by Tunji Andrews

The truth is that corruption has become so endemic in developing countries like Nigeria, that ‘corruption’ has become a factor of production.

Before you go any further in reading this, I would like to set the record straight, in stating that I do not support corruption in any form or manner and as a rule, I do not indulge in it. I have however written this to bring to light a few facts, which I came across in my line of study. As you proceed through it, I plead with you, that even though your thoughts on the subject matter may differ (to whatever degree possible), that you read the piece with an open mind. An open mind, a fascinating asset I have come to lean on, in my journey into the world of economics. I, being a convert of the science, had prior to now, made little sense of all the theories and permutations I came across as a non-economist; especially as I always saw and still see national management as a tool to emancipate the poor and better the general lot of citizenry. I also share the views of former US president, John F. Kennedy who said “Too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our gross national product … if we should judge America by that – counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and the cost of a nuclear warhead, and armoured cars for police who fight riots in our streets. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile. And it tells us everything about America except why we are proud that we are Americans.” Great man indeed.

However, as I began to venture deeper, I encountered some shocking truths about economics (especially on the Macro level) and its measurements, its theories and its limitations, one of them being that it was not a ‘one size fits all’ science. It amazed me even more to note that solutions, designed for individual nations, but used 10 years before to great success, could turn out to be a complete disaster if used a decade later. I have also come to understand that not every decision that seems good to the public may actually be good for the nation. It is often the case that governments are forced to take hard decisions that may be unpopular with the people, yet make perfect economic sense; and sometimes a seemly bad phenomenon like corruption could hold the potential stimulus to grow the GDP of economies. The fascination behind the term, Gross Domestic Product, (or more popularly known as GDP), starts to wane as you start to see how inaccurate and misleading it could be in indicating the general health of a nation.

Many, people have the general opinion that a foreign company like MTN, setting up in Nigeria, would greatly add to the wealth of our economy, just because its presence boosts GDP. This could not however be farther from the truth, as suppose an MTN, sets up in Nigeria, bringing in $1 billion of its own capital equipment (which it didn’t). Suppose further that the business is sufficiently capital-intensive (which it is) that the impact on employment can be disregarded, and that Nigerian banks and Nigerians (who by buying recharge and sim cards) do not primarily fund MTN Nigeria. Suppose that the business yields the standard return on capital obtained in the international market, say 8%. Then it is easy to see that annual gross domestic product has increased by 8% of $1 billion, or $80 million; but being a foreign capitalised firm, the $80 million in capital income flows overseas, so the impact on you and I, is a big round zero; or even less, as they have taken from our economy.

The nexus between corruption (COR) and economic growth (ECG) is not straightforward – even though a general belief is that corruption induces negative growth outcomes and, on average, richer countries are less corrupt. Causality runs both ways (COR causes ECG and ECG causes COR) – one that is not necessarily linear. Some earlier studies suggested that corruption may even help the most efficient firms bypass bureaucratic red tape and stiff laws, while recent studies find a negative association between growth and corruption.

If COR causes significant negative ECG, then in countries like Nigeria, Bangladesh, India, and Pakistan and so on, ECG should keep shrinking overtime because of the pervasive nature of corruption. However, ECG in these countries was either steady at around 6.0 per cent or higher. In the last 15 years of the annual report on Corruption Perception Index by the Transparency International, Nigeria took last positions in 1996, 1997 and 2000, with 2008 being Nigeria’s best year when it had highest CPI (2.7) and highest number of countries below it (Nigeria). The country’s worst year was actually 2000 when it had lowest CPI (0.6) and being last and untied in that 90th position.

Now, in 2001 Nigeria’s Corruption Perception Index stood at 1% and the GDP growth that year was at 8.2%, however, with a growth in CPI to 1.6% in 2002, GDP growth shot up by 21.2%. This is not a coincidence however, as when in 2003, CPI fell to 1.4%, GDP growth also fell to 10.3%; with CPI and GDP growth being 1.6% and 10.6% respectively, and so on.

Of course, I am not dismissing the negative outcomes associated with corruption. Over the last fifteen years, the average ECG was approximately 7.0% without any measurable remission in corruption. This would then imply that with less severity of corruption in Nigeria, ECG would have recorded well over 7.0%. In the absence of any estimate of potential GDP, no one can project how high that could be or how far the actual ECG is below the potential. One may then make a prima facie projection that if Nigeria’s potential ECG is somewhere between 6.5 and 7.0% with the presence of corruption, what will be the projection of ECG with corruption eliminated? To be honest, this line of thought seems irrelevant since corruption is not set to shift ground anytime soon.

Does it then suggest that corruption is irrelevant to economic performance? Alternatively, could it be that corruption drives economic growth in corruption prevalent countries like Nigeria, India, and Pakistan and so on? I leave you to decide which side of the divide you sit in, either for or against.

AGAINST THE MOTION

Using ordinary least squares estimations, renowned economist, Mo Pak Hung found out that a 1.0% increase in the corruption level reduces growth about 0.72%, which translates to a one-unit increase in the CPI reducing the ECG rate by 0.545 percentage points. He argues that the most important channel through which corruption affects ECG is political instability — accounting for about 53% of the total effect.

FOR THE MOTION

Also, in a recent study, “Economic growth with endogenous corruption: an empirical study”, Mushfiq Swaleheen found that “In deeply corrupt countries such as Congo, incidences of corrupt practices actually enhance economic growth, perhaps by helping companies sidestep onerous rules. But that’s only at the extreme; for a country with average endemic corruption, a one-standard-deviation increase in corrupt incidences depresses per-capita GDP growth by 0.12% points.

WHAT I BELIEVE IS TRUE

In another analytical paper, “Influence of corruption on economic growth rate and foreign investments,” Boris Podobnik et. el investigate whether government regulations against corruption can affect the ECG of a country. They examined the dependence between per capita GDP growth rates and changes in the CPI. For the period, 1999-2004 on average for all countries in the world, they find that “an increase of CPI by one unit (decrease in corruption) leads to an increase of the annual GDP per capita by 1.7 per cent. By regressing only European transition economies, they find that an increase in CPI by 1.0% generates an increase of the annual per capita GDP by 2.4 per cent. The study also finds a statistically significant functional dependence between foreign direct investment per capita and the CPI.

The truth is that corruption has become so endemic in developing countries like Nigeria, that ‘corruption’ has become a factor of production. Organisations and governments wanting to succeed in such nations as ours and still insistent on toeing the path of sound ethics must be able to find creative ways to “Walk around it” or pack up like Virgin did in Nigeria. I kid you not, Nigeria is growing at a very fast pace, but since only the rich and the powerful belong to that class of “corruption driven growth” they get the lopsided share of that growth, and most of what you see in terms of GDP growth is actually made possible by the select few. The political governments in Nigeria in their turns have set the economy on an auto-drive gear, and we are heading for a ditch; driving at top speed to our doom. They have set in place a system where growth drives corruption and corruption drives growth, each reinforcing the other, as if in a perpetual cycle, making the rich ever richer while leaving the rest of the citizens to wonder in helplessness and dismay.

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Op-ed pieces and contributions are the opinions of the writers only and do not represent the opinions of Y!/YNaija.