Corruption still hampering business in Eastern Europe, study shows

Corruption is on the decline in most of the former Communist states of eastern Europe and central Asia, according to a survey published yesterday.

But the poll carried out jointly by the European Bank for Reconstruction and Development and the World Bank finds that corruption has worsened in the last three years in nine states, notably in Russia, the region's largest economy.

The other eight countries where corruption levels have risen are the Czech Republic, Hungary, Macedonia, Serbia, Lith-uania, Armenia, Azerbaijan, and Kyrgyzstan.

The authors surveyed the opinions of 8,000 companies in the region and compared the results with those of a similar poll in 2002.

EU accession

Overall, business conditions in the region have improved significantly over the past three years.

Fewer companies reported problems in dealing with the courts, crime, corruption, customs and trade rules, permits, labour regulations and tax.

The EBRD said: "Overall, the survey shows the business environment in the region has not yet reached the standard of mature market economies. One notable exception is labour constraints such as skills shortages and labour market regulation, which are considered more of an obstacle in mature market economies than in most transition countries."

The EBRD estimates economic growth in the region will slow this year to 5.3 per cent, down from a record 6.6 per cent in 2004.

The main driver is rapid growth driven by high commodity prices in the former Soviet Union where gross domestic product is expected to grow 6.2 per cent.

In south-east Europe the figure is likely to be 4.8 per cent, supported by the prospect of EU accession for Romania, Bulgaria and Croatia. In central Europe and the Baltic states EU accession continues to boost growth, with an increase of 4.2 per cent expected for 2005.

The EBRD says that an important contribution to growth is coming from the rapid expansion of bank credit, including loans to households.

The report warns that, while this is a sign of growing confidence, it could also increase the risks of an economic upheaval, especially if there are weaknesses in individual banks or national financial sectors.

The bank forecasts a broadly similar outlook for 2006, with an average GDP increase for the region of 5.2 per cent. As in 2005, the fastest growth will be seen in Azerbaijan, which will record a GDP increase of 25 per cent, up from 20 per cent, thanks to a leap in oil exports made possible by the opening of the Baku-Tbilisi-Ceyhan pipeline.

Foreign direct investment in the region is forecast to increase this year to a record $47.6 billion, up from $39.1 billion in 2004. The increase was accounted for largely by a sharp rise in direct investment in central Europe, which was boosted by last year's EU accession.