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CORRUPTION IN NIGERIA’S OIL AND GAS INDUSTRY: EXTENT AND MACROECONOMIC IMPACT, 1981-2014
Abstract:
Typically, the nexus between the oil and gas industry and the economy has evolved from the Dutch Disease literature to the resource curse literature. However, at the core of the relations is the issue of corruption. The various reports into corruption in the upstream and the downstream by the House of Representatives (2012) and the nonpayment of $49 billion into the Federation Account suggest the likelihood of an endemic problem that is a pointer to the susceptibility of the industry to corruption which has undermined the development of the economy. This study investigated the problem of corruption in the oil and gas industry. The objective of the study was to determine the extent and macroeconomic impact of corruption in the oil and gas industry.To achieve the objectives,the study measured the extent of corruption in the industry, fromthe activities of the industry in both the upstream and the downstream. The summation of the losses from these activities was the measure of the extent of loss due to corruption in the industry. The study then measured the impact of the corruption using simulation analysis. The analysis was based on ten scenarios which showed how the macroeconomy was impacted by corruption in the oil and gas industry. Scenarios one to seven measured the individual sources of corruption in the upstream and the downstream, while eight to ten were the aggregate. The main findings of the results show that there was overproduction of crude oil from 1999- 2006 and under production from 2007 to 2014. The implication of over production was a distortion of the true state of nature, which gave exaggerated government revenue to the economy and other variables followed the pattern. From 2007 to 2014 there was under production, which reduced the government revenue as well as other variables.The Crude Oil Theft has significant impact on the economy as it did not onlyreduce the government revenue, government expenditure and reserve, but increased the public debt and importation of the finished product.The Refinery inefficiencieswere also found to be very significant, as it reduced the government revenue, government expenditure and reserve. It also increased the public debt and importation of the finished product. Capacity under utilization was found to be responsible for a greater proportion of the importation of the finished product and as such reduced the government revenue, government expenditure and reserve, thereby increasing the public debt. On the aggregate level the results found that corruption in the upstream and the downstream have negative and significant impacts on all the macroeconomic variables. It shows that the opportunity cost of corruption is very high. The study concludes that there is significantcorruption in the oil and gas industry, and its impact on the economy is alsosignificant. Therefore, recommends the effective enforcement of legal provisions to minimize corruption in the upstream downstream of the oil and gas industry.
CORRUPTION IN NIGERIA’S OIL AND GAS INDUSTRY: EXTENT AND MACROECONOMIC IMPACT, 1981-2014
