Impact of Corruption on Nigerian Economy - Economics Essay Example
GENERAL ECONOMY OF NIGERIA (INTRODUCTION)
Nigeria is a third world country located in West Africa - Impact of Corruption on Nigerian Economy introduction. It is bound by Niger Republic and Chad to the north, the Atlantic Ocean to the south, Cameroun to the east and Benin Republic to the west. Its administrative capital is Abuja, and its commercial capital is Lagos. Nigeria is home to diverse mineral and natural resources such as Petroleum, Cocoa, Rubber and Timber amongst others. Nigeria has an export-based economy with a GDP of $377.6 billion per annum according to 2010 estimates, which approximates to $2,500 per capita, and the estimated GDP growth rate is 8.2 %. It holds about $33 billion in foreign reserves. Nigeria’s main export is Petroleum which contributes 95% of Nigeria’s foreign exchange holdings and about 80% of budgetary revenues. Nigeria contributes about 3.3% of the world’s petroleum supply at 2.2 million barrels per day; therefore it is the 15th largest oil-producing country in the world. Nigeria is also blessed with abundant human resources as its labor force is about 47.33 million strong according to 2009 estimates, and its unemployment rate is around 4.9%. The distribution of their labor force per sector and each sector’s contribution to GDP is as follows: Agriculture -70% of labor force – 41.8% of GDP
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Services – 20% of labor force – 29.6% of GDP
Industry – 10% of labor force – 28.6 % of GDP
Nigeria’s agriculture output ranks 25th in the world, and 1st in Africa. However growth in this sector has failed to keep up with Nigeria’s population growth and thus Nigeria imports more agricultural produce than it exports; and this significantly hampers its net output potential in this
area. The Industrial sector ranks 44th in the world and 3rd in Africa. The services sector ranks 63rd worldwide and 6th in Africa.
COLONIAL ECONOMY AND INDEPENDENCE
Economic of Nigeria in colonial times was inextricably linked to those of their colonial masters, Britain, and other European powers of the time. The area that is now called Nigeria was a prime source of raw materials and the slave trade. Many a ship sailed from the shores of Lagos and headed towards Europe and colonial settlements in the Americas. Their cargo consisted not only of cocoa, rubber, and other cash crops, but also of men, women, and children from the poached or captured from the hinterland. These were all prime commodities in the period between the mid-17th century and the early 19th century. Great Britain relied great upon raw materials from Nigeria in order provide cheap goods to its citizens, and to give itself competitive advantage in international trade. An example of this was the creation of the Royal African Company in 1672. It held a monopoly on Nigeria and most of British-controlled West Africa, and this monopoly was necessary in order to build and maintain the necessary infrastructure to efficiently manage trade goods. At the time, France and Holland were fierce competitors in the African trade. Therefore the British declared what we now know as Nigeria to be a protected territory, and then later to be a Crown colony. This was done in order to prevent market entry from their competitors in the field, and any forced entry would have resulted in war.
The benefits of British colonial activity in Nigeria were by no means limited to the British economy. Nigeria’s economy also greatly profited. From the early 1800s, British political reform led to the suppression and eventual abolition of the slave trade which had previously deprived the Nigerian economy of valuable labor. Long before colonial times, the tribal nations of pre-colonial Nigeria already had a market driven economy with diverse production emphases such as hunting, fishing, metal works, pottery and farming. The tools were rudimentary, and the techniques were archaic, but there were definitely well-established systems of production and trade. Trade was conducted primarily using an admixture of barter, and the use of precious metals, such as iron and gold, as money. Indeed the Yoruba, Igbo and Uneme tribes are known to have had iron smelting technologies and to have used gold as a means of foreign exchange as early as in the 14th century. However frequent wars among the highly heterogeneous ethnic cultures posed a significant barrier to trade, unlike the modern scenarios where certain economies derive benefit from war as an opportunity to boost their GDPs through increased production and government spending. Also their rudimentary production techniques were relatively inefficient compared to the European technologies at the time. The arrival of the British brought in relatively modern production technologies, and more efficient monetary systems, as well as relative political stability. It also opened vastly expanded markets for Nigerian products and now Nigerians were beginning to enjoy some of these opportunities for trade, and the centralized government under the British crown vastly improved market coordination of production and trade.
The primary exports were Palm oil and kernels, Tin, Cocoa, and peanuts. By the early twentieth century, British-educated Nigerian elites had begun to emerge. This was a privileged class that was able to maximize a modern British education in order to tap into Nigeria’s market potential. This was true regardless of ethnic background, from the Yoruboid tribes of the southwest who traditionally rallied around god-kings, to the Hausa-Fulani caliphates of the north who submitted to the banner of Allah, to the Igboid tribes of the southeast who were more republican in nature and submitted to no man as king. This new elite class comprised of all these ethnic nationalities, and they used their newfound economic empowerment to spearhead nascent nationalist movements which eventually evolved into Independence movements. Nigeria’s status as a colony allowed for the British to enforce economic policy. One such significant policy was the issuance of trade licenses only to well-establish firms, which of course were typically British. This served as a major barrier to market entry, not only against other European powers, but also against local indigenes. Such restrictive and discriminatory policies would eventually lead to civil unrest that fueled the push for independence. The onset of the Second World War and the Great Depression also affected the economy of Nigeria. The real incomes of many Nigerians fell sharply during the 1930s and 1940s, and the total control of the colonial government over the local economy prevented the locals from having much input into economic policy.
These hardships cause the nationalist movements which were initially ethnically homogenous, to become multi-ethnic in nature, thus evolving into Pan-Nigerian independence movements. The elites certainly expected to benefit economically and politically from any future independent local governance. The Depression and the War greatly reduced British investment in the local economy as much of their resources had to be diverted into the War effort. Labor activity grew in response to contractionary colonial economic policy, and the local educated elite began to demand more participation in local governance in order to influence macroeconomic policy. By the late 1950s British control over her colonies was greatly compromised and increased nationalist fervor and economic hardship strengthened the positions of independence movements to the end that Nigeria eventually gained formal independence from Britain in 1960.
COUPS, MILITARY GOVERNMENT AND THE BIAFRA WAR
At the time of Nigeria’s independence in 1960, it operated under a federal system of government comprised of three semi-autonomous regions (North, East, and West). The Federal Government (FG) held central power and was responsible for defense, foreign policy, and economic policy. Initially, Nigeria prospered economically post-independence, and petroleum was discovered shortly after, which in theory should have heralded an increase in her fortunes. However this period of economic wealth was grossly mismanaged through numerous corrupt practices in government and in the civil service. Also there were residual nationalistic and inherently tribalistic tendencies from the late colonial era, and there was perceived marginalization of certain ethnic groups. These factors coupled together led to the first coup d’état in Nigeria in July of 1966. The Military seized power with the excuse of corruption and economic mismanagement. Reform and fresh elections were their chants. However, they hardly performed better and Nigeria’s fortunes declined sharply under the unstructured and inevitably corrupt governance of successive military administrations. A coup d’état hardly inspires confidence, and both private and foreign investment in Nigeria fell sharply. And of course, the military governments were ill-equipped to understand and implement fiscal policy, and thus government spending on basic infrastructure was largely diffused into private pockets. The embezzled public funds would have still fueled economic growth if these offenders had kept the money in the country and invested in legitimate businesses which in turn would have increased production and created jobs. But instead, the vast majority of these funds was flown abroad, and added value to foreign economies at the expense of Nigeria’s own. The Biafra war was especially detrimental to Nigeria’s economy. It is estimated that upwards of 3 million Nigerians died on both sides of the war, including over 1 million adults who could have contributed to the labor force.
There were also deliberate policies implemented to suppress the formerly Biafran middle class. For instance, Igbo people who had fled during the war returned to find that their homes, properties and jobs had been taken over. Thus a large number of them had been rendered unproductive. In addition to this, public and private infrastructure in eastern Nigeria which had been damaged or destroyed during the war was not repaired or rebuilt. Such repressive policies have also been applied to ethnic minorities unrelated to the war. Another source of wastage from the war was the fact that arms and other war equipment were purchased from abroad rather than manufactured locally. This means that the majority of government spending did not serve to create jobs or put more money in the pockets of citizens. Rather the Nation’s reserves were depleted in order to destroy the lives and property of its own citizens. This was a double-whammy of sorts. The net effect is that overall production dropped, the economy was operating far below potential output, and capital flight increased. Such loss of output has scarcely been replaced since. In the years between 1965 just before the first coup, and 1998 just before the return of civilian governance, the Per Capita GDP of Nigeria had declined from $1000 to $300. This fact summarizes the damage done to Nigeria’s economy by fiscally incompetent Military governance. CURRENT CIVILIAN GOVERNANCE AND INSTITUTIONALIZED CORRUPTION
Nigeria has a historically high ranking as being one of the three most corrupt nations in the world. During the military era, especially in the late 20th century, Nigeria consistently ranked 1st or 2nd in the Corruption Perception Index (CPI). Nigeria finally returned to Civilian Government in May 1999. In that time there have now been three successive civilian presidents, a first-time occurrence in Nigeria’s long history of political instability. The advent of democratic, or some would say pseudo-democratic, government in Nigeria has brought about a significant increase in public expectations of government. Whereas during the military era, private citizens and the media could hardly raise their voice in public criticism of mismanagement of public funds, civilian government has brought about a certain degree of accountability. Now, this is not to say that angels are now at the helm of government affairs, but rather relative to previous experience, Nigerians now have a louder voice. The effect of this is that Nigeria is now perceived to be less corrupt now than under military rule. Recent CPI publications show this. Year
Nigeria’s CPI Ranking
2nd most corrupt
2nd most corrupt
2nd most corrupt
2nd most corrupt
2nd most corrupt
2nd most corrupt
3rd most corrupt
5th most corrupt
9th most corrupt
59th most corrupt
This increase in reputation has helped Nigeria attract more foreign investment. Also it is estimated that Nigeria has recovered and saved over
$300 million worth of public funds which could have been lost through criminal practices and budget wastage. Civilian government has also brought about other policies which have the potential to boost Nigeria’s long term economic future. Below is a brief outline of some of such policies: The minimum capital base required for banks to have an operating license has been raised to about $185 million before end of December 2005 (previously about US$ 15 million). Consolidation of banking institutions through mergers and acquisitions. Enhance a risk focused and rule-based regulatory framework.
Eliminate weak corporate governance, misconduct and lack of transparency. Creation and empowerment of EFCC (Economic and Financial Crime Commission) and ICPC (Independent Corrupt Practices Commission) to investigate financial mismanagement in both public and private sectors, and to enforce anti-corruption measures. Establishment of BMPIU (Budget Monitoring and Price Intelligence Unit) to monitor and enforce proper implementation of budgetary allocations.
By and large, the anti-corruption fight is slowly being won, and if the present civilian government continues to lend its muscle in sincerity, then it is only a matter of time before Nigeria begins to reap the economic benefits through increased private and foreign investment.
Nigeria as a nation has suffered from years of underdevelopment through successive repressive and/or incompetent governments, from the colonial years through the military years to the present time. However recent civilian governments have made some improvements and implemented policies to enhance consumer confidence and increase fiscal responsibility. This has led to budgetary savings from corrupt practices and increased private and foreign investment. Nigeria still has a long way to go in order to establish a vibrant economy, but some of the basic steps are being put in place to secure this.
The web links to references are classified under each section of the paper. However some works were referenced in multiple sections. General Economy of Nigeria (Introduction)
http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/NIGERIAEXTN/0,,menuPK:368902~pagePK:141159~piPK:141110~theSitePK:368896,00.html http://www.lagosstate.gov.ng/index.php?page=subpage&spid=12&mnu=null https://www.cia.gov/library/publications/the-world-factbook/geos/ni.html http://www.bbc.co.uk/news/world-africa-13949550
Colonial Economy and Independence http://en.wikipedia.org/wiki/Economic_history_of_Nigeria http://www.onlinenigeria.com/links/adv.asp?blurb=467
Coups, Military Government and the Biafra War
Current Civilian Governance and Institutionalized Corruption http://blogs.worldbank.org/governance/what-about-corruption