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Impact of Corruption on Nigeria's Economy
www.pwc.com/ng
Executive summary
Introduction
Corruption and its impact on the economy
Methodology for creating scenarios
Results demonstrating the economic
cost of corruption in Nigeria
Appendices
Scenario 1
Scenario 2
Scenario 3
Country case studies
Bibliography
Contacts
3
4
5
13
14
18
18
19
20
21
23
24
Contents
Impact of Corruption on Nigeria's Economy2
Executive summary
Corruption is a pressing issue in Nigeria. President Muhammadu Buhari launched an anti-corruption drive after taking office in May, 2015. Corruption affects public finances, business investment as well as standard of living. Recent corruption scandals have highlighted the large sums that have been stolen and/or misappropriated. But little has been done to explore the dynamic effects of corruption that affect the long run capacity of the country to achieve its potential. Channels through which this may occur include:
Lower governance effectiveness, especially through smaller tax base and inefficient government expenditure. PwC studies estimate Nigeria’s tax revenues at 8% of GDP, which is the lowest for comparison countries
Weak investment, especially FDI, as it’s harder to predict and do business
Lower human capital as fewer people, especially the poor, are unable to access healthcare and education
In this report we formulate the ways in which corruption impacts the Nigerian economy over time and estimate the impact of corruption on Nigerian GDP, using empirical literature and PwC analysis. We estimate the ‘foregone output’ in Nigeria since the onset of democracy in 1999 and the ‘output opportunity’ to be gained by 2030, from reducing corruption to comparison countries that are also rich in natural resources. The countries we have used for comparison are: Ghana, Colombia and Malaysia.
Our results show that corruption in Nigeria could cost up to 37% of GDP by 2030 if it’s not dealt with immediately. This cost is equated to around $1,000 per person in 2014 and nearly $2,000 per person by 2030. The boost in average income that we estimate, given the current per capita income, can significantly improve the lives of many in Nigeria.
We believe this work provides robust evidence and impetus for reducing corruption in Nigeria.
PwC 3
Introduction
In this paper, we estimate the negative impact of corruption in Nigeria
President Muhammadu Buhari launched an anti-corruption drive after taking office in May, 2015. This comes after a series of high profile corruption scandals in Nigeria that have highlighted the sheer size of the corruption problem.
In this paper, we explore the negative impact of corruption on Nigeria’s
1GDP.
To do this, we:• first, analyse how corruption affects the economy over time;
• second, estimate the ‘foregone output’ in Nigeria by simulating lower corruption in the past 15 years; and
• third, estimate the output that Nigeria can achieve by simulating lower corruption in the next 15 years.
The lower corruption scenarios are simulated based on the corruption levels of benchmark countries.
In the next paper, we will explore how anti-corruption policies affect corrupt behaviours and which policies are likely to have the biggest impact in Nigeria.
what is the impact of corruption on the Nigerian economy
what is the cost of corruption in Nigeria
what policies can be used to reduce corruption
which anti-corruption policies are most suitable to address corruption in Nigeria
Over a series of papers, we address the following questions:
paper 1
paper 2
4 Impact of Corruption on Nigeria's Economy 1 Referred to as ‘economic cost of corruption’ or ‘cost of corruption’ for simplicity.
We have undertaken five steps to estimate Nigeria’s cost of corruption
Literature review
Identifyingimpact of corruption on economic growth
BenchmarkNigeria
Scenariobuilding
Estimatingimpact
Reviewed the empirical literature on the impact of corruption on economic growth to inform our estimates of the link between the corruption perceptions index and GDP.
Created 3 scenarios that show the lower levels of corruption that Nigeria could have achieved in the past and can achieve in the future.
1
2
3
4
5Identified 3 comparatorcountries that meet the criteria for providing relevant benchmarks to Nigeria.
Studied >30 papers that quantify the impact of corruption on economic outcomes.
Identified the transmission channels of corruption on economic outcomes.
Calculated the impact of corruption on economic growth and output for each scenario, using the coefficient identified in step 2.
We examined over 30 studies to understand the way that corruption affects GDP in Nigeria
We examined 32 studies in total; 20% sponsored by International organisations including the OECD, IMF, DFID and Transparency International; 22% published by Nigerian Academics affiliated with Nigerian Universities; 16% published by other Academics across mediums such as journals, articles and PhD publications among others; as well as 3% in-house studies assessing the health of the Nigerian economy such as the World in 2050 publication (please see bibliography for further details). Seventy percent (70%) of the 32 studies quantitatively evaluated the impact of corruption on economic growth through regression techniques whilst also exploring the qualitative links between corruption and economic outcomes. Of these 22 papers, we selected 3 studies that explicitly accounted for
2endogeneity.
Of the shortlisted 3 studies, we selected the IMF study “Does Mother Nature corrupt? Natural Resources, Corruption and Economic Growth” by Leite and Weidman (1999) to estimate impact of corruption on economic growth. We chose this study because: It controls for endogeneity using the two stage least squares econometric regression. It accounts for Nigeria specific confounding factors such as the prevalence of natural resources rents, which are generally associated with higher levels of corruption in the literature. The data set encompasses a large number of countries, including Nigeria, therefore making the results highly applicable to Nigeria as well as other similar benchmark countries.
2 This means that the study is able to avoid overestimating the impact of corruption due to other factors that affect growth and are correlated with corruption.
Corruption and its impact on the economy
PwC 5
The IMF study estimates that the impact of 1 point change in the
3 corruption index results in a 1.2 percentage point change in economic growth per annum. We also use the study’s methodology - calculating impact on growth when a country moves from its own rank to another country’s rank on the corruption index.
The study shows the impact from corruption, irrespective of the following which may also impact the growth of the economy:
Initial level of income in the economy Natural resources Level of trade openness over
the period and change in terms
of trade over the period. Investment ratio to GDP average over
the period Country-specific variability in
commodity prices Geographic location i.e. Sub-Saharan
Africa We do not attempt to capture the impact of corruption on growth through the interaction of corruption with other issues that may dampen economic growth. Therefore, the impact on economic growth from a simulated decrease in corruption will not capture the impact on growth from other factors that independently affect growth. Such factors include: political stability and strength of public institutions among others.
After reviewing the literature, we chose the IMF study to estimate the impact of corruption on economic growth
3 The IMF uses the International Country Risk Guide (ICRG) index as a measure of corruption. This index is made up of political, financial and economic risk assessments produced by International Reports. We use the Corruption Perceptions Index (CPI) by Transparency International, see slide 10 for more details. The ICRG and CPI are strongly correlated with correlation coefficients greater than 0.8, depending on the years in the sample. ICRG ranges from 0-6 and CPI ranges from 0-10. Therefore, we assume that a 1 point change in ICRG = 10/6th point change in the CPI.
Source: Corruption: A Theoretical and Empirical Analysis, Christopher Tamina (2015)6 Impact of Corruption on Nigeria's Economy
Benchmarking to identify comparison countries for Nigeria
0
20
40
60
80
100
120
140
160
180
200
0 10 20 30 40 50 60 70
Total natural resources rents (% of GDP) average 2011 - 2013
Nigeria
Malaysia
Colombia
Ghana
Natural resources rents and corruption perceptions share a positive correlation of 0.4
Corr
uptio
n P
erc
eptio
ns
Inde
x (C
PI)
ranki
ng
We use the Transparency International measure and definition of corruption
To build scenarios for the change in corruption in Nigeria, we’ve selected countries that meet the following criteria: natural resources rents greater than 10% of GDP i.e. a resource rich
4 country have faced corruption problems and rank better than Nigeria on the Corruption Perceptions Index have implemented anti-corruption policies before and have improved corruption and macro-outcomes
Ghana, Colombia and Malaysia fulfil the criteria. To calculate the cost of corruption in Nigeria, we will simulate that Nigeria faced lower corruption and therefore higher growth between 1999 and 2014.
To simulate lower corruption levels in Nigeria, we show that between 1999 and 2014 Nigerian corruption was as low as: Scenario 1: Ghana’s Scenario 2: Colombia’s Scenario 3: Malaysia’s
4 Various academic literature attribute the likelihood of high corruption to high levels of natural resources in a country.
What is corruption?
Corruption is defined and perceived across a spectrum of illegal payments and transactions such as bribes, embezzlement, and money laundering among others. Since corruption is illegal, capturing the amount of corruption is not possible, by analysing the amounts of corruption payments that have proven to be so in court.
We use Transparency International’s Corruption Perceptions Index (CPI) as a proxy for corruption. This dataset defines corruption as the ‘abuse of public office for private gain’.
The index categorises corruption into three parts: Grand corruption: ‘Acts committed at a high level of government that distort policies or the central functioning of the state, enabling leaders to benefit at the expense of the public good’
Petty corruption: ‘Everyday abuse of entrusted power by low- and mid-level public officials in their interactions with ordinary citizens… often trying to access basic public goods and services’
Political corruption: ‘Manipulation of policies, institutions and rules of procedure in the allocation of resources and financing by political decision makers, who abuse their position to sustain their power, status and wealth’
PwC 7
Parliament& legislature
Military
HighLow Perception of corruption
The Global Corruption Barometer**: People's perceptions on Nigeria vary by institutions
Political parties
PoliceJudiciaryBusinesses
**The Global Corruption Barometer is a representative survey of more than 114,000 households in 107 countries. We use the Corruption Perceptions Index for our analysis as it is more commonly used in literature, making it easier for comparison and sensitivity analysis.
Score 3-4* Score 2-3*Score 4-5*
The index measures the perception of corruption across big and small businesses, rich and poor citizens, country experts, local media and international organisations. These scores are amalgamated across surveys and standardised across countries every year so that the scores range from 0 to 10.
The index is based on perceptions and does not reflect the actual amounts of
corruption in countries. Unlike amounts of corruption, perceptions are subjective and may change drastically due to media attention and sudden expositions of corruption.
The index predominantly focusses on corruption from the perspective of business welfare in general. Therefore, it lacks in-depth information about where or which type of corruption is dominant.
The Corruption Perceptions Index measures perceptions rather than amounts of corruption each year
Interpreting the Corruption Perceptions Index (CPI)
Experts interviewed range from:
Global and local experts Multilateral lending institutions International organisations Local newspapers and magazines Country specialists who draw on opinions of in-country freelancers, clients and others Survey of business leaders who represent cross-section of nation’s corporate community Local and foreign enterprises
Interviewees come from the following institutions at both the national-level and local level:
Police and military Executive, legislative and judiciary Taxation, customs and licensing bodies Inspection bodies
Perceptions are measured for:
Accountability of the government to the public Success of the judicial system to prosecute Ease of access of information to the public Transparency of government actions, particularly spending The extent to which bribes are paid for favours The independence of government branches The strength of the country’s institutional framework in managing corruption
8 Impact of Corruption on Nigeria's Economy
Corruption has a dynamic impact, which is felt more by poorer households and smaller firms
The dynamic effect: corruption has a long run negative impact on growth, primarily through reduction in human capital and investment
self perpetuating cycle of corruption and
poverty
Source: Global Corruption Barometer and Transparency International 2013
Corruption Predictable corruption becomes a cost of ‘business as usual’, which businesses pass on to consumers Unpredictable corruption deters investment and innovation
Channels Lower human capital Higher leakage through money laundering Weak investment Poor fiscal revenue and expenditure Poor institutions
01
02Macroeconomic outcomes from corruption Lower labour productivity Lower capital formation Inequity and poverty Lower economic growth
03
04
Households
Factors affecting corruption Poverty Poor institutions Sudden surge of natural resources rent
…corru
ption
…
incre
ases inequit
y,
poverty &
poor
insti
tuti
ons, result
ing in
...
…reduces investm
ent
and productivity
…low
ers
econom
ic growth
PwC 9
Disproportionate impact
Rich pay lower proportion of income in tax
Businesses
Poor lack access to public goods
Big corporates raise barriers to entry
SMEs have more limited access to credit
Sources: World Bank Development Indicators and PwC analysis
0
5
10
15
20
25
30
Countries with higher corruption are associated with lower tax revenue
Low -------------------------------------> High
Corruption Perceptions Index (CPI)
Tax r
eve
nu
e (%
GD
P)
Correlation coefficient = -0.39
Nigeria
GhanaColombia
Malaysia
10
0
5
10
15
20
25
30
Low ---------------------------------------> High
Go
vern
men
t exp
en
ditu
re (%
GD
P)
Correlation coefficient = -0.21
Malaysia
Nigeria
Colombia
Ghana
Impact of Corruption on Nigeria's Economy
Countries with higher corruption are associated with lower tax revenue and expenditure as a % of GDP
Corruption is associated with poor public finance management and provision of public goods Corruption encourages tax avoidance, resulting in a lower tax base for government revenue collection. PwC studies estimate Nigeria’s tax revenues at 8% of GDP, which is the lowest for comparison countries. Corruption allows for government expenditure in vested interest rather than public interest. Therefore, resulting in a lack of provision for public goods such as infrastructure for businesses; and education and healthcare for households.
Corruption is associated with erosion of talent in public institutions and therefore, government effectiveness Corruption encourages hiring based on nepotism, cronyism and patronage, not merit. Therefore, reducing the quality of the public institutions.
There is unnecessary bureaucracy, creating further opportunities for bribes.
Therefore, enforcement of contracts and property rights is weak.
Government Businesses Household
Countries with higher corruption are associated with lower tax revenue
Corruption Perceptions Index (CPI)
Corruption is associated with an increase in barriers to doing business Big companies are able to access public goods by leveraging their balance sheets. These include stable electricity and water pipes among others.
Smaller firms cannot afford these and rely on the government for provision but corruption weakens public fund management and public goods provision. Therefore, it makes it more difficult for SMEs to compete.
Corruption is associated with lower investment; and higher prices and barriers to entry for businesses
Corruption is associated with lower property rights and investment, especially FDI Corruption threatens property rights, discouraging investment that requires high capital expenditure as businesses are unwilling to place high capital at risk.
Corruption is associated with lower technological transfers as foreign companies are unable to protect intellectual property.
Government Businesses Household
11
Correlation coefficient = 0.40
0
2
4
6
8
10
12
14
16
18
20
Low --------------------------------------------> High
Infla
tion (
CP
I %
change) Ghana
Nigeria
Colombia
Malaysia
PwC
4
5
6
7
8
9
10
11
12
Low -------------------------------------------> High
Fore
ign D
irect
Inve
stm
ent
(logU
S$ in
flow
) Nigeria
Ghana
MalaysiaColombia
Correlation coefficient = -0.45
Countries with higher corruption are associated with higher prices
Countries with higher corruption are associated with lower investment
Corruption Perceptions Index (CPI)Corruption Perceptions Index (CPI)
Corruption is associated with lower average standard of living, education levels and greater inequality
Government Businesses Household
Correlation coefficient = -0.62
0
5
10
15
20
25
30
35
40
45
50
Corruption Perceptions Index (CPI)
Nigeria
Colombia
Malaysia
Ghana
GD
P p
er
Ca
pita
in ‘0
00
s
12 Impact of Corruption on Nigeria's Economy
4
24
44
64
84
104
124
Low High Corruption Perceptions Index (CPI)
Correlation coefficient = -0.66
Nigeria
Malaysia
Ghana
Colombia
Seco
ndary
enro
lment
(% g
ross
)
20
25
30
35
40
45
50
55
60
Low --------------------------------------------> High Corruption Perceptions Index (CPI)
Nigeria
Ghana
Colombia
Malaysia
Correlation coefficient = 0.35
Sources: World Bank Development Indicators, The Standardized World Income Inequality Database and PwC analysis
Countries with higher corruption are associated with lower education levels
-------------------------------------------->
Low High -------------------------------------------->
Countries with higher corruption are associated with lower income per capita and standard of living
Countries with higher corruption are associated with higher income inequality
SW
ID G
ini I
ndex
(0-1
00)
Methodology for creating scenariosWe created three scenarios to simulate the ‘foregone output’ and the ‘output opportunity’ for Nigeria
We estimate the ‘foregone output’ in Nigeria since the onset of democracy in 1999 up to 2014 and the ‘output opportunity’ to be gained by 2030.
We do this based on 3 scenarios that simulate; Nigeria catches up with Ghanaian, Colombian and Malaysian Corruption Perceptions Index scores respectively, within five years of introducing anti-corruption policies, and gains from these lower levels of corruption for ten years.
The cost of corruption estimation is based on the dampening effects of corruption on Nigerian GDP from using the IMF paper calculations. Our simulations have a twofold effect on Nigeria’s corruption perceptions index scores and GDP:
a. A gradual increase in the Nigerian CPI score over 5 years so that the Nigerian CPI score is equal to that of the comparison country’s by year 5. During this time period, Nigerian GDP slowly gains from gradual improvements in CPI.
b. An average increase in Nigerian CPI by the average annual difference between Nigeria and the comparison country’s CPI scores between year 5 and year 15. During this time period, Nigerian GDP gains from an average annual enhancement due to lower corruption.
See pages 18 - 20 for further explanation and illustrations of each scenario.
13PwC
Results demonstrating the economic cost of corruption in Nigeria - Scenario 1 (Ghana)
We use average Naira to USD exchange rate over the 15 year period between 1999 - 2014 to convert corruption losses and GDP. This is to avoid skewing results from currency fluctuations.
100
200
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Baseline Levels
Scenario Levels
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
US
D b
n a
t 2013 p
rice
s
0.1%0.5%1%1%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
0%
5%
10%
15%
20%
25%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
introduction ofanti-corruption policies
Losses from corruption per person, USD
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2 7 15 27 42 81 125 174 229 291 364 428 494 567 651
626
513
-113
Nigeria’s 2014 GDP could have been USD 113 bn higher if it had reduced corruption to Ghana’s levels
Nigeria’s GDP could have been 22% higher in 2014 if it had reduced corruption to Ghana’s levels
600
800
1000
1200
1400
1600
1800
2000
Baseline
Scenario
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US
D b
n a
t 2
01
3 p
rice
s
1,783
1,456
+327
0.2%0.5%1% 2% 2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
0%
5%
10%
15%
20%
25%
20
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Scenario:introduction ofanti-corruption policies
Cost
of C
orr
uptio
n (
% G
DP
)
For projecting Nigerian GDP, we use the PwC World in 2050 macroeconomic model.For projecting Nigerian population growth, we use IMF forecasts and PwC analysis.
Losses from corruption per person, USD
Sources: PwC analysis, IMF WEO and Transparency International
Nigeria’s 2030 GDP can be USD 327 bn higher if it reduces corruption to Ghana’s levels
Nigeria’s 2030 GDP can be 22% higher if it reduces corruption to Ghana’s levels
14 Impact of Corruption on Nigeria's Economy
Cost
of C
orr
uptio
n (
% G
DP
)
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
5 16 34 58 91 170 257 350 450 558 671 793 924 1065 1217
100
200
300
400
500
600
700
Baseline Levels
Scenario Levels
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
US
D b
n a
t 2013 p
rice
s
606
513
-93
0.2%0.5%1%
2%2%
4%
5%
7%
8%
10%
12%
13%
15%
17%
18%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Co
st o
f C
orr
up
tion (%
GD
P)
Scenario: introduction of anti-corruption policies
We use average Naira to USD exchange rate over the 15 year period between 1999 - 2014 to convert corruption losses and GDP. This is to avoid skewing results from currency fluctuations.
Losses from corruption per person, USD
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
3 8 16 29 47 79 114 155 199 250 309 360 412 471 537
Nigeria’s 2014 GDP could have been USD 93 bn higher if it had reduced corruption to Colombia’s levels
Nigeria’s 2014 GDP could have been 18% higher if it had reduced corruption to Colombia’s levels
1,726
1,457
+270
600
800
1000
1200
1400
1600
1800
Basline levels
Scenario levels
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
US
D b
n at
201
3 pr
ices
Scenario: introduction of anti-corruption policiesC
ost
of
Co
rru
ptio
n (
% G
DP
)
0.2%1% 1%
2%3%
4%
6%
7%
9%
10%
12%
13%
15%
17%
19%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
20
15
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21
20
22
20
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24
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20
26
20
27
20
28
20
29
20
30
Nigeria’s 2030 GDP can be USD 270 bn higher if it reduces corruption to Colombia’s levels
Nigeria’s 2030 GDP can be 19% higher if it reduces corruption to Colombia’s levels
For projecting Nigerian GDP, we use the PwC World in 2050 macroeconomic model.For projecting Nigerian population growth, we use IMF forecasts and PwC analysis.
Losses from corruption per person, USD
15PwC
Scenario 2 (Colombia)
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
6 18 37 64 100 165 236 311 392 479 570 667 772 884 1004
US
D b
n at
201
3 pr
ices
698
513
-185
We use average Naira to USD exchange rate over the 15 year period between 1999 - 2014 to convert corruption losses and GDP. This is to avoid skewing results from currency fluctuations.
Losses from corruption per person, USD
Scenario:introduction of anti-corruption policiesC
ost
of
Co
rru
ptio
n (
% G
DP
)
0
100
200
300
400
500
600
700
800
Baseline Levels
Scenario Levels
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
0%1%2%3%
4%
7%
10%
12%
16%
19%
22%
25%
29%
32%
36%
0%
5%
10%
15%
20%
25%
30%
35%
40%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Nigeria’s 2014 GDP could have been USD 185 bn higher if it had reduced corruption to Malaysia’s levels
Nigeria’s 2014 GDP could have been 36% higher if it had reduced corruption to Malaysia’s levels
US
D b
n a
t 2
01
3 p
rice
s
1,991
1,457
+534
600
800
1000
1200
1400
1600
1800
2000
Basline levels
Scenario levels
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2015
Co
st o
f C
orr
up
tio
n (%
GD
P)
Scenario: introduction of anti-corruption policies
0% 1% 2%3%
4%
7%
10%
13%
16%
19%
22%
26%
29%
33%
37%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2015
Nigeria’s 2030 GDP can be USD 534 bn higher if it reduces corruption to Malaysia’s levels
Nigeria’s 2030 GDP can be 37% higher if it reduces corruption to Malaysia’s levels
For projecting Nigerian GDP, we use the PwC World in 2050 macroeconomic model.For projecting Nigerian population growth, we use IMF forecasts and PwC analysis.
Losses from corruption per person, USD
16 Impact of Corruption on Nigeria's Economy
Scenario 3 (Malaysia)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
4 12 25 45 73 133 202 281 368 468 586 692 800 923 1064
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
9 28 57 99 156 280 416 564 725 898 1083 1283 1500 1735 1990
Sources: PwC analysis, IMF WEO and Transparency International
We use average Naira to USD exchange rate over the 15 year period between 1999 - 2014 to convert corruption losses and GDP. This is to avoid skewing results from currency fluctuations.
For projecting Nigerian GDP, we use the PwC World in 2050 macroeconomic model.
If corruption is addressed, Nigeria’s GDP could be USD 534 bn higher in 2030
Nigeria’s 2030 GDP can be up to USD 534 bn higher if it reduces corruption
1457
270 327534
0
500
1000
1500
2000
2500
Baseline Scenario:Colombia
Scenario:Ghana
Scenario:Malaysia
2030 GDP
Impact from reducing corruption
Sources: PwC analysis, IMF WEO and Transparency International 17PwC
Abbreviations
CPI - Corruption Perceptions Index ICRG - International Country Risk Guide GDP - Gross Domestic Product IMF - International Monetary Fund IMF WEO - International Monetary Fund World Economic Outlook FDI - Foreign Direct Investment DFID - Department for International Development OECD - Organisation for Economic Co-operation and Development
The Graph below summarises the three scenarios
US
D b
n
Scenarios used to simulate the cost of corruption in Nigeria
Appendices
Scenario 1: Nigeria reduces corruption to Ghana’s levels
0
20
40
60
80
100
Nigeria Ghana Scenario 1
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Nigeria reduces CPI ranking to 44 by 2004 and 35 by 2014
We estimated the foregone output due to corruption for Nigeria between 1999 and 2014 and between 2015 and 2030 based on the scenario that Nigeria catches up with Ghana’s corruption levels within five years of introducing anti-corruption policies and gains from lower levels of corruption for ten years.
The cost of corruption estimation is based on the dampening effects of corruption on output in Nigeria from: A gradual increase in the Nigerian CPI score by 2 points over 5 years so that the Nigerian CPI score is equal to that of Ghana by year 5. An average increase in Nigerian CPI by 1.59 points per annum, which is the average annual difference between Nigeria and Ghana CPI scores between year 5 and year 15.
CP
I ra
nki
ng
, n
orm
alis
ed
0
1
2
3
4
5
6
1999 2004 2009 2014
CP
I sc
ore
s, n
orm
alis
ed
Nigeria baseline CPI scores and Ghana CPI scores
GhanaNigeria
0
1
2
3
4
5
Year 1 Year 5 Year 10 Year 15
Nigeria reduces CPI ranking to 44 by 2004 and 35 by 2014
CP
I sc
ore
s,
no
rma
lise
d
NigeriaNigeria, scenario 1
18 Impact of Corruption on Nigeria's Economy
Scenario 2: Nigeria reduces corruption to Colombia’s levels
Nigeria reduces CPI ranking to 41 by 2004 and 54 by 2014
0
10
20
30
40
50
60
70
80
90
100
Nigeria Colombia Scenario 2
20
14
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
12
20
13
CP
I ra
nki
ng, norm
alis
ed
We estimated the foregone output due to corruption for Nigeria between 1999 and 2014 and between 2015 and 2030 based on the scenario that Nigeria catches up with Colombia’s corruption levels within five years of introducing anti-corruption policies and gains from lower levels of corruption for ten years.
The cost of corruption estimation is based on the dampening effects of corruption on output in Nigeria from: A gradual increase in the Nigerian CPI score by 2.2 points over 5 years so that the Nigerian CPI score is equal to that of Colombia’s by year 5. An average increase in Nigerian CPI by 1.28 points per annum, which is the average annual difference between Nigeria and Colombia CPI scores between year 5 and year 15.
Nigeria baseline CPI scores and Colombia CPI scores
0
1
2
3
4
5
6
1999 2004 2009 2014
ColombiaNigeria
CP
I sc
ore
s, n
orm
alis
ed
0
1
2
3
4
5
Year 1 Year 5 Year 10 Year 15
Nigeria CPI scenario scores
CP
I sco
res,
no
rma
lise
d
NigeriaNigeria, scenario 2
19PwC
20
11
Scenario 3: Nigeria reduces corruption to Malaysia’s levels
Nigeria baseline CPI scores and Malaysia CPI scores
0
1
2
3
4
5
6
1999 2004 2009 2014
Nigeria Malaysia
CP
I sc
ore
s, n
orm
alis
ed
We estimated the foregone output due to corruption for Nigeria between 1999 and 2014 and between 2015 and 2030 based on the scenario that Nigeria catches up with Malaysia’s corruption levels within five years of introducing anti-corruption policies and gains from lower levels of corruption for ten years.
The cost of corruption estimation is based on the dampening effects of corruption on output in Nigeria from: A gradual increase in the Nigerian CPI score by 3.4 points over 5 years so that the Nigerian CPI score is equal to that of Malaysia’s by year 5. An average increase in Nigerian CPI by 2.43 points per annum, which is the average annual difference between Nigeria and Malaysia CPI scores between year 5 and year 15.
Nigeria reduces CPI ranking to 27 by 2004 and 29 by 2014
0
20
40
60
80
100
120
Nigeria Malaysia Scenario 3
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14C
PI ra
nki
ng, norm
alis
ed
0
1
2
3
4
5
6
Nigeria CPI scenario scores
Year 1 Year 5 Year 10 Year 15
CP
I sc
ore
s, n
orm
alis
ed
NigeriaNigeria, scenario 2
20 Impact of Corruption on Nigeria's Economy
Nigeria
Nigeria is a natural resources rich and populous country with high inequality and low foreign direct investment.
GDP (current US$) - $568.5bn Total Population - 177.5mn Primary school enrolment (% gross) - 85% Poverty headcount ratio at national poverty lines (% pop.) - 46.0% Life expectancy at birth (years) - 52 GNI per capita (current US$) - $2,970 Exports (% GDP) - 16.1% FDI (% GDP) - 1.1% Gini coefficient - 43
Nigeria has introduced policies to reduce corruption and crime, since the introduction of democracy in 1999. Examples include:
The Money Laundering Act 1995 2000, President Olusegun Obasanjo inaugurated an anti-graft body, christened The Independent Corrupt Practices and Other Related Offences Commission (ICPC) Economic and Financial Crimes commission Establishment act (2004) The Money Laundering (Prohibition) act 2004
High natural resources exports (% of GDP)
Relatively low CPI score (high corruption)
High CPI rank (high corruption)
Previous history of anti-corruption policies
16%
2.7
136
Criteria for scenario country selection:
Ghana is a natural resources rich country that ranks better than Nigeria on the CPI and sees higher FDI.
GDP (current US$) - $38.65bn Total Population - 26.79mn Primary school enrolment (% gross) - 107% Poverty headcount ratio at national poverty lines (% pop.) - 24.2% Life expectancy at birth (years) - 61 GNI per capita (current US$) - $1,600 Exports (% GDP) - 38.9% FDI (% GDP) - 6.6% Gini coefficient - 41
Ghana has implemented anti-corruption policies over the past 25 years, significantly reducing corruption. Examples of policies include:
Commission on Human Rights and Administrative Justice (1992) investigated all instances of suspected corruption The Serious Fraud Office Act (1993) - a specialized agency to monitor, investigate and prosecute any offence involving serious financial or economic loss to the State The Ghana Anti-Corruption Coalition (1999) The anti-money laundering act 2008 The Whistleblowers Act 2006
High natural resources exports (% of GDP)
Higher CPI score than Nigeria’s (lower corruption)
Lower CPI rank than Nigeria’s (lower corruption)
Previous history of anti-corruption policies
18%
4.8
61
Criteria for scenario country selection:
Ghana
Country case studies
21PwC
Sub-Saharan Africa
Sub-Saharan Africa
Colombia
Colombia is a natural resources rich country that ranks better than Nigeria on the CPI and sees higher life expectancy at birth.
GDP (current US$) - $377.7bn Total Population - 47.79mn Primary school enrolment (% gross) - 115% Poverty headcount ratio at national poverty lines (% pop.) - 30.6% Life expectancy at birth (years) - 74 GNI per capita (current US$) - $7,970 Exports (% GDP) - 16% FDI (% GDP) - 4.2% Gini coefficient - 50
Colombia drastically reduced corruption between 1999 and 2004, introducing anti corruption policies such as:
1998 ratified the Inter-American Convention Against Corruption Commitment to e-government in 2000 and 2001 allowing greater public access to information, government plans, legal frameworks and other services Anti-money laundering regulation: setting up of financial intelligence unit of Colombia 1999 and Committee for Coordination of Measures against Money Laundering 2004
High natural resources exports (% of GDP)
Higher CPI score than Nigeria’s (lower corruption)
Lower CPI rank than Nigeria’s (lower corruption)
Previous history of anti-corruption policies
10%
3.7
94
Criteria for scenario country selection:
Malaysia is a natural resources rich country that ranks higher on the CPI than Nigeria, and has better standard of living indicators:
GDP (current US$) - $326.9bn Total Population - 29.90mn Primary school enrolment (% gross) - 101% Poverty headcount ratio at national poverty lines (% pop.) - 1.7% Life expectancy at birth (years) - 75 GNI per capita (current US$) - $10,760 Exports (% GDP) - 80% FDI (% GDP) - 4% Gini coefficient - 39
Malaysia has introduced anti-corruption policies within the last 5 years (2009-14). Examples of policies include:
2013 Prime Minister signed Election Integrity Pledge and website launched Malaysian Anti-Corruption Commission Act 2009 (MACCA) Financial Services Act and Islamic Financial Services Act 2013 Whistle-blower Protection Act 2010 (WPA) Personal Data Protection Act 2010
High natural resources exports (% of GDP)
Higher CPI score than Nigeria’s (lower corruption)
Lower CPI rank than Nigeria’s (lower corruption)
Previous history of anti-corruption policies
10%
5.2
50
Criteria for scenario country selection:
Malaysia
22 Impact of Corruption on Nigeria's Economy
Latin America & Caribbean
Asia
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