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Namibia Economic Society (NES)

The effects of corruption on the Namibian economy

Mihe Gaomab II
President of the Namibia Economic Society

Namibia Economic Society (NES)

11 May 2005

SARPN acknowledges permission from the Namibia Economic Society to post this document - www.nes.com.na
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Corruption - defined as 'the abuse of public power for personal ends' - has always existed in the world. Corruption has been around for a very long time and is becoming a much more visible and volatile political issue. But increasingly it is also becoming an economic issue. World wide, business people and politicians have been hurled into prisons, prominent executives have been publicly disgraced and Presidents have been impeached because of corruption.

Internationally, the study of the causes and consequences of corruption has a long history in economics, going back 30 years. The classic way corruption became an economic issue is through "rent seeking activities". For most of the Namibians, rent is what we pay the landlord each month or what a rental agency at an airport charges for letting us use a car for a week. For us as economists, however, rent is short for "economic rent" and means something quite different.

Economic rent is that extra amount paid (over what would be paid for the best alternative use) to somebody or for something useful whose supply is limited either by nature or through human ingenuity. For example, Mike Tyson, the boxing champion, has a natural and rare talent for flooring his opponents during the first round and he was paid some N$500 million for exercising this talent. If he were not a talented boxer, Mr. Tyson's alternative employment would likely be somewhat more modest, earning, say, about N$$200,000 a year. The difference that he gets is an economic rent accruing to Mr. Tyson because nature has seen to it that boxers of his skill are in very short supply.

Similarly, for several years during the 1980s the U.S. government restricted the import of Japanese automobiles to a certain quota, creating an artificial shortage of foreign cars. The result? General Motors and other U.S. car manufacturers not only sold more cars but raised their prices, thereby enjoying an economic rent (the difference between the price of domestic cars and the cheaper but unavailable Japanese alternative).

Be that as it may, economic effects of corruption is notoriously hard to measure as it is normally clandestine and its effect is protractive.

During recent decades, however, corruption has grown both in terms of geographic extent and intensity. Since the mid 1970s, it has infiltrated virtually every country in the world, most notably in Namibia. The "cancer of corruption" has clearly become evident especially in Sub Saharan Africa and economic research shows that corruption can eat away at the fabric of any economy. Economic researchers have also begun to look at quantifying and justifying the presence of corruption through so-called corruption indices, notably by Transparency International, World Economic Forum and here at home Afro-barometer index by the Institute of Public Policy Research.



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