Another round of foreign loans?

By Punch Editorial Board
Friday, 5 Oct 2007

An indication that the Federal Government may soon embark on another binge of foreign borrowings deserves thorough scrutiny. The fresh foreign loans, according to the Finance Minister, Dr. Usman Shamsudeen, are required to help in rapid upgrading of the nation’s infrastructure. New power plants, roads and railway projects are to be implemented with the loans.

Lending agencies, including the Islamic Development Bank and World Bank, are already eager to lend at zero interest or concessionary rate to the country. “They are willing to give us more, we have the capacity to take more, we need more, and so what are we waiting for?” Dr. Usman recently noted at a public forum in Abuja.

But at another forum in New York, the Central Bank Governor, Prof. Chukwuma Soludo, expressed government’s hesitation in plunging into another debt trap. His words: “Nigeria, which benefited from debt forgiveness by the big industrialised nations, is not likely to jump back into the international credit market so soon. The question is not whether or not Nigeria needs money. Nigeria obviously needs money. The question is how best to get money. But we have a strong preference for equity, rather than debt”.

There is no doubt that loan can be used to bridge a critical resource gap. Individuals and nations are known to have successfully used loans to break the vicious cycle of poverty and move into prosperity. Brazil is a good example of a country that has used debt to drive development and modernisation. Also, when Taiwan was faced with a serious development crisis between 1965 and 1980, it mapped out a solid industrialisation plan and got a loan from Saudi Arabia to finance it. Apart from paying back the loan within 10 years instead of the stipulated 15 years, Taiwan today has a success story to tell in the penetration of the highly competitive global export market as well as an appreciable improvement in its people’s quality of life.

The story with Nigeria has been different. Its experience with foreign loans has been very bitter and should not be repeated. The first major borrowings, including the $1 billion taken in 1978 from the International Capital Market (ICM), and serviced for decades rose to about $40 billion in 2005. But the proceeds of the facilities disappeared largely into the pockets of corrupt officials. Various probe reports have failed to locate most of the designated projects in the states, while public office holders who pocketed the loans are yet to be apprehended.

Indeed, a Federal Ministry of Finance report (1986) had shown that foreign loans collected by states and Federal Government between 1979 and 1983 were looted, leaving clusters of abandoned projects countrywide. Even the late General Sani Abacha that also looted billions of dollars as head of state, had in his 1997 annual budget speech, alerted that only 18 out of the 145 projects financed from the international capital market were executed. The 18 project were valued at only $836 million out of the $13.16 billion loan, therefore revealing a net loss of over $12 billion.

Also, Oxfam et al, in a report indicated the status of projects financed with foreign loans as at 1996: only 2 percent of the projects were successful; 25 percent merely functional; 64 percent failed outright and 9 percent were fraudulent from the outset. The sorry state of health, education, power, transportation and other infrastructure today owes largely to rapid plunder of public resources, including loans.

The issue, therefore, is not whether concessionary loans are good to obtain, but on the capacity to deploy them. Instead of plunging into another debt trap shortly after exiting from one, the nation should explore the Build, Operate and Transfer, and various other public/private sector partnership options. After all, investors have always been waiting to participate in building railways, roads, power plants and other development projects. A nation that has not built the necessary capacity to manage its huge oil revenues should not complicate the problem by acquiring loans that may also be misappropriated.

 
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