We cannot afford to be taking loans on a hit-or-miss basis at this auspicious time in our history. We cannot leave things to chance. We cannot assume things will work themselves out. We have to be keen-minded and be in control of every dime. It is criminal, irresponsible and a crime against humanity to load our unborn children with a debt burden that will turn them into slaves to the rest of the world.
What are our states or even the federal government borrowing for?
The other day I was reading the newspapers and there was this item about Nigerian states borrowing about $2 billion from abroad.
It threw me back to somewhere around 2005. It was the days when Nigeria’s President Obasanjo was ramping up pressure on his friends in the western countries and their Paris and London Clubs, asking for debt forgiveness. In his words those days (and in a thick rumbling Yoruba accent): “we borrowed $18 billion, we paid $30 billion, and we are still owing $35 billion, ah aaahhhhh?”
Later on, the so-called Paris and London Clubs would actually listen to us – or so it seemed. That was in 2006. I was then studying a lot in International Finance, and there is this book we used at Masters Level, written by Professor Keith Pilbeam of City University, London. In it was detailed the stupidities of African countries which led them into the Debt Trap.
In 2006, Nigeria was not treated as a wretched country. We were declassified from being extremely poor, and asked to pay $12 billion cash to the Paris Club (those who lent money to us at fixed rates), in order to get a write-off of another $18 billion. In that manner, $30 billion disappeared from our debt book (funny how we are now seeking $30 billion under one administration today).
It’s important to clarify that the Paris and London Clubs have no offices anywhere. They don’t exist as entities. They are just a grouping ACCORDING TO THE TYPE OF LENDING THEY GAVE TO… WELL, MOSTLY AFRICAN COUNTRIES. The London Club on the other hand, is therefore the group of lenders who lent money to these poor countries, ON VARIABLE/FLOATING RATES… meaning the rates could move at any time – on the basis of the London Interbank Offered Rates (LIBOR).
A lady who retired as director at DMO once told us of how in the pre-DMO days, the mostly-African borrowing countries would be invited to Zurich or Geneva by these London and Paris Clubs, and all of them will be herded inside a fairly large room, in those days when African countries were stuck, using 50 percent of their annual budgets to service debts and complaining to the world how the debt burden could no longer afford us any space for real development. A freckle-faced intern will come in from time to time and announce your country to the hearing of other fellow wretched countries: “Nigeria! Nigeria!”. “Yes”, you will stand on your feet and await his verdict. All of you were seeking debt forgiveness, so there was no shame among the profligate. ‘Frecklie’ here will then deliver the decision of the ‘Paris Club’ of lenders to you and seek your immediate response. “Please tell them we cannot repay for now, we want to renegotiate the rates. Please tell them we want to organise debt buyback blah blah blah”, you offer in your laboured English. Frecklie saunters away, to come back in two hours with another decision… this time for Gabon, or Cameroon, or Congo, or Guinea Bissau. That was the Paris Club… that intern. Imagine the humiliation of countries!
Why would states like Gombe be borrowing from abroad in dollars, to build primary health care hospitals? Why would Osun borrow from abroad, purportedly to build schools?… Are these basic infrastructure not supposed to be funded from their internally-generated revenue in an organic manner? How does a road between two villages pay itself back?
As an aside, another retired director at CBN who was involved in those negotiations, once told me how they used to make the mistake of lodging in the best hotels in Zurich and Geneva, and rode to these meetings in limos, with the politicians among their teams in flowing agbada/babanriga and long princely hats. Until they were advised to keep a low profile, because the creditors felt it was amusing that they who were the lenders rode to the venue in bicycles or took the trains. He also spoke about how after Nigeria had exited the debts in 2006, the multilateral agencies’ operatives would call frantically to be given invites into Nigeria. They had been used to walking in at any time they chose, and had destablised many of the plans of our monetary authorities while we owed them.
Meanwhile, in 2006, precisely all African countries – with the exception of South Africa – got full debt forgiveness from the Paris Club. Only Nigeria was asked to pay that huge sum because we were a middle income country. That sum was an equivalent of N1.44trillion or thereabout (at an exchange rate then of N120 to the dollar). Today, $12 billion will be at least N3.6trillion, the naira having tumbled three times over. Yet we haven’t learnt not to play with debts.
Anyway, back to the states and what they do with these debts.
Sometimes in 2005, PUNCH published a list of the debts that Nigeria was liable to pay the Paris and London Clubs, state by state. I kept that cut out for a long time. It was a simply amazing list of fraud. The debt of $35 billion – which we reduced to $5 billion after paying $12 billion and being forgiven $18 billion – was made up of all sorts of fantasies. States had borrowed to install underground rail systems. Many had borrowed for ultramodern airports. Some must even have borrowed to send whole communities to the moon after they must have built their own spaceships. It was a free-for-all. Even local governments had got involved in the looting by contracting their own loans for projects that never happened. Nobody warned the Africans then that it was stupid to go on borrowing binges. But we are being warned today, by even the lenders, because the situation today is worse than before. Economics has become a lot more complex and decisions need to be better nuanced.
I must offer another piece of information at this point: Whatever the level of government that borrows from abroad, the federal government pays in the event of default. Even if a private entity (say Dangote) defaults on a foreign loan, the federal government pays, because for a country like Nigeria, all borrowings are guaranteed by a sovereign cover, or else no transactions will go through. That is the law in international finance. Also, there is a priority list of who gets paid first and next, and last. The first parties that MUST be settled when a country is under pressure to repay, are the multilateral agencies, namely World Bank, IMF etc. The others come later. Hence, even if their rates are low, and moratoria is on offer, when the World Bank and IMF, as well as other powerful agencies show up to collect their money, there is nothing like ‘sorry sir, come tomorrow’. They take no prisoners.
So I tried to dig around to see what our states are borrowing for. Leave Lagos out for a minute, but even their borrowing is problematic. Why would states like Gombe be borrowing from abroad in dollars, to build primary health care hospitals? Why would Osun borrow from abroad, purportedly to build schools? Why would Ebonyi borrow from abroad, ostensibly to build roads? How much sense do these make? Are these basic infrastructure not supposed to be funded from their internally-generated revenue in an organic manner? How does a road between two villages pay itself back? How much taxes can you collect from villages to convert to dollars to pay these unforgiving lenders on judgment day? Why borrow in foreign currency to build schools, even if the borrowing is at zero percent? How about reordering our priorities? Is it even true that these amenities are what we are borrowing for? If a governor uses the real liquidity of his state to buy exotic cars and private jets worth billions, those are really what he has borrowed for, not the infrastructure he now claims to be building. The infrastructure seem to be afterthoughts, the real spending is in the profligacies – it’s all in the ordering.
…someone just whispered to me that those infrastructure deals are where the money is for these politicians. No wonder everyone seems to be rushing to borrow from abroad these days. It just brings back very awful memories of the Second Republic. Only that now, we are on steroids.
Our current borrowings just don’t make sense. Given our past experiences and the difficulties that past loans have put us into, we should be extremely scared of contracting new ones. I am not sure the finance minister has been told these stories by those who know. If these borrowings do not totally transform the lives of our people, if they don’t unlock wealth in a substantially measureable manner, if they don’t take those millions of boys and girls off the streets immediately, if they don’t transform our out-of-school-children problem, if they don’t make Nigerians suddenly a lot more productive, if these borrowings don’t transform our landscapes, if they don’t reorder even the way we think, if these loans don’t create new Nigerians, then they cannot be worth it. They say history doesn’t repeat itself, but people do. They also say those who fail to learn from their failures in the past, are condemned to keep going round in circles. I think I can make a call, that we are back in the past… only worse.
We cannot afford to be taking loans on a hit-or-miss basis at this auspicious time in our history. We cannot leave things to chance. We cannot assume things will work themselves out. We have to be keen-minded and be in control of every dime. It is criminal, irresponsible and a crime against humanity to load our unborn children with a debt burden that will turn them into slaves to the rest of the world. What is more? The fact is that most of Nigeria’s commonwealth – including these loans – always end up abroad. Value-for-money for government projects here is about 30 percent. The rest is stolen and sent back to the countries from which we borrowed. A lot of the loans of the Second Republic went straight back and were lost in Switzerland. I thought that was what the first coming of Buhari was about. How come he too is contracting his own at a worse time indeed?
I would advise, instead, that we should concentrate for now on driving government revenues and minimising waste. We spent recklessly through a recession in the last two years. Our politicians and top civil servants still get all their expensive perquisites because they have the powers to control the wealth and they control it to favour themselves. Our Senate says it is ‘rude’ for the taxpayers who pay their salaries to demand to know how much they collect for themselves! And so for as long as we haven’t solved this problem of profligacy and the overbearing influence of politics on our economics, we should not be borrowing this recklessly. If the federal government should even do some borrowing from aboard, states should be cautioned. And for the FG, you cannot be borrowing for some infrastructure from abroad, when the Presidency is spending close to N2 billion on new luxury cars each year, replacing cutleries yearly and splurging N67 million on the internet, according to the details of the 2018 budget just trickling out.
I also did some research, and found out there has been no country that truly developed on the basis of foreign borrowing for infrastructure. I couldn’t find any such countries in Europe or the Americas. I check South Africa and that wasn’t the case. Every country that has achieved development did so on their own dime; with money generated out of a process of organising themselves, entrenching financial discipline, and ensuring that every citizen conforms to the rule of law. None has been as reckless as Nigeria with its finances. None has kowtowed to political bigwigs who drained its finances only to run to foreign countries in search of loans. And whether for individuals, companies or countries, the experience is the same; always easier to borrow, but grief comes when it’s time to repay.
But someone just whispered to me that those infrastructure deals are where the money is for these politicians. No wonder everyone seems to be rushing to borrow from abroad these days. It just brings back very awful memories of the Second Republic. Only that now, we are on steroids.
‘Tope Fasua, an Economist, author, blogger and entrepreneur, can be reached through topsyfash@yahoo.com.
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