There are many reasons why corruption grows and thrives in nations. There are many conflicting cultural norms, traditions, learned disobedience to rules which seem alien or contrived, reactions to arbitrary procedures and impatience with bureaucracy as suggested causes.  All of these play a part but, in my experience, the universal unifying economic cause which generates these effects and impacts politics is the inability of the majority of the nations’ businessmen to readily access ‘hard currency’. In my years in international trading and transport, especially in Africa and Eastern Europe, the only constant from nation to nation was the business of seeking to change local currency to ‘hard currency’. Without hard currency international trade was stymied as virtually all the modalities for the international exchange of goods and services required access to hard currency. For the many countries in Africa, especially Nigeria, the only real business was changing money; turning Naira into U.S. dollars or Swiss francs. Whatever the industry (public or private) the main goal was changing money. The details of the business were secondary. This exchange represented the only means of acquiring goods not produced in Nigeria. This had profound economic and political implications.

The notion of international trade cannot be understood without understanding the more elemental notion of specialisation. When man emerged from the apes he was a hunter-gatherer. He was responsible for acquiring the food and goods he needed to survive. All men were the same. Then, as cultivation of crops was begun, many men moved to agriculture. They made an arrangement with the hunters that they would give the hunters some of their crops in exchange for some of the game they caught and for their protection. The hunters could specialise in hunting because they knew that the cultivators would give them food, and conversely.

This bargain on specialisation is what has brought man to his current level of development. Very few people spend their time growing food or hunting; but the doctors, lawyers, priests, teachers and others know that society has evolved this system in which, in return for their work, they will have access to what is necessary to live and thrive. It was the ancient Phoenicians who found the way to facilitate this development. They invented money.

Today we all go out to work at our specialities in the knowledge that we will be paid for our labour. ‘Paid' means we receive a piece of blue paper or red paper or green paper with pictures of monarchs or dead presidents on then which we accept as payment for our work. We have faith that we can turn these pieces of paper, or bits of stamped metal, into food, shelter, goods and services. We believe in money; we trust currency. If we were not sure that we could turn these pieces of paper into food, we'd have to stop what we were doing and go back to being a hunter or a farmer; or perhaps, trade our crops with someone nearby who has something we need.

Our sophisticated modern society is integrated through the medium of money. It allows us to specialise and develop new techniques or professions. It is largely a voluntary system in which we can choose what we want to be as we grow up without worrying about our crop. The greater the money, the greater the choice.  However, if one cannot freely change the earned money into goods within a society because those societies do not produce the goods internally then a mechanism needs to be created to import those goods into the economy and to find a way for the local currency to be exchanged for a currency the foreign exporters are willing to receive. That is the nub of the problem. If there was a lack of faith that the Naira had any value greater than the value of the piece of paper it was printed on, some mechanism had to be established which reliably transferred the Naira to a more internationally-accepted currency.

This management of foreign currency became the province of the Central Banks. These banks rationed foreign exchange and maintained the full faith and credit of the national currency in the international market.  As profits were made from the sale of domestic products into the world market (cocoa, palm oil, groundnuts, petroleum and gas, inter alia) these reserves were held in tranches with overseas banks and institutions. This gave stability to the currency rate and provided an ‘official’ currency exchange rate for international transactions. However, demand for foreign exchange was many multiples of the hard currency reserves of the Central Bank. In business, it was very difficult to make international purchases without having to resort to the “Black Market” in foreign currencies which grew alongside the official exchange rate. So, for many Nigerian importers of goods, capital equipment or international services it was necessary to pay eight or nine times the official rate for the exchange of Naira to the dollar for the transaction. Later on a system of ‘auctions’ was created to bid for foreign exchange but this was inefficient and largely corrupt.

Perhaps the best example of the result of this scarcity was the Great Cement Caper of 1975-1976. Nigeria consumes a lot of cement and in 1975 there was a major building boom as Julius Berger and others were constructing major roads across Nigeria. A large amount of cement was ordered from abroad. In fact it was an immense amount of cement; too much to be unloaded at once in Nigerian ports. Apapa and Tin Can Island were full of cement barges being unloaded. Outside the port, in the roads, there were, at its peak, 440 vessels waiting to discharge cement.  As part of the contract for delivering cement into a port a period of time allocated for the discharge of the cargo is agreed between the ship owner and the receiver.  This is to prevent the loss of revenue for the vessel if it is stuck in the port. A fee per ton of cargo per day is agreed to compensate the owner for the loss of the use of his ship because of delay. This is called “demurrage”. As might be imagined, the delay of 440 ships for over four months was costing Nigerian cement traders a great deal of money. Millions were paid every day; paid in U.S. dollars which is the universal currency of shipping.

One day, acting on advice from the Navy, the Nigerian customs asked a ship which was standing in the roads off Nigeria to come ashore. On inspection, it was found that the ship was empty. There was no cargo but demurrages were being paid as if it were fully laden. The Nigerian authorities began a crackdown on the assembled ships and most of them left; primarily because most were empty. A company I worked with had two of those ships. We came down laden from Poland with cement and joined the demurrage queue. We clocked in at the roads, waited two weeks in the queue and discharged the cargo in Lome, Togo. We returned, empty, to Apapa and waited. We had a contract with a Nigerian importer for demurrages which stated that he would pay us $0.90 per bill of lading ton for every day we were delayed. However, we also had an agreement that the real price was $0.30 per bill of lading ton. We returned to the importer, overseas, $0.60 for every ton.

The reason for this and for the 400 odd other vessels, was simple. The Nigerian importers had found a loophole in the Nigerian banking rules which stated that the international payment of demurrages could be effected at the official exchange rate. That meant that if the Nigerians wanted to change money without demurrage they would pay the black market rate of 8 to 1. Paying us demurrage reduced the exchange rate to 3 to 1. It was more profitable, by far, to bring down 440 vessels and 5,000 sailors to change their money, legally, than to pay the black market rate. They got the profit on the sale to Togo or, if we actually discharged in Apapa, they would have the cement. When the government stopped the payment of demurrages, all our ships sailed home and there was a cement shortage in Nigeria for six months.

The government then decided that the management of the exchange rate required transparency in the importation of goods. They hired a number of companies worldwide (SGS, Cotecna, Bureau Veritas, etc.) who would act as inspectors of the goods as they were loaded in the load port and at the discharge port. The “Form M” specified the details of the cargo and its certificates were required to obtain payment at the banks. They also regulated the price at which goods could be traded. This spurred a secondary business where all the suppliers had a contact man in the inspection agencies who would disclose what they thought the maximum price their agency would allow. This was often worth the expense and provided another cushion for the importer.

However, these were the anomalies of the system. The fundamental problems of inconvertibility were two fold. On the one hand the politicians, through the Central Bank and the Permanent Secretaries, controlled who had access to the foreign exchange. Those with access were not always the most efficient or transparent businessmen in the nation-most of the time they were friends, political allies or relatives.  Many of the military set up their own companies during military rule and they used the foreign exchange to thrive in business and acquire assets. Because they had control of the foreign exchange they were able to use that leverage to acquire oil leases and other business perks with civilian business partners. The second problem derives from the unavailability of foreign exchange. This inhibited the development of a middle class in those countries. Even small businesses had to import goods from overseas. They found they could not. Business was concentrated in the same small elite band of business-politicians and soldier-businessmen. There was no room for smaller businesses to acquire assets sufficient to start employing people and to expand. Credit was always tight and foreign exchange often a mirage. Those with access to foreign exchange often banked abroad, denying liquidity to local banks.  A small band of the citizenry at the top, integrated among politicians, military and top civil servants, had a lock on the foreign exchange and controlled most of the business.  That is the foundation of corruption – the integration of money and political power which locks out the large majority of the population from playing a role. The costs needed to enter politics in these nations, especially Nigeria, have priced at least 90% of the population out of the market. Elections often consist of choosing between two crooks representing two parties in whose policies the population have had no input.

This phenomenon of exchange control is not unique to Africa. Its elimination in the UK is one of the major contributions of Margaret Thatcher to the British economy. In 1979 the new Conservative government abolished UK exchange control. The pre-1979 controls on direct investment restricted sterling-financed foreign investment except where it had a positive effect on the balance of payments.  With respect to portfolio investment, the controls stipulated that purchase by UK residents of foreign exchange to invest overseas could be made only from the sale of existing foreign securities or from foreign currency borrowing. There was a quasi-official black market in the UK Act in that foreign currency traded at an implied premium over the official exchange rate which generally exceeded 30% in the period 1974-9. Before any transaction could take place it was necessary to fill in a Form E for exchange control. This was a nuisance and inhibiting. The removal of these controls in 1979 opened the UK market and allowed international banks and financial institutions to set up or expand in the UK and made Britain a world-class banking and share-trading hub. Later, the Europeans scrambled to do the same. This has yet to take place in Africa.

This currency problem has been less of an operational problem in the francophone states of Africa. There the rigours of the post-colonial Pact Coloniale have created a common currency, the CFA franc, which is pegged to the Euro. It is widely accepted as a convertible currency as it is backed by the French Treasury. There are many problems with the operations of the CFA but its main attraction is that it allowed the francophone nations to have a stable currency which was internationally accepted. This has meant that there has been the opportunity for the development of thriving small businesses within the countries and access to the banking system for a large proportion of the community. Its future may be in doubt as a result of the Euro crisis and France’s economic decline but it has played an important part in the business development of the francophone states. This has played a role in impeding the creation of the ‘ECO’. The Economic Community of West African States (ECOWAS) is developing its own monetary union. Currently, the states within ECOWAS use their own currencies but have pledged to introduce a common currency within their own grouping, the West African Monetary Zone –WAMZ.  These states (Ghana, Guinea, Nigeria, Sierra Leone, the Gambia, Capo Verde and Liberia) hope to introduce a new common currency, the ECO, to rival the CFA franc and, eventually to merge the ECO and the CFA franc into a single monetary unit for the region. The pace of these developments is very slow.

The first step towards the economic integration of West Africa was the establishment of the Economic Community of West African States (ECOWAS) in 1975. Under the ECOWAS treaty, it was envisaged that the 16 member-nations would form a common market. Subsequently, the heads of state and government adopted the ECOWAS Monetary Cooperation Program (EMCP) IN 1987. Under the initiative, it was envisaged that all the countries would come together to form a single monetary one by 2000, from the eight currencies in the sub-region, one of which is the CFA franc.

The idea of a common currency by 2015 was initiated by the West African Monetary Zone, comprising six countries within the ECOWAS, in 2000 to promote economic integration and trade in the sub-region. But the West African states planning to adopt the Eco currency have largely failed to meet self-set primary criteria of a single digit inflation rate and reduction in budget deficit for the introduction of the currency, as the overall compliance with macroeconomic convergence criteria deteriorated.

It is a pity that one of the most stable and reliable currencies in Africa, the Zimbabwe dollar, managed with great skill by Bernard Chidzero and Leonard Tsumba, should have collapsed in a rocketing inflation when Western states put their combined pressure on the currency.  It is gradually recovering.

The world’s economic conflict and rising recession will not pass Africa by.  The levels of corruption which these foreign exchange anomalies create are a long way from being solved. Until there is some form of mutuality by the African states they will always run the risk of Zimbabweanisation. There is little hope of quick change.