ATK: most black money in construction and production

31 October 2013 Authored by

The construction sector is known as a sector that is to a high extent subject to shadow economic activities. An investigation performed by A.T. Kearney and Visa shows that the magnitude of the amount of black market money in the construction sector accounts for almost one-third of the total turnover in this sector. Considering this, the construction sector is by far the most corrupt sector.

According to the report ‘The Shadow Economy in Europe 2013’ European researchers investigated the European shadow economy. They looked into the total market*, size per country** and the size per branche.

From an industrial point of view, most results can be interpreted as shocking. The amount of black money in construction makes up for no less than one-third of total turnover transfers in this market. In Europe this comes down to 115 billion euro’s.

The second most ‘corrupt’ industry (wholesale and retail) comes next with approximately 20%.

AT Kearney - Shadow Economy per SectorMultiple factors are leading to a larger shadow economy in these sectors. One factor is the traditional high level of low declarations (especially in construction, even worse when working with subcontractors. Also undeclared labour is a common phenomenon, for example in construction and retail segments. Another factor is the high amount of small transactions with cash money: a cheap taxi ride, an overnight hotel stay, or a quick snack in a sandwich bar.

Well regulated sectors and sectors depending on regular contact with customers, i.e. electricity and financial services, have relatively low shadow economies.

Production sector

Putting things in perspective the construction sector is the biggest loser. But when considering the total value, the production sector definitely beats everything. According to consultants at least 117 billion euro’s is transferred in this sector’s shadow economy annually. That is 62 billion more when compared to the construction sector. Also wholesale and retail segments have large shadow economies.

AT Kearney - Shadow Economy per Sector GDP Split