Impact of Corruption in Nigeria

CORRUPTION AND ITS IMPACT ON INTERNATIONAL BUSINESS IN DEVELOPING COUNTRIES

(NIGERIA AS A CASE STUDY)

(FEBRUARY 2014)

Abstract

Corruption is no news in the world today. We can see corruption in our daily lives, let alone in our businesses and the way economies as a whole deal with corruption every day. That is why discussing corruption and seeking ways on how to deal with it in International business is inevitable.

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I chose Nigeria as a case study for obvious reasons; I am Nigerian and unarguably Nigeria is the Giant of Africa vast in its natural resources but unfortunately Nigeria is still battling with corruption which is crumbling our already poor nation and taken a toll on our International Business relations pushing potential business and development further away.

This paper seeks to attempt to show why corruption is predominant in developing countries, its impact on International Business in developing economies and possible recommendations.

I will first start by giving you a brief picture into Nigeria’s biggest export and make an attempt to analyze corruption itself.

Introduction

International Business is all commercial transaction between two or more countries and the goal of the private business is to make profits while the government is motivated by profit or political reasons (Daniels, Radebaugh, and Sullivan 2007). Business has become more global, trading has become easier with different regional trading blocs. This only encourages companies and economies to engage in International Business to boost its economy. Several economic theories show how countries’ competitiveness with other and Nigeria certainly has an Absolute Advantage in the Oil sector.

Nigeria is a country with diverse and enormous mineral resources like crude oil, coal, zinc, semi-precious stone and gold to name but a few. Nigeria exports petroleum, petroleum products, cocoa and rubber. Nigeria is also rich with great human resources hence a great destination for business.

The sudden growth of Oil in the 1970s led Nigeria to the abandonment of its strong agricultural and light manufacturing bases in favor of an unhealthy dependence on crude oil. Oil and gas exports account for more than 95% of export earnings and over 80% of federal government revenue.

However, the success story in the sector has lead it thus far making Nigeria, the United States’ largest trading partner in sub-Saharan Africa, supplying 8% of U.S. oil imports which is half of Nigeria’s daily oil production .The country is also the fifth-largest exporter of oil to the United States.

Nigeria is a member of the functional Commodity Agreements in the world; Organization of Petroleum Exporting Countries (OPEC), and its current crude oil production averages over 1 million barrels per day with oil reserves are estimated to be 36 billion barrels; natural gas reserves are over 100 trillion cubic feet. (Source 21 Feb 2012: http://www.nigeria.gov.ng/index.php/2012-10-29-11-05-46/economy)

Table 1.1 Nigeria Economic Overview 2014

(Source 21 Feb 2014: http://www.doingbusiness.org/data/exploreeconomies/nigeria/ )

Corruption

“The world is a chain, one link to another” Maltese Proverb, and with the rapid pace of globalization and the increase in the volume of International trade and investment

, coupled with ongoing corporate scandals, has escalated the importance of issues relating to Corruption, Corporate Social Responsibility (CSR) and Politics (Rodriguez et al, 2006).

As foreign firms expanded into, and new firms were born within, developing and transition economies governments, managers and scholars grew more aware of the magnitude of corruption and the need to understand and address it.

Corruption has been described by several authors using very fancy words but keeping it simple; it is a wrongful act that affects the well-being of the society. Corruption abuses power for private gain and it affects everyone who depends on the integrity of people in a leadership position.

It can be manifested through bribery, illegal gratuity, extortion, conflicts of interest, kickback, and corporate espionage and through commissions/fees (Source 21 Feb 2014: http://www.sfo.gov.uk/bribery–corruption/bribery–corruption.aspx)

In public offices several ardent writers relate corruption with the continuous malicious use for self-financial gain but this is not exclusively the case because corruption also exists in

both (small and large) private enterprises and their gains arise because of embezzlement, conflicts of interest, abuse of power, exploitation, bribery and fraud. (Sikka, 2008).

Corruption in Developing Countries

Unfortunately, it is not news to our ears that Nigeria is headed to being completely destroyed by corruption if continuous effort to curb it is not pursued vigorously. Well, I’m of the opinion the root cause of the present Nigerian corruption problem is the overarching crude oil economy and politics over the years.

Transparency International is has efficiently made available a Corruption Perceptions Index (CPI) which ranks countries and territories based on how corrupt their public sector is perceived to be. The scale of 0 – 100, in the CPI is a s follows; 0 indicating that a country is perceived as highly corrupt and 100 indicating it is perceived as very clean.

Please note the countries perceived as very clean and where those countries originate from compared to those perceived as highly corrupt further stressing my view that developing countries are highly corrupt due to the economic conditions thus affecting business. (Source 21 Feb 2014: http//www.transparency.org).

Copy of CPI2013_GLOBAL_WithDataSourceScores.xls

Nigeria is at 144, alarming! looking past tables in the Transparency International website in 2004, Nigeria was at 90. The last country on the list is an African one, Somalia. This goes without saying. If you look at the economic situation in Somalia, it is obvious. The poorer the nation the higher the corruption. But how can there be a balance? A nation needs Foreign Direct Investment to boost its economy. The Porter Diamond Theory (Daniels et al 2007) which naturally should help boost a nation may not work in a developing country like Nigeria, according to this theory companies’ development of international competitive product depends on their success in their home country, this theory is not feasible in most developing economies, these countries need foreign investors to set companies to harness the demands of the nation but with corruption as one of the factors affecting International Business, how will be nation grow strong enough to combat it?

Sadly, Nigeria has no excuse for its failure so far, at present the problem of corruption issues has been saddled in into the laps of three government bodies: Economic and Financial Crimes Commission (EFCC) Independent Corrupt Practices Commission (ICPC) and the Code of Conduct Bureau (CCB), with little or no success considering Nigeria is still falling below the world’s Confidence Interval year on year, so how can International Business be seamless? You can also find current shocking details about bribery/corruption in Nigeria on bribenigeria.com.

Won’t a corporation or nation rather deal with another continent with a lower corruption issue than invest or trade with a nation who is known for corruption? If I were to answer, my answer will be no.

I believe that developed countries in the world have a better advantage over the fight against corruption because developed countries do not face the several challenges that developed countries face, so third world countries or developing countries like Nigeria, still have a long way to go.

Multinational Corporation’s interest in fighting Corruption in International Business

It has been argued that governments and host communities may be interested in eradicating poverty, promoting education, health care and human rights, but corporations may not necessarily share such goals. They are essentially ‘private’ organisation and are required by law to prioritise the welfare of the shareholders (capital) above other stakeholders (Sikka, 2008). Corporations’ today should to conduct their operations responsibly with accountability to wider society and legitimise their social power corporations may acknowledge some social responsibilities, but they most often times can’t buck the systemic requirement to increase profits and dividends to the benefit of capital.

Businesses and organizations are set up to create wealth, and so far it is a very highly effective tool for doing so. No limitations, whether legal, ethical or moral limit are set to what or whom corporations can exploit to create wealth for themselves and their owners. According to Sikka (2008), ‘such practices seems to be part of the ‘enterprise culture’ that persuades many to believe that ‘bending the rules’ for personal gain is a sign of business acumen’ (pg. 270). Competitive advantages is considered to be an entrepreneurial skill, especially when competitive business environment link profit and market shares with meeting global business target.

We see that the use of bribery and inducement to secure competitive advantages is primarily a matter of executive discretion rather than any legal or moral compulsion. It has been argued that this discretion may be used to enrich directors since their remuneration is influenced by the level of profits and return to capital. Markets therefore exert pressure on companies to generate ever increasing profits and returns as capitalism does not provide any guide to upper limits of accumulation (Sikka, 2010). Companies can generate additional returns for finance capital, not only through competitive advantages on products and services, but also through bribery and other inducements to secure government contracts which are the big and guaranteed revenue even though payments are delayed .In an attempt to satisfy the corporate goal unfortunately everybody else is put at risk.

Generally, the codes of business conduct include statements rejecting the payment or acceptance of bribes, collusion, pressure or illegitimate favour, either directly or through third parties whether public officers or private individuals but are often not respected. Y their involvement in corrupt practices and other anti-social practices cannot therefore be reconciled with their business codes of conduct (Sikka, 2008, 2010; Otusanya, 2012).

Environmental turbulence and threats to their reputation are managed by publishing corporate social responsibility (CSR) statements and code of conduct that promise ethical behaviour, improvement of economic and social infrastructure and quality of life of all stakeholders (Phillips, 2003; Sikka, 2010).

Looking at it critically even if one organization restrains itself, the superior profits of competitors and business environment exert pressure to explore ways of matching or exceeding that, thus the tendency to increase profits through corrupt practices as a means of gaining competitive advantages remains embedded within the corporate enterprise culture. In the end, it is a “means” to an “end” or “we all want to make money” some would say.

Impact of Corruption in the International Business world

Without a doubt corrupt activity hinders development, contributes to the depletion of the public purse and distorts markets, furthering hindering local and Foreign Direct Investment. The growth of a nation depends on the redistribution of its wealth since the middle class and poor benefit is much greater than the affluent, who loss out of the re-distributional process. Countries suffering from corruption cannot implement sound re-distributional policies and are not expected to take benefit from sustainable economic development despite engaging upon economic growth from time to time for some reason or the other. No country or company would like to engage in business with falling economies.

Another pitfall is it becomes a way of life. Corruption is like a way of life in Nigeria, from the secretary that sits at the office expecting to receive a “gift” before passing the cheque for signature to our leaders who can only award contracts by our wonderful saying “ if you help me, I go help you” ( *pidgin English which means if you scratch my back, I scratch yours).

There are other things to consider, for instance the level of poverty. Nigerians do not know any way out. Word on the street, is you have to be smart, so you can survive. And survival here is relative. The danger of this is that is rubs off on the nation as a whole. Our image and reputation is constantly taunted. Business people need to find out if they need to cut corners before making an investment in Nigeria and need to know the “Man at the top” before the contract is awarded

It ridicule’s the concept of open and fair competition; hence the continual decline of the economy.

*“Pidgin English” is the low class English spoken on the streets in Nigeria”

Summary

International Business as stated earlier involves all commercial transactions, private and governmental, sales, investment, transportation that takes place between two or more countries for developing countries to find a way to curb corruption to its minimum; it must first start from the sectors and the leadership. Not forgetting that the various modes of entry ranging from Imports and Exports, Tourism & Transportation, Licensing and Franchising, Turnkey Operations, Management Contracts, Direct and Foreign investments need to be rid of corruption (Daniel et al 2007).

In the case of Nigeria, it makes sense that any effort to eradicate corruption in must start with the oil sector, because of its all-encompassing effects on other sectors of the economy and move immediately to harnessing other natural resources, focus on production of resources that the economy has demand for thus providing job opportunities for several people. Secondly, the law enforcement would need to sanitize its own department because it is a pity that in developing countries they are the most corrupt. I’m not confident of the efficacy of the sanctions and restitution imposed and how is it been effective handled, however if sanctions from those found guilty of corruption can also be re enforced.

Finally, as also noted earlier, unfortunately it has become a way of life. The biggest step will be sensitization. The media and institutions of learning will have to collaborate to ensure these morals are instilled. A full blast media campaign on the effects, combined with tutorials in classes will surely make an impact. The earlier an individual realizes that it is not a norm, the better. People should not accept or give bribe and not cut corners the better for the whole society.

Corruption can be tackled, it may take forever but with collaboration and eyes on the bigger picture; when purely looking at it from a business perspective, it is indeed wiser to build a good reputation that bring a lifelong investment than engage in activities that will only provide solutions for short term needs.

References/Bibliography

Daniels, Radebaugh and Sullivan (2007) ‘International Business Environments and Operations’, 11^th Edition.

Olatunde Julius Otusanya, Sarah Lauwo, Gbadegesin Babatunde Adeyeye (2012) “A Critical Examination of the Multinational Companies’ Anti-Corruption Policy in Nigeria” (Accountancy and Public Interest 2012). (Online journal 9^th Feb 2014: http://visar.csustan.edu/aaba/Otusanya2012.pdf)

Otusanya, O. J. (2011b) ‘Corruption as an Obstacle for Development in Developing Countries: A Review of Literature’, Journal of Money Laundering Control, 14 (4): 387-422.

Phillips, R. (2003) Stakeholder Theory and Organisational Ethics, San Francisco: Berrett Koehler.

Rodriguez et al (2006) ‘Three Lenses on the Multinational Enterprise: Politics, Corruption, and Corporate Social Responsibility’, Rensselaer Working Papers in Economics, No. 0608 New York.

Sam Ejike Okoye. How to tackle corruption Effectively in Nigeria: http://www.gamji.com/article4000/NEWS4930.htm (9 Feb 2014)

Sikka, P. (2008a) ‘Enterprise Culture and Accountancy Firms: The New Master of Universe’, Accounting, Auditing and Accountability Journal, 21(2): 268-295.

Sikka, P. (2010) ‘Smoke and Mirrors: Corporate Social Responsibility and Tax Avoidance’, Being Paper Presented at Essex Accounting Centre, Essex Business School, University of Essex, UK

http://www.essex.ac.uk/ebs/research/working_papers/WP2010-5%20PS%20CSR%20and%20Tax%20Avoidance%20Revised%20April%202010.pdf. (9 Feb 2014)

Udelove (2010) ‘Why Nigeria Is Referred to as the Giant of Africa’. StudyMode.com: http://www.studymode.com/essays/Why-Nigeria-Is-Referred-To-As-449209.htm (21 Feb.2014)

Yima Sen ‘Political Economy of Corruption in Nigeria’: http://www.gamji.com/article9000/NEWS9136.htm(9 Feb 2014)

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