August 27, 2018

Buharinomics leading Nigeria into another debt trap

Buharinomics leading Nigeria into another debt trap

President Muhammadu Buhari new Chairman of Economic Community of West African States (ECOWAS)

“It aint the things you don’t know that cause the problem. It’s the things you think you know that aint so.” Ralph Waldo Emerson, 1803-1882. VANGUARD BOOK OF QUOTATIONS, VBQ, p 117.

By Dele Sobowale

The first thing which must shock most Nigerians, though not most people in advanced countries, is the fact that Nigeria lacks a comprehensive and coordinated economic policy. The reason for that is clear. Nobody at the top levels of government is an economist. Buhari is not, neither is Osinbajo — the Chairman of the Economic Management Team. Talk about putting a round peg in a square hole or vice versa and the Vice President of Nigeria should be a perfect example of that syndrome.

President Muhammadu Buhari

All he knows about economics should fit conveniently into the back of a postage stamp and there might still be some space left to jot a few observations. From the first day he was placed in that role by Buhari, who knows even less about economics and would make other world leaders “smile”, Nigeria’s top economic managers have appeared to economists worldwide as laughable.

A good example of their lack of economic principles was the VP’s futile trip to the USA a few weeks ago to canvass for American investment in the Nigerian economy. Certainly, the last thing anyone should expect from the Tour Report is that it was a mindless waste of scarce foreign exchange. The report submitted to Buhari would highlight promises made by Americans who were only being polite about coming to invest in Nigeria – without giving a timeline for the decision. More informed people know from the historical verdict of investment experience that investors never ever risk their hard-earned funds on countries that are potentially unstable and might erupt without prior warning. Nigeria is just a few steps removed from total breakdown of law and order.

And, hasn’t Osinbajo’s own government demonstrated that it is lawless and disregards court rulings? A government which routinely disobeys court orders when made in favour of its own citizens is asking foreigners to risk their funds and suffer the consequences of believing a lawless government. It will never happen.

All that has been said earlier serve as prelude to the real problem, now tending towards a catastrophe, confronting our nation. Nigeria is now inexorably heading for another debt trap worse than the one from which were rescued by Obasanjo/Okonjo Iweala.   When Nigeria took its first foreign loan of $2.8bn under the military government of Obasanjo, technocrats, with their gazes firmly fixed on the past when crude oil prices were rising, assured the nation that the loan would easily be repaid. Those of us counseling caution were ignored.

Elected governments at the federal and state levels assumed office in 1979 and very quickly went on a borrowing spree. All was well until 1983 when the price of crude oil started sliding downwards. By the time Buhari and Babangida had spent four years in office, crude oil prices had tumbled from $25 per barrel to less then $10 dollars at one point – N9.95 in fact. Suddenly, all those debts accumulated backed by expected oil revenue could no longer be repaid as and when due. Nigeria, then a “beggar nation”, had to plead for forbearance with its external creditors who quickly banded themselves into two “clubs” – the London and Paris clubs of creditors and they treated the giant if Africa with disdain.

By the time Obasanjo returned as civilian President in 1999, N2.8bn loan which could be “easily repaid” had exploded into $36bn which would have been impossible to pay back unless another oil bonanza occurred. Fortunately, by 1999, crude price were again on the rise on account of sustained global economic expansion brought about by the Asian Tigers – South Korea, Thailand, Malaysia, Singapore, Viet Nam and to some extent India. Even then Nigeria could still not redeem its pledge until a deal was struck under Obasanjo/Okonjo-Iweaia and part of our accumulated debt was written off by our creditors to allow this country to exit the debt trap of twenty one years. None of us who lived through those years of humiliation, the first of its kind, expect to experience another one.

“History does not repeat itself; man does” according to Professor Babara Tuchmann of Harvard University, USA. Exactly forty years after Obasanjo took the plunge into debt financing which proved to be most painful to us, Buhari is diving headlong into another one. Incidentally, Buhari was the Minister of Petroleum Resources under Obasanjo when we first experimented with mortgaging the future of Nigeria to creditors. He is now the main actor in the second economic drama that has shown early that it will end in another tragedy. An explanation is needed based on Nigerian historical experience.

In 1997, Chief Ayo Ogunlade, then Minister for National Planning under Abacha, at a lecture at the Nigerian Institute for International Affairs, NIIA, at a workshop I attended for VANGUARD, stunned the audience by revealing, that close to seventy per cent of the loans that were obtained by governments up to that time were spent on uncompleted projects. Ten per cent of the projects were not executed at all; yet the funds were drawn down. Thirteen per cent went into white elephant projects which could never provide the benefits promised and only two per cent were earning sufficient returns on investment to repay their loans. As far back as the 1980s, it was not only Fela Anikulapo who was aware that foreign loans had become a racket through which government officials defraud the public and left us with the bill to pay.

Even then, the external loans sourced in the past were tied to specific projects – water provision, to build Shiroro Dam or Egbin gas station in Lagos State etc. It was therefore easy to spot when projects financed with loans from abroad have been poorly executed, abandoned or functioning. The first problem with the Buhari administration and its approach to loan acquisition is precisely because most of the loan is not tied to specific projects and programmes which can be assessed by independent observers – or the government itself for that matter.

The second problem, and that is what scares everybody knowledgeable is the quantum of loans taken in just one year without any assurance that it can “easily be repaid” – as governments kept telling us in the 1980s until the lie blew up in everybody’s faces.

According to a news report, “the country’s debt stood at N22.38tn on June 30, 2018.That is an increase of N2.57tn representing a 14 per cent jump over the N19.63tn recorded on June 30, 2017. Let us set aside for now the matter of repayment which the current Director General of the Debt Management Office, DMO, ill-advisedly glosses over. Mrs Patience Oniha has a job to keep and cannot ruffle the feathers of her employers. We in the media also have a job to do. We must get the truth out for Nigerians. So, we start with a simple comparison.

The only way Ogunlade could provide the summary he did in 1997 was because each loan was attached to a project. By contrast, the N2.57tn which the Federal and state governments have borrowed since last June are frequently not directed at any particular project which is then expected to yield the revenue to repay the debt. Until recently – Yar’Adua, Jonathan and Buhari governments specifically – it was always possible to monitor the disbursement of funds from loans taken to execute projects. That is no longer possible. Under Buhari/Osinbajo?Adeosun and their counterparts at state levels, the Executive branch asks for and forces the lawmakers to approve loans which are not specifically tied – for the most part.

When the DG-DMO announced that “If the government didn’t borrow so much in the last three years, it wouldn’t be able to function as a government” she betrays the borrow and spend mentality of this and previous governments. Indeed, what Mrs Oniha just said establishes the difference between Nigeria and Singapore – why one remains a third world country sliding towards being in the fourth world of failed states. The other leapt from Third World to First World in one generation. Let us look briefly at two cardinal points which characterize Singapore under Lee Kuan Yew.

First in his world best seller FROM THEIRD WORLD TO FIRST WORLD IN ONE GENERATION, we learnt that shortly after becoming Prime Minister, he told his people that “we cannot live by the begging bowl, p53.” Later he declared that with respect to debt-financed projects “Our aim is to have partial or total cost recovery for the goods and services provided by the state, p 107.” Obviously, going borrowing is the second option for Singapore. But, when it becomes inevitable, then full or partial cost recovery in mandatory. By contrast, Nigeria, under Buhari, has the begging and borrowing bowl out all the time. And, if you take a look at the Medium Term Expenditure Framework, MTEF, there is no end in sight to borrowing.

The DG-DMO has again revealed another frightening aspect of Buharinomics. The FG and the state governments acquiring these loans have given no thought to who will pay in the future since some of those loans will last beyond 2030 – long after they would have been gone. By not including cost recovery into the package the current generation of adult Nigerians is being encouraged to have a “feast” and pass the bills to their children and grandchildren. They have no repayment plan other than to borrow again to repay the old loans with interest. That explains why the debt stock is rising and we must borrow more to redeem old obligations. It is a sure path to economic disaster.

The consequences of three years of poor economic management are already apparent even now. Debt servicing increases annually as a percentage of total expenditure. Instead of repairing roads, developing better schools, expanding agriculture and providing water and power for more Nigerians we are shoveling out more dollars to repay loans with interest. Meanwhile, there is next to nothing to show for the N2.75tn borrowed since June 30, 2017.

The road to economic hell in Nigeria is paved with Buharinomics!!