Public Corruption

Regional and National Perspectives on Procurement Fraud

Petter Gottschalk, Perry Stanislas

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351998932
• Edition: 1
• Topic: Economía
• Subtopic: Finanzas públicas

This volume presents the latest scholarly research on the practice of public corruption. The authors explore the causes and methods of fraud-related crime, as well as how it can be detected. The book also investigates the best strategies to prevent corruption, as well as convention punishments for those convicted. Intended for criminal justice students and practitioners, Public Corruption: Regional and National Perspectives on Procurement Fraud is a valuable resource for all stages of fraud investigation.

III

Other Nations

8

Tackling Corruption in the sub-Saharan African Extraction Industries

KENNEDY MKUTU AGADE

PERRY STANISLAS

Contents

Introduction

The Extractive Industry in sub-Saharan Africa

Corruption and Procurement Fraud in African Extraction Industries

Understanding Corruption and Procurement Matters in the Extraction Industries

Anti-Corruption Discourse, Practice, and Assumptions

The Cases of Turkana and Mtwara

References

Reports

Introduction

This chapter explores the strategic importance of the extractive industries in sub-Saharan Africa, the major issues involved in regulating it, and some of the outcomes and consequences. It focusses on the issue of corruption in the extraction industries and its social, economic, and other impacts, particularly with regard to the criminal justice system, and the security sector. It interrogates the theories and explanations for this corruption and the various ramifications. This chapter is an exploration of the attempts to regulate the extractive industries, and the successes and problems associated with this enterprise. Finally, the chapter will provide a case study of extractive industries in East Africa, and how many of the aforementioned issues manifest in this region of the African continent.

The Extractive Industry in sub-Saharan Africa

The killing of Patrice Lumumba, the newly elected prime minister of the Congo and its first independent leader in 1961, with the complicity and involvement of the United States and its Central Intelligence Agency, took place against the backdrop of fear about the control of precious natural resources (Nzongola-Ntalaja 2011). This occurred against a history of Belgian colonial rule, one of the most brutal and genocidal regimes witnessed on the African continent, that resulted in the killing of 10 million Congolese over a period of around 20 years in the ruthless, inhuman exploitation of people to access the valuable resources found in this naturally blessed part of Africa (Ankomah 1999).

The richness of the natural resources of African countries has shaped so much of its unfortunate past, as it has in the contemporary age, whether it has been the uranium that provided the source material for the first atomic bomb, or the coltan used to produce the microchips that drive postmodern technology such as mobile phones (Essick 2011, Nzongola-Ntalaja 2011). The extractive industries are critical to the economies of sub-Saharan Africa and its relationship to the outside world and their economies. From a strategic perspective, African countries provide natural resources critical to the industries of global economies. West Africa provides 12% of the oil and gas supplies to the West, with Nigeria providing one third of the petroleum consumed by the United States, and Angola supplying China with one third of its energy needs (Burgis and Chitoyo 2012).

The Niger Delta produces 90% of Nigeria’s commercial crude, and accounts for roughly 70% of government revenue. The total dollar amounts are staggering. According to the Organization of the Petroleum Exporting Countries (OPEC), Nigeria made $77 billion from oil exports in 2014—and that was a low year. The U.S. Department of Energy says Nigeria’s oil export earnings hit $99 billion in 2011. (The figures were $94 billion and $84 billion for 2012 and 2013, respectively.) Much of the wealth however, which is supposed to flow back to the states from the federal government, is simply siphoned off. A recent federal government audit showed that the state-owned Nigerian National Petroleum Corporation (NNPC) failed to pay $16 billion in revenue that it owed to the state treasury in 2014 alone. (NNPC officials disputed that figure, claiming it was closer to $1 billion). The revelation came after the then-Central Bank Governor Lamido Sanusi, accused the NNPC of failing to pay $20 billion to the federal government between January 2012 and July 2013. (Sanusi was immediately suspended after making the accusation and eventually forced out of his job.) Although benefits have passed them by, communities have borne the costs of environmental degradation. The discovery of oil in 1956 forever changed the face of the Niger Delta. Located in the southernmost part of Nigeria, it is the largest mangrove swamp in Africa and the third largest in the world. Its dense forest and complex labyrinth of creeks and waterways breathes life into over 339 plant species and more than 100 species of birds and fish. Tall palm trees with thick branches stretch upward before bending to touch the water below. The natural wonder stretches for miles and miles, but today it’s only a fragment of what it once was.^*

For most of the 2000s, an insurgency fueled by bitter resentment claimed thousands of lives and, at its height, cut Nigeria’s oil production in half. Now, after a brief respite, it is beginning to reemerge. In August 2016, a militant group calling itself the Niger Delta Avengers has already claimed three separate attacks on oil installations, and promised to cut the country’s oil output to zero. The Ijaw Youth Council, an influential grassroots organization that has its origins in the armed struggle of the 2000s and advocates for local control of natural resources, said in June 2016 that the security situation is “rapidly deteriorating and getting out of control.”^†

Much of Africa’s natural resources have yet to be exploited, or have only recently begun to be extracted for industrial use. For example, Guinea has one of the largest underdeveloped iron ore deposits in the world; the Democratic Republic of the Congo (DRC) has the largest supply of cobalt (Burgis and Chitoyo 2012, Essick 2001), and Burkino Faso is the fourth largest gold producer in the world (Blair 2014). Africa is the home of the 20 most natural resource-rich nations in the world (Kateta 2015). The Metals Economic Group data for 2013 shows that Africa enjoyed the second highest level of investment for mining exploration after Latin America, while in the period 2003–2007 it received the highest amount of investment for these purposes. This demonstrates that the demand for mine-based products remains largely constant, but is difficult to sustain without new sources of material (Standing 2007).

Corruption and Procurement Fraud in African Extraction Industries

Le Billon (2005) notes that funds in the extractive areas often risk being captured by politicians, and are subject to corruption. An estimated U.S. $1.4 trillion has disappeared from the sub-Saharan African economy due to corruption from 1980–2009, which represents more money than direct aid and investment into the region’s economy (Patrick 2014). A conservative estimate puts the loss due to corruption at billions of U.S. dollars annually (Patrick 2014). A significant amount of that money is assumed to come from the extractive industries, given the large amount of monies involved that can relatively easily be diverted into private hands (Standing 2007, OECD Bribery Report 2014: 15). The issue of corruption has been posited as being critical in the poverty and underdevelopment of numerous African countries that include Nigeria (detailed in depth in Chapter 9), Angola, and the DRC inter alia, and has been a source of bitter acrimony and tensions. In South Africa, allegations of corruption have plagued the tenure of President Jacob Zuma (www.allafrican.com 2016), and have also become a major concern in Ethiopia (Kebede 2016).

According to the Organization for Economic Cooperation and Development in 2014, nearly 20% of foreign bribery cases involved the extractive industries, and this finding was particularly prevalent in developing countries (OECD Foreign Bribery Report 2014). The alleged financial benefits of corruption related to the extractive industries can be seen in the case of Angola, Africa’s second largest oil exporter, where in 2003 approximately 50 Angolans in public office were estimated to possess a personal wealth worth $50 million, with 10 members of the government elite being worth $100 million, and the President believed to be among the wealthiest in the country (Standing 2007: 5).

The “resource curse” (Standing 2007: 4, Mkutu and Wandera 2016: 4) refers to the variety of problems, which accompany resource wealth, in particular to the distorting and detrimental impact on the national economy, whereby resource wealth, which is subject to fluctuations structurally contributes to underdevelopment. In oil producing Trinidad and Tobago, the neglect of agricultural production and self-sufficiency in the provision of food has led to greater dependency and poverty (Pino 2012, Jatto and Stanislas 2016). Another illustration of this is the destruction of the textile industry in Northern Nigeria due to the nations dependency on oil and subsequent currency inflation linked to it (Burgis and Chitoyo 2012: 3). With regard to this corruption, however, several writers have commented on how resource wealth may lead to the breakdown in democratic structures (Ross 2001; Fearon and Laitin 2003; Humphreys 2005; Snyder and Bhavnani 2005), a phenomenon to be discussed in more detail in the following section.

Corruption may be a factor in the exclusion of local people and their representatives from decision-making, when contracts between governments and the investors in extractive resources take place behind closed doors. Societal conflicts of various types may follow, focusing on rewards and opportunities from the industry. Ross (2008) comments that corruption and crime together with local grievance contribute to the increased risk of insurgency and separatism in oil rich countries.

A deep sense of grievance about unfairness and inequalities can be seen by the response of poor and unemployed black youth in South Africa, who cite the granting of very lucrative contracts by governmental elites to families and friends (www.allafrica.com 2016). Similar sentiments are highlighted by Mkutu and Wandera (2016: 19) in the response of local people in Turkana, Kenya, to what is perceived as exclusion from the economic opportunities brought about by extractive companies in their communities, as well as fears about threats to their pastoral livelihoods and land access and environmental degradation. The most extreme form these tensions can take is military coups and power struggles within state institutions. This is illustrated in the overthrow of Lumumba in the Congo, and Thomas Sankara in gold rich Burkina Faso (Blair 2014), and in Niger (Burgis and Chityo 2012: 4). Conflict about the impacts of petroleum production and its spoils were the driving force in the state killing of activist Ken Saro Wiwa and eight of his colleagues in the Delta region of Nigeria (Stanislas 2014: 229). One of the points of contention that led to the death of these activists was the environmental damage caused by petroleum production affecting the livelihood and agriculture of local people. Similar concerns have been highlighted by Mkutu and Wandera (2016: 17–18) and the Council on Foreign Relations (2014), in terms of the impact of the extractive industries on local livestock, and fishing and access to water and pastoral lands. The serious damage these industries can have on the environment can include soil contamination, land erosion, air and water pollution inter alia (Standing 2007: 11–12, see White 2011).

Greed theories on resource and conflict deserve a brief mention, Collier and Hoeffler (2004) conclude that resources can provide motivation and opportunity for insurgencies, which may happen through the looting or control of access to those resources. Greed motivations may combine with other factors such as grievances and weak governance to increase the likelihood of conflict (Mkutu and Wandera, 2016).

Understanding Corruption and Procurement Matters in the Extraction Industries

Although corruption is usually associated with politicians, tribal elites, civil servants, and administrators who run state bureaucracies, how it is conceived and explained, and the various forms it can take require further interrogation. The most conventional view of corruption is the abuse of public office for private gain, and usually takes the form of members of government or officials receiving kickbacks for giving companies or other interests, unfair advantages in obtaining contracts or in negotiating particular details or terms of such agreements (Standing 2007, Burgis and Chitoyo 2012, Mkutu and Wandera 2016). Corruption can also take the form of skimming, where sums of money are taken from agreed payment or in the forms of bonuses or royalty payments, for negotiating contracts in the extractive industries. The extremely large sum of money generated in this sector has spurned a whole range of ways in which payments by companies or foreign governments, find their way into private hands. Often this money is paid directly or takes the form of gifts, or some other benefit to family members or agents (OECD Foreign Bribery Report 2014: 28).

Corruption can also include politicians or civil servants colluding with private sector contractors to inflate costs, either to take money directly, or to offset tax liabilities (Blair 2014: 5). These forms of activity have often been called grand corruption (Standing 2007: 4, Council on Foreign Relations 2014, Patrick 2014), and is closely associated with countries, which lack basic infrastructure and transparency that enables the public or civil society to monitor the revenues gained from the nation’s resources (Burgis and Chitoyo 2012: 6, Standing 2007: 3). By the same token, these features of government and society are also associated with totalitarian regimes and state corruption. According to Standing (2007), corruption in these instances is both a cause and symptom of deeper institutional and societal problems. A popular theory of state corruption advanced by Mahdavy (1970, cited in Standing 2007) has at its heart the notion of the rentier state that seeks to explain how the exploitation of natural resources contributes to the erosion of democracy and government accountability. The theory posits that the political and governmental elite are able to solicit undisclosed rents in resource-rich countries, which displaces the need for direct tax revenue that contributes to institutionalizing the different interests between those who rule and the ruled.

Political systems in sub-Saharan African countries are invariably based on competition among elites who seek to access the rents they are able to levy from the natural resources of the country, as opposed to engaging in rent producing activity, via good economic management and taxation (Mahdavy cited in Standing 2007: 4). Public spending in these political systems is not used for the public good, such as the building of new roads and adequate infrastructure, but in preserving the status quo. An essential element of maintaining power is weakening the key institutions of the state, such as the police, and criminal justice system, the media, academia and civil society, by a combination of patronage, corruption, and intimidation (Stanislas 2016b). It is not uncommon that the military and the police are co-opted into the systemic corruption of the state in the persecution of dissenters and rivals to the status quo (Standing 2007: 4, Council on Foreign Relations 2014: 4, Stanislas 2016). Taxation authorities are often weak in many deve...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Introduction
• Authors
• Section I THEORETICAL PERSPECTIVES
• Section II EUROPE
• Section III OTHER NATIONS
• Index