Monday 5 August 2013

Nigeria's Slide Into Another Debt Trap

Vanguard (Lagos)
BY DELE SOBOWALE

"History does not repeat itself; man does", Barbara Tuchmann, US Historian.
There are some situations in which a public official should pray not to find himself or herself. Just last week, a columnist with the PUNCH, Chido Onumah, reminded us of what Reuben Abati wrote about the President's wife before he was appointed presidential spokesman. In particular Abati had written that "the possession of power in any form does not guarantee the right to be reckless or to ignore the etiquette required of office holders".
That candid piece of sound advice was given in September 2010, in response to the open assault on Governor Amaechi when she visited Portharcourt about four months after her husband became de facto president. Today, poor Abati must either keep quiet or try to defend any breach of etiquette - however flagrant by Mrs Jonathan.
The Honourable Minister of Finance, Dr Ngozi Okonjo-Iweala, was the heroine of Nigeria's escape from the debt trap in 2003. And we can still recollect some of her admonition to us that countries which are heavily indebted, especially to foreigners, lose part of their independence when conducting foreign policy. As with individuals so it is with nations debtors are treated with some contempt by their creditors.
History is replete with such examples. When Japan became a net creditor to the United States, the Japanese were able to close their markets to American products to protect their own manufacturers for years, while at the same time invading American markets at will. Today, it is the Chinese who hold the largest chunk of America's debt stock. When Obama talks, the Chinese smile politely and ignore him. Beggars cannot make demands.
Dr Okonjo-Iweala is again the Finance Minister and the nation's debt stock is $50.8 billion -- $14 billion more than what e owed when she came to "rescue" us from debt. Two things are significant about the debt situation in 2004 and 2013. First, whereas it took the nation twenty-six years to wrack up $36 billion from the first loan of $2.8 billion taken by General Obasanjo's regime, we have now surpassed that total in just nine years. Granted the external debt is only $7 billion out of the lot, but it will soon rise by another $1 billion this year and the total debt stock constitutes a charge against future governments.
Furthermore, as in the past, there is very little by way of development to support the level of debt. As far back as 1997, a former Minister of National Planning, Chief Ayo Ogunlade had revealed what happened to the loans taken. According to Ogunlade, 54% of the projects for which loans were taken had been abandoned; 36% were not started at all, eight percent, like the Nigerian Railways, NEPA and Airways were losing money and only two (2) per cent were fulfilling the objectives for which the loans were taken. Yet all the loans were virtually all drawn down. In fact, close to 18% of the money never reached Nigeria before disappearing into thin air.
Today, Nigerian ask themselves, as we did in the 1990s, what happened to the money? The Federal and State governments are mortgaging the future while pretending to build infrastructure for future development. Yet, it is difficult to see the projects being developed.
Dr Abraham Nwakwo, the Director General of the Debt Management Office, DMO, accused critics of ignorance because according to him "there is nothing wrong with debt". Nwakwo is only partly right. There is indeed nothing wrong with debt providing the funds are applied faithfully to the projects for which the loans were taken. Nigeria's sad experience with funds is that they are either embezzled e.g the $13-16 billion Obasanjo/Imoke removed from the Excess Crude Account for IPP; yet there is no increase in power supply and so no income from the venture to justify the investment.
While, the DMO D-G and the Minister of Finance can provide the theoretical reasons for incurring debt, the practical history of Nigeria demonstrates quite clearly that no government, Federal or State, can be trusted with loans - especially long term loans. The entire nation is littered with uncompleted projects for which loans were taken by one government, which exhausts the funds before leaving office and without completing the project.
The next government, committed to repaying the loan invariably ignores the project.
There is however something unique about our current debt situation which even the D-G DMO finds disturbing and which should disturb the rest of us. According to Nwakwo, compared to the level of foreign debt, the Federal Government had over-borrowed from domestic sources. What Nwakwo did not spell out are the consequences of government over-borrowing from domestic sources.
While governments have access to foreign and domestic loans, domestic businesses almost invariably rely on local sources of finance for their growth and development. When government wades into the domestic capital and money markets to raise loans, it not only crowds out local businesses, the magnitude of its loan requirements raise interest rates for everybody making Nigerian products uncompetitive.
And whereas the private debtor, by and large, manages the funds borrowed efficiently, the public sector is not only wasteful but utterly corrupt. The aggregate inefficiency in the application of funds available results in the dismal position of Nigeria when compared to other nations. Roads, bridges and schools cost more to build and are more shoddily completed depriving citizens of most of the benefits they should receive.
So if critics are raising alarm, it is because they know from the verdict of history that Nigerian governments have never spent 100% of a loan taken for a project on that project. In addition, given our past experience, nobody can guarantee our ability to repay long term obligations. Many of us recall the first $2.8 billion taken by Nigeria in 1978. Technocrats, led by the Organised Private Sector, OPS, led the campaign that Nigeria was "under-borrowed" and that the $2.8 billion could be easily repaid.
Unfortunately, shortly after the loans were taken, the terms of trade turned adverse, especially the price of crude oil which plummeted from $28 per barrel to under $15 under Shagari and Buhari; then it fell under $10 per barrel under IBB. We recall the humiliating trips of Honourable Minister Alhaji Abubakar Alhaji to Euroep to beg for Nigeria's debt repayment to be rescheduled under increasingly Shylock terms. Then, one day it dawned on Nigerians that the debt might be impossible to repay.
Only, the change in the wheel of fortune, starting from 1999, when crude prices headed for the skies, provided the external reserves which Dr Ngozi Okonj-Iweala squandered recklessly to get us out of debt in 2004. Another change in the direction of oil prices, this time downwards, could find us in the same situation we were in during the Babangida years and our ability to repay will once again be in doubt.
Unfortunately, the Minister who lectured us on the virtues of living within our means, spending our resources prudently, is now the same one who is trying vainly to convince us that debt is not a problem. Nothing in our history supports that claim.
Nass: Thanks for passing the budget amendment
The week-end started very well for me on Friday, July 26, 2013 when the newspapers reported that the National Assembly had passed the Budget Amendment Bill. To be quite candid, the Federal government had no other option that to make that request. The year 2013 had been a difficult year adversely affecting crude oil revenue and we can only collectively pray that it will not mark the beginning of "seven lean years". If it does, we are in deep trouble.

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