‘Considering the huge infrastructure deficit currently being experienced in the country and the enormous financial resources required to fill the gap in the face of dwindling resources and the inability of our annual budgetary provisions to bridge the infrastructure deficit, it has become necessary to resort to prudent external borrowing to bridge the financing gap.” With these words President Buhari made a request to the National Assembly to grant approval for our nation to borrow $29.9bn for investment into the delivery of needed infrastructure projects.
Nigeria as a nation is one of the most viable country on earth from a financial point of view. This is in spite of the huge corruption that is the national culture of public office holding in Nigeria. To this I will want to salute all those that contributed to creating such a positive picture through our exiting from both the London and Paris Club under the regime of President Obasanjo with the able and extraordinary efforts of Minister Ngozi Okonjo-Iweala.
Today our total external debt figure as at June 2016 is put at $11.2bn with domestic debt of $50.2bn making a total debt stock of $61.4bn. It took 16 years of the very arrogant and sometimes very reckless PDP administrations to structure out this rather wholesome picture that saw GDP rise to over $500bn at its heights and became the largest economy in Africa. It is today projected to be at about the $415bn by the IMF following exchange rate devaluation and fall in oil revenues but still retains its position as the largest economy in Africa. This will be for a short time as the IMF has projected that Egypt will become the largest economy by 2020.
I will not forget so easily the national trauma of having all sorts of external dictates to our nation by both the World Bank and IMF on how we are to live our lives as a nation. In fact this accomplishment of the Obasanjo Presidency was a life time miracle of our generation as Nigerians. Nigeria became a free nation with ample choice of how it will lead its life and make choices of its development priorities and set an agenda for its growth and development.
The recent change of government from May 2015 provided us as a nation, an opportunity for an alternative framework that will give impetus to our common national quest for this said growth and development. It was a fact that the world was beginning to look at us as the next big economies with a consideration for a new group call MINT countries – Mexico, Indonesia Nigeria and Turkey after BRICs [Brazil, Russia, India and China] were so categorised. This MINT acronym has died since the events of the fall in the price of crude oil from its heights and the subsequent fall into recession of Nigeria. Our management of this challenge has not help matters as the managers of our economy had continuously looked back for reasons and excuses for the rather sorry pass we are currently in than to look forward with hope and seek out opportunities that abound in this endlessly potentially great nation.
Having frittered away a lot of time on the blame game – at least it was reported that a sense of responsibility was expressed after the recent meeting of Mr president with the APC Governors, a strategic response is now being articulated to deal with the recession challenge and to reposition our national economy on a new path to recovery and growth. A SPEND US OUT OF RECESSION strategy is now in focus with a 2016 Budget expenditure outlay of N6.06tn in place against a total revenue figure of N3.85tn. This provides a deficit of N2.2tn for the Federal Budget.
The budget details are
– Statutory Transfer (inclusive of N157 billion Capital component) = N351.37 billion
– Debt Service including sinking fund provision = N1.48 trillion
– Recurrent (non debt) Expenditure – = N2.65 trillion
– Capital Expenditure (excluding Share of Capital in Statutory Transfers) = N1.59 trillion
– Capital Expenditure (including share of capital expenditure in Statutory Transfer) = N1.75 trillion
For a better understanding of these figures, let us use their US$ equivalent for further analysis.
Our Budget figure of N6.06tn at the current exchange rate figures of about 306:1 is $19.8bn
Our revenue figure of N3.86tn is $12.7bn
Our Recurrent Expenditure of N2.65tn is $8.6bn
Debt Service of N1.48tn is $4.8bn
Our Capital Budget of N1.59tn is $5.2bn
Statutory Transfer of N351bn is $1.1bn
The Deficit figure of N2.2tn is $7.2bn
Projected GDP for 2016 is $415bn
The foregoing figures from the balance sheet perspective should not be of any worry seriously speaking from the short term perspective of an economy in recession trying to work out its way towards growth and development for a nation of over 170 million people. These are the figures dealt with by CEOs of corporations in the developed world in their boardrooms.
However, one fact that cannot be ignored is that we are broke from the twin figures of Recurrent Expenditure and Debt Service which taken together are over and above our revenue figure by about $700m. Simply put we are borrowing $700m right now to fund consumption which is being done in the main from the domestic market. Furthermore all of our Capital Budget is funded from borrowings. A further analysis of the ratios on the above figures will reveal the non-sustainability of the above budgetary structure. Two facts are clear. We must expand our revenue base and/or cut back on our expenditure.
Options open to government against the foregoing background are
- To maintain current framework with its marginal borrowings
- Borrow massively externally
- Cut back on Expenditure
The current application to the National Assembly to borrow a whopping $29bn is an attempt to exercise Option 2. The possible advantage of option 2 is that it will re-inflate the economy in an unprecedented manner as it delivers certain strategic infrastructure needed for a more robust economy. The breakdown of the application of funds for the $29bn according to news sources are as follows – Projects and programmes loan of $11.274 billion; Special National Infrastructure projects $10.686 billion; Euro Bonds of $4.5 billion and Federal Government Budget Support of $3.5 billion.
Further breakdown reveals the following listed projects lines
| 1. Mambila Hydro Power Plant | 2. $4.8bn |
| 3. Abuja Mass Transit Rail | 4. $1.6bn |
| 5. Calabar –Port Harcourt Onne Rail | 6. $3.5bn |
| 7. Lagos – Kano Rail | 8. $2.4bn |
| 9. Euro Bond | 10. $4.5bn |
| 11. Education/Health Project | 12. $2.2bn |
| 13. Agricultural Project | 14. $1.2bn |
| 15. Budget Support | 16. $3.5bn |
| 17. States Projects | 18. $3.7bn |
| 19. Economic Management/Statistics | 20. $200m |
The following are real issues to face with this mega borrowing – the kind we have never known in our history as a nation.
- Our current Debt Service figure is at 38% of our revenue. This is the position today with $11bn foreign debt stock. Imagine putting $29bn on this current stock with little changes to our revenue base. We will be doomed
- Our GDP of $415bn producing a revenue stream of $12.7bn is abysmal. Great effort is required to increase our revenue base. We are yet to see measurable efforts in this regard.
- The Cost of Government is way too high. Cost cutting measures are urgently needed.
- Our management capacity as a nation with our bureaucracy as it is cannot effectively handle efficiently this size of investment. There is no reference in our history that will convince Nigerians that the expected outcomes will be attained.
- The listed projects do have alternative funding templates for their realization. We have walked this path already in Telecommunications and the on-going efforts in Power.
- Unlike the domestic borrowings that is currently ongoing which is vastly within our control as a nation under the management of the CBN, the foreign loan reality will provide a risk to our sovereignty once again as we have little or no control – we are very likely to go back to those days when we were under the so called London and Paris Clubs of indebted nations with our budgets needing the approvals of some authorities in some foreign land. The US printed and borrowed their own currency and spent same out of their recession. We cannot do the same on the Dollar which is the currency of our debts.
To further score the foregoing points, the Debt Management Office indicated our sustainable borrowing threshold of $22bn for our economy which is way below the requested $29.9bn. It is also important to note that the said $22bn is a hard earned position from the great efforts of the Obasanjo Administration who paid down our debts. This must not be frittered away just so easily as the listed projects are not guaranteed to generate enough economic returns under the management of government to sustain the economic cost in debts invested in obtaining these assets.
In the light of the foregoing picture, the most effective strategy for Government would be a combination of Option 1 and 3 with a 4th option that would be the Public Private Partnership template for the delivery of needed infrastructure. The urgent commercialization of all identified and critically needed infrastructure projects is required with structures put in place to attract global capital to these projects working with the Ministry of Trade and Investments to provide what the financial people call the off balance sheet funding for these projects. An adoption of the Asian growth model is apt in this regard. Our nation need not incur debts to deliver on the listed projects. Global Private Capital can interface with Government to deliver these projects. Nigeria did not incur debt as a nation to deliver the breakthrough we have in Telecommunications. The transition from NITEL of the early 2000 was funded by Global Private Capital. Today we have even the Chinese Capital chasing projects in Africa. Let us get creative and aggressive in that direction as the world is seeking out new frontiers for growth and development and Nigeria present a fantastic opportunity to the world to our benefit.
All such engagement of global private capital comes with it timely and cost effective delivery of projects. We are beneficiaries of this framework in the Petroleum Industry with all the JVs and PSCs currently in force. This should be extended to the critical infrastructure needs of the nation.
What the National Assembly should do with the request of Mr President, it to re-evaluate and restructure this request that would put a commercial angle to it that would result in the setting up of an Infrastructure Development Institution/Bank under the Ministry of Trade and Investment with offered and available seed monies at 0% from Global Development Funding Institutions as counterpart funding for Private Global Capital to deliver these projects.
Existing legislations on Commercialization and Privatization are able to support the activities of this Institution to also off load other drain pipes such as the Refineries and Steel Companies. We have the Bank of Industry which is an amalgam of a number of hitherto development agencies including NERFUND. This Institution can be further empowered to drive private and local content efforts and interface with a well established Infrastructure Bank with appropriate global interface for effective off-balance sheet funding of infrastructure needs of Nigeria with a portfolio of over $100bn in 5 years. There are Nigerians with enough experience and exposure to drive this agenda.
What I am saying is that we can do more using the recommended template with less risk to our sovereignty and our future but with greater outcomes then the requested $29.9bn loan.
Written by Prince Randolph ErumaGborie.
