Growth and development despite debt
PRESIDENT Olusegun Obasanjo, who doubles as President of African Union, attended the Asia/Africa Trade and Investment Conference held in Tokyo, Japan, early this month. His address indicated once again that external debt servicing remains a heavy and growing burden which should be tackled effectively in cooperation with creditors to enable African countries make headway in their efforts at reducing widespread poverty and pave the way for sustainable economic growth.
The debts rose from both commercial credits for imports of consumer goods and loans which either were misused outright or were utilised for inappropriate and/or poorly executed projects. Debts began to accumulate when subsequent African export earnings proved inadequate to meet essential requirements from abroad and debt payments that fell due. Since international debts involved sovereign countries which could not be liquidated like an insolvent company, creditors from the 1980s devised a set of criteria for servicing and rescheduling debt arrears of African countries pending when individual countries would export enough to fully defray the backlog.
When creditors further realised that some countries lacked the resources for servicing their accumulated debts, they came up with the Highly Indebted Poor Countries (HIPC) initiatives versions one and two in 1996 and 1999 respectively geared towards reducing the debt burden. Under HIPC II, poor countries which qualify for debt relief support receive 67 per cent debt service cancellation. Thereafter, when they show a track record of good performance over a set period under IMF/World Bank supported programmes, they are granted 67 per cent reduction of debt stock. Extremely poor countries enjoy 90 per cent reduction of service followed by 90 per cent debt stock. Benefiting HIPCs are expected to use debt relief proceeds to prepare their countries for sustained growth and poverty reduction. But in practice, benefiting HIPCs were left betwixt and between: they were/are closely monitored and delicately saddled with so-called sustainable debt burden which available resources could/can barely service.
Medium income countries like Nigeria are not entitled to HIPC assistance. They continue to have their debts rescheduled while any unpaid interest is capitalised and the total debt is compounded and consolidated. Debtor countries are dissatisfied with that position. In Tokyo, President Obasanjo said: "Africa will not develop or make progress when its meagre resources are sucked away by debt servicing. To put it bluntly, penalties, interest and all sorts of questionable rescheduling arrangements are strangulating our economies and peoples".
He has therefore called for outright cancellation or forgiveness of such debts. A few days before then, at the All Africa Anglican Bishops Conference in Lagos, he had spoken of Africa's external debt burden thus: "It has become a new form of slavery. Even when we have some funds to pay off specific amounts, the so-called creditors gang up and refuse to allow us to do so". He urged the bishops to join in redeeming Africa from the slavery of the debt trap.
Doubtless, the external debt situation has become overburdensome. However, the intensity of its adverse impact varies from one country to another. Specifically and according to Prof. Ibrahim Gambari, UN Special Adviser on Africa, Nigeria's debt which was $11 billion in 1980 has today risen to $34 billion although Nigeria has paid $16 billion and has in between not borrowed significantly any new money.
President Obasanjo knows full well that his call for debt forgiveness, notwithstanding the emotive conscription of Bishops into the affray, could end up just that for the foreseeable future. The man who, when Nigeria was deemed under-borrowed, procured the first jumbo external loan in 1977 or thereabout, now appears to be intimidated by the enormous debt and perhaps persuaded that Nigeria has already over-borrowed.
He is therefore intent on securing HIPC status for the country. Accordingly, he has set about meeting the basic pre-conditions for HIPC Initiative support including the NEEDS document which is a requisite poverty reduction strategy paper, the ongoing corrosive reforms and emplacement of IMF acolytes to man the economy.
Need Nigeria trade off its independence of action for 67 per cent debt service cancellation and thereafter labour under direct supervision of IMF/World Bank nominees for a designated period in conditions more irksome than what Obasanjo has termed "a new form of slavery"? Should it do this in order to earn IMF certification of compliant behaviour before qualifying for 67 per cent reduction in debt stock which, given its current consolidated level, will restore Nigeria to its contractual debt level as at 1980? Can a country so re-colonised or a mortgaged HIPC-status Nigeria become an acceptable, much less respectable, member of the UN Security Council as we desire to be?
We are convinced that besides the harrowing economic agony inflicted on most Nigerians, President Obasanjo's intentional economic under-performance aimed at falsely satisfying the criteria for HIPC support will be unavailing like his numerous foreign trips to attract foreign direct investment. Already the British High Commissioner, Mr. Richard Gozney, in a lecture he gave recently dubbed exaggeration claims by government that debt servicing was responsible for the present economic failure. He stated rather patronisingly that creditors among which Britain is the kingpin, were aware, for example, that Niger Delta states received billions of Naira which have not gone towards improving their economic situation.
Creditors therefore surmised that any funds from debt relief would not be properly utilised. Creditors were also rankled by Nigerians' refusal to accept further austerity measures. Mr. Gozney even proceeded to flaunt Britain's measly $100 million aid to development projects in Nigeria this year. For the truth's sake, let the High Commissioner be reminded of the rapacious and immoral disposition of creditors because, after collecting from Nigeria payment exceeding the initial loan stock, creditors have schemed a consolidated and growing outstanding debt currently totalling more than triple the initial loan and which in 2004 will drain away over $1 billion in spurious debt servicing.
In addition, British subjects with the support of the British Government connive and receive from Nigeria corrupt transfers of money which could otherwise have been used for development. Funds so salted away run into billions of dollars annually. The pattern is replicated in other creditor countries. Therefore, the London and Paris Clubs of creditor countries are too depraved to preach to Nigeria.
Nevertheless, the Federal Government is dead wrong to see the unfair debt servicing requirement alone as in any way impairing its ability to fix and rapidly grow the economy. In Tokyo, host Prime Minister Junichiro Koizunmi depicted the widely bandied East Asia Miracle a misnomer, saying: "In fact, this was not a miracle but the fruit of tireless efforts by Asian people." He added that trade and investment belong primarily to the private sector while government must ensure trade and investment propel economic growth and development. Nigeria should take that truism seriously because at independence in 1960, Nigeria was virtually at par with most of the successful East Asian countries.
For now and with continued restraint placed on taking fresh loans, committing just 10 per cent of Nigeria's export earnings to debt servicing suffices to keep the plundering creditors at bay. The balance is preponderantly government dollar revenue. Under a patriotic and committed leadership willing to behave like the Asian leaders noted above, the fact that government requires mainly naira for its activities frees public sector dollar revenue to play the role of foreign direct investment with the added advantage of not having to subsequently remit any accruing dividends abroad.
The simple and correct disbursement of dollar revenue as earned to government beneficiaries in a form not prone to abuse to be transacted through the banks will promote macroeconomic stability and help contain many excesses currently associated with foreign exchange. As a conducive and profitable economic environment takes root, foreign direct investment funds including the partial return flow of 40 per cent of Africa's investment at present held outside the continent, much of which belongs to Nigerians altogether giving annual amounts far in excess of what is required for debt servicing, would pour in.
The productive sector would experience a boom as investors produce the needs of the domestic market as well as export any surplus output. It is such buoyant economic conditions which will present to government, clout to deploy appropriate political posturing, economic diplomacy and shrewd bargaining to exact debt write-offs from individual creditor countries as quid pro quo before the latter may gain access into vital sectors of the Nigerian economy.
Government should therefore stop moving the economy in reverse gear, remove the blinkers and change over to the road to economic success. Foreign direct investment and total debt forgiveness which have eluded President Obasanjo, being reinforcers of economic success, flow spontaneously and effortlessly to any economy that is firmly on the road to success.
