Blog by Lela Javakhishvili
Center for Social Sciences
This work was supported by the Marie Sklodowska-Curie Actions, Research and Innovation Staff Exchange (MSCA-RISE) within the H2020 Programme under the grant SHADOW [no: 778118]; H2020 Marie Skłodowska-Curie Actions.
Shadow economy and corruption are topics of discussion even for the most developed countries in the world. Although there are rules and laws aimed at eliminating these two, people still find layers within the law to bypass them, which of course does not have any positive effect on states. In the most cases, such actions are motivated by personal interests, although sometimes they are attributed to the public welfare. In this regard, it is interesting to look at Georgia, the country that dedicated many years and a lot of resources to the fight against the corruption and shadow economy. In this blog, we will discuss the certain cases that can be attributed to both shadow economy and corruption coexisting in Georgia. Documents that were studied within the desk research, such as legislative frameworks, surveys, and government estimates, open government data shows that the situation in Georgia is not favorable in this regard [shadow economy and corruption], which will not have a positive impact on the country’s budget and economy.
Let’s start by explaining the meaning of these two concepts – shadow economy and corruption. Shadow economy is all market-based legal production of goods and services that are deliberately concealed from public authorities to avoid taxes and social security contributions, labor regulations, and other administrative procedures (Chen et al., 2020). As for corruption, Ekiyor (2009) in his broad view of corruption defined it as the unlawful use of official power or influence by a governmental official either to enrich himself or further his and/or any other person’s course at the expense of the public, in contravention of his oath of office and/or contrary to the conventions or laws that are in force.
Research on corruption in Georgia reveals that one of the most pressing issues is the vehicles used by the public service employees. In particular, state government vehicles and the resources spent on them. In this regard, for example, researches show that the state governors mostly consume Toyota Land Cruisers, and these cars are delivered to them for free. Most of the time (73%), this is transferred free of charge from other public institutions. In 2017-18, the mileage passed by them exceeded the existing limits. Analysis of vehicles owned by regional governor administrations and related fuel consumption points to challenges related to rational and efficient use of resources (IDFI, 2019). It also contains signs of both corruption and the shadow economy (in terms of buying cars).
Interestingly, studies show, that the governmental officials are opting for brand new cars. In particular, 31 public institutions have purchased a total of 382 vehicles, of which 253 units are the latest models produced in 2018 and 2019. Such cars consume a lot of fuel, therefore it is no longer surprising that in 2019, up to 425,000 liters of fuel was consumed by the 122 public officials studied, for which 1 million GEL was spent. The determined fuel limits for public officials range from 140 liters to 850 liters. The Director of the National Veterans Affairs Agency stands out with the highest fuel limit. Studies show that the fuel consumption levels of the Members of the Parliament (MPs) often remain unchanged, even throughout the months when they are on business trips abroad for a week or longer (IDFI, 2020).
It is surprising but during Covid-19, when using vehicles was restricted, fuel consumption increased instead of decreasing (IDFI, 2020). These all raise lots of questions, but they remain unanswered. No one knows what government vehicles and fuel are used for by those who should be the first law enforcers.
How did corruption contribute to the development of the shadow economy? Those who do not hide the above-mentioned information, reveal that corruption poses risks of shadow economy. These risks are sometimes neglected in the name of goodness. For example, Tsotne Koberidze, a member of the Tbilisi City Council, posted a status on his Facebook page about a car that had been appointed in the City Council to implement the “budget taxi” initiative and that people would be served free of charge (Versia, 2022). As he says: “I was assigned a car in the City Council with three hundred liters of gasoline every month. Both this car and the petrol are bought with people’s money, so I am going to tax and transport people for free. In this way, I can return their money. If you see a white cone sticker in town tomorrow, shake hands. I will book before each departure and you can write to me your address. My benefit is that I will see many people, I will listen, I will have direct communication with citizens of Tbilisi, and I will talk about Girchi [his political party]. The passenger will receive a lollipop as a gift. The only limitation: only pink Floyd will be included in the car. When the gas runs out I will stop and then wait for a month. I will not walk a single meter for my affairs […]. The fuel that I consume for free will be about 20 liters per day, I carry out my venture once a day or once in three days, the rest of the days I am in the City Council or I do other things” (Versia, 2022). This example shows that those who use state vehicles for non-commercial purposes and for promoting their political party interests, or even just for good purposes, speak openly about it and do not necessarily see any problems in doing so. However, there is a risk that there may be those who see financial gain in the same business and do not publicly speak about it. Thus, they become a part of the shadow economy (through doing business covertly) and engage in corrupt activities (given that they use state-owned vehicles and spend fuel for other purposes). Information on such cases is not officially confirmed, however, it is obvious that there is a risk (e.g the anegdotal cases such as above about using state property as a taxi). And the evidence to it, relatively minor but still, is related to exceeding the fuel limit as well as the low salaries of local governmental officials that might hinder them to engage in similar activities.
The researchers conclude that the use of unreasonably high amounts of fuel can be eliminated by improving the technological control system. In particular, with chips that record vehicle movement and fuel consumption (IDFI, 2019). In their opinion, only this way this possibility can be eliminated, as „In two years, about 130 thousand liters of fuel have been consumed by 7 governors, they have traveled 50 thousand kilometers every year with this data, which means that they have to travel 150 to 200 kilometers daily, which naturally raises questions. All governors are served by Land Cruiser brand cars, which in most cases are free of charge. This is also a kind of problem in terms of transparent management of this fleet“ (Tushurashvili, 2019).
The Union of Taxpayers report the same, as they believe that the mechanism of control by the state is outdated, and the country should move to the model of the developed countries and use the so-called “carpooling” system. In such case, public officials are not be served private vehicles and have to move around by public utility vehicles (Gelantia, 2019).
The issue of cars has been subject of much debate on television. The response of the Prime Minister of Georgia to the question about the use of the state vehicles by public officials shows that some politicians use them for family members, while others create new businesses and at least promote the party without seeing any particular problems. “I am the Prime Minister and Gvaramia[1] is the director of the company… You compare him to me and my family members, to whom state vehicles belong by law“ – This is how the Prime Minister Irakli Gharibashvili answered the journalist’s question about why the General Director of the “Main Channel” was arrested for using the car of a private company for his personal matters, while the Prime Minister and his family members travel in a state car for the same reasons (Mtavari Arkhi, 2020).
Such manifestations show that the usage of governmental cars and the fuel consumed by public officials needs to be reconsidered as this topic contains signs of both corruption and the shadow economy. The fact that state-funded vehicles are used for commercial purposes (taxis) indicates illegal actions and poses a risk that if the action is repeated by others too (especially in the regional municipalities), this would proove the usage of the budgetary resources as a source of additional personal income. The usage of cars and fuel funded by the state budget and indicating at their improper consumption negatively affect the country’s economy. As mentioned in the example above, a taxi was used for political party agitation, which is also a problem in itself, but this precedent proves that the public officials can use the state-owned vehicles for gaining money without being investigated and checked. Such examples may already exist, but as the cases of shadow economic activities are difficult to reveal, we still do not have proper information about them.
Bibliography:
- Ekiyor, H.A 2009 “corruption in Local Government Administration: An Historical summary” as found in Local Government Administration in Nigeria: Old and New Vision;Retrieved from: https://www.arabianjbmr.com/pdfs/OM_VOL_2_(4)/4.pdf
- IDFI. (2019). Regional Governor State Vehicles and Fuel Expenses: 2017-2018; Retrieved from: https://idfi.ge/en/regional_governor_state_vehicles_and_fuel_expenses_georgia
- IDFI. (2020). Vehicles and Fuel Expenses of LEPLs and other Independent Authorities; Retrieved from: https://idfi.ge/en/vehicles-and-fuel-costs-infographic
- IDFI. (2020). Fuel Expenses of Members of Parliament: 2018-2020; Retrieved from: https://idfi.ge/en/fuel_expenses_of_georgian_parliamentarians_in_2018-2019
- Koufopoulou, P., Williams, C., Vozikis, A., Souliotis, K.. (2019). Shadow Economy: Definitions, terms & theoretical considerations; Retrieved from: https://www.academia.edu/39124632/Shadow_economy_definitions_terms_and_theoretical_considerations
- „ვერსია“. (2022). “ერთხელ მგზავრმა მითხრა, რომ შემეძლოს წკეპლით ვცემდი ჯაფარიძესო“ – ცოტნე კობერიძე „ბიუჯეტურ ტაქსიზე“ გვიამბობს; Retrieved from: https://www.versia.ge/index.php/versia/20-europe/2770-2022-03-11-11-32-41
- „მთავარი არხი“. (2020). “მე პრემიერი ვარ და გვარამია კომპანიის დირექტორი… მე რომ მადარებთ და ჩემს ოჯახის წევრებს, კანონით მეკუთვნის სახელმწიფო მანქანები” | ღარიბაშვილი. Retrieved from: https://mtavari.tv/news/86105-me-premieri-var-gvaramia-kompaniis-direktori-me
- „რუსთავი 2“. (2019). შვიდმა გუბერნატორმა ორ წელიწადში 130 ათასი ლიტრი საწვავი მოიხმარა – IDFI-ის კვლევა. Retrieved from: https://rustavi2.ge/ka/news/135084?fbclid=IwAR3gUpRPZqX5x8L5Kl-88IFQK-cThfuJmo_2c3LAOW9DwxwxAzMy2Jz4Z2A
- გალანტია, თ. (2019). გადასახადის გადამხდელთა კავშირი: სახელმწიფო ავტოპარკის მენეჯმენტი უნდა შეიცვალოს. Retrieved from: https://www.bm.ge/ka/article/gadasaxadis-gadamxdelta-kavshiri-saxelmwifo-avtoparkis-menejmenti-unda-sheicvalos/34854
[1] Nika Gvaramia, director of one of the TV channels, was found guilty and convicted to 3 years in jail in Spring 2022 with the charges related to the use of the company cars for private purposes.