Reducing corruption takes a specific kind of investment Efosa Ojomo
So in 2011,
someone broke into my sister’s office
at the university
where she teaches in Nigeria.
Now thankfully, the person was caught,
arrested and charged to court.
When I get into court,
the clerks who were assigned
to my sister’s case informed her
that they wouldn’t be able
to process the paperwork
unless she paid a bribe.
Now, at first she thought
it was part of a practical joke.
But then she realized they were serious.
And then she became furious.
I mean, think about it: here she was,
the recent victim of a crime,
with the very people
who were supposed to help her,
and they were demanding a bribe from her.
That’s just one of the many ways
that corruption impacts
millions of people in my country.
You know, growing up in Nigeria,
corruption permeated
virtually every element of the society.
Reports of politicians embezzling
millions of dollars were common.
Police officers stealing money
or extorting money
from everyday hardworking citizens
was routine practice.
I felt that development
could never actually happen,
so long as corruption persisted.
But over the past several years,
in my research on
innovation and prosperity,
I’ve learned that corruption is actually
not the problem hindering our development.
In fact,
conventional thinking on corruption
and its relationship to development
is not only wrong, but it’s holding
many poor countries backwards.
So, the thinking goes like this:
in a society that’s poor and corrupt,
our best shot at reducing corruption
is to create good laws,
enforce them well,
and this will make way for development
and innovation to flourish.
Now, it makes sense on paper,
which is why many governments
and development organizations
invest billions of dollars annually
on institutional reform
and anti-corruption programs.
But many of these programs
fail to reduce corruption,
because we have the equation backwards.
You see, societies don’t develop
because they’ve reduced corruption.
They’re able to reduce corruption
because they’ve developed.
And societies develop
through investments in innovation.
Now, at first, I thought
this was impossible.
Why would anyone in their right mind
invest in a society where,
at least on the surface,
it seems a terrible place to do business?
You know, a society where
politicians are corrupt
and consumers are poor?
But then, the more I learned about
the relationship
between innovation and corruption,
the more I started
to see things differently.
Here’s how this played out
in sub-Saharan Africa
as the region developed
its telecommunications industry.
In the late 1990s,
fewer than five percent of people
in sub-Saharan Africa had phones.
In Nigeria, for example, the country
had more than 110 million people
but fewer than half a million phones
in the whole nation.
Now, this scarcity fueled
widespread corruption in the industry.
I mean, public officials who worked
for the state-owned phone companies
demanded bribes from people
who wanted phones.
And because most people
couldn’t afford to pay the bribes,
phones were only available
to those who were wealthy.
Then an entrepreneur named Mo Ibrahim
decided that he would set up
a telecommunications company
on the continent.
Now, when he told his colleagues
about his idea, they just laughed at him.
But Mo Ibrahim was undeterred.
And so in 1998, he set up Celtel.
The company provided affordable
mobile phones and cell service
to millions of Africans,
in some of the poorest and most corrupt
countries in the region –
I mean countries such as Congo, Malawi,
Sierra Leone and Uganda.
You see, in our research,
we call what Mo Ibrahim built
a “market-creating innovation.”
Market-creating innovations transform
complicated and expensive products
into products that
are simple and affordable,
so that many more people in society
could access them.
Now in this case, phones were expensive
before Celtel made them
much more affordable.
As other investors –
some of his colleagues, actually –
saw that it was possible to create
a successful mobile phone company
on the continent,
they flooded in with billions
of dollars of investments.
And this led to significant
growth in the industry.
From barely nothing in 2000,
today, virtually every
African country now has
a vibrant mobile
telecommunications industry.
The sector now supports
close to one billion phone connections,
it has created nearly four million jobs
and generates billions of dollars
in taxes every year.
These are taxes that governments
can now reinvest into the economy
to build their institutions.
And here’s the thing:
because most people no longer
have to bribe public officials
just to get a phone,
corruption – at least within
this industry – has reduced.
Now, if Mo Ibrahim had waited
for corruption to be fixed
in all of sub-Saharan Africa
before he invested,
he would still be waiting today.
You know, most people who engage
in corruption know they shouldn’t.
I mean, the public officials
who were demanding bribes from people
to get phones
and the people
who were paying the bribes –
they knew they were breaking the law.
But they did it anyways.
The question is: Why?
The answer?
Scarcity.
See, whenever people would benefit
from gaining access
to something that scarce,
this makes corruption attractive.
You know, in poor countries, we complain
a lot about corrupt politicians
who embezzle state funds.
But in many of those countries,
economic opportunity is scarce,
and so corruption becomes
an attractive way to gain wealth.
We also complain about
civil servants like police officers,
who extort money from everyday
hardworking citizens.
But most civil servants
are grossly underpaid
and are leading desperate lives.
And so for them, extortion or corruption
is a good way to make a living.
You know, this phenomenon also plays
itself out in wealthy countries as well.
When rich parents
bribe university officials –
(Laughter)
When rich parents
bribe university officials
so their children can gain admission
into elite colleges,
the circumstance is different,
but the principle is the same.
I mean, admission
into elite colleges is scarce,
and so bribery becomes attractive.
The thing is,
I’m not trying to say there shouldn’t
be things that are scarce in society
or things that are selective.
What I’m just trying to explain
is this relationship
between corruption and scarcity.
And in most poor countries,
way too many basic things are scarce.
I mean things like food,
education,
health care,
economic opportunity,
jobs.
This creates the perfect breeding ground
for corruption to thrive.
Now, in no way does this
excuse corrupt behavior.
It just helps us
understand it a bit better.
Investing in businesses
that make things affordable
and accessible to so many more people
attacks this scarcity
and creates the revenues for governments
to reinvest in their economies.
Now, when this happens
on a countrywide level,
it can revolutionize nations.
Consider the impact in South Korea.
Now, in the 1950s,
South Korea was
a desperately poor country,
and it was very corrupt.
The country was ruled
by an authoritarian government
and engaged in bribery and embezzlement.
In fact, economists at the time
said South Korea was trapped in poverty,
and they referred to it
as “an economic basket case.”
When you looked
at South Korea’s institutions,
even as late as the 1980s,
they were on par with some of the poorest
and most corrupt African countries
at the time.
But as companies like
Samsung, Kia, Hyundai
invested in innovations
that made things much more affordable
for so many more people,
South Korea ultimately became prosperous.
As the country grew prosperous,
it was able to transition
from an authoritarian government
to a democratic government
and has been able to reinvest
in building its institutions.
And this has paid off tremendously.
For instance, in 2018,
South Korea’s president
was sentenced to 25 years in prison
on corruption-related charges.
This could never have happened decades ago
when the country was poor
and ruled by an authoritarian government.
In fact, as we looked at most prosperous
countries today, what we found was,
they were able to reduce corruption
as they became prosperous –
not before.
And so where does that leave us?
I know it may sound like I’m saying
we should just ignore corruption.
That’s not what I’m saying at all.
What I’m suggesting, though,
is that corruption, especially
for most people in poor countries,
is a work-around.
It’s a utility
in a place where there are fewer
better options to solve a problem.
Investing in innovations that make
products much more affordable
for many people
not only attacks this scarcity
but it creates a sustainable
source of revenue
for governments to reinvest
into the economies
to strengthen their institutions.
This is the critical missing piece
in the economic development puzzle
that will ultimately
help us reduce corruption.
You know, I lost hope
in Nigeria when I was 16.
And in some ways, the country
has actually gotten worse.
In addition to widespread poverty
and endemic corruption,
Nigeria now actually deals
with terrorist organizations
like Boko Haram.
But somehow, I am more hopeful
about Nigeria today
than I have ever been before.
When I see organizations
investing in innovations
that are creating jobs for people
and making things affordable –
I mean organizations
like Lifestores Pharmacy,
making drugs and pharmaceuticals
more affordable for people;
or Metro Africa Xpress,
tackling the scarcity of distribution
and logistics for many small businesses;
or Andela, creating economic opportunity
for software developers –
I am optimistic about the future.
I hope you will be, too.
Thank you.
(Applause)