Foreign loans and sovereign immunity
Jide Osuntokun
There has been a lot of brouhaha over some recent loans from China for projects in Nigeria and the inclusion of a clause in the loan agreement saying in case of default on payment, Nigeria will not be able to assert sovereign protection against whatever assets China may decide to seize in lieu of payment. The confusion over the issue arose from the rather flippant way Rotimi Amaechi, the minister in charge of transportation tried to explain the issue. If he was at sea about the implication of the controversial clause, he should have told the House Committee that he would bring to the committee somebody either from the Ministry of Finance or Debt Management Office or the office of the attorney general to throw more light on the issue before it became a free for all comments thus portraying the government as being totally unsure of its foreign obligations.
Those worried about Chinese intentions in Africa point glibly to China taking over Zambian Department of Customs and the Zambian Police Force because of that country’s defaults over some debt owed to China. There is also some allusion to China taking over port operations in Sri Lanka after huge investment in expanding port facilities in that country. If true, this is a cause for concern. However, Nigeria is neither Zambia nor Sri-Lanka without trying to be-little those countries. Nigeria does not have a history of defaulting rather we have always paid our so-called debts in spite of controversies surrounding some of the debts incurred by the civilian government of Shehu Shagari between 1979 and 1983. But I suspect some of the press and politicians may be falling for western campaign and propaganda against Chinese so-called infiltration into Africa as if Africa belonged to the West.
Of course we have to be concerned about China’s ambition in Africa. I have written criticizing the humiliation of African leaders going cap in hand to China and other capitals of major powers and lining up as school children and being called one by one to shake hands with the imperial poobah from whom they have gone to borrow money. There is nothing wrong with borrowing money for development as against borrowing money for consumption and payment of salaries. If money is borrowed to construct revenue generating facilities whose income would be sufficient for amortization of the debt, this should be welcomed. The problem with most underdeveloped countries is management and maintenance of facilities after completion of projects. The railways being constructed with these loans and the roads and bridges being built are needed but are there post completion maintenance clauses in the agreement and possibly joint management clauses so that as usual, our people do not eat the seed and the fruit if I may use an agricultural terminology?
I do not blame Nigerians for being concerned about goings on in this government where there is almost total blackout of what the government is doing. The exposure of rampant corruption in some of government parastatals and the ongoing investigation of the EFCC, a corruption bursting organization being accused of looting recovered loot! It cannot get worse than that! I know we hear from the minister of information sometimes about what is going in government but even that is mostly reactive and defensive rather than expository and explaining government policy but when last did we hear anything from the president or the vice president about the economic plan for the country?
On these Chinese loans, the situation is fairly straight forward. The total loans borrowed from China is USD 3.121 billion out of total external loans of USD 27.67 billion representing 11.28 percent of external loans . This shows China is not the main source of Nigeria’s external finance. The Chinese loan of USD 3.121 billion represents 3.94 percent of the public debt (local and foreign) of USD79.303 billion. So why the unusual noise? Why are we not calling for an investigation of the entire loan stock of Nigeria and what the loans were used for? This will be a legitimate enquiry. The Chinese loans are at concessional interest of 2.5 percent per year. The tenor is 20 years with a seven-year moratorium period. It will be interesting to find out what interest is attached to the non-Chinese loans. I personally would prefer we build our country without external loans. A small country like North Korea is now a nuclear power without borrowing a dime from any country. We can do this if we husband our resources instead of the usual looting. A country that has earned $5 trillion dollars over the years from hydrocarbons and other exports without much to show for it cannot turn back and blame the cynicism of its people over external borrowing. Our country citizens are concerned knowing what such extravaganza did to Egypt over its huge debt on the construction of the Suez Canal. When it defaulted in payment and nationalized it in 1956, an Anglo- French Force invaded the country to demand its pound of flesh.
When it comes to the issue of the economy, it seems government’s preoccupation is preparing the annual budgets and taking care of recurrent expenditure with little or nothing said about capital expenditure. What capital expenditures can one really talk about when government is borrowing money externally and domestically to balance the budget?
I honestly do not believe in the capacity of those running the Ministry of Finance to handle the economic future of the biggest economy in Africa. Economic philosophy is not the same as routine management of income and expenditure. It is also not the same as fixing the exchange rate of the Naira and rationing of foreign exchange – important as this may be for a developing economy.
It is also not the same as episodic intervention in roads, bridges and railways construction unless situated within a national plan and planned period. There ought to be a philosophy behind the whole thing such as we find in the management of the economies of the rapidly developing economies of South Asia and South East Asia. A background in economics and particularly econometrics not accountancy and business management is what is needed to project for the future of a country like Nigeria away from over dependence on income from hydrocarbons of crude oil and gas. There ought to be a measurable standard or yardstick by which we can say whether we are on any trajectory and in what direction and to tell us where we are on our journey of economic development. One needs to know what plans we have to make us self-sufficient in consumer and capital goods and how we can get maximum returns from our agricultural products if we add values to them and what we need to do in concrete terms to diversify our economy from our present primitive dependence on raw materials of mineral and agricultural products.
A few years ago such economic philosophy was well articulated by the Yakubu Gowon and the Obasanjo governments when we had vehicle assembly plants in Kaduna, Kano, Enugu, Ibadan and Lagos. When I was ambassador in Germany in the 1990s, I used to have meetings with the Daimler Benz and Volkswagen people over their operations in Enugu and Lagos respectively. Both companies and Peugeot in Kaduna were concerned about the Babangida government lifting its commitment to their protection perhaps under the pressure from the Bretton Woods institutions and their commitment to open market and free trade without thinking of protecting infant businesses. There used to be companies producing batteries, windshields and of course tyres from our raw rubber. Fiat and Leyland and Toyota were also assembling vehicles and sourcing some of their parts from local manufacturers. We were also self-sufficient in fertilizers. We also had the giant Ajaokuia Steel mill and other steel companies in Oshogbo, Jos and Onitsha in what were supposed to be the nucleus of our integrated steel industrial take off. But we lost all this. Are we still interested in foreign investment and the protection of foreign investment?
Are we going to have direct government investment through corporations which we tried in the past which got us nowhere before we decided to privatize government corporations? What exactly is our economic philosophy? Or we are going to continue to muddle through? These are the real issues. But I want to say finally that we need to manage our resources better than we have been doing over the years and if we must borrow from outside it must be under the most favorable and stringent terms which must be scrutinized by parliament openly with nothing done in secret.