Impact of corruption on Nigeria’s economy

Corruption is a pressing issue in Nigeria. It affects public finances and business investment, as well as the standard of living. Recent corruption scandals have highlighted the large sums that have been stolen and/or misappropriated. There have been some positive signs of change, for example, president Muhammadu Buhari launched an anti-corruption drive after taking office in May, 2015. But little has been done to explore the dynamic effects of corruption that affect the long run capacity of Nigeria to achieve its potential.

In our report on the Impact of Corruption on Nigeria’s Economy we analysed the ways in which corruption affects the Nigerian economy and its GDP and estimated the potential increase in GDP, which could result from reducing corruption levels to those of other natural resource-rich countries, such as Ghana, Colombia and Malaysia.

Corruption has a dynamic impact, which is felt more by poorer households and smaller firms with a long run negative impact on growth, primarily through reduction in human capital and investment. And the damage that corruption does is widely felt across the economy. It is associated with poor public finance management and provision of public goods, an increase in barriers to doing business and consequent lower levels of investment, especially foreign direct investment. Government effectiveness is also damaged as talent in public institutions is eroded. Finally, corruption is associated with lower average standards of living, education levels and greater income inequality.

Our results show that corruption in Nigeria could cost up to 37% of GDP by 2030 if it’s not dealt with immediately. This equates to around US$1,000 per person in 2014 and nearly $2,000 per person by 2030. But if Nigeria can tackle corruption to bring it down to levels seen in similar resource-rich countries, it could increase its GDP by $534bn in 2030. The boost in average income that we estimate, given the current per capita income, could significantly improve the lives of many in Nigeria, should efforts to tackle corruption succeed.

The challenges for the government are substantial but the potential benefits of tackling corruption are too great to ignore.

Dr Andrew S. Nevin is chief economist and a partner at PwC Nigeria. This article was originally published on PwC’s Africa Upfront blog.