By Onyedika Agbedo
FORMER President Olusegun Obasanjo has a history of speaking his mind on any issue in the country without minding whose ox is gored. Sometimes, he makes his points through jokes and innuendos but there is a popular Igbo adage that says that he who a proverb is meant for understands it without needing an interpreter (A tua ilu nkirika nkata, onye ahu tara amara).
That way, he has ruffled a few feathers in both high and low places in his continuous bid to help in the construction of a new and progressive Nigeria. But recently, the former president threw caution to the wind and came down hard on the President Muhammadu Buhari-led administration, which he helped to install, over the $29.960 external loan proposal.
In a keynote address, “Nigeria yesterday, today, and tomorrow: Governance and accountability”, which he delivered at the First Akintola Williams Annual Lecture, in Lagos, Obasanjo opposed the foreign loan, insisting that some of the projects it would be expended on would not be self-sustaining as adduced by the government. Obasanjo had pointedly warned that, “if we borrow some $30 billion in less than three years, we would have mortgaged the future of Nigeria for well over 30 years to come.”
Obasanjo said: “We immediately need loans to stabilise our foreign reserve and embark on some infrastructure development but surely not $30 billion over a period of less than three years.
“That was about the magnitude of cumulative debt of Nigeria which we worked and wiped out 10 years ago. Before that debt relief, we were spending almost $3 billion to service our debt annually and the quantum of the debt was not going down. Rather, if we defaulted, we paid penalty, which was added on.
“The projects listed for borrowing are all necessary in the medium and long-run for our economy but we have to prioritise. Railway is a necessary service but it is not profit making anywhere in the world today. We need steady and continuous but manageable funding on the railway project. Mambilla hydro is the same; necessary but it cannot pay itself, especially with the global energy sector of shale revolution, hydrogen fuel and increasingly cheap renewable energy such as solar.
“Telling us that those projects will pay themselves cannot be the whole truth. We were told there was rainy day when we lavished our reserve and excess crude on frivolities. When we now have the rains beating us, there is no umbrella over our heads.
“Again, now, we are being told the projects will pay themselves when we know damn well they will not. If we borrow some $30 billion in less than three years, we would have mortgaged the future of Nigeria for well over 30 years to come.
“A careful scrutiny of the projects with prioritisation and avoidance of waste and taking into account avoiding bunching of debt service in future especially when no one can accurately forecast the global and national economy, will indicate less than thirty per cent of the foreign loan being requested as prudent.
“We must not be unmindful of internal borrowing either. It impacts somewhat differently on the economy but it must not be allowed to crowd out the ability of the private sector to borrow to grow the real economy which is to lead us out of the recession.”
How FG want to spend loan
President Muhammadu Buhari had written the National Assembly on October 20, this year, seeking for approval to borrow $29.960 externally over a three-year period. Buhari had explained in his letter that $11.274 billion out of the loan would be spent on special infrastructure projects while the sum of $10.686 billion is for Euro bonds of $4.5 billion and Federal Government Budget Support of $3.5 billion.
Other projects listed in the borrowing plan included $75 million for community and social development projects; $125 million for Nigeria states Health Programme Investment Project; $100 million for Nigeria Youth Employment and Social Support Project and $50 million for FADAMA III project respectively.
Although the President’s request was rejected through a popular voice vote at the Senate, government has been unrelenting in its bid to get the Upper Chamber to approve the acquisition of the loan. However, opposition against the acquisition of the loan thickens by the day. Obasanjo’s comments strengthened the opposition camp and re-opened the debate on the issue.
In this interview, renowned economist and Lagos-based industrialist, Henry Olujimi Boyo, bares his mind on the issue, declaring that it is suicidal for Nigeria to borrow now.
Opposition against the $29.9 billion loan proposal by the Federal Government is getting stronger by the day but it appears the government is not willing to budge. What is your take?
That is a question that is difficult to answer; I cannot speak for the government. I don’t know what is in their mind; I don’t know what they know that the rest of us don’t know.
But what is clear is that usually, there is nothing wrong to borrow in order to improve your social welfare and infrastructure. But it is worrying if you have to borrow at the same time that you are already owing so much money such that you are using about 40 per cent or more of the real income you earn to service your debt. In other words, you are already paying about N40 out of every N100 that you earn to service your debt. On an individual level, if you earn N1 million a year after deductions and you find that you have to immediately take N400, 000 to service your debt, the balance of N600, 000 will not be enough for you to pay your rent, transportation, cater for your children and things like that. So, it is critical that you do not borrow beyond your capacity to pay. So, that means that I’m not against borrowing but I’m saying that borrowing should not be done when the parameters of income and expenditure don’t advise that you should borrow.
So, I don’t know why the government is insisting on borrowing especially also when there are other avenues instead of borrowing for accomplishing those tasks that you would want to fund with the money you would borrow. So, I really can’t say I know the mind of the government but I can tell you categorically that it does not make sense. Although it is often said that our debt to GDP ratio is still within acceptable limits and people would refer you to other countries where the debt is so high, they would never in the same breath tell you that those countries they are referring you to are actually using N30 out of every N100 they earn to service their debts.
Given the analysis you have made, are you saying that taking the loan would kill Nigeria?
Well, if you understood my earlier analysis, I think that question would have been answered in your mind. If you are already spending up to 40 per cent of your income to service debt and consume the balance of 60 per cent on recurrent expenditure without providing for the future, it needs not be said that the country would end up in very dire circumstances if that continues. If the naira also continues to plunge, it would not be unrealistic for the naira to fall as much as N5000 to one dollar and when that happens, everybody becomes poorer. And of course, it means that you have to find much more money to service your foreign debts.
For example, when they say some foreign debts are multilateral debts and they are only two per cent in terms of cost, two per cent might look reasonable and modest. But you know that if your exchange rate falls within the period of five or six years from N500 to N5000 to one dollar, it means that you will be requiring 10 times more naira to service the same debt that is two per cent now, and that will be 20 per cent. For a country to be paying interest of 20 per cent on its debt especially when government debts are supposed to be relatively risk free certainly becomes abnormal.
At a recent public lecture, former president Obasanjo also kicked against the loan, urging the government to instead look for people that can fashion out a workable and result-oriented economic policy that will revamp the economy. Many have interpreted it as a veiled passage of no confidence vote on the government’s economic team. Do you think the current economic team is not doing enough?
I don’t know whether the government’s economic team is doing enough or not enough. But what is clear is that the socio-economic pressures on individuals and corporate organisations don’t seem to be going away; if anything they are becoming harder. So, you can interpret it in whatever way you like. If those pressures are increasing, whether you think the economic team is doing enough that is your own judgment. I don’t want to say who is doing enough and who is not doing enough. I think what we should be looking at is: Are we getting the benefit of best practice economic and monetary management? Even if I don’t answer no, the evidence is there that we are certainly in the woods.
Obasanjo also cautioned against adopting ad-hoc measures towards revamping the economy. Do you see the option of seeking external loan as an ad-hoc approach to pushing back the forces of recession?
I have told you that you are already spending 40 per cent of your income to service debt and you only have 60 per cent left; and you are used to spending over 60 per cent of your total income on recurrent expenditure. So, you have nothing left basically. If you borrow more, it doesn’t mean that you would not borrow again next year or the year after because you have not come up with a framework that will generate income for you. So, if anything, this might just be the beginning of additional or cumulative debts for the next few years. If you follow that track, you might end up spending up to 60 or 70 per cent of your income in servicing debts. I don’t know whether anybody would consider that to be a sensible position to be in, but as it is said, one man’s food is another man’s poison. So, some might be happy that the country is spending 60 per cent of its income on debt servicing leaving little or nothing to spend on infrastructural development. To me, I wouldn’t want to live in that kind of country.
How can the country finance its huge infrastructure deficit, which is currently estimated at $45 billion per annum, without borrowing?
Concession! I am even concerned that some Nigerians still talk of government borrowing to set up infrastructure especially in view of the rampant evidence that government-funded infrastructure had never been properly managed in this country. Is it Nigeria Airways you want to talk about? Is it Nigerian Shipping Line? Is it NNPC? The list goes on and on. So, with this sad record of poor performance in government agencies and institutions, it bothers me that a sensible Nigerian would say, ‘let us borrow and create more infrastructure that would be government managed’. I wonder why! The person saying so must be somebody who really enjoys suffering. Tell me one government institution or agency that they used public money to build that has been functioning effectively; and people are saying, ‘let us borrow and build more infrastructure for government agencies to run’. Something is wrong in that kind of thinking.
In that regard, the Director General of the Debt Management Office (DMO), Dr Abraham Nwankwo, argued in a recent article that the country must not commit the “sin-of-avoiding-sin”. By that he meant that the country’s failure in the past to utilise public debt and revenue to build a strong and inclusive economy cannot justify failure to mobilise capital when the need is compelling and the environment for prudent and productive use there. Don’t you think he is right?
Well, if the person who is going to midwife the debt is telling you that, it should not surprise you because he is giving himself work to do. If you notice, Nigeria was almost free of debt after the debt exit in 2006. All the debts we have accumulated between 2006 and today came after the DMO was created. So, basically you can call the DMO a debt creation office; that is what they are there for. So, it is not surprising that they are saying we must not because of the sins of the past not borrow now. Have you rectified or replaced the system that led to mis-governance in the past? Is there any convincing structure on ground? Or will the Nigerians who are going to manage these enterprises suddenly turn to angels and manage them effectively? Nigerians should look at it from that perspective. It’s purely common sense from my point of view; the man is taking Nigerians for a ride.
When the DMO was created, the issues they said they were addressing were to create a debt market and benchmark. They didn’t say that they created the DMO in order to be able to borrow and put down infrastructure. They just created the DMO to midwife debts; so they enjoy it. If this $29.9 billion debt is also acquired, we are tending towards a situation where within 10 years we would have tripled our debts. So, we will be talking of from almost zero debt in 2006 to over $90 billion without anything to show for it. Are we well? So, I don’t put much value to government offices that want to camouflage their failures or want to hide the nuisance they have created with public funds.
The reality is that it is not debts that will improve our lives. Those things that they want to use the debt for, as I said, can be obtained through concession. You don’t have to spend money on it. More so, as soon as people start creating these infrastructure, they will employ workers and you will collect tax from them.
In that lecture, Obasanjo’s also called for the restoration of the independence of the Central Bank of Nigeria (CBN). Do you see any form of interference in the operations of the CBN under the current administration?
I don’t think the CBN is doing anything different now than what they did under Obasanjo. Obasanjo himself was a little bit clueless about how to run an economy and he had people like Soludo and Okonjo-Iweala who confused him in a manner that he thought he was sailing towards el-dorado. But in truth, both Okonjo-Iweala and Soludo totally led Obasanjo astray.
The CBN, to me, is free enough to do what it has to do. I don’t think there is any need for any additional independence. If you ask me, if you have to impose or address any more regulatory structures around the CBN, I think it would have to be in the area of performance.
You see, the 2007 CBN Act is so wild and loose in terms of definition of performance. All it says is that the CBN must maintain price stability. So, if prices are stable at 20 per cent rate of inflation, they can still say they are maintaining price stability. But we are all aware that inflation rate at 20 per cent is killing, poisonous, destructive and distortional. Consequently, you cannot extol the CBN at 20 per cent rate of inflation.
We must recognise that inflation is a plague; it knows no boundaries. Unfortunately, most of us don’t seem to recognise the pervasive influence of inflation in destroying an economy. If inflation remains at 20 per cent or thereabout, it means that every five years, everybody with static income would have zero income. You are aware of course that we have had a minimum wage of N18, 000 for over five years now. So, you can be sure that the purchasing value of that N18, 000 has gone down drastically.
What in your view is wrong with the management of our foreign exchange at the moment that is causing crisis in that market? Even Obasanjo did mention in that lecture that the management of our foreign exchange does not amuse both local and foreign investors…
(Cuts in) I don’t think Obasanjo should have a mouth in this matter. Nothing has changed in the way he was managing the so-called ‘foreign reserves’; it is the same manner. So, I don’t think it is fair for him to make a comment because he sustained the same process that has ruined our naira. In the time of Obasanjo up till now, all dollar earnings, which were to be distributed to the three tiers of government, were generally substituted with naira allocations. And Soludo and Okonjo-Iweala together convinced him that this was the right thing to do.
What I will like to point out, which might alarm most Nigerians on the issue of exchange rate stability, is that people have been made to believe that if we earn more dollars, the exchange rate will be stronger. That is a bloody lie. You know our people have very short memory. They forget that we earned over $60 billion when oil sold for about $130/$140 per barrel and that during that time there was nothing wrong with our oil output, as there was no militancy in the Niger Delta. But did you hear that the naira became stronger from N160 to one dollar that it was to N120 to one dollar. So, why would anybody believe that with more dollars, the exchange rate would become stronger? It doesn’t happen that way. This is because the increasing amount of dollars we have, the more naira liquidity we have because the CBN captures those excess dollars and supplies you with naira in the system and naira floods the system. When naira floods the system, what do you think would happen? Inflation would skyrocket; if inflation skyrockets, the purchasing power of your income would be less. Not only that, the CBN now brings out the dollars, which they substituted with naira, and starts auctioning them. When you auction your phone, whom would you sell it to? The person who offers the highest price! So, if the custodian of the naira is busy auctioning dollars against naira in a market where there is so much surplus naira that nobody wants it, certainly that helps to kill the naira more because the naira has no fighting chance. When there is so much naira in the market and that same person who captures the dollars in the first place now brings in rations of those dollars to auction in the market, it simply weakens the naira more. From my own perspective, it is as if the whole thing is deliberate to kill the economy. That is all I can say.
What are your final words of advice to the government on the $29.9 billion loan proposal?
It makes no sense. It’s suicidal for you to borrow under these conditions. You are already spending so much of your income to service debts. More so, in the past, government had never run the things you want to borrow to spend on properly. So, why must you be anxious to go and borrow to do the same things and put the same Nigerians there to run it as job for the boys? Some people will say the situation is different now. But Buhari is one person; he cannot be everywhere. Okay, if Buhari is so tough why is NNPC still in the state that it is today for example? Most government agencies are still run like private fiefdoms and very much corruption ridden.
You see, there are very tight limits to how much a government can spend. This year, 2016, for example, the total budget was about N6 trillion, which is $18 billion. If the government has to spend the double of that amount, it will be $36 billion or N12 trillion. But if it has to spend N12 trillion it means it has to borrow N6 trillion. When will it be paying the debt that already existed before it added that one to it? And does it make sense when a private sector participant can do it for you free of charge.
So, the point I’m trying to make is that even if the government doubles its spending whether by borrowing or whatever, at the end of the day, we must recognise that it will still not be enough. We are being told that the money that is required to get us into the league of countries that are self-sufficient in power is at least $100 billion. So, even if the government doubles its budget and spends N12 trillion, it still cannot provide us with power because the estimate is about $100 billion or more. But private sector financing is infinitely elastic. That is why banks are given a licence to create money. That’s what banks do all over the world. So, you have given banks the licence to create money and instead of you allowing them to do the job they are supposed to do, which is to create money and lend to the real sector, you say you want to borrow the money yourself and invest on infrastructure. It runs against the grain of common sense.