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Resource Curse in Nigeria; Research Paper

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Resource Curse in Nigeria

Introduction

The purpose of this paper is to critically analyze the extent to which Nigeria is under a resource curse epidemic resulting from impoverished governance and lack of transparency. The paper will illustrate Nigerian resource curse using three evidences. First instance, the country has been experiencing civil wars especially in the resource endowed regions. It is because of the minerals that communities fight against each other with the assistance of the political leaders. The greedy leaders cause troubles in the resource-rich regions and distract the locals from demanding their rights in order to exploit the minerals for their personal gains.

An example is the Boko Haram militants who are politically motivated to cause chaos and are even funded using the revenue generated from the minerals. Top leaders lack transparency on the way on the amounts generated from the minerals since they collude with the mining industries for political reasons (Gaard, 2015). When there is lack of transparency, accountability lacks for the minerals hence the common citizens’ end up living in poverty instead of the resources helping them to improve their living standards. Since most of the people are uneducated, lack the necessary skills needed to prompt demand for government accountability thus they are taken advantage of by those who are in power.

Resource Curse

Countries rich in minerals and gas should use the resources to provide an essential source of funding for development purposes. However, it seems exploitation of such natural resources is linked to inequality, poverty, poor public services, and slow economic growth. The paradox is what is referred to as the resource curse. In developing countries, however, the resource curse epidemic is mostly in existence due to impoverished governance that lacks transparency (Butler, 2014).

Dutch Disease

Resource curse is also called “Dutch disease”. (The Economist coined the term in 1977 to describe the impact of the North Sea gas bonanza on the economy of the Netherlands, whose exports of natural resources led to foreign exchange inflows which drove Resource-rich countries are overwhelmed by a phenomenon up the value of the currency. The overvalued currency made domestic manufacturing, agriculture, and other exports less competitive.) This illness affects both well-governed and poorly-governed countries (Aguet, 2015). The discovery and exploitation of natural resources, such as oil, gas and minerals, do not automatically translate into sustainable economic growth and prosperity. Sub-Saharan Africa resource curse

In Africa, the top eight oil producers in 2011 were Nigeria, Algeria, Angola, Egypt, Libya, Sudan, the Republic of Congo and Equatorial Guinea. Many resource-rich African countries make poor use of their wealth. Instead of creating prosperity, resources have often fostered corruption, undermined economic growth, incited armed conflict and damaged the environment.

Corruption is widespread in many of Africa’s most resource-rich countries. Instead of investing resource revenue into infrastructure and education, crooked politicians, often in conspiracy with the companies mining the resources, siphon proceeds from the region’s mineral and petroleum wealth into their own pockets.

Rent as Percentage of GDP

As a share of GDP, sub-Saharan African resource rents are higher than those of any other region in the world, according to the World Bank. For example, the Republic of Congo has the highest total resource rents of 64% in Africa. Equatorial Guinea, with a government widely seen as autocratic, has the worst control of corruption score among African countries. It also has very high resource rents of 47%. Nigeria, where oil rents amount to almost 30% of GDP, has been plagued by conflict.

Resources Comparison with Developed Countries

Resources do not automatically lead to poor outcomes. For instance, North America produces more oil than Africa, but it has the lowest resource rents as a share of GDP and has good governance ratings. Canada remains among the top ten world oil producers, according to the US Department of Energy, but has one of the least corrupt governments in the world, also according to the World Bank. On the other hand, Norway is one of the top ten exporters of crude oil in the world, while maintaining its stature as a permanent leader of the United Nations Human Development Index.

Overview of Nigeria

The country is endowed with minerals and natural oil. It is ranked as one of the leading oil exporters in the world. Its governing structure highly depends on revenue generated from oil and ignores other investments (Ushie, 2013). The country experiences civil and ethnic clashes. Additionally, Nigeria is ranked as a third world country.

Benefits of minerals in Nigeria

High rents – Sub-Saharan Africa resource rents are by a margin higher than other countries in the world according to the World Bank measure of GDP. Rent is defined as the difference between production value at global prices and the sum of the cost of oil production, minerals, natural gas, forests, and coal (Christy, 2015). Nigeria has one of the highest resource rents as a measure of GDP but has one of the lowest controls of corruption scores among developing nations (Ezekwesili, 2015).

Reduced unemployment due to numerous job offerings in the mines. Most of the casual laborers and data collection workers are hired from the local communities. Income earned assists in raising their income levels.

Improved livings standards from the income generated in mines. When the locals use their wages for investment, they raise their standards of living and that of the community in general. Mines serve as income generator for the local communities (Aguet, 2015).

Increase in government revenue from taxation and export of minerals. Companies operating in the mines are taxed from their gross income thus providing revenue to the government. The revenue is then used to upgrade infrastructures and provide public amenities for the citizens of Nigeria.

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Causes of Resource Curse in Nigeria

Overdependence on natural resources. Nigeria could be prosperous if only it exercised good governance, transparent mining deals, had stronger disclosure and had control of corruption. Good governance means having economic policies that encouraged diversified economies and discouraged over-dependence on natural resource rents.

Lack of transparency- Another resource curse emerges from transnational companies that coerce with politicians to meander the country’s natural resources for their personal gains. The country has made little progress in enhancing transparency. Though the country has joined EITI, its people still view their leaders as corrupt (Halidu, 2015). The leaders have not taken a step from lack of transparency to actual accountability that requires a nation with the training and skills needed for overall effectiveness and monitoring.

Lack of expertise skills by locals. Skills required for effective monitoring of transparency require funding that the government of Nigeria is not able to provide. The private sector, multilateral banks, and bilateral donors offer the financial support needed for programs that educate citizens in accounting and tracking of revenue expenditure. The citizens of the country require the technical and analytical skills to be able to track government expenses. However, if the citizens do not have the necessary skills, they are not in a position to hold public officials accountable for the wrongful spending of public resources and revenue (Ezekwesili, 2015).

Economic gap between poor and the rich. It’s not surprising that the dominant factors leading to Nigeria’s civil war are economic. The factors that contribute mainly for the risk of war are levels of income, the rate of economic growth, and governing structure. Still, if a country is poor, is economically declining and hugely depends on natural resources for export, it surely faces a risk of experiencing civil war. In Nigeria, there is a big financial gap between the rich and the poor. The rich entice the poor to engage in war while they are using their status and finances to get profits from the country’s resources (Ezekwesili, 2015). Natural resources end up springing evil instead of creating prosperity for the citizens.

Detached government. The detachment of Nigeria’s government creates a route through which natural resources rent increase. Since the government is resource-rich, it does not need other revenue source, and, therefore, it becomes detached from its citizens. In the majority of the countries that pay high tax, they scrutinize their governments on how it spends its revenue. It can, therefore, be seen that if there is no tax, representation of the people does not take place but if the electorates pay taxes, they will be represented. The government ignores the needs of the people since it gets revenue from rents. The result is an underdeveloped economy with the majority being poor (Gaard, 2015).

Centralized resources. Natural resources are mostly found in one part of the country, in the peripheral region. Due to poor governance, the politicians know that the people in this region are a ready prey for secessionist political movements. Instead of the people focusing on development and using the resources to create diversity in other investments, they get corrupted in their minds and cease to do constructive businesses (Gaard, 2015). The negative energy and statements usually result in civil wars and the same politicians that were inciting the people to end up benefiting from their resources.

Coercion of politicians with the rebels. Poor governance and lack of transparency create tension among political rivals and the citizens. When the ruling government has no control over the opposition and the corrupt government officials, it creates room for the existence of rebel groups and organizations. In Nigeria, Boko Haram is one of the rebel groups that is said to be politically involved. Politicians fight amongst themselves through the rebel groups. The natural resources increase the motivation for the rebel groups as they facilitate them financially especially when some politicians are involved.

The politicians use the natural resources to facilitate the rebels to gain power or fight the existing government (Patrick, 2012). When the rebels increase in power and the government structure is weak, the ordinary citizens end up suffering. Instead of the people enjoying the resources, they are mostly scared and end up running away to protect themselves. When the natural resources facilitate rebellion in a country, the resources become a curse instead of a solution.

Results of Resource Curse on the Country

Civil wars- Countries with poor governance that lacks transparency are prone to war especially if the country is endowed with abundant natural resources. Nigeria has continuously been fighting civil wars and is one of the most corrupt nations in the world as ranked by World Bank’s control of corruption Index. In Nigeria, oil rents an amount equivalent to 30% of the GDP and the country has been in conflicts (Ezekwesili, 2015). Dependence on natural resource insulates leaders from public accountability and pressure. Though Nigeria has abundant natural resources, it is short of paramount checks on government control including a democratic culture. In past years, violent war has plagued Nigeria making oil a curse instead of a blessing to the majority of citizens.

Low economic growth. A mixture of transparency issues and poor impoverished governance is lethal in Nigeria. Sub-Saharan Africa resource rents are by a margin higher than other countries in the world according to the World Bank measure of GDP. Rent is defined as the difference between production value at global prices and the sum of the cost of oil production, minerals, natural gas, forests, and coal (Collier, 2011). Nigeria has one of the highest resource rents as a measure of GDP but has one of the lowest controls of corruption scores among developing nations.

However, natural resources do not automatically cause poor economic outcomes or become a natural epidemic curse. For example, North America has a higher oil production capacity compared to Nigeria and Africa in general, yet it has a low resource rate as a percentage of GDP and it has a good governance structure (Halidu, 2015). Still, Canada, one of the top oil producing countries has the least corrupt government worldly. Norway is considered as a perennial global leader yet it is one of the highest exporters of crude oil. As witnessed in the three countries, North America, Canada and Norway, the resource curse can be avoided if the governance structure is transparent and is in control of corruption (Lawson & Greenstein, 2012).

Low income for the locals. Often, African nations coerce with Western organizations to reach deals that mutually benefit them at the expense of the nation. There is no transparency in tendering of contracts. Since Western organizations are more powerful and have the ability to pay more, African leaders allow to be influenced to give contracts to western companies without thinking of the local industries predicament (Paltseva & Roine, 2011). The locals become the casual laborers for the Western organizations in the mining of their country’s resources. The organizations are highly paid by the government since the leaders know they have extra benefits from the payments.

Demoralization of the local industries. The local industries are demoralized, and some end up closing since they are unable to compete with the Western organizations (Marie, 2010). Even though some of the domestic industries have the capability of giving the same services as the Western organizations, they are not given the same opportunity even if they submit their tenders. The locals end up being enslaved in their territories and doing manual jobs in their land while the Western organizations and the corrupt government officials reap high income.

Ethnic wars. Nigeria is an ethnically diverse society. Though people lobby the government, the lobbying is not necessarily for the welfare of the whole nation but individual and group interests. The government is ethnically divided leading to poor delivery of services to the public (Collier, 2011). On the other hand, electorates only elect someone because they belong to the same ethnic group.

Instead integrating the nation, the ethnic tribes have divided the nation. People become self-centered even in the use of the natural resources. Those in power exploit the resources to fight other tribes. Since there are different resources in the different regions of the country, instead of the government ensuring there is an equitable distribution of the resources; it uses the resources to fight its ethnic rivals (Ushie, 2013).

Displacements. Mining of oil in Nigeria has displaced thousands of people. The government gives license to extractive industries without first considering the welfare of the community. Irresponsible extraction of oil and other minerals has resulted in epidemics, displacement, and hunger for affected communities. In the case of Boko Haram, it is the dire urge to control the resources that provoked the existing conflicts between the communities in Northern Nigeria.

The licensed corporations force the communities to leave their land without prior notice or consultation (Collier, 2011). The community inhabiting the region endowed with the natural resource should be the main beneficiaries of it. Poor governance resulting from corruption forces the community to seek other means of survival instead of using the resources to upgrade their well-being for large corporations and political gains.

Poor people in the rural areas are not essentially equipped with skills to stand up to such extractive projects or fight for their rights (Pradhan, 2013). Still, such communities highly depend on the natural resources for their survival and maintenance of their traditions and livelihood. Unfortunately, the communities live in remote regions and lack enough education. The communities also have a poor justice system that acts as an inhibitor to getting to decision makers, comprehend decision-making process, and come up with appropriate measures to claim their rights. If riots do not happen, the communities leave their land injured and poorer.

Underutilization of Local Skills Leading to Low Living Standards. Mining industries are not poor and usually employ few unskilled personnel. Most of the skilled labor is imported from abroad. The need for heavy technological machines and expertise skills require the companies to seek for Western labor since most of the locals have skill and expertise limitation. The government is not keen on education quality making most of its citizen’s lack the necessary skills needed for the resource industry (Akpabio, 2013). The public schools lack enough equipment to teach adequately the theoretical and practical skills needed for the market.

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Why it is Hard to Fight Resource Curse

Nigerian government is not committed to end corruption and exercise transparency. Since most of the government officials are after wealth, they concentrate on how to enrich themselves instead of the welfare of ordinary citizens (Paltseva & Roine, 2011). They use their power to selfishly gain from the mines.

Collusion of political leaders with western industries. Western industries offer high-rank officials large sums of money for them to obtain license and extract minerals at the expense of the local industries. Instead of growing the local industries, they end up destroying them.

Civil and ethnic wars. There is a lot of ethnic and civil war in Nigeria and most of it is attributable to the mines. People get caught up in fighting and relocating to safer environments such that they do not get the opportunity to work and reap from the mines (Akpabio, 2013).

Extraction industry requires expertise skills which are imported from abroad. Local people do not have the required knowledge and skills to handle complex equipment required for accessing and extraction of minerals. They are only employed to do casual jobs, thus do not get high wages to improve their lives.

International Initiatives and Financial Institutions

The Equator Principles (EP) is a voluntary Programme that requires borrowers to adhere to social and environmental standards before the participating banks will provide loans. Launched by ten banks in 2003, less than a decade later more than 70 banks are participating, covering more than 70% of project finance in emerging economies.

US Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act. It requires extractive industries that are listed on the US stock exchange to make public the type and amount of payments they make to governments (Christy, 2015). The European Commission also recently proposed transparency requirements that are in some respects stricter than Dodd-Frank which has so far stalled. Publish what you pay (PWYP) also pursues similar aims.

The Open Government Partnership (OGP), launched in 2011, is another international action for more government transparency and accountability. The Extractive Industries Transparency International Initiative (EITI) pursues similar aims.

Recommendations

The resource curse is avoidable. Nigeria could be prosperous if it practiced good governance: transparency in its dealings with mining, oil and gas companies; stronger disclosure and anti-corruption rules; and economic policies that promote diversified economies and discourage dependence on resource rents.

Equator banks should establish an independent monitoring mechanism to ensure that the lenders and borrowers are doing what they purport. The international action is needed. These reforms might help countries across Africa beat the resource curse and translate natural resource riches into sustainable and inclusive growth.

Transparency alone, however, is not sufficient. Nigeria, for example, has joined EITI, yet the country is still widely viewed as corrupt by its people, according to World Bank indicators. Taking the step from transparency to actual accountability requires a civil society with the skills and training for effective monitoring.

Conclusion

If a government is co-opted by partisan interests, it increases opportunities for favoring specific groups in the community through a budget allocation in exchange for political power. Also, if citizens are used to the fact that wealth results from neither productive efforts nor work but from having contacts within the government, they will have less motivation to train themselves on their rights. The great focus of political and economic power means there are fewer incentives to invest in other industrial sectors.

In the end, it leads to high levels of poverty, inequality, low democracy, political instability, civil wars, all of which undermine economic growth. Nigeria heavily depends on natural resources for revenue collection and does not put a lot of effort investing in other sectors. The poor citizens do not have adequate representation in the government since each region is treated differently. The natural resources that are supposedly meant to enrich and improve the living standards of the people as seen in North America and Canada have instead facilitated corruption resulting in poor economic growth and poverty in developing countries.

References

Christy B. (2015). Natural resources and conflict. Retrieved from http://africacenter.org/security/topic/natural-resources/

Aguet D. (2015). Causes of poverty in Africa. Retrieved from http://www.liliireducationproject.org/2015/04/30/april-2015-causes-of-poverty-in-africa-aguet/

Akpabio G. (2013). How corruption, poor governance are killing Nigeria. Retrieved from http://www.premiumtimesng.com/opinion/134999-how-corruption-poor-governance-are-killing-nigeria-by-godswill-akpabio.html

Paltseva E & Roine J. (2011). Are natural resources good or bad for development? Retrieved from http://freepolicybriefs.org/2011/11/21/are-natural-resources-good-or-bad-for-development/

Gaard K. (2015). Oil causes many environmental problems in Nigeria. Retrieved from http://www.folkecenter.net/gb/news/world/oil-causes-problems-in-Nigeria/

Marie L. (2010). Natural resources and economic development in transition economies. Retrieved from http://cerdi.org/uploads/sfCmsContent/html/323/Philippot.pdf

Ezekwesili O. (2015). Bad governance, behind poverty in Nigeria. Retrieved from https://www.naij.com/50387.html

Collier P. (2011). Natural resources and conflict in Africa. Retrieved from http://the-beacon.info/countries/africa/natural-resources-and-conflict-in-africa/

Butler R. (2014). Environmental issues in Nigeria. Retrieved from http://rainforests.mongabay.com/20nigeria.htm

Pradhan S. (2013). How do natural resources affect economic development? Retrieved from http://www.buzzle.com/articles/how-do-natural-resources-affect-economic-development.html

Patrick S. (2012). Why natural resources are a curse in developing countries and how to fix it. Retrieved from http://www.theatlantic.com/international/archive/2012/04/why-natural-resources-are-a-curse-on-developing-countries-and-how-to-fix-it/256508/

Halidu T. (2015). Nigeria environmental issues. Retrieved from http://ngenvirons.blogspot.co.ke/

Lawson T. & Greenstein J. (2012). Beating the resource curse in Africa: A global effort. Retrieved from http://www.cfr.org/africa-sub-saharan/beating-resource-curse-africa-global-effort/p28780

Ushie V. (2013). Political decentralization and natural resource governance in Nigeria. Retrieved from http://www.nsi-ins.ca/wp-content/uploads/2012/12/2013-Political-Decentralization-and-Natural-Resource-Governance-in-Nigeria.pdf

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Corruption in International Business

1. Introduction

Despite the promulgation of anti-corruption laws, corruption remains a menace in international business. Historically, cases of corruption in the international business arena have dominated news headlines, mostly as international firms seek to enter foreign markets or maintain market share. According to Transparency International, all countries are corrupt, and it is only the degree of corruption that differs.

Corruption in international business can be associated with increasing global competition which encourages unethical practices aimed at gaining market traction and rigidity in international laws that motivate businesses to use short-cuts to navigate the legal systems. This makes it difficult for companies that are attempting to maintain integrity to compete in a fair environment.

Consequently, corruption has created a negative impact on international trade by debasing the relevance of business ethics, which has to a great extent created a culture of corruption in international trade. Corruption costs the economy significantly, and as reported by Transparency International in 2013, approximately $2.6 trillion or 5% of the world’s GNP is lost through corruption (Makhlouf, 2016). Companies also lose significantly through increased project costs.

Despite the consented efforts to deal with corruption that impacts international business, it is also notable that this remains the most difficult moral issue to fight. This is because as much there are smart anti-corruption strategies put in place across the world, the impact of corruption on international business still prevails. This paper is a discussion of corruption in International trade including the history, forms of corruption, the impact of corruption, anti-corruption strategies and possible solutions to corruption in international business.

2. History

Corruption in international business is as old as the business itself. Its origin can be associated with stringent rules placed on foreign entrants by different countries and the difficulties associated with penetrating new markets, such that bribing government officials helps companies in circumventing legal and social huddles (Eicher, 2012).

In the early days of international trade, bribery was not illegal, and it was considered normal for companies that sought to do or retain business in foreign countries to bribe government officials. Indeed, foreign bribes in some European countries were considered a cost of doing business and would be deducted from corporate tax returns.

As globalization continued to rise, the international business also grew at a high rate, and this propagated the growth of corruption. This was further enhanced by free market reforms led by international financial institutions and donor governments. More companies were investing internationally, and the trend of bribing government officials to facilitate entry of businesses or competitive advantage in the host country became a norm. It was so common that bribes were budgeted for as part of a company’s overseas operations.

In December 1975, the earliest international anti-corruption movement began when the U.N Assembly’s resolution titled “Measures against Corrupt Practices of Transnational and Other Corporations, their Intermediaries, and Others Involved” was passed (Ala’I, 2017). This resolution was a means of condemning corrupt practices that violated host country laws and regulations, by transnational corporations and others.

The UN Working Group was formed by the U.N. Economic and Social Council in the quest to provide recommendations for eliminating corruption. The Group called for international action, after discussions between 1976 and 1980.

The United States became the first country to implement anti-bribery law following the passage of the Foreign Corrupt Practices Act, which explicitly outlawed the practice in 1977 (SEC, 2012). The business community considered the decision by U.S. a wrong move because it would disadvantage the United States regarding competitive advantage, thus leading to major protest. However, the Act was passed, and this marked the beginning of a change in international business practices. Companies and individuals using the U.S financial system, according to the Act, were required to refrain from bribing or offering to bribe foreign officials for purposes of retaining or gaining business.

Interestingly, other countries did not follow suit until over 20 years later, an indication that bribery played a considerable role in international business. In Europe, corruption associated with foreign business was not given much attention as bribery was considered a necessary business expense. The same was applicable in a majority of countries, and it is not until recently when this perception changed globally, giving rise to anti-corruption laws that regarded bribing foreign officials a criminal offense (Hauser & Hogenacker, 2014).

In 1999, the OECD Convention on the Bribery of Foreign Public Officials in International Business Transactions came into being, with 29 members and five non-members signing the agreement. The convention provided guidelines for legislation implementation and tasked governments to criminalize active bribery in international business. This convention has led to the implementation of various other conventions across the world in a bid to fight corruption. Also, this has resulted in increased awareness of the negative impacts of corruption, and global efforts to prevent bribery and corruption have increased as observed today.

3. Forms of corruption

Corruption in international business can be classified into two broad categories: corruption associated with foreign market entry and corruption that influences competitive advantage within the market. Foreign market entry mostly involves complex procedures and barriers to entry, perpetrated by the bureaucracy and rigid rules and regulations governing the entry of foreign organizations. Once in the market, firms still face significant challenges in the form of laws governing foreign companies and high levels of competition from local firms. This may trigger corruption because government officials are aware of the frustrations faced by foreign companies and the owners are desperate to gain market traction. In both of the categories described above, corruption may be executed in various forms as follows:

Bribery: Offering money in exchange for a favor

Extortion: Asking for money or other payments in return for services

Kickbacks: Percentage of income given to an individual for facilitating a business process.

Facilitation payments: These are payments made with the aim of achieving faster results.

Grand corruption: Payments to politicians, policy makers, and other high-level officials.

Petty schemes: Payments to lower and middle-class officials with influence and power.

Influence peddling: Obtaining money with the promise of connecting an individual to power influencers.

Nepotism: Requiring that the company hires friends and relatives in return for favors.

4. Effects of corruption

Corruption can have grave consequences on international business as established in the discussion below.

Restricted entry

The corruption that impedes market entry can be a great deterrence for honest firms. In such situations, entry requirements are normally very complicated or marred by bureaucracy, thus creating room for corruption. This means that corrupt government officials may entice organizations to pay bribes to have the registration processes speeded up or some of the entry requirements overlooked (Eicher, 2016).

Unfair competition

Corruption affects the competitive environment by altering the competitive conditions. Corruption allows large corporations to control the market because they can bribe their way out of various legal circumstances or bypass certain regulations required in operation of their businesses (Makhlouf, 2016). This disadvantages honest dealers and thus creates an asymmetrical market environment. An example is where a corrupt company pays government officials to overlook the company’s potential environmental pollution and offer a clearance certificate in support of the organization’s activities.

Honest firms, on the other hand, may have to invest heavily in reducing environmental pollution to comply with the government requirements or have to pay fines for any deviation. When the two firms are compared, the corrupt firm has a competitive advantage because it will record higher profitability.

High prices for consumers

Where corruption is prevalent, it also means that organizations must incur high costs in meeting their objectives. This translates into higher costs of production, which are consequently transferred to the consumer for the company to make desirable profits. This affects not only customers but also the economy at large because of reduced customer purchasing power.

Poor quality products

Corruption creates loopholes for the production and import of inferior products. When companies can get away with poor standards and the use of subnormal raw materials through corruption, the customer suffers due to the poor quality of products they receive. Also, corrupt officials allowing cheap goods to be imported into the country could be risking the lives of citizens.

Corrupt business culture

Thede & Gustafson (2012) notes that self-sustained unethical behavior is likely to result from corruption in international trade. This is because the more corrupt deals are made, the higher the corruption prevalence becomes. According to Thede & Gustafson (2012), corrupt agents are more likely to interact with corruptible agents for business, and these behavioral patterns end up being sustained as the norm. This further worsens corruption to the disadvantage of honest agents. A corrupt culture tends to raise honest exchange transactions, such that it is more expensive to find an honest business partner due to higher search costs.

5. Corruption and economic growth

Corruption can have deleterious effects on economic growth. A majority of literature studies the negative impact of corruption, mostly as an ethical issue and a factor that impacts equilibrium of the business environment. Corruption is a costly affair, and it could limit economic growth, and as established by OECD (2014), corruption accounts for the loss of approximately 5% of the world’s GDP. This may be evidenced by inefficiencies resulting from corrupt practices. Also, the unequal distribution of income and resources that result from corruption leads to the rise of poverty rates (Makhlouf, 2016).

Corruption limits economic gains from international business. This is because only firms that are financially capable and which are corrupt get access to foreign market entry while the honest and less financially endowed are locked out. Based on this, corruption can be seen as a limiting factor for international business because the country may end up losing on entrants with great potential because the opportunities were given to those who could pay (Eicher, 2016). This further impacts domestic production opportunities due to obstruction of competition (Thede & Gustafson, 2012).

Corruption impacts governance and control of the business environment. The existence of corruption makes it difficult for authorities to implement regulations and controls, thus making governance difficult. Rotberg (2017) notes that it undermines the efficiency of state institutions and undermines a country’s regulatory environment, thus distorting decision-making processes. This results in a skewed business environment, and it becomes difficult to provide a level playing ground for all firms in the market including incentives.

6. Legal/political systems

A country’s legal and political systems greatly influence the prevalence of corruption and the extent to which this influences international business. In countries where strict measures are placed to control corruption, the levels of corruption are lower. This is because legal systems discourage such illegal practices. Further, political systems the level of control within government agencies, such that corruption may be lower in countries where the governing political body is committed to fighting corruption (Eicher, 2012).

In the initial periods of international business growth, foreign official bribery for purposes of business was not considered illegal in any country, and it is not until recently that legal and political systems were put in place to manage corruption. As a result, it is possible to state that the legal and political systems at the time perpetrated the occurrence of corruption, given that there were no laws to govern the practice (PBS, 2017).

The discussions above also establish that the main catalyst of corruption is the existence of trade barriers that limit the entry of foreign companies and effective business operations in the host countries, thus encouraging businesses to seek easier alternatives. By maintaining such conditions, governments played a significant role in promoting corruption, thus creating the menace observed today.

Given the high level of corruption emanating from international business, countries have taken different measures aimed at combating corruption. This represents a change in trends that has influenced legal and political systems through the development of laws that prohibit corruption and which promote prosecution of perpetrators. In the United States which was the first country to implement legal systems to deal with corruption, the Security Exchange Commission implements the Foreign Corrupt Practices Act through investigations and audit procedures aimed at discovering any possible bribery of foreign officials (SEC, 2012).

Political systems across the globe have also increasingly relaxed their international trade barriers to promote smoother processes that eliminate the need for corruption and bribery. According to Eicher (2012), reduction in trade barriers has been instrumental in reducing corruption because they eliminate incentives to corruption which were previously brought about by difficult processes, bureaucracy, and strict international business laws.

Countries are increasingly participating in international conventions that encourage the implementation of legal systems to curb corruption in their countries. Examples of popular conventions against corruption and bribery include the OECD Convention on the Bribery of Foreign Public Officials in International Business Transactions, United Nations Convention against Corruption, EU Convention on the Fight against Corruption, The Inter-American Convention against Corruption and the African Union Convention on Preventing and Combating Corruption among others (UK Anticorruption Forum, 2017).

These conventions have played a significant role in the development of more solid legal systems to deal with corruption and thereby improved international trade.

7. Anti-corruption strategies

Regulations: These are laws and regulations developed to govern international business and which ban the use of corruption to achieve business objectives in the international markets.

Trade barriers relaxation: This is aimed at promoting international trade by eliminating trade barriers that often limit business between countries. It may involve reducing taxes, registration charges, policies and regulations that limit international business. The result has reduced the incentive to give or receive bribes because the processes are not limiting.

Anti-corruption Conventions: These convene officials and business people from different countries to discuss and develop an agreement on how corruption can be combated.

Accounting practices and audit: To limit corruption, governments have continuously introduced strict accounting practices to discourage corruption. Public companies are also subjected to auditing to determine the existence of unscrupulous business practices.

Trade agreements: These are agreements between countries to eliminate barriers to trade and thus ease international business. This may be in the form of mutual agreements to reduce regulations for businesses from the countries involved or tying of conditions to the benefitting country’s contribution to the host country. An example is where developing countries ease trade barriers in exchange for infrastructure loans.

Mobilization of public opinion: This strategy involves civil society engagement, mostly through non-governmental organizations to influence private and public organizations to end corruption by demonstrating its negative impacts.

8. Cures of corruption

Corruption has been singled out as one of the moral issues that is difficult to control and which may never be successfully eliminated. However, efforts towards corruption elimination should mostly focus on the cause of corruption.

Internationalization: Internationalization is a possible cure for corruption in international business. This is the process of in which barriers are eliminated or at least reduced to promote trade. This would encourage free investment across the world, and this would reduce the motivation for corruption.

Leadership and political will: Leaders have the ability to influence the end of corruption in their countries through influencing moral behavior, promoting political good will and setting up laws that discourage corruption. Rotberg (2017) notes that leaders have influence over their followers and that they can influence their actions if they are committed to ending appropriate behaviors. When a country’s leadership is committed to ending corruption, they will do anything in their capacity to achieve this objective.

Anti-corruption commissions: Anti-corruption commissions are formed with the objective of creating an independent body to investigate and prosecute companies and government officials involved in corruption. According to Transparency International (2017), an anti-corruption agency that is independent and well financed can play a vital role in fighting corruption.

Unfortunately, anti-corruption commissions still face the threat of political influence and will only be effective if their permanence is legally guaranteed and independence of the commission is assured through the appointment of leaders who are competent, have an apolitical stance and demonstrate impartiality, independence, neutrality, and integrity (Transparency International, 2017).

Self-regulation: This approach to corruption is informal and mostly aims at promoting self-governance among businesses to end corruption. Such may be achieved through internal policies and codes of conduct. This approach is more about promoting moral duty among organizations by calling on organizations to be more responsible in their business dealings.

9. Conclusion

Corruption in international business has mostly been associated with barriers to market entry in international markets. As a result, organizations seeking entry into such markets may be forced to bribe foreign officials to facilitate their entry and circumvent the regulations.

Once an entry is achieved, there are market dynamics that often make it difficult for foreign companies to operate including business laws and regulations, foreign business taxation policies, business marketing practices, sales and distribution, and competition dynamics among other factors. These limit foreign business operations and expansion, and consequently influence the perpetration of corruption, to ease business in foreign countries and speed up business growth.

Despite the increasing efforts towards fighting corruption, it remains a great menace that may hinder international business for a long time. In this paper, the history of corruption in international business, economic impact of corruption, legal and political systems and different anti-corruption strategies that have been utilized over the years are discussed. This paper also establishes various solutions that may eventually cure corruption including internationalization, leadership and political will, anti-corruption commissions and self-regulation of international firms.

10. References

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