Corruption In Nigeria’s Oil And Gas Industry: Extent And Macroeconomic Impact
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ABSTRACT
Typically, the nexus between the oil and gas industry and the economy has evolved from the Dutch Disease literature to the resource curse literature. However, at the core of the relations is the issue of corruption.
The various reports into corruption in the upstream and the downstream by the House of Representatives (2012) and the non payment of $49 billion into the Federation Account suggest the likelihood of an endemic problem that is a pointer to the susceptibility of the industry to corruption which has undermined the development of the economy.
This study investigated the problem of corruption in the oil and gas industry. The objective of the study was to determine the extent and macroeconomic impact of corruption in the oil and gas industry.
To achieve the objectives, the study measured the extent of corruption in the industry, from the activities of the industry in both the upstream and the downstream.
The summation of the losses from these activities was the measure of the extent of loss due to corruption in the industry.
The study then measured the impact of the corruption using simulation analysis. The analysis was based on ten scenarios which showed how the macroeconomy was impacted by corruption in the oil and gas industry.
TABLE OF CONTENTS
Title Page – – – – – – – – – – – i
Declaration – – – – – – – – – – – – ii
Certification – – – – – – – – – – – iii
Dedication – – – – – – – – – – – iv
Acknowledgements – – – – – – – – – – v
Table of Contents – – – – – – – – – – – viii
List of Tables – – – – – – – – – – – xi
List of Figures- – – – – – – – – – – xiii
Abstract – – – – – – – – – – – xiv
CHAPTER ONE: General Introduction
1.1 Background to the Study – – – – – – – – – 1
1.2 Statement of the Problem – – – – – – – – – 5
1.3 Research Questions – – – – – – – – – – 8
1.4 Objectives of the Study – – – – – – – – 8
1.5 Justification for the Study – – – – – – – – – 9
1.6 The Scope of the Study – – – – – – – 9
1.7 Organization of the Study – – – – – – – – 10
CHAPTER TWO: Literature Review
2.1 Conceptual Review – – – – – – – – – 11
2.2 The Causes of Corruption – – – – – – – – 16
2.3 Theoretical Review – – – – – – – – – – 19
2.3.1 The Resource Curse Theory – – – – – – – – – 19
2.3.2 The Dutch Disease – – – – – – – – – 22
2.3.3 Approaches used by various Authors to model corruption- – – – – 23
2.4 Review of Empirical Studies – – – – – – – – 29
2.4.1 An Overview of the Oil and Gas Sector in Nigeria – – – – – 34
2.4.2 Operators in the industry: Active and Passive – – – – – 37
2.4.3 An Overview of the Main Activities along the Oil and Gas Value Chain – – 46
2.4.4 An Overview of the Corruption in the Oil and Gas Industry in Nigeria- – – 50
2.4.5 Measurement of Corruption in the Literature – – – – – – 69
CHAPTER THREE: Methodology
3.1 Conceptual Framework- – – – – – – – – 77
3.2 Measurement of Corruption- – – – – – – – – 78
3.3 Impact Analysis- – – – – – – – – – 82
3.3.1 Estimation Techniques- – – – – – – – 89
3.3.2Simulation Analysis- – – – – – – – – – 89
CHAPTER FOUR:Presentation and Analysis of Results
4.1 Measures of Corruption in the Nigerian Oil and Gas Industry – – – 92
4.1.1 Estimates ofCorruption in the Upstream – – – – – – 93
4.1.2 Estimates of Corruption in the Downstream – – – – – 94
4.1.3 Estimates of Aggregate Corruption – – – – – 97
4.2 Stochastic Properties of the Series: Test of Stationeries- – – – – 98
4.3 Estimation Results and Analysis – – – – – – – 98
4.4 Baseline Simulation – – – – – – – – – 103
4.5 Macroeconomic Impacts of Corruption in the Oil and Gas- – – – – 105
4.5.1 Impact of the Upstream corruption – – – – – – 105
4.5.1 Impact of the Downstream corruption – – – – – – 106
4.5.1 Impact of the Aggregate corruption – – – – – 108
CHAPTER FIVE: Summary, Recommendations and Conclusion
5.1 Summary – – – – – – – – 110
5.2 Conclusion – – – – – – – – – – 111
5.3 Recommendations – – – – – – – – – 111
References – – – – – – – – – – 112
Appendices – – – – – – – – – – 118
INTRODUCTION
Background to the Study
Despite the complexities that surround the concept of corruption globally in terms of it’s 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.
REFERENCES
Abachi,T (2012) An empirical analysis of the relative effects of fiscal centralization on economicgrowth in Nigeria. A ph.D Thesis submitted to the Department of Economics Ahmadu BellUniversity, Zaria.
Abdulsalam, S. Aminu, A and Poloamina, (2012) Macro econometric Model of Nigeria (ModeFramework/structure)National Institute for Legislative Studies,Abuja, Nigeria.
Abiodun, E(2007) Effects of corruption and economic reforms on economic growth and development:Lessons from Nigeria. 2007. African Economic Conference.
Acemoglu, D and Verdier,T(1998). Property Rights, Corruption and the Allocation of Talent: AGeneral Equilibrium Approach, Economic Journal, Vol. 108
Agbu, O. (2003).Corruption and Human Trafficking: the Nigerian case. West Africa Review (2003)
