Publication Type: Working Paper
Countries: Nigeria
Authors: Pallavi Roy, Alexander Sewell, Fyneface Dumnamene
Publication date: April 2022
Keywords: Extractives

In contexts where rents from a particular sector or activity are shared widely and are substantially larger than available alternatives for the widest cross-section of society, common strategies such as increasing transparency and accountability measures, targeting behaviour, or identifying incentives are unlikely to result in reduced corruption. These are contexts of ‘networked corruption’ where corruption is characterised by a hierarchy of benefits. This means that rents from the sector are captured and shared across all relevant sections of society, from high-level politicians and security agencies to local communities. In some cases, the rent capture is purely for reasons of personal gain and is the result of abuse of entrusted power. In others, corruption helps to meet an everyday need for many communities, sometimes even at the cost of social damage. As a result it is not possible to create an effective coalition to organise anti-corruption efforts. The solution here is twofold: first, design policy in a way that can reduce the social damage and help alleviate these needs for the community, and secondly, design policies that enable people to behave in ways that make self-enforcement possible, therefore reducing corrupt behaviour. The more immediate requirement of policy is to mitigate the damaging effects such as pollution externalities in the extractive sector while follow-on policies should design for strategies for alternative livelihood creation. These policies are also usually ‘second best’ as they do not target the corruption problem in the sector in its entirety, and focus on mitigating the effects of social damage. However, in adverse contexts where everyone has an interest in being corrupt, strategies for mitigation can be one way of reducing the negative welfare effects and, in the medium term, strategies for transformation can effectively change incentives for at least some members of the community.

With its super-normal profits or rents and the tendency to be controlled by politically powerful people, the extractive sector raises significant challenges for anti-corruption. In a context of rule by law, the incentives for rule-following behaviour are very weak within the sector and can only be imposed if other sectors are collectively powerful enough to impose rules on them, or productive enough to not be affected by it. Yet this is not the case in Nigeria or, indeed, in most resource-rich low- and middle-income countries (LMICs). While exploration and production activities could be moderately rule-following (given international contracts and the technology required), other activities like distribution, marketing and licensing are ‘rent-thick’. This means that the distribution of benefits is often not in line with the social good, but is based on the politics of patronage or repression. The specificity of the extractive sector in Nigeria is that the capture and sharing of rents derived from it are widespread across socioeconomic segments, and ‘benefit’ a range of actors with varying levels of incomes and livelihoods. This makes it especially challenging to design policy that tackles corruption.

This research focused on the micro level in Nigeria since the problems of corruption at the macro level in the oil sector are politically too intractable to be feasibly addressed in the short-to-medium term. We focused on the artisanal oil refining industry in the Niger Delta. Though conducted through small-scale units, artisanal refining is an illegal activity based on refining stolen crude oil, which is then sold on to black markets as various petroleum products. This is a hugely damaging activity, not just because it is deemed criminal but also because of the pollution it causes for the local community. One might expect that pollution from industry products like diesel and petrol would make the sites unpopular and result in local demands for shutting them down. Yet this is far from the reality. Our research suggests that this is not just about the direct livelihoods created through the artisanal oil industry value chain, but also the many indirect livelihoods that are not part of the value chain but are linked to the operation of artisanal oil industry sites. 

Our research proposes an alternative approach to trying to eradicate this form of corruption through heightened enforcement, including crackdowns by security forces – a solution that has already proved unsuccessful. The mitigation and transformation strategy includes mitigating the harmful effects of the artisanal oil industry, such as pollution, alongside providing other livelihood opportunities that will become transformational in the longer run. The appropriate ‘anti-corruption’ response here is unconventional as it involves working to mitigate the pollution and related health externalities that hurt vulnerable people – namely, children, youth and women – and then designing transformational strategies that encourage solar power generation and exploring productive livelihood opportunities as alternatives, rather than top-down strategies that depend on sanctions and prosecutions. Not only are those top-down strategies unlikely to change behaviour towards rule-following practices, but they sustain a cycle of violence by further alienating a population with high levels of perceived and real grievances. The long-term aim is to ensure sustainable opportunities gradually emerge that reduce the incentive to rely on corruption-driven incomes.