I love challenging our thinking and jarring my readers’ imaginations from time to time. Last week, I wrote about the high likelihood that our population – presently put at around 220 million – is over-bloated for political reasons. The reasons I adduced and the data I presented in triangulating what we have, remains largely incontrovertible but I am still open to learning more. Most readers who responded to the article agreed with me. Few disagreed and I was able to show where their errors may be. This week, I am looking at our economy and our debts specifically. I think Nigeria has an opportunity, within the ambit of the architecture of the global economy presently, to raise as much as $300 billion in debt, by targeting 100% Debt-to-GDP ratio, if we have a firm strategy to use such money to boost our economy, such that we could triple or quadruple our economy within a decade. The idea is that our Debt-to-GDP ratio (that famous, much-critiqued, global measurement), stands at around 35% today in a world where 100% Debt-to-GDP is just the beginning for most countries. Our GDP is around $450 – $500 billion. 35% of that is around $160-$175 billion (all-in including our overshot ways-and-means at the Central Bank, and all states and federal debts). This means that we have a gap of over $300 billion between that and our current GDP levels which we could validly and legitimately raise in debts. I favour local debts, which we could use to reprime our economy and obtain multiplier effects and leverage. A larger, more efficient economy is one where government revenue grows much faster than the debts, thus servicing the debts should not be an issue. What matters is whether we are thinking big, and whether our citizens home and abroad are ready for the sheer hard work required for such a thriving economy.
This opportunity remains with us, and a single administration does not have to max it out. I am however excited by this ‘discovery’. I will also advise that most of our debt-raising going forward be in local currency, and targeted to sectors with very high local content – as much as possible. This is an opportunity for all; local businesses, construction, infrastructure, indeed all the sectors and the economy at large. The summary of this writeup is that countries have leveraged debts greatly to grow their economies and create wealth for all, and to define new trajectories for their economies and cause their people to achieve a whole lot more than they ever imagined. Most of the top economies never repay back their debts anyway. They just grow their economies. Nigeria stands at a threshold for immense growth and prosperity for all, if we could implement clear, focused strategies, and we must be careful of bad advice by some of these guys that move around but whose goals are clearly to ensure we never really move ahead. This strategy here proposed, will however require immense and focused amounts of hard work on the part of every Nigerian, home and abroad.
I used to be seriously worried about Nigeria’s debt levels. Now, I worry no more. What happened between then and now? I got more knowledge about how nations get into debts and what they do with those debts. I went back into history. And the more history I ploughed, the more the great opportunities ahead of Nigeria became clearer to me. Nigeria is indeed a blessed country. We haven’t even started to explore most of our opportunities and debt is one area that needs to be exploited, believe it or not. However, it has to be deliberate, measured, targeted, controlled.
I now know why history was bleached out of the study of economics by these neo-liberal guys. I am indeed irked at them. Economic history used to be a standard fare in many academic circles and universities. But I reckon that in order to seal their own advantage, those who control the field of economics at the very top – usually western intellectuals – ensured that we got deflected into the adoption of mathematics rather than history (or indeed a combination of both). It is left therefore to the inquisitive, to refuse to be blindsided and side-swapped by the heavy weather of dy/dx differential equations, mathematical models, high level econometrics that adopt laws from physics, to seek further and find the truth. Of late, it is recommended that serious researchers in economics look to behavioralism. And of course, history. I recall the fiasco of 2008-2011, which culminated into a Global Economic Recession and Financial Crisis. I had been a student of mathematical economics and had learnt of how pure scientists, engineers, and physicists made their ways into the field of economics, resulting in the fusion of laws/formulas of diffusion of pollen in water, and whatnot, in modeling the behavior of financial assets. Stripped totally from the analysis was any knowledge about how human beings think and what motivates us. Condemned totally was any attempt to exhume lessons from 1929, or the 1980s when markets crashed as a result of exuberance. Alan Greenspan – then US Fed Chair – capitulated to the peddlers of market forces and agreed that the banks should regulate themselves. Gordon Brown, as the British Exchequer had boasted that they had conquered boom and bust. How so wrong they turned out.
Whereas many times, the past tells you nothing about new phenomenon that will occur in future, and indeed there are black swans (unenvisaged scenarios), that shock your system, still it is valuable to study history for clues and knowledge. This is what I did. How did it happen? I was having a discussion about the debt with someone. It was about the Central Bank of Nigeria’s N24 trillion ways-and-means advance to the Federal Government of Nigeria. This sum had grown from just over N2 trillion in 2015 to N24 trillion in 2023! That was phenomenal, given that the figure should not have been more than say N500 billion, and should, by law, be nilled out yearly by the Federal Government of Nigeria. The ways-and-means line is just the central bank playing its role as lender of last resort. So, the amount (N24 trillion) is alarming enough. But it must be said that we had no choice (especially during Covid-19) than to lean on the CBN when there was no other resort. Every country did the same and even much more as we will see in this article. Also, a friend dropped this quote on my laps as I rounded up this article: “A government can live for a long time, even the German government or the Russian government, by printing paper money. That is to say, it can by this means secure the command over real resources, resources just as real as those obtained by taxation. The method is condemned, but its efficacy, up to a point, must be admitted…. (Maynard Keynes 1923)”
Let’s do a recap about covid-19, because it is easy to forget now that we went through the most harrowing period in modern history. That period of lockdown was the only time ever in history when the entire world was in lockdown. It didn’t matter whether some parts of the world was cold or hot, in summer or winter, fall or autumn, dry or wet season, whatever. Everybody was locked down, including people who lived in remote villages. Farmers could not take their products to the markets and therefore suffered great losses. International trade seized up. Global logistics ground to a halt and this resulted in cargo companies increasing their fees, sometimes tenfold. If it was just about sitting at home, that would have been fine. But the mental torture resulted more in a mental health pandemic which the world is still struggling to mop up till tomorrow. The global media – in cahoots with whomever ran that scam on the world – made billions of dollars and improved their ratings by beaming fear into every household. They held us spellbound as they were some of the few people who could move around while people hid under their beds. The Apocalypse had arrived. People were forced to postpone scheduled surgeries – and many died therefrom. Millions were afraid to go near any hospital with other ailments else they’ll be quarantined for presenting with this strange, ill-defined disease. Millions died and were buried like dogs all over the world because the unquestionable ‘scientists’ said no one should come near them but those dressed in Azamat gear. Many old people were abandoned in hospitals, to died lonely painful deaths that could have been eased if they had family near them. This is a time we must never forget. And we must say never again!
This was the time that the CBN ways-and-means ballooned. Between 2020 and 2022, the figure more than doubled from about N8 trillion to N20 trillion. The Buhari administration had become addicted to this source of funds, and this was chiefly because somehow, good ideas did not flow or succeed in the government. The CBN was had where they wanted and was the go-to every time the government was stuck. And this was a lot of times! Before this covid-19 pandemic, Nigeria had entered an unnecessary recession in 2016 as a result of the slump in crude oil prices. Beyond the slump, President Buhari had taken a raft of decisions that reduced confidence in his personality and government, leading to hard decisions by people. He had asked people to pull their children from universities abroad, while he had a bunch of his own studying in the UK. He had asked banks not to provide foreign exchange to those who wanted to access foreign hospitals, and then he embarked on more than 5 months of treatment in a foreign hospital himself, refusing to account to the people. Companies closed down, laying off millions. That is recession. The attempt to deregulate the petroleum market was also botched by a deregulation of the naira. Nigerians were thus stuck with two problems – a weaker currency, and more expensive fuel. Both powered up inflation, leading to further company closures and spiked unemployment.
Without CBN financing, including its many attempts at intervening in several sectors – for which it has been roundly criticized as meddling in the fiscal sector – Nigeria would have owed soldiers for 4 years and even the police for 6 years. Essential services would have grounded, and we would have had to pack it up and go as a nation. This is the fact. Of course, in lumbering out so much money, extra-constitutionally, a lot of inefficiency and corruption may have been involved. Buhari and his finance minister simply knelt on the neck of the CBN and pulled out money.
I was going gaga with my research and analysis. But then it occurred to me that the entire world was in the same crisis, and that all over the world – just as in Nigeria – during the covid crisis, no government agency could go out and raise money. In fact, governments started returning money to people, providing free food for all, spending on vaccine research and whatnot, where they were responsible. Governments were also bailing out industries – just as our CBN did. They were pumping money everywhere (helicopter money), just trying to get their economies to keep breathing. It was a great moment of economic defibrillation. This must mean that every country – every – created the kind of loans that our CBN created. Where are those loans parked? What happened to the loans? What lessons could we learn from the way those smarter nations treated and accounted for or resolved their loans? Whereas I will say upfront that the Buhari government made loads of mistakes and was largely ineffectual economically, the covid era was a different ballgame and a good prism from which to look at the way countries become indebted, and how economies grow.
My research took me back to history and I saw how national debts started. These are what I discovered:
- Public/National debts are a fairly recent phenomenon; starting circa the mid-1700s. The first set of debts incurred by the US was for the war of liberation, and the state had borrowed from its citizens. This is one key lesson about debts.
- Nigeria somehow bought into this externalized idea where we always look to foreigners for solutions to our problems. We haven’t explored local sources enough. There is therefore a lot of opportunities with local debt raising. We must root our debts locally and proceed from there. Charity cannot start from abroad. So, a study of debt history in the countries that rule the world shows that the core of their debts are local debts – war bonds, infrastructure bonds and so on. And those debts increase based on those events. ‘The origins of the British national debt can be found during the reign of William III, who engaged a syndicate of City traders and merchants to offer for sale an issue of government debt. This syndicate soon evolved into the Bank of England, eventually financing the wars of the Duke of Marlborough and later Imperial conquests. The national debt increased dramatically during and after the Napoleonic Wars, rising to around 200% of GDP. Over the course of the 19th century the national debt gradually fell, only to see large increases again during World War I and World War II.’ (see https://www.economicshelp.org/blog/163755/economics/historical-uk-national-debt/). Nigeria’s debts also started in 1916 when Sir Frederick Lugard opened our capital account by transferring £6 million out of the Imperial War Debt to Nigeria; and another £1 million being the cost of the British expedition to expel Germany from Kamerun. We’ve since been in debt.
- The solution to debts is not to repay debts (based on the study of history), but to grow the economy such that the debt continues to be serviceable using the enlarged resources of the country. This means that for Nigeria, we should try and grow the economy faster to be able to service our debts more sustainably. Most countries never repay their debts. The USA only ever fully repaid the interest-bearing aspect of its debts under President Andrew Jackson as far back as January 1, 1835. Since then, US debts have only ever grown. Indeed, the debt-free status of the US, under Jackson, lasted one year only. It led to a surfeit of cash and a real estate bubble, sending the US economy back into debt and the realisation that without debt, the economy will remain agrarian!
- All the wars that the US has fought, including the civil war, Vietnam, the two world wars, the two Iraq wars, and many more, have added tremendously to the country’s debt profile. Also, managing the collapse of financial markets and carmakers in 2009-2011 saw the creation of more debts. The Fed put money in many companies – banks, insurance companies, carmakers etc. I traced $85 billion still sitting in the books of AIG the mammoth insurance company. The covid pandemic also added greatly. I traced $30 trillion into the balance sheet of the FED. These guys are not advising us right! President Obama increased US debts by 70% due to his bail out of banks around 2009-11. President FD Roosevelt however increased US debts by 1,048% due to his interventions over the Great Depression and World War II.
- Countries also inflate away their debts. ‘High rates of inflation reduce the real value of debt, allowing governments to, in effect, pay off debts using money that is worth less than when they originally borrowed it. This has been employed successfully in the past, notably after WWII, when the UK Government saw its post-war debt reduced significantly – it took very sustained high inflation to get there. The 1940s and 1950s saw average inflation rates of around 4.5%. These dropped slightly to 3.5% during the 1960s but are still far above the acceptable target levels of major economies today, typically 2%. The 1970s and 1980s then saw huge inflation, with rates averaging 10% and hitting a high of 24% in 1971. And as real values fell, national debt plummeted from a postwar high of 250% of GDP to 50% in 1975.’. See https://capital.com/can-we-inflate-away-government-debt. With inflation at 21.91%, if we target high growth as promised by President-Elect Tinubu, Nigeria may be able to grow her economy to a point where current debts become insignificant and thus another vista opens up for us to borrow more. This – though painful to lenders – is an opportunity to Nigeria especially for LOCAL CURRENCY BORROWING.
- Debts are important to grow infrastructure. But local debts are better because it develops other sectors of your economy better. Raising local debts around products that can be purchased locally, keeps the money within the family and helps to reboot the economy. This is what Nigeria should now do.
- We should be careful how multilateral agencies deliberately limit our growth. They are basically holding us down. US debt to GDP ratio is presently over 130%, the UK is over 110%. Countries like Greece and Italy operate around 220% and 170% respectively. Canada is at 118%. Japan is at 261%. Even here in Africa, we are not pulling our weights. Angola stands at 107%, DRCongo at 85%, Kenya 65% and South Africa, at 70% of their GDPs.
- The US doubled its debt between 2016 and 2022, from $16 trillion to $34 trillion. The UK debt to GDP as at 2008 was 60%, but even as the economy grew modestly, today that figure has surpassed 100%. A lot of that growth in debt happened with covid-19. Given this knowledge, I really wonder how come the IMF is here advising us about our ballooned-out ways-and-means numbers when that was actually what they did in their own country – even much more.
- The issue is how do we link this directly to the economy and ensure that as a result of this, the economy grows by a multiplier of at least 3 i.e. $1.5 trillion? How can we also make this naira, not dollar debts and as long-term as possible? We would welcome investors but there may not be hard guarantees on exchange rate when they intend to divest.
- Will Nigerians be ready for the sheer level of hard work and productivity required to carry this dream through? We are talking about Nigeria becoming a huge construction site, and that we should produce most of what we need. This dream has to come with some strictures in importation otherwise we will fritter most of the money abroad and our economy will not have grown! That will be double tragedy!
Ideas Around Usage
So, I’ve been thinking about what sectors we could direct new local borrowing, for the local economy, if we could actuate this idea. One ready sector is the real estate sector. Could we not reposition our housing sector (mass housing) across the nation, in a way that changes the face of our communities and cities? China is showing example in this regard. The good thing about that sector is that from cement, to roofing, to wood, to paint, to cables and even lighting accessories, we have local producers. They may need to import substrates and raw materials or expertise. I think we should partner China in this regard.
We could also use new local debt for other infrastructure such as roads, and of late, our rail systems – even though this has a high import content. As government moves to remove fuel subsidies, we are entering a new phase in our national expectations and interactions – a phase of individual responsibility. It may be a good idea to take a bitter pill and allocate about 20% of new debt to our transport systems, with strict requirements say to the Chinese around local content and technology transfer. All our states must have metro lines, linked to an expanded national rail system. What about the solid mineral sector? We have everything, from zinc to lithium to barite to coltan! Could we add value locally before sending abroad? Could debts be used to incentivize investors? Can government put together intervention funds to contribute to these investments? Nigeria just has to take off finally.
I admit it will be tough to wring out $200-$250billion from this economy without relying heavily again on global markets and all those sharp boys that know how to rip off a country. The yields on our bonds will need to remain high to be attractive anyway, and our ratings have fallen but will improve as serious minded managers take control of the economy and we signal the world by the first few actions of the next administration. But try we must. When the COVID-19 pandemic landed and everybody scurried back home, I did propose that we try and raise about N20 trillion in local debts on the back of the home bias created by the pandemic. Everybody was looking at returning home then. The foreign nations to which many of our people had run, suffered a lot more damage than we did. The idea was not taken up but was replaced by the CBN ways and means mentioned earlier. The meat of the article is to say that we must start by raising funds among our people, by tapping into patriotism and letting our people know that nobody will invest in their country if they don’t themselves. This is also a tool for unity. The largest countries in the world today raised money from their people first and continue to get the long-term buy-in of their own people till tomorrow. Nigeria and indeed many other African countries have foolishly sought redemption from abroad rather from within. This never works. We should seek to get our citizens to even liquidate investments abroad and bring home for the greatness of our country. Of course, raising such a large sum at how – even if gradually and over say a 10 year period, will crowd out private investors and borrowers. But it can be balanced. It is indeed a necessity.
With remittances of around $25 billion yearly, mostly for domestic use, perhaps we could target between $50 billion and $100 billion from diasporan Nigerians. With coupons of up to 15%, this should be good investment for them. If well directed to reboot the economy, Nigeria should be able to accrete higher reserves and thus manage our exchange rate better, such as to give organic confidence to investors. One of the biggest mistakes we made in the last ten years was Kemi Adeosun going full blast into foreign loans. We are now suffering from the exchange risks. Mindless. But we have also been tanking on Eurobonds, which have floating rates on them. This trend must be reversed. This is about debt and a better approach around it, based on the histories of countries around the world. There is another growing school of thought, which I largely attribute to Professor Ayo Teriba (Teribanomics), that Nigeria should rather identify assets for outright sale. This may face with constitutional issues and protests by the people. I am still studying that option and will come back with critiques in the near future. I think that it may however be worth looking at by the Nigeria Investment Promotion Council, under which equivalent it is being handled in countries like Brazil. I think the strictures of debts – especially with gaping opportunities such as we have – is better for us than merely selling assets to obtain cash which we may soon fritter away. At least we know that debts need to be serviced, rolled over, repackaged and sometimes repaid.
‘Tope Fasua, an economist, author, blogger, entrepreneur, and recent presidential candidate of the Abundant Nigeria Renewal Party (ANRP), can be reached through email@example.com.
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