COST OF CORRUPTION ON THE NIGERIAN ECONOMY1 Prof. Sheriffdeen A.

Tella Department of Economics Olabisi Onabanjo University Ago-Iwoye, Ogun State And Centre for Applied Economics and Policy Studies (CEAPEPS) Ijebu-Ode, Ogun State. Email: satellang@yahoo.com BISMILLAHI RAHAMANI RAHEEEM PROTOCOL And do not devour your wealth among yourselves through falsehood and offer it not as bribe to the authorities that you may knowingly devour a part of the wealth of other people with injustice. (Quran 2:188) When bribery and fornication appear in a community, the people of that community has rendered themselves liable to the punishment of Allah. The Holy Prophet 1. Introduction

It is with great humility and subservient to the will of Almighty Allah that I accepted to be part of this years Independence Anniversary Lecture organised by The Muslim Congress. I am very grateful to the leadership of the Congress for considering me worthy of presenting a paper on this topical issue that is drawing Nigeria back on the development front. The issues of corruption is quite topical any day around the world and its relations or effects on economic development will continue to confront society so long as we desire better living conditions. Corruption is so important to the existence of Nigeria that hardly would it not be mentioned in the media each day. This is why I consider the topic as very important and apt for this particular period in the existence of our nation. In fact, the depth of corruption in Nigeria seems to be growing in the same direction with underdevelopment characterised by rising level of unemployment, poverty, insecurity and national decay every month and year. This trend in relationship should not be surprising as a number of studies have been carried out to confirm such situation. The Secretary General of the United Nations, Ban Ki-Moon said recently: Neither peace, development nor human rights can flourish in an atmosphere of corruption! The kernel of this paper is to identify the cost of corruption and this is carried out by reviewing various international reports on the state of Nigerias economy within comity of nations. The rest of this paper is divided into four sections. In the next section, we look at
Lecture presented at the 2012 Independent Day Lecture organized by The Muslim Congress (TMC) in MKO Abiola International Stadium, Abeokuta on October 6 , 2012.
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some conceptual literature on corruption while in Section 3, a review of studies on effects of corruption on a nation. In section 4 we consider effects or cost of corruption on Nigeria and present concluding remarks and recommendations in Section 5. 2.1. Conceptual Issues on Corruption

Corruption appears in many forms such that the tendency is to overlook some activities as normal and legal. Ruzindana (1997) identifies the following forms of corruption that people engage in: bribery, extortion, illegal use of public assets for private use, over- and underinvoicing, payment of ghost workers and pensioners, payment for goods not supplied or services not rendered which is called air supply, underpayment of taxes and duties on exports or inputs through false declaration or invoicing, purchase of goods at inflated prices, fraud and embezzlement, misappropriation of assets, court decisions awarding damages in excess of any injury suffered, removal of document or even complete case file, and redtapism and patronage. Rose-Ackerman (1997) identifies four stylized types of corrupt states viz: Kleptocracy, bilateral monopoly states, mafia-dominated states and competitive-bribery states. Let us briefly discuss these2. In kleptocracy States, corruption is entrenched at the highest level of government. In pure kleptocracy, the head of government runs the political system in such a way that it maximizes the possibilities for extracting rents and relocates the resultant benefit for personal aggrandizement. Sometimes, such rulers tend to favour an excessively large state to maximize their rent seeking opportunities. While they prefer to avoid waste by their subordinates, they may not be able to prevent them from taking bribes (Coolidge and RoseAckerman, 1997). Under the Bilateral Monopoly State, the corrupt ruler faces a single major briber, who in a large number of cases in developing countries, is a multinational corporation. The relative share of the gains expropriated from their collusion will depend on the relative strength of the actors. That is, the ruler and the briber, with the former using the States apparatus and his position to intimidate the latter who can also threaten to engage in violence (Rose-Ackerman, 1997). In some bilateral monopolies, rulers form an alliance with a Mafia group that engages in crime to provide protective services that in ordinary societies are provided by the State (Gambetta, 1993). Depending on the strength of the two actors, the State may become an appendage of the large investor, incurring distributive and efficiency losses as well as forfeiting the ability to tap the profits of economic activities. In the Mafia-dominated State, many officials are engaged in freelance bribery and they face a monopolist briber in the private sector. The briber could be a Mafia group or a large corporation that dominates the State. The Mafia may be powerful but organisation of the corruption may limit its ability to purchase the benefit it wants. This is because reaching an agreement with one official does not preclude another official from coming forward. The Competitive-bribery State is one of loose relationship. Here, many corrupt officials deal with a large number of ordinary citizens and firms. A fundamental problem in this case is the potential for an upward spiral of corruption. The corruption of some officials can encourage
2

See details in Rose-Ackerman, 1997a, b; Tella, 2004.

others to accept bribes until all but the reconstructed moralists are corrupt (Rose-Ackerman, 1997a). Whichever type of corruption, low compensation for work done, such as the current minimum wage palaver, and weak monitoring of subordinates, reduction in expected punishment for offences committed are all part of corruption and therefore further promotes commitment to such offences (Becker and Stigler, 1974; Klitgaard, 1991). When corruption is allowed to thrive uncontrollably at the top, it moves down the ladder so rapidly that it becomes an endemic disease that only a revolution, devoid of morality, can cleanse the society and lead them to better living condition. Such level of corruption requires more than spirituality for the society to survive. In fact, such society deceive itself by promoting religious bigotry which in essence sometime serves as another avenue for exploitation without light at the end of the tunnel (Tella, 2011). 4. Nigeria and Corruption: Facets and Costs

4.1. Facets of Corruption in Nigeria Nigeria is reputed to have huge human and non-human resources with the potential to become a force to be reckoned with within the comity of nations. This is why the World Bank assessment report on Nigeria in 1996 was titled Nigeria: Poverty in the Midst of Plenty. The situation has not changed more than 15 years after! It has even worsen. Nigeria is often referred to as the number two economy in Africa after South Africa but that is in terms of nominal gross domestic product (GDP) which is largely influenced by price and volume of crude oil not in terms of meeting basic needs and other development indices. While countries like Botswana and Equatorial Guinea have existed from Least Developed Countries status, Nigeria, with all its human and non-human wealth remains a proud member of the group. A number of reasons have been adduced for the failure of the Nigerian governments to implement sound economic and social policies that can develop the economy. The reasons include3: The first major reason is deep-seated corruption by those in power and with the active collaboration of some international organisations and institutions; Lack of openness or accountability and transparency in the conduct of government businesses which invariably spill-over to the activities in the private sector; Deliberate pauperization of the populace as a weapon for oppression and exploitation; and Deliberate promotion of importation of goods that can be produce locally with a view to engaging in capital flight and money laundering in a somewhat more legal manner than money laundering which in itself is corruption. There is hardly a day without a report on corruption in the Nigerian newspapers. Below are samples of newspaper headlines to buttress this statement:

See Tella, S.A. (2004) Accountability and Transparency in Governance:.

 Saturday, September 1, 2012: Appeal Court asked to nullify proceedings in $15m Ibori bribe money, The Punch, p.10. Sunday, September 2, 2012: 400b oil money mismanaged by government, says Ezekwesili, The Nation, P.10. Monday, September 3, 2012, Alleged N1b Pension Fraud: EFCC seizes passport of Kaduna oil baroness, The Nation, p.5. Tuesday, September 4, 2012, Zambia probes Nigeria firm for $5m oil swindle, The Nation, p.1. Wednesday, September 5, 2012: Subsidy payments: Oil marketers may sue Federal Government Govt lied over N259bn payments, The Punch, p. 21. Thursday, September 6, 2012: ID card: French firm fined N94.2m for bribing Nigerian officials, Punch, p.2. Friday, September 7, 2012: Failure to Prosecute Okupe, endorsement of corruption ACN, Punch, p. 13. Even in budgetary allocations, the countrys administration demonstrates profligacy bordering on corruption of the highest order. The table below on 2012 federal budget shows this:
S/N 1 Description of Item Two bullet proof Mercedes Benz saloon 600 E Guard at N140 million each 2 3 New vehicles in the presidential fleet 5 Mercedes Benz 350 (semi plain/partial bullet proof) at N25 million each, 10 jeeps (assorted Range Rover, Prado and Land Cruiser) at N10 million each and accessories for the vehicles at a cost of N25 million 250 million 4 5 6 7 8. Overhaul power generating set Refurbishment of family wing of the main residence Land reclamation at the State House Medical Centre Rehabilitation of transformer substation in the Villa Rehabilitation of 10 presidential houses on Ibrahim Taiwo Street, Abuja (N101 million was allocated for same last year) 9 Rehabilitate the State House and Dodan Barracks (N628.64 million spent earlier on the two facilities) 10 Repairs and renovation of the administrative building at the Villa (N302.29 million was spent on same last year) 11 Rehabilitation of the banquet hall dome roof (N81 million allocated to same last year) 12 13 Feeding for President and Vice-President New Presidential jet N62.23 million N992,57 million US$110 million N357.73 million N530.57 million N52.87 million 127.50 million N512.39 million N385.35 million N101.67 million 280 million 356.72 million Budget Proposal

Source: National Association of Nigerian Traders (2012) The implication of the above examples is that corruption and profligacy have become part and parcel of the Nigerian lives. With the glaring misallocation of resources, a country cannot expect meaningful development. 4.2. Consequences or Cost of Corruption

The consequences or cost of corruption can be gleaned from one of the word of the Holy Prophet quoted at the top of the paper: When bribery and fornication appear in a community, the people of that community has rendered themselves liable to the punishment of Allah. As if to confirm the punishment of Allah on corruption, Scluk (2006) affirms that corruption reduces economic growth, retards long-term foreign and domestic investments, enhances inflation, depreciates national currency, reduces expenditures for education and health, increases military expenditures, misallocate talent to rent seeking activities, increases income inequality and poverty, reduces tax revenue, increases child and infant mortality rates, distort fundamental role of government and undermines the legitimacy of government and of the market economy. It is within the context that Nigeria has been liable to the punishment of Allah that we look at the cost or consequence of corruption on the Nigerian economy. A United Nations Conference on Trade and Development (UNCTAD) Report (2010) on Less Developed Countries (LDCs) indicates that in 1980s to mid-1990s, the incidence of poverty was growing in both Africa and Asian LDCs but the trend has since changed. With a World Banks report (2010) showing that extreme poverty fell from 53 percent in 1990 to 33 percent in 2005 in LDCs, it is instructive to note that most of the decline in poverty occurred in Asia. The UNCTAD report states that during the boom period around the world, extreme poverty continued to rise in Africa while the trend reached a plateau in the Asian countries in 2000. Nigeria, constituting large proportion of the population in Africa is one of the driving forces in poverty aggravation in Africa. In the 2010 United Nations Development Programme (UNDP) Report on Human Development Index, Nigeria ranks 145 out of 172 countries in the world and ranks 32 position out of the 52 African States with countries like Ghana, Cameroon, Benin beating us! This implies that Nigeria is number 27 and 20 from below within the world and with Africa respectively. When the report of the Fund For Peace (FFP) for 2012 was released, Nigeria was ranked as one of the top 10 failed states in Africa and 14th in the world. If we look at the countries that we lead in the failed state ranking, we would see that they are countries have been involved in civil wars, natural disasters, political instability and other major problems. How do you categorize Nigeria with Pakistan, Haiti, Mali, Somalia, Iraq, and Cote dvoire who have in recent past or presently suffered from the aforementioned malady but that is where we are! You cannot see any oil exporting country, even those in Africa, as being worse than Nigeria. The major reasons given for the parlous state of Nigeria in ranking are growing unemployment, corruption and insecurity.

The World Economic Forums report on 2012-2013 Global Competitive ranks Nigeria 115th out of 144 countries. Although the countrys position has improved from127 last year but it is still behind such countries like South Africa, Ghana, Kenya, Cameroun, etc. The report indicates that the factors that are instrumental to Nigerias progress are improved macroeconomic conditions, a recovering financial sector and efficient use of talents while it is held back by corruption, government inefficiencies and worsening insecurity. The Millennium Development Goals (MDGs) was conceived at the beginning of this century for developing countries, including Nigeria, to chart a course of meeting minimum needs of the people of this countries. Eight goals were identified for meeting such needs by the year 2015. These are targets to increase incomes; reduce hunger; achieve universal primary education; eliminate gender inequality; reduce maternal and child mortality; reverse spread of HIV/AIDS, tuberculosis and malaria; reverse the loss of natural resources and biodiversity; improve access to water, sanitation and good housing; and establish effective global partnership. The table below shows the position of Nigeria vis--vis Sub-Saharan Africa and the low middle income countries where Nigeria belongs in world income profile. Reports on the achievements of the MDGs indicate that Nigeria is one of the African countries that will not be able to achieve goals by the terminal date of 2015. It is clear from the table to see that Nigeria is worse off in all the indices. The average life expectancy for Africa is 54 years and that of other countries within our income group within the world income bracket is 65 while Nigerias figure is 51. Infant mortality in Nigeria is 88 death per 1,0 00 birth while the average figure for Sub-Saharan Africa is 76 and income group is 50. While other countries are making progress in education, we are still lagging behind as also shown in the table. Nigeria: Poverty and social Indicators Nigeria Item (Average for 2004-2010) Poverty (% of population below national poverty 55 line) Life expectancy at birth (years) 51 Infant mortality (per 1,000 live birth) 88 Child malnutrition (% of children under 5) 27 Access to an improved water source (% of 58 population) Literacy (% of population age 15+) 61 Gross primary enrollment (% of school age 83 population) Male 87 Female 79 Source: Development Economics LDB Database, 2012 SubSaharan Africa -54 76 22 61 62 100 104 95 Lower middle income countries -65 50 25 87 71 107 110 104

In the Statistical Annex of Human Development Report of 2010 (pp. 161-163), countries are divided into five groups namely Very High Human Development (VHHD), High Human Development (HHD), Medium Human Development (MHD), Low Human Development (LHD) and Other Countries or Territories. Nigeria belongs to the LHD and ranks 142 out of 169 countries in multidimensional poverty index (MPI) and is behind African countries like Gabon, Egypt, Namibia, Cape Verde, Congo, Kenya, Ghana and Cameroun. 6

In the 2012 Economic Report for Africa by the Economic Commission for Africa, Nigeria does not feature either among the top 10 performers either on basic measures for democracy which are rule of law, accountability, personal safety, popular participation and human rights, or human development indicators consisting of human development, welfare, education and health.4 The reports above, which are the most recent on development clearly show that Nigeria remains underdeveloped despite huge receipts from sale of oil in the last ten years and huge expenditure through budgetary system. We should recall the comment by Ezekwesili in Sunday Punch of September 2, that government mismanaged N400 billion oil money. Ruzindane (1997) when commenting on corruption in Africa (and by extension-Nigeria, stated inter alia: Corruption has led to bad roads and decaying infrastructure, inadequate medical services, poor schools and falling education standards, and the disappearance of foreign aids and foreign loans and of entire projects without a trace (or their delayed completion, leading to higher costs). Corruption has meant that fewer imported goods enter the country than were paid for, foreign exchange earned from exports is not repatriated, national assets are run down and ruined; and repairs of buildings, equipment, vehicles and physical and social infrastructure have been paid for repeatedly but never performed. Corruption disturbs the economy through the waste and misallocation of resources. The above quotation summarizes the present situation in Nigeria. A country so blessed with human and material resources yet so poor! This is what economists call resource curse. 4.3. Policy Measures/Slogans Corruption in Nigeria did not start yesterday. It has been there all the while and a number of policy measures, statements and slogans have been introduced over the years towards discouraging corruption as a way of life. General Murtala Muhammed introduced Corrupt Practices Decree No. 38 of 1975 which was abrogated by General Obasanjo when he took over after the assassination of Murtala Muhammed. President Shehu Sagari introduced Ethical Revolution while General Ibarahim Babangida brought in Mass Mobilisation for Social and Economic Reconstruction (MAMSER) which scope include re-orientation toward honest living. General Muhammadu Buhari came up with War Against Indicipline (WAI), and Obasanjos War Against Corruption.5 The more the slogan, the deeper the depth of corruption in the country! Let us conclude this section with Ogbu (2011) who, in concluding his paper on Political Will and War Against Corruption in Nigeria6 wrote: Corruption is the bane of the Nigerian society. It is a clog in the realization of human rights, including socio-economic rights. It turns law enforcement agents into violators of the law. Corruption is an incentive to violate human rights because it enables violators to escape legal sanctions. It enables the resources and
4 5

See Tables 4.1, p.104 and 4.2, p. 106 of the Report. See Toye Olorode (2011) The Political Economy of Corruption in Nigeria, National Scholar, ASUU publication. 6 National Scholar, ASUU publication.

property of the state to be personalized and privatized, thus depriving the people of their fair share of public property and services. It debases democracy and turns it into an instrument of enslavement instead of emancipation. 5. Conclusion and Recommendations

This paper attempts to show how incidence of rampaging corruption has continue to deprive Nigerians benefits of huge revenues from non-human resources and productivity of human resources that could have resulted in enduring economic development. The paper concludes that given recent international reports that provide opportunities for comparisons with other countries around the world, Nigeria remains in a precarious state of development due mainly to corruption. It is noted that some empirical results show that though corruption is a worldwide phenomenon but the degree or depth of corruption varies from country to country, so also is the effects on economic development. The deeper the level of corruption the greater the level of unemployment, poverty and insecurity. These are the symptoms that are staring us in the face in Nigeria today in spite of huge amount of revenue coming in from oil and non-oil sectors in the last twelve years of democracy. One agrees with the opinion that the fight against corruption is a very difficult process and eliminating it is an illusion but adopting shock therapy i.e. immediate strike in many front can reduce it (Bishmi, 1999; Ahmeti et al., 2012). Nigerias state of corruption can be placed within the context of Kleptocratic State where corruption starts from the top and flows down the various strata of the country. The same State, that is entrenched in corruption cannot fight the same vice, rather, it would protect itself by setting up anti-corruption committee as the present government is trying to do. It is in this connection that I am inclined to suggest that ordinary Nigerians should shoulder the responsibility of fighting corruption. The first step might be to carry out quarterly city rallies (like that of January 2012) of 3-day duration in each case as warning strike against corruption until reduction on incidence of corruption in high places is noticed. In addition, we must insist on transparency and accountability in governance. There must be concerted efforts by the Non-governmental Organisations, private organisations and individuals to come together as stakeholders to fashion out how corruption must be tackled headlong within the government circle Executive, Legislative arms and the Judiciary. We have the right to demand for an end to kleptocracy if Nigeria is to move forward today and present a better future for generations unborn. This becomes imperative in view of the fact that other African countries that are less endowed are already on the threshold of becoming emerging economies. Thank you for listening.

References Ahmeti, Skenda, Feste Gjonbalaj, Ejona Blyta, and Laura Lumezhi (2012) Corruption and Economic Development Iliria International Review, (1) Beck, P. and Maher, M.W. (1986), A comparison of bribery and bidding in thin markets, Economic Letters, 20, 1-5. Besnik Bislimi (1999) Probleme te Rritjes Eknomike ne Shqiperi, Oendra Shqiptare per Kerkime Ekonomike, 12-13 Mars, 69. Coolidge, Jacqueline and Susan Rose-Ackerman (1997) High-Level Rent Seeking and Corruption in African Regimes: Theory and Cases, Policy Research Working Paper 1780. Washington, DC: World Bank. Gambetta, Diego (1993) The Silicon Mafia: The Business of Private Protection, London: Cambridge and Harvard University Press. Klitgaard, Robert (1991) Adjusting to Reality: Beyond State Versus Market in Economic Development. San Francisco: ICS Press. Ogbu, Osita, N. (2011) Political Will and War Against Corruption The National Scholar, ASUU, Vol.8 No. 1. June. Olorode, Toye (2011) The political Economy of Corruption in Nigeria, The National Scholar, ASUU, Vol.8 No. 1. June. Rose, Ackerman (1997a) Corruption and Development in Boris Pleskoric and Joseph E. Stiglitz (eds) Annual World Bank Conference on Development Economics, Washington DC: World Bank. Rose, Ackerman (1997b) The Political Economy of Corruption in Kimberly A. Elliot (ed) Corruption and the Global Economy, Washington DC: Institute for International Economics. Ruzindana, Augustine (1997) Comments on what can be done on entrenched corruption bu Michael Johnson in Joseph E. Stiglitz (eds) Annual World Bank Conference on Development Economics, Washington DC: World Bank. Seluk Akay (2006) Corruption and Human Development, CATO Journal, 26. 1. Tella, Sheriffdeen A. (2004) Accountability and Transparency in Governance: Implications for Political Stability in Fledging Democracy in Taiwo, I.O. and A.A. Fajingbesi (eds) Fiscal Federalism and Democratic Governance in Nigeria, Ibadan: NCEMS/ACBF. Tella, Sheriffdeen A. (2011) Strengthening Nigerias Economic Development Through Transparency and Accountability, Paper presented at the Annual Public Lecture and Award Presentation of Centre for Advocacy Against Corrupt Practices (CACORP) on Saturday 23rd July, 2011 at Continental Suites, Abeokuta, Ogun State. United Nations Development Programme (2010) Human Development Report, Washington, DC. World Bank (1992) Governance and Development, Washington DC: IBRD. World Bank (1996) Nigeria: Poverty in the Midst of Plenty: The Challenge of Growth with Inclusion. A World Bank Poverty Assessment Report, No 14733-UNI, May, Washington, DC: World Bank. World Bank (various years) World Development Indicators, Washington, DC: The World Bank.