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Wednesday , 14 November 2018

‘Nigeria cannot grow with its current low debt’

 Barr Jimoh Ibrahim, on the sidelines of the 2018 Spring meetings of the International Monetary Fund in Washington DC,call for the removal of tax incentives and Nigeria’s debt level. Except:

The rising debt profile in Africa and other parts of the world was a dominant issue discussed at this year’s Spring meetings of the IMF. Are you not worried about Nigeria’s debt level? 

I attended this meeting as a guest on the invitation of the World Bank/IMF. It has been quite interesting. I engaged a class about this same issue you have raised.

So, debt is not an issue at all in economic growth. You need debt for sustainable development. If you are not indebted, we should be worried that you are growing without debt. The United States of America as a country is the highest debtor and it is growing. China is also in debt.

Now, let’s come back to Africa and specifically Nigeria. Nigeria’s total debt profile is about $20 billion. Five abandoned projects in Nigeria are up to the country’s total external debt. That was the point I made at one of the sessions I attended at the World Bank.

Take Ajaokuta steel, $5 billion had been spent there and yet the project is not complete about 38 years after. Now, there is another power plant project on which about $500 million has been spent; take the Abuja 28km express road to the airport, that is a $3 billion project. Also, take the Hadejia irrigation project in the North-east, which is about $2 billion. I want to exclude the Lagos-Epe expressway, because it is a state-government project. So, if you look at about six projects, you already have about $20 billion cost of project, while the country’s total external debt is about $20 billion.

That is too small. Nigeria cannot grow with that size of debt and it is going to affect the country’s development. The problem with Nigeria is not debt, it is that we have a debt service problem. So, the cost of debt service is about 60 per cent of the annual budget which is worrisome.

When you have a projected income and you use about 60 per cent of that income to debt service, the remaining 40 per cent is not enough for critical development.

So, what we need to do, and I will be generous to give this advice, is to take more money and then wrap up all our debt, restructure, refinance it and get an aggregate amount of debt that we need to take, put it in about 30 years repayment scheme and focus the money on infrastructural development in order to realise sustainable growth.

Who will lend you the money depends on the project you want to do. Again, we must understand that there are specific loans for specific projects and there are specific institutions that are noted for granting specific loans. So, it is very important that we go that way. The real issue is not about the size of the debt, it is still about how we utilise these debt.

The high level of recurrent expenditure remains a challenge in Nigeria. The IMF and World Bank are also worried about the country’s low level of revenue generation and have called for an aggressive tax drive?

Of course, because the economy over time had been dependent on oil. Why are they worried now? Since 1970, the country has realised over $200 billion from oil. They should be worried about where the over $200 billion went to and not about what we can get now.

Do you support the call for removal of tax incentives?

We know the world economy is in recession and so you cannot use tax to get out of recession. If you tax people more, they are already recessed. This is not the time to be talking about increasing tax or frightening them about that. What we need is economic welfare. We need to introduce welfare projects that would detach the people from poverty. We also need to have a very good plan that can really take us out of poverty.

Any government that decides to raise tax during a period of recession will lose her legitimacy. There are various ways to grow an economy. This is the time to give incentives to companies in Nigeria and not to tax them.

Let me give you an example, when the US economy was in recession that shook everybody, President Obama told companies operating in the country that if they employ four persons, they get tax rebate for two. What happened? Unemployment responded and reduced. If you do that in Nigeria, unemployment would be addressed.

You cannot tax those that are jobless or companies that are dying.

But if you give companies incentives to grow and remain sustainable, you can continue to tax them forever. But if you kill them in two years, your ability to collect tax from them will end in two years.

Again, don’t forget that today you cannot compel people to set up their companies in Nigeria. So, the level of capital flight can be high as people can decide to take their companies to other countries. We need to encourage them to invest in Nigeria.

So, the Nigerian economy should be inviting and government should be able to develop a programme that will see that companies get tax rebates in certain areas. And the government has to reduce regulation.

The IMF has been talking so much about regulation. We have a free world today. The world is flat and the barriers to entry have been removed. Today, people are more wired than we thought. So, obviously there is globalisation today and nobody can kill it. Don’t forget that as companies are competing, there is also competitiveness of countries. So, if your country is not competitive like the other country, people would move to the other country. So, the number of Nigerians that travel out of the country every year is huge. In Europe there are 32 million Nigerians. If those 32 million persons are fully engaged and working in this country, they would contribute to the growth of the country, but if they move to live in other countries, then that country is enjoying free labour.

Again, there is disaster in our educational system. You cannot grow when your educational sector is descending. So, you must look at how much you can push your educational sector because there are lots of issues in that sector.

 Can the type of leadership we have in the country today help us achieve these things you have highlighted?

President Muhammadu Buhari did not tell you he was a professor when he was coming to run as the president and he doesn’t need to be a professor to run a government. What he needs to do is to be surrounded by technocrats to operate the system.

There is a distinction between a system and a process. So, he needs a strategy and a system. Buhari has a strategy, but there is no system to drive the strategy. That is the problem. So, he wants to fight corruption, that is a strategy, but he has to go out to create a system that would drive the strategy.

Unfortunately, the system on ground cannot drive the strategy. So, there is a mis-match. His strategy is not communicating with the system.

And what is the system? The system is the civil service that would drive corruption. The EFCC is doing its best, but how many corruption cases can the EFCC tackle in a country of 200 million people. That is a very minute institution to fight corruption. Also, the process in Nigeria is bureaucratic.

  What is your take on the country’s Economic Recovery and Growth Plan? 

You see, plans are contingent on the environment. So, if you come to the IMF and you take a blueprint to Nigeria, it would never work.

Your policy document, is it reflective of your environment? There are specific solutions in the Nigerian context, which are different from the Ghanaian context.

Corruption in Nigeria is very difficult to fight because the solution to fighting corruption in Nigeria is different from the general solution to corruption. The general solution for corruption is to jail or kill the person involved in the corruption. But the Nigerian context is that they are going to fight back. So, there is a need to create a balance between fighting back and at same time reducing corruption.

Shouldn’t the IMF/World Bank look at specific environments instead of giving recommendations that are at variance with the environment?

That was part of the thing I told them at the meeting I attended. I told them to stop saying Africa’s debt is high, because Africa has not even taken enough debts.

For instance, the world spends $9 trillion on major projects every year, but the whole of Africa spends just one per cent of that amount. Africa is one of the seven continents in the world, with 2.1 billion population and $4 trillion economy, with a likelihood of rising to $10 trillion by 2020, which is two years from now. So, you cannot tell me that the world is spending $9 trillion on infrastructure and Africa is doing just one per cent of that and you tell me there is debt.

 Is it that they don’t understand these issues you have highlighted?

  It depends on knowledge and it is an agenda we must present to the world. Like I suggested at the session I attended, we need to have an infrastructure or project day at next year’s IMF meetings where we can talk about Africa’s infrastructure. I don’t want to hear about Africa’s debt. If you spend $9 trillion a year on infrastructure globally and Africa is spending just one per cent of that amount, then what debt are we talking about? 

So, what Africa doesn’t understand is how to access funds. There is money in the world. The president of China recently said that $27 trillion is sitting somewhere in China which they don’t know where to invest it in. About $18 trillion had already been invested in a lower yield bond, yet the US doesn’t want China to go to Africa, warning Africa to beware of China. The key thing is that bilateral relationship needs to be developed across the world and not across specific interest.

What is your take on the trade tension between US and China?

Well, there is nothing anybody can do. I love the US, but I think Donald Trump is going through a wrong route because whether you like it or not, the android phones on your hands are being produced in China, Google went to China in 2006 and left the country in 2010. What happened? The investment collapsed because China locked up the airspace. It took a lot of political manoeuvring from Obama to take Google back to China.

In China they reform the phone every week. Ali Baba, a company in China, is doing $20 billion sales a day. What is Nigeria’s total external debt? $20 billion! In fact, the government had to use Ali Baba’s cashflow to grant microfinance loans to the low income, through a partnership.

But in Africa, the governments don’t want to collaborate with the entrepreneurs, which is very wrong. In the US, Apple by Steve Jobs at a time almost had an equivalent of the cars that the US government uses. So, government needs to work more with its entrepreneurs. African governments are still a bit silly about how they treat their entrepreneurs.

About Younews Ng

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