Samuel Ramani.
University of Oxford.

On April 3, 2016, the Panama Papers release revealed that Nigeria’s Senate President Bukola Saraki, ex-Senate President David Mark and other notable former cabinet members, had funneled assets to offshore tax havens. This revelation was the latest in a string of embarrassing setbacks for the anti-corruption campaign launched by Nigeria’s president Muhammadu Buhari after his election victory last March.

On April 9, Nigerian anti-corruption NGO CACOL (Coalition Against Corrupt Leaders), condemned Buhari’s silence on the Panama Papers. These criticisms once again fuelled speculation that Buhari’s strident anti-corruption rhetoric is merely a cynical ploy to weaken the opposition People’s Democratic Party (PDP).
While the jury is still out on Buhari’s commitment to combatting corruption, there is compelling evidence that Buhari’s anti-corruption efforts are misdirected in their focus. Buhari has focused on holding corrupt officials and ex-politicians accountable by demonstrating that his campaign to improve the rule of law has no “sacred cows.”

However, Buhari is making a grave mistake by focusing primarily on the political dimension of corruption and largely neglecting the economic drivers of corruption in his reform efforts. Three characteristics of the Nigerian economy are responsible for the frustratingly erratic nature of Buhari’s anti-corruption campaign. These problematic aspects of the Nigerian economy will be outlined below:

1) Buhari’s Naira Peg Has Allowed Some Businesses to Gain Unfair Advantages Over Their Competitors
The first characteristic is Buhari’s decision to peg Nigeria’s currency, the naira, to an artificially high level relative to the US dollar. Despite this peg, the prices of many imported goods in Nigeria have doubled, crippling many small businesses. The firms that have succeeded in these dire economic conditions, exacerbated further by low oil prices, have been those with close connections to Nigerian government officials. Emerging markets expert Walter Lamberson, in a recent op-ed for the New York Times, notes that if business elites can pay a 30 percent surcharge, the Nigerian central bank lends money to their firms and not to their competitors.
Buhari’s monetary policy has also encouraged corruption by strengthening Nigeria’s informal economy.

His consumer good import bans have been largely ignored by Nigerian business elites, who have defied Buhari’s calls to invest in domestic production by purchasing the goods they need at higher prices on the black market. These price increases have created an inflation crisis in Nigeria, in spite of the central bank’s insistence on a tight monetary policy. Many firms have concluded that participation in the black market and the purchase of illegally smuggled goods is the only way to guarantee their survival. Small businesses lacking the means or inclination to engage in these corrupt practices have collapsed due to a dearth of capital.

In order to ensure that Abuja’s monetary policy does not reward the corrupt, Buhari needs to unpeg the naira. As markets have already factored in the declining value of the Nigerian currency, the inflationary effects of this move will be negligible. Unpegging the naira will also play a vital role in decoupling the state from Nigerian businesses, a process that will prevent predatory officials from exploiting an economic crisis for their own enrichment.

2) Nigeria’s Foreign Debt Dependency Is Enabling Corruption
The second characteristic of the Nigerian economy exacerbating corruption is Abuja’s dependence on foreign debt. Foreign debt has been used as a vehicle for money laundering, as many Nigerian leaders have siphoned oil money for personal gain, while using international credit to invest in the country’s economy. The linkage between a loose fiscal policy and predatory corruption reached its peak during the Second Republic (1979-1983). Reckless borrowing caused a debt crisis ameliorated only by an increase in oil prices after the Iraqi invasion of Kuwait in 1990. From 1958-1983, the Nigerian oil industry generated $101 billion, with the vast majority of these profits being transferred to the bank accounts of Nigeria’s political and business establishment.
While Nigeria’s debt levels under Goodluck Jonathan remained low (just 18% of GDP and a budget deficit consistently under 3% a year), rapid economic growth of over 7% a year masks the extent to which foreign debt was used to offset graft. The disappearance of $20 billion from the state oil company under Jonathan’s tenure and profits accrued by politicians for incomplete building projects, was facilitated by foreign debt swelling the public coffers.

Without a drastic change in policy, Buhari’s turn to Chinese renmibi yuan-denominated bonds to close an $11 billion budget gap could result in a new wave of corruption. Chinese funds should be borrowed to finance specific projects that can be realistically completed (especially in the investment-starved infrastructure sector) rather than as a blank check that allows political elites to distribute credit in any way they see fit. Making the Nigerian government’s use of foreign debt more transparent will allow Buhari to balance economic growth with aggressive anti-corruption measures, a combination that previous presidents failed to achieve.

3) Nigeria’s Reluctance to Diversify Economically Is Encouraging State Graft
The third crucial economic driver for corruption is Nigeria’s overwhelming dependence on oil revenues. A leaked 2012 report on Nigeria’s oil and gas industry revealed that $6 billion is lost annually due to oil theft, with a further $29 billion being lost from 2002-2012 due to a natural gas price fixing scam. As the government distributes oil rents with less transparency than revenues derived from other sectors, petroleum dependency is a compelling predictor of a country’s corruption levels.
A prolonged period of low oil prices and rapidly slowing economic growth gives Buhari a unique opportunity to transition Nigeria away from its oil dependency. Buhari in an April 15 statement correctly noted that the diversification of Nigeria’s economy is a “matter of urgency.” His East Asian trip, which resulted in expanded Chinese investment in Nigeria’s mining, agricultural and manufacturing sectors, is a positive step. But Nigeria desperately needs to reduce its dependency on foreign, especially Chinese imports, in these sectors by stimulating domestic productivity. As long as the naira remains pegged, tangible progress towards ending corruption through diversification is a mere illusion.

Nigeria’s anti-corruption campaign has been undermined by misplaced priorities and an emphasis on political retribution rather than structural reform. Transforming Nigeria’s business culture is an essential step towards overcoming state predation. Buhari’s willingness to undertake risky but vital fiscal and monetary policy reforms will go a long way in determining the success or failure of his anti-corruption campaign, and the legacy of his second stint as president.

**Samuel Ramani is an MPhil student in Russian and East European Studies at St. Antony’s College, University of Oxford. He is also a journalist who contributes regularly to the Washington Post, Diplomat Magazine and Kyiv Post amongst other publications. He can be followed on Facebook at Samuel Ramani and on Twitter at samramani2.