This is the second part of the paper first published Monday 4th January, 2010.
According to Vito Tanzi, “The total economic and social effects of corrupt actions might be very costly and out of proportion to the bribes received by corrupt officials in terms of resources wasted, the opportunity cost of resources· misused, and the inefficiencies introduced in the system.”
To illustrate the economic impact of rent seeking and corruption with an example, imagine that a highway is to be built, a N500 million project. Ten companies take part in the tender. A modest suggestion is that five companies each pay N500,000 in various types of grease payments to win the contract, while the winner also pays 10% of the contract value, N50 million. The apparent effect is that $52,500,000 is wasted. Besides, the bribe paid by the contractor most probably inflates the highway price, or makes the company skimp on quality. The other four bribing companies also have to regain their sunk cost, for instance by increasing prices on other products offered by the company, contributing to higher domestic inflation. Macroeconomic effects are obvious if this example portrays e.g. ten percent of the public acquisitions in a country. This percentage is most likely higher in countries experiencing extensive corruption.
Corruption, “state capture” and transition economies
A different side of bureaucratic rent seeking is state capture, defined as the propensity of firms to shape the underlying rules of the game (Le. laws, decrees and regulations) through illicit and non-transparent private payments to public officials (Hellman et aI., 2000a). State capture evolves as a result of grand corruption. Key state institutions are “captured” by private interests to bias the policy-making process in favor of particular firms, leaving the operation of government non-transparent. The underlying threat to democracy is obvious when elected politicians and public officials make decisions on grounds deviating from the expected.
Impaired competition, abated international interest and firm behavior
“Systematic corruption can induce inefficiencies that reduce competitiveness. It may limit the number of bidders, favor those with inside connections rather than the most efficient candidates, limit the information available to participants and introduce added transaction costs” (UNDP, 1997). These distortions of market forces obstruct the ordinary benefits induced by competition, like the achievement of best value for money, a rational allocation of resources, and the pressure experienced by individuals and companies for general improvement. Usually, a public tender affected by corruption represents an inefficient investment of public assets. One reason is inflated prices; another is that a corrupt official who discriminates in favor of some bidders frequently selects an inefficient contractor (lien, 1990; Rose-Ackerman, 1978).
A pervasive level of corruption in the economy may also abate the international interest in both trade and foreign direct investment (Wei, 1997 and 1999), resulting in a GDP growth lower than it could have been and a reduction of qualified competitors in procurement projects. Corruption represents an increase of trade or investment expenditures to a foreign enterprise. When demands for bribes also appear unpredictable, counting on the necessary profit is difficult.
Predictable corruption, however, may not necessarily be less harmful than unpredictable corruption. Lambsdorff argues that confidence in corrupt deals enhances the further spread of corruption. “When business people have confidence that after paying a bribe a return will be provided as promised, there is less motivation to seek legal alternatives” (Lambsdorff, 2001). The uncertainty with regard to costs may thus cause the enterprise to turn the tender in question down. Besides, operating in a situation with informal rules is difficult as the company may not understand how to behave and react, who to bribe (and not to bribe), what contact to grease, etc., explaining a certain refusal to approach the economy. Companies may also decline tenders likely to be affected by corruption because of legal restrictions on bribery of foreign public officials.
The companies defying all these challenges, on the other hand, experiencing successful trade or investment in the economy despite high levels of corruption, often exhibit a more lenient attitude towards bribery. Furthermore, UNDP (1997) explains how the uncertainties introduced by corruption into the economic environment may affect the way private firms do business. The firm may take up a short-run orientation, fearing either that those in power may overthrow because of their corruption, or the imposition of arbitrary financial demands once investments are sunk. The consequence may be a reluctance to invest in stationary capital and a too hasty project completion ignoring quality demands.
Of course, these problems are not characterizing all companies. To some degree, however, the attitude towards bribery and the effect on firm behavior may cause an adverse selection of foreign companies operating in the economy, companies whose success rests on bribery. Such an adverse selection of companies would ensure a constant flow of illegal payments to public officials, and restrict the efficiency of anti-corruption measures.
GOOD PRACTICES IN PUBLIC PROCUREMENT
The fight against corruption must start with an explicit commitment by the prime leadership of the country. Ending the pettier forms of corruption in the bureaucracy is difficult if the grand political corruption persists. An honest intention has to be followed up by good behavior, expressing opposition against all forms of corruption, whether it involves family members and friends, political associates, or other members of government.
Policy makers can respond to risks of corruption in general by ensuring a good public procurement system. A good public procurement system that can effectively prevent corruption needs to be transparent and provide for accountability and integrity. The system should also confirm to and cover various procedures, laws and processes put in place for detecting and preventing corruption.
(To be Continued).
Nembe Oil Spill From Aiteo Facility Worst I’ve Seen – Diri
The Bayelsa State Governor, Senator Douye Diri, on Wednesday returned from visiting the oil spill site in Nembe Local Government Area of the state, describing it as the worst he had seen in his lifetime.
The OML 29 Well 1 platform, which is operated by Nigeria’s largest indigenous oil firm, Aiteo Exploration and Production Company Limited, has been spilling crude unabated into the Santa Barbara River for about one month.
An estimated two million barrels of crude has reportedly been spilled into the river, polluting the flora and fauna of the area, the governor’s spokesperson Dan Alabrah, said.
The Minister of State of Environment, Sharon Ikeazor, had said the scene of the spill was like a war zone.
Overwhelmed by the spill, Aiteo hired Halliburton’s Boots and Coots to “kill the well” by injecting cement into it. It bought the well from the Royal Dutch Shell in 2015.
As at Wednesday, the Bayelsa government said the spill that began November 5 was still ongoing.
Governor Diri said the continuous spillage has further endangered the lives of people of Nembe, Bayelsa and indeed the Niger Delta.
In a statement issued by his Chief Press Secretary, Mr Alabrah, the governor, who expressed shock over the quantity of crude that has been spilled into the environment, called on the Federal Government and operators of the oil field to immediately take action to stop it.
According to him, the prolonged oil spill into the water and air had an immediate and long term effect on the health of the inhabitants.
While assuring the people that appropriate measures would be taken to seek redress, he noted that the quest by oil firms to make money would not be at the expense of the lives of the people.
Describing fishing as the source of livelihood of the people of the area, Mr Diri noted that just as there are grazing routes, Bayelsa State has fishing routes and must be protected.
His words: “Today happens to be a very dark day for me. What we have seen, I believe, is worse than what happened in the Gulf of Mexico. In all my life, I have not seen such magnitude of oil spillage.
“Our people are endangered. Our people’s source of livelihood is endangered. I empathise and sympathise with the people of Nembe on behalf of the government and people of Bayelsa State.
The Bayelsa governor also decried the exclusion of indigenes of host communities in the running of the oil industry, saying that if indigenes were part of the operations of the oil field, they would have looked for ways to address the problem.
To ameliorate the suffering of the people, the governor directed the State Emergency Management Agency and Ministry of Health to immediately provide relief materials and healthcare services to the people.
Earlier, the chairman of Nembe Local Government Area, Hon. West Alalibo, and member representing Nembe Constituency 2 in the State House of Assembly, Edward Brigidi, appreciated the governor for embarking on an on-the-spot assessment visit to the site.
‘Emerging Challenges May Frustrate Dev Of Gas Resources’
Although the Petroleum Industry Act (PIA) is expected to unlock gas potential in Nigeria, especially the current 206 trillion standard cubic feet proven reserves, stakeholders Wednesday said the goals might remain elusive.
Investment to unlock the series of the opportunities outlined by the country according to the stakeholders, may remain a daunting task amidst heavy levies on the sector, domestic gas pricing challenges as well as lack of necessary technology and skills set.
Coming as the price of natural gas Wednesday, tumbled further to $4.4 per MMBtu after rising close to $7, the stakeholders at the 10th Practical Nigerian Content Forum stated that without the right environment, Nigeria may miss out of the window of opportunities available through the energy transition phase.
The Senate Chairman, Local Content, Teslim Folarin at the event also insisted that the cross-sectorial local bill in the National Assembly would make existing executive orders on patronage of Nigeria goods and services a law across sectors of the economy, stressing that it won’t however scrap the NOGIC Act.
With the current high price of cooking gas, the inadequacies of gas to power plants, the experts noted that data challenges, legal framework, lack of collaboration, weak research and development, lack of technology, imposition of taxes on the gas value chain lay heavy siege to the country’s aspirations in the gas revolution.
Group Executive Director, Gas and Power at the Nigerian National Petroleum Corporation Limited, Abdulkadir Ahmed, insisted that declining funding for fossil fuels would create challenges for existing gas resources in the country, stressing that the sector must devise a means to fund projects and also produce more with cost.
Ahmed was also concerned about the infrastructure that transports and ensures utilisation of gas, adding that a transparent and market-driven pricing remained sacrosanct.
“We can not make progress without a market-driven and transparent gas price. No one will put in money if they have no feasibility of how they will recover their cost. There won’t be any gas to process if we do not invest in upstream activities,” he said.
Managing Director, Shell Nigeria Gas, Ed Ubong stated that there was a need to build local capacity for gas and ensure that the resources are used to spur industrial development.
According to him, there was a need to support indigenous companies to thrive, adding that the gas space remained a key avenue to grow local content.
A Governing Council Member at Nigerian Content Development and Monitoring Board (NCDMB), Mina Oforiokuma said with progress being made by countries like Mozambique, Nigeria needs to learn and move fast to address bottlenecks.
Speaking on the expansion of local content across sectors, Executive Secretary of NCDMB, Simbi Wabote noted that the government may consider a local content department across ministries to develop.
Wabote said: “That’s the only way you can get benefit out of the implementation because what people forget is that NCDMB is like a department within the ministry of petroleum resources saddled with the responsibility of driving local content within the oil and gas industry and controlled by the Ministry in the same way.”
Senator Folarin noted that the government remained concerned about the development of indigenous companies, adding that the move would address inefficiencies, in the long run reduce cost of projects and build strong local companies that can compete globally.
He revealed that some of the key sectors that would be primarily targeted are power, ICT, manufacturing, agriculture and others.
PHCCIMA Boss Lists Core Service Areas
The 62nd President of the Port Harcourt Chamber of Commerce, Mines, Industries and Agriculture (PHCCIMA), Sir Mike Elechi said his administration shall have member oriented, inclusive programmes and opportunities as its hallmark and guiding principles.
Elechi said this during his investiture as the PHCCIMA President in Port Harcourt during the week.
He also listed consolidation of growth, peace, unity, increased scope of programme dispensation and internally generated revenue as part of his core mandate to be delivered to the people.
He said that these would be achieved within the confines of PHCCIMA’s constitution and that of the Country.
The President who was a permanent secretary before his retirement, pointed out that the choice of the key areas was as a result of deep reflection and wide consultation with relevant stakeholders in the society.
He said that his administration would reintroduce the monthly PHCCIMA meeting, develope a calendar of member oriented programmes and opportunities as well as trade mission travels and access for the benefit of its members.
On the issue of increased scope of programme dispensation and internally generated revenue, he said that it would be realised by creating an atmosphere of welcome and corporate opportunity.
“Another way out among others, was engagement of various governments both state and local, with business strategies especially non oil businesses”, he said.
In his address, the Chairman of the occasion, Chief Ferdinand Anabrabra, urged those that are yet to be registered with PHCCIMA to hurry and do so in order to meet up with the current speed of the organisation.
Anabrabra, anchored his point on the passion that the new President and his team have for the body, which will definitely pay off.
Also speaking, the former President of Nigerian Bar Association ( NBA), Hon Onueze C.J . Okocha, said that Elechi’s whealt of experience would enable him do the expected.
”As a career Civil Servant and a successful businessman cum Manager and Chief Executive Officer of the Vintage Farm and Products in ElelIkwerre Local Government of the state, his administration would be successful.
The Tide gathered that the Elechi-led PHCCIMA executive would elapse in the next three years.
By: King Onunwor
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