Impact of Corruption on Nigeria's economy

Leading professional services firm, PricewaterhouseCoopers (PwC) has today presented a report titled Impact of Corruption on Nigeria’s Economy to the Vice President, Prof. Yemi Osinbajo, at the Presidential Villa, Abuja.

The PwC team was led by Mr. Uyi Akpata, Country and Regional Senior Partner West Market Area. He said that the report centered on the ways in which corruption had impacted the Nigerian economy over time adding that PwC believes that the work provides robust evidence and impetus for reducing corruption in Nigeria.

Akpata stated that “the results of the study show that corruption in Nigeria could cost up to 37% of Gross Domestic Products (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”.

Five steps where used in the report to estimate Nigeria’s cost of corruption. The first step was to examine over 30 studies to understand the way that corruption affects GDP in Nigeria. The study was obtained from International organisations including the OECD, IMF, DFID and Transparency International, Nigerian Academics affiliated with Nigerian Universities published by other Academics across mediums such as journals, articles and PhD publications among others as well as in-house studies assessing the health of the Nigerian economy such as the World in 2050 publication. The IMF study was selected to estimate impact of corruption on economic growth.

The second step was to identify the impact of corruption on economic growth using the IMF study. The study estimates that the impact of 1 point change in the corruption index results in a 1.2 percentage point change in economic growth per annum. 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 was also used.

Transparency International’s Corruption Perceptions Index (CPI) was also used as a proxy for corruption; this dataset defines corruption as the ‘abuse of public office for private gain’ and the index was categorized into three parts; Grand corruption, Petty corruption and Political corruption.

The fourth step in the report created 3 scenarios that show the lower levels of corruption that Nigeria could have achieved in the past and can achieve in the future while the fifth step calculated the impact of corruption on economic growth and output for each scenario.

According to Dr Andrew S Nevin, (PhD), PwC Chief Economist and co-author of the report, PwC formulated the ways in which corruption impacts the Nigerian economy over time and then estimated 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”, he said.

The report noted that corruption is a pressing issue in Nigeria which affects public finances, business investment as well as standard of living. It listed three dynamic effects of corruption to 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 Foreign Direct Investment explaining that it’s harder to predict and do business under such circumstances. Also affected is lower human capital as fewer people, especially the poor, are unable to access healthcare and education.

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