I read the Minister’s explanation of the Debt cancellation adventure with great interest and acknowledge her penchant for reeling out poverty figures and statistics. Nevertheless, I believe that some logic must be associated with the figures as my accounting training tells me that figures can never stand alone they always tell a story. Therefore we should not stop at the poverty figures but tell the story also on how we got there and our planned route out it so that we can understand the debt situation fully. Though the Minister did not dispute any of the assertions of the people who out of genuine concern have voiced out their opinion on the subject, the fact that she took time to respond goes to confirm that “the elephant is beginning to dance” if I may borrow from Segun Adeniyi. Her explanations notwithstanding, there is need to address some basic fundamentals in the economic management and reforms.
The recent hype about the highest foreign external reserve in sub-Sahara Africa of $20bn and the growth in our oil and gas reserve clearly contradicts our claims of inability to services our debts hence the call for debt cancellation. With a debt of $34b and a proven reserve of 55billion barrels of oil and condensate and another gas reserve equivalent to of 32billion barrels oil (ESMAP UNDP/World Bank Report – Nigeria Gas Plan 2004), our debt is less than 30 cents on the per barrel price of Nigeria’s proven oil and gas reserve. Oil and gas make up the few commodities that will remain in high demand for the greater part of this century and the global consumption is not abating as Asia especially China and India struggle to join the league of developed countries.
These are hard facts that determine ability to pay in credit analysis and no lender grants debt cancellation till the borrower declares bankruptcy. It is a misconception on our part to hope that Nigeria is under consideration when the G8 and Paris club talk about Africa’s debt burden. The knowledge of the potentials imbued in a vibrant and reasonably educated 120million population with oil and mineral rich green vegetation, cannot be lost on them. Our debt cancellation plea will be one of the last cases to be heard.
The developed world is also under pressure with most G8 and Paris Club economies running unhealthy budget deficits and facing gloomy economic prospects. The challenge of integrating the new converts to democratic and capitalist ideals from Eastern Europe is also there for the G8. The United States also has its Third World Latin America neighbors to contend with and this all point at less attention for Africa which enjoyed prominence during the period of the cold war. As the G8 members struggle with there local economies it will directly or indirectly impact on us. That accounts for the continued subsidies to their local farmer in contravention of WTO agreements at the detriment of the commodity market and poor third world economies.
There have been calls for a Marshall plan for Africa akin to America intervention between 1948 and 1951 to stabilize the Western Europe economies after the Second World War. Sincerely I think that for us that should be of interest. Our pressing needs are rural infrastructure of roads and railways, storage and treatment facilities, markets, communications and energy. Farmers need these to obtain the modern equipment and materials that will enable them to sell their produce at competitive prices. In Europe, the Marshall Plan helped to re-establish these infrastructures after the Second World War, and the European Union is now doing the same to help new members catch up.
The Marshall plan for Europe after the Second World War was not free money. So it is not enough to say we have changed and we now have the right institutions; we should go ahead to make value propositions. In every deal there is always the last line of what is in this for us. Humanitarian aid has not developed any country in the world and it never will. A school of thought is even saying that the humanitarian aid is not free. America boosted it local industries under the Marshall Plan in addition to its political influence in Western Europe. Will it not be more attractive knowing our weak position in terms of debt cancellation and attraction of foreign Direct Investment to work with Paris Club members on granting equivalent amount of debt services to the private sector in form of export credit and investment insurance schemes?
Export guarantees have been a very important tool in encouraging substantial capital goods and technology flow into the third world markets. It finances over $400b of global private sector exchanges annually. The previous abuse by various government agencies and officials should not blind us to the fact that it is the strongest and the easiest way for the developed countries to play in developing markets perceived as high risk. This product could be expanded to cover country risks on investments in our stock market even though at about $20billion capitalization a mid size investment bank can buy our entire stock exchange. If government supports the organized private sector with juicy concession it will drive expansion along these lines for the critical capital goods like power and road infrastructure. Utilisation of export credit line could be developmental if real value for money is obtained and corruption eliminated.
There must be baits to encourage any form of huge inflow of resources. The aberrant situation where our government has been working with the foreign private sector instead of providing the facilitating mechanism for our private sector to participate actively in provision goods and services to the people must be discouraged. If private sector access to international credit is well articulated and abuse proper checkmated, it will lead to increased activity in the local economy and provision of much needed goods and services. This is also the only way to acquire technologies which do not have the resources to pay for. It will be an improvement on current capital flight of paying back dead money (debt) that can only be traced to Swiss accounts by ensuring continuous inflow of capital goods into high priority areas in the economy.
The platform for capital availability must not be debt cancellation or aids that enable profligate government agencies award contracts. The more attractive model is the win-win business model. The Minister with her educational pedigree and exposure should find new and creative means of engaging our creditors other than the populist cry for debt forgiveness that will bear little or no dividend. Debt can be used for development and growth when matched with a strong revenue profile. The private sector has continued to prove that with the new telecommunication companies as a reference point. Our corrupt application of public debt to private pockets should not give the impression that debt in itself is anti-developmental. My cynicism on the debt cancellation campaign is fueled by the “abeg” articulation based on reeling out poverty figures and appealing to the conscience of the west in a world of crass capitalism where there is no free lunch.
It is poignant when intellectuals equate our poverty or wealth to simple arithmetic of oil revenue and population. Oil is only an advantage that would have paid the cost of social infrastructure. The potential of Nigeria is in its human resources, its youths eager for knowledge and education, its industrious farmers and labourers, its emigrants working hard in their adoptive countries to improve the lot of their families back home. These are the real assets with which we look to the future of with confidence and hope. We have been impoverished by weak institutional framework for the allocation of social resources leading to lack of social capital and public trust. This has made the average Nigerian always wary of government intention and sometimes unwilling to make any sacrifice. If it is not so, why will our Honorable Finance Minister and her fellow “home based” expatriates insist and are collecting dollar salaries while on National service?
There is also danger in adopting the attitude that all our problems now are attributable to the debt profile. We have not explored taxation as a means of funding government activity which is the situation world over. Cities are managed mainly from property tax. While our elite keep up with payments for their vacant mansions in various world capitals, they live in over $2m dollar homes in Abuja, Lagos and various parts of the country without paying a dime to ensure that the public school or health centre in the neighborhood is well funded. Our penchant to enjoy luxury without paying the social cost is an obscene aberration to the basic ethics of public welfare and society’s existence. It only right that while we ask the Paris club give us reprieve so that we rebuild our infrastructure that we should ensure that the wealthy fully pay the social cost of their chosen life style like it obtains in Paris Club nations and elsewhere. We have lived with the reverse for too long whereby the poor unjustly pay for the greed and consumption of the rich. What is the essence of the state if not to create social capital for advancement of its citizens while ensuring reasonable income redistribution through the taxation and welfare systems? Is it not unfortunate that what our elite pay happily else where they reject entirely at home?
The Honourable Finance Minister has admitted that her quest for debt cancellation is hinged on best effort basis and the Grace of God, two variables that cannot be measured. One will suggest to her to seek more credible and equitable way of getting our creditors to help us channel resources to the private sector as the price for our commitment to paying our debts. Government should take the backstage and push forward the organized private sector with concessions and incentives if we will ever move an inch. That way the various companies with their partners can take up Build Operate and Transfer (BOT) projects for 25 years or 30 years without bothering about country risk and there will be power in Enugu, Kpakpalanto and Odi and Gusau.
The current transnational company initiative by some Nigerian entrepreneurs should be encouraged to focus on critical infrastructure like power and roads. Lets even have the good roads nationwide and pay the toll; have electricity and pay the international rate after all despite our competitive advantage in petroleum production, we are paying international rate. Also, we are paying global rates for the GSM yet the effect on the life of the people is evident. Oswaldo De Rivero, the former Peruvian Ambassador to United Nations in his insightful book , The Myth of Development”(a recommended read for all public officers) gave us a clue on the emergence of the new aristocrats called the Transnational corporations, about 38,000 corporations controlling two thirds of the world trade. They control and oil the global political machinery to protect their interest. In this era of globalization we do not even have strong national companies.
Debt cancellation or forgiveness is pure politics and does not have any place in economics or finance. It is anti-competition as it is anti-capitalism two tenets that the West professes. There are other ways that could encourage flow of investment in key areas through the more credible and transparent private sector mechanism. My feeling is that Nigeria will not qualify for substantial debt cancellation in the short term, so we should be creative by joining hands with the private sector to clear the obstacles against investment flow into this economy.
The institutional Augean stable cleaning should also be fast so that it will not be left again for a new administration come 2007. Our ranking in Global and even African business competitiveness is too poor despite our large market and resources. With the Minister’s promise of greater efficiency in resource management; and tax collection from the upper class we should be able to free up reasonable resources for development. There is urgent need to address issues like technological backwardness, food security, water and energy, birth control and rural development to stabilize urban migration. These ones are within our reach while Debt cancellation is not as the Minister has concurred.
I will sign off by quoting Todd Moss a research fellow at the Center for Global Development, in Washington, who wrote recently in the International Herald Tribune that, “Africa’s battle against poverty will ultimately depend on its own people and leaders. The international community can support them through more open trade, greater private investment and better development assistance.”
Mr. Toochi Uchendu is a Chartered Accountant and lives in Lagos email@example.com