Combatting corruption the smart way
Premium Times, Nigeria
This article was originally published in The Premium Times on Friday 21st December 2018.
Sunday December 9 marked the World Anti-Corruption Day, and this annual symbolic date made me reflect on the efforts that are taking place to tackle corruption in Nigeria. Section 15(5) of our Constitution is clear that: “the State shall abolish all corrupt practices and abuse of power.” The prosecutorial agencies and the judiciary, of course, have the responsibility to investigate, prosecute and punish those involved in corrupt practices. We know however that in practice, the state has lacked the capacity to abolish corrupt practices. In other words, the state has been unable to play its role as the guarantor of the rule of law. As we all know, the rule of law requires the equality of all citizens, yet in Nigerian prisons today, there are thousands of people who are in jail for petty theft, while those who steal in billions are usually protected by the same state. Nigeria has developed a system in which punishment for wrongdoing applies only to those citizens who are unable to pay for the right calibre of lawyers or who are unable to target and bribe corrupt judges. There is a crisis of justice in our society.
And this is despite the fact that since its inception, the Nigerian Fourth Republic has invested heavily in building the legal and institutional infrastructure to deal with corruption. The Economic and Financial Crimes Commission (EFCC) and the Independent Corrupt Practices Commission (ICPC) were developed to prosecute corrupt acts and raise the capacity for anti-corruption work. The Bureau for Public Enterprises provides due process rules and checks on the privatisation and operations of public sector companies. The Procurement Act of 2007 led to the establishment of the Procurement Council and Bureau to clean up the cesspool of corruption that is public procurement. But these institutions have had limited impact on the anti-corruption war.
So, what could actually work? Over the past year, we have been engaged in the Anti-Corruption Evidence (ACE) Research Consortium run by SOAS, University of London, in partnership with the Centre for Democracy and Development in Abuja. Our anti-corruption approach shows that the effective enforcement of the rule of law and the achievement of low levels of corruption require two complementary factors. First, effective ‘vertical’ enforcement of rules from law makers and their agencies above, and second an effective ‘horizontal’ enforcement of rules by the actors involved in specific sectors or industries themselves. In Nigeria, the government has so far been focusing on vertical enforcement, using prosecutions, and legal requirements for transparency and accountability. Sustainable progress in combating corruption has been difficult and the reality is that these difficulties can be explained by the weakness of horizontal enforcement at a societal level. The business community has no commitment to the rule of law precisely because their success is dependent upon political connections, which assures them access to resources. Those with effective connections simply do not want a level playing field for all businesses.
Through our research projects, we are finding that incremental and targeted anti-corruption strategies that seek to find areas where some horizontal support for anti-corruption can be found are important complements to an anti-corruption strategy. But to reach effective strategies we need to ask: Why do organisations break rules in the first place? Businesses and individuals may sometimes violate official rules because they are cheating others BUT sometimes they do so because following official rules is very difficult or impossible. One example is procurement rules, which may be so constraining that following them is virtually impossible. When the second type of problem is important, pure enforcement and punishment strategies (whether vertical or horizontal) do not work very well. The problem that we are trying to fix is systemic – just punishing people without fixing the system will not work. It is vitally important to identify activities where some horizontal support for anti-corruption can be found.
In our work, we first identify a pressing corruption-related problem and ask why it is happening. We then ask if it is possible to develop policy, or change the governance structure in our working contexts, especially for the second type of corruption we identified.
This is possible if changes in policies and institutions can make it profitable for at least some players to behave in developmental and socially desirable ways. In our work, we first identify a pressing corruption-related problem and ask why it is happening. We then ask if it is possible to develop policy, or change the governance structure in our working contexts, especially for the second type of corruption we identified.
Our ACE project is currently investigating the very complex story of corruption that straddles the entire electricity value chain (generation, transmission, distribution, even feedstock supply to end users, both residential and commercial/industrial). It is very important to trace the nature of corruption in each segment. When the privatisation of the sector occurred in 2013-14, there simply wasn’t enough electricity to create a proper market. The pre-privatisation study had argued that privatisation must wait for the availability of at least 12,000 megawatts to sell – but we were only producing 4,000 at that time. Politically exposed individuals were simply focused on asset stripping, rather than creating a system that would work. The result? No one has access to enough power, estimated billings for consumers are creating anger, the generation companies are not being paid by the distribution companies and the government has been compelled to resume subsidy of the sector through the Central Bank.
Increasing collections from consumers, many of who connect themselves illegally to the network, isn’t going to automatically solve the constraints in the generating and gas supply sector, or indeed the transmission sector, where the Transmission Company of Nigeria (TCN) is the only player. Secondly, given the involvement of the government in Nigerian Bulk Electricity Trading Plc.(NBET) and TCN, transparency will be difficult to achieve. The involvement of powerful political leaders in the sector isn’t conducive for more efficient power generation. Finally ramping up capacity has to be done hand-in-hand with upgrading transmission infrastructure, but so far the funds to do so are not forthcoming. The grid certainly has the capability to transmit if existing capacity utilisation increased, though fresh capacity addition would need investments in transmission. Currently, significant capacity increase has been slow and difficult.
Anti-corruption policy has to ensure that it is feasible for those who want to comply to do so, and there are acceptable exit options for structurally non-compliant firms. By working with those who do not want to cheat, we might be able to build a rule-following majority who can hold in check those who try to cheat further down the line.
The transformation of the power sector was premised on bringing in actors with the capacity to make significant investment to expand production and distribution. What happened was that the private players that took the companies over were politically connected individuals who thought they were seeing an opportunity for rent creation. They had no expertise or knowledge of the sector, they had no experienced foreign partners as required by the bidding process and they had no money to invest and relied on bank loans. Which they took and have been unable to service. The structure and nature of privatisation was not tailored to fit the Nigerian context and the rent seeking in the sector has left it financially debilitated. Privatisation didn’t succeed because the inefficiencies of the state-run companies were simply transferred to private sector firms, who had little capability in running firms in the electricity sector. The sector has moved into a low-level equilibrium where incentives to invest and upgrade are simply not present.
The way forward for the industry is to move from grandiose plans to more practical levels where SMEs could be engaged with and be potentially productive (as my colleague Pallavi Roy discusses in Empower magazine). They could be critical for growth and employment in the sector. The idea is to encourage those who are ready to produce electricity to have access to those who are capable and ready to pay for it. This is the process that could build a functional market for electricity that is not based on political access and corruption. The idea is to gradually build a community of electricity consumers that see value in regular quality supply, which is good for their businesses and therefore worth paying for. The policy solution here has to be three-fold. The first one is long term, addressing the structural problems of the transmission infrastructure, improving collections and better gas supply to increase generation. The second, which is short term, involves increasing generation and supplies to the productive sector without running into political interventions or requiring expensive infrastructure – and this is where the ACE approach is important. The third one relates to the small consumer where renewables, solar in particular, could provide adequate non-grid or mini-grid solutions for family use.
The key element is to begin to focus on off-grid (embedded) solutions for smaller manufacturers, who are motivated to comply if that ensures an adequate power supply. But technical off grid solutions will need to be accompanied by a collective whose incentives will be aligned with increasing generation. Our solution aims to break the network of collusive interests by giving productive and genuine stakeholders in the sector a sense of ownership of the policy solution too. Anti-corruption policy has to ensure that it is feasible for those who want to comply to do so, and there are acceptable exit options for structurally non-compliant firms. By working with those who do not want to cheat, we might be able to build a rule-following majority who can hold in check those who try to cheat further down the line. The ultimate aim is to achieve better developmental outcomes: more productive businesses, strong employment, greater growth. As more and more productive organisations emerge, social support for the rule of law will strengthen and corruption decline across the board. And less corruption will also mean more equality under the law. An appropriate vision for this year’s Anti-Corruption Day.