If you missed Wednesday’s announcement of the outcome of the country’s billion-dollar bond offer to international investors by Finance Minister Ngozi Okonjo-Iweala, you probably number among the uninitiated in the free-wheeling club of high finance.
Just in case you missed it, let me attempt a simple summary of the outcome that has since kept Abuja on the orgy of wild celebration: Nigeria put one billion dollars bond on offer; the subscription, said to have drawn top investors from US, Europe and Asia, came in multiple of four! In layman’s language, it means Nigeria had sought to raise one billion dollars from the international capital market but got enough investors to stake $4 billion for a share in the Nigerian pie!
That obviously meant a lot to Finance Minister Okonjo-Iweala; her excitement, so palpable, nearly went overboard. Hear her: “the fact that Nigeria could go to the bond market, after waiting a while and we got four times our subscription, shows confidence in the strength of the Nigerian economy… Over 200 investors could not get any share of the bonds because we were oversubscribed’’.
She would also add: “The reason we are excited is because as you know, these are turbulent times, especially following expectations of tapering of Qualitative Easing by the U.S Federal Reserve Bank”. Lost perhaps was the irony that the feared quantitative easing actually drove interest rates down – not up; our officials are of course exultant about the prospects of borrowing at relatively high costs! That is what they call “confidence”!
Let’s look at what the bond in two categories of $500 million each means for the ordinary Nigerian. Whereas the first tranche has five-year duration, it attracts a 5.125 per cent interest rate; the other, with 10-year duration at 6.375 per cent interest rate.
What happened to the argument made only a short while ago that the loans being sought were cheap, concessionary loans of two percent with some 20-30 years repayment? Does that figure now in the current relapse into the old habits of debt peonage?
Does anyone bother these days to raise questions about the bizarre financialism under which the nation would borrow at interest rates of six percent only to stash its Sovereign Wealth Fund in off-shore accounts to draw a measly below two percent interest?
At this point, I should invite you, dear reader, to the seminal contribution Joseph Stiglitz and Hamid Rashid on the subject of Sub Saharan Africa’s increasingly insatiable appetite for sovereign bonds. A must read – if you ask me – for what I consider as its fresh perspective on the raging debate.
Stiglitz and Rashid had posed the interesting question of why increasing numbers of developing countries have resorted to expensive sovereign-bond issues particularly when their existing foreign debt carried an average interest rate of 1.6% with average maturity of 28.7 years.
The article, set in the background of the raging contagion of Eurobonds which first birthed in Ghana, but has since spread to Gabon, the Democratic Republic of the Congo, C’ote d’Ivoire, Senegal, Angola, Nigeria, Namibia, Zambia, and Tanzania, also contains dire warnings on the danger of the ultra-orthodox financialism which most sub Saharan governments have since fallen spell.
In it, the duo did a good job of ripping through the official mantra of “surging confidence” bandied as feeding the obsession for the debts when they noted that: “the quantitative easing having driven interest rates to record lows, one explanation is that this is just another, more obscure manifestation of investors’ search for yield”.
That shouldn’t be hard to understand; in Europe, United States and Asia, interest rate capped at two percent or below offers little or no attraction for “vulture” funds. So, where would the ‘gamblers’ have taken their money except to regions where they can enjoy six percent interest with sovereign guarantee to boot?
Since when did “confidence” stop being denominated in hard cash – the cash haul described as return on investment? Shouldn’t that knowledge have tempered the claim of achievement? Picture the gambler and the profligate in a game of feints and deception; isn’t it supposed to be game in the muddled world of high finance?
The article under reference also identified “the conditionality and close monitoring typically associated with the multilateral institutions make them less attractive sources of financing”.
I love the way the duo framed the rhetorical question: “What politician wouldn’t prefer money that gives him more freedom to do what he likes? It will be years before any problems become manifest – and, then, some future politician will have to resolve them”!
Now, that is an elegant way to frame a problem that we know only too well – corruption.
We know the attraction for bonds; they are cheap. The ‘cheapness’ is however not always the whole story. The rents – arbitrage – to be earned by thieving officials have more often than not constituted the major attraction. Even at that, it seems the best way to kick the problems down the road for the coming generation to solve. That is the way things have been. Apparently, they will remain so for a long time to come.
So, what would the Jonathan administration do next? Go for more bond issues as proof of “investor confidence”? Leave the nation’s financials in utter mystery while living in denial that the nation is fast sinking into debt peonage?
Have we parted with the so-called “odious” debts in 2005/6 only to re-learn the habits that we once assumed had been shed? How does one explain the mystery behind the mounting debts during a period of sustained oil earnings?
Permit me, dear reader, to suggest that the so-called “investor confidence” is completely misconceived. The world knows better than celebrate the “fundamentals” of an economy where no meaningful economic activities are going on. Didn’t our officials announce way back in 2008 that our capital market has arrived on the world stage with return on investments said to be highest on the universe?
How come the market took the hit at the onset of the global credit crisis with the exit of the vultures – the foreign portfolio investors?
What is the difference between the SAPped 80s and the present? In the 80s, the nation ran into balance of payment crisis because oil prices took a dive. Unable to meet its import bills, and with a huge portfolio of debts to service, it had to endure all manners of economic prescriptions to keep afloat. Three decades after, the only difference is that oil price has not only kept steady, but has managed to surpass expectations. With $50 billion dollars in the kitty, as foreign reserves, even a blind vulture can afford to gamble. You call that achievement; well, I call it common sense.
