Daily Independent (Lagos)
8 December 2008
editorial
It was at one time the 'conventional wisdom' (with due apologies to the economist John Kenneth Galbraith) that Nigeria was 'under-borrowed.' This infamous position had its heyday in the 1970s, when we were told that Nigeria's problem was "not making money but how to spend it"! The consequence was a borrowing binge to prove that the country was credit worthy. The unintended consequences are still with us today.
Having learnt and forgotten nothing, the country's leadership is about to go back to that better forgotten era. Flexing its muscles, the federal government of Nigeria wants to showcase the nation's credit worthiness by seeking the approval of the National Assembly to issue a Federal Government of Nigeria $500 million naira-denominated bond in the international capital market. The bond is meant primarily to finance the N1.09 trillion deficits in the 2009 Budget. The President - in his presentation to the National Assembly - had noted that the fiscal balance in the 2009 Budget under consideration is a deficit of N1.09 trillion or 3.95 per cent of GDP, based on the assumed benchmark oil price of $45 per barrel and assumed production of 2.292 million barrels per day.
The President seems to believe that the bond would be a testimony of the country's financial virility. The bond, the President waxed lyrical, would significantly complement efforts being made to project the country internationally as one of the strong emerging economies. This means, of course, that we are heading back to the discredited 'conventional wisdom' of the 1970s. It is this mentality that has justified the perennial junketing abroad in search of an ill-defined and seemingly elusive 'foreign investment.' The logic is rather skewed. Commonsense alone dictates that it is the state of a country's infrastructure, human capital development and its internal security mechanisms which need showcasing to skeptical would-be investors abroad.
This newspaper is in full support of those who have already kicked against this latest incursion into cloud-cuckoo land. Kudos should be given to the Chairman of the Senate Appropriation Committee, Senator Iyiola Omisore, who has correctly already smelt a rat. He has been emphatic that the issuance of the bond is not in the national interest. As he sensibly pointed out: "Nigerians are becoming concerned that the country is inadvertently going back to the era of unbridled consumption of external loans, a practice for which the nation and her citizenry had suffered severely in the past." We cannot agree more with him. For a start, there is a glaring lack of empirical evidence that all the previous loans incurred in the past which the country paid back at an excruciating cost had been sensibly used. If they had been, the nation would not be in the unedifying state it is in at the moment.
Frankly, there is not a shred of evidence that anything has changed for the better in terms of institutional capacity or the behaviour of the ruling elite. In addition, where in economic history has an emotional fixation leading to perpetual reliance on external loans produced an advance leap forward in terms of genuine self-sustaining economic development? The well-worn route has always been through the development of the infrastructural base, the development of human capital and diversification of foreign exchange earnings. It is also important to point out, as Chief Omisore has sensibly done, that the procurement of foreign loans is tantamount to signing a treaty with a foreign nation or institution. For this reason in a representative democracy, such a treaty can only be assented to via an approval by the elected representatives of the people sitting in a national parliament.
What should bother any discerning observer is that there are no specific projects tied to this latest incursion into debt-land. The federal authorities need to let the Nigerian people know the nature of the projects to be financed with this loan. We need to know their viability, ability to widen the economy's productive base and diversify its foreign exchange earnings. If we need to recourse to external borrowing it ought to be for expedient stop-gap reasons. It should not become a way of life. This newspaper has had cause to argue consistently in the past that the country's foreign exchange reserves should be used to develop its productive capacity and diversify its economy. The worldwide financial crisis has proved us right.
We also need to take cognizance of the time-value of money. Had the accumulated reserves been used over the last four years to develop the infrastructure and promote a Marshall type economic development plan for the Niger-Delta region we would have begun to see some positive results by now. Instead, we are being told that Nigeria's foreign reserves are somewhat sequestered and protected from the worldwide financial turbulence and have miraculously not depreciated in real value. This fantasy is best told to amuse the Marines.
The reality is of course totally different. A vote of no confidence is already being passed on the state of the nation's economy - triggered off by the global financial crisis: funds are now being massively transferred out of the country. Reports in the media indicate that in the last eight weeks alone, a total of $13.894 billion was transferred out of the country. This has adversely affected the value of the naira which had hitherto remained relatively stable in the last two years. The Central Bank of Nigeria has attributed this to be the handiwork of currency speculators. If currency speculators are wreaking havoc with your national currency, how on earth do you attract genuine long-term foreign investors at a time of international financial crisis?
The National Assembly must reject the application to incur this loan. We cannot promote a school of thought which would lead the nation into another round of debt peonage. The country's accumulated foreign reserves must be sensibly used to provide an economic stimulus by building up the nation's productive capacity. Bitter lessons should have been learnt from the past and we must say, resoundingly - never again!
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