THE NEW DEBT TRAP – Part 2

on   /   in Finance 12:08 am   /   Comments

By VICTOR AHIUMA-YOUNG

The International Energy Agency has said that Nigeria is losing about $7 billion annually to oil theft. The agency in its monthly report released on Tuesday, said “oil bunkering, or theft, costs the government an estimated $7 bn in lost revenue”. PUNCH, Wednesday, November 14, 2012, p 26.

The report went further to state that “sabotage often leads to pipeline damage, causing oil firms to cut output”. Oil production in the country reportedly fell to 1.95 million barrels per day in October. In recent months daily production had ranged between 2.0 million and 2.5 million. This report perhaps provides the most damning reason for the National Assembly to reject the government’s request for approval to get Nigeria deeper into the debt trap by raising about $9.3 billion in fresh loans.

Incidentally, raising loans in the magnitude of $9.3 billion provides jobs for international financial experts, lawyers and commission agents. Certainly, we all know that the “finder must be compensated” principle of international mega-deals. There is no reason to pretend about that.

Almost invariably, Nigerian government officials know who the beneficiaries will be because they are always their friends. So, there is an element of selfishness involved in the entire arrangement. Government officials would of course deny any self-interest; but self-service in these matters is an ever-present danger.

And, while the commission agents will definitely make millions of dollars, there is no guarantee that that the country will benefit from the entire debt burden. There is a lot of Nigerian history to back up that claim.

By the time the elected government of President Shehu Shagari started on October 1, 1979, virtually every kobo of the $2.8 billion loan to which Obasanjo committed Nigeria had been spent – even for projects that had not even been started; most were to be completed several years after, OBJ left office. But, we can now hazard guesses from what we learnt authoritatively nine years after in 1997.

In 1997, late Chief Ayo Ogunlade, the Minister for National Planning, under General Abacha, shocked Nigerians, already almost beyond shock, at a workshop in the Nigerian Institute of International Affairs. According to Ogunlade, out of almost $10 billion loans received by Nigeria, from Obasanjo’s $2.8 billion in 1978 to that year, 18% had been drawn down without any project to show for it; 36% of projects had been abandoned; 42% had gone into projects which were earning no returns and, from only 2% were Nigerians deriving any benefits.

Jonathan’s government recently conducted an audit which revealed over 70,000 of uncompleted or abandoned projects. The major reasons for this high rate of failure might have escaped the President, the Minister of Finance and the National Assembly. But, they can be summarized in two words – greed and corruption.

While greed is not always bad; corruption is inevitably socially and economically corrosive. Most governments, Federal and states, incur long-term loans, for projects that cannot possibly be completed during their tenures of office.

The ploy is deliberate; they want to collect all the kick-backs and “kick-fronts” before they go and saddle their successors with the problems of repayment and project completion. The swindle is already in progress from the Atlantic coast to the northernmost parts of Nigeria today – especially by governors serving their second terms.

Whenever, new loan is secured by an incumbent government, Federal or State, the government in power treats the proceeds as if it is private property of those in transient possession of power. A preponderant percentage is drawn down within a very short time and hastily committed to projects – some of which have been hastily conceived to justify the disbursement of funds.

The Independent Power Projects, IPPs, for which Obasanjo drew down $13-6b could not possibly have been concluded before 2007, when the government was scheduled to depart. Granted, the funds for IPPs were drawn from our own savings, but the hasty disbursement of the funds was typical of what governments do with any pool of funds available. There is no reason to believe that Jonathan’s government will behave differently.

More importantly, it is rather odd that a Minister of Finance, whose country loses $7 billion a year in oil revenue, will not recommend that a mere $1 billion be spent annually to engage international organizations to reduce the losses by half; that is $3.5 billion.

If that is done, the country will need no loans because in less than three years we would have earned sufficient incremental revenue to fund the projects planned. By the fourth year we will have a surplus of funds. Another advantage of self-financing, as opposed to the debt trap, is that the funds don’t come at once, so the incumbent government does not spend it all before departing leaving its successors with uncompleted projects and no funds to finish them.

The question which readily arises is: why have the Minister of Finance and the Federal government for which she speaks, ignored this option which will allow Nigeria to escape the debt trap? The answer might not be too hard to discover and for this we need another trip down memory lane..

Nigerians with any memory at all will remember the story of the ship, African Pride, which was caught with illegally bunkered crude oil. Between the Nigerian Navy and the Nigerian Ports Authority, a ship which was supposedly chained, disappeared into the high seas and changed its name.

Every fact known about maritime activities proves that it is impossible for a chained ship to sail away on its own. Somebody cut it loose on orders from above. It is also well known that no ship can sail into Nigerian waters, load crude oil and sail away without being apprehended without active collaboration of various security personnel who in turn work for higher ups.

Obviously the Federal government and the Minister of Finance, as well as Minister for Petroleum Resources, prefer the loan option to doing their jobs by plugging the loopholes for theft because the real thieves are those with access to the corridors of power.

For those who might be wondering who the criminals are, a story from Egypt is necessary. Late President Anwar Sadat, of Egypt, according to a comedian, was holding a cabinet meeting with his Ministers, when an aide rushed in. “Your Excellency, thieves have broken into the Presidential Palace, and carted away a lot of money and jewelry”.

Sadat was surprised and his reply was, “But, that is impossible, I have all the known robbers here with me”. There is a lesson for us in that story; believe me.

However, it is not only by refusing to plug the loopholes to oil theft that the Minister of Finance wants to take the easy way out, at Nigeria’s expense, she also does it routinely. She was there when Obasanjo gave away over N400 billion in duty waivers.

That was $2.5 billion which we could have saved for development of infrastructures; but instead it went into private pockets of friends of government. President Jonathan has embarked on giving away about two hundred billion naira as duty waivers.

Every N165 billion given away this way represents $1 billion we don’t have to borrow. But, since those receiving the waivers are also the “philanthropists” called upon by government to raise funds for emergencies like flood relief, it is clear to clear-eyed economists that government and the beneficiaries of duty waiver are only robbing Nigeria only to give back a fraction in charity.

Finally, the Federal government would benefit from a lesson from the late sage Chief Obafemi Awolowo, an economist, even if he did not work for the World Bank. Perhaps it is just as well. Under Awolowo, the Western Region’s annual budget was allocated as follows: 82% for capital and 18% for recurrent expenditures.

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