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June 25, 2005

Comments

dsquared

How much of this represents stolen aid funding? My problem with this sort of analysis is that by bringing "corruption" and "aid" into the same headline sentences, it encourages people to think that aid funding is what was embezzled when in the case of Nigeria that clearly couldn't have been the majority of the story.

Abiola Lapite

Seeing as Nigerian rulers alone stole funds amounting to the aid reciepts of the entire continent since 1960, the arithmetic hardly supports any such interpretation. In any case, one need only look as far as The Country Formerly Known as Zaire for an example of how raw aid cash can disappear directly into personal bank accounts.

Laurence Caromba

Hey Abiola

I speculated on my blog a few days back that foreign aid may be a direct cause of corruption. You may find it interesting: http://www.commentary.co.za/?mod=viewblog&id=1345

Although the fact that the Nigerian government has stolen the equivalent of 6x the value of the Marshall Plan is a pretty staggering statistic. Definitely something to bear in mind next I hear someone say that we need "a Marshall Plan for Africa".

Timothy Burke

I think that theft per se, defined in its classic sense, is kind of like the image of the "welfare queen": it happens but it's not the common problem with development aid. The real problem is simply that vast sums of it are devoted to useless activities. The recent USAID malaria expenditures are a classic example: almost all of the money's been dumped into consultancies studying how to increase malaria awareness in African nations. It's like a trade network with a vast, almost boundless, number of middlemen: on both the African and the Western side, plenty of fingers get stuck in the pie, and only the ultimate donor and the ultimate recipient get really cheated, since they're the only ones who may really want a change in the status quo. The fact that most development aid is spent on projects with no real targets, no real measurable failure conditions, no real accountability on *any* side, contributes mightily to this. It is a laugh when development experts call for transparency from African recipients given that most NGOs are extremely non-transparent and even many state donors are not exactly what you would call forthcoming in the specificity of their disclosures.

Sure, there's grotesque diversions of aid to individuals in the form of kick-backs and so on--much US aid to Mobutu in the heyday of the Cold War took that form. You could do a lot to track that down by dramatically reducing secrecy in international banking--Switzerland and various tax havens play as villainous a role as any international instituion or national government you might name. But the real waste comes in dribs and drabs, death by paper cuts.

Abiola Lapite

"I think that theft per se, defined in its classic sense, is kind of like the image of the "welfare queen": it happens but it's not the common problem with development aid."

Given what I've seen with my own eyes, I find that extremely difficult to accept, at least where countries like Ghana, Togo, Cameroon and Nigeria are concerned (and given what I've heard from Kenyans and Ugandans, things hardly seem different in their portion of the continent). The culture of ethnic-patronage/theft in those countries is so pervasive that it's hardly possible for a common peddler to cross the street without paying someone a bribe. Try taking a trip to Lagos yourself sometime and see how long it takes you to be shaken down upon landing - and how frequently it'll occur between your trip from the airport to your hotel. Watch in awe as the revelation that the bribe-demander and a would-be victim are of the same ethnicity (or even better, the same village) magically smoothes the way across which you and other outsiders are refused free passage. "The Beautyful Ones are Not Yet Born" and "No Longer at Ease" are actually watered down descriptions of societies in which the abuse of power for personal enrichment has become enshrined as a virtue, with those who refrain from such behavior seen as idealistic dupes at best.

"The real problem is simply that vast sums of it are devoted to useless activities."

Which begs the question of *why* exactly this is so. Contrary to what one might wish to believe, it isn't merely because the NGOs and the locals they're working with don't have a clue as to what they're doing; the NGO types often may not know what they're about, but where the locals are concerned at least, the opposite is actually usually the case.

In plain language, resources are wasted on "useless" activities precisely *because* such activities provide the most convenient routes for personal enrichment and ethnic patronage - that's why oil refineries get built in Kaduna, far away from the coast where economics would indicate they should be, and that's why Ajaokuta steel refinery's been under construction in Kogi State for 30 years now, despite Nigeria's meagre iron ore reserves and the obsolescence of the Soviet technology on which it's based. From the viewpoint of a politician looking to consolidate the support of a particular ethnic group, useless projects are just what's called for, and there has in fact been formal economic research done supporting this assertion, as you can see from the following post of mine:

http://foreigndispatches.typepad.com/dispatches/2005/02/making_sense_of.html

Scott Wickstein

So, um, how does ANYTHING get done in Nigeria then? Is it simply a case that everything just has two prices, the listed price and the real (post-bribe) price? Please bear in mind I have not travelled anywhere so I have no idea how these things work.

Abiola Lapite

"So, um, how does ANYTHING get done in Nigeria then?"

That's the problem - not much of anything *can* get done in such an atmosphere, which is why economic growth is essentially nonexistent.

"Is it simply a case that everything just has two prices, the listed price and the real (post-bribe) price?"

That's one way of seeing things ...

Jim

"I speculated on my blog a few days back that foreign aid may be a direct cause of corruption. "

That makes sense. Foreign aid to governments is easily concentrated, lke oil income, and that would tend to empower an oligarchy. It is also, like oil money, exogenic, so it would not tend to build the skills and networks in the economy that would build the country from the ground up.

dsquared

On the other hand, it's worth remembering that a fairly material proportion of foreign aid over the last fifty years was more or less disbursed on the condition that it would be embezzled; it was handed over to leaders in order to keep them Communist or anti-Communist. What we've seen so far is not so much evidence that "aid doesn't work" as evidence that "when you pay bribes, corruption will often result".

Abiola Lapite

"What we've seen so far is not so much evidence that "aid doesn't work" as evidence that "when you pay bribes, corruption will often result"."

And how exactly is it supposed to work that all that new aid money doesn't end up stolen? Are you going to have foreign auditors on the ground physically looking over every last expenditure or something? Your faith that new aid will be well spent is touching but naive, seeing as we're talking about societies in which known embezzlers and fraudsters are celebrated as ethnic heroes in the popular press and by society at large (look up "Umaru Dikko" and "Fred Ajudua" to see what I'm talking about). There's a good reason why Nigerians have (unfortunately) become so linked to scams abroad ...

Jim

Question about Nigerian scamsters abroad - is there any ethnic or social pattern as to who gets involved? Do they come oout a certain network of families, from a network of schools or is there no pattern at all?

Are there any examples of countries where aid has worked, and any commonalities?

Timothy Burke

I agree that useless activities are undertaken to satisfy the requirements of patronage (on both sides of the development transaction). On the West African side, it's patronage that funnels into various ethnic or kin networks, often. On the Western side, it's patronage that funnels into the salaries of various useless consultancies and so on. That's pretty much what a lot of Scandanavian development aid amounts to, for example: a sort of WPA program for highly educated citizens of those nations.

Which is a sort of theft. It can happen at varying degrees of self-consciousness and cynicism: sometimes it's pretty subtle, sometimes the people involved don't think of themselves as doing anything remotely unethical. I just mean that the kind of overt scenario in which a government official walks into an office and asks for two bags of swag is probably more exceptional than people think. Most of the waste in aid happens in plain sight to some degree or another.

Chuckles

[...I just mean that the kind of overt scenario in which a government official walks into an office and asks for two bags of swag is probably more exceptional than people think. Most of the waste in aid happens in plain sight to some degree or another...]

I completely disagree. In fact, it is the case that walking into an office and demanding for a bag of dough IS the accepted protocol. How hard is it for people to understand that corruption continues because it is accepted and the MAJOR reason why it is accepted is because "it is all in the family". A Yoruba man who refuses to service another Yoruba man will be seen as a "bastard son" in the face of all those thieving Hausas up north who dont seem to give a damn about integrity. So why should the Yoruba or the Igbo be so saintly? It is not about "wasting aid". The aid is hardly ever wasted. It is disappeared. It is stolen. Period. This is not so hard to understand is it now? People set up NGOs and consultancies so they can funnel away funds. This is the implicit purpose - It has got nothing to do with waste.
Any prosecution of corruption thus amounts to a war against a particular ethnic group. Prosecute a Babangida and it is a war on the North with retaliatory calls for Jihad. Prosecute a Tafa Balogun and you have Yorubas up in arms protesting the "shameful attempt by the Federal government to disgrace our son". Prosecute a Fabian Osuji and the Igbos cry marginalization and Biafra redux. This thing is intractable.
It is not even so much patronage in the classic client-patron sense, as it is ethnic responsibility. That is, you are responsible to take care of your family and avoid shame on your Father's house - especially in the face of competition from the Jihadists up north who tried to destroy you 200 years ago and from the Igbos in the East who would not hesitate to invade Lagos at the drop of a pin.
How some people can expect any growth to occur in this kind of environment is beyond me; but the naivete of certain peoples who parrot this line is mind boggling.
Even under the British, many aged Nigerian civil servants still recollect that it was a matter of National responsibility and pride to STEAL, to foul up the works and to throw a wrench in the machine - as a way of getting back at the damned Imperialists. Look, Nigerians dont want Nigeria to work. The only thing keeping that country together is OIL. In 1950 to 1960, the Northerners, who are now the most vigorous exponents of "One Nigeria" were absolutely horrified at the thought that they would have to share a country, with laws and civic systems with the Infidels and Pagans from down south. But Presto! Oil was found in the East, and with the North in control of the Military - everybody wanted to keep Nigeria one! Pre- 1960, the Northerners were all arguing for a confederal system, now, they are quite happy with the Unitary mechanism in place and absolutely dead against any talk of resource control.
There are too many examples of Government officers lugging suitcases of dollars around Nigerian streets. If the Police can stop you and demand for servicing in the plain light of day - what makes you think that civil servants wont ask for "motivation" before proceeding to process your papers?
In fact, refusing to service such a civil servant amounts to betrayal if you are from the same ethnic group - because you dont want to share part of your own wealth with your brother!
I dont know why this is so hard to understand. To varying extents, one can observe the same at work in France and Japan, in Eastern Europe and in the Middle East. However, those countries dont have the kind of disadvantage that African States have - namely the degree of ethnic fractionalization. Which is why the entire "family" feeling might work very well for a post-WW2 Japan and completely ruin a post-1960 Nigeria. There is 1 Family in Japan. In Nigeria, how many Families are there?
I see no evidence to believe that National sentiment in African countries are directed towards the colonial States. I see ample evidence that they are solidly rooted in the African ethnies under the jurisdiction of these States.
However, some magician from Columbia and do-gooding rock stars will have me believe that the problem with African Underdevelopment is lack of Western Aid. Yeah right...

dsquared

[Are you going to have foreign auditors on the ground physically looking over every last expenditure or something?]

Well yes. That's what Shell Oil or Guiness does when they spend a bunch of money in Nigeria, and it's what the aid agencies ought to do.

Abiola Lapite

1 - Private profit-making concerns like Shell and Guinness are subjected to much more stringent budgetary constraints than supposedly charitable organizations which can always go back and demand yet more aid and debt forgiveness; besides, most of these organizations are the very same bodies pushing Western governments and creditors not to hold African governments to their previous commitments. Where is this discipline therefore going to come from?

2 - What do you do when the inevitable complaints arise of micromanagement and "imperialism" as Western overseers flood in? Isn't that the very complaint one hears all the time already, that far too much time and money is diverted to red tape and oversight? In fact, I seem to recall this being a thrust of one your own CT posts on this issue.

J.F.

Abiola and Chuckles both made strong cases at how pervasive corruption can be in Nigeria. But there are varying degrees of ethnic fragmentation and competition across sub-saharan Africa. Though the problem maybe bad in Nigeria, increased aid and debt forgiveness could still work in many countries in the region. The degree of ethnic fragmentation in Nigeria is not representative (not that you claimed it is).

J.F.

"I just mean that the kind of overt scenario in which a government official walks into an office and asks for two bags of swag is probably more exceptional than people think."

As a general statement about the region (that is, beyond Nigeria), I find this to be true from experience.

dsquared

1. Actually the World Bank is leading the way on this one and has massively beefed up its audit standards, with considerable success. A number of other charities (Oxfam is particularly good) also have a very good record of keeping control of the money spent. Western government aid, particularly the USA's, has a very bad record, mainly because (as I say above) it has always been intended as political bribes and never as genuine aid. The Scandinavian countries also do very well.

2. Where are these complaints? Specifics, please. I'm not aware of any aid recipients objecting to audits. They occasionally (and correctly) object to being accused of having stolen the money when it was actually wasted on pointless consultants' reports from Western academics, but that's hardly the same thing. I also think your memory is failing you with respect to what I've written myself.

I think the most valid objection to the increased use of audit in aid projects would be that it would do nothing to solve the most important leakage from aid programs; the payment under "aid" budgets of political bribes and disguised domestic export subsidies by Western governments. The implication that the major problem in getting aid to those who need it is corrupt Africans has been raised on this thread and it's not at all necessarily true.

Abiola Lapite

"The implication that the major problem in getting aid to those who need it is corrupt Africans has been raised on this thread and it's not at all necessarily true."

And the sun won't necessarily rise tomorrow. Why should I believe you over what I've seen with my very own eyes over much of West Africa?

dsquared

Because you haven't seen with your very own eyes what went on in London and Washington at the same time.

Abiola Lapite

It isn't in London and Washington that the aid money gets spent.

dsquared

No, but that's where the decision to hand it to crooks is taken. The point is that in most of these countries, if the aid had to be spent in a way that would benefit the population, it wouldn't have been given at all.

Money that's spent on wells and education isn't going to persuade the Prime Minister to send back the Chinese trade delegation, and it isn't going to buy his vote at the United Nations either. The people of Zambia might not need a containerload of electric milking machines, but the people of Wolverhampton need somebody to buy one, and are certainly prepared to use British taxpayers' money to both pay for it, and to pay the bribes to make sure that it's bought. Since most aid over the last fifty years has been distributed in this way, it's hardly surprising it's been wasted and stolen. That was the whole point of the exercise. Any African leader who was rude enough to spend it on his people would have been frozen out pretty quickly.

João da Costa

Ethnicity

Every time I read somebody defending the establishment of ethno-states and claiming that to be a possible (or maybe, even inevitable!) "big step forward" in Africa I remember a clash of visions that ocurred in Southern Africa (todays SADC region) when the Apartheid mentors said that no "black majority" existed (contrary to claims from the other side, ANC and others) because "blacks" were, in fact, divided in many "nations" with probable diverging interesses. Claims in contrary, they argued, were communist propaganda with the main goal of destabilizing the South African state!
They went further claiming that Apartheid (racial divisions) through bantustanization (black ethnic divisions) - with every black citizen in his/her ancestral homeland - was the true solution for (South) Africa multi-ethnic population.
History, until now, didn't validate their credo! But this isn't a closed question...
What I find difficult to understand is that European minorities were able to mantain those territories as unitary regions but the modern african state is not able to do, at least, the same.
Anyway, I believe that different solutions will be found in the various African territories and that no general solution exists.

Corruption & Ethnicity

Abiola and Chuckles have always stressed the existence of a link between corruption and ethnicity in the African political and economic scene.
I would like to believe them, but I have really some doubts that it is that simple.
My view is that corruption is more likely a more pervasive phenomenon and I note that if the notion of "loyalty to family" is at the core of the problem - and I believe it is! - then we cannot expect that a simple redesigning of states borders along ethnic lines will bring a end to the problem. The new states will find themselves struggling with the same problem even if at a minor scale. Families are not ethnicities!

Nigeria & The Future of Africa

Some weeks ago I found an interesting piece of text from USA intelligence top experts of African affairs, where they were trying to preview future developments in Africa until 2020.
One special negative scenario should here be highlighted: one that could be provoked by the end of the Nigerian state as we know it at the present.
Possibly through war this scenario would mean an halt to progress in the whole region of West Africa maybe for decades, or so they think!
Things to think about...

Look at:
http://www.cia.gov/nic/PDF_GIF_confreports/africa_future.pdf

Abiola Lapite

"Every time I read somebody defending the establishment of ethno-states and claiming that to be a possible (or maybe, even inevitable!) "big step forward" in Africa I remember a clash of visions that ocurred in Southern Africa (todays SADC region) when the Apartheid mentors said that no "black majority" existed (contrary to claims from the other side, ANC and others) because "blacks" were, in fact, divided in many "nations" with probable diverging interesses."

Perhaps you ought to learn something of the history of the rest of the continent before indulging this line of thought further: South Africa isn't all of Africa, and West Africans aren't closely related peoples who only began to congeal into states in the early 19th century as with Shaka's "Zulus."

"Abiola and Chuckles have always stressed the existence of a link between corruption and ethnicity in the African political and economic scene.
I would like to believe them, but I have really some doubts that it is that simple.
My view is that corruption is more likely a more pervasive phenomenon and I note that if the notion of "loyalty to family" is at the core of the problem - and I believe it is! - then we cannot expect that a simple redesigning of states borders along ethnic lines will bring a end to the problem. The new states will find themselves struggling with the same problem even if at a minor scale. Families are not ethnicities!"

Sure, why pay attention to what people who've lived in the regions in question have to tell you, or what both the history books and the statistical tables indicate, when your own fanciful theories are so much more pleasant to indulge? Empirical evidence is highly overrated!

Wayne

As an auditor with intimate knowledge of the process and having run the audit on a large NGO in South Africa with foreign donor funds and interface with Governmental bodies, can I ask some of the parties to please qualify their opinions expressed above (pun intended) before trumpeting like they know how the process works.

More seriously, all this arguing about auditing reveals a misunderstanding of the concept. Auditing for one is generally not concerned, if rarely at all, about concepts of efficiency or suitability that are being debated at end here. Calling in the auditors is not going to improve efficiency whatsoever - they're not the magic pill but are rather going to comment on internal controls (internal audit) or on what are known as the management assertions of the financial statments presented (external audit).

Indeed, when it comes to corruption both the internal and external audit is not necessarily going to detect fraud, especially if it's concealed and you encounter aspects like wastage or management override or lack of skills, especially since the public sector is inherently poor at attracting the relevant skilled persons to implement the relevant controls or implement the philosophy. Let alone trying to implement such matters in the face of bellicose resistance - indeed try explaining the need for internal controls and financial aspects to an ardent socialist with a major in social development running an NGO and with no financial understanding (Good luck).

And outside of the going concern concept (assuming an entity can continue trading and meet its obligations) or elements of the environment the auditor doesn't worry about things not related to the financial numbers.

From that obviously it shows that auditing is not all encompassing, despite best attempts and what people may believe. Instead it's concerned with testing and trying to verify that financial statements are not materially misstated. If you think auditors will test everything or reconcile all numbers were there are poor controls and control and inherent risk are high (usual in NGO's) then you're dreaming. (Control Risk and Inherent Risk are components of the Audit Risk formula in auditing).

Thirdly, it does not, and never will, say that numbers 'are exactly right' - especially since there is ever increasing requirements to pay attention to estimates that are subject to uncertainty. Combined with the second point that means the auditors are inherently forced to rely to some degree on management and the entity's financial records in coming to their conclusion on the numbers. All evidence is at best persuasive rather than absolute.

Indeed, if the records are flawed and management is unable or unwilling to help you get qualified audit opinions of various degrees (unqualified means a good one) - which means that the numbers shown are in substantial dobut (and no, the auditor cannot say what is the correct number). Several of South Africa's own large local muncipalities have received such audit opinions recently but no one seems sure of how to address the problem - PriceWaterHouse Coopers is still struggling to try work on the billing system of the Jo'burg metro council - for the fourth time - as well.

Indeed, NGO's also generally lack proper corporate governance. Private companies with good track records and the resources can address this area satisfactorily but in the public domain with politics, waste and indifference it generally becomes anothe black mark against such entities.

Further sitll, on one NGO I audited management was above the board and they attempted to enforce controls, but how do you stop collusion outside of the entity that defrauds of the NGO itself through the process it disburses funds to projects? If anyone knows of a control to overcome that please let me know - and yes, there was a tender process with reviews and assessments and investigations beforehand and even regular reviews can hit snags.

And amongst all of this here's an important point to remember: the external auditor is generally concerned with verifying the Balance Sheets - or the financial position at the financial year ends. The Income Statement, or performance, is generally audited indirectly and works out as being the difference between two years of balance sheets.

And lastly the auditor does not take responsbility either for the financials and the entities performance - management does and the auditor can be ignored in many cases.

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