Corruption refers to the act of misuse of authority for personal gain. It encompasses a broad range of actions, including the taking of bribes to patronage at the expense of a public or corporate office to utilizing authority for actions that are less than sanctioned and/or legal.
Corruption is a complex phenomenon. Its roots lie deep in bureaucratic and political institutions, and its effect on development varies with country conditions. But while costs may vary and systemic corruption may coexist with strong economic performance, experience suggests that corruption is bad for development. It leads governments to intervene where they need not, and it undermines their ability to enact and implement policies in areas in which government intervention is clearly needed—whether environmental regulation, health and safety regulation, social safety nets, macroeconomic stabilization, or contract enforcement.
Salient among corrupt practices is bribery. Bribes can influence the government’s choice of firms to supply goods, services, and works, as well as the terms of their contracts. Firms may bribe to win a contract or to ensure that contractual breaches are tolerated.
Bribes can be used to reduce the amount of taxes or other fees collected by the government from private parties. Such bribes may be proposed by the tax collector or the taxpayer. In many countries the tax bill is negotiable.
Bribes may be demanded or offered for the issuance of a license that conveys an exclusive right, such as a land development concession or the exploitation of a natural resource. Sometimes politicians and bureaucrats deliberately put in place policies that create control rights which they profit from by selling.
Bribes may be offered to speed up the government’s granting of permission to carry out legal activities, such as company registration or construction permits. Bribes can also be extorted by the threat of inaction or delay.
Fraud and bribery can and do take place in the private sector, often with costly results. Unregulated financial systems permeated with fraud can undermine savings and deter foreign investment. They also make a country vulnerable to financial crises and macroeconomic instability.
Corruption as a phenomenon can be quantified by Klitgaard’s Equation, proposed by Robert Klitgaard in 1998. It is given as follows:
C = R + D – A, Where C stands for corruption; R stands for economic Rent, D stands for Discretionary powers, and A stands for Accountability.
In a qualitative sense, the equation states that the more opportunities for economic rent that exist in a country combined with more discretionary powers in the hands of public officials and a lack of accountability, the more corruption will prevail in that country.
In this regard, a country experiences less corruption if it has a healthy market but the government size is small and decentralized and there are strong institutions for accountability. These conditions exist in developed countries that experience relatively less corruption than the developing countries which usually lack the same.
Although corruption is not the only problem Nigeria faces, the seeming ubiquity of the menace has much ramification that may be a clog in the wheel of Nigeria’s prosperity.
The World Economic Forum’s Fiscal Monitor’s position on the issue bolsters that fact. The forum says corruption prevents people from benefiting fully from the wealth created by their country’s natural resources.
An IMF research conducted in 2016 found that resource-rich countries, on average, have weaker institutions and higher corruption. Because the exploration of oil or mining generates huge profits, it creates strong incentives for corruption. Nigeria, being a resource-rich country, is not immune. If the findings of this IMF research are anything to go by, this country is a naturally attractive breeding ground for corrupt practices.
Commodity-intensive industries such as mining, construction and oil and gas extraction are areas where chief executives feel that corruption poses a significant threat, according to a recent Transparency International (TI) report. This makes sense as extractive industries are often in less developed economies, where corruption tends to be more of a problem and require a set of permits and official interactions with government which can create opportunities for bribery, and so, corruption. Also, these are sectors where demand for commodities is expected to be inelastic partly due to the lack of alternatives. An additional incentive for corruption in resource-rich developing countries is that more often than not the institutions are too weak to resist such practices.
Another IMF survey in 2017 showed that lower levels of perceived corruption have significantly less waste in public investment projects. It is estimated that the most corrupt emerging market economies waste twice as much money as the least corrupt ones. Governments waste taxpayers’ money when they spend it on cost overruns due to kickbacks or bid rigging in public procurement. So, when a country is less corrupt, it invests money more efficiently and fairly.
Yet another IMF survey in 2018 analyzed more than 180 countries and found that more corrupt countries collect fewer taxes, as people pay bribes to avoid them, including through tax loopholes designed in exchange for kickbacks. Also, when taxpayers believe their governments are corrupt, they are more likely to evade paying taxes. The survey also showed that overall, the least corrupt governments collect 4 percent of GDP more in tax revenues than countries at the same level of economic development with the highest levels of corruption.
Corruption also distorts government priorities. For example, studies show that among low-income countries, the share of the budget dedicated to education and health is one-third lower in more corrupt countries. It also impacts the effectiveness of social spending. Moreover, in more corrupt countries school-age students have lower test scores, as the evidence is beginning to show in some Sub Saharan countries’ poor public exams performance where corruption is evident.
A PriceWaterHouseCooper’s analysis shows that a one notch-increase in perceived corruption levels is associated with a $380 decrease in GDP per capita and so lower standards of living. Conversely, persistently lower levels of perceived corruption are associated with higher levels of GDP per capita. While correlation does not necessarily imply causation, as there could be many other factors driving income levels, there are good reasons to believe that reducing corruption should also boost economic prosperity.
Various studies have been conducted to narrow down the secondary causes of corruption. Generally, these include a gagged media and lack of transparency. These factors work together to create an environment for corruption. Similarly, the factors to counter these problems work together as well. For instance, research conducted by EconStor shows that decentralization is effective in combating corruption but only when there’s associated freedom of the press in the given country.
The effects of corruption are damaging to a country’s international standing, economic growth, and human development. For instance, it has been empirically proven that corruption results in income inequality with 20 percent of the poorest countries experiencing negative effects on income growth due to corruption.
Two significant effects among many other economic consequences of corruption include the loss of investor confidence and the flow of capital outside the country. Apart from that, corruption causes a loss of confidence in the public or corporate sector which is damaging in the long run.
It has been observed that the more transparent a nation’s institutions, the lesser the corruption. The motivation for transparency flows from Rational Choice Theory, which states that individuals are rational decision-makers and weigh costs and benefits while making decisions. Transparency ensures that the public has oversight on public servants’ decision-making. Then there’s corporate transparency which ensures the stakeholders have oversight of the corporate decision making.
While President Buhari may have the best of intentions to root out corruption from the Nigerian society, history shows that he’s not likely to succeed as a person. The job would be much easier for him if he focused his attention more on strengthening institutions.
Barak Obama, the erstwhile U.S. president, may be remembered for telling the Ghanaian parliament a decade ago that “Africa does not need strong men, but strong institutions.”
History has shown that countries that have strong institutions remain strong, even after their strong men leave the scene.
Probably the best legacy President Buhari can leave for Nigerians is strengthening, reinforcing and shock absorbing the country’s corruption fighting institutions.
Happily, various reports show that Nigeria is less corrupt today than a decade ago.
