Nigeria’s debt relief: a news analysis

The British prime minister, Mr. Tony Blair, and his Commission for Africa, CFA, will be remembered for their roles in the just announced debt relief for Nigeria and 14 other poor sub-Saharan African countries. In its report early this year, the commission called for the cancellation of the debts of poor sub-Saharan African countries to the World Bank, International Monetary Fund (IMF) and the African Development Bank (ADB) and the doubling of the current $25 billion aid to the continent.

The debts of poor countries in sub-Saharan Africa to the World Bank, International Monetary Fund and African Development Bank should be written off, but recipients must be committed to good governance and use the money to deliver development, economic growth and the reduction of poverty, the commission had said. The body also called for “a coherent set of policies to accelerate progress towards a strong and prosperous Africa.”

In addition, the Blair initiative called on donor countries to spend at least 0.7 percent of their Gross National Product (GNP) on development aid, while urging rich countries to immediately eliminate trade distorting support, particularly by removing agriculture subsidies which make commodities from African nations unable to compete at the international market. The commission also called on rich countries to fund at least 50 percent of the African Union’s peacekeeping budget and that negotiations on an international arms trade treaty must open not later than 2006.

Difference for Africa

The group said the timing of the Commission’s work was intended to seize 2005 as an opportunity to make a difference for Africa. 2005 will see the coincidence of the United Kingdom’s chairmanship of both the G8 and, in the second half of the year, the European Union, with Africa high on both agendas. So far Mr. Blair has used the opportunities to the advantage of the African continent.

There are 17 members of the Commission – nine African. All are working in an independent capacity. They include: Tony Blair (chairman), Fola Adeola, K.Y. Amoako, Nancy Baker, Hilary Benn, Gordon Brown, Michel Camdessus, Bob Geldof, Ralph Goodale, Ji Peiding, Dr William Kalema, Trevor Manuel, Benjamin Mkapa, Linah Mohohlo, Tidjane Thiam, and Anna Tibaijuka.

The Commission said its aim was to take a fresh look at Africa’s past and present, and the international community’s role, in order to agree on clear recommendations for the future. “The Commission’s work will not duplicate or replace existing international processes; it seeks to support and encourage the best of existing work, in particular the African leadership shown through the New Partnership for African Development (NEPAD) and the African Union. It will also seek to generate increased support for the full implementation of the G8 Africa Action Plan,” the group said.

The starting point for the structure of the commission’s work, agreed at its first meeting, was a division of the work into six principal thematic areas: the economy, natural resources, governance, peace and security, human development as well as culture and participation.

The Global Campaign Against Poverty, an international civil society organisation which was also at the forefront of the campaign for debt forgiveness for poor nations across the globe, also picked holes in the debt when it said African nations borrowed a total of $540 billion and had, by 2002, paid back $550 billion, and yet still owed $300 billion.

What has been paid back in terms of interests and penalties is already $10 billion more than the entire capital advanced to the debtor nations. We consider this unjust, unfair, odious and remember that these were loans which [sic] process and what they were used for are questionable. There is thus a robust economic case for a total cancellation of Africa’s debt. Low levels of savings and investment in many African countries lead to high poverty and adverse social conditions which two factors are among the biggest constraints on growth in low-income countries.

“Continued debt servicing by African nations constitutes a nominal reverse transfer of resources to creditors by poor countries that by all indications can least afford to do this. If Africa is to achieve the goal of reducing poverty by half by 2015, as required by the MDGs, growth will have to at least double to some seven to eight percent annually for the next decade, financial requirements of which are incompatible with present and projected levels of debt servicing.” The federal legislature, also joined the campaign for debt relief for African nations in the build up to the final announcement of the relief by the Paris Club.

Declaring open the 38th United Nations – Economic Commission for Africa (UN-ECA) conference in Abuja, two months ago, Senate president Ken Nnamani said that it was impossible for African economies to sustain the huge debt overhang which has drained the resources of the continent over the years, leaving the people more impoverished.

The Senate president stated that granting debt relief to African nations would be a win-win situation, saying, that it was in the economic interests of the debtors as well as the creditors to work out an immediate debt relief in view of the globalised village and international economic integration. Before then, the joint National Assembly Committee on the nation’s debts called for an outright cancellation of the nation’s $36 billion external debts, describing it as obnoxious, unsustainable and inimical to the nation’s economic development.

Returning from a tour of major creditor nations, the leader of the four-man Committee, Senator Udoma Udo Udoma, while affirming that some of the loaned funds were never received by the country, said it was perplexing to note that after paying back $22 billion for the $17 billion originally borrowed by previous administrations, Nigeria was still marked as owing $36 billion.

Udoma said it was simply impossible for Nigeria to make progress as a nation with the debt overhang. “We in the National Assembly have waited for six years, we have since not seen any issue of debt relief, instead what we have seen is the debt rising. We have noted that even though the debt was $17 billion, we have paid $22 billion and we are told that we are still owing $36 billion. We want 100% debt relief. We don’t see any justification to pay debts when our people are dying,” he said.

Also speaking at the Conference of African Ministers of Finance, recently in Abuja, the commissioner for Economic Affairs of the African Union Commission, Dr. Maxwell Mkwezalamba, warned that unless drastic steps were taken by the political leadership of African nations and their development partners, Africa would largely not likely achieve the Millennium Development Goals (MDGs), come 2015.

“Many of our African countries are unlikely to achieve the MDGs by 2015. For example, the proportion of people living in extreme poverty in Africa increased from 44.6 per cent in 1990 to 46.5 per cent in 2001. and the levels of social development and quality of life remain low. More than 160 million people live in slum-like conditions, primary enrollment rates remain the lowest in the world, with gender disparity at the primary level as low as 0.86 and the adult HIV prevalence rate is the world’s highest at 7.5 per cent,” he said.

He acknowledged the challenges of ensuring enduring peace and security in the region, fostering good political and economic governance, tackling the HIV/AIDS pandemic and other diseases, breaking the poverty-demographic trap and achieving gender equality and empowering women, as some that had to be confronted frontally in order to realize the MDGs.

At a point in the struggle for debt relief, the Transparency International (TI) report which, last year, classified Nigeria as the second most corrupt nation almost rocked the boat. President Olusegun Obasanjo, himself a founding member of the organisation, as well as his top officials had to make spirited efforts to explain away the TI classification. The director-general of the DMO, Dr. Mansur Muhtar, described that report as “disappointing” saying that the report would make it more difficult for the nation to secure debt relief from her creditors.

Debt Management Office, Muhtar said it would take him and his team at the DMO more efforts to convince Nigeria’s creditors to grant debt relief in the face of the report, which he said would negatively impact on Nigeria’s image in the comity of nations.

Debt Vs GDP: In its 2003 Annual Report released in Abuja, at the weekend, the DMO said the debt stock as at the end of 2003 was $32.92 billion – 64.43 per cent of the nation’s Gross Domestic Product (GDP) which translates to $261.26 per capital. The nation’s external debt was less than $1 billion in 1970 but rose to over $20 billion in less than 10 years, and has hovered between $32 billion and $36 billion since 1999.

The nation’s debt was certainly not sustainable because annual obligations run as high as $5 billion to $7 billion, sometimes more than 60 per cent of the entire Federal Government annual budget. For instance, DMO said that appropriation for external debt service in 2003 was only about 34.27 per cent of the external debt obligations for that year which was put at $5.250 billion, which was more than 60 per cent of the entire federal government budget for the year. Even at that the budgetary provisions for debt servicing have been almost more than the budgets of critical sectors such as education, health and water put together. Nigeria’s heavy debts were incurred during the 1970s and 1980s, according to DMO, when the London-Inter Bank Offer Rate (LIBOR) hovered between three and four per cent. The debt grew rapidly through the 1980s mainly due to the accumulation of debt service arrears owing to inability to pay and secondly due to the escalation of market interest rate. LIBOR rose from four per cent to peak at 13 per cent in 1989 and thereby quadrupled the debt of many developing countries of the world, including Nigeria.

Between oil revenue and population: One of the major arguments for debt relief has been that contrary to the widely held view that Nigeria is wealthy, it is actually poor, though with the potential of being a rich nation. According to the Minister of Finance, total oil revenues last year were no more than $25 billion net.

When it is spread over our large population of 130 million people, this translates to no more than 53 cents or 70 naira per person per day. This is a far cry when compared to other oil producing nations of the world like Venezuela with 23.5 million people and $3.4 per person per day, Kuwait with 2.75 million people and $27.3 per person per day, or even Iraq with 25 million people and $2.4 per person per day.

Beyond debt forgiveness: It is not enough to get debt relief. Debt relief must translate into better living standards for the citizens. The challenges facing Nigeria and other beneficiary countries from the various debt relief initiatives are how to ensure that the money so freed is put to good use in the interests of the people and grow the various economies. Besides, to allow Nigeria to return to the creditors, asking for more loans would be suicidal and must be avoided at all costs. The National Assembly must pass a Bill seeking to provide stringent conditions for external borrowing, in particular, and loans, in general.

The era of a regime taking loans and squandering [them] only to leave office for the next administration and the citizenry to bear the brunt must be resisted by all well meaning members of the public. It is a well known fact that the bulk of the external loans taken by past administrations were for projects that had no sites or at best were poorly implemented and in some cases abandoned.

The government officials smiled to the banks, and congratulated themselves for being smart, while the entire populace bleeds. This must not be allowed to happen again under any guise.

Blair’s commission has already called on African governments to embrace transparent governance and ratify the U.N. Convention against corruption in 2005. “Governments, states and banks in rich countries also have a duty to tackle corruption, including repatriating illicit funds held in overseas accounts, and more transparent business dealings with African governments in a bid to cut bribery,” the Blair group said.

States’ external debts: Analysis of external debts owed by states showed that Abia topped the list with $647.4 million, followed by Plateau with $569 million and Niger with 500.4 million. Others with high debt profiles are: Lagos $415.1 million , Imo $428 million, Osun $398.6 million, Kogi $364 million, Kwara $352 million, Enugu $311.1 million. States with the smallest figures were: Zamfara $23.1 million, Kebbi $29.8 million and Yobe with $40.6 million.

Emma Ujah, Vanguard, July 3, 2005

Categories: Africa, Nigeria, Odious Debts

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