Are Foreign Loans the Only Option for Infrastructure Financing?

You may loathe or like former President Olusegun Obasanjo but the one thing you can not take away from him is his clear vision and direction for a great Nigeria. And so it was that in the eight years that he lead this country, you can pin point without any equivocation that the Owu chief left legacies on the sand of times. I will point out just two areas where he left profound footprints during his eight year reign.

Telecommunications

Remember that Nigeria’s inability to join the global community to embrace the global system for mobile communications also known as GSM was becoming an embarrassment to the point that even a small country like Benin Republic, mechanics were already brandishing mobile phones long before Obasanjo took office.

He went about it by first setting up the Nigeria Communications Commission (NCC) punder Engr Ernest Ndukwe and mandated him and his team to deliver the new communication technology in Nigeria. Today, the rest, as they say is history and its contribution to the gross domestic product is there for all to see. Exit from Paris and London Clubs According to records at the Debt Management Office (DMO), Obasanjo inherited a foreign debts profile of $28,039.21b made up largely of Paris club and other multilateral financial institutions contributing 87% while London Club and promissory notes made up the balance of about 13%.

That same year, the price of crude oil from which Nigeria has always depended on for its primary revenue was $19 per barrel. By 2007 when Obasanjo left office, crude oil price never peaked at above $73 per barrels.

Yet, the Owu chief prudently managed the economy, established an excess crude account and saved for the future. He also established the Nigeria Sovereign Investment Authority (NSIA) to reinvest funds accruing to the excess crude escrow account.

By the time he left office, he had paid off both the Paris, Lomdon Clubs debts including the promissory notes. Nigeria’s debts stock fell from $33b to just $3.3b only which was owed to the World Bank and African Development Bank Groups.

Today, barely 13 years after Obasanjo relinquished power, Nigeria’s debts stock has climbed to $27.6b comprising loans from World Bank, AfDB, China, Bonds. Nigerians are being made to believe that all these money are being used to finance infrastructure. Really? How did we get back to this embarrassing past? The answer is that there is something fundamentally wrong with our system especially the approach to infrastructure financing.

Let me be clear here. President Muhammadu Buhari administration has shown some enthusiasm in completing some of the ongoing projects like the rail, roads etc which is quite commendable. Why I disagree totally with those touting Buhari’s overrated interventions is that I believe that the provision of basic amenities for the people is statutory.

If an administration does not find it expedient to provide such basic necessities of life for its citizenry, then it has abdicated its responsibilities and has no moral right to be in power.

Let us face it. Buhari tried thrice before 2015 to become Nigeria’s President and failed in each attempt until 2015 when he won. In all these years he was struggling to be President, I do not want to believe this is the best he can produce. It is truly a big shame and embarrassment to see the country sliding into recess again. The second of its kind under his five year watch.

With the second recession kicking in and the National Bureau for Statistics (NBS) announcing that the our Gross Domestic Product (GDP) has declined by -6.10%, the economy is in shambles, inflation is in double digits, unemployment figures, out of the roof, opportunities limited and the naira now exchanging for over N500 against major currency as scarcity of especially the United States dollar bites harder. So where is the change that Buhari promised Nigerians?

The truth of the matter is that the Buhari administration missed the boat from the get go majorly because it failed to learn from the mistakes of past administrations. If he did, he would have written his name in gold by now by choosing in line with its change mantra to creatively run government.

Given the change he professed, Nigerians thought Buhari was going to make a remarkable shift from the norm and project towards an entirely new trajectory.

For instance, almost every administration before his, borrowed to build infrastructure. So if they had succeeded what would he be building today? He would not have any reason to invest in infrastructure because that has been taken care of.

Therefore, Buhari was expected, when he assumed office, to announce a revolutionary plan of action, a sort of big picture vision to chart a new course and embrace a new financing model that would shore up the infrastructure gap, without liability accruing to Nigeria. Such a model would have engendered transparency, good governance and banished corruption and cronyism from the system.

One popular argument that people often make is that government has no business in running a business. If that is the case, why can’t government hands off its current push to borrow and finance infrastructure and rather limit itself to playing a regulatory role alone? Of course that is what obtains in advanced countries where most of the infrastructure and utilities nare largely provided by large private equities.

I strongly believe the Buhari administration would have received wide applause by now if it adopted a private sector driven approach also known as Public, Private Partnership (PPPs) in which private investors are given the opportunities to invest in different areas of the economy like power, roads, rail system, medicare using their own money while government gives them tax incentives, and specific period to recoup their invested capital with interest.

There are three types of PPPs. The Build–Develop–Operate model s where the private sector party buys or leases an existing asset from a public agency, invests capital to enhance and develop the infrastructure, and then operates it according to the terms of a contract with a public agency.

The Build–Own–Operate involves the public agency awarding a single contract—which bundles the construction and operation of the infrastructure—to a private entity. The public agency is responsible for specifying the design of the project, but ownership of the asset remains with the private agency once it is built.