Wednesday, 2 November 2016

How corruption destroys the Nigerian economy

            By Bayo Ogunmupe

     The recent Global Corruption Barometer shows that 12 of the 13 countries with the worst record of bribery are in Africa. The African Union estimates that 25 percent of the GDP of African states or some $148 billion, is lost to corruption every year. The African Development Bank (AfDB estimates corruption costs Africa up to 50 percent in lost tax revenues and over $30 billion in aid, yearly. In comparison, Africa receives about $22.5 billion in development aid from industrial countries, according to the Organization for European Economic Cooperation and Development (OECD).
     In 2014, Kenya sold government bonds to foreign investors to raise $2.82 billion for infrastructure projects and to pay off outstanding debts. But $1 billion of that amount cannot be accounted for. Recently, Samuel Ukura, Nigeria's auditor-general, reported that $16 billion in oil proceeds was missing from the Nigerian National Petroleum Corporation (NNPC). After that the Central Bank of Nigeria (CBN) uncovered NNPC's $2.3 billion not remitted to Nigeria's Treasury Single Account. The culpable Nigerian commercial banks hid the amount with the intention of corruptly enriching themselves and their collaborators.
     At independence, Nigeria started development with low economic development foundation. For instance, we inherited no significant private sector and little infrastructure. In order to expand these rudimentary economic foundations and create wealth, we needed to build capable public services, create new private enterprises and expand infrastructure.
     To achieve these projects, Nigeria needed to allocate scarce public resources efficiently to foster equitable development, foster efficient state- owned enterprises, specific industrial policies and develop quality long-term economic policies. These are instruments by which government stimulates the economy to create new industries.
     But after independence, Nigeria continued to export raw materials without adding value, which would provide wealth, bricks- and- mortar investments and jobs. Nigeria's economic challenge is to diversify its industrial base on the back of its raw materials and agricultural products- that is- spinning off new industries from these or developing new ones from scratch.
     Corruption is one of the reasons why Nigeria has not industrialize as a nation. In fact since independence Nigeria has de-industrialized by producing at the same level or at even lower level. Corrupt elements have captured the areas of policy intervention, which could reverse Nigeria's de-industrialization, causing a vicious cycle of underdevelopment. Because the Nigerian state has been captured by corrupt elements, scarce resources are not distributed optimally to boost development.
     According to the OECD, as a result of corruption, investments are not allocated to sectors  and programmes which present the best value for money or where needs are highest, but to those which offer the best prospects for personal enrichment of politicians. Public resources are often distributed where kickbacks are high and tenders are given to the company or individual that pays the highest bribe- not the company that can deliver the best quality products and services or make the best investment.
     Because of corruption, state owned companies become a drag on public funds rather than a catalyst for growth. Because of corruption, very few new dynamic industries are created because resources are channeled to corrupt individuals or unproductive investments. In a corrupt environment, long- term investments- so crucial for development- are not a priority. In fact, dominant leaders, groups and factions try to eat as much as quickly as possible, and amass wealth, before the next incumbents push them from the feeding trough.
     Alternatively, some dominant leaders supported by their minions, try to remain in perpetuity. That was what Olusegun Obasanjo sought to do by his third term agenda and in allowing the National Assembly members to pad the budget, award and pay contractors.
     Because it is so easy for the politically connected to live off rents, they lack incentives to build bricks- and- mortar companies. This means that the Nigerian economy cannot expand productive capacities, because the corrupt milk the existing capacity and kill off new productive capacity by choking not- so- politically connected innovators, entrepreneurs and new ideas, even before they get to start-up,whether in finance, mining, services or trading. 
     Public procurement, where companies have to bid to deliver services on behalf of government, is especially vulnerable to corruption. The World Economic Forum estimates that 25 percent of the cost of procurement contracts is lost to corruption, which also undermines the delivery by the state of basic public services. The poor suffer disproportionally more from corruption because they depend on basic public services the most.
     For development aid received, it is also captured by corruption and misdirected to the bank account of individuals or to unproductive projects; such as the reliefs targeted at the Internally Displaced Persons which were found in the bank accounts of non- governmental organizations.
     Ultimately, corruption shatters the confidence of citizens, organizations and investors in government as is happening in Nigeria today. When government loses confidence it cannot enforce rules aimed at increasing productive capacity, economic growth and per capita income. Where leaders, legislators and ministers and other government functionaries are perceived to be corrupt, private sector organizations and investors also try to shirk their duties. They find ways to avoid tax or to move income offshore or bribe officials to secure trading licenses The result is that government is deprived of income.
     In many cases Western governments and companies have been complicit in encouraging corruption in Nigeria. Former World Bank chief economist Joseph Stiglitz says, "Every bribe that is taken has a payer, and too often the bribe payer is a corporation from an advanced industrial nation or someone acting on its behalf".
     Nigeria with one dominant resource, is now experiencing  a natural resource curse. This well recognized phenomenon occurs when the export of the commodity does not benefit the country as a whole, but only a privileged few. Stiglitz says the reason for the resource curse is the prevalence of corruption, whereby Western companies abet the siphoning off the income from our oil to Nigerian leaders and elites in return for selling the natural resource at discount prices in global markets.
     Foreign investment is also impacted by corruption. Investors are often asked to pay bribes to secure tenders, licenses and protection to operate without interference. China for example, has been accused for targeting  African political leaders and governing political parties, providing them with patronage to secure trading licenses, favourable investment terms and freedom to shirk its duties in terms of local laws on labour, human rights, wages and the environment.
     In Nigeria, local and foreign private donors fund governing parties in return for favourable policies  subverting regulations and the drive toward efficient privatization. This stymies development. Developed countries exacerbate the situation by harbouring the proceeds of corruption in secret bank accounts.
     Illicit outflows of money from Nigeria come in form trade mis-pricing, payments between parent companies and their subsidiaries and profit shifting strategies aimed at hiding income. These corruption reports implicate governments, mining, oil and banking as well as legal and accounting firms.
     Corruption leads to brain drain of Nigeria's best talents, it distorts mechanisms like fair competition. It deters domestic and foreign investment, thereby stifling growth and creating large scale unemployment. The IMF says investment flows to corrupt countries are 6 percent lower than other countries.
     Nevertheless, Nigeria's civil society groups, media and individual whistleblowers must continue to point out corrupt practices. They need to be supported  by transnational bodies such as the African Union, Transparency International, Global Witness and Action Aid. All of which have done well in exposing corruption. Abdulmumin Jibril must also be commended for exposing corruption in the National Assembly.

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