The Nation Newspaper

Tag: borrowing

  • What are we borrowing these trillions for?

    Sir: So is it news that we have roads that have collapsed or that the roads are no longer there, that you fly several hours and land Nigeria with minimal jet lag, but travel four and five hours for a journey that ordinarily is two hours and thirty minutes, with check points that punctuate the journeys on very bad patches of the road.

    On the Abuja-Jos or Jos-Abuja road it is sheer pain, in fact the alternate route has collapsed from the Kaduna axis, and the Akwanga-F/Karshi route is also going the same way. Our roads, whether in Lagos, Benin, Kogi, or in many a case, intra city roads, are not simply bad but they are excruciating and killing driving on them. These are roads that you do not just avoid potholes, but choose which holes that are fairly okay.

    Did I complain above about roads? It is not news that our health system is almost non-existent; we do not have the capacity for any large scale breakout of any disease. We are not ready for malaria; how can we tackle Ebola or chicken pox when 776 local governments, 36 state capitals, all we boast of is actually a handful of specialist hospitals that are only special in name, and teaching hospitals that teach and tutor medical doctors that are preparing to leave the country because even the doctors are poorly treated.

    So no good roads, and then someone somewhere dare moot the idea of tollgates on roads that are barely motorable. Then no hospitals, the citizens die because of a lack of affordable healthcare. Then next point: Does the figures of out of school children bother anyone, or we just flaunt those figures for figurative use? Does anyone know the implications in just a few years on the system having an uneducated populace?

    Do Nigerians enjoy potable water; how about electricity and then what is the status of security? Who do we hold responsible, from the local council chairman, across to governors, of the federal government that may soon introduce oxygen tax if left to their whims and caprices, no one is held accountable.

    If we are not abducted, kidnapped, we are killed by raving reckless drivers of tankers, or business owners who in order to maximize profit buy dead trucks and long vehicles or we then resort to suicide by scooping fuel by a live fire.

    With such huge infrastructural deficit, and an amazingly embarrassing absence of amenities, the following is what is on ground: a debt profile that has risen from N24.95 trillion to N25.7 trillion in the last three months.

    With government having paid more than N800 billion in servicing the multiple obligations, which cut across domestic and foreign deals in the first half of 2019, and with the deficit plans in the ongoing 2019 budget, analysts say that the country’s debt could hit N27 trillion by the end of the year. According to reports in a national daily “The debt sojourn has appeared endless amid a shallow diversification and economic challenges. Besides, the proposed 2020 budget has more than an N2 trillion deficit to be financed by further borrowing.”

    If it wasn’t bad or a case of worst getting even worse, domestic indebtedness of the 36 states and the Federal Capital Territory (FCT) as at the end of March was N3.972 trillion, according to the Debt Management Office (DMO).

    The debt profile includes the more than N600 billion bailout funds which President Muhammadu Buhari gave to states in 2016 in the wake of falling oil prices at the international market. The states had complained that they were unable to pay salaries and meet operational costs.

    With these kinds of figures, one would expect to see crazy and mind boggling infrastructural work going on in every corner of the country. On the contrary, states cannot meet their salary obligations, social safety nets are not working, and politicians are bloating on the system. We keep saying that the problem is not borrowing, but what exactly are the monies being spent on?

     

    • Prince Charles Dickson, PhD, <pcdbooks@gmail.com>

  • Chamber supports FG’s external borrowing

    The Director General, Abuja Chamber of Commerce and Industry Chijioke Ekechukwu disclosed that federal government borrowing of $5.5billion Euro bond loan will not stiffen the economy.

    In a statement signed by Gena Reuben Lubem Media and Protocol Officer,ACCI, the organisation observed that when the government got approval of the National Assembly to source the $5.5 billion Eurobond loan, many Nigerians believed that would rush the country into another debt trap.

    But the ACCI holds the view and very strongly too that “The borrowing is targeted at infrastructural projects and refinancing of maturing domestic debt with less expensive long-term external debt, there is no cause for alarm, many other countries have borrowed far above what Nigeria is taking from the Eurobond.

    “During the last Economic Summit Group gathering, I said that government should stop borrowing locally so as to reduce the pressure on rates. If government can source for funds from outside the system, it will bring the mix that would balance from what we are suffering today.

    “We shouldn’t be shy to borrow money to fund the deficit of the budget, infrastructural development and local projects. There is no problem with that and Nigerians should not worry. On hiring of Malaysian expatriates to fix the economy, such actions should be discouraged as Nigeria has competent hands that can successfully navigate the country out of the economic quagmire it has found itself.’

  • ‘With projected N21trillion tax income annually, borrowing isn’t necessary’

    ‘With projected N21trillion tax income annually, borrowing isn’t necessary’

    Omoba Olumuyiwa Sosanya, founding president of Association of National Accountants of Nigeria (ANAN) has seen it all. Regarded in some circles as a ‘General’ for his doggedness, he is cerebral with a patriotic fervour and desire to see things work. In this interview with Ibrahim Apekhade Yusuf, he picks holes in the existing tax reforms which he argues lacks the necessary bite. Excerpts:

    VIRTUALLY every state government today is paying a lot of attention to tax these days but it doesn’t seem as if they’re making headway judging by the growing level of apathy against tax from the citizenry. As someone who has done extensive work on taxation, what do you think is the way to go?

    Just like you rightly observed, everywhere in the world, taxation is the most hated system. Nobody wants to pay tax. And this is what brought about what we call tax havens. Even those who pay tax especially the wealthy people, they find a way of staking their monies where they don’t have to pay tax. But most developed countries have found an antidote to such attitude of tax avoidance. But unfortunately in this part of the world, the laxity is so much that even the tax officers in Africa will teach you how to evade tax. That’s the most unfortunate aspect. So it is now the responsibility of the government to enact or create institutions whereby you may try as much as possible to evade it, it may not be impossible to but it’ll be difficult to do it. I think that was the reason why the French came about the value added tax (VAT). But VAT by its definition is a consumption tax and there is no way you can evade VAT if you’re consuming. And that is why it’s chargeable on goods.

    In Nigeria, we have the same system which we came about in 1983. But unfortunately, I think we made a wrong start by restricting the administration of the VAT to the Federal Inland Revenue Service (FIRS). If from the outset, the administration of VAT was decentralised, meaning that each of the state will administer it but there could be a pool at the federal where all these monies would pass through and then distributed on certain ratio. But unfortunately the existing law allows only the FIRS and that’s the reason why the revenue generated from the VAT, has been abysmally low and really ridiculous to the extent that, recently when the federation accounts published the VAT generated for that period, up till now, the total revenue being generated from VAT is not even up to N70 billion and Lagos state can generate that alone. But unfortunately, the FIRS that administers the VAT, I think they are generating fund from formal sector and corporate bodies. The informal sector which accounts about 85 per cent of our economy is out of VAT. If we must move forward and put revenue generation from oil as secondary if not the third sector, this is the right time for us if we are talking about diversification to allow each of the states to administer the VAT. And the starting point is that they would be able to register all businesses in their domain and they would administer and collect the VAT. And the VAT would be paid into a dedicated account. And my own suggestion is that if we really want to block the leakages in the VAT collection, all the registered persons that are chargeable to VAT will open a bank account along with their businesses and on daily basis, the VAT collected will be paid into that account. Everyday that money hits the central account, and it will be configured in such a way that the central will know what the states are generating and at the end of the month the money will be distributed based on the present ratio that each of the state is paid. And we did a research on VAT and discovered that if the federal government allows the state to generate or VAT is decentralised, what is actually expected to be generated on monthly basis is about N560 billion. If that is the position, the federal government and the states would improve from what they are collecting now from the federation account.  Take for instance, the federal government; at last count they got N9.4billion from VAT. But if the states are collecting it and they now have N560 billion the federal government will be having about N72 billion, which is an increment of over 62 per cent.

    Currently VAT is charged on luxury goods and all of that. Is that not enough…?

    When you talk of luxury goods, how many luxury goods do we have? Maybe vehicles, jewelleries,  and so on.  The question is what is the quantum of that? In Britain, even if you eat at a restaurant you’re paying VAT. If you go and cut your hair, you pay VAT.  On services you pay VAT there, the only way you don’t pay VAT is on pharmaceutical drugs. But all other services are chargeable to VAT. All manufactured goods are chargeable to VAT. These are the areas we want to expand on and this is why I brought in the informal sector. We are in Lagos for instance, go to Alaba International market for example and see the massive revenue being generated by the businesses there. Go to Balogun, Ereko, Oyingbo, Ikeja, may be about two per cent of those traders are registered under the VAT. By law, they should be compulsorily registered. But the FIRS cannot do it; they haven’t got the manpower but the state can do it because it’s within their domain. And this again is going to create employment. Each of the states’ internal revenue service has to employ more hands for registration, for compliance and I imagine that this is expected to employ about 5,000,000 graduates and youths.

    Lagos recently issued a notice to seal up companies that are defaulting in payments of taxes. Some people believe this is not the right approach.  Do you share similar sentiments?

    It’s not only Lagos that is trying to boost its revenue generation through taxes, even the federal too. But they can’t achieve that by beating around the bush. As far as I’m concerned, the simple way of doing it, we have VAT which is a very good tax but it’s not being properly administered. Those who are chargeable have not been brought to the tax net.  The only way you can bring them into the net is to register them for VAT, which the states will conveniently handle. In Lagos State I don’t think we have up to 500,000 registered businesses. And I’m sure we have over four to five million businesses in Lagos. Apart from companies, we have individual business names and others such as barbers, tailors, etc., they are chargeable to VAT because they are giving services. They’re supposed to register but the FIRS alone cannot do it, it’s an uphill task for the federal but the states can handle it. The states can even encourage the local government councils to assist them in the registration. I have been to places where I bought goods worth over one million naira and they didn’t charge VAT because they are not registered. You can imagine how many five per cent we can collect on such sales. Even professionals like lawyers, accountants, architects, estate surveyors, they don’t charge VAT. If you have some of them that do it, it may be about one per cent, and those are the big ones.  But even the big ones too in some cases if you insist that why should they charge you VAT, they will waive it. But that’s not the case in Ghana. I was in Ghana, and where we went to an eatery, after our meal, I collected receipt and that receipt was a product of Ghana Inland Revenue, not the company receipt. In that receipt the VAT was stated there and the national insurance was also stated there. It was such a little amount. But as they say, little drops of water make a mighty ocean. I can assure you that Ghana is generating more revenue than Nigeria and the businesses they have there is less than 10 per cent of Nigerian businesses. So the starting point instead of wasting our time on VAIDS is that we should explore our VAT framework.

    The points you raised about collecting VAT also brings to mind the issue of paucity of data. How can we generate revenue through taxes with the problem of poor record keeping?

    Well, we can solve it through VAT registration because once you make it compulsory for all businesses to register under VAT, they have to keep records. They are to give receipts, on the receipt the VAT is reflected there and the stamp of the state internal revenue. Of course, the state Inland Revenue will regularly go there to check their records and on monthly basis or quarterly, they have to make returns which again there will be audit from the state inland revenue to check their books. So that would assist businesses to keep records because right now some businesses are in majority, those who keep their sales are few. But with VAT you have to keep it because at the end of the month if you also pay VAT, you can deduct it from your returns but if you don’t keep records, they come on your sales and the VAT on your sales is what you have to pay to the government.

    How much does the country stand to generate from VAT annually?

    If we start generating revenue through the states, it will be over N8trillion.

    I thought you mentioned N21trillion in a recent statement?

    This is where the N21trillion comes from. It is for the federal government whereby the company income tax you can generate is N3.6trillion. For withholding tax, it’s N3.3trillion. Stamp duty is about N500billion. Pay as you Earn (PAYE) which is for the Armed Forces and other agencies which they don’t pay at all.  Now the VAT that will accrue to the federal government will be N1.6trillion out of the N8trillion that is being generated nationally. The independently generated revenue by the parastatals is about N8trillion. So that would give you N21trillion. So the government can budget N21 trillion without borrowing money. And our calculation now is as far back as 2013. So if we are talking about now we are talking about N24/25 trillion and the revenue from VAT will now be about N10/11trillion. So we don’t have any reason to borrow money if we put our tax system in order and my emphasis is decentralisation. It’s part of our restructuring. We have to reform taxation and start from VAT.

    As the founding father of the Association of National Accountants of Nigeria (ANAN) can you recount the battles you fought to get the association recognised as one of the professional accounting bodies in the country today?

    Well, in the beginning, the idea of ANAN came to me as far back as 1973 in London. The idea came to me at the firm of accountants where I was trained in the UK. Around 1971, the then president of ICAN, he used to be a former staff of the firm where I was working then. At the time it was the usual practice of all ICAN presidents, every year they will travel to UK, they will go back to their old offices to show their former colleagues that they have arrived and all that. So he came to our office and some of us who were Nigerians, we were about four in number, we now told him that passing ICAN examination in UK was very difficult. We wanted to know why it should be so difficult for Nigerians to pass the examinations. Because by then, we realised ICAN was chartered in 1965 and by 1971, they had only passed one student. So when we asked him, he said no, ICAN examination is not easy, it should be difficult so that we will know it’s a difficult thing to do, it’s not for all-comers. I was upset, I didn’t say anything. The second day after he left, there was one guy among us a Ghanaian and I said to him, you heard what your brother said, that we should make ICAN examination very difficult that it shouldn’t be an all-comers affairs. And I said well, by the grace of God I think I’m going to find out why. So when I came back to Nigeria in 1976, and I went round to find out what is happening, the first thing I learned in the event was that internal auditor of FIRS who belong to Association of International Accountants.

    In June 1978 I visited UK and I went to head office of the Association, where I met the president. Of course, he had lived in Nigeria and had worked in Kaduna and I was telling him about the discrimination that some accountants were facing in Nigeria and he just said to me that why can’t you form a national body? When I got back to Nigeria, I started preparing a programme for accounting body. So in October of that year, I invited two close friends of mine who are members of the International Association of Accountants to my house and I gave them my position papers. The next thing they asked me is if what we were about to do was achievable and I said, well if God is on our side, it would be achievable. There and then, we agreed on the name to have Association of National Accountants of Nigeria. And by January of the following year, we put up an advertorial in the Daily Times on two pages, where we announced the birth of ANAN. What actually inspired me and gave me the confidence that this thing is going to succeed was in March, 1979 when ICAN’s present secretariat was being opened on Victoria Island, where Akintola Williams was trying to ridicule us by asking their members if they have read a newspaper publication of some people who called themselves Association of National Accountant of Nigeria and he said never mind, it will die on the pages of newspaper. So this gave me courage that this is a strong idea. For it to have got such a strong opposition, then this must be a strong idea. And I told myself for this organisation to have a legal backing; we must register it under one of Nigerian laws. We were looking at the law that could be easily done, so we narrowed it down to the trusteeship, which is now part of company’s law. Although majorly, most of the organisations that are being registered under it are churches and all that but when I went through the law I discovered that educational body could be registered there so we chose that aspect. Four of us applied as the trustees. Then it was very difficult to get registered because you have to get police clearance. So we went to Lion Building, where we cleared and after that we filed the documents with Ministry of Internal Affairs. I wasn’t surprised to say that, to my amusement ICAN wrote objection to oppose the registration claiming that its body is the only body exclusively empowered to regulate the accounting profession, and no other body should be allowed to register. We were served the letter; the director of that ministry gave us copy of the objection and asked for our own response. We replied. So I prepared a profile, by then I had a friend who was a member of the National Assembly. So we gave him the profile and discussed with him and others, and from there we got the idea that we can bring it up as a Private Member Bill and we started working on it. Then we had five political parties namely: the UPN, NPN, GNPP, PRP and NPP. I was advised to meet the chairmen of these parties for their support and all that. The easiest one that I approached was the one in Lagos, Chief Obafemi Awolowo. So I got one of the trusted members of the party, through whom I sent a letter attached and a copy of the profile to Chief Awolowo that I will like to meet him, and he gave me an audience at his house in Apapa.

    When I met him, he asked me, young man, what’s this all about? What gave you the idea that you can have another accounting body? After listening to my explanation, he seems satisfied and there and then he gave me his nod but advised that I have to go to other party leaders. But as for him he will try to convince his members to support us on the idea. Like magic, we now started moving to the members of the National Assembly starting from Reps and the Senate. We were selling our idea through our profile and it worked. In fact, we didn’t even need chairmen of other political parties because we had been able to meet the leaders of the National Assembly and they bought the idea. So between January and April 1980 we got the National Assembly members to support us.

    After this they (ICAN) began to disparage our persons on the pages of newspapers, they said I didn’t go to school that the course I studied in the UK is not recognised and all that. They now got other professional bodies, engineers, doctors, most especially the lawyers to jointly issue a statement against us. The Law School started in 1963, by December 1978 over 3,000 lawyers had passed out of Law School, whereas ICAN in 1965 yet with little or no certified accountants. I won the argument.

    Fortunately in 1981, the bill in the House of Representatives was read the first time and passed to the Committee on Education who invited our own side and ICAN to a hearing. And they gave each of us two hours to defend ourselves. At the end of the day they recommended that the Association bill should be passed into law by the National Assembly, and there was a lot of hanky panky because ICAN now engaged some lawmakers in the National Assembly and their slogan was “kill” ANAN bill. For good one week the process was stalled by all manner of objections from different quarters. But fortunately for us our support base was growing in large numbers because some who were even against it initially began to have a change of heart and began to query the reason why we are not supporting this law? On the 8th of September 1981 they now passed the ANAN bill into law. And then hell was let loose as ICAN called their members to a meeting that they should raise funds in order to ensure that ANAN bill was killed at all cost.

    But as luck will have it, fortunately and unfortunately, by December 1983 there was a coup, Buhari/Idiagbon came in and that was the end of it. But what is interesting is that the very day that bill in the National Assembly was being referred to the committee, on that very moment the Certificate of the Incorporation was being sent by the minister. So the second day I was called to come and pick the certificate. That gave us authority that our body is a legal body, it can sue and be sued. So whatever we are doing we can do it legally. What is written in our certificate is that ANAN is a professional association with the mandate to train accountants. And one interesting thing there is that at that time, even the Nigerian Bar Association was not registered under any law because in 1984 the military government set up a tribunal to try politicians and the Nigerian Bar Association now issued caution, in fact, it was an order of their members that they should not appear before any tribunal. It was charged to court and the late Gani Fawehinmi being a radical lawyer challenged them to tell him where to go. Tribunal is like a court, so he took the Nigerian Bar Association to court that the order cannot stand and he lost. Why he lost was that the lawyer to Nigerian Bar Association raised a technical issue which is in the first place Nigerian Bar Association cannot be sued because it’s not a legal entity, it was not registered under the law, that it’s just a club. So at that time in 1984, ANAN was already a legal body while NBA was not a legal body. So we continued with our programmes, in 1983 the then Governor Solomon Lar (Plateau) gave us five hectares of land in Jos to build a college. In 1985 December August, Babangida came and we met him. In 1989, the Nigerian Law Reform Commission issued a publication requesting a memorandum for national bodies and individuals in order to reform the Nigerian law. I make bold to say that of all the professional bodies that sent memos, ANAN sent a memorandum that became 75 per cent of that law. We held several committee meetings and at the end of the day, they came up that ANAN and ICAN should be the auditors and that eventually became part of the law that was published in January 1990.

    As someone who grew up in Lagos back in the 60s, what was the city like back in the days and what fond memories do you have of the city of Lagos?

    When I was growing up, we had supermarkets all over Lagos namely: Kingsway, UTC, Leventis, Kewalrams, you name it. But before all of them it was Kingsway. Then you could just go there to buy whatever you want. I remember during my secondary school days, you wear tennis shoes and where you buy tennis shoes in those days was at Bata; they were all over Lagos then. Those companies were foreign companies, but then most of the top officers among them were Nigerians. Life was good.  Even when I passed out, my salary then was 15 pounds and I was saving eight pounds out of it. Rent was two pounds and there were telephones all over the place. The public transportation, the major one which starts from Tinubu and ends at Yaba, because beyond Yaba you are now in Western region, when you get to Jibowu there is welcome to Western region. When you go on the left, by the time you get to Alakara, Idi-Oro, you see ‘Welcome to Western Region’. So the only vehicle that passed through that area and stopped at Idi-Oro.

  • ACCI backs Fed Govt’s external borrowing

    ACCI backs Fed Govt’s external borrowing

    The Director-General, Abuja Chamber of Commerce and Industry (ACCI), Chijioke Ekechukwu has said Federal Government’s plan to borrow $5.5billion Euro bond loa will not strangulate the economy.

    In a statement endorsed by its Media and Protocol Officer, Gena Reuben Lubem, the DG said when the government got approval of the National Assembly to source for the foreign loan,  many  believed it would hut the economy.

    He said: “The borrowing is targeted at infrastructural projects and refinancing of maturing domestic debt with less expensive long-term external debt, there is no cause for alarm; many other countries have borrowed far above what Nigeria is taking from the Eurobond.

    “We shouldn’t be shy to borrow money to fund the deficit of the budget, infrastructural development and local projects. There is no problem with that and Nigerians should not worry.

    “On hiring of Malaysian expatriates to fix the economy, such actions should be discouraged as Nigeria has competent hands that can successfully navigate the country out of the economic quagmire it has found itself.”

  • $5.5b loan: Moody’s downgrade raises borrowing cost

    The Moody’s Investors’ Service downgrade of Nigeria’s long-term issuer and senior unsecured debt rating to B2 from B1 (with a stable outlook) means higher cost of international borrowing, top financial analyst Bismarck Rewane has said.

    In an email report, the Financial Derivatives Company Limited boss, said Moody’s action means that the Federal Government’s plan to raise $5.5 billion through Eurobonds sales within this fourth quarter will attract higher pricing.

    This will bring the total funds raised through the Eurobond–International Capital Market (ICM) by the Federal Government to $7 billion in less than one year. A total of $1.5 billion was previously raised in two tranches of $1 billion and $500 million.

    Moody also lowered the senior unsecured MTN programme rating and the provisional senior unsecured debt rating to (P)B2 from (P)B1. The rating outlook remains stable.

    In a report, Vice President – Senior Analyst Moody’s Investors Service, Lucie Villa, said Nigerian authorities’ efforts to address the key structural weakness exposed by the oil price shock by broadening the non-oil revenue base have so far proven largely unsuccessful.

    But in a swift reaction, the Federal Ministry of Finance (FMF), Central Bank of Nigeria (CBN) and the Debt Management Office (DMO) said the challenges that are highlighted in Moody’s rating are clear, and are being addressed by the government with the environment having improved significantly since the last period of assessment.

    Sub-Saharan Africa Economist, at Renaissance Capital (RenCap), Yvonne Mhango, said the plan to borrow $5.5 billion through Eurobonds will raise the country’s debt service to revenue cost beyond 62 per cent.

    She said capital releases for the 2016 budget continued into the first quarter of this year while public debt has increased by seven percentage points of Gross Domestic Product (GDP) since 2014.

    On the debt service/revenue, she said: “Nigeria’s debt service/revenue has risen sharply in recent years to 62 per cent as at June 2017 against 29 per cent in 2014. This largely reflects the Federal Government’s low revenue/GDP target of four per cent this year. The Federal Government plans a $5.5 billion Eurobond issuance before year-end 2017, as part of its efforts to lower local interest rates, by reducing domestic debt/total public debt to 60 per cent, against over 70 per cent today.”

    Mhango said budget performance in the first seven months of this year and debt developments showed there were no capital releases for the 2017 budget, because it was passed late. She said the Federal Government’s 2017 budget of N7.4 trillion was 6.2 per cent of GDP, and was signed by the executive, after being passed by the Senate in May.

    Of this, N3.1 trillion (2.5 per cent of GDP) was spent in seven months. “Expenditure in seven months was 30 per cent below the (pro-rata) target and was entirely made up of recurrent spending. There were no capital releases from the budget because of its late approval. However, capital releases did take place in seventh month, as the 2016 budget continued to be implemented into first quarter of this year,” she said.

    Mhango said revenue came in on target at N2.6 trillion (2.1 per cent of GDP) because of a one-off refund from the Paris Club. “When this is stripped out, there was a 20 per cent shortfall in revenue. Below-target spending – due to delayed capital releases – explains the small budget deficit for seven months of 0.8 per cent of GDP, by our estimate, as against the 1.5 per cent (pro-rata) target,” she said.

    She disclosed that the federation account revenue was one-third below target, and that three-quarters of the FGN’s planned revenue for this year is expected to come from the Federation Account, of which two-thirds will stem from oil revenue.

    She, however, said Nigeria’s public debt/GDP is low as against the Sub-Saharan African average of 45 per cent, but it has seen a strong increase in recent years, adding that since 2014, it has risen by seven percentage points of GDP to 16.4 per cent of GDP in June 2017, with 70 per cent of the increase due to domestic debt.

  • Fed Govt borrowing to save jobs, says minister

    Fed Govt borrowing to save jobs, says minister

    The Federal Government’s desire to borrow more funds from international creditors is to prevent job losses, Finance Minister Kemi Adeosun has said.

    Mrs. Adeosun, who spoke yesterday at a joint press conference with the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, at the conclusion of 2017 International Monetary Fund (IMF)/World Bank Group Annual Meetings in Washington D.C, said with Nigeria’s source of revenue dropping  by nearly 85 per cent, the country had no option but to borrow.  The option before the country was to either cut public services massively, which should have led to massive job losses, or borrow in the short-term, until it begins to generate sufficient revenues, she said.

    “We felt that laying-off thousands of persons was not the best way to stimulate growth. Also, when we came into office, about 27 states could not pay salary. If we had allowed that situation to persist, we would have been in depression by now. So, we took the view as a government  that the best thing to do was to stimulate growth and spend our way out of trouble, get the state governments to pay salaries, making  sure that the federal government pays and invests in capital infrastructure,” Mrs Adeosun said.

    Emefiele said the apex bank was trying to encourage Nigerians in Diaspora to keep remitting funds home, and also invest in the country, as they do not have any other place they can call home but Nigeria. Nigerians in Diaspora remit $21 billion annually to the local economy.

    “We will put in place policies that will continue to encourage them. We are working on how we can actually link credit bureau arrangement to the foreign borrowing arrangement so that once there is a link between Nigeria and the foreign credit system, it will be easy for them to even borrow from Nigeria,” he promised.

    The CBN boss said the apex bank was also planning to ensure that Nigerians in Diaspora get some form of attachments to the credit system that they have abroad, either in the United States or United Kingdom. That, he said, will make it easy for them to access credit and begin to build their businesses, so that when they retire, they retire back into Nigeria, and they do not retire in Diaspora.

    Mrs Adeosun said that once growth was restored, the country would begin to systematically reduce its dependence on borrowing. “Now, we are talking about tax and what we are saying is that people should be aware of their responsibilities to their nation. The solution to borrowing in Nigeria is that we must pay taxes. If you pay the taxes properly, there is no need to borrow. Of course, there is the responsibility on the part of government to be more responsible and efficient. We are really focusing on this. We are trying to find ways to cut cost. Fundamentally, we must invest. We don’t have the power we need, we don’t have the roads yet and there is a lot of money required to fund these projects,” the minister said.

    Continuing, she said that reducing Nigeria’s tax to Gross Domestic Product (GDP) ration from six per cent to 10 per cent would significantly reduce the amount the country needs to borrow and that would have a wider effect on the economy and bring down interest rate.

    She added that such a move would also create some head room for the private sector to borrow, because they are being crowded out.

    On state borrowing, the minister said state governments’ get borrowing consent from the ministry, which performs Debt Sustainability Analysis and if the repayment is more than 40 per cent of their revenue, such request to borrow is turned down.

    “So, many people are talking of how many loans we are approving; they don’t talk about how many loans we are turning down. Many do not go through and we are constantly monitoring state governments to ensure that the debts that they take on are sustainable. The problem with some of the states that have debt problems are legacy loans that were there before they came in. But since we came in, we have been very strict, trying to make sure states do not borrow more than they can service,” Mrs Adeosun said.

    According to the minister, Nigeria’s debt to GDP ratio is one of the lowest. “We are at 19 per cent, but most advanced countries have over 100 per cent. I am not saying we need to move to 100 per cent, but I am saying we need to tolerate a little more debt in the short-term to deliver the rail, the roads and power so as to generate economic activities, jobs, revenue, which would be used to pay back the debts. But I assure you that this government is very prudent around debt. We don’t borrow recklessly and we have no intention of bequeathing unserviceable debts on Nigerians,” she assured.

    The minister said the Voluntary Asset and Income Declaration Scheme (VAIDS) had so far got positive response from Nigerians. “I had discussions with some high net-worth individuals asking me to speak to the state governors to allow them time to pay. They needed to pay to the state governments. I have discussed with the governors that anyone that comes to them voluntarily for tax payment, should be given time to pay. We don’t want a situation where people willing to pay their taxes are stifling economic activities. We have told the governors, if someone comes willingly, quickly allow them plan to pay,” she said.

    Mrs Adeosun said revenues were needed to provide public services and the burden of taxation must be borne by those whose income allows them to bear it.

    “So, those with higher income should bear greater part of the burden. The problem with Nigeria is that most of our taxpayers are at the lower level. The man on the streets passing traffic, his tax is deducted at source. Why will we not allow billionaires to proportionately pay their taxes? I think we need a mindset change on taxation in Nigeria. So far, we are encouraged by the response of those companies and individuals to this tax amnesty,” she added.

    In her view, the tax amnesty policy is on track. “We’re on track. We expect that at the end of the timeline, everybody will rush and we will raise significant money. We have every reason to believe that this tax mobilisation effort will work and hopefully bring long-term money,” she said.

    “We are trying to do is create enough headroom to invest in capital projects that the country desperately needs. I do not think there is any Nigerian that will say we do not need to invest in power, do the roads, and that will not want us to fix 17 million housing deficits and build rails. These projects will generate economic activities and jobs. We do not need to continue hobbling as a poor nation. We are middle income country now. Nigeria, Angola, and South Africa are middle income countries. We do it jointly and efficiently, but the key thing really is revenue,” the minister said.

  • ‘High interest rate deters Nigerians from borrowing’

    ‘High interest rate deters Nigerians from borrowing’

    Managing Director/CEO, Credit Direct Limited, Akinwande Ademosu in this interview with Collins Nweze speaks on the challenges militating against credit disbursements and proffers solutions. Excerpts:

    What has been the impact of slow economic growth on your business?

    The major impact for us came from shrinking disposable income of workers generally. But, due to our long standing understanding of the business environment, we have continuously built competencies in market knowledge, product development, keeping the team intact, and been able to gain and develop abilities to withstand headwinds while remaining profitable. We have gained significant momentum in consumer lending space, expanding our offering to private sector as we deploy bespoke retail and consumer products to youth, women and small-scale businesses.  Additionally, we have always felt that our maximum impact will be felt when we can be the go-to name during tight fixes in Nigeria and indeed, Africa. As daunting as it may seem, our experience has allowed us stay ahead of the competition while remaining profitable. We want to be a reference point for others in this space on how to impact lives meaningfully. One major criteria that everyone must have is that they shouldn’t have any form of security.

    What advice would you give to people who are hesitant about taking unsecured loans for their businesses and projects?

    We have taken into consideration the skepticism of Nigerians regarding getting unsecured loans. A lot of people shy away from loans due to a high interest rate, repayment term amongst others. Our solution is such that you determine how much and for how long you pay depending on your financial status. You can decide to repay over a longer or shorter period as you please.

    One of our value offerings especially, to public sector borrowers is that we do not take charges in cases salary payment is delayed for no fault of theirs. For us, there is “No hidden charges” because we do not want to put our customers. The message is, we will stand with you and won’t put more burden on you.

    But as good as easy loan is, it must not be abused – diverted or wrongfully applied. In other to prevent this, we have advisors in our customer advocacy team who follow up to ensure the credit is used for the specific purpose – personal, family, business or combination of two or all. We also follow up to see that the purpose for which you obtained the loan is achieved.

    What impact has Credit Direct had so far in Nigeria?

    We have been able to give unsecured credit to over a million families and the implication of this by extension, is that we have met the financial needs of millions of Nigerians through our unsecured loans in just a decade of existence. Customers’ needs, taste, expectations, environment changes based on circumstances they face per time and current local or global trends. Being an unsecured consumer lending company, we keep asking; how best can we add value to our consumers?

    Credit Direct started out with a value promise to deliver quickest and reasonably priced loans and, by so doing, created a whole new way of lending without collateral security, away from the orthodox ways where only those with collateral securities get to borrow while majority of Nigerians were denied access to credit. We want to be one of the leading and impactful retail and consumer lending institutions in Nigeria, providing unsecured credit to validly employed public and private workers, households, youths, small and medium entrepreneur as and when they need it. We are proud of the impact we have had in the past decade, however, we are ready to do more – boost more businesses and help more families.

    Could you tell us how and what prompted you to start Credit Direct?

    Credit Direct Limited commenced test operation in 2006 and fully launched the first structured unsecured consumer lending business in Nigeria. The business model follows ‘Miner Credit Guarantee’ specially designed for South African miners in the early 1990s. This scheme has gone through series of testing before adoption in Nigeria. Today, we are the leading and largest unsecured consumer lending company in Nigeria in terms of assets volume, geographical spread, reach and impact.

    The company’s strength is built on the successes in its public sector unsecured lending business which is being extended to private sector, youth segment, group lending, small and medium businesses. In the past few years, we have been conducting series of model testing in digital business opportunities and investment in enterprise technology. All these aimed towards providing our customers the best of service and solution that is uniquely theirs. Credit Direct values stem from its commitment to building a sustainable organisation with tangible impact in the lives of its customer. We exist to make workers’ life better. Credit Direct has emerged from a start-up business to a formidable brand whose operation span two-thirds of the country and servicing more than a million households.

    As a non-bank financial institution, the company has pioneered many innovative products and services including its flagship – the first institutionalised unsecured consumer loans, integrated asset loans, micro-insurance and credit to the youth segment tagged “Empower the Corps (ETC)”.

    The company started its operation in 2007, from its operation head office in Ikeja, Lagos, Nigeria and has focused on providing hybrid payroll-based consumer credit to validly-employed Nigerians who have hitherto been excluded from access to credit facilities traditional financial institutions – because of collateral, loan size and complex administrative requirements.

    What gap are you trying to fill in the Nigeria credit market?

    After the banking reforms, it was clear that a gap existed at the bottom of the pyramid of consumers. Their inability to access credit of any kind either with little or no collateral securities drove us to the innovation lab that birth Credit Direct business model. We came as a response to Nigeria consumers’ need to be heard, engaged and served with the right products and services that meet their specific needs. We have harnessed this market knowledge over the past decade.

    Before we came in, there was no formidable financial institution for mass scale unsecured consumer micro-lending business. None was willing to risk their resources to provide ‘unsecured credit’. We however heard the voice millions of Nigerians in dare need of these financial services, but were deprived. It was on this premise that we decided to launch after carefully weighing the risk based on our unique “Employer Risk Assessment Criteria.” We started with our flagship offering which came with clear promise “24hours Unsecured Loans Sharp! Sharp!. We basically were telling Nigerians, ‘whatever your quick, urgent or emergent financial needs might be, we have your back with our quick turnaround yet unsecured credit.’

    There is also ‘Empower the Corps’ (ETC) which was launched to provide credit facilities to fresh graduate and young entrepreneurs serving our nation. Interestingly, all our products are designed to help solve personal problems and alleviate poverty which in turn reduces societal challenges. By making credit available to ‘youth corps’ for instance, we are able to provide them start-up capital that will bring their business ideas to life or at least pilot their ideas before it goes mainstream and this will, in the long term, reduce the rate of unemployment in Nigeria.

    What strategy are you using to attract the consumers?

    Our approach in tough market situation has been to carefully position for portfolio quality, strengthen risk management capabilities, build on existing customer experience touch points, to deliver sustainable value to all stakeholders. We have invested in customised information technology and data analytics capability that ensure we have deeper understanding of our target market and create a more solution-based flexibility. This will accommodate dynamic market trends and changes in consumers’ taste. Despite these challenges, our vision to help low income salaried people bridge financial needs and improve standard of living through loans remains a firm commitment.

    What impact has been the impact of the company on consumers?

    Credit Direct is driven by a commitment to sustainable profitability and community or social impact. One of our core goals is to make tangible impression in the lives of our customers and the community where we operate. Our commitment right from inception has been to be there for that person or family seeking to bridge finance, pay school fees to send their wards for education, pay rent, build houses, pay medical bills among others.

    We have been able to provide unsecured loans to hundreds of thousands of Nigerians. Our targeted offerings have helped many get out of tight spots, allow them make concrete plans, complete projects, invest amongst others and resolve life threatening situations.

    When introduced Cash-To-Go (popularly referred to as ‘Sharp! Sharp!! Loan’) credit because we understood that a lot of people need quick turnaround unsecured credit with minimal documentation. When we launched our asset-based loans, it was because we saw the need to support the life-style of our target market to acquire assets at a discounted price and rate.

    What are the challenges you’ve had to overcome in this business?

    The current volatile states of the financial services sector in Nigeria have truly been uncertain to mildly put it. However, our organisation believes there also exist some opportunities depending on how we choose to respond. Like any other systems built by man, it’s fair to say to we have areas of improvement.

    For instance, most of the locations where we were strong are now unviable or self-sustaining, which means they have over compensate with meagre federal allocations in the face of huge wage bill and developmental goals. The implication has been delayed salary, no salary and/or prorated payments in some cases which create high portfolio value at risk. We have however kept close contact with client and remain confident that the situation will change for better. We have also kept our promise by not passing the additional cost to the employees unlike other financial institutions who charge default rates.

    Our approach in tough market situation as described above has been to carefully position for portfolio quality, strengthen risk management capabilities, build on existing customer experience touch points, to deliver sustainable value to all stakeholders.

    We have invested in customised information technology and data analytics capability that we ensure we have deeper understanding of our target market and created a more solution based flexibility to accommodate dynamic market trends and changes in consumers’ taste. Despite these challenges, our vision to help low income salaried people bridge financial needs and improve standard of living through our loans and various corporate social responsibility projects remains a firm commitment. Our business outlook ratings also indicate a stable and improving business.

  • More foreign borrowing by Nigeria

    More foreign borrowing by Nigeria

    (Moves from low risk to medium risk borrower)

    I have over the years written extensively to express my concerns about our country’s propensity for increased domestic and foreign borrowing. Last year, in an article in this paper, I urged caution on the federal government on foreign borrowing when President Buhari concluded a loan agreement of US$6 billion with China for the construction of the Lagos-Calabar railways project. I am not opposed to that loan as I consider it vital to the development of our woeful transport and other infrastructure. It should have been done long before now. Nigeria’s financing gap has widened considerably because of the delay and past neglect in executing vital development projects. Loans should be taken when needed badly for the upgrade of projects vital for our economic development. But the Chinese loan means we now have a total loan agreement of about US$18 with China alone, now our largest foreign lender.  In fact, apart from multilateral lenders, China is one of the few remaining countries still willing to lend Nigeria money. Our foreign borrowing is not a subject that I approach lightly as the burden of a huge foreign debt has grave implications for our future prosperity as a nation. I find it disturbing and disappointing that I have to return to this subject again. And this is because Nigeria is looking to borrowing from abroad again nearly N2.5 tr. or more this fiscal year. The loan is needed to balance  the  2017 FG budget and for infrastructure development.

    Our national experience with huge foreign debts has not been a happy one. Now, twice in the last three decades, Nigeria has found itself in the critical situation of not being able to service or repay its domestic and foreign debt, with the potential of being declared, like Greece, technically insolvent and bankrupt. In 1984, when Buhari seized power from the inept and financially profligate civilian government of President Shagari, Nigeria’s foreign debt was close to US$40 billion. This placed our country in a financial blind from which neither the military regime of Buhari, nor that of his successor, Babangida, was able to extricate the country. Tough economic and financial stabilisation measures, including a sharp devaluation of the naira, had to be introduced to cut imports. The effect of these draconian economic measures on the country was devastating. Mass poverty deepened further as public expenditure and investment fell sharply. The GDP growth rate fell sharply and growth prospects declined. The industrial sector was on the verge of total collapse. Many manufacturing industries were forced to close down, leading to a severe loss of jobs in the manufacturing sector. Even today, we have not yet recovered fully from the industrial dislocation and loss of jobs caused by that financial crisis.

    It was not until in 2007, during the civilian regime of President Obasanjo, that Nigeria was able to exit from its London and Paris Clubs of creditors by paying about US18 billion of its debt, with the rest of it being written off, or ‘forgiven’ by our European creditors, For an oil producing and exporting country this was hugely embarrassing and damaging to our image in international financial circles. But there was little or nothing to show for the huge foreign loans we had taken. Rather than help create jobs we ended up losing more jobs because the borrowed funds were not allocated efficiently in the economy. Most of the loans were simply frittered away, with some of it ending up in private pockets. We were never really able to establish how the loans taken were spent, and for which projects they were used. But it was the surge in oil exports and revenue at the time that made it possible for President Obasanjo to take the courageous step of liquidating our foreign debt. Some analysts even criticised him at the time for exiting the creditors’ club arguing, that despite its huge foreign debt,  Nigeria was still under borrowed, and that there was really no need for him to have paid  off the debt owed the London and Paris Clubs.

    In retrospect, had he not done so Nigeria’s foreign debt profile would be worse now and virtually unsustainable. We would be literally bankrupt now as a nation. In fact, Obasanjo’s decision to liquidate our foreign debt was the only significant achievement of his government. And when he left office shortly after Nigeria had nearly US$50 billion in foreign reserves. But this fiscal discipline was regrettably not maintained by his two successors, Presidents Yar’Adua and Jonathan, both of whom failed abysmally to pay the necessary attention to our external sector and resumed the foreign borrowing spree. Despite a record surge in oil exports and revenue, President Buhari’s new civilian government, like the previous one, inherited some US$18 billion in foreign debts from the Jonathan PDP government. He came into office when oil exports and revenue began to fall sharply. The foreign debt had increased and planning of any kind became difficult if not impossible. The economy went into a swift recession from which it has not yet recovered fully. Government revenues fell sharply. To cut imports, an exchange rate adjustment of the naira became inevitable with the economy still largely import dependent. That is broadly the situation in which the country now finds itself, with the federal government struggling desperately to end the recession and move the nation towards a modest economic growth. Our economic situation today is broadly similar to that of the mid-1980s when our country faced economic and financial paralysis because of its huge and unsustainable foreign debt.

    So far, despite its best efforts, the Buhari APC federal government cannot be said to have recorded any impressive success in tackling these major economic challenges. Data on sectoral GDP growth of the economy released last week end by the National Bureau of Statistics do not give us any room for optimism about the short term prospects of the domestic economy at all. In the final quarter of 2015 the total GDP growth rate was 2.11 per cent. By the end of 2016, it had declined to a negative growth rate of 1.30 per cent. Sectorally, only the agricultural sector seems to have recovered slightly, moving up from 3.46 per cent in the final quarter of 2015 to a mere GDP growth rate of 4.03 per cent. For the other major sectors of the domestic economy the data does not show any significant growth at all. Mining recorded a negative growth rate of 12.04 per cent at the end of 2016, manufacturing GDP actually fell from 0.38 in the last quarter of 2015 to -2.54 per cent in the last quarter of 2016. Services did not fare any better either. It fell to a negative growth rate of 1.52 per cent at the end of 2016. Only a few days ago the MPC of the CBN warned that economic growth in Nigeria could stall up to the first quarter of next year, and beyond.

    Now, the government’s strategy for growth is to spend its way out of the recession, with a huge budget such as that of the current fiscal year, even if this means resorting increasingly to more domestic and foreign borrowing. The options of the government are limited if the country is to return to the path of economic growth. But borrowing heavily, at home and abroad, is no guarantee that the economy will resume growth in the short-medium term. In its 2016 report last week, the Debt Management Office (DMO) issued a warning that the nation had moved from a low risk debt distress country to a medium risk debt distress one. This, coming from an agency that had always routinely endorsed Nigeria’s foreign borrowing, calls for caution in foreign borrowing. As at March, 2017, Nigeria’s external debt stock was put at US$13.8 billion or N4.23 trillion. Its domestic debt stock stood at US$39.08 billion, or N11.97 trillion. The total amount of domestic and foreign debt outstanding as at March, 2017, was put at US$62.87 billion, or N19.16 trillion. The foreign component of the debt estimated at US$13.8 billion appears understated if the huge Chinese loans are included. This is a huge debt that could in future prove to be a huge and unsustainable financial burden to our country. As the Debts Management Office (DMO) warned the nation in its recent report. ‘the rate of growth did not impact proportionately on the revenue accruing to the government’, and this made the financial portfolio of the federal government highly sensitive to external shocks’. This is a clear warning to the federal government. The Minister of Finance, Kemi Adeosun, alluded to this danger last week when she complained publicly that Nigeria’s huge domestic and foreign debt was becoming unsustainable, and that the government should show greater caution in borrowing. It is not difficult to understand her frustration and financial dilemma as the federal Finance Minister. But without borrowing, recovery from the economic and financial slump will be quite difficult. At the same time resort to excessive borrowing will impose on our country a crushing foreign debt that can easily become unsustainable in the short to medium term.

    What the situation calls for is increased diversification of our export base and a  gradual but steady reduction in our foreign borrowing, except for the most critical infrastructure projects, such as power generation, the railways and roads. And these project tied loans should be stringently monitored and controlled to ensure that, unlike previous foreign loans, they are scrupulously used for the purpose for which the loans were obtained.  This is our responsibility, and not that of the lender who, no matter what happens, will get his money back at the agreed interest rates. Secondly, we should avoid further short term loans. Instead, we should seek loans with longer term maturities that will be easier to service and repay. We should not continue to mortgage our future growth and prosperity on foreign loans that will impose a crushing burden on us. The next generation deserves something better from us, not a nation crippled by huge foreign debts.

  • $300b infrastructure gap: Fears over borrowing binge

    $300b infrastructure gap: Fears over borrowing binge

    Nigeria requires an estimated $300 billion to address her infrastructure deficit. This represents 25 per cent of her Gross Domestic Product (GDP). But attempts to mobilise the cash to execute key infrastructural projects through borrowing have not gone down well with some stakeholders. They argue that rather than plunge the country into a debt trap, the government should turn to other sources to fund infrastructure. Assistant Editor CHIKODI OKEREOCHA reports.

    The situation is dicey. Price of oil, Nigeria’s main revenue earner, is yet to rebound. With Brent crude hovering around $48.46 per barrel, as at last week, the economy is yet to recover from the global slump in oil prices. The crisis, which started mid-June, 2014, forced a sharp drop in oil price from over $115 per barrel to the current $48.46.

    The reduction in revenue made it extremely difficult for the Federal Government to meet its financial obligations. This left it with no choice than to turn to international financial institutions for loans to finance critical infrastructure projects.

    According to experts, Nigeria requires about $300 billion to fix her infrastructure. This represents 25 per cent of her Gross Domestic Product (GDP), implying that an investment of about $25 billion is required annually to close the yawning infrastructure gap.

    Experts in diverse sectors argue that without massive investment in infrastructure, particularly electricity supply, road and rail network, among others, the economic development and growth goals, articulated in the Federal Government’s Economic Growth and Recovery Plan (EGRP), will not be achieved.

    But with the sharp drop in oil prices, getting cash to build infrastructure became a challenge for the Federal Government. This was why the government turned to borrowing to fix infrastructure.

    “So, when we started the argument, should we borrow, should we not? The truth is that we have no choice,” Minister of Finance Mrs. Kemi Adeosun said, at a recent forum in Abuja with the theme “Beyond Recession: Towards a Resilient Economy.”

    She continued: “If you are waiting for oil price to recover, the prognosis is that it’s not going to go back to $110 per barrel any time soon. So, to get the economy growing, we have no choice but to look for low-cost funds and put that infrastructure in place, because it is the infrastructure that will unlock the economy’’.

    While experts and operators in various sectors agreed with the Finance Minister that infrastructure deficit remained one of the stumbling blocks on Nigeria’s road to economic growth, they however, expressed fears over the spate of borrowings by government. They were apprehensive that the nation’s increasing debt profile was becoming unsustainable.

    Nigeria’s total public debt – foreign and local – stood at N19.16 trillion as at March 31, 2017, according to the Debt Management Office (DMO). It increased from the N17. 36 trillion recorded at the end of December 2016, representing an increase of N1.8 trillion.

    The DMO said at the end of March 2015, Nigeria’s total indebtedness was N12.06 trillion. This implied that the  debt level increased by N7.1 trillion within two years.

    DMO, which coordinates the management of Nigeria’s debt, said of the total debt stock, domestic debt stood at N11.97 trillion, against N8.51 trillion recorded in 2015. This represents a domestic borrowing record of N3.46 trillion, representing 40.71 per cent.

    On the other hand, external debt for federal and state governments rose from $9.46 billion to $13.81 billion in two years, representing an increase of $4.35 billion, put at 45.98 per cent.

    According to the DMO, the country’s external debt for March 31, 2017, was calculated using the official exchange rate of N306.35 to $1, while the official exchange rate of N197 to $ 1 was deployed in determining the foreign debt for March 31, 2015.

    Meanwhile, the domestic debt profile of the states stood at N 2 .96 trillion as at March 31, 2017, rising from N1.69 trillion at the same time in 2015, representing an increase of N1.27 trillion.

     

    No cause for alarm, says Fed Govt

    Obviously aware that the debt figures sent jitters down the spines of not a few stakeholders, the Director-General, Budget Office of the Federation, Mr. Ben Akabueze, sought albeit successfully to allay fears that at N19 trillion, Nigeria’s debt stock was becoming unsustainable.

    He said there was no cause for alarm as the country’s total indebtedness of N19.16 trillion was sustainable, and still within the globally accepted threshold.He said rather than worry about the level of borrowing, the priority should be on how to shore up revenue that would enable the government finance its programmes.

    As the DG of Budget Office noted, “Our revenues are way too low for the size and potential of this economy and that is why we have the lowest tax to GDP ratio in the whole continent. We are right there at the bottom globally simply because people are not paying taxes and we also have to ensure that even what people pay does not leak and it is properly accounted for.

    Mrs. Adeosun also advanced the same argument. She said that Nigeria’s debt was not too high, but that her revenue was too low. According to her, the country’s debt to GDP ratio remained low.

    Listen to Adeosun: “The problem is not that our debt is too high, but that our revenue is too low. It is revenue you use to pay debt and our revenue in Nigeria right now is very low. Most of our debt matures between two years. That means that the actual amount of interest we are paying is significant.

    “What we are doing right now is refinancing most of that debt, especially those maturing within the next two years. We are also working on improving government revenue through tax.

    “Our tax to GDP is six per cent; we are one of the lowest in the world. Ghana is 15 per cent, South Africa, 24 per cent. So, what we are doing is working very hard to see how we can get more people into the tax net and how to get those who are already in the tax net to pay the right taxes.”

     

    Stakeholders disagree

    However, some economic and financial experts refused to be swayed by government’s explanations.  Some of them warned that government should be wary of plunging the country into another debt trap.

    For instance, the Chairman, Petroleum and Natural Gas Senior Staff Association of Nigeria and National Union of Petroleum and Natural Gas Workers (PENGASSAN & NUPENG) National Petroleum Industry Bill (PIB) Committee, Comrade Hyginus Onuegbu, lamented that at N19.16 trillion, Nigeria’s level of borrowing was on the high side.

    Recall that Acting President Yemi Osinbajo had last month signed the N7.44 trillion 2017 budget into law. The budget had a revenue projection of N5.08 trillion and an aggregate expenditure of N7.44 trillion. The projected fiscal deficit of N2.36 trillion, according to Osinbajo, is to be financed largely by borrowing.

    The budget, the Vice President said, set aside N1.84 trillion for debt servicing, N177.4 billion for sinking fund, N2.97 trillion for recurrent expenditure (non-debt) and N2.177 trillion for capital expenditure.

    But Onuegbu observed that, “Nigeria’s debt service obligation was too high. It’s a big challenge as far as the budget is concerned. As a matter of fact, one third of the budget is to be financed by borrowing. When you borrow money, the reason for which you borrow money must be economically viable to be able to repay the loan otherwise that loan will become a big burden on you.”

    Similarly, a Lagos-based lawyer and public affairs analyst, Mr. Akabogu Obiora, lamented that Nigeria’s rising debt profile was worrisome. “It’s worrisome. I don’t see any reason why Nigeria should go a borrowing again, whether it is from a benevolent creditor or not.

    “The fact that Nigeria passed through a lot under the previous debt bondage should have been enough reason for government to be wary of borrowing and going back into the debt trap,” he said.

    Akabogu argued that the rising debt stock would plunge the country into another debt trap, which is an aspect of colonialism, because “he who pays the piper dictates the tune.” He said rather than do so, government should explore other viable sources to raise the required fund to build infrastructure.

    To drive home his point, Akabogu asked, “What is the use for Excess Crude Account (ECA)?” noting, “The external reserves is there. I am aware that it has not been completely depleted. There is Sovereign Wealth Fund, Value Added Tax (VAT) as well as money accruable from Customs and Excise.”

    The legal practitioner pointed out, for instance, that the Nigerian Customs Service (NCS) is the only organisation in Nigeria that continues to declare surplus all the time.

    Indeed, Adeosun had said that apart from borrowing, part of government’s survival strategies was to make sure that revenue generating agencies remitted their operating surpluses to the coffers of the government.

    Akabogu also said there is a lot of money from the private sector to build infrastructure. “There is capital inflow into the country from foreign investors. Nigeria continues to be number one investment destination,” he stated.

    Apart from the nation’s rising debt burden, government’s alleged propensity to borrow to finance recurrent rather than capital expenditure has also not gone down well with Akabogu and indeed, other economic and financial analysts.

    For instance, as far as the Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, is concerned, it was wrong for the government to be mainly borrowing to support recurrent expenditure. Hear him: “We need to move away from debts for recurrent expenditure to debts for capital expenditure, which is projects-specific. The debt level itself is not dangerous, but the debt service level – the debt burden – is very high.

    “We are using 66 per cent of our independent revenue to pay interest. So, interest rates must come down substantially, or else, we are in trouble.”

    Similarly, a Professor of Political Economy and management expert, Pat Utomi, said, although, there are times that a country needs to spend its way, literally out of the challenge of output such as a recession, there is need for caution to avoid getting into an unsustainable debt scenario.

    Indeed, Adeosun and other renowned experts had, at various times, argued that Nigeria needed to spend her way out of recession; that a better way to do it was for government to borrow to finance infrastructure projects.

    Another renowned industrialist, Mr. Henry Boyo, noted that although, there is nothing wrong to borrow to improve on social welfare and infrastructure, it is worrisome for government to borrow at the same time that it already owes so much money to the extent that it is using a huge percentage of its real income to service debts.

    The economist also expressed concern over government’s plan to borrow to build infrastructure especially in view of the rampant evidence that government-funded infrastructure had never been properly managed.

    He said that with the sad record of poor performance of government agencies and institutions, it is worrisome for anybody to suggest borrowing to create more infrastructures that would be government managed.

    This may have prompted calls for Public Private Partnership (PPP) model for designing, building, financing and operating new and existing infrastructure. Yet, others want the Federal Government to turn to its pool of pension funds put at N6.02 trillion as at November 2016. With the National Pension Commission (PenCom) projecting that Nigeria’s total pension asset may hit N20 trillion by 2020, it is hardly surprising that government, according to Osinbajo, was working on how to tap into this huge fund to finance infrastructure development.

    Will government pull the breaks on borrowing and explore other options?

  • ‘Borrowing to service budget shouldn’t cause a stir’

    The Director-General of Debt Management Office, Dr. Abraham Nwankwo, believes that Nigeria’s successful outing at the Eurobond market should be reassurig enough that Nigeria is determined to come out of recession, and that borrowing to servive the budget should not cause a stir. He spoke with a select group of Editors in Abuja.  Deputy Editor, Nation’s Capital, YOMI ODUNUGA, was there.

    How would you describe Nigeria’s performance at the Eurobond market?
    I would say it was a success. We successfully transacted on the $1 billion Eurobond issuance on the 9th of February. It was over-subscribed. The level of subscription is nearly 800 per cent and we got it at a favourable price relative to our expectations and general predictions before we went to the market. We obtained that at a coupon of 7.875 per cent per annum which is very favourable considering that the bond is for a tenure of 15 years.
    The last time we went to the market in 2013 which was our second outing, that $1 billion outing was obtained for 10 years. This time, we decided it was important to have a longer tenure and the analyst felt it was a wrong time for us to be ambitious to look for a longer tenure, given that the global economy is not as bright as it should be.
    We also have our local challenges, particularly the fact that we are in recession. Nigeria should always move forward in spite of all challenges. We believe that Nigerians are resilient. That’s why in spite of advice from analysts, we insisted we will go to the market this time and opt for a longer tenure.
    The Nigerian team was well received by the international market. Our presentation to the international market revealed what our challenges are and the various measures the government has taken to solve the challenges. Investors were impressed with various government policies and this made the international community to want to invest in Nigeria for a long time.
    Let me emphasise that the success of the Eurobond goes beyond the raising of $1 billion. The success is more important to us because it is a source of pride to secure such bond at this difficult time in the global economy. So it means that, at this point, we need the confidence of Nigerians to develop ourselves and take advantages of opportunities nature gave to us and the human resources.
    In the shortest possible time, we should be relieving our people out of the present poverty. That is why the proceeds of the Euro Bond and other sources will focus on infrastructure so that we can generate goods and massive employment. With these infrastructure, the economy can be made more competitive such that most of what we import can be produced locally, and reduce pressure on foreign exchange demands. In addition, we will be able to export and generate foreign exchange from other sources. The euro bond success is a story of Nigeria’s commitment to a better future despite all temporary challenges.
    What impact will this have on foreign investment and how will it impact the ordinary man?
    Once more, Nigeria has demonstrated that it is ready for business and the international community has announced, unequivocally, its readiness to continue doing business with Nigeria. Having said that, it is important to look at the next action rather than what has been done. That is why we started this gathering on the FGN Savings Bond.
    Before we can escape recession, we have to bring changes and these changes have to be brought rapidly. Having concluded the Eurobond, coming soon is the FGN Savings Bond. The DMO has gotten the mandate of the Minister of Finance to introduce the FGN Savings Bond. As you know, since 2002, we have been issuing the FGN bonds, but these bonds are mainly for institutional investors or high networth individuals. These are the bonds issued every month mainly to raise money to fund the budget as appropriated by the National Assembly. However, we thought it is important to introduce a product to allow ordinary Nigerians to participate in the markets.
    There are Nigerians who have smaller amounts of money and want to contribute part of the funds to develop the country while they are expected to earn interest from such service. Therefore, It is very sensible for us to develop an appropriate product that will enable all Nigerians, not only the very rich but the moderately rich and averagely rich and any other Nigerian with as low as N5000 to invest in a government bond, earn interest from it, while helping to contribute to a pool fund that will be used to provide infrastructure for rapid development. In that case, you are helping the population to develop the culture of savings.
    As you know, the higher the culture of savings, the better the chances of the country developing. It is from savings, whether from individuals, companies or households that you would be able to gather resources that you can now use to invest for growth and development. And so, the DMO will soon introduce the FGN savings bond to deepen savings culture and diversify funding sources for the government. More importantly, to establish a benchmark for other issuers.
    We want to be able to introduce this savings product for the ordinary person so that within the economy, some financial institutions can also introduce their own products to attract savings from the ordinary people. In this way, the economy will be able to develop both from the public and private sector perspectives. That is why for this bond, we are thinking of as low as N5000 and a maximum of N50 million. That shows it will not compete with the FGN bond which you know pension funds are investing in it, big companies are investing and other firms are putting in their money in millions or billions. This will be a maximum of N50 million and minimum of N5,000. This means any of us can invest with pride that you purchase the FGN Savings Bond and the money you contributed helped the country to develop roads, railway and power. These products will have a tenure of between two and three years.
    When most people want to save now in the existing financial institutions, most time they are able to save for only one year, but we are looking at an elongated tenure as alternative.
    On this product, interest will be paid twice a year. The interest rate will be fixed but competitive and this will be announced by the DMO on the first working day of every month. Once this is announced, subscriptions, i.e investment opportunity will be announced for five full days. Nigerians are free to invest for five days and this will be repeated every month once we start. Every month, Nigerians will have the opportunity to invest in a product that gives them good returns but more importantly, contributing to fund national development.
    What would be the mode of subscription for the FGN Savings Bond?
    You can subscribe through accredited stock brokers, people who are already licensed and operating at the Nigerian Stock Exchange. The good story is that the brokers are more than 100 which means it will be easy for any Nigerian to identify his broker from any part of the country. It will commence before the end of the first quarter of 2017. So what I am doing is to give you prior notice and you can inform Nigerians about it. As you know, this is part of financial inclusiveness. This is not exclusive to those who are very rich. It is for all and that is what FGN Savings Bond will do.
    In due course within the first quarter, we will brief you about when this product will take off. By the time we finish with the Federal Savings bond, we will also brief you on another product. As you know, this is the regime of change, so from DMO’s point of view, we will continue with innovations that will push Nigerians forward in the right direction. The support that DMO is giving to the Nigerian economy is not conditional. It has nothing to do with staff welfare but commitment to show that it was during our generation that we revived Nigeria’s economy.
    Will the FGN Savings Bond always be a specific amount?
    The FGN Savings Bond will be issued as a way of raising money for normal appropriation. Assuming every year, based on budgetary process, there is a specific amount which government has decided to borrow from the domestic market. If you look at the 2017 Appropriation Bill, you will see that there is an amount to be borrowed from an external source and another amount to be borrowed from the domestic source. So this FGN Savings Bond will be issued as part of whatever has been approved for domestic borrowing for each year. So it is not a specific amount that has been earmarked as the Eurobond.
    It is part of whatever has been approved for borrowing from the domestic source every year. It will not need any special approval but whatever has been approved in the budget to be borrowed from domestic sources. What it means is that instead of using only Federal Government bonds, we have a third instrument which can be used to borrow from the domestic sources for the purpose of funding what has already been appropriated in the budget.
    Do you have any contingency plan for a continuously weak naira, especially when the Eurobond is in dollars?
    The amount to be borrowed is any amount that has been approved by the National Assembly. As you know, if you go into the external borrowing programme, there are various amounts to be borrowed from external sources in a particular year. So, if you look at 2016 budget, you will see that there is a $1 billion Eurobond to be borrowed. Other sources of borrowing include the African Development Bank (AfDB). In the budget, there was also an item to be borrowed from the World Bank. So, this $1 billion is part of the total external borrowing that was in the 2016 budget. So this $1 billion Euro bond is for the purpose of funding the 2016 budget. It is part and parcel of the various amounts approved for borrowing in the external sources in 2016 budget. So you can only borrow what is approved. You don’t borrow outside what is approved by the national assembly.
    With the recession, there are fears that Nigeria may not meet the payment schedule with dwindling fortunes of the naira against the dollar. What’s your take on that?
    On repayment, that takes me to an old issue and that is, everything Nigeria is doing currently, with regards to the economy, is with a view that in the next five years, we would have turned around this economy in a positive direction. That is why we talk of an economic recovery and growth plan. The whole idea is that, in the next five years. Nigeria would have really changed.
    So you will not be bothered about a change in the next seven years. Nigeria’s economy will be very strong and we will not be bothered about exporting just one product. Nigeria will be exporting about seven products, which include agro-allied and manufactured products and solid materials. In addition, in seven years, thanks to efforts the government and Nigerians are making, most of the goods Nigeria currently imports will no longer be imported. Rather, we would be into massive exports.
    That is all we are working towards. With this, Nigerian economy will be very strong, our reserves will be buoyant and the currency will be very strong as well.  That means we would be in a position that we would be exporting more than we import. Thus, we are comfortable to service our debt as at when due because we will be generating a lot of foreign exchange from various sources that are balanced, but not depending on a product that will give a shock again. By the next seven years, Nigeria should be free from external shock resulting from the collapse of oil. By then, we should have been wise enough to ensure that we do not import what we can produce locally.
    Are you not concerned about maturity of the bonds with regards to payment?
    Let me say we should not accommodate fear, whether in our personal life or in the economy. That is why we went to the market. We do not fear. Secondly, whether we opt for this $1 billion Eurobond or not, we have to service our debts as at when due. We do service our debts as at when due and we have never been in default. .
    Also, this $1 billion Eurobond is to fund the 2016 capital budget. There is nothing ambiguous about it. When you study the budget, the provision for debt servicing is right there. It is not new, it is just another service for expenditure. There is nothing special about it, it is just another item of expenditure and if you go to the budget, you will see 1000 heads and sub-heads of items of expenditure. Debt service is just one of them. The way government meets other expenditure obligations is the way government meets debt service obligations.
    There is nothing sacrosanct about it. Rather, borrowing is one of the means to resource the funding of all the expenditures. It should not be mystified. There is no special issue about debt servicing. In any case, when you borrow money from someone, you are free to owe him for one day and pay interest for one day and give back the money, then you stop paying interests. If you decide that after one day that you want to use the same money to solve another problem the next day, because each day you are holding the money, you are more or less borrowing it afresh. If you hold it for 30 years, it means you are using the money for 30 years. So you have to decide how long you want to use the resource.
    Financial experts have questioned the choice of Eurobond as there are cheaper sources of borrowing in the market. What is so special about Eurobond that Nigeria opted for it?
    Why Eurobond! You source bonds from a basket of sources. There are concessional sources, bilateral sources, capital market sources and each has its peculiarity and its applications. They all have limits. So when you look at your total needs, you have an idea the maximum you can get from these sources from a particular point in time. You make sure you maximise what you can gain from the cheap sources and you move on to other sources. Invariably, no one source can satisfy your needs. So Nigeria looks at all these possible options and thinks about what is there, where optimal combination from all the sources can be used to solve these problem as it goes along.