THE MAKING OF A NEW NIGERIA
Peter Obi harps on the essence of savings for the raining day
Ido not pretend to be an academic professor of Economics, but I believe that I have had sufficient practical experience in running private businesses and in managing the affairs of a state as to know what works and what does not work in the Nigerian economy. By encouraging what works and doing away with what does not work, we shall build a new Nigeria.
The key to our growth as a country is to seek ways to build financial resources for economic and social development of our country in the midst of apparent scarcity. As a country, we seem to overlook what is besides us in search of what is far from us. We seem to have penchant for seeking the exotic instead of the basics that are all around us. In managing our economy out of recession, we seem to have settled for the notion that we can only borrow ourselves out of recession. There is nothing wrong with borrowing for investment in capital goods but there is everything wrong with borrowing for consumption.
Today, our debt service to revenue is almost 60%. Outstanding debts account for about 50% of the total national budget (states and federal). This excludes debt owned contractors, and other matured contractual obligations. In more organised societies, even when you want to borrow for capital goods, you must carry out an economic feasibility and viability report as well as social impact assessment on the investment you want, and then you rank the competing investments in order of preference. We have borrowed to rebuild four Airport terminals at the same time. Are we sure that traffic in the four airports will generate enough revenue to pay back their share of the loans? It is common knowledge that Lagos airport accounts for close to 80% of our air traffic. So why didn’t we use the borrowed fund to first modernise and improve the Lagos airport into a regional hub instead of rebuilding four airport terminals at the same time, when none of them will even be built to world class standard and none will have the capacity to pay off the loan used to finance its reconstruction?
The need to borrow by the different levels of government has been largely driven by two factors: lack of savings and high cost of governance. We seem to have built our political structure on epicurean life style: “let’s take care of today and tomorrow will take care of itself”. Our constitution does not allow savings; Section 162 (1) and (3) of the 1999 constitution states that “The Federation shall maintain a special account to be called “the Federation Account” into which shall be paid all revenues collected by the government of the Federation. Any amount standing to the credit of the federation account shall be distributed among the three tiers of government.
Unfortunately for us as a people, the revenue we are distributing and consuming is coming largely from oil which is a diminishing asset. No modern society can survive and maintain its development without saving and investing for the future, particularly in its future generation. This is even more so for countries that depend largely on the extractive industry. I want to use this opportunity to appeal to the present government to please amend the constitution for the sake of our children. We need to reverse our aversion to saving and make fresh commitment to saving for the economic and social development of our country today and particularly for tomorrow. We already have a law on saving of our excess crude oil receipts through the Nigerian Sovereign Investment Authority Act (NSIA). I must appreciate Mr Olusegun Aganga and Dr. Ngozi Okonjo-Iwela, our former Ministers of Finance for their contributions in establishing this act and the initial investment of $1billion. Unfortunately, the NSIA Act makes provision for saving of the residue or excess, meaning that if there is no surplus, we cannot save. Our own definition of excess depends on what price we set as the benchmark for crude oil and our projected production volume. All a profligate government needs to do to avoid saving anything with NSIA is to set a high benchmark for crude price and volume. No wonder why only $2.5billion has been transferred to the NSIA from the Federation Account since the inception of NSIA in 2012.
Even while we are waiting for the constitution to be amended, to make it compulsory for us to save part of revenue, we can start today by saving the refunds rather than distributing to the three tiers of government. We should bear in mind that previous distributions of such refunds including over $20billion excess crude have only gone to fuel the consumption of our governments without any tangible infrastructure investment to show for it. Today we are talking about distributing $6.9billion excess deduction from the Paris Club debt. Out of which $1.250bn (N380bn) had already been distributed and the second tranche of about $1.650bn (about N500bn) for possible distribution leaving about $4bn yet to be distributed.
NNPC/NPDC have just agreed to an unremitted $21.8billion and N316.1billion respectively and have given a proposal on how to repay same to the government. The federal government has announced their intention to sell 10 NIPP power generation plants this year. The 10-power plants if I can remember when I was in office had a reserve price of about $6bn as at 2013. With the balance of $4bn of Paris Club refund that is undistributed, NNPC’s $21.8bn and NIPP sale proceeds of about $6bn we now have about $31.8bn. If we resolve to save this money as a nation today through our already established Nigerian Sovereign Investment Authority at an annual contribution of $2.5bn and an income of 7.5% (am sure they will achieve more) from January 2018 to 2030 which will be the year of conclusion of UN SDG which we are signatory to. By then this amount will be $51bn plus; what we have today in the NSIA account will be about $55bn. Our current foreign reserve is $30bn. I see that the federal government has increased the reserve by about 10%. If they continue with 5% increase annually, by 2030, it will be about $57bn. A combination of SWF investment and foreign exchange reserve will up our total reserve to over $100bn by 2030.
A major and critical part of the macroeconomic instability we are facing today is as a result of our weak foreign exchange reserve. Should Nigeria have a reserve of over $100billion, we would be able to maintain a stable exchange rate, rein in inflation, meet the demands for legitimate imports as well as attract foreign portfolio and direct investors. We would be in a position to embark on massive infrastructure spending. In any case, I do not think that our economy would have gone into recession in the first place if we had over $100billion dollars in foreign reserve.