CORRUPTION AS AN OBSTACLE TO ECONOMIC DEVELOPMENT

                 
                         CORRUPTION AS AN OBSTACLE TO ECONOMIC DEVELOPMENT

Corruption is a form of dishonest or unethical conduct by a person entrusted with a position of authority, often to acquire personal benefit. ... Government, or 'political', corruption occurs when an office-holder or other governmental employee acts in an official capacity for personal gain.

Political corruption means the abuse of political power by the government leaders to extract and accumulate for private enrichment, and to use politically corrupt means to maintain their hold on power. However, abuse of political power for other purposes, such as repression of political opponents and general police brutality, is not considered political corruption. Political corruption takes place at the highest levels of the political system, and hence it can be differentiated from administrative or bureaucratic corruption. It can also be distinguished from business and private sector corruption.
Political corruption can be of two forms. The first one is which includes both accumulation and extraction and where government officials use and abuse their hold on power to extract from the private sector, from government revenues, and from the economy at large. Some of the examples of the above mentioned form of corruption are extraction, embezzlement, rent-seeking, plunder and even kleptocracy ("rule by thieves").

   EFFECT OF CORRUPTION ON AFRICAN ECONOMY

1) Corruption reduces Investment and Economic Growth
Finally empirical research and regression analysis indicates that the amount of corruption is negatively linked to the level of investment and economic growth, that is to say, the more corruption, the less investment and the less economic growth. Analysis further shows that if the corruption index improves by one standard deviation (equal to 2.38 in this case--a standard deviation measures variation from the "normal" index), the investment rate increases by more than 4 percentage points and the annual growth rate of per capita GDP increases by over a half percentage point. In effect, a country that improves its standing on the corruption index from, say, 6 to 8 (recall that 0 is most corrupt, 10 least), will enjoy the benefits of an increase of 4 percentage points of investment, with consequent improvement in employment and economic growth.
2) Corruption leads to uncertainty in economic transactions
The prevalence of corruption arguably influences the economic environment through the creation of significantly higher levels of risks and uncertainty in economic transactions. Uncertainty is present both in the context of individual economic transactions and in terms of heightened fears about future developments in the broader economic environment. This fear and uncertainty translates to reduced business growth and reduced gross domestic product.
3) Poor maintenance of public infrastructure
Because of corruption, maintenance and repairs always takes a back seat to new projects. For fear of being exposed, corrupt officials prefer to approve new projects rather than spend to revamp the old corrupt projects they approved in the first place. The result is that new projects are constantly being undertaken whilst existing infrastructure is left to deteriorate.
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4) Inferior public infrastructure
The allocation of public procurement contracts through a corrupt system leads to inferior public infrastructure and services. For example corrupt bureaucrats might allow the use of cheap sub-standard materials in the construction of buildings or bridges.
When corrupt politicians influence the approval of an investment project, the rate of return as calculated by cost benefit analysis ceases to be the criterion for project selection. Consequently, the selected projects are not selected on merit but because of cronyism and patronage. These projects are sometimes never completed because of exorbitant upfront bribes eroding the operating capital. In other instances these projects are completed but never used because they are so poorly built that they will need continuous repairs and their output will be disappointing. In these circumstances, capital spending fails to generate economic growth.

5) Government’s inability to finance budget expenditures - Deficit Financing
By affecting tax collection, corruption has adverse budgetary consequences. Tax revenue is used to finance budget expenditures, therefore with reduced tax revenues; the revenue section of the national budget is reduced, resulting in adverse budgetary consequences.
6) Reduced tax revenues
Corruption also brings about loss of tax revenue when it takes the form of tax evasion or the improper use of discretionary tax exemptions. There are the familiar stories of tax officers receiving bribes and looking the other way as tax evasion runs rampant.

7) Reduced foreign direct investment
According to World Bank Development (1997), FDI may still flow to countries in which corruption is systemic but only if bribery is affordable and results are predictable. Corruption can have a negative effect on foreign investment because for most foreign firms corruption is a cost of doing business to be recouped from revenues. Consequently if the costs become too high or unpredictable, they disengage or shun the country altogether.
8) Reduced commitments from donor agencies
Corruption reduces the effectiveness of aid flows through the diversion of funds from their intended projects. Like many other developing countries Sub- saharan west african countries,
benefits tremendously from aid inflows from donor agencies such as UNICEF, UNESCO, USAID etc. but increasingly these agencies are now concerned that their aid fosters sustainable development and not end up in the pockets of corrupt government officials or finance unproductive public expenditure. The agencies are therefore focused increasingly on issues of good governance and in those cases of poor governance; some donors have scaled back their assistance.

9) Reduced investment leads to reduced goods and services and inflation
In extreme cases, the extortion of bribes from entrepreneurs can be seen as a tax which can reduce the incentive to invest. Foreign entrepreneurs for example will shy away from corrupt countries because they claim the cost of doing business is too high when one factors in the bribes. Reduced investment leads to reduced goods and services, a concomitant reduction in gross domestic product and inflation.
10) High prices to consumers
When entrepreneurs and businessmen are required to pay bribes before necessary permits are issued, they tend to view it as a cost of doing business and therefore pass that cost onto consumers (that is you and me) who suffer from high price.
In those instances where businesses refuse to pay “speed money” or grease the palms of bureaucrats, they are subjected to delays and frustration. Again, these frustrations increase the cost of doing business and are passed onto the consumer in the form of higher prices.

Conclusion
From the cumulative force of the above points, it is evident that corruption has a strong potential to steal the wealth of a nation and impoverish its people. The more corrupt a country is the lower its economic growth rate. Whereas the above discussion is exhaustive and comprehensive enough to elucidate the detrimental impact of corruption in most sub-saharan African countries. A change in attitude of mostly political office holders in restraining from corruption will ameliorate the level of poverty in the region.

Watch out for the next article on: Reasons for Corruption among political office holders in Nigeria