You can only be worried if the loans are not appropriately utilised. My personal concern is that we are not collecting the loans with a proper debt analysis. When you do a proper debt analysis then you know whether the debt can repay itself. Most of the loans we are collecting are being used to build roads and rail tracks in Abuja which is not actually where we should invest the money.
I won’t be worried if these roads and rail tracks were built in Aba, Onitsha, Lagos, Nnewi or in Kano, or if we are borrowing this money to set up industrial parks; then it makes sense. But we are just borrowing this money to beautify Abuja. Abuja does not generate any income.
It is just an administrative capital. If you do a debt sustainability analysis, you try to find out areas where if you spend the money you are borrowing it can generate the income you need to repay.
When you borrow money like this, what should be at the back of your mind is where to invest this money and get return on investment.
You can repay the loan and make a profit in terms of the services you can provide with the projects executed.
When China started in 1980, it went to invest in its coastal areas so that when foreign investors came, they set up their factories in places where China had already invested in critical infrastructure like power, to ensure investors have ease of doing business. But here, when we borrow, we borrow to build roads and rail tracks; there is nothing wrong in doing those things but build roads that will connect productive areas which can generate revenue for further investments to open up other areas. • Odilim Enwuegbara (Abuja-based Development Economist)
You will recall that the immediate past United States Secretary of State, Mr. Rex Tillerson, had during his recent visit to Nigeria, advised us to be careful when considering loan agreements with China.
While alluding to the fact that the union could be beneficial, he harped more on the long-term implications. Nothing can be truer than this position.
This is also true with the loans granted by the US and other western countries. However, we must realise that it has merits and demerits.
Advisedly, we should officially analyse the total gains derivable from the contract and the financial risks involved and put in place appropriate policies and instruments to mitigate against default, which could have an adverse effect on the economy.
Currently, Nigeria requires a huge capital outlay in the negotiation of her desire to position herself ahead of future challenges and opportunities.
Interestingly, China is willing to provide loans at low interest rates and less stringent requirements than those of the western countries and commercial banks.
There is no gainsaying the fact that infrastructure in Nigeria is currently in a sorry state and we need to fix it to grow the economy, enhance trade and provide job opportunities.
Every contract agreement China signs (especially in Africa) creates direct and indirect business opportunities for Chinese companies. It also provides employment for Chinese workers at all levels. This development puts us in a disadvantaged position because our unemployment rate index continues to increase. It is essential that Nigeria should broaden its horizon by looking at human capital development skills and technology based business proposals. • Mr. Kennedy Oikerhe, (Managing Director, Pydenneks Offshore Services Limited)
I think there should be no cause for us to worry about Chinese loans. Where the worry would be is what are you taking the loan for? If you are taking a loan, first of all, you want to use that loan for productive purposes.
If a loan could enhance our productivity, improve our infrastructure; then that loan could pay for itself in terms of taxes at the end of the day. For an instance, if you are taking a loan to build a rail line from one end of the country to the other end, the loan will help the economy because companies will be moving goods from Point “A” to Point “B.”
These companies have to pay to the railway line; the railway line has to pay taxes to the government and the people boarding the rail line will have to pay.
At the end, you will see that when you take a loan, it becomes a catalyst for economic growth. If that is the reason we are taking the loan, then there is no need to worry.
But if we are taking a loan to fund government, to fund bureaucracy and to fund payment of salaries for the legislature and the executive, then we need to worry and worry really hard because there is even enough for Nigerians to worry about.
Again, borrowing money outside the country is cheaper than borrowing money inside. It is always cheap to borrow money outside the country.
You will find out that the interest rate on such foreign loans may not be more than three to five per cent. But if you are borrowing money internally, you are looking at 20 per cent.
When you talk about the terms of the loan; that is where the National Assembly comes in. Of course, the country cannot borrow a naira without the approval of the National Assembly. That is also where the media comes in because they need to ask salient questions. • Peter Esele, (Former President, Trade Union Congress)
Nigeria does not have any cause to worry about the Chinese loans. I said in 2015 immediately Buhari came to power that there was nothing he could do without funds. The earnings from crude oil had dropped and Nigeria was not credible to take “vanilla loan” which is a flexible loan. Earnings from crude oil sales had dropped and we just came out from a period when the crude oil price reached an unprecedented peak. We did not borrow then and we did not use the oil windfall to build infrastructure, we squandered it instead.
So, when the new government needed cash to build infrastructure and to reposition and bring the economy out of recession, it needed to build infrastructure which was what President Barrack Obama did.
America had to raise Treasury bills from China. But in our own case, we could not do that because we were not credible and the only way to go was the export credit from China.
The downside of the Chinese export credit is that jobs will compulsorily go to Chinese firms. So, in terms of the immediate value addition, the number of jobs created and equipment used, we are constrained. We were supposed to have built this infrastructure some 20 or more years ago but we did not.
The windfall was squandered instead of being used for the benefit of the majority of the people. The right thing to do is to borrow when your earning is high but you must be careful so that you do not borrow for consumption.
Chinese loans are cheaper and it has a longer repayment schedule. However, vanilla loan is flexible because you can choose your suppliers; you can use it to target the promotion of your domestic economy.
But for Chinese loans, we are constrained to use Chinese exporters and construction companies. The interest rate on Chinese loan is like two or three per cent but on vanilla is about seven per cent.
Vanilla loans will take 10 years to repay while Chinese loan will take about 30 years to repay.
The government should ensure that every tiny detail is properly negotiated, the equipment must come at the right price and the quality must be ascertained. •Dr. Wale Bolorunduro (A former Osun State Commissioner for Finance)
It is expected that the debt profile of this country would rise considering the fact that we have a deficit budget and even the deficit side of the budget was not met in the last budget year.
With last year’s recession, government would need to continue borrowing to meet the increased size of the deficit. Of course, the borrowing portends danger for the economy because our debt profile is rising and we do not know when we are going to scale it down.
We have a high fiscal deficit which can only be funded through borrowing. When you borrow for investment, it improves the position on your balance sheet and when you borrow for consumption, it can cause problems for the economy because it may affect investors’ confidence in your economy in the long run. We already have a debt overhang, and as it is, we are building that up and so there is need to reduce the rate of borrowing. •Mr. Godwin Eohoi (Registrar, Chartered Institute of Finance and Control of Nigeria)
Compiled by Success Nwogu, Chukwudi Akasike,
Mudiaga Affe, Femi Makinde, and Ifeanyi Onuba
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