The vigorous defence last week of the Federal Government’s borrowing binge by the Debt Management Office did little to assuage public disquiet over Nigeria’s rising debt profile. In response to growing fears of debt peonage to China, the DMO cited low interest, concessional repayment terms and the need to diversify funding sources for infrastructure as the main attractions to loans from China. Debt, however, is debt and must be repaid even in the face of dwindling revenue and contracting economy. Nigeria needs to urgently accord priority to attracting Foreign Direct Investment and limit borrowing.
If the government is not, this newspaper and perceptive Nigerians are worried by the rising external debt that, according to records from the DMO, rose to $22.08 billion by June 30 this year. With a report indicating a rise of $11.77 billion over the last three years, our worry gravitates towards alarm and rightly so. It was in 2005/2006 that this country exited a three-decade-old debt trap that stood then at $35 billion and only after tortuous negotiations with the Paris Club and London Club groupings of international creditors. Having tasted the bitter pill of debt, we should be wiser and adopt a new strategy that de-emphasises debt and aggressively and intelligently seeks a mix of funding sources tilted heavily in favour of FDI. Ominously, commercial loans, which have higher interest rates, stricter repayment terms and penalties for default, have risen to $8.8 billion, making up 39.87 per cent of total external debt portfolio. A shrill warning has also come from the International Monetary Fund and the World Bank that our policymakers should stop being comfortable with our relatively low debt-to-GDP ratio of 21 per cent and focus on the alarming debt-to-revenue ratio of 63 per cent. The IMF described our debt servicing provisions as “extremely high.” This has always been our position.
The DMO’s rationalisation for taking credit from China Export-Import Bank includes the need to finance specific capital projects, broaden its credit from multilateral agencies such as the World Bank and African Development Bank, to bilateral sources and capitalise on their concessions. Said the agency, “…Nigeria will raise capital from multilateral and bilateral sources …because they are concessional, which means they are cheaper in terms of costs and more convenient to service, because they are usually of long tenors with grace period.” The need to fund infrastructure cannot be overemphasised, just as loan, in itself is important. When wisely sourced and utilised, loans provide an important facilitator for development, says UNCTAD. Nigeria, however, suffers an infrastructure gap that AfDB says will require $3 trillion over the next 26 years that it does not have amid current weak economic fundamentals.
This is the crux of the matter: Nigerian governments spend too little of their own resources in plugging the gap, instead splashing more on consumption and ratcheting even more loans for infrastructure that are often never provided, while saddling the taxpayer with repayment. While the DMO insists that its loans from China EXIM constitute only 8.5 per cent of external debt, it is instructive that credit from that source is as it said, “for critical infrastructure in road, rail transport, aviation, water, agriculture and power”.
It is precisely here that successive governments are missing it: there should be a mix of credit, public funds and FDI with emphasis heavily on the last for infrastructure. The World Bank, through two of its executives, Laurence Carter and Rachid Benmessaoud, says our infrastructure deficit can only be quickly bridged if the government, through well-articulated guidelines and the right enabling environment, attracts private capital. This will include Public Private Partnership and domestic investors. UNCTAD highlights the benefits of FDI to an emerging economy to include job creation, an expansion in Gross Domestic Product through the initial FDI and an ensuing multiplier effect, access to latest technology, increased productivity, reduced import dependency and kick-starting development and the industrial sector.
Sadly, Nigeria’s governments continue to borrow massively for infrastructure that can more surely and efficiently be provided by private capital. One area is in railways: apart from the $6 billion being sought for the Ibadan-Kano rail line, the government has submitted a request to China Exim to fund the Ibadan-Kaduna line, $6.9 billion for Lagos-Calabar, the same source of funding for the Abuja light rail project and the N50 billion taken for rail rehabilitation in the 1990s. Better to liberalise the sector; repeal the restrictive Railway Act 1955, concession existing rail routes and oblige investors such as a Canadian group that offered to build a Lagos-Abuja fast rail line and the Odua Group that once offered to build a new Lagos-Ibadan line. Instead of borrowing to build the long-planned Mambilla Power complex, open it up to investors, some of whom have shown interest once the enabling environment permits.
Private investment in 27 Saudi airports is to be completed this year as part of an investment attraction programme into its power, railway, aviation, real estate and entertainment sectors. But Nigeria took a $500 million loan from China for “airports rehabilitation” under the last administration that ended with no single airport revamped to any appreciable standard. Private capital through transparent concessions specifically targeted at reputable first rate global operators would have saved us repaying loans taken for airports that remain a national disgrace.
Private capital should henceforth be the main driver of growth. The self-defeating, retrogressive habit of using scarce resources and taking loans to fund what the private sector would do better has to give way. Railways, refineries, oil and gas exploration and investments, airports, seaports, and water transport should be private-sector driven. Government should restrict itself to being a facilitator and regulator, deploying sound policies to propel preferred sectors.
It should invest heavily in health, roads, water supply, sanitation, education and skills acquisition. A more practical investment funding strategy should also draw in private investments in the mining, manufacturing, agriculture, technology and service sectors.