Reconstructing corruption to spur growth

Nigeria was once a land of promise. The nation was the world’s leading source of cotton, the largest producer of oil and a major exporter of peanuts.1 Naturally, Nigeria was tipped to become a leading African power. But that potential was never realised. Since 2014, Nigeria’s growth has worryingly gone on a downhill trend, illustrated in Figure 1.

After breaking from the shackles of colonial rule, the country has been plagued by a plethora of violent, bloody military coups. Subsequently, the ineffectual leadership of Goodluck Jonathan during the democracy of 1999 to 2005 brought about widespread corruption that has continued to stymie growth. In fact, the most recent 2014 Corruption Perceptions Index ranks Nigeria with a poor score of 27, on a scale of 0 (highly corrupt) to 100 (very clean).

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Corruption Destroying the Nation

The effects of rampant corruption are felt across the nation. Take public security. A $470 million contract in 2010 was awarded to the Nigerian government to improve security across the capital. Appallingly, those funds brought few functioning security cameras to the capital of Abuja in the fight against jihadist group Boko Haram. In addition to this misuse of funds, high-ranking commanders reportedly took over 50% of budgeted allowances for dangerous field activities of their army members.

The power industry is another example where corruption has left Nigerians neglected and anxious. Under state ownership, large areas of the country were left without electricity for weeks on end. Experts believe the economy could have grown by two to four percentage points faster per annum had there been sufficient power. Outraged, the governor of Sokoto in 2012 questioned the constant power failures, only to be allegedly beaten with a horsewhip.

Nigerian politicians have also been accused of money laundering. British police arrested former state governor Diepreye Alamieyeseigha after laundering more than $1 million cash in his London home. In March 2013, Alamieyeseigha was only pardoned by the Council of State, angering ordinary Nigerians. While the country’s state governors and ministers are living the dream, the general populace lives without electricity, in fear, and with a dim future.

How Best to Deal with Corruption

Yet corruption is a ubiquitous phenomenon across the globe. Its presence can be felt from nearby Zimbabwe, where Robert Mugabe is largely blamed for the ‘slow genocide’ of residents from famine and HIV, to as far east as the organised crime activities in Myanmar. Some countries, like Indonesia, have nevertheless been able to sustain GDP growth rates substantially over 7% per annum in early 1990s as Figure 2 reveals. Others, like Russia, have instead crumbled across this same period.

Shliefer and Vishny believed the structure of corruption can explain why the two countries had such a discrepancy in growth.4 In Russia, exploitation was unrestricted – Communist Party members took bribes in accordance with their rank in the hierarchy. With a free-for-all extortion structure, business owners were left with little more than food scraps. Desperately short of funds and with no room to invest, the Russian economy tanked.

In stark contrast, Indonesia’s corruption was rigidly controlled from above by President Suharto during his rule from 1967 to 1998. He monopolised corruption by firing bureaucrats whose bribe taking became too blatant, keeping large-scale profits to his family only. Doing so assured Indonesian businesses that they would not be repeatedly extorted by varying entities, but rather, may only have to pay the Suharto family instead. Thy could then plan accordingly, leaving funds available to invest. As a result, the economy boomed.

A Short Term Solution for Nigeria

In present day Nigeria, small businesses must pay licence fees that become suspiciously large before Christmas and Easter. Corruption in the country is akin to that of post-communist Russia, with local and other government agencies dipping in as they please for their share of bribes. In order to put a lid on such extortions, the nation can do well to satisfie. Centralising corruption to a single entity, like Indonesia did, could be a short-term solution to Nigeria’s growth problems. By capping the amount politicians and officials can exploit, Nigerian businesses are at least given a chance to invest and grow.

On 29 May 2015, the Nigerian people successfully ousted Goodluck Jonathan to elect Muhammadu Bahari as the new President. For the fist time, the handover of power was a surprisingly peaceful affair. Despite attempts to rig the election by both parties, the vote was largely seen as the country’s fairest and freest amidst decades of violence and turmoil. And Buhari appears earnest in tackling the corruption that pervades the country. With a reformed democratic at the helm, can Nigeria finally rise from the ashes of corruption and achieve that elusive prosperity and greatness?