The Dollar Dollar Bills!
See I’mma tell you like Wu told me
Cash rules everything around me
Singin’ dollar dollar bill y’all (dollar, dollar bill y’all)
Singin’ dollar dollar bill y’all (dollar, dollar bill y’all) — Wyclef
Everything about memory in Nigeria can really be short. Suddenly, we look everywhere for funds and very wary of exploiting the domestic bond markets beyond what it is, we remember our foreign debt is relatively low. Suddenly, we plunge into the pool.
M0on-walk back to 1999, Nigeria was owing $28bn, with over 70% to the legendary Paris Club of Debtors. By 2003, Nigeria external debts has risen to $32bn. In a series of payments ending in 2006, Nigeria paid $12bn to the creditors to wipe off a $18bn debt. Forget that it was chicken change to the petrol and kerosene subsidy fraudsters in 2011–2015, $12bn in 2005 was not small money. We were still able to pay that and raise reserves to $45bn in 2007. To understand the pain Obasanjo met, kindly read a snippet of 2001 budget speech:
“ Although the debt service obligation for 2000 was taken to be about 3.6
billion US dollars, this understated the gravity of the debt burden that
would have been carried over to 2001 but for the rescheduling arrangement
reached towards the end of 2000. This was because arrears of debt service
payment at the beginning of 2000 were actually about 19.5 billion US
dollars. Even after the rescheduling, the debt service due by Nigeria to
the Paris Club of Creditors for 2001, was about three billion US dollars,
but following negotiations this was pegged at one billion US dollars. At
beginning of 2001, Nigeria’s external debt stock stood at 28.5 billion
You heard it right. Arrears of debt service for external debt as at 2000 was $19.5bn, our external reserves was around $4bn. It was a catastrophe. I don’t intend to whitewash Obasanjo because I have honest grievances on his sucession but give it to him, he gave Nigeria a good exit. An exit from debt that our generation hardly benefited from.
The debt rose from $3.34bn during Yaradua’s period to $3.94bn at his exit. At the exit of Jonathan, external debt has nearly tripled to $10.3bn mainly driven by World Bank’s IDA ($6bn), Eurobond ($1.5bn) and China Exim ($1.4bn).
However, $10bn pales to the huge $30bn that President Buhari wants. Like a single adminstration wants to quadruple the foreign debt of a country?
The first test was the African Development Bank ($1bn) which FG got $1bn already. The next dip is the Eurobond, next is World Bank, maybe next is Islamic Development Bank, next is China, then India… in fact Nigeria ends up borrrowing from the world. $30bn! Let us do some academic exercise and categorise our lenders into four — Chinese, Multilaterals, Eurobond and IMF.
Chinese Debt — They give you a package not a loan. The loan is for a road or a railway, built by their own company. Low interest rate. You pay for 15–25 years. It is a cool strategy to use their expertise to own debt. I think they are the smartest country in the world. Since you don’t have sense (read: intellectual depth) to build your own roads and rails (technologies that date back to 1950s), let us borrow you money and also build it for you. Long live the Chinese.
Multilaterals — A major chunk of Nigeria’s recent debt (World bank, Islamic Development Bank, AfDB etc.) has come this way and with the long term funding it provides, this is that funding that you should lock into that long-term funding. Ask me? What is long-term funding should be for? It should be a mix of social programs that fix our present woes and our existential question on how diversify future public revenues.
Eurobond — Looks so cool if you market yourself so well. Nigeria requested $1bn and got an overwhelming response for $7.8bn. Everyone wants Nigeria’s debt denominated in dollars but not enough bold to invest in a country with our kind of economic climate. The problem is Eurobond is that interest rate — 8%, we are at par with Greece that has a debt-to-GDP of 175% (Nigeria’s around 12%). Our politicians will keep loving this but we kick the can down the road. Politicians will love Eurobond because it comes easy and you can actually spend it as you like.
IMF — Finally, you hear IMF but what an irritant to the Nigerian government. The terms might be the last pill in the pack but it brings reforms that political expediency might not cure. Nigerian politicians have said “No way, we are not in the IMF-grade crisis”. Cheap money too but the reforms and the hard bargain, are we ready for that? No Nigerian government wants the bruise.
Since, we have created an averse environment for investment due to poor policy choices, the next plan is to borrow. However, what is the economic rationale driving the case of borrowing? The rail we are borrowing for, are they the most profitable routes, the better alternative in terms of travel? Can’t we build those roads when the granite, cement and bitumen are all within our reach? Are we borrowing to expand our domestic capacity?
I will love to take a take a World Bank loan to build industrial parks with guaranteed power, borrow from the Chinese to import machinery that completes our value chain, borrow from multilaterals to build a firm base for technical education and sound health system, diversifying our power generatio base for projects such as Mambilla Power Plant, investing in learning technology in building world-class road and rail technology. These are not quick shots for politicians guided by four-year cycle. We are under-investing in education and we think foreign loans is our ticket to greatness. We need leaders who see telescopes.
We have found another easy part and it is a dangerous path if criticial thinking is not added. If you read the 2017–2020 ERGP, you will see that this is the new fad of the FG. It is short memory out there and if you check the maths, Nigeria with its weak revenues is spending more than a third of revenues to service debt.
Debt is an easy route, we will build the roads and rail and what kind of people will we be left with — akotileta? It is a demographic crisis bucket for a country that with be the third most populous country in 2050, we are kicking it, we will meet it down the road.
We need to tread this new foreign debt gig softly. This dollar bills can be more poisonous that domestic debt that you can fix with CBN printing machine.
Nigeria, DELIBERATELY invest in your people and give them the environment to thrive.