The Hierarchy of Bribery and Corruption

                                        The Hierarchy of Bribery and Corruption  

Namibia’s Fishrot scandal where bribes were allegedly  paid to ministers for access to our exclusive economic zone is not at all surprising. Of all the natural resource sectors in the world the capture fisheries is, in 40 years of experience, the most corrupt. Indeed there is a pecking order of corruption and bribery by industry with the capture fisheries being by far  the worst followed by logging of natural forests and then petroleum and lastly there is mining. There are sound economic and commercial reasons why this pecking order exists. The corruption that we observe is usually of the variety where a minister or someone even higher gets a bribe in order to give access to a foreign or local company to a scarce natural resource.   

Fisheries is the most corrupt natural resource because the cash flow and profits that you derive from getting access to a rich fisheries resource, such as that found in the Namibian EEZ, is very large in proportion to what you have to invest. In many countries all you have to do is bribe a minister to get a quota of fish you can catch and then transfer the fish at sea to a freezer vessel, where this is still legal. If you have this access you immediately make a profit because there is no added investment. You own the trawler or purse seiner and you can hire a freezer vessel but if you have access to fish you can make a profit almost immediately because there is no investment and so cash flow is positive almost from very outset. Indeed you have to pay the minister a bribe for the access but the minister normally shares the bribe with the permanent secretary (PS) and several key ministers in cabinet. If the fisheries minister is greedy and tries to kees the whole bribe and does not share then invariably his cabinet colleagues will sabotage the deal or worse the PS, if he knows what is happening in his own department, may inform on the minister to the anti-corruption authority. If you are a corrupt businessman the risks are minimal because if things go pear shaped and you get caught there is nothing to seize; you just take your vessel and sail off to Iceland or some other destination or to the next corrupt coastal state.  

The logging of natural forests is almost as corrupt as fisheries but because you actually have to invest in machinery in the country to extract the logs then the costs are higher and potential losses greater. Those involved in the industry have to get all sorts of permits from the ministry to log the forest, from customs to export raw logs and the ministry of finance where you have to get tax clearance. This requires bribes to several ministries with slightly greater risks of being caught. What fisheries and logging have in common is that they are often conducted by small obscure firms that do not consider their reputational risk of being caught giving bribes. This is often untrue for petroleum and mining majors.  

Historically , the petroleum sector has been notoriously corrupt because of the formula of access equals almost immediate profits can be very true. If you discover  an “elephant” in the petroleum industry i.e. a deposit of 100 million barrels or more then the formula holds or at least held until the recent price decreases. The briber will begin with the relevant ministers which include energy and finance. But these enormous finds are becoming ever more rare. However, even if one finds a relatively small but commercial deposit commonly a bribe to the minister will be necessary to assure access to the resource even in those cases where the explorer has what appears to be an iron clad agreement with the government. If you don’t pay the bribe then there are many legitimate ways   that a minister can create troubles and halt a project. If the deposit is near an existing pipeline then the oil field will prove very profitable almost immediately and as in the fisheries, there will be very little up-front cost and high and immediate cash flow from the project. As a result oil companies will compete with bribes to ministers and officials for blocks near a known deposit for that very reason.   

Mining is widely seen as being a large source of great corruption and bribery in Africa. This is certainly so in some countries and with some commodities such as alluvial diamonds and gold. However large scale mining is a different sort of business to petroleum. Even where you find say a huge gold deposit it often takes many years to turn a profit so bribing a  minister or a PS in the standard way simply won’t work because they are often not in office long periods. Mining companies tend to bribe by offering important officials or their relatives and proxies tenders or contracts to supply food, security or cleaning for the mine. Because there is nothing as impermanent as a permanent secretary then when he or she is replaced the contract can be terminated and transferred to another PS or their relatives.  

In both petroleum and mining increasing the major firms have diminished their reputational risk of bribery by leaving the matter of development of a project to the ‘juniors’ in the industry. Increasingly these juniors will not only discover the deposit but more recently move to develop the project to at least what is called the ramp up stage. It is in this stage that most access bribes have to be paid to ministers but the juniors face almost no reputational risk as they normally are small firms that have no reputation and can disappear from the stock exchange easily. For Exxon, Shell or Anglo and BHP-Billiton to be caught bribing a minister is quite another matter as heads will roll if the bribery is discovered. Once the mine or oil field is up and running then the majors step in and buy the project from the junior. 

The developed world continually lectures Africa about the need for transparency to combat corruption. Certainly more transparent commercial arrangements help and are important but there is no bribe or kickback that cannot be hidden in the world of tax havens and secrecy jurisdictions tolerated and often created by the same developed countries that lecture Africa. The real cause of the corruption is the very industries to which Africans are confined. The production of automobiles and refrigerators tend not to be as corrupt as the resource sector with its massive and immediate positive cash flow which facilitates bribery.  The same is true of the investment intensive aquaculture sector and sustainable logging. As long as Africa leaders are happy to remain the ‘hewers of wood and the drawers of water’ for the developed world and China hen the bribery will continue.