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It Could Be Debt Relief By Osita Chidoka
Simon Kolawole is one of my favorite columnists. He makes my Mondays with his uncommon ability to get to the crux of issues with a disarming simplicity that imbues his common sense approach with authenticity. He is an eloquent amplifier of a new tendency in journalism, which I tentatively call Pragmatic Patriotism, promoted by Thisday newspaper. The main ingredient of this tendency as I have discerned is the ability to raise relevant national issues through a village square kind of engagement without compromising the integrity of the Nigerian State nor of the columnist. All the columnists on the back page of Thisday are strong critics of the unrealized potentials of the Nigerian state and also strong defenders of the integrity and sanctity of the Nigerian State. Simon kolawole has been a forceful purveyor of this paradigm, hence my admiration of him.
When Mr. Kolawole wrote his first piece on the debt relief titled “Is this what they call debt relief?” in Thisday of July 11 I knew he will be pummeled by those who think differently. The response by Auntie Remi Oyo (She is my “auntie”, too) was not unexpected and she did not disappoint. The second piece by Simon Kolawole on the same issue titled “Still this is no Debt Relief” in Thisday of July 18th captured the hardening of positions that will obfuscate rather than lead to a meaningful reassessment of the situation and possibly a new national response. My respect for Mr. Kolawole increased when he refused to swallow the bait of name calling and stuck to the issues.
In my view the first question that should be asked and answered is why the sudden epidemic of debt relief? Why has Nigeria suddenly qualified for debt relief? The answer is not far fetched. First we give credit to President Obasanjo for his untiring advocacy and focused leadership he gave to the debt relief campaign. Beyond that however, is a cocktail of circumstances that placed Nigeria at an unprecedented junction in history. The events are as follows. First is the increasing realization that poverty will play a major catalytic role in the dismemberment of Nigeria and the dire consequences it portends for Africa and terrorism. The United States intelligence report only confirmed that fear and Nigeria should continually cite that report to its advantage.
Second is the increasing restiveness in the Niger Delta area and its likely impact on the world energy market. Third is the institution of the constitutional conference, which signaled to the whole World that the idea of Nigeria is not yet settled; therefore the need to keep foreign exposure to Nigeria minimal. The fourth is the huge foreign reserve Nigeria amassed coupled with the burgeoning excess crude oil account. This increased our ability to make a once and final payment for debt relief. The fifth is the uncertainty that pervades the 2007 election and its possible outcomes. Tangential to this is that the international financial system may never have it as good to have a President Obasanjo, who is a moderate believer in the Washington consensus and an Ngozi Okonjo-Iweala leading a team of reform minded influential team of technocrats in the same government. The last time we had such was under General Babangida and the succeeding government swung to the opposite with a bigoted form of nationalism that usually finds fertile soil in Nigeria.
On this premise it is obvious that Nigeria comes to the bargaining table with some muscle. So is it debt relief? Yes, it could be; if we play the politics well. I think the President and the Finance Minister have started well but they should bear in mind that this is the beginning of the negotiation not the end. The devil is in the details, as the saying goes. They must let the Paris club know that they still need to go and sell this deal to the National Council of States, the National Assembly and the Nigerian public whose interest they represent. They must let the Paris club know that whatever these institutions say we have no choice but to come back with a counter offer.
How can we turn this deal to a real relief? The National Council of States and the National Assembly should set the future of Nigeria in context. First we must raise the specter of a possible failed state using the stalled constitutional conference as an indicator. The root cause of these potential threat is poverty and resource control. We need to make new and massive investment in some key areas to maintain the scope and capacity of the Nigerian state; so as to avert the looming state failure. The major areas are infrastructural development and education in the Niger Delta which can gulp about $1 Billion Dollars in the next three years. Second is investment in Policing and Justice System; to increase the number of Policemen, equip them with modern technology, offer life assurance policies, rebuild the Police colleges and equip them, also modernize the court system for faster adjudication, which can take another $1 to $2 Billion Dollars in the next three years.
The next is investment in the Nigeria military through purchase of hardware and increased spending on training and capability for quick deployment in the West African sub-region and to maintain peace in the gulf of Guinea this can consume about $2 Billion Dollars. To also increase the integrity of the Nigerian passport and citizenship identification to forestall terrorism we need to make more investment in completing the national identity card project. Finally we need to build four new power plants if we are to achieve modest economic growth and this will cost more than four billion Dollars. We also need to make investments in education and healthcare which will require another $2 Billion. These are the minimum requirements to save Nigeria from a failed state status and break the cycle of poverty.
Based on the foregoing I propose we make a new offer to the Paris club with the following terms. Write off $24 billion of our debt and we offer a payment of balance of $6 billion over 12 months. We will escrow another $6 billion for the award of contracts to companies from their member countries for the building of the power plants, equipping the Police, infrastructure contracts, defense supplies and the identity card projects. The contracts will be paid for from the escrowed amount to guard against payment failure. Also the Federal government will distribute from the excess crude account the sum of $1 billion to the States and Local government for investment in primary and secondary schools while another $1 billion will go for infrastructure development in tertiary institutions. This distribution to States is essential in making the impact of the debt relief tangible to the populace.
Why will the Paris club accept this offer? The likely reason is the congruence of events at this time that gives Nigeria added advantage. The list include the global war against terror; Nigeria’s role in keeping oil prices down; the possibility of state failure; the rising incidence of war in the West African sub-region; and the strong oil prices and fiscal prudence of this administration, which can evaporate around 2007. The excess crude account is a major attraction for the Paris club. If we note that America is investing $18 billion for the reconstruction of Iraq and that has been a major issue for European countries who want to partake in the contracts then you will understand why $8 billion is a big attraction. As at 3rd of July, the Programs management office of the Coalition Provisional Authority in Iraq has awarded contracts valued at $9.376 Billion. The contracts ranging from $8 Million to $1.8 Billion, according to the provisional authority website, will be able to bring Iraq up to speed in the performance of its role as a state.
What does this tell us? $8 Billion is a lot of money and is also one of the drivers of this debt relief. How does Iraq differ from Nigeria that we do not need urgent rebuilding of infrastructure and state institutions? Not much difference. Our infrastructure is abysmally weak; we generate less than 4,000 megawatts of electricity, our major public institutions including State Houses are running on generators; transport infrastructure is comatose: car jacking, homicide and assassinations are at unacceptable levels and 70% of the population live below the poverty line.
For the Obasanjo administration, while it has shown tremendous capacity in fiscal prudence; macro-economic stability; and reducing leakages in the economy the score card for infrastructure development is not very impressive, due to poor funding. Consider that the dualization of the Abuja-Keffi road is still ongoing; the Onitsha – Owerri road will probably remain uncompleted by 2007; the Abeokuta- Ikeja expansion of the expressway is just restarting after a period of abandonment; the Ife – Ilorin dualization is uncompleted; construction of the Odi and Kpakpalanto power stations are yet to commence; the Ajaokuta – Itakpe rail project is yet to be paid for and handed over to the government.
The second Niger Bridge and dredging of the River Niger is still a proposal; no new district has been developed in Abuja despite the rapid increase in population. This is just to recount a few of the federal projects that can do with additional funding, which is the bane of most of these projects. Nigeria under President Obasanjo’s second coming is yet to match the record of General Obasanjo in his first incarnation as Head of State in infrastructure development, partly due to the debt overhang and bloated recurrent expenditure. Added to all these are the rising restiveness in the Niger Delta and the potential of an eruption as poverty increases.
In a 2004 study conducted by Dr. Peter Lewis of American University in Washington Dc and Dr. Etannibi Alemika of University of Jos titled “Seeking the Democratic Dividend: Public Attitudes and Attempted Reforms in Nigeria” the authors showed the result of a survey conducted over three years to find out what ordinary Nigerians think about recent economic and political development. The interesting thing for me from the study is that in 2000, 80%of Nigerians across the six geopolitical regions preferred democracy against 68% in 2003 the highest decline occurred in Lagos area (which was polled separately from the South west) 57% down from 81%; South East zone 65% down from 87% and South- South zone 59% down from 87%. Also on preference for non-democratic regimes the national average rose from 10% in 2000 to 20% in 2003 with the highest increase for support for non-democratic regime occurring in the South east with 28% up from 6% in 2000, in Lagos 27% up from 8% in 2000 and in the South –South 18% up from 3% in 2000. These numbers tell a story that the government must amplify. Democracy while not in immediate danger in Nigeria is not enjoying the widest support due to rising poverty.
Can we afford to pay out $12 Billion today for $18 billion? The answer sadly is no; unless we underestimate the influence, power and personality of President Obasanjo and the depth of support he enjoys from the putative power centers in Nigeria due to the skillful and sometimes hardball tactics he has used to maintain a national consensus, of some sort. Any other President that inherits office from President Obasanjo will face enormous challenges, if the current state of affairs is not massively altered in a positive direction We need to make a new commitment to rebuilding Nigeria that must start with investing in increasing the scope and capacity of the Nigerian state, anything short of that will increase the possibility of a failed state. Imagine a re-enactment of the SAP riots of the 1980s and how it will play out in the Niger Delta, South East and North West. Nigeria needs all the money it can get to finance its reforms.
If we decide to pay the $12 Billion now and borrow concessionary loans to finance these necessary projects will that augur well for Nigeria? Professor Charles Soludo in his seminal paper titled Debt, Poverty, and Inequality: Towards an Exit Strategy for Nigeria and Africa argued forensically that borrowing in a country where capacity utilization is about 30% coupled with “self-inflicted constraints and poor institutional and administrative set up that raise transaction costs and constrain enterprise” is hardly advisable. Professor Soludo proffers that Nigeria should pursue reforms to ensure that a dollar of spending gets at least 80 cents of benefits as opposed to current World Bank figure of 12 cents benefit on the average Dollar spent in the health sector.
To pursue the necessary reforms will require massive investments as we proposed earlier to reduce transaction costs and improve productivity. In a rather prescient manner Professor Soludo sounds a note of warning, which is germane here and I quote “The case for resisting borrowing is even stronger now, especially if the oil windfall is better managed, and if the donors do not hassle the government into transferring the windfall to them rather than investing it at home.” The current debt relief will amount to hassling Nigeria to transfer the proceeds of excess crude account to foreign investors whose loan portfolio had gone bad.
If the Paris club accepts this offer what do they stand to gain? First they gain the lucrative contracts that we will use the escrowed money from the excess crude to finance. These contracts will produce greater returns than the Iraqi reconstruction without the violence. Second the investments will reduce significantly the scepter of a failed Nigeria and the attendant consequences in the sub-region. A failed Nigeria also means no payments to the Paris club. Thirdly the investments made with the escrowed funds will lead to a significant increase in economic activity, greater protection of property rights and improved infrastructure that will significantly increase productivity and set Nigeria on the path of reducing poverty.
Finally the Paris club members especially the United States will be assured of continued Oil supply from Nigeria in the medium to long term if we make the necessary investments in the Niger Delta now. A steady supply of oil from Nigeria will impact positively on global oil prices, which is good for the Paris club member states.
What is to be done? State governments should organize rallies and citizens forum to reject the offer of $12 Billion payment for $18 Billion debt relief, as a build up to the Council of States meeting. National and State legislatures should pass resolutions expressing gratitude to the Paris club but rejecting the offer. This will strengthen the hands of the President to go back with a counter offer that will offer a win-win situation. We pay some money now; use the balance to award contracts to companies from member countries and save Nigeria from failing as a state. This will be in line with the views of Jeffrey Sachs and Charles Soludo, the Central Bank Governor. There are other sweeteners we can offer with the deal but I can’t go into them in a newspaper article, suffice it to say that the President knows what the West want from Nigeria. We should also indicate that under circumstances that do not disgrace us and tallies with our national interest we can negotiate. Nigeria is at a historic juncture in time we should maximize it, as it may never present itself like this again. A debt free Nigeria is as important as Nigeria existing peacefully with territorial integrity. You can’t have one without the other; striking the balance is the crux of the matter, not economics; I imagine.
Osita Chidoka
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