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To concession is more responsible than to borrow $29.9bn

By Henry Boyo

President Mohammed Buhari’s request dated 25th October 2016, for Legislative approval, to disburse the sum of $29.9bn, between 2016-2019, from an anticipated external loan package, was the first notice of government’s intent to commit to, arguably, the largest borrowing in Nigeria’s fiscal history. Media reports suggest that the funds will be deployed to improve agriculture and redress severe infrastructural deficit in selected parts of the country; so far, the criteria for project choice and location are not yet known and there are already suggestions that the project spread appears lopsided.

However, the Debt Management Office, particularly, and some media partners, have extolled the reportedly, very low interest rate, below 2% for the huge loans, and the seemingly generous tenure of upto 15years.

It might seem a no brainer, if government eagerly embraces the reported concessionary terms of our creditor ‘godfathers’, particularly with the present acute shortfall in projected revenue and the heavy burden of funding the N2.2Tn 2016 budget deficit. Inexplicably, however, critical supplementary details on the loan package, were not made available to the Senators as indicated in the President’s letter.

Senate has consequently, rejected the Executive request; but, it is necessary that a comprehensive repayment plan, with Pre project and feasibility studies, cash flow statements and the respective Environmental impact Analysis, for each project should also accompany these documents when the request is returned to the Senate for consideration. It is standard procedure that creditors would demand and evaluate these same requirements before they part with their money, and it would therefore be irresponsible for the Senate to approve any loan request, whatsoever, without due process.

Nevertheless, with the current reality of a fiscal landscape, in which about 40% of annual revenue is already applied to debt service alone, (i.e. exclusive of capital repayment, as matured debts are simply rolled over), Law makers should ignore the loud suggestions that our economy is relatively under borrowed, just because debt level is still about 5% below the critical debt to GDP benchmark of 19%!

Invariably, Nigeria’s present debt burden will rise beyond $90bn when compounded with the $29.9bn loan currently sought. Additionally, if the present loan package excludes the widely reported billions of dollars’ Chinese loans and the trillions of Naira which will also be borrowed from the domestic market to fund annual budget deficits, then of course, we may soon require well over 50% of our actual annual revenue just to service our debts, while the balance will be predominantly consumed by recurrent expenditure with little left for capital projects. Unfortunately, serial defaults in payment of service charges will instigate overbearing foreign creditors to exercise their rights and insist on more socially oppressive economic reforms to guarantee their loans.

Furthermore, the Senators should not also be deceived by the allegedly low cost of borrowing below 2%, reportedly, attached to the proposed loans. Intuitively, however, it is evident that if the Naira rate continues its freefall, well beyond N500=$1 to say N5000=$1, in the next 5 years, the economy will certainly be in deep trouble, because, despite the optically low interest rate, we may still require 10 times more Naira to service such dollar denominated loans annually. Thus, we would, effectively be paying over 20% in Naira value, on these seemingly “concessionary” loans.

Besides, when completed, the projects funded by the $29.96bn loans, would invariably become public utilities. This prospect should be worrisome, as our track record in the management of public utilities has always been riddled with corruption and some projects have become moribund even before completion, while sporadically sustainable operations have ultimately ended in dismal failure.

It has also become an endemic custom that the procedures for loan acquisition and project implementation in Public Service have sadly become ‘jobs for the boys’. Ultimately, a vastly bloated National loan burden and the threat from the dwindling succor from erstwhile easy oil revenue, may encourage loud suggestions to put up, our diminishing national assets, for sale as a possible way out of our economic predicament! Regrettably, nevertheless, the enthusiastic promoters of the present $29.9bn financial escapade, may not be around to witness or endure the social oppression they may have bequeathed on the next generation, when these loans eventually fall due for service or repayment.

The preceding narrative does not deny the urgent need to begin to remediate our infrastructural decay; however, the foreign loan of $29.9bn is probably not the best option. There are good reasons, particularly with our reduced revenue profile, to separately package every identified infrastructure enhancing project, with appropriate fiscal incentives that would make them very attractive for foreign direct investment.

We have deepened our national experience in project concessioning in the past, and we should have built the capacity to create a comprehensive template that is acceptable to all parties, so that earlier pitfalls can be avoided. Indeed, despite its apparent challenges, the MM2 domestic Terminal remains a visible icon of sustainable concessioning, which can be successfully replicated, with appropriate modifications nationwide.

A vibrant and transparent concessionary template would rapidly transform our landscape without a Kobo spent from the Public Treasury, while government will rake in considerable income from Concession fees, even before project commencement. For example, we recall that billions of dollars were paid by the Telecom companies to obtain operational licences. Government’s role is to provide a relatively secure environment for concessionaires to operate, while also benefitting from steady tax revenue from project sponsors, their employees, and the value chains they invariably create.

Nonetheless, the Terms of Reference for such concessions should include the engagement of a ‘reasonable’ percentage of local staff in their operations. A government Monitoring team should be established to diligently ensure that the Terms of reference are always strictly adhered to on both sides. The Concession Monitoring Team would similarly prevent the possibility of asset stripping as the tenure of each concession draws to a close.

However, credible performance by a Project operator, should be a recommendation for the extension of the concession, if so desired, after relevant discussions between the government and the concessionaires. The concessionaire should be assured with, ‘cast iron guarantees’ that unless there are fundamental infractions of the original terms which both parties endorsed, each concession will run its full tenor.

Arguably, a robust and transparent Concession policy should also reduce the opportunities that facilitate corruption in the handling of public projects and reduce wastages and leakages from the Public Treasury. Notably, Government will conversely, in place of oppressive debt payments, actually earn new streams of incomes from the operations of the concessionaires, even when government did not directly invest a Kobo!



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