Nigeria and Corruption
matthews pudie <firstname.lastname@example.org>wrote to this website 4/28/05
Please, critically asses the structure of the Nigerian economy and see which sector of the economy enhances national development and why. I will be happy to hear from you soon. Thanks.
Van Sloan <email@example.com>responded::
Matthews, I am not an expert on African economies. But I do think that a chart prepared by a colleague (athttp://SQ.4mg.com/corrupt.htm) shows important facts on Nigeria that hurt its economic potential:
- one of the most corrupt societies in the world, and
- an average IQ of 67, low by world standards.
These likely depress Nigerian per person income to $875 - very low for a major oil producing nation.
Cc Ted at
I will comment briefly from memory what has hurt the Nigerian Economy. The third largest economy in Nigeria is the "419" which is an internet scam telling people by sending unsolicited email of "business opportunities", winning lotteries, and make people send money and they "disappear". It has hurt because the government also indirectly supports this kind of crime also because they see that it is a "profitable" business. It looks like a profitable semi-legal business doesn't it? Well, not exactly.
While cheating the rest of the world looks like a lucrative businesses, it also depresses investment to the Nigerian economy by a factor of about 20 times the amount receiving from the internet scam business as well as other Nigerian tourist using "black money". Another business that prevents people from wanting to do business with Nigeria is the so called "invoice scam" which asks companies to send letterheads and invoice to be used as a collateral with the corrupted banks in Nigeria.
Many foreign investors sincerely wishes to invest in the African economy but many are put off by some people doing this that it just makes the economy so much worse.
I once calculated some kind of geometric progression of one single "corrupted" project having a huge effect on the economy. While the amount received by the corrupted officials is not much, the chain reaction it has on economy is actually devasting. I will not go into the details of the calculations, but I will do a brief one as an illustration. It is very much like the "butterfly effect".
Suppose there is an airport project - this is actually a real live project, but I am concealing the name to the real project as well as the amount to prove my point. The original projections for the ABC airport location was shown to be unfeasible in area A over area B, but since the corrupt officials wants to sell a capital price gain of only 10% of his land which is worth a gain of say $100,000 pushes the analysts $5,000 dollar bribe and the a threat of killing his wife and children, was told to make the project look profitable or else. The analyst, promptly fudged the numbers and the auditor who is the govt official's mistress, okays the project.
It goes through the committee with relatives, and friends of the corrupt official saying that the $100,000,000 project looked profitable. Each of the relatives and friends of the corrupt official also stand to profit from construction and other services from the project.
Since this is a government owned project, the government invests 50% and the other 50% goes to foreign off-shore investments where the government uses the rice and wood exports as a collateral.
Upon the construction also owned indirectly through the friends and relatives of the project committee, the original $100,000,000 went over the budget, prompting the government to call for emergency loans to off-shore banks with an additional loans of $100,000,000 more dollars and with more wood and other Nigerian exports and imports being blocked by the banks as collateral as well as gold reserves from the Central Banks.
Therefore, the project now is valued at $250,000,000, of which $50,000,000 from the government funds are now losts and 5,000 government officials faced layoff or cutbacks and reduced salary.
At which time the foreign banks being now suspicious of the loans from finding that the money was spent but the construction has now stopped. The international banks promptly recalled all loans (other loans made to the Nigerian bank's for other lending purposes, which may be at least 10 times the amount of $20,000,000) and the exports of the products goes unpaid by international banks.
The amounts of losses are now hurting at least $800,000,000 directly from the airport (collateral is estimated to be 4 times the amount provided by the bank to secure the loans) in the country's export goes unpaid due to the original $200,000,000. Again this does not include other loan recall from the default of the original loans announced by the international banks.
Not only that but, because the government is now defaulted on the loans, the Country's financial ratings goes from BBB to CCC. As a result, the drop in about 20% of the foreign investments to the economy which is valued at $1,000,000,000 with a loss of say another $200,000,000.
So what the government officials gains, I imagine was only a modest $10,000,000 has now spiralled the economic losses to at least $1,000,000,000. Not only that the employment from the airport and the tourism that would have generated the economy of at least $1,000,000/month is now under the IMF to bail out the economy with an additional $200,000,000 for emergency finance PLUS additional imports, exports and many other restrictions necessary for the country to pay for the emergency funds. Meanwhile, the airport project is permanently stopped as auditing indicates that the entire project is unprofitable from area "A".
If you really bother to trace all these numbers on such an easy project, especially a large project the numbers do become a geometric progressions, but many corrupt officials don't see that (this is where I.Q. is important -seeing problems down the long road), and they believe that one small project is helpful to the economy by generating an additional $1,000,000 for their friends, relatives, and associates and since 1,000,000 could be from the International Banks, it costs nothing for the the Country's economy. Since they are to gain from that money, they simply pass the buck some invisible people who is not directly effected, but effect it does, which is unemployment, poverty and many government officials layoffs and cutbacks. Also, tourism, busines investment, employment just nearly wiped out any additional income, making the "illegal" economy looked increasingly feasible despite the fact that the values might be "constant" but as a percent of GDP, it is the fastest growing economy in the country. If the officials think it is good and pushes that economy one single illegal economy will be paid dearly with all the other legal economy which is actually hurting the business.
So in my opinion, corruption has a magnifying negative effect of the economy while I.Q. is actually essential not from an intellectual point of view, but from an ethical point of view - to see something that will really destroy the economy without looking on immediate profit potentials. I have seen many people who see immediate profits, but it takes somewhat of some intelligence to see some much larger profits further down the road. I think it is this I.Q. which is most important to the economy rather than the speed solving Rubik' Cube or other puzzles per se, but IT STILL have some relationship if the puzzles are applied to the real life world.
Again, I did not keep copies of my studies into the African economy, but I can summarized that report, it is in no particular order:
2. Health and Welfare (as oppose to Famine, Plagues and Financial Accumulation by the few)
3. Politics and War
Each one of those are potentially disastrous to the economy. Lifespan is reduced by an average of 20 years shorter. To some it looks like a 20 year "savings" from less costs for people to "burden" the economy with the overpopulation and everything, but actually the opposite is true.
If you looked cigarettes smoking in reducing social security costs by reducing people's lives, than the economy also goes down with lost productivity as well to those who are in the working age group! Cigarrettes company fail to point out THAT fact whil inducing with savings in social security and medical care just for people in the "old age" bracket ONLY. This is what cigarettes have been doing in giving out "false" information to the country considering importing U.S. cigarettes. It looks convincing, but you need to read between the lines and this requires a little intelligence and thought.
I guess that is just my opinion, but everyday I see geometric progressions or the butterfly effect of something as innocent as saving a couple of dollars in safety equipment, and a great many other things while it effects none individually, it is devasting to the entire economy since the mathematical odds are not with you in the long run. The house always win.
I hope I clear this "cloudy issue" of corruption and intelligence and how it hurts the economy to you. I cannot make it any more clearly. We need a firm conceptual understanding and its application to facts as being the most feasible way to move forward.
Go to:Ted's page showing international rankings on corruption
Go to:Nation rankings on business competitiveness
Go to:Happiness of various nations
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