Nigeria won relief of 60 per cent of its US$36 billion debt to developed nations after the G8 meeting in July in Scotland. But who really benefits from this deal: the Nigerian government? Guilt-stricken do-gooders like Bono and Bob Geldorf? Or poverty-stricken Nigerians? All of them, to some extent, but, quite tellingly, the mood of celebration amongst ordinary Nigerians was much more restrained.
It may be hard for Western readers to understand how Nigeria, the largest country in Africa, with a fifth of the continent’s population, some 130 million people, and its second largest economy, needs to ask for debt relief.
Paradoxically, a large part of the problem is that Nigeria is potentially a very rich country. In 2004 Nigeria’s crude oil production was averaging around 2.4 million barrels per day and was a major source of US imported oil. But because of poor macro-economic management and endemic corruption, compounded by decades of military dictatorship, the country became hooked on oil revenues while the rest of the economy decayed. Petroleum and petroleum products account for more than 95 per cent of export earnings. Once an exporter of food, Nigeria has become a net importer of food.
From the beginning, debt relief for Nigeria was going to be a hard sell to the Paris Club, considering its record of corruption and bad governance. It might make sense for war-torn countries like the Sudan, Ethiopia, Sierra Leone and Liberia. In Nigeria, the worst problem was years of corruption.
So when President Olusegun Obasanjo came into power in 1999, he spent much of his time globetrotting and trying to rebuild Nigeria’s image. His domestic critics accused him of ruling the country from the air. But the former army general ignored them and doggedly pursued his agenda: fence-mending and restoration of trust. To ensure that Nigeria was taken seriously, he poached a senior Nigerian working at the World Bank, Dr Ngozi Okonjo-Iweala, and made her the country’s finance minister.
Political change in Nigeria was also encouraging. For once, four years of democracy elapsed without a military coup. Structures are — or seem to be — in place to ensure both economic and political continuity along the path of freedom and liberalization. The government has worked hard to put a stop to the corruption. Over the past three years, three ministers have been fired over corruption charges, three judges fired and one suspended, the senate president has been forced to resign and the inspector-general of police has been arrested.
After all that effort, the Nigerian government was elated when the G8, overcoming reservations about corruption and mismanagement, agreed to the deal. But back home, not everyone was setting off fireworks of celebration. Take the popular newspaper columnist, Sowore Omoyele, for example. He declared that the G8 was partly to blame for Nigeria’s financial mess:
In Nigeria’s case, the Paris Club should be made to pay reparations to the people of Nigeria for lending monies to the crooks and kleptomaniacs who ran the country under various regimes, be it, military or its civilian Mafioso. The Paris Club knew from the beginning that these elements did not meet the conditions set for responsible management of monetary resources. Yet, they sent them loads of “loans and aid” sometimes more than were requested. Whenever the people rose up in protest against the inhumane management of their resources, the ‘military-industrial-complex’ in the West would also send loads of weapons and ammunition so the ‘leaders’ could suppress the masses that rose against them. These same masses are now being forced to clap with one hand: the other hand has been blown off by forces inspired by Bretton Woods loan sharks. (1)
To make sense of such virulent objections, MercatorNet spoke with economist Doyin Salami, of Lagos Business School. How is it possible not to rejoice over forgiveness of US$18 billion?
Like many Nigerians Dr Salami feels that the real key to tackling poverty is good leadership. In his view, the terms of the debt relief are less generous that they seem. “I consider the debt relief a very silly thing,” he says. “If you’re going to take $12 billion, it should be unconditional write off of debt, end of story. Nigeria has now been forced to take a PSI (policy support instrument) which will be monitored by the IMF.”
The devil is in the details. Nigeria has agreed that if the Paris Club forgives $18 billion, it will establish a monitoring system to ensure that $1 billion saved each year will be kept aside for health, education, agriculture, power and water supply. That leaves $12 billion outstanding. Of this Nigeria has agreed to repay $6 billion very soon, taking advantage of the $21 billion in foreign exchange reserves it has built up due to higher oil prices.
This also irks Dr Salami. “When the oil markets were down, why didn’t [the Paris Club of Creditors] offer us debt relief then, because that was when we really needed it? Why is it now when oil prices have gone up that Nigeria is being invited to put international creditors ahead of her people in terms of beneficiaries?”
In his estimation, the deal sprang from enlightened self-interest on the part of the UK, Nigeria’s biggest creditor, rather than bleeding-heart generosity. “The UK is not giving debt relief because they are moralistic or whatever, but because they can see that it is in the interest of the UK government for there to be centres of demands for their products. So if Africa can be a centre of demand in an increasingly competitive world, that’s not too bad — for the creditors. “
Like other sceptics of the debt deal, Dr Salami is waiting to see whether the government will be able to ensure that the man on the street can buy fuel at a reasonable price. At the moment, Nigerians are facing yet another increase in the prices of petroleum products. For a country that produces a great percentage of world oil, many Nigerians think that they should pay less. The problem is that there are very few functional refineries in the country, so the government resorts to importing the fuel used for local consumption. When international oil prices go up, outsiders assume that Nigerians will be the beneficiaries, but the reality is quite different. Since most of the oil for local consumption is imported, Nigerians pay more for the refined product.
Will debt forgiveness be matched by better management? Dr. Salami asks. It’s not just debt relief that is needed but better management. He says that if the government had started to build refineries when it took office in 1999 the story would have been much different. He estimates that it would cost the country only about US$1.5 billion to build a fully functional refinery. Dr Salami says that the technocrats in the Obasanjo government lack practical experience and are ignorant of the practical difficulties ordinary Nigerians face.
And then there is an even more cynical explanation for the rejoicing amongst the Paris Club. Shortly before the announcement of the debt reprieve, the Nigerian Senate was considering a bill to repudiate the entire debt. Now at least Nigeria has committed itself to repaying 40 per cent of it..
Perhaps the real explanation of the Paris Club’s generosity is summed up in the old proverb: “a bird in the hand is worth two in the bush”.
Eugene Agboifo Ohu is MercatorNet’s Nigeria correspondent.
(1) “What is in a ‘Debt Relief'”. The Nigerian Village Square. July 20, 2005