Speculation is rife about Nigeria’s rising external debt amid dwindling oil price. Some believe that external debt is worse than what it was before 1999.
However, Finance Minister and Economy Coordinating Minister, Ngozi Okonjo-Iweala, argued before journalists in Lagos that the picture is not as bad as being painted. Senior Correspondent, Goddie Ofose was there.
In the face of dwindling oil price
There has been some attempt to make people feel that there is no hope; that this situation is so difficult; there is hopelessness. I said from the beginning when oil prices began to fall by 50 per cent that this will be a tough year, but there is hope.
There is light at the end of the tunnel and the reason is because we have worked so hard under this administration to lay the basics for us to exit this situation and get back on a good path.
That is what gives me hope. Why do I say that? First of all, let’s come back to the fact: we now have a Nigeria which is the largest economy on the continent and that is important. We have to keep stressing it because it means we’ve got the sectors.
We’ve got the base which will enable us carry out that diversification and be able to have a stronger economy in the long term that creates jobs and gives our young people hope.
So, it is very important to note that. We didn’t know that before. All the analyses have shown that in the growth in the economy that has come from the non-oil sector agriculture has been doing well.
And that also comes to the present situation, because agriculture has been doing well, we have produced more food than ever before – 21 million tonnes more food. We have produced paddy, from 1.1 million tonnes a couple of years ago to 1.6 million tonnes now. We are on our way to really reducing our dependency on food imports.
Because we’ve got food, prices have been kept relatively stable and reasonable. You can go round the markets. We have gone round from different places to check and the prices of foodstuff are reasonable, unlike in other oil producing countries. That is helping us manage the situation for the average Nigerian.
Boosting external reserves
I know this is of concern to Nigerians. Manufacturers are looking for more foreign exchange, others are paying school fees and tuition abroad, and even ordinary people.
But I also feel that with this strong base that we have, if we just keep steady, we will be able to exit and the value of the naira will strengthen because we have got the different sectors.
We have to look at the two ways to strengthen our reserves: one is to reduce demand for imports, the second is for us to start exporting things other than oil. And that is where again I feel encouraged because we are laying the foundation for that.
In the 60s, we were exporting groundnuts, cocoa, cotton, rubber, and many agricultural produce and suddenly we didn’t keep up. We have the ability to go back to those but not just exporting the raw materials and we already have people in these sectors adding value.
What we need to do is expand growing cocoa, processing it here for our own internal demand, and export it. And then we earn foreign exchange.
When I go around the continent, every single African woman wants Nigerian clothes. Those of us here, don’t we import shirts, trousers, from the United Kingdom? But people are here (in Africa) demanding our own clothes. Yet, we are not able to get together as an industry to make clothes we can export.
We will be sitting here and other West African nations will come and exploit it. There is an opening. I am happy that the minister of industry, trade and investment is organising and working with the textile industry and fashion industry to export, because we can earn so much from that. Imagine dressing the whole of Africa and what we can earn from it.
Those are the two ways. If we now earn foreign exchange and conserve by using our products, we will be able to add more to our reserves which will underpin the value of our currency.
Sustainability of current economic policies
President Goodluck Jonathan talks about how we can put in place something that will last; whether I am here or not here is not the issue. It is about laying the building blocks for the Nigerian economy.
Impact of economic policies on the common man
Paying salary bill is very important to us and our pensions. The second thing is making sure we don’t lose the health benefits we have gathered. Children must be immunised. We can’t let down immunisation because we know what that means. Polio vaccination: we are almost close to eradicating polio.
This administration has been working towards that. We have eradicated guinea worms and must make sure that all those medicines and vaccinations are kept. HIV and AIDS, there are treatments and all that. And then, there are very important infrastructure we focus on doing that.
The president promised to build the second Niger Bridge. That work is ongoing. The Lagos-Ibadan Road is very important. The rail – completing some of the rail and make sure they are running. These are ways the average Nigerian can feel the impact of what these governments is doing.
I encountered some young Nigerians who did not know what it meant to be on a train because the train had never worked in this country. Now they can ride on a train. Very soon now, the Abuja-Kaduna line will be open. The Lagos-Kano line has been operating; even the line to Makurdi and so on.
These are things that impact, and the roads system that have been upgraded. There are so many more. We are on the good path, we should applaud it. When your journey on Benin-Ore Road is made smooth and short, isn’t that an impact?
When you go to some of our rural areas you have access to water because boreholes were dug by the MDG (Millennium Development Goal) programme, and they have solar lightings. That is impact.
Through the effort and support of the private sector, we have created 1.4 million out of the 1.8 million jobs we need each year. That is an impact.
We are not saying that we have met the mark. But we have gone a long way and steadily we have made solid plans on that path.
I have not mentioned the housing sector’s impact on the average Nigerian. We have met with the CEOs (chief executive officers) of primary mortgage institutions to do a review.
Institutionalising access to finance
Small and medium sized businesses which employ the most people (about 66 per cent) contribute 45 per cent of national income. We have opened up several avenues to support them. Apart from what the Central Bank of Nigeria (CBN) has done, the president has kicked off a new Development Bank.
For the first time, when this bank starts working by the end of this year, SMEs will have access to finance and can borrow for five years, seven, and 10 years. We have never had this before in Nigeria.
They will have one and half years’ of grace, meaning that when they borrow they won’t worry about paying back for a year and half; and that will give them time to organise themselves.
This new Development Bank is a wholesale bank, its job is to mobilise financing and liquidity for the Agriculture Bank, Bank of Industry and for the commercial and micro finance banks to lend to SMEs.
Efforts to support budget deficit
We have entered negotiations with the international financial institutions, specifically the African Development Bank and the World Bank. They have resources for us already programmed.
We asked them to turn these resources into budget support for us. We are negotiating for $2 billion that will come in foreign exchange. The terms for these loans from the World Bank and the African Development Bank are quite reasonable compared to what we can get outside.
This money has been set aside for us and we decided to draw on it and we have decided to bring in budget support to come in foreign exchange.
We have been working on it daily and night with them because we need to address the needs of manufacturers and others in the population. That will help ameliorate the situation.
The tenure of the loan will be standard. We will probably have about five years’ grace before we have to repay for about 25 years.
Nigeria’s debt stand
As someone who was central in the negotiation of the cancellation of our debt that we are not near the situation we were before in terms of external debt. Our external debt is about 2 per cent of GDP (Gross Domestic Product).
When we went to negotiate, we were almost at 70 per cent of GDP and most of it was external. We had hardly any domestic debt at that time. We are prudent in terms of the way we borrow.
We have more of domestic debts. What we are trying to do is reduce domestic borrowing so that we don’t crowd out the private sector. We have got some foreign borrowings which are just 2 per cent of GDP.
The domestic debt of both federal and states government is about 12 per cent of GDP. Together, it is about 14 per cent of GDP. The norm and threshold for a country like Nigeria’s size is about 40-something of GDP. We are well below that.
We also look at something called debt service to revenue; so we can’t just say our debt is low compared to GDP. We must look at our ability to repay, and that is one of the reasons we are very prudent.
Two years ago, it was 19 per cent of GDP, it has risen to 22 per cent, and we don’t want it to go too much beyond that. If we get to something like 25 per cent, we will be very strict, and we are presently strict.
We have been able, in this administration, to repay outright some of the domestic debt. We paid back about N75 billion.
Countries are coming here to request our assistance in debt management. The UK government named Nigeria’s debt management system as one of the best in the world. South Sudan and other countries that are just starting up have come to us for expertise in managing debt.
Non payment of salary across states
The federal and state governments have experienced a drop in revenue. What we have done is to talk to the states on how we collectively get through the difficult times.
We told them how we are doing our own things and what we are doing is prioritising payment of salary to people because their families depend on it.
Revenue has dropped and it’s tough, but what most states receive from federal allocation is sufficient to cover their personnel costs.
They should be able to cover their wage bill but they will not be able to do much after that because of the drop in revenue. Some are not owing, they’ve been paying their salaries steadily.
We’ve advised that state governments negotiate with contractors and explain the situation and schedule payment.
How e-collect policy is faring
Many of MDAs (ministries, departments, and agencies) don’t like e-collect and the treasury single account. But we are getting them because it is a conversation that we will be having on this issue and we are getting them to see that they need to comply.
Our objective is to get as much internal revenue generated with e-platforms that will put the money in an account at the CBN.
This will help us avoid leakages which is what all Nigerians want. With the treasury single account, we have a tool that helps us to see the balances from all government agencies.
Down grade of Nigeria’s economy by S&P
Two other agencies, Fitch and Moody, have maintained us at the same rate. What S&P did is a special evaluation of all oil producing countries based on the fact that oil prices have fallen. It is because of that, not because of anything else.
They looked at oil producing countries, and we were the last to be downgraded. All the other oil producing countries, from Russia, to Kazakhstan to Venezuela, to Angola, they reviewed and downgraded them.
S&P commended the management of the (Nigerian) economy. They said it was proactive and ambitious, that the policies responded in the right way to the drop in oil price.