Being the text of a paper presented by Obiageli “Oby”
Ezekwesili On August 28, 2012 @ the 2012 Nigeria Bar Association
Conference, Abuja, Nigeria.
Part 1 of this Series
Part 2 of this Series
Corruption is found all over the world – in both rich and poor
countries. However certain distinctions are empirically established in
various studies by economists over the last two decades. Measures of
corruption and poor governance are correlated with per capita income and
with the United Nations Human Development Index (HDI). Richer
countries, on average, have less reported corruption and better
functioning governments. The same holds true for countries with high
levels of the HDI. But it particularly thrives where institutions are
weak and national integrity systems are soft resulting in absence
of transparency and accountability the propensity for corruption is
higher. The global dimension of corruption is best exemplified by the
Demand and Supply theory of corruption which shows that the malignant
act takes two to close their illicit deal and often has a supplier from
the more advanced economies seeking advantage in international trade and
a public official from a poorer nation making the demand. We also know
through research that certain sectors are more prone to corruption such
as infrastructure, public and private procurement, construction and
health care are often affected by corruption. We know as well that there
are two types of corruption – Grande and Petty Corruption- and that
they become intertwined in a vicious cycle of reinforcement until the
entire fabric of a society becomes systemically infested with the
disease of graft, pillage and all other manners of criminality.
There is always a tendency for anecdotes to trump empirical evidence
in people’s assumptions on corruption. However, it is the wave of
rigorous analysis on the malaise that has providedimportant findings to
help shape global and national reforms and anti-corruption programs to
tackle it more effectively. This is where I stop and hugely celebrate my
very dear friend, Professor Johann Lambsdorff of the University of
Passau who has devoted his academic career to the study of economics of
corruption, (Johann was also the chief architect of our TI Corruption
Perception Index). In one of his seminal research, he summarized a
number of empirical evidence on the causes and consequences of
corruption as follows and I quote him copiously:
“In a recent wave of empirical studies the causes and consequences of
corruption have been investigated at large. It can be concluded that
corruption clearly goes along with a low GDP, inequality of income,
inflation, increased crime, policy distortions and lack of competition.
The direction of causality for these indicators, however, is
controversial. Corruption may cause these variables but is at the same
time likely to be their consequence as well. This suggests that
countries can be trapped in a vicious circle where corruption lowers
income, increases inequality, inflation, crime, policy distortions and
helps monopolies at the expense of competition. These developments in
turn escalate corruption. There is a heavy burden placed on instrumental
variable technique in trying to disentangle these mutual dependencies.
There is strong evidence that corruption lowers a country’s
attractiveness to international and domestic investors. This reduces
capital accumulation and lowers capital inflows. Also the productivity
of capital suffers from corruption. There is equally strong evidence
that corruption distorts government expenditure and reduces the quality
of a wide variety of government services, such as public investment,
health care, tax revenue and environmental control. This corroborates
that large welfare losses result from corruption.
With respect to the causes of corruption, not all empirical results
were consistent with our expectations. For example, the disciplining and
motivating effect of higher official wages was found to be rather
limited. Also the impact of colonialism on corruption was ambiguous.
Press freedom and the (de facto) independence of the judiciary and
prosecutors appeared to be important elements in reducing corruption.
Increased corruption also resulted from complicated regulation of market
entry and tariffs. Corruption was found to increase with the abundance
of natural resources and with the distance to the major trading centers.
However, these two latter results provide no direction for reform. The
same is largely true of cultural dimensions. In particular, a mentality
of accepting hierarchies was found to increase corruption.
But it was observed that some variables are so highly intertwined
with corruption that they might just as well be the cause, and not only
the result. Just to name a few, GDP per head, inequality, inflation and
crime were among those variables. It was also shown that levels of
corruption had an impact on flows of bilateral trade and donor
assistance. This gave rise to the argument that the large exporting
countries and donors in question exhibit a different propensity to pay
bribes, and to accept illegitimate payments. This, in turn, suggests
that these international actors cause corruption. But, without doubt,
there also exist a variety of domestic causes for corruption.”
Some of the economic data on corruption both globally and nationally
can be staggering andoften these days become the trigger for credible
and results driven action by wise governments orin other cases
for forging of coalition of the outraged citizenry organized to demand
for action. In one study by my former institution, the World
Bank, a data modeling revealed estimates thatannual worldwide losses due
to corruption amount to between one and four thousand billion US
dollars or twelve percent of the world’s gross economic output. The
Global Financial Integrity estimated that between 1970 and 2008 Africa
lost more than $854 billion in illicit financial outflows, an amount
which is far in excess of official development inflows for the same
period.Another report of TI put the amount of
bribes companies paid politici
ans and other public officials in
developing and transition economies annually at $40 billion in 2009 and
consider that Africa would constitute a major part of since we know the
continent’s ranking on Governance in the lower regions of the TI’s
Corruption Perception Index. Imagine the amount of public good that may
have been traded off by these officials as they made choices that
compromised the aggregate social outcome by subordinating the good of
the larger number to their extremely narrow personal gain. We also know
through studies that corruption is considered equivalent to a 20% in tax
rate by foreign direct investors.
So what kind of data do we have on Nigeria and how do they explain
the monumental scale of our missed opportunity to drive the vision of
our long hoped for greatness since our independence? Could it be that
our lack of any discernible economic progress after many barrels and
billions of dollars for can easily be explained for by the study of
the World Bank (in 2000)which asserts that corruption is the single
greatest impediment to economic growth in developing countries. A study
by a team of two Nigerian economists Shehu Usman Rano Aliyu and Akanni
Oludele Elijah titled “Corruption and Economic Growth in
Nigeria: 1986-2007” empiricall
y captures the link between
corruption that has bedeviled the country unleashing the
mediocreeconomic performance. They did so by building on the study
by Mauro (1995) which examined the effect of corruption on growth rates
of per capital GDP of sixteen countries from 1960-1985 and revealed that
one-standard deviation decline in the corruption index leads to an
increase in annual growth rates of GDP per capital by 0.8 percent. His
other study revealed that the size and composition of government
expenditure is significantly affected by corruption and that corruption
tends to make public expenditure neglects education and health in favor
of sectors where corruption might not be perceived easily.
They similarly quoted the influential economics of corruption work of
Rose-Ackerman (1997) which found that corruption aggravates the problem
of poverty through the following channels.
a. The poor will receive a lower level of social services.
b. Infrastructure investment will be biased against projects that will aid the poor.
c. The poor may face higher tax or fewer services.
d. The poor are disadvantaged in selling their agricultural produce.
e. Their ability to escape poverty using indigenous small-scale
enterprise is diminished. Also their study picked up on Gupta et
al (1998) found that corruption increases income inequality and poverty
by lowering economic growth, promoting a biased tax system in favor of
the rich few, lowering social spending, reducing access to education and
reducing the effectiveness of targeting social programs.
So how did their economic analysis of Nigeria’s own systemic
corruption challenge bearing in mind all of these other relevant
findings? Oh yes, it did! In the words of the authors “In fact our
results reveal that as much as 20 percent of the entire capital
expenditure may end up in private pockets” annually. Summing up, the
paper discovers that corruption exerts both direct and indirect negative
effects on economic growth in Nigeria. The negative effects of
corruption is starkly demonstrated by the fact that based on current
track record, Nigeria will miss all the MDG targets set in 2000 despite
the richness in its natural and human resource endowments.
There is no doubt that at the heart of any progress towards meeting
these Goals is the quality of governance at all levels of government and
yet the general perception since validated by the revealed large scale
corruption in the petroleum sector (especially but not limited to the
management of the subsidy scheme by all the relevant agencies of
government) is that poor governance of public resources and assets in
Nigeria is worsening at every level of government, across
our institutions of state, the private sector and fast engulfing
the wider society. It is not unusual these days to be inundated with
public denunciation of what some now call “Nigeria’s corruption crisis”.
In an embarrassing special report on Nigeria in 2010, the National
Public Radio (NPR) of the United States declared as follows; “But the
other and perhaps more significant way corruption hurts is its impact on
the government’s bottom line — and those teacher-less, desk-less
schools only hint at the extent of the problem in Nigeria. An estimated
$400 billion of the country’s oil revenue has been stolen or misspent
since the country’s independence in 1960. That’s a sum approaching all
the aid the West has pumped into the whole of Sub-Saharan Africa during
the same period. And while oil accounts for about 90 percent of the
value of Nigeria’s exports, 80 percent of that money ends up in the
hands of one percent of the population, according to the World Bank.”
A society that rewards corruption has perverted its incentives system
and structure and deforms the bedrock of effort and hard work that
helped economies we envy to grow rapidly.. You get rewarded but for the
wrong kind of conduct. It is no wonder that since the cost of corrupt
behavior is extremely low and the profit or benefit is visibly and
extremely high, many have chosen to join the fast accelerating express
train of corruption. For such that join, they rationalize that a
society which punishes those who seek to do the right with hardship
while incentivizing the corrupt left them with little choice.
Regrettably, that ignoble choice having been made by too many who have ,
had or will have the opportunity to lead in our public space has
robbed us all of the greatness . What Nigeria is today – a giant
embarrassingly trapped in dwarfish heights that are symbolized by
pitiful economic, political and social outcomes; ails the heart of even
eternal optimists.
Asiwaju Tinubu
