AN ANALYSIS ON THE IMPACT OF CORRUPTION ON PETROLEUM SECTOR
CHAPTER ONE
Background of the study
Despite the complexities that surround the concept of corruption globally in terms of its multi dimensional nature with regards to cultural, sociological, psychological, definition, secrecy and measurability, corruption has continued to attract interests of scholars, advocates, governments and multilateral organizations. This is so given the challenges and problems that are associated with the menace globally.
Scholars differ on the perception and effects of corruption on the economy. Some of them such as Leff (1964), Huntington (1968), Lui (1985), Lien (1986) Acemoglou and Verdier (1998) and Aluko (2008), argued that corruption enhances efficiency and as such positively impacts on the economy. For example, Leff (1964) and Huntington (1968) suggest that under rigid regulation and inefficient bureaucracy, corruption might foster economic growth. In their model, they believed that agents use “speed money” to get around bad laws and institutions. Additionally, Lui (1985) shows that bribery can be efficient in a queuing model if agents with higher values of time can use bribes to obtain a better place in line. Acemoglou and Verdier (1998) on their part argue that some degree of corruption may be part of the optimal allocation of resources in the presence of incomplete contracts or due to market failure.
This opinion is partly justified on the ground that illegal payments are required to make things pass swifter and favorably through the state bureaucracy. By implication, corruption has the potency of making an economic agent more efficient and in the long run it promotes economic growth. The next logical question is what is the evidence? Is it conclusive? If not conclusive, this provides opportunities for further studies. Also what are the limitations of the existing studies?
On the other hand, Mauro (1995) Tanzi and Davoodi(1997) among others maintained that corruption lowers investment and by extension impacts negatively on the economy. Tanzi and Davoodi (1997) not only supported this position by their findings but also extended it by showing the direction of causality. Bardhan, (1997) .Weder,(2003), Meon and Seklat (2005) followed the above pattern in their analysis of the effect of corruption on the economy.
The effects of corruption generally are so broad and complicated to the point of losing it devastating consequences on the economy in which it exist, and to address this problems without been carried away with it elusive features, the areas of concern where corruption affect the macro economy is hereby been focused. This is in line with the decision of the United Nation Convention against Corruption (UNCAC) in early 2002.Where it was agree that corruption should not be define at all because of it complicated nature, but rather address the problem areas. The emphasis (focus) of this work is on the corruption in the Nigeria‘s oil and gas industry. In the work of Garba et al, (2009) GIABA study on corruption and Money Laundering in West Africa, The case of Nigeria, Agriculture and oil and gas industries were identified as the most susceptible industries to corruption. This work picks one out of the two industries, which is the oil and gas industry. The susceptibility of the sector to corruption has undermined the development of the economy.
Oil is a major source of energy in Nigeria and the world in general. Oil being the mainstay of the Nigerian economy plays a vital role in shaping the economic and political destiny of the country. Although Nigeria‘s oil industry was founded at the beginning of the century, it was not until the end of the Nigeria civil war (1967 – 1970) that the oil industry began to play a prominent role in the economic life of the country. Odularu (2008).The study therefore look back at the operation of the industry in the period under review.Corruption is a disease, which eats into political, cultural and economic growth of any country and destroys the functioning of various organs of the government. The rise of public administration and discovery of petroleum and natural gas are two major events seen to have led to a litany of ignoble corrupt practices in the country (Wikipedia, 2014). Corruption steals money social programmes and services through bribery, kickbacks and inflated pricing of contracts and public projects (Obioma, 2012). He also notes that corruption breeds crises in the country turn out to constitute some of the greatest dangers to the security of the nation. The level of corruption and poor governance prevailing in the Nigerian system still remain high, albeit there are so many efforts by economic and financial crime commission (EFCC), independent corrupt practices and related offences commission (ICPC), Transparent international, World Bank and many other organizations to reduce it (Akinwale, 2012). Baghebo and Atima (2013) stress that since the Royal Dutch shell discovered oil in the Niger Delta in 1956, precisely in Oloibiri, in Bayelsa state, the oil industry has been marred by political and economic strife largely due to a long history of corrupt military regimes, civil rule and complicity of multinational corporations, notably Royal Dutch Shell. Petroleum sector
Ribadu (2006) as cited in Ajao, Dada and Olaoye (2013) say that the history of corruption in Nigeria is strongly rooted in the over twenty nine (29) years of military rule, out of forty six (46) years of her statehood since 1960. According to him, successive military regimes subdued the rule of law, facilitated the wanton, looting of the public treasury, decapitated public institutions and free speech and instituted a secret and Opaque culture in the running of government business. The result was total insecurity, poor economic management, abuse of human rights, ethnic conflicts and capital flight. Prior Studies have looked at corruption in Nigeria (Bakare, 2011. Lawal & Victor, 2012; Ogundiya, 2009; and Mohammed, 2013). However, no prior study has focused on corruption in the oil and gas industry in Nigeria. Hence there is need for this study. The focus of the exercise is on corruption in the oil and gas industry in Nigeria, keeping constant the existence of corruption in the other aspects of the Nigerian society economic, social, political, religious, academic institution and corruption in the services, etc. the nature, types, consequences, efforts made to reduce corruption in the oil and gas sector in Nigeria.