hypothetical situations described in Table 7, it was the public officials that exhibited the least tolerance for the various types of behavior, describing them as corruption in greater numbers than for the other two sample groups.


Figure 34. What is Corruption? Ordered Probit Results from All Three Sample Groups

before (vs after)

money (vs gift)

doctor (vs police)

hospital (vs police)

university (vs police)

long line (vs police)

tax inspector (vs police)

court (vs police)

requested (vs offered)

male (vs female)

young age (vs older)

middle age (vs older)

Kazakh (vs Russian)

enterprise managers (vs households)

public officials (vs households)

-2.00 0.00 2.00

significant at the 0.01% level

not significant at the 5% level

significant at the 5% level

4. The series of hypothetical questions outlined in Table 7 lends itself well to a statistical analysis of the factors that explain whether or not a certain type of exchange is considered corruption. For each of the eleven situations, a series of variables were defined indicating whether the payment was before or after, a gift or money, whether the respondent was male or female, Kazakh or Russian or other ethnic group, and for the age category of the respondent. In addition, dummies were created indicating the sector or situation that was being described (e.g., doctor visit, judge, avoid long line, etc.), and indicating the sample group (household, enterprise, or public official) from which the respondent was drawn.

5. For each respondent there exist eleven different assessments of corruption. The data was then “stacked” such that each of these assessments was taken as a single observation. This resulted in 22,000 assessments of whether a given situation was corruption, and these assessments served as the dependent variable. The assessment could take on three possible values: (1) definitely


corruption, (2) some ways yes, some ways no, and (3) definitely not corruption. Restrictions on the dependent variable call for the use of an ordered probit analysis.

6. The first probit regression included observations from all three sample groups and the results are presented graphically in Figure 34. Since the right-hand side variables were all dummy variables, the base case is provided in parentheses. The color of the bar indicates the degree of statistical significance of the resulting parameter estimate.

7. In terms of respondent characteristics, Kazakhs were slightly more likely to view a given exchange as corruption than other ethnic groups. The oldest 30 percent of the respondents were the most likely to view an exchange as corruption. There was no statistically significant different between male and female respondents.

8. Respondents were much more likely to view an exchange as corruption if the payment was requested, if it was given before the service, and if it was made in the form of money.

9. The rank orderings of the coefficients on sectors is telling. Notwithstanding other characteristics of the exchange, payments to judges by a party to a lawsuit, and a payment to a university professor in exchange for a grade were most likely to be branded “corruption.” Next were payments to tax inspectors to reduce taxes, and payments to traffic policemen to reduce fines. The situations least likely to be considered corruption involved doctor visits, hospital stays, or payments to avoid waiting in long lines. This result does not suggest that respondents do not view these situations as corruption; it does suggest that these are less likely to be considered corruption than the base case of a payment of a bribe to a traffic policeman. As is clear from Table 7, the majority of respondents describe most of these situations as “corruption.”

10. The respondent sample dummy variables were also statistically significant. Enterprise managers were, other thing equal, least likely to consider a given situation to be corruption. Confirming the simple result described earlier, public officials were the most likely to describe a situation as corruption.

11. The second probit regression expands the number of explanatory variables, focusing only on the households sample.68 The additional variables were the level of income of the respondent and an indicator of the respondent’s assessment of whether or not someone in the respective position “can survive based only on official income.”

12. After controlling for these additional factors, the results described earlier for all three sample groups are confirmed. The coefficients on the additional variables suggest that poorer households are more likely to brand a given transaction corruption, and that a transaction is less likely to be considered corrupt if the respondent believes that someone in that profession (e.g., judge, doctor, etc.) can not survive based only on official income.

13. Although the latter result shows that the population maintains some sympathy for the low salary levels of public officials, a glance at Figure 35 shows that the magnitude of the coefficient is not large. Compared to the other right-hand side variables, the low official income levels of public officials do not explain very much of whether or not a transaction is believed to be corrupt.

68 Certain questions used as right-hand side variables in this section were only asked on the household questionnaire.


Figure 35. What is Corruption? Ordered Probit Results from Households

before (vs after)

money (vs gift)

doctor (vs police)

hospital (vs police)

university (vs police)

long line (vs police)

tax inspector (vs police)

court (vs police)

requested (vs offered)

male (vs female)

young age (vs older)

middle age (vs older)

Kazakh (vs Russian)

low income (vs high)

middle income (vs high)

can't survive on that income (vs can)

-2.00 0.00 2.00

significant at the 0.01% level

not significant at the 5% level

significant at the 5% level

Annex 3. Governance and Public Administration 79

ANNEX 3. GOVERNANCE AND PUBLIC ADMINISTRATION—DETAILS

The purpose of this Annex is to describe the analysis of the relationship between aspects of public sector performance – accessibility, quality, and corruption – and the qualities of systems of public administration. This analysis underpins the recommendations for priorities in public administration reform in the main report.69

Approach and Definitions

The approach used in this Annex is to describe the strength of the statistical relationships between the quality of services, the level of accessibility and the level of corruption at an institution, on the one hand, and indices of the character of public administration, on the other. The dependent variables to be used in the analysis are outlined below. (The survey questions are described in Annex 6.)

ACCESS is an index of the self-assessed level of accessibility of the services of the institution. It is based on the degree to which the respondent feels the services (i) meet the needs of the citizens, (ii) are accessible to the poor, and (iii) whether there exist mechanisms for consultations with users about their needs.

QUALITY is an index of the self-assessed (i) level of quality and (ii) cost-effectiveness of the services provided by the respondent’s institution.

CORRUPT is an index of the self-assessed level of corruption at an institution. It is based on questions about the existence of various forms of corruption and on the degree which bribery is institutionalized through the sharing of bribes with colleagues or superiors.

3. Performance will be examined in relation to the staff’s identification with the mission, strategies, and objectives, the degree to which personnel decisions are based on merit, the level of bureaucracy and quality of administrative procedures, the clarity of information channels in the institution, the quality of budget preparation, the quality of rules of procurement, the degree of information provided to the public, the overall salary level, the proportion of salary paid in the form of bonuses, and the severity of punishment for those involved in corruption. The definitions of these independent variables are outlined below.

MISSION is based on the degree to which the respondent’s institution (i) makes known to employees the objectives and strategy, (ii) has widespread conviction that the public is the client, (iii) has widespread identification and involvement with objectives and strategies by employees, and (iv) has incentives for delivering high quality services to the public.

MERIT is based on degree to which personnel decisions are (i) clearly explained, (ii) based on written criteria, (iii) regularly audited, and based on (iv) merit and performance, (v)

69 The approach follows World Bank, 2001, Diagnostic Surveys of Corruption in Romania, Annex 2, but expands the set of dependent variables to include quality and access, and adds procurement quality to the set of explanatory variables.


education, (vi) professional seniority, as opposed to (vii) kinship, (viii) personal connections, (ix) regional connections, or (x) political connections.70

BUROC is the index of the quality of bureaucratic and administrative procedures. It is based on the degree to which an institution’s procedures are (i) standardized and in writing, (ii) simple, clear and easy to understand, (iii) leaving little room for subjective discretion, (iv) stable, (v) well monitored, and (vi) strictly enforced, without (vii) imposing excessive bureaucratic steps or (viii) causing delays in service delivery.

INFO is an index of the quality of information channels within the institution. It is based on (i) the existence of sufficient information channels, (ii) whether those who are affected by decisions are first informed, (iii) whether managers consider subordinates’ opinions before making decisions that affect them, (iv) whether the respondent has access to the information needed to work efficiently, and (v) whether the respondent knows the steps that should be followed for solving problems in their realm of responsibility.

BUDGET is an index of the quality of budget preparation. It is based on (i) the degree of consultation between budget managers and department managers, (ii) the degree to which written principles are implemented, (iii) the degree of specificity in written budget principles, and (iv) the degree of bureaucracy in the budget process. This variable is based only on the opinions of respondent who consider themselves to be knowledgeable about budget processes.

PROCURE is an index of the quality of procurement polices and implementation. It is based on the degree to which the policies are (i) formally written, (ii) widely known, (iii) transparent and easy to understand, (iv) widely followed, (v) effective for ensuring the procurement of high quality/low cost goods and services, and (vi) the available of resources to help with procurement-related questions. This variable is based only on the opinions of respondent who consider themselves to be knowledgeable about procurement.

PUBINF is an index of the efforts made to provide information to the public. It is based on indicators of whether or not the institution make information known through (i) activity reports, (ii) local periodicals and mass media, (iii) administrative boards, public announcements, and press releases, whether the institution (iv) has a special department for handling complaints, whether the procedures for filing complaints are (v) posted, and/or (vi) printed and distributed.

TOTSAL is the log of the respondent’s total salary including both base salary and additions such as bonuses, awards, financial incentives, bonuses due to vacant positions, etc. The variable has been re-scaled to be between zero and unity, for symmetry with the other right-hand side variables.

PREMIA is the ratio of non-base salary remuneration to total salary. Non-base salary remuneration includes additions, bonuses, awards, financial incentives and amounts due to vacant positions.

ENFORCE is an index of the degree to which corruption violations are punished at an institution, ranging from prosecution in court, to firing, to lesser penalties, to no penalty at all.


Each of these variables was scaled from 0 to 1. The sample means and number of observations are presented in Table 8.

Table 8. Means for Indexes of Performance and Qualities of Public Administration

Variable Number of Observations Sample MeanACCESS 541 0.68QUALITY 502 0.60CORRUPT 600 0.13MISSION 575 0.72MERIT 535 0.69BUROC 554 0.68INFO 583 0.70BUDGET 263 0.75PROCURE 212 0.68PUBINF 600 0.50TOTSAL 511 0.48PREMIA 511 0.62ENFORCE 600 0.68

The basic form of regression that is presented in this Annex relates performance (accessibility, quality and corruption) to aspects of public administration. In order to mitigate the impact of omitted variable biases, the regressions were supplemented by the addition of a limited number of control variables that were also placed on the right-hand side. First, dummies were included indicating the level of government to which the organization belongs (DISTRICT and REGION, with CENTRAL as the base case). Second, an index of the degree to which the institution interacts with business enterprises and the general public was created. This index (INTERACT) helps to capture the effect of institution-specific rents. Two dummy variables indicating whether or not the respondent had been offered a GIFT or MONEY in the previous twelve months also help control for institution-specific rents.

For each of the three aspects of public sector performance – quality, accessibility, and corruption – the relationship was explored using several techniques. The basic approach is to use the individual respondent as the unit of analysis. While this simple approach shows the strengths of the relationships between the respondent’s assessments of performance and the various aspects of public administration, it may be subject to particular respondent-level biases that affect both the right-hand side and left-hand side variables. For example, an optimist might report that personnel policies are working well and that corruption is low, while a pessimist at the same institution might report the opposite. In this example, a negative relationship between the two variables might be generated in the respondent-level regressions, despite the fact that both respondent’s were reporting on the same institution.

To address the possibility of such a respondent-level perception bias, three additional specifications were employed. First, the mean responses for each institution was used as the unit of analysis. Since the respondent-level perception biases tend to wash out when averaged across all respondent in an institution. As these institution-level regressions are based on grouped data, they were weighted to correct for the inherent heteroskedasticity.

Second, each respondent’s assessment of performance was regressed on the average of each of the explanatory variables over all respondents in the institution except for that


respondent. This respondent-level regression completely removes the possibility for such a respondent-specific bias as described in the example above, and provides a very robust check on the other regressions.

In all, then, there are three basic specifications for each dependent variable. For each of these specifications, regressions were run with and without the control variables, and include both univariate and multivariate combinations of right-hand side variables. Multivariate regressions were run both with and without the variables BUDGET and PROCURE. Since knowledge of budget and procurement policies tends to be fairly specialized, assessments were provided only by the subset of officials that felt knowledgeable about these processes, and the number of observations falls dramatically when they are included in the multivariate regressions. Lastly, it must be made clear that the regressions in this Annex are not based on fully specified causal models. The results examine the robustness and relative strengths of the relationships rather than show causation.

The tables that follow show the results of regressions following the approach described above. To conserve space, univariate71 regressions are presented in a single column, and only t-statistics are reported. Since each of the right-hand side variables are similarly scaled between 0 and 1, only the t-statistics will be reported.

In the next section, these approaches will be applied to assessments of accessibility, followed by applications to assessments of quality and corruption, in turn. The final section summarizes the key conclusions of this analysis.

Accessibility

In univariate regressions, with and without controls for institution-specific rents, ACCESS was highly correlated with every indicator of public administration, except for those related to salaries and enforcement of anticorruption laws. The highest correlations were demonstrated by MISSION, INFO, and BUROC. (Columns 1 and 4 in Table 9.)

The results from the multivariate regressions differed sharply depending on whether the variables for budget quality and procurement were included or not. When these two variables were included (Columns 2 and 5 of Table 9), the aspects of public administration that were most closely associated with ACCESS were PROCURE, PUBINF, and PREMIA. When the quality of budget and procurement processes are dropped from the regression, resulting in a sample more than three times as large, the aspects of public administration most highly correlated with ACCESS are MISSION, PUBINF, INFO, and BUROC. (Columns 3 and 6 of Table 9)

In institution-level regressions, the strongest public administration indicators were MISSION, INFO, and PUBINF. BUROC and MERIT were also significant in some regressions. (Table 10.)

In regressions controlling for respondent-level biases (Table 11), the two factors most closely related to ACCESS were MISSION and INFO, confirming the robustness of the other findings that a clear client orientation and internal communication are both essential for providing easy accessibility to government services. Similarly, PUBINF was also significant in the simple (uncontrolled) regression, showing the importance of reaching out to clients, providing easy access to information.

71 Regressions that include only a single variable of interest but also include the control variables DISTRICT, REGION, INTERACT, GIFT and MONEY, will still be referred to as “univariate” to avoid unnecessarily cluttering the tables and exposition.


Table 9. Accessibility of Services and the Qualities of Public Administration—Respondent-level Regressions

t-statistics from regressions(1)

Univariate(2)

Multivariate(3)

Multivariate(4)

Univariate with controls

(5)Multivariate with controls


MISSION 9.76 1.63 4.40 8.78 1.42 4.06MERIT 5.00 0.57 0.19 4.69 0.84 0.18BUROC 7.67 1.05 2.40 6.87 1.27 2.30INFO 7.89 1.54 2.36 7.77 1.84 2.74BUDGET 2.23 -0.33 2.17 -0.65PROCURE 3.26 3.13 3.48 3.17PUBINF 4.14 3.80 2.91 4.13 3.20 3.11TOTSAL 0.35 -2.57 -1.43 0.89 -2.36 -1.08PREMIA 0.41 3.00 1.30 0.95 2.59 1.07ENFORCE 1.53 -1.03 0.48 1.37 -0.88 0.62Columns 1 and 4 present the results of univariate regressions. To save space, all have been listed in a single column.Columns 2, 3, 5 and 6 present the results of multivariate regression including as right-hand side variables all of those

listed. Columns 3 and 6 do not include BUDGET and PROCURE due to the large amount of observations lost when these

variables are included.Sample sizes are 450-600 for the univariate regressions, except for those for PROCURE (195 observations) and

BUDGET (241 observations). Multivariate regressions including these variables (Columns 2 and 5) have 103 observations, while those without these variables (Columns 3 and 6) have 376 observations.

Columns 4, 5, and 6 also included the control dummies REGION, DISTRICT, INTERACT, GIFT, and MONEY.

Table 10. Accessibility of Services and the Qualities of Public Administration—Institution-level Regressions


Univariate(2)

Multivariate(3)

Multivariate(4)




MISSION 6.56 3.36 3.48 6.70 3.65 3.56MERIT 2.36 0.13 -1.09 2.72 0.30 -0.11BUROC 4.41 -0.13 0.51 3.13 -0.59 -0.68INFO 5.17 2.30 2.51 5.88 2.13 2.83BUDGET 0.32 -2.36 0.73 -1.91PROCURE 1.29 1.19 1.63 0.46PUBINF 2.49 2.51 1.85 2.93 2.13 1.42TOTSAL 0.24 -0.60 -1.06 1.15 -0.93 -1.02PREMIA 0.13 -0.27 0.84 0.96 -0.03 1.08ENFORCE -0.01 -0.90 -0.82 0.01 -0.51 -0.69Since the dependent variable is based on grouped data, all regressions have been weighted by the square root of the

number of observations on which the dependent variable was based.Columns 1 and 4 present the results of univariate regressions. To save space, all have been listed in a single column.Columns 2, 3, 5 and 6 present the results of multivariate regression including as right-hand side variables all of those


variables are included.Sample sizes are 78-81 for the univariate regressions, except for those for PROCURE (63 observations) and BUDGET

(68 observations). Multivariate regressions including these variables (Columns 2 and 5) have 58 observations, while those without these variables (Columns 3 and 6) have 76 observations.



Table 11. Accessibility of Services and the Qualities of Public Administration—Respondent-level Regressions, Correcting for Respondent-level Biases


Univariate(2)

Multivariate(3)

Multivariate(4)




MISSION 4.77 1.19 3.05 4.13 1.70 2.87MERIT 1.42 -1.50 -1.11 1.35 -1.18 -0.48BUROC 1.60 -0.53 -1.49 0.84 -1.07 -2.22INFO 2.81 1.20 0.86 2.36 0.77 1.13BUDGET -0.82 -1.11 -0.95 -0.91PROCURE -0.83 -0.69 -0.62 -0.63PUBINF 2.54 -0.10 1.78 1.21 -0.15 1.17TOTSAL -0.74 -1.11 -0.99 -0.37 -0.59 -0.86PREMIA -0.71 1.16 -0.07 -0.44 0.47 0.02ENFORCE -0.14 -0.62 -0.03 -0.52 -0.36 -0.00Columns 1 and 4 present the results of univariate regressions. To save space, all have been listed in a single column.Columns 2, 3, 5 and 6 present the results of multivariate regression including as right-hand side variables all of those





Quality

In univariate regressions, QUALITY was highly correlated with the self-assessed ratings for many aspects of public administration, in regressions with or with controls for institutions-specific rents. (Columns 1 and 4 of Table 12.) The explanatory variables most highly correlated with QUALITY are MISSION, BUROC, and INFO, and these variables also are significant in at least some of the multivariate regressions, as well. Interesting, the quality of procurement policies is also significantly positively related to quality of services.

The institution-level regressions produced much weaker results. (Table 13) The only explanatory variable that is significant at the 5 percent level and is associated with higher quality is MISSION. It is not surprising to find this variable related to quality of services, since one sub-component of MISSION is the degree to which the officials in the institution view the citizens and users as “clients.” ENFORCE is also significant at the 5 percent level, but the negative sign suggests that institutions with tougher enforcement of corruption rules tends to have somewhat lower levels of quality.

After controlling for respondent-specific biases, the results for QUALITY are not greatly changed. (Table 14) MISSION remains the only variable that exhibits a positive sign and is statistically significant at the 5 percent level.


Table 12. Quality of Services and the Qualities of Public Administration—Respondent-level Regressions


Univariate(2)

Multivariate(3)

Multivariate(4)




MISSION 6.65 -1.17 2.00 7.47 -1.19 2.79MERIT 2.37 0.87 -0.64 2.58 0.95 -0.30BUROC 4.93 2.70 2.00 5.29 2.80 1.93INFO 5.81 -0.25 2.76 5.62 -0.13 2.24BUDGET 2.36 -0.10 2.56 -0.19PROCURE 2.35 2.23 2.19 2.27PUBINF 0.03 1.70 0.50 0.25 1.54 0.70TOTSAL 0.23 0.82 0.20 0.13 0.73 0.37PREMIA -0.74 -0.24 -0.44 -0.80 -0.15 -0.73ENFORCE 1.63 -0.36 -1.14 -1.74 -0.20 -1.10Columns 1 and 4 present the results of univariate regressions. To save space, all have been listed in a single column.Columns 2, 3, 5 and 6 present the results of multivariate regression including as right-hand side variables all of those





Table 13. Quality of Services and the Qualities of Public Administration—Institution-level Regressions


Univariate(2)

Multivariate(3)

Multivariate(4)




MISSION 2.36 0.40 1.66 4.02 1.82 3.64MERIT -0.25 -0.70 -1.56 -0.15 -0.62 -1.58BUROC 1.14 1.23 0.07 1.49 1.06 -0.23INFO 1.53 0.09 0.98 0.96 -0.52 -0.10BUDGET 0.41 0.71 0.32 -0.05PROCURE 1.14 0.77 1.22 0.38PUBINF 0.11 -1.24 -1.30 -0.02 -0.64 -1.40TOTSAL 0.43 0.93 0.48 0.47 0.50 0.17PREMIA 0.06 -0.34 -0.29 0.36 -0.34 -0.14ENFORCE -2.84 -2.20 -2.51 -2.96 -1.72 -1.91Since the dependent variable is based on grouped data, all regressions have been weighted by the square root of the







Table 14. Quality of Services and the Qualities of Public Administration—Respondent-level Regressions, Correcting for Respondent-level Biases


Univariate(2)

Multivariate(3)

Multivariate(4)




MISSION -0.10 1.50 -0.17 0.64 2.64 0.76MERIT -1.16 -0.44 -1.56 -1.01 0.30 -1.08BUROC -0.87 -0.96 -0.22 -0.90 -2.42 -0.81INFO -0.39 -0.81 1.30 -0.68 -1.47 0.24BUDGET -1.13 -0.34 -1.45 0.17PROCURE -0.19 -0.16 -0.09 -0.05PUBINF -0.31 0.67 -0.64 0.06 -0.43 -0.53TOTSAL 1.00 1.43 -0.29 0.97 1.11 -0.04PREMIA 0.88 -1.71 0.47 0.99 -1.66 0.30ENFORCE -2.48 -1.11 -0.78 -2.46 -0.14 -0.52Columns 1 and 4 present the results of univariate regressions. To save space, all have been listed in a single column.Columns 2, 3, 5 and 6 present the results of multivariate regression including as right-hand side variables all of those





Corruption

In univariate regressions, CORRUPT is correlated with many aspects of public administration. (Columns 1 and 4 of Table 15.) The variable with the most explanatory power is MERIT, followed by BUROC, INFO and others. In multivariate regressions, with and without controls, these three variables remain strong. (Columns 2, 3, 5, and 6 of Table 15.) Interestingly, both TOTSAL and PREMIA have positive signs in most regressions, suggesting that higher levels of salary and use on extra-salary premia are associated with more corruption, not less.

In the institution-level regressions (Table 16), the variables most associated with lower assessments of CORRUPT were BUROC and MERIT. INFO and BUDGET were also significant in some regressions. In the respondent-level regressions correcting for respondent-specific biases (Table 17), the variables most likely to be associated with lower levels of corruption were MERIT and BUROC.


Table 15. Corruption and Qualities of Public Administration—Respondent-level Regressions


Univariate(2)

Multivariate(3)

Multivariate(4)




MISSION -5.13 0.33 0.64 -5.21 -0.02 -0.12MERIT -11.30 -3.28 -6.10 -11.14 -3.01 -6.32BUROC -8.69 -0.47 -3.70 -8.72 -0.05 -3.79INFO -8.61 -2.85 -3.54 -7.90 -2.10 -2.81BUDGET -3.75 0.94 -3.86 0.16PROCURE -1.35 0.10 -1.73 0.45PUBINF -1.82 0.45 -1.25 -1.67 -0.10 -1.17TOTSAL 2.80 0.33 1.63 2.47 -0.03 1.24PREMIA 2.80 0.93 0.31 2.58 1.10 0.81ENFORCE -2.59 0.59 -1.30 -2.62 0.49 -1.56Columns 1 and 4 present the results of univariate regressions. To save space, all have been listed in a single column.Columns 2, 3, 5 and 6 present the results of multivariate regression including as right-hand side variables all of those





Table 16. Corruption and Qualities of Public Administration—Institution-level Regressions


Univariate(2)

Multivariate(3)

Multivariate(4)




MISSION -1.27 3.12 3.65 -1.44 1.44 2.23MERIT -4.64 -1.42 -3.35 -4.40 -1.64 -3.13BUROC -4.71 -3.26 -4.15 -4.42 -2.55 -3.61INFO -0.41 -1.36 -1.47 -2.78 -0.80 -0.51BUDGET -2.19 -0.55 -1.71 -0.06PROCURE 1.50 1.26 1.35 1.36PUBINF -0.85 -0.57 -1.52 -0.99 -0.41 -1.47TOTSAL 2.12 0.43 0.35 1.10 -0.10 0.00PREMIA 2.24 0.75 1.10 1.66 1.19 1.32ENFORCE -0.14 0.88 1.33 -0.66 0.45 0.88Since the dependent variable is based on grouped data, all regressions have been weighted by the square root of the







Table 17. Corruption and Qualities of Public Administration—Respondent-level Regressions, Correcting for Respondent-level Biases


Univariate(2)

Multivariate(3)

Multivariate(4)




MISSION 1.22 1.50 3.54 1.25 -0.00 2.92MERIT -2.29 0.42 -0.54 -1.96 0.09 -0.66BUROC -1.32 -1.81 -2.23 -0.98 -0.41 -2.24INFO -0.89 -1.19 -1.38 0.76 -0.22 0.32BUDGET -0.30 0.04 -0.23 0.05PROCURE 2.11 1.26 1.76 0.52PUBINF -0.65 0.51 -0.80 0.41 0.80 -0.08TOTSAL 1.79 0.50 1.88 0.81 0.69 0.53PREMIA 1.18 -0.09 -0.85 0.76 -0.23 -0.03ENFORCE 1.21 0.29 1.46 1.10 -0.41 1.20Columns 1 and 4 present the results of univariate regressions. To save space, all have been listed in a single column.Columns 2, 3, 5 and 6 present the results of multivariate regression including as right-hand side variables all of those





Figure 36. Performance and Procurement Policies

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Figure 37. Performance and Provision of Information to the Public

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Figure 38. Performance and the Level of Salary

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Figure 39. Performance and the Use of Extra-Salary Premia

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Figure 40. Performance and Enforcement of Anticorruption Repression

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Figure 41. Performance and the Quality of Budget Processes

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Figure 42. Performance and the Quality of Internal Information Flows

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Figure 43. Performance and the Quality of Internal Procedures and Administration

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Figure 44. Performance and Personnel Policies

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Figure 45. Performance and Acceptance of Mission and Objectives

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Annex 4. The Government’s Development Program 92

ANNEX 4. THE GOVERNMENT’S DEVELOPMENT PROGRAM

A. The Long-Term Development Vision to 203072

1. The longer term vision for the development of Kazakhstan is embodied in Kazakhstan 2030 – Prosperity, Security and Improvement of the Welfare of All Kazakhstani People . This vision was articulated by President Nursultan Nazarbayev on October 6, 1997, and it declared “building an independent, prosperous and politically stable state with its inherent national unity, social justice and economic welfare of all population” as Kazakhstan’s longer-term mission.

2. Developments were foreseen in seven areas, in order to ensure:

National Security. To ensure the development of Kazakhstan as an independent and sovereign state with the maintenance of complete territorial integrity.

Internal Political Stability and Consolidation of the Society. To maintain and strengthen the internal political stability and the national unity which will enable Kazakhstan to realize the national strategy during the present and following decades.

Economic Growth Based on the Open Market Economy with High Level of Foreign Investments and Internal Savings. To achieve real, sustainable and increasing economic growth.

Health of the Nation and Welfare of Kazakhstani Citizens. To improve the living standards, health, education and abilities of all Kazakhstan people, to improve the environment.

Energy Resources. To efficiently use the energy resources of Kazakhstan by rapid increase in extraction and export of oil and gas in order to receive revenues promoting the sustainable economic growth and improvement of the life of the nation.

Infrastructure, in Particular, Transport and Communications. To develop these key sectors so that to help to strengthen the national security, political stability and economic growth.

Professional State. To create an effective and present-day corps of committed civil servants in Kazakhstan capable to act as representatives of the nation while achieving priority goals.

B. The Medium-Term Program

3. The medium-term priorities are determined in the Program of Actions of the Government for 2000-2002 approved by the Decree of the President. The implementation of this Program, developed on the basis of “Kazakhstan-2030” Strategy, is supported by international financial organizations, agencies and donor countries. The main objective of the Government of the Republic of Kazakhstan in the economic field is to ensure sustainable economic growth whilst

72 Source: Government of Kazakhstan (from the draft CAS).


maintaining a balance of the most important macroeconomic parameters: exchange rate of tenge, inflation and deficit of the international balance of payments of the country. The Program provides for achievement of annual three-percent growth of the real GDP, decrease in the inflation rate to 5 percent in 2002 and reduction of the deficit of the Republican budget to 1.2 percent of the GDP in 2002.

4. To achieve the objectives set forth the Government intends to:

maintain the macroeconomic stability and strengthen the principles of sustainable economic growth;

ensure dynamic development of the real sector of the economy;

continue improving the investment policy of the country and active attraction of direct external and internal investments into the economy of Kazakhstan;

switch over to targeted rendering of social assistance based on the poverty criteria; and transfer the core work on rendering social assistance to the regions;

continue developing internal financial markets and capital markets for the sustainability of the banking system of the country and expanded lending to economic entities;

continue improving the public sector management system, its transparency, decentralization, and strengthening of the planning system.

5. In the monetary field, the policy will be aimed at maintaining low inflation and stability of the financial market, further consolidating of the banking system, developing of the insurance market and creating conditions for increased lending to the real sector of economy. The authorities of Kazakhstan intend to follow the policy of floating exchange rate of tenge and maintain the financial sustainability of operations in the open market, regulation of official rates and two-tier bank refinancing as the key instruments. Special attention will be given to the actions related to creation of new types of financial institutes such as investment funds and agencies authorized to have transactions with corporate bills. Also assistance will be given to creation of an organized real estate market and development of mortgage lending. Particularly, the system of obligatory collective insurance of individuals’ deposits, which is being created by the National Bank, is designed to raise confidence of the population in banks and increase the funds attracted to the banking sector as the ensuing consequence. The consolidation of the banking system will be continued. The two-tier banks should be transferred to international standards by the end of 2000. The prudential supervision will be made stricter including active use of check-ups on sites and improvement of the risk evaluation system. Active development of financial leasing instruments is planned to expand lending to small and medium-size enterprises including in rural areas. The stock market will be highly stimulated by a security mechanism for banks’ assets and expansion of activities of banks with corporate securities. The state intends to create necessary conditions for increased supply of non-state securities on the Kazakhstani organized stock market. Special focus will be made on increasing information transparency of activities of organizations– issuers of non-state securities and organizers of security sales.

6. In fiscal policy the actions of the Government will be aimed at increasing the revenues to the state budget, and equitable distributing of the tax burden between the population and economic entities. Provided the stability of taxation, the transparency and comprehension of the tax legislation will be improved, tax privileges will be regulated and eliminated in the perspective, and the tax legislation administration will be controlled stricter. In the near future, with the participation of international and domestic experts and active discussions with all interested parties, the Government of the country will develop and submit a new Tax Code to the Parliament, which will become a single codified legal act reflecting all issues of relations between


the budget and a taxpayer at the same time strengthening its role as of the Law of direct effect. While ensuring continuity in the structure of basic taxes and payments, the world experience in the tax practice will be taken into account as well as the current economic situation in Kazakhstan. Special significance will be given to the improvement of tax administration procedures with a clear-cut regulation of relations between fiscal bodies and taxpayers as well as promotion of small business. The main purpose of the Tax Code is moving away from the practice of giving tax privileges to special categories of taxpayers and creation of equal conditions for taxation. The budgetary policy of the Government in the medium term will be aimed at deepening budgetary system reforms on the basis of perspective budget planning, transferring inter-budgetary relations between the center and regions to the principles of mid-term stable norms, increasing the efficiency of state borrowings, managing state expenditures on the basis of budgetary programs and strict regulation of the budgetary process, priority financing of socially significant budgetary programs, applying stricter approaches to the recovery of budgetary loans by borrowers within the current legislation, steady reducing the deficit of the budget and stabilizing the state debt to the GDP correlation.

7. In the field of state debt management, during the period of gradual reduction of the deficit of the Republican budget, the Government of the Republic of Kazakhstan intends to:

expand and improve the lending tools in operation in order to reduce the liabilities of the state and promote direct investment flows into the economy of Kazakhstan;

ensure the development of criteria and strict observation of the procedure for selection and control of investment projects funded within the Public Investment Program as well as further monitoring over fulfillment of obligations by borrowers;

ensure strict agreement of the Public Investment Program funding with the Republican budget of a relevant year;

create a centralized system of monitoring and management of loans and debts of local bodies, and to exercise stricter control over issuance of governmental guarantees.

8. The Government of the Republic of Kazakhstan will undertake measures to complete the program of privatization of the Republican state property, to increase their efficiency and to ensure full transfer of dividends to state share packages while implementing a single policy aimed at increasing the discipline of organizations—issuers of non-state securities regarding charges and payments of income on shares and bonds.

9. The investment climate will be improved and direct investments will be increased through further improvement of the legislation, development of the private sector, development and introduction of mechanisms ensuring effective use and protection of deposited investments, and transparency of investment tenders. The state investment policy will be determined by the Public Investment Program within the annual limits of the Republican budget. In addition to that the work will be carried out to develop mechanisms for attraction of investments with no direct participation of the state, including through active development of the Kazakhstani insurance and stock markets.

10. In regard to the stock market the policy of the state will be focused on its development as an effective mechanism for mobilization and re-distribution of internal savings and funds of potential foreign investors with creation of necessary conditions for attraction of portfolio investments into the real economy. Issuance of shares and bonds by Kazakhstani organizations, issuers of non-state securities should become one of the key mechanisms for attraction of investments into the economy of Kazakhstan.


11. The policy in the agricultural sector will be developed through promotion of competitive industries. For the purpose of comprehensive development of industries of the agroindustrial complex, the agrarian policy will be planned and coordinated with the Program of development of the light, food processing, pharmaceutical industries, and the agricultural machinery building industry and the industry of construction materials. The Government will continue land reform aimed at improvement of the land legislation and land relations in the Republic, development of the land market, creation and improvement of the normative and legal framework and the system of state registration of rights for real estate, and development of mortgage lending against pledged land and land titles. The process of technical demarcation of lands of farming units will be completed followed by registration of land titles in the justice bodies.

12. In the field of housing construction the authorities of Kazakhstan intend to develop new methods of mortgage lending to the population and commercial builders including provision of housing for long-term lease with the right of subsequent purchase. Pilot projects will be developed and introduced to create a system of construction savings.

13. The regional policy in the medium-term perspective will be aimed at ensuring effective interaction between the central and local management bodies in implementation of the social and economic reforms, development of the principles of territorial self-government with corresponding legal and financial provisions. The Government of the Republic of Kazakhstan is to improve the current system of formation and execution of the budget at all levels whilst strengthening the power of local executive bodies. It is expected to expand the competence of Akims in regard to determination of the size and types of social assistance. To solve the social problems of the population of the least developed districts the Government will continue the microcrediting program using grants and loans of international financial agencies. The Government also intends to increase the interregional competition on the financial markets, on the markets of labor and investments by promoting free movement of labor, capital and investments.

14. In the field of social protection and fight against poverty the Government of the Republic of Kazakhstan will pursue the policy aimed at stabilizing the living standards of the population by effective realization of the labor potential, timely payment of salaries, pensions, allowances and targeted social assistance to the poor. The social assistance will be targeted to the really needy, and the poverty level will be the only criteria for its provision. The Government of the Republic of Kazakhstan confirms its commitment to the Pension Reform started in 1997 and absolute and timely fulfillment of its obligations on payment of pensions and allowances. The fully-funded system will be strengthened through improvement of the pension asset recovery, strengthening of prudential control over activities of pension funds based on internationally accepted accounting standards, and expanded supplies of first-rate assets for investments,. One of the most important conditions for successful implementation of the Pension Reform is creation of a sustainable and stable insurance market capable to ensure life annuities for the participants of the fully-funded pension system and creation of a system for payment of allowances on disablement and loss of a bread-winner.

15. In the employment field the Government of the Republic of Kazakhstan intends to establish permanent monitoring of the poverty and unemployment levels, to improve the system of public works with an allowance to the change of their payment system and source of financing; to improve and develop the system of microcrediting to the poor unemployed citizens; develop and implement a number of measures aimed at encouraging employers who create jobs, especially in rural areas as well as promote business in the Republic in order to provide employment for the unemployed. A social insurance system will be developed.

16. In healthcare the efforts of the Government of the Republic of Kazakhstan will be focused on the implementation of the State Program “The Health of the Nation”; introduction of cost


recovery mechanisms for medical assistance and restructuring of the sector in order to develop a free market of medical services and keep the healthcare affordable to large groups of the population.

17. The main aspects of the activities include:

stage-by-stage transfer from in-patient to out-patient principles of treatment through arrangement of day-time in-patience, at-home in-patience and further introduction of the institute of family doctors;

as well as further development of the non-state healthcare sector and stage-by-stage privatization of treatment-and-preventative institutions.

18. In the field of environment the Government of the Republic of Kazakhstan intends to optimize the nature management system, to expand the participation of the state in international environmental programs, to create conditions to transfer to ecologically safe technologies and increase the level of recycling. The work will be continued on creation of an effective system of nature management, subsurface use and environmental control on the Republican and local levels. Within this work it is expected to modernize the production of cartographic and topographic and land-surveying products with the help of international financial institutions.

19. One of the key priorities of the authorities of the country in the real sector of the economy is development of the transport infrastructure, reduction of the transport component in the cost of the domestic production and further development of the transit capacity of the Republic. For this purpose the Government will improve the legislative framework for carriers and operators on the transport and communications market of the country and will continue its policy of sectoral reform implying narrowing of the sphere of activities of natural monopolists and transfer of special functions to the private sector.

20. The energy policy will be aimed at developing a competitive and technologically connected fuel and energy complex. For this purpose active measures will be undertaken for the development of the fuel and energy complex of the country to ensure energy independence and delivery of energy resources to the world consumption markets. The Government intends to determine its position with the layout of export gas and oil pipelines and proceed to the design and construction of its separate parts taking into account creation of multi-optional ways of energy resource transportation. For the purpose of further reformation of the energy sector, the Government of the Republic of Kazakhstan intends to complete privatization of energy producing capacities by 2002, and create a competitive wholesale energy market. In 2002, the Government will develop and introduce a new tariff policy which will fully cover the cost and aimed at reducing the independence of the tariff on electricity transmission distance which will create stricter competition between energy sources in distribution of the generated energy and ultimately will reduce energy prices.

21. The Government will continue improving the public sector management system, inter-departmental and inter-sectoral coordination; will undertake further steps to restructure the civil service and increase professionalism of the central and local executive bodies. For this purpose a Program will be developed and introduced on decentralization of the functions of state bodies, functional analysis of each central state body and further functional codification of state bodies and civil service positions; improvement of the civil service law and increase in the efficiency of the state decision-making procedure.

22. Within the Anticorruption Program the work will be carried on disclosure of corruption, and acts will be developed and adopted to regulate the procedure for imposition of disciplinary penalties, taking oath by civil servants and observation of the ethic code. The Government of Kazakhstan is assured that the measures proposed in the Program will help to put the economy on the path of sustainable economic growth. The implementation of the Program will help to correct


the existing imbalances in the economy, to create conditions for the development of domestic commodity producers, to expand the taxable base and expedite solution of social problems on this basis.

23. The cooperation with the World Bank Group will be implemented on the principles of partnership and active involvement of financial, administrative and intellectual capacity of the Group in solution of urgent issues related to the development of the economy of Kazakhstan. The authorities of the Republic will specially focus on optimization of the current credit portfolio of the country, the balance of investment and adjustment loans and improvement of the management and implementation of the projects both on the level of individual borrowers and the level of the Government on the whole.

Annex 5. Public Sector Institutional Reforms 98

ANNEX 5. SUMMARY OF PUBLIC SECTOR INSTITUTIONAL REFORMS UNDERTAKEN

Substantial progress was made in governance-related reforms under the Public Sector Resource Management Adjustment Loan (PSRMAL). The following is a summary of the actions taken during the two-year program of streamlining the processes, structure and machinery of the Republican government:

i) Clearer definition of the functions to be performed by state entities and adjustment or elimination of unnecessary functions from existing entities. Revised regulations were issued for all restructured central executive entities, clearly defining their functions, roles and responsibilities. Key procedural regulations were issued and are being implemented.

ii) A more streamlined Republican government structure : from more than 70 such entities in 1996, the number now stands at about 25. The Government Office of the Republic of Kazakhstan has been transformed into the Chancellery of the Prime Minister, and its primary role is to eliminate duplication in the activities of central entities, and inter-agency coordination without interference in sectoral policy formulation.

iii) Consolidation of extra-budgetary funds (such as the State Center of Pension Payments, Compulsory Medical Insurance Fund, Social Insurance Fund, Employment Promotion Fund, and the Road Fund) into the state budget.

iv) A drastic reduction in the number of budgetary entities: some 600 erstwhile budgetary entities were taken off budget.

v) A targeted overall staff reduction of about 11,500 personnel, including about 7,500 from the central executive bodies, based on detailed personnel information available for the first time to the Ministry of Finance (MOF) through the civil service census.

vi) Uniform standards for staffing and utilities consumption across budgetary entities, which led to a reduction in the wage bill for republican budget-funded entities and in overall current expenditures.

vii) Civil Service Census . As part of the civil service reform, a census of the civil service was completed. This formed the basis for the development of a revised remuneration policy and the ongoing rightsizing of budgetary employment.

viii) Finalization of Pay Survey and Revised Remuneration Policy . A Commission on Pay Policy developed proposals which were reflected in the 2000 budget.

ix) Institutional Set-up for Civil Service Management and Reform . An Agency for Civil Service (ACS) was created. Its mandate is to improve the civil service system, including its legal framework, oversee merit-based recruitment, and design and oversee implementation of overall civil service policy.


x) Reform of the Tax Inspectorate . A simplified VAT declaration form was introduced and revisions in the filing requirements for the corporate profits tax were completed. A special unit was also established at the Republican level of the Tax Committee. To assist taxpayers, the tax committee published an informational book of tax regulations and instructions. The Tax Committee was later restructured along functional lines. Major functional divisions include a tax registration unit, an analysis unit, a taxpayer assistance unit, an audit unit, a collection unit and a computer services unit. Reorganization was completed at the central offices. The tax committee also organized several workshops on the new system in different parts of the country in collaboration with USAID. A Ministry of Revenues – including the tax inspectorate – was created in October 1998. The Ministry developed a strategic plan to improve tax administration and completed revisions to the tax code.

xi) Increased Budget Coverage . Several special resource funds started being channeled through the treasury system, which is very important for budgetary control. For the 1999 budget the Government legalized through user charges what already existed de facto (by way of formal and informal payments for various services) and was hidden in off-budget funds.

xii) Improved Budget Formulation . The Budget Commission set initial budget ceilings for drawing up the annual budgets and monitored and adjusted expenditure during the course of the fiscal year. The Commission also provided guidance for the functional review exercise in the effort to adjust budget expenditures to fiscal realities and the needs of transition to a market economy. Expenditure allocations in both the areas of health and education moved away from a calculation of requirements based on facility and physical norms towards per capita or per student/patient allocations. These per capita allocations were based on the cost of providing education and health services according to a predetermined set of normative input costs at current prices. The 2000 budget was presented to Parliament partly drawn up on a programmatic basis.

xiii) Improving External Borrowing Policies and Controlling Government Guarantees . A process has been put in place to ensure that new guarantees are only issued according to the legislation (Law on External Borrowing and Managing the External Debt, Budget Systems Law and the Annual Budget Law). A limit has been set in the budget law on the amount of new guarantees. The Government conducted a review of existing and defaults on repayments of loans guaranteed by the government and set up a system of continuous monitoring of the financial situation of companies to which guarantees have been issued.

xiv) Improving the Auditing System . Audit standards for internal auditors were completed. A review of internal audit reports was undertaken and an action plan to improve these reports was prepared. An internal audit unit was established in the treasury. A draft law on audit (external and internal) was prepared. The Accounting Committee was accredited to INTOSAI as the supreme audit institution (SAI) for Kazakhstan.

xv) Implementing a Multi-Year Economic Framework . For the 2000 budget, the Ministry of Finance prepared a three year budget forecasts (2000-2002) which was submitted with the annual budget.

xvi) Improving Public Investment Planning . The public investment planning process was improved, including more thorough evaluation of projects and institutionalization of the overall process.


xvii) Demonopolization of Housing Maintenance . The housing maintenance organizations (zheks) were broken up, and a largely competitive market now exists for most services to apartment blocks.

xviii) Regulation of Natural Monopolies . State-owned energy providers now conduct tenders for raw materials. The Law on Natural Monopolies strengthens the legal basis for enforcement of this requirement.

xix) Tariff Regulation . A comprehensive methodology and procedures for the determination and regulation of tariffs in the power sector and for communal services was implemented.

xx) Increases in Housing Allowances and Review of Utility Privileges . Budgeted amounts for housing allowances were increased. A revision of the privileges in respect of utility tariffs to be supported by the state budget was undertaken.

xxi) Housing Cooperative Associations . The juridical rights of housing cooperative associations (KCK) was significantly clarified. This was done under the auspices of the Commission on Housing and Utilities, established in August 1998.

xxii) Installation of Meters. Meters for heating, electricity and water were installed in all public buildings including hospitals and secondary schools. Installation was shifted from the AMC to the natural monopolists themselves which are obliged to install meters and include the amortized amounts of investments into their tariffs.

Annex 6. Notes on Figures and Tables 101

ANNEX 6. NOTES ON FIGURES AND TABLES


See Notes for and Figure 10.


See Notes for Figure 12.







Figure 6. Experiences with Unofficial Payments

Figure 6A is based on the top (darkest) bar in Figure 18, and Figure 6B is based on the top (darkest) bar in Figure 19. See the Note for these other Figure 18 and Figure 19.





Figure 9. Mechanisms to Enhance Public Sector Effectiveness

This figure is based on World Bank, 2000, Reforming Public Institutions and Strengthening Governance, which in turn drew from World Bank, 1997, World Development Report: The State in a Changing World, Oxford University Press.


For each of the bodies listed in top half, left-hand side, enterprises were asked:

“Imagine that you needed to use this service. How do you evaluate the accessibility of this service?1=Not accessible. A firm like mine can not practically use this service.


2=Accesible with difficulty. A firm like mine can use this service but not easily.3=Easily accessible. A firm like mine has no difficulty using these services9=don’t know”

For each of the bodies listed in top half, right-hand side, households were asked:

“Imagine that you needed to use this service. How do you evaluate the accessibility of this service?1=Not accessible. Our family can not practically use this service.2=Accesible with difficulty. Our family can use this service but not easily.3=Easily accessible. Our family has no difficulty using these services9=don’t know”

For each of the bodies listed in the bottom half, left-hand side, enterprises were asked:

“Imagine that you needed to contact this body. How do you evaluate the accessibility of this body if you have comments, complaints or question?1=Not accessible. A firm like mine can not practically comment or get answers.2=Accesible with difficulty. A firm like mine can make comment s or get answers, but not easily.3=Easily accessible. A firm like mine has no difficulty providing comments or getting answers. 9=don’t know”

For each of the bodies listed in bottom half, right-hand side, households were asked:

“Imagine that you needed to contact this body. How do you evaluate the accessibility of this body if you have comments or question?1=Not accessible. Someone like me can not practically comment or get answers.2=Accesible with difficulty. Someone like me can make comment s or get answers, but not easily.3=Easily accessible. Someone like me has no difficulty providing comments or getting answers. 9=don’t know”

The bars in the figure show the percentage of respondents that answered “3” among those that did not answer “9.”

Each of the bars is an estimate, subject to statistical margin of error. Thus the rank orderings presented in the figure are only approximate.

Figure 11. Services the Poor Use and Do Not Use

The relationships between income and use of these services are extremely robust to numerous specifications. For example, the binary variable for access to running was regressed (probit) on household income, household income per household member, and log of household income. Each of these specifications was run with and without dummy variables for household type (e.g., young family with young children, pensioners, etc.) In the case of running water, electricity, telephone and university education, the coefficient on the variable of interest was significant at at least the 1 percent level in every specification.


For each of the bodies listed in top half, left-hand side, enterprises were asked:

“How do you evaluate the overall quality of these services for your enterprise?1=Very Poor2=Fairly Poor3=Average4=Fairly Good5=Very Good


9=don’t know”

For each of the bodies listed in top half, right-hand side, households were asked:

“How do you evaluate the overall quality of these services for your household?1=Very Poor2=Fairly Poor3=Average4=Fairly Good5=Very Good9=don’t know”

For each of the bodies listed in the bottom half, both left-hand and right-hand sides, enterprises and households were asked:

“How do you evaluate the overall quality of the work undertaken by these bodies?1=Very Poor2=Fairly Poor3=Average4=Fairly Good5=Very Good9=don’t know”

The bars in the figure show the percentage of respondents that answered “4” or “5” among those that did not answer “9.”


Figure 13. Satisfaction with Government Services and Treatment -- Actual UserPerspectives

Enterprise managers were asked about their firm’s contact with 26 other bodies and service. (Most were state bodies and state-provided services, but some private-sector bodies and services were included in the list for the sake of comparison.) For each, the manager was asked how many times in the previous twelve months they had encountered the body. Those that had official contact were then asked to describe their satisfaction with the services they received. The exact wording of the questions were:

“How many times has your company come in official contact with each of following institutions in last 12 months? (best estimate) (If zero, enter “0” here and skip the remaining columns.)

How satisfied or dissatisfied were you with these services, on average?1- very dissatisfied2- dissatisfied3- so and so4- satisfied5- very satisfied”

Figure 13A shows the percentage of enterprises that answered “satisfied” or “very satisfied” to this question, among the enterprises that provided assessments.

Households were asked about their most recent two experiences with healthcare (if any in the last 12 months), about their eldest child’s experience in education (if any), about their experience


with traffic police (drivers only), about experience with criminal police investigations (victims of crime only), and about court experiences (if any). For healthcare, respondents identified if the responses refer to visits to clinics, to hospital stays, or to emergency calls. For education, respondents identified if the responses refer to university, secondary school, vocational or technical school, or elementary school. Respondents were also asked about their two most important experiences, out of a list of 21 state bodies and service, in the previous 12 months. (The questionnaire would have been too long to get assessments from every respondent for every state body or service).

For health services, the satisfaction rating was based on the responses the set of questions below. For each respondent, dummy indicators were created for satisfaction with care, waiting time, and facilities, based on responses of “satisfied” or “very satisfied” and then averaged. The exact questions were:

“How satisfied or dissatisfied were you with the care of medical staff?1. Very dissatisfied2. Dissatisfied3. Neither satisfied nor dissatisfied4. Satisfied5. Very satisfied

How satisfied or dissatisfied were you with the length of waiting?1. Very dissatisfied2. Dissatisfied3. Neither satisfied nor dissatisfied4. Satisfied5. Very satisfied

How satisfied or dissatisfied were you with medical facilities?1. Very dissatisfied2. Dissatisfied3. Neither satisfied nor dissatisfied4. Satisfied5. Very satisfied”

For educational institutions, the satisfaction rating was based on the responses the set of questions below. For each respondent, dummy indicators were created for satisfaction with teachers and school equipment, based on responses of “satisfied” or “very satisfied” and then averaged. The exact questions were:

“How satisfied or dissatisfied were you with educator or teachers over the last school semester?1. Very dissatisfied2. Dissatisfied3. Neither satisfied nor dissatisfied4. Satisfied5. Very satisfied

How satisfied or dissatisfied were you with school equipment over the last school semester?1. Very dissatisfied2. Dissatisfied3. Neither satisfied nor dissatisfied4. Satisfied5. Very satisfied”


For victims of crime that reported the crimes to police, respondents were asked the question below about the police investigation. The number presented in Figure 13, 18 percent, represented the overall percentage of respondents who said they were “satisfied” or “very satisfied” with the investigation. (Predictably, satisfaction was higher when the criminal was caught: among those for whom the criminal was caught, 55 percent were satisfied.)

“How satisfied or dissatisfied were you with the investigation? 1. Very dissatisfied2. Dissatisfied3. Neither satisfied nor dissatisfied4. Satisfied5. Very satisfied”

For traffic police, all respondents were asked to provide assessments, since pedestrians and passengers benefit may benefit as much or more than drivers from the services provided by the traffic police. For consistency with the other bodies in the figure, the number presented (16 percent) is the percentage of drivers who had been stopped by the traffic police who said they were “satisfied” or “very satisfied” with the traffic police. Among all drivers, 22 percent said they were satisfied. For the overall sample, including non-drivers, 19 percent said they were satisfied. The question was:

“How satisfied or dissatisfied are you with the services provided by the traffic police (control over bad drivers, pedestrians, control over stolen vehicles, etc.)? 1. Very dissatisfied2. Dissatisfied3. Neither satisfied nor dissatisfied4. Satisfied5. Very satisfied”

Households that had been to the courts in the past 12 months were asked to assess they level of satisfaction according to the question below. The number presented in Figure 13, 44 percent, represents the overall percentage of respondents who said they were “satisfied” or “very satisfied” with their experience at court. (Predictably, satisfaction was higher when the case was won: among those for whom the case was won, 77 percent were satisfied.)

“How satisfied or dissatisfied were you with your experience with the courts?1. Very dissatisfied2. Dissatisfied3. Neither satisfied nor dissatisfied4. Satisfied5. Very satisfied”

For each of the other 21 bodies and services (see above), the set of questions below was asked. Figure 13 presents the percentage of respondents who said they were “satisfied” or “very satisfied” with their experiences with those bodies:

“How satisfied or dissatisfied were you with your experience?1. Very dissatisfied2. Dissatisfied3. Neither satisfied nor dissatisfied4. Satisfied5. Very satisfied”


summarizes responses provided for the following two questions. The dark bar represents the percentage of respondents who answered “3” to the following question.

“In your opinion, does corruption exist in Kazakhstan? If yes, how widespread is it?1 = corruption does not exist in Kazakhstan2 = corruption does exist in Kazakhstan – but it is not very wide spread3 = corruption is very wide spread in Kazakhstan4 = corruption does exist in Kazakhstan – but I cannot tell how wide spread it is5 = I don’t know whether there is corruption in Kazakhstan”

The lighter bar represents the percentage of respondents who answered “1” to the following question.

“What role does bribery play in the everyday lives of people in Kazakhstan?1. bribery is altogether a part of contemporary life2. bribery is common, but it isn’t as terrible as people say3. some give bribes, but isn’t necessary; with a little patience one can make a living without bribes4. bribery is totally unnecessary, anything can be got through legal means.”

Figure 15. Sources of Information about Corruption

Each of the three groups of respondents was asked the question below. The Figure presents the percentage of respondents who selected each choice as either the most important or the second most important source of information.

“Where do you get information about corruption? Please indicate your two main sources.1. personal experience2. relatives, friends, acquaintances3. the mass media (newspapers, radio, TV)4. internet5. government officials, persons contacted to solve my problems6. police7. non-governmental organizations8. others; which one?___________________________”


For each of the bodies in the top half of the figure, respondents from all three sample groups were asked the following question:

“How widespread is corruption in the bodies that provide this service?1=Corruption does not exist in this field 2=Corruption does exist in this field, but it is not very widespread 3=Corruption does exist and is very widespread4=Corruption does exist in this field, but I can not tell how widespread it is 5=I don’t know whether there is corruption in this field”

For each of the bodies in the bottom half of the figure, respondents from all three sample groups were asked the following question:

“How widespread is corruption in these bodies?1=Corruption does not exist in this field 2=Corruption does exist in this field, but it is not very widespread 3=Corruption does exist and is very widespread4=Corruption does exist in this field, but I can not tell how widespread it is 5=I don’t know whether there is corruption in this field”


The figure shows the total percentage of all respondents that answered “3.” (Thus the denominator equals 1,000 for households, 400 for enterprises, and 600 for public officials.)



The left bar is based on the percentage of public officials who answered yes to either of the following two questions:

“Over the past 12 months, has anybody offered you – as public official – a small gift?1. Yes2. No

Over the past 12 months, has anybody offered you – as public official – money or a more expensive gift?1. Yes2. No”

The center bar is based on a large number of questions asking household respondents about their experience with unofficial payments. One straightforward question was asked of all households:

“In the past 12 months, have you made any unofficial payments (extra money, gifts, favors, services) to any governmental, educational, medical or other officials?1. Yes2. No”

Households were further asked about their most recent two experiences with healthcare (if any in the last 12 months), about their eldest child’s experience in education (if any), about their experience with traffic police (drivers only), about experience with criminal police investigations (victims of crime only), and about court experiences (if any). For healthcare, respondents identified if the responses refer to visits to clinics, to hospital stays, or to emergency calls. For education, respondents identified if the responses refer to university, secondary school, vocational or technical school, or elementary school. Respondents were also asked about their two most important experiences, out of a list of 21 state bodies and service, in the previous 12 months. (The questionnaire would have been too long to get assessments from every respondent for every state body or service). For each of these bodies and services, the following set of questions was asked:

“Did you also give any gift, money, or service in addition to the official amounts? Multiple choices – one can circle more than 1 code1. Yes, a gift2. Yes, a counter-service, I helped them in a way3. Yes, money (other than official fee)4. No, I didn’t pay/give anything

If you did give some gift, money, or service why did you give it?1. I wanted to give, nobody required it2. I know this is the way it goes, even nobody required it3. They asked for it

Do you consider this to be a bribe?1. Yes, definitely2. In some ways, but not as bad as a bribe3. No, definitely not”


The center bar in Figure 5 shows the percentage of all respondents that either answered “yes” to the simple question above on unofficial payments, or answered yes to the question above on unofficial payments for a specific good or service and indicated that either it was requested or that they “just know that this is the way it goes.” Table 18 presents some alternative calculations based on different assumption. (See also Annex 2 for a discussion of what “corruption” means in the eyes of Kazakhs.)

Table 18. Alternative Calculations for the Percentage of Households Encountering Bribery

Number Percent of All Respondents

Answered “yes” to the simple question on unofficial payments 227 22.7%Answered “yes” to the simple question on unofficial payments, or

that they had provided a gift, service, or money (beyond the official fee) to a public official for a specific service

320 32.0%

Answered “yes” to the simple question on unofficial payments, or {that they had provided a gift, service, or money (beyond the official fee) to a public official for a specific service, and

that the payment was either requested or that the respondent “just knows this is the way it goes.”}

308 30.8%


that the payment was viewed by the respondent as “in some ways a bribe, but not as bad as a bribe” or that it was “definitely a bribe.” }

261 26.1%


that the payment was viewed by the respondent as “definitely a bribe.” }

246 24.6%

The right bar is based on a large number of questions asking enterprise managers about their encounters with bribery. One straightforward question was asked of all enterprise managers:

“Has your company made unofficial payments (extra money, gifts or counter-services) to any employee of public sector in the past 12 months? 1. Yes2. No ”

Enterprise managers were further asked about their firm’s contact with 26 other bodies and service. (Most were state bodies and state-provided services, but some private-sector bodies and services were included in the list for the sake of comparison.) For each, the manager was asked how many times in the previous twelve months they had encountered the body and on how many occasions they were required to pay a bribe or had it made known to them that they should. The exact wording of the questions were:

“How many times has your company come in official contact with each of following institutions in last 12 months? (best estimate) (If zero, enter “0” here and skip the remaining columns.)

How many times were you required to pay a bribe or had it made known to you that you should?”


Table 19 present alternative calculations based on these questions.

Table 19. Alternative Calculations for the Percentage of Enterprises Encountering Bribery

Number Percent of All Respondents

Answered “yes” to the simple question “has your company made any unofficial payments in the past 12 months?”

160 40.0%

Answered “yes” to the simple question “has your company made any unofficial payments in the past 12 months?” or

Said they had on at least one occasion in the previous 12 months been required to pay a bribe or had it made known to them that they should

208 52.0%

Figure 18. Enterprise Experiences with Bribery

Enterprise managers were asked about their firm’s contact with 26 other bodies and service. (Most were state bodies and state-provided services, but some private-sector bodies and services were included in the list for the sake of comparison.) For each, the manager was asked how many times in the previous twelve months they had encountered the body and on how many occasions they were required to pay a bribe or had it made known to them that they should. The exact wording of the questions were:

“How many times has your company come in official contact with each of following institutions in last 12 months? (best estimate)

How many times were you required to pay a bribe or had it made known to you that you should?”

The top (darkest) bar represents the proportion of firms that encountered bribery, of those that had been in official contact with the body or service in the previous 12 months. If the number of contacts for a firm is represented as C, and the number of encounters with bribery for a firm is B,

then the middle (lightest) bar was calculated as: , and the bottom bar was

calculated as: / .

Figure 19. Household Experiences with Bribery

Households were asked about their most recent two experiences with healthcare (if any in the last 12 months), about their eldest child’s experience in education (if any), about their experience with traffic police (drivers only), about experience with criminal police investigations (victims of crime only), and about court experiences (if any). For healthcare, respondents identified if the responses refer to visits to clinics, to hospital stays, or to emergency calls. For education, respondents identified if the responses refer to university, secondary school, vocational or technical school, or elementary school. Respondents were also asked about their two most important experiences, out of a list of 21 state bodies and service, in the previous 12 months. (The questionnaire would have been too long to get assessments from every respondent for every state body or service). For each of these bodies and services, the following set of questions was asked:

“Did you also give any gift, money, or service in addition to the official amounts? Multiple choices – one can circle more than 1 code1. Yes, a gift2. Yes, a counter-service, I helped them in a way


3. Yes, money (other than official fee)4. No, I didn’t pay/give anything

If you did give some gift, money, or service why did you give it?1. I wanted to give, nobody required it2. I know this is the way it goes, even nobody required it3. They asked for it

Do you consider this to be a bribe?1. Yes, definitely2. In some ways, but not as bad as a bribe3. No, definitely not”

The top (darkest) bar in Figure 19 shows the percentage of households that answered “yes” to the first question above, of those with contact with the body or service. The middle (lightest) bar shows the percentage that answered “yes” to the first question, and either “2” or “3” to the second question above, of those with contact. The bottom bar shows the percentage that answered “yes” to the first question, and either “1” or “2” to the third question above, of those with contact.

Figure 20. Bribery and Complexity in Enterprise Registrations

This Figure is based on the following two questions:

“When was your company officially registered ?(if do not know for certain, then please estimate)

Year of registration _________________

Was your company’s registration …1 = complicated and it was necessary to give bribe2 = complicated, but it was not necessary to give bribe3 = uncomplicated, but it was necessary to give bribe4 = uncomplicated and it was not necessary to give bribe”

Figure 21. Encounters with Bribery during Registration

This Figure is based on responses to the following question, with responses segmented according to the year the firm registered (described above).

“During your registration process, was it necessary to give unofficial gifts, favors, or money at each of the following stages?A. Registration at the Ministry of Justice 1. Yes 2. No B. National Committee on Statistics 1. Yes 2. No C. Tax Administration 1. Yes 2. No D. Social Fund 1. Yes 2. No E. State Committee on Licenses and Standards 1. Yes 2. No F. Permissions from fire, sanitary and other such bodies 1. Yes 2. No”

Figure 22. Top Ten Problems Reported by Enterprises and Households

Enterprise managers were asked the question below. Figure 22A shows the percentage of firms that answered “4” or “5” out of all respondents. Thus, firms that answered “9” were counted as indicating that the item was not an important problem. The darker bar shows the percentage indicating that the item is the most important problem.


“Tell us please to what degree the following are obstacles to your business development in Kazakhstan?

1 = it is not a business obstacle in Kazakhstan2345 = it is a very serious business obstacle in Kazakhstan9 = I don’t know

A. Rules and procedures for establishing an enterprise B. Rules and procedures for obtaining an import/export license C. Rules and procedures for other licenses D. Customs/foreign trade regulations, certifications E. Labor costsF. Tax rates G. Tax regulationsH. Labor regulationsI. Corruption in state administrationJ. Frequent inspections by state bodiesK. Tax evasion and other economic crimeL. Bureaucratic delaysM. Ambiguous legal standards relating to businessN. Inadequate infrastructure (roads, telecommunications and banking services)O. Inflation P. Non-enforcement of judicial decisionsQ. Slow courts R. Unfair competition and obstacles by existing firmsS. Shortage of qualified workersT. Political instability U. Racketeering, organized crimeV. Shortage of loan resourcesW. Favoritism and clientelismX. Uncertainty and constant changes on laws, rules, and regulationsY. Low purchasing power of the populationZ. Low professionalism and capabilities of state officialsAA. Other; which one?

Which is biggest __________________ ”

Household respondents were asked the question below. Figure 22B shows the percentage of respondents that answered “4” or “5” out of all respondents. Thus, firms that answered “9” were counted as indicating that the item was not an important problem. The darker bar shows the percentage indicating that the item is the most important problem.

“How serious or minor are the following problems for Kazakhstan? Choose one number from 1 to 5, where 1 is “very minor” and 5 is “very serious”.A. High cost of livingB. Drug abuse / TraffickingC. CrimeD. Corruption in state structuresE. UnemploymentF. High cost of educationG. High cost of health careH. Low quality of public servicesI. Bad roadsJ. Problems associated with housing


K. Lack of freedoms and civil libertiesL. Late payment of salaries and pensionsM. Small salaries and pensionsN. PovertyO. Ethnic conflictsP. Environmental problemsQ. Other problem, which one? ____________

Please indicate which from the above list is the most serious problem: ___________”


The bars in the figure are based on the following three questions asked of all households:

“In the past 12 months, have you made any unofficial payments (extra money, gifts, favors, services) to any governmental, educational, medical or other officials?1. Yes2. No”

“Please estimate the total value of unofficial payments over the last month. ________”

“Please estimate the total amount earned by all household members last month including salaries, dividends, rents, amounts obtained by selling something etc. of all household members was about…? __________________ tenge 0=no income”

Households were divided into three groups, based on level of household income: those with household income of less than 4,000 Tenge per month, between 4,000 and 11,200 Tenge, and over 11,200 Tenge per month. The lighter bars show the percentage of respondents in each group that said they had made an unofficial payment in the previous 12 months. The darker bar shows the median percentage of household income paid in unofficial payments, calculated as the ratio of the responses to the two questions above, for the subset of households that said they had made unofficial payments. The period of one month was selected for the questions on unofficial payments and households income on the assumption that respondents would have better recall than if a longer period of time was used.

Two issues warrant a second look at the data on the percentage of household income paid in unofficial payments. First, there were several outliers for whom the percentage of household income spent on unofficial payments was very large. Since both unofficial payments and income may vary throughout the year, the fact that a large portion of a single month’s income was spent on unofficial payments in not necessarily in indication of a problem. To mitigate the impact of outliers, the chart presents the median as a statistic that is less sensitive to outliers than the average. Table 20 presents some alternative statistics on the impact of unofficial payments on the poor: (i) the average among household where the ratio is less than unity, (ii) the median among households where the ratio is less than 0.3, and (iii) the average among households where the ratio is less than 0.3.

Second, since income in the basis for creating the income groups and also appears in both the denominator of the ratio, errors in the reported level of income would tend to bias the results. Table 20 presents all of the statistics described above for subsets of households, based not on income but on an ad hoc indicator of real wealth. This indicator of real wealth is based on the household’s ownership of mobile telephones, video recorders, washing machines, personal computers, village houses/chalets, and automobiles. Ownership of each of the above was assigned an ad hoc point value, and households were segmented according to the total points. The


indicator of real wealth is presented only as a robustness check on the veracity of the pattern described in the report whereby “the rich pay more often, but the poor pay more dearly.”

Table 20. Alternative Calculations for the Impact of Unofficial Payments on the Poor

Percent of household income made in unofficial payments, among those that made unofficial payments:

median among households for which < 100%

average among households for which < 100%

median among households for which < 30%

average among households for which < 30%

Households with income less than or equal to 400 Tenge per month

11.3% 29.1% 6.8% 10.2%

Households with income greater than 400 but less than or equal to 11,200 Tenge per month

7.6% 17.2% 6.3% 8.8%

Households with income greater than 11,200 Tenge per month

5.0% 10.6% 3.7% 6.8%

Households in the lowest third according to the indicator of real wealth

7.7% 16.8% 6.3% 8.9%

Households in the middle third according to the indicator of real wealth

6.5% 13.1% 4.8% 6.9%

Households in the richest third according to the indicator of real wealth

5.2% 14.8% 4.6% 7.1%

Figure 24. Services: The Rich Bribe For Speed, The Poor Bribe For Access

Respondents to the household survey were asked about their two most important experiences, out of a list of 21 state bodies and service, in the previous 12 months. For each of these bodies and services, the following set of questions was asked:

“Did you also give any gift, money, or service in addition to the official amounts? Multiple choices – one can circle more than 1 code1. Yes, a gift2. Yes, a counter-service, I helped them in a way3. Yes, money (other than official fee)4. No, I didn’t pay/give anything

Do you think this gift, money or service was necessary in order to get proper treatment? 1. Yes2. No

What are the main 2 reasons you gave this gift, money or service?1. To speed up the process2. To get benefits I was not entitled to 3. To get benefits I was entitled to 4. To avoid difficult situations, problems 5. To thank them for solving a problem”

The Figure is based on the percentage of respondents, of those who said they the unofficial payment was necessary in order to get private treatment, that selected speed, benefits (2 and 3 summed), avoiding problems, or express thanks. The Figure is based entirely on the single most important interaction with the state. For income categories, see the Notes for Figure 23.

Figure 25. Little Willingness to Pursue Legal Rights


This Figure presents statistics based on the question below. The Figure shows the overall percentage of respondents answering either “definitely yes” or “probably “yes.”

“If you felt that you had been treated unfairly with regard to the following decisions, would you file an official appeal?A. if you were not promoted when you believe you should have been?B. if you were pressured to hire someone even if the person was not the best candidate?C. if you were pressured to make a donation to a charity event?

1. definitely yes 2. probably yes 3. probably no 4. definitely no ”


The bars in this figure show the responses provided by public officials to the following two questions. The figure is based on the opinions of all public officials. Table 21 shows how the subset of officials who said they are “very familiar with the provisions of the Civil Service Law” answered the questions.

“Since the Law on Civil Service took effect in January 2000, has the fairness of recruitment, promotions, demotions, transfers and improved, gotten worse, or stayed the same?

1. got much worse2. got somewhat worse3. no change4. got better5. got much better

Since the Law on Civil Service took effect in January 2000, has the ability to ensure that the best people get hired gotten worse, or stayed the same?

1. got much worse2. got somewhat worse3. no change4. got better5. got much better”

Table 21. Alternative Calculations for the Perceptions on the Civil Service Law

Got much worse

Got somewhat worse

No change Got better Got much better

Fairness of recruitment, promotions, demotions, transfers- All public officials 1.3 7.5 48.2 38.7 4.3- Those “very familiar” with

the Civil Service Law1.9 6.2 38.4 47.3 6.2

Ability to ensure that the best people get hired- All public officials 0.7 7.8 41.0 46.0 4.5- Those “very familiar” with

the Civil Service Law1.6 6.7 34.5 50.8 6.6


Figure 27. Evaluations of Competitive Recruitment (by those who went through it)

The first question below was used to select public officials who went through competitive recruitment. Figure shows the percentage of respondents who answered “agree” or “totally agree” to the follow up questions on transparency, fairness, and speed of the process, and the effectiveness in ensuring that the most qualified applicants got the job.

“Have you gone through the competitive recruitment process since the Law on Civil Service took effect in January 2000?1. yes2. no

If yes, please evaluate the process in the following terms:

A. The competitive recruitment process was transparent B. The competitive recruitment process was fair C. The competitive recruitment process was fast D. The competitive recruitment process helped ensure that the most qualified applicant got the job

1. totally disagree2. disagree3. neither agree nor disagree4. agree5. totally agree”

Figure 28. Evaluations of Code of Ethics

Public officials were first asked about their familiarity with the Code of Ethics and then for assessments of the qualities of the Code of Ethics. The Figure presents only the opinions of those who described themselves as familiar with the Code of Ethics.

“Please evaluate the Code of Ethics in the following terms:

A. Clear and easy to understandB. Widely understood within my institutionC. Widely followed within my institutionD. Helps to reduce corruptionE. Useful for me as a Civil Servant for clearly explaining what is and is not acceptable

1= totally disagree2= disagree3= neither agree nor disagree4= agree5= totally agree9=don’t know”

Figure 29. Divergent Understandings of Which Gifts are "Trivial"

Each of the three sample groups was asked the following question:

“People sometimes give “trivial” gifts to public officials to express appreciation for their assistance. What size gift would you say is “trivial”?

A gift of less than _____________ Tenge is trivial and should be considered perfectly acceptable.”


Table 22 provides statistics on the distribution of responses to this question.

Table 22. What Constitutes a “Trivial” Gift?

Percent who answered “zero” (percent)

Minimum Median Mean Maximum

Enterprises 0 1 2,250 11,402 150,000Households 10 0 800 5,571 43,500Public Officials 12 0 740 3,136 25,000

Figure 30. Evaluation of Budget Processes

Public officials were first asked about their familiarity with the practices of budget formulation and execution within their institution. The Figure presents only the opinions of those who described themselves as familiar with these practices.

“Please evaluate the written principles of budget management at your institution. Written principles of budget management (formulation, execution, and audit):

A. are always strictly implementedB. are specified in a correct manner and leave no room for interpretationsC. include an appropriate number of stepsD. approved by officials of adequate rankE. stable

1= totally disagree2= disagree3= neither agree nor disagree4= agree5= totally agree9=don’t know”

Figure 31. Participation in Public Hearings on Budget Execution

This Figure is based on the questions below. It includes only responses by those who knew of the legal requirement for such hearings and did not answer “don’t know” when asked the two follow up questions.

“Are there laws or regulations which provide for elected bodies or their revisions commissions to hold public hearings on the execution of the budget for provision of public services?1. Yes2. No3. Don’t know

If yes, have you or anyone in your institution ever been called for such hearings?1. Yes2. No

If yes, have you or anyone in your office ever had to take action on the basis of such hearings?1. Yes2. No3. Don’t know”


Figure 32. Evaluations of Procurement Rules and Procedures

This Figure is based on the opinions of public officials who described themselves as very familiar with the procurement practices within their institution. It presents the percentage of respondents who answered “agree” or “totally agree” to the following question, after dropping responses of “don’t know.”

“Please indicates to what extent do you agree with the following statements for the institution where you work.

1=totally disagree2=disagree3=neither agree nor disagree4=agree5=totally agree9=don’t know

A. Procurement policies are formally writtenB. Procurement policies are widely knownC. I would know where to get the correct answer to a procurement-related questionD. Procurement policies are transparent and easy to understandE. Procurement policies are effective for ensuring that our institution procures high quality/low cost goods and servicesF. Procurement policies are effective for limiting corruptionG. Procurement policies are always followed”


This figure presents the percentage of each of the three sample groups who answered “agree” or “totally agree” to the following questions:

“Please indicate whether you agree or disagree with each of the following statements.1=totally disagree; 2=disagree; 3=neither agree nor disagree; 4=agree; 5=totally agree

A. The government in Kazakhstan is very serious about undertaking reforms to improve efficiency of the public sector and state institutions. B. The government in Kazakhstan is very serious about undertaking reforms to improve the business and regulatory environment for private enterprises.C. The government in Kazakhstan is very serious about undertaking reforms to improve the quality of services provided by the state to the population. D. The government in Kazakhstan is very serious about fighting corruption in the public sector and state institutions.”

Figure 34. What is Corruption? Ordered Probit Results from All Three Sample Groups

The description of the probit regression is provided in the text. The question on which the regression is based, asked of all three sample groups, is:

“Which of the following circumstances would you view as corruption?1=definitely corruption2=in some ways this is corruption, in other ways it is not3=definitely not corruption

A. After a visit to a doctor, the doctor is given a box of chocolates.B. After a visit to a doctor, the doctor is given money (in addition to the official payments) .C. At the beginning of a visit to the doctor, the doctor is given a box of chocolates.D. At the beginning of a visit to the doctor, the doctor is given money (in addition to the official payments).


E. During a visit at the hospital, money (in addition to the official payments) is offered to doctors and nurses to ensure proper care.F. During a visit at the hospital, money (in addition to the official payments) is requested by doctors and nurses to ensure proper care.G. A student gives a gift to a university professor in order to influence his grade.H. A company gives some gift or money (in addition to the official payments) to a government official to avoid waiting in a long line.I. A company gives some gift or money (in addition to the official payments) to a tax inspector to avoid paying more taxes.J. At the beginning of a court case, one of the parties to the suit gives the judge a gift.K. A traffic policeman fines someone for an infraction; the driver offers a smaller amount and indicates that no receipt is required.”

Figure 35. What is Corruption? Ordered Probit Results from Households

The description of the probit regression is provided in the text. The question on which the regression is based is described above. In addition, the variable “can’t survive on that income” is based on the question below. There is not a one-to-one mapping of occupations

“Do you believe it is possible for people in the following positions to survive based entirely on their official salaries?A. teacher (state school) 1. Yes 2. No 9. Don’t KnowB. doctor (state hospital) 1. Yes 2. No 9. Don’t KnowC. nurse (state hospital) 1. Yes 2. No 9. Don’t KnowD. policeman 1. Yes 2. No 9. Don’t KnowE. judge 1. Yes 2. No 9. Don’t KnowF. court clerk 1. Yes 2. No 9. Don’t KnowG. customs officials 1. Yes 2. No 9. Don’t KnowH. civil servants in your rayon (or city or village) 1. Yes 2. No 9. Don’t KnowI. civil servants in your oblast 1. Yes 2. No 9. Don’t KnowJ. civil servants at the national level 1. Yes 2. No 9. Don’t Know”

Figure 36. Performance and Procurement Policies

Each point on the Figure represents a single body, where local and regionally based organizations are counted as separate bodies from the nationally based counterparts. For a description of the survey questions used to create the indexes, see the notes for Table 8.

Figure 37. Performance and Provision of Information to the Public

See the notes for Figure 36 and Table 8.

Figure 38. Performance and the Level of Salary


Figure 39. Performance and the Use of Extra-Salary Premia


Figure 40. Performance and Enforcement of Anticorruption Repression


Figure 41. Performance and the Quality of Budget Processes



Figure 42. Performance and the Quality of Internal Information Flows


Figure 43. Performance and the Quality of Internal Procedures and Administration


Figure 44. Performance and Personnel Policies


Figure 45. Performance and Acceptance of Mission and Objectives


Table 1. The Implicit Tax on Firms

This table is based on the following question:

“Imagine that crime, corruption, and excessive regulations could be eliminated. What would this be worth for your enterprises? Please answer by indicating whether you would be prepared to pay a percentage out of your company’s revenues to achieve each of these hypothetical situations:A. corruption would be eliminated? 1 = yes; 2= no

If yes, how much? _____% of revenuesB. crime would be eliminated? 1 = yes; 2= no

If yes, how much? _____% of revenuesC. excessive regulations would be eliminated? 1 = yes; 2= no

If yes, how much? _____% of revenues”

Table 2. Methods of Procurement

This Table is based on the following questions asked of public officials. It is based only on the responses of those who said they are familiar with the procurement practices of their institution.

“Which of the following methods are used by your institution for procuring goods and services?Sole source 1=Yes 2=NoShopping 1=Yes 2=NoPublic tenders 1=Yes 2=NoOther _________________

Approximately what proportion of the value of goods and services procured by your institution are procured through the following channels?

Sole source _________ %Shopping _________ %Public tenders _________ %Other _________________”

Table 3. Enterprise Evaluations of State Tenders

This Table summarizes responses to the following questions.

“Which of the following organizations or institutions have announced tenders in which your company participated?


Participate? If yes, please evaluate the tender in terms of:

1. yes2. no

Transparency1- very dissatisfied2- dissatisfied3- so and so4- satisfied5- very satisfied

Fairness1- very dissatisfied2- dissatisfied3- so and so4- satisfied5- very satisfied

Efficiency1- very dissatisfied2- dissatisfied3- so and so4- satisfied5- very satisfied

Ministries 1 2 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5Local bodies of state administration 1 2 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5

Oblast or Rayon governments 1 2 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5

State enterprises 1 2 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5Other institutions; which one? ___ 1 2 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5”

Table 4. Household Sample by Region and Settlement Type

This Table, provided by the survey firm, summarizes the household sample and the relevant population statistics by geographical area and settlement type. The source for the population data is the Kazakhstan State Statistical Committee, 1999.

Table 5. Socio Demographic Characteristics of the Household Sample and the GeneralPopulation

This Table, provided by the survey firm, summarizes the household sample and the relevant population statistics by respondent characteristics (gender, age, education, ethnicity). The source for the population data is the National Census of 1999.

Table 6. Enterprise Sample by Region and Size

This Table, provided by the survey firm, summarizes the enterprise sample by region and firm size.

Table 7. What is Corruption?

This Table summarizes the responses to the question described in the Notes for Figure 34.

Table 8. Means for Indexes of Performance and Qualities of Public Administration

These variables are based on the following questions asked of public officials:

ACCESS

“To what extent do you agree with the following statement related to the services provided by your institution?

1= totally disagree2= disagree3= neither agree nor disagree4= agree5= totally agree9=don’t know

A. They meet the needs of the citizens.B. They are accessible to the poor


C. There exist clearly defined mechanisms for consultations with users about their needs”

QUALITY

“To what extent do you agree with the following statement related to the services provided by your institution?


A. They are of a high quality B. They are delivered according to the formalized rules and guidelines which are published in a written form ”

CORRUPT

“Tell us please to what extent do the following problems appear in your institution. 1= does not appear (exist)at all2345 = it appears (exists) very often

A. Job placement determined by personal or political relations, not by performance/abilityB. Embezzlement or misuse of government funds C. Accepts bribes in return for influencing the content of laws and other obligatory decisionsD. Accepts bribes in return for influencing specific governmental regulatory decisionsE. Accepts bribes in return for speeding up the process of getting licenses and permits F. Accepts bribes in return for granting monopolistic privileges for particular enterprisesG. Accepts bribes in return for reducing fees or taxes paid by particular enterprises H. Receives political payoffs to benefit political party or a political campaign I. Accepts bribes in return for providing privileges in state contracting, granting concessions, etc., to private firms J. Introducing new bureaucratic regulations which cause the increase of corruptionK. Uses position to obtain advantages for self, family or friendsL. Uses position to protect the interests of entrepreneurs or others with whom they have political or other connections

Suppose that a colleague would receive bribe, what would s/he usually do?1= share it with superiors2= share with colleagues3= keep all for him/herself4= one cannot take bribes here”

MISSION

“Please, indicate to what extent you agree or disagree with the following statements? In the Institution for which you work:


A. Everyone has a clear idea of the institution’s objectives and strategy


B. Everyone believes the citizen/user are our clients C. Everyone feels identified and involved with the objectives and strategies of the institution D. Incentives do exist to generate a better quality of service delivery ”

MERIT

“To what a degree do you agree with the following statements dealing with decisions in the field of personnel policy (recruitment/appointments/ promotions/ transfers) in your institution. “In general, decisions relating to personnel policy (recruitment/appointments/ promotions/ transfers) were:”


A. Clear B. Audited on a regular basis by internal control agencies C. Based on the criteria specified in the written policy/guides/regulations (rather than tacit, unwritten, or informal rules)D. Based on professional experience/merit/performance E. Based on level of education F. Based on seniority/age/rank G. Based on family connections/wealth/status H. Based on regional connectionsI. Based on political connections/party affiliation/political pressures J. Based on connections/patronage within the institution”

BUROC

“To what extent do you agree or disagree with the following statements relating to procedures / guidelines / regulations in the field of internal management in you institution are:


A. Formalized, officially approved (written) B. Simple, clear, and easy to understand C. Well specified, leaving no room for different interpretations and discretion D. Imposing an excessive number of administrative steps E. Adding too much time to the process of decision making/service delivery F. Stable (not changing or being rewritten all the time)G. Well monitored (violations are always exposed)H. Strictly enforced (violations are always punished)”

INFO

“Please tell us, to what extent do you agree with the following statements related to your organization?


A. Channels of information in our institution are sufficient


B. Those affected by decisions are informed beforehandC. When the decisions are made, the managers always take into account their subordinate’s opinion D. I always have access to the information which enable me to do my work effectivelyE. I am clear about the steps to solve the problems I deal with”

BUDGET

“To what extent to you agree that the budget formulation process involves a close consultation between budget managers and department/division managers ?


Please evaluate the written principles of budget management at your institution. Written principles of budget management (formulation, execution, and audit):


A. are always strictly implementedB. are specified in a correct manner and leave no room for interpretationsC. include an appropriate number of steps”

PROCURE

“Please indicates to what extent do you agree with the following statements for the institution where you work


A. Procurement policies are formally writtenB. Procurement policies are widely knownC. I would know where to get the correct answer to a procurement-related questionD. Procurement policies are transparent and easy to understandE. Procurement policies are effective for ensuring that our institution procures high quality/low cost goods and servicesF. Procurement policies are always followed”

PUBINF

“How does your institution make information regarding its activity and regulations known to the public?A. by issuing activity reportsB. by editing local periodical, through local mass mediaC. by administrative boards/schedules, public announcements, press releaseD. via internet

Does your institution have a special department or designated person to whom citizens and businessmen can complain when they encounter difficulties with your organization?


1 = Yes2 = No

If yes, how would an ordinary citizen or businessman know who to approach with their complaint?

A. Instructions for providing comments and complaints are publicly posted in the place where they are likely to see it

1 = Yes2 = No

B. Instructions for providing comments and complaints is printed on materials that are provided to the citizens and entrepreneurs

1 = Yes2 = No”

TOTSAL

This variable is based on the two questions below. It was stated in log form and re-scaled to be between zero and unity to conform with the other right-hand side variables in the equations.

“What is your base monthly salary excluding the additions and bonuses ?

On average, how much do you earn on monthly basis, in addition to the official salary according to your position ? Please include all additions, bonuses, rewards, financial incentives and the amounts obtained due to vacant places.(net) ”

PREMIA

This variable is based on the two questions above. It is the ratio of extra-salary premia to total salary.

ENFORCE

This variable is based on a weighted response to the following question.

“What would be the most probable sanction of an official in your position at your institution if s/he were caught accepting cash or a gift that was not “trivial” in size?1= most probably s/he would not be sanctioned at all2= s/he would receive only a modest sanction within the institution – admonition, fine (penalty)3= s/he would be sanctioned more severely within the institution – transfer or promotion stopped4= s/he would be dismissed 5 = s/he would be prosecuted in court”

Table 9. Accessibility of Services and the Qualities of Public Administration—Respondent-level Regressions

For definitions of variables, see the text and the Notes to Table 8, above. The regressions are explained in the text.

Table 10. Accessibility of Services and the Qualities of Public Administration—Institution-level Regressions



Table 11. Accessibility of Services and the Qualities of Public Administration—Respondent-level Regressions, Correcting for Respondent-level Biases


Table 12. Quality of Services and the Qualities of Public Administration—Respondent-levelRegressions


Table 13. Quality of Services and the Qualities of Public Administration—Institution-levelRegressions


Table 14. Quality of Services and the Qualities of Public Administration—Respondent-levelRegressions, Correcting for Respondent-level Biases


Table 15. Corruption and Qualities of Public Administration—Respondent-levelRegressions


Table 16. Corruption and Qualities of Public Administration—Institution-level Regressions


Table 17. Corruption and Qualities of Public Administration—Respondent-levelRegressions, Correcting for Respondent-level Biases


End Notes 126

END NOTES

Amitabha Mukherjee/tt/file_convert/5ffdefe02da5234c1e59c069/document.doc

67 Raytsentr is an administrative center of the rayon; most often it is a small town.70 The public officials survey also inquires about the degree to which such decisions are based on unofficial payments. However, this dimension is not used in the current analysis since the use of unofficial payments for government jobs is itself a form of corruption.

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