But Is Corruption the Root of Nigeria’s Problems? – Mark Amaza

For almost all of its existence as an independent country, one word that has been synonymous with Nigeria is corruption. An estimated $400bn has been squandered or mismanaged in the past 50 years, the bulk of it coming from proceeds of the sales of crude oil, the black gold which flows through the veins of Nigeria and keeps it going.

It goes without saying that corruption is one of the biggest issues stunting Nigeria’s progress. In fact, many blame it for being the root of all our problems, and it does seem so – except that it is not.

Without downplaying the extent of corruption in Nigeria, the root cause of Nigeria’s problems is our dependence on oil, or more broadly put, our economy’s dependence on an extractive resource. Every country that survives solely on an extractive resource – be it crude oil, natural gas, solid minerals – ends up having to deal with high corruption.

Look at this chart I have made with 10 randomly selected resource-rich countries:

*Corruption ranking based on the 2014 Perception of Corruption Ranking Index by Transparency International

Qatar is actually the most transparent of countries that are wholly dependent on an extractive resource. Interestingly, Nigeria is even ranked higher than countries many Nigerians look up to as countries who take excellent care of their citizens e.g. Libya and Venezuela.

This surely means that if these countries which are more corrupt than Nigeria are “taking better care” of their citizens, corruption cannot then said to be the root cause of our problems.

Nigeria, as well as these other countries is a victim of the economic phenomenon known as the resource curse or the paradox of plenty.

Let me quote a recent article by The New York Times that explained this situation in a way I particularly enjoyed:

“Every nation wants to strike oil, and after it happens, nearly every nation is worse off for it. It may seem paradoxical, but finding a hole in the ground that spouts money can be one of the worst things that can happen to a country…….

…….. Oil is the world’s most capital-intensive industry, so it creates few jobs. Worse, it obliterates jobs all across the economy. The export of oil inflates the exchange rate, so whatever else a country manufactures is less competitive abroad.

Oil concentrates a nation’s economy around the state. Instead of putting resources into making things and selling them, ambitious people spend their time currying favor or simply bribing the politicians and government officials who control oil money. That concentration of wealth, along with the opacity with which oil can be managed, creates corruption.

Petro-dependence also leads to conflict. The conventional wisdom used to be that grievances were the cause of conflict, but that ended after the economists Paul Collier and Anke Hoeffler found in a series of ground-breaking studies that more important was the opportunity to grab oil or other commodity resources. They showed that if a third or more of a country’s G.D.P. came from the export of primary commodities, the likelihood of conflict was 22 percent. Similar countries that did not export commodities had a 1 percent chance.

If a government can finance itself through the profits on oil, it needn’t collect taxes. Let me suggest that this is not a good thing. Taxes create accountability – citizens want to know how the government is spending their money. Substituting oil revenues decouples government from the people. The list of the world’s worst-governed countries today features many that are dependent on the production of oil: Nigeria, Angola, Chad, Venezuela, Libya, Equatorial Guinea…..”

As you can see above, the root cause of our problems is the lack of a tax-dependent economy. For example, the ratio of tax to GDP of Nigeria is 12%, with only 4% coming from non-oil revenue. This is really low compared to countries like Sweden (45.6%), UK (39%), the USA (27%) and France (44.6%).¹ These countries stand on 4^th, 14^th and 20^th and 27^th on the Transparency Index.

While punishment is an excellent deterrent to corruption, this cankerworm will be dealt with faster when the government is more dependent on taxes for revenues, and not on rentièr incomes from extractive resources.

Take the example of Afghanistan: in 2013, it was ranked by Transparency International as the least transparent country (out of 175 assessed). By the next year, Transparency International had ranked it among the most improved countries on its index as it had risen by three places. In the same period, its tax revenues as a ratio of its GDP from 7.5% to 11% – showing a definite connection between increasing tax revenues and improvement in transparency.

To conclude this piece, it is important that we as Nigerians are able to properly diagnose what is responsible for stunting our progress and apply the right solutions to it.