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1.1 Background of the Study
Despite the complexities that surround the concept of corruption globally in terms of its multi dimensional nature with regards to cultural, sociological, psychological, definition, secrecy and measurability, corruption has continued to attract interests of scholars, advocates, governments and multilateral organizations. This is so given the challenges and problems that are associated with the menace globally. Scholars differ on the perception and effects of corruption on the economy. Some of them such as Leff (1964:11), Huntington (1968:69), Lui (1985:91), Lien (1986:6) Acemoglou and Verdier (1998:24) and Aluko (2008:n.pag.), argued that corruption enhances efficiency and as such positively impacts on the economy. For example, Leff (1964:11) and Huntington (1968:69) suggest that under rigid regulation and inefficient bureaucracy, corruption might foster economic growth. In their model, they believed that agents use "speed money" to get around bad laws and institutions. Additionally, Lui (1985:91) shows that bribery can be efficient in a queuing model if agents with higher values of time can use bribes to obtain a better place in line. Acemoglou and Verdier (1998:24) on their part argue that some degree of corruption may be part of the optimal allocation of resources in the presence of incomplete contracts or due to market failure.
This opinion is partly justified on the ground that illegal payments are required to make things pass swifter and favorably through the state bureaucracy. By implication, corruption has the potency of making an economic agent more efficient and in the long run it promotes economic growth. The next logical question is what is the evidence? Is it conclusive? If not conclusive, this provides opportunities for further studies. Also what are the limitations of the existing studies? On the other hand, Mauro (1995:2) Tanzi and Davoodi(1997:13) among others maintained that corruption lowers investment and by extension impacts negatively on the economy. Tanzi and Davoodi (1997:13) not only supported this position by their findings but also extended it by showing the direction of causality. Bardhan, (1997:7) .Weder,(2003:4), Meon and Seklat (2005:10) followed the above pattern in their analysis of the effect of corruption on the economy.
The effects of corruption generally are so broad and complicated to the point of losing it devastating consequences on the economy in which it exist, and to address this problems without been carried away with it elusive features, the areas of concern where corruption affect the economy is hereby been focused. This is in line with the decision of the United Nation Convention against Corruption (UNCAC) in early 2002.Where it was agreed that corruption should not be define at all because of it complicated nature, but rather address the problem areas. The focus of this work is on the corruption in the Nigeria‘s oil and gas industry. In the work of Garba et al, (2009 as cited in Oladeye 2012:9) GLABA study on corruption and Money Laundering in West Africa, The case of Nigeria, Agriculture and oil and gas industries were identified as the most susceptible industries to corruption. This work picks one out of the two industries, which is the oil and gas industry. The susceptibility of the sector to corruption has undermined the development of the economy.
One of the greatest threats to economic, social and political development of any nation is corruption. This has accounted for why Nigeria despite been one of the world’s oil contender is still rated as a far-off third underdeveloped nation. We are still plagued by the very same characteristics of grave poverty, technology still birth, high mortality rate, inadequate military and security hardware and software, unemployment, import spree and epileptic power supply that are a showoff of countries with little or no economic strong base. Corruption is one major obstacle militating against rapid growth and development of the Nigerian economy". The Nigerian state today is deeply knitted in corruption, that it has even been argued that corruption is now a culture, a normal way of life in Nigeria. Chuachua/Egunje or Igbuozu is now so acceptable that it is now possible to hear someone openly complaining that there is no Chuachua/Egunje or Igbuozu at his work place and as such a person might quickly resign if he or she finds another work where there is opportunity for such.It is that bad! It is this cankerworm that greatly influenced the political wind that just swept Nigeria in the just concluded general elections bringing General Buhari in as the president. All fingers today are been pointed at the Nigeria oil Industry as the epicenter of corruption.
Oil is a major source of energy in Nigeria and the world in general. Oil being the mainstay of the Nigerian economy plays a vital role in shaping the economic and political destiny of the country. Although Nigeria‘s oil industry was founded at the beginning of the century, it was not until the end of the Nigeria civil war (1967 - 1970) that the oil industry began to play a prominent role in the economic life of the country. Odularu (2008:10).The study therefore look back at the operation of the industry in the period under review.
In many economies that are not resource-dependent, to carry out government activities, the governments tax citizens, who demand efficient and responsive governance in return. This bargain establishes a political relationship between rulers and subjects. In countries whose economies are dominated by natural resources, however, rulers don't need to tax their citizens because they have a guaranteed source of income from natural resources. Because the country's citizens are not being taxed, there appeared to be less incentive to be watchful of how government spends its money. In addition, those benefiting from mineral resource wealth may perceive an effective and watchful member of the society as a threat to the benefits that they enjoy, and they may take steps to thwart them. As a result, citizens are in most cases impoverish by their rulers, and as such disempowered, and if the citizens complain, money from the natural resources enables governments to pay for armed forces to keep the citizens in check. Countries whose economies are dominated by resource extraction industries tend to be more repressive, corrupt and badly-managed. Asobi (2009:27)
Oil dominates the Nigerian economy and generates enormous revenue, indeed the bulk of government revenue, but this has not translated into an improved standard of living for the citizens due to corruption and mismanagement. This argument is woven around the concept of the rentier state‘. The contention is that states, like Nigeria, which depend heavily on rent from their natural resources, rather than taxes from their citizens, corporate and individual, tend to be corrupt and poor. This is so for three main reasons. First, resource rent is much more easily appropriable than revenue from taxation because its source is concentrated (oil is a ―point resource), not dispersed. Second, it is easier for political leaders to ignore public demand for accountability in a rentier state because, since they do not depend on taxes from citizens for the national income, they can acquire, retain and use state power without bothering about legitimacy. Third, rent seeking has a magnetic effect; it tends to suck all and sundry into its seductive loop, including entrepreneurs who could have invested in manufacturing and agriculture. Consequently, diversification of the economy is difficult to achieve in a rentier state. Asobi (2009:27).
The influence of the international players in the oil and gas industry owing to the importance of the product to them cannot be ruled out as they go out of their way in most cases to undermine the process so as to have their way always and protect their own interest. They mostly succeed in this venture because of the selfishness and ignorant of the officer in charge of the sector. This is evidence in the wikileak report (Ann pickard) which the then president of the Federal Republic of Nigeria (Good luck Jonathan) referred to as the beer parlour gossip. Apart from that, corruption has also been blamed on colonialism. According to this view, the nation's colonial history may have restricted any early influence in an ethical revolution. Throughout the colonial period, most Nigerians were stuck in ignorance and poverty. The trappings of flash cars, houses and success of the colonists may influence the poor to see the colonist as symbols of success and to emulate the colonists in different political ways.
Involvement in the agenda of colonial rule may also inhibit idealism in the early stage of the nascent nation's development. A view commonly held during the colonial days was that the colony‘s property (cars, houses, farms etc.) is not "our" property. Thus vandalism and looting of public property was not seen as a crime against society. This view is what has degenerated into the more recent disregard for public property and lack of public trust and concern for public goods as a collective national property. (Wikipedia free encyclopedia; corruption in Nigeria).
The government has claimed to be tackling corruption and mismanagement in the country through institutional changes. The 1979 constitution 5th schedule provides the code of conduct for public officers. The code of conduct required the public officers to publicly declare their assets before assumption of office and immediately after leaving the office. In the year 2000 Independent Corrupt Practices and other related offenses Commission (ICPC) was established with the aim of prohibiting corruption and prescribing punishment for the violator of the provision. Among other measures, Economic and Financial Crime Commission (EFCC) was established in 2003 to investigate all financial crime.
In spite of all these measures, there seems to be not much effect on corruption and this has affected the country‘s rating on global index of perception of corruption. Nigeria performs very low on the Transparency International‘s Corruption Perception Index. Nigeria ranked 54 out of 54 in 1996, 152 out of 158 in 2004, 134 out of 178 in 2010 and 143 out of 183 in 2011,136 out of 175 in 2014, 148 out of 180 in 2017.
1.2 Statement of the Problem
In line with the background of the study, the state of corruption in Nigeria has been categorized as endemic. Despite the crusades of anti-corruption in Nigeria, corruption is still on a very high side. A quick glance at the structure of the Nigerian economy will reveal its precarious nature, notwithstanding its position as the third largest economy in the country after South Africa and Egypt with the Nigerian upstream petroleum sector accounting for 90%.
Nigerian’s economy, despite this immense contribution is struggling to leverage the country’s vast wealth in fossil fuels in order to displace the crushing poverty that affects majority of its population. Why is this so? This is a resultant effect of the Corruption that has chewed deep into the system. Too often, revenues do not get published; payments made to government to exploit resources remain secret; the prequalification of award of licenses are fraught with corruption and secrecy under the guise of official secret legislations. There is no transparency in accountability. It has even been asserted that “corruption has become the main export for Nigeria apart from oil”(Daily Post Nigeria. Retrieved 2 may 2018). In fact the common refrain when people loot oil income is “is it not oil money?” In Nigeria, oil is thicker than blood, this has accounted for the overwhelming corruption concentration on the upstream sector which is the heart beat of petroleum activities.
Obviously, in the words of Adomako “a historical symbiosis exists between oil and corruption”. He further gave account of the Nigerian upstream petroleum situation that, “it is challenging that Nigeria suffers from a resource curse as the country has little or nothing to show despite several years of oil exploration”. In fact, most of the proceeds from the Nigerian oil wealth ended in the pockets of their leaders’. Obviously, Oil boom witnessed under General Gowon regime was unfortunately synonymous with corruption. In fact, while scholars are still grabbling to x-ray the 1970s infamous remark by the former head of state, General Yakubu Gowon that “Nigeria’s problem was not absence of money but how to spend it” .The former minister of Defence under Obasanjo civilian administration, Danjuma said that "he made profit of $500 million (75 billion naira) from an oil deal, and was finding it difficult to decide how best to spend the money" (Olajide Aluko,1977:3).
The former Group Managing Director (GMD) of the NNPC was alarmed that “Nigeria looses at least 150,000 barrels of its explored crude oil worth N2.2 billion naira daily, as a result of illegal bunkering activities”.
In the same vein, the NNPC, alongside many oil and gas companies operational in the upstream petroleum sector protect the identities of their equity partners and subsidiaries. Inadequate financial statement make it easy to disguise corrupt deals and making it impossible for any interested stakeholder to monitor the royalties, taxes and fees being paid. Private companies with opaque ownership structures are awarded lucrative concessions with little information available as to who the beneficial owners of the company.
This is an indication of the fact that something is fundamentally wrong; the admission of this fact is what led to the establishment of the various probe panels. The outcomes of the panels revealed high contract cost and lack of performance. This has adverse effect on Government Revenue in terms of the actual amount that is to be generated and Government Expenditure in terms of how well the revenue is been expended. This by extension impacted on the economic variables. Even though there may be other factors that are responsible for this situation, leakages in the oil and gas industry of the economy are likely to have significant impacts.
Garba et al (2008:1) observed that Nigeria‘s resource endowment particularly, the fact that oil and gas and, agriculture are the major sources of foreign exchange earnings makes Nigeria‘s fiscal system and international trade and financial flows highly susceptible to corruption and money laundering. Oil and Gas activities (exploration, production and transportation) like most extractive activities are highly capital intensive, rent generating and, foreign dominated. The rent generating attribute inherent in oil and gas business is an inherent incentive for government officials and foreign oil and gas corporations to engage in corruptive behaviors. In the Joint Ventures Partnerships (JVPs) that dominate the upstream of the oil and gas industry, the partner with the majority shares (the Federal Government) is passive. The passivity of the government gives room for corruptive behaviour in the exploration, production and transportation of oil also, in the flaring and utilization of gas. Therefore, in JVPs and even more so, in Production Sharing Agreements (PSAs), the nature of oil and gas compounded by information asymmetries provide opportunities for the thriving of high-level corruption and, money laundering.
The stylized facts of the oil and gas industry and the Nigerian economy in the last two decades suggest that;
- There is persistent and enlargement in the scope of corruption in the oil and gas industry in Nigeria;
- The oil and gas industry is highly vulnerable to large scale corruption as revealed by all the probe panel and recent reports.
- The opportunity cost of corruption is likely to be very high especially as oil revenue is not matching the increase in prices; and
- The paradox of a rich nation of poor people is indicative of the potential adverse effects of corruption.
It is against this backdrop and in an attempt to examine, evaluate and resolve the above problems that births the following research questions and the objectives of this research work.
1.3 Research Questions
1. What are the factors that have made corruption endemic in Nigeria?
2. What acts constitute corruption?
3. What makes the upstream petroleum sector susceptible to corruption?
4. What are the incidences of corruption in the upstream petroleum sector?
5. What are the effects of the upstream sector perpetrated corruption on the economy?
1.4 Objectives of the Study
1. To examine factors that has made corruption endemic in Nigeria.
2. To clearly identify acts that constitutes corruption in Nigeria.
3. To know the attracting factors that makes the upstream sector susceptible to corruption.
4. To examine the incidences and perpetrators of upstream oil corruption.
5. To examine the effect of these acts of corruption on the Nation’s economy.
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