In a speech to the Annual Anti-Corruption Conference of the International Bar Association in Paris, Chakrabarti said the partners of the European Bank for Reconstruction and Development (EBRD) were more frequently citing corruption as an obstacle to investing in the EBRD region.
The EBRD was created after the fall of communism in Eastern Europe and the former Soviet Union to help development in that region and promote foreign investment. It has recently added four emerging countries in the Middle East and North Africa following the Arab Spring.
"When I travel to many of these countries, I hear first-hand the tales of low-level corruption that are part of daily life – informal fees that are paid to secure education or medical treatment or to overcome a plethora of bureaucratic hurdles. They have come to be accepted as the norm - a social contract for survival," Chakrabarti said.
From the perspective of an investor, corruption means that contractual rights are respected less, and human and capital resources are constantly diverted from their most efficient use, he warned.
"Corruption squanders talent and precious resources. It means a much higher cost of doing business, and, at the same time, greater uncertainty as regards the outcome of the investment. It makes the assessment of the risk-reward ratio an extremely difficult exercise – and purely and simply scares most investors away," Chakrabarti explained.
While corruption is not the sole deterrent to foreign direct investment in emerging countries, fighting it is one of the reforms that need to be implemented to create a stable environment, he said.
"We cannot and must not, however, ignore the growing anecdotal evidence which tells us that corruption is rising, not falling, as a key deterrent to doing business in the countries where the EBRD is active."
"EBRD bankers say partner corporations are increasingly citing corruption as a reason to steer clear of our region, partly also against a backdrop of stricter enforcement of national legislation such as the Anti-Bribery Act in the UK and Foreign Corrupt Practices Act in the United States," Chakrabarti added.
The bank is adapting its projects in order to tackle corruption more effectively and it is also adopting a more systematic approach, he said, citing the example of the Anti-Corruption Initiative in Ukraine, which was launched after his visit to the country in February this year.
The initiative has been bringing together representatives of the business associations, international financial institutions and the Ukrainian government in an attempt to fight corruption.
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