This is a continuation of our discussion from last week. We will look at how some nations develop rapidly with debts and what Nigeria could do immediately with more debts
- All the wars that the US has fought, including the civil war, Vietnam, the two world wars, the two Iraq wars, and many more, have added tremendously to the country’s debt profile. Also, managing the collapse of financial markets and carmakers in 2009-2011 saw the creation of more debts. The Fed put money in many companies – banks, insurance companies, carmakers etc.
I traced $85 billion still sitting in the books of AIG the mammoth insurance company. The covid pandemic also added greatly. I traced $30 trillion into the balance sheet of the FED. These guys are not advising us right! President Obama increased US debts by 70% due to his bail out of banks around 2009-11. President FD Roosevelt however increased US debts by 1,048% due to his interventions over the Great Depression and World War II.
- Countries also inflate away their debts. ‘High rates of inflation reduce the real value of debt, allowing governments to, in effect, pay off debts using money that is worth less than when they originally borrowed it. This has been employed successfully in the past, notably after WWII, when the UK Government saw its post-war debt reduced significantly – it took very sustained high inflation to get there. The 1940s and 1950s saw average inflation rates of around 4.5%.
These dropped slightly to 3.5% during the 1960s but are still far above the acceptable target levels of major economies today, typically 2%. The 1970s and 1980s then saw huge inflation, with rates averaging 10% and hitting a high of 24% in 1971. And as real values fell, national debt plummeted from a postwar high of 250% of GDP to 50% in 1975.’. See https://capital.com/can-we-inflate-away-government-debt.
With inflation at 21.91%, if we target high growth as promised by President-Elect Tinubu, Nigeria may be able to grow her economy to a point where current debts become insignificant and thus another vista opens up for us to borrow more. This – though painful to lenders – is an opportunity to Nigeria especially for LOCAL CURRENCY BORROWING.
- Debts are important to grow infrastructure. But local debts are better because they develop other sectors of your economy better. Raising local debts around products that can be purchased locally keeps the money within the family and helps to reboot the economy. This is what Nigeria should now do.
- We should be careful how multilateral agencies deliberately limit our growth. They are basically holding us down. US debt to GDP ratio is presently over 130%, the UK is over 110%. Countries like Greece and Italy operate around 220% and 170% respectively. Canada is at 118%. Japan is at 261%. Even here in Africa, we are not pulling our weights. Angola stands at 107%, DR Congo at 85%, Kenya 65% and South Africa, at 70% of their GDPs.
- The US doubled its debt between 2016 and 2022, from $16 trillion to $34 trillion. The UK debt to GDP as at 2008 was 60%, but even as the economy grew modestly, today that figure has surpassed 100%. A lot of that growth in debt happened with COVID-19. Given this knowledge, I really wonder how come the IMF is here advising us about our ballooned-out ways-and-means numbers when that was actually what they did in their own country – even much more.
- The issue is how do we link this directly to the economy and ensure that as a result of this, the economy grows by a multiplier of at least 3 i.e. $1.5 trillion? How can we also make this naira, not dollar debts and as long-term as possible? We would welcome investors but there may not be hard guarantees on exchange rate when they intend to divest.
- Will Nigerians be ready for the sheer level of hard work and productivity required to carry this dream through? We are talking about Nigeria becoming a huge construction site, and that we should produce most of what we need. This dream has to come with some strictures in importation otherwise we will fritter most of the money abroad and our economy will not have grown! That will be double tragedy!
Ideas around usage
So, I’ve been thinking about what sectors we could direct new local borrowing, for the local economy, if we could actuate this idea. One ready sector is the real estate sector. Could we not reposition our housing sector (mass housing) across the nation, in a way that changes the face of our communities and cities? China is showing example in this regard.
The good thing about that sector is that from cement, to roofing, to wood, to paint, to cables and even lighting accessories, we have local producers. They may need to import substrates and raw materials or expertise. I think we should partner China in this regard.
We could also use new local debt for other infrastructure such as roads, and of late, our rail systems – even though this has a high import content. As government moves to remove fuel subsidies, we are entering a new phase in our national expectations and interactions – a phase of individual responsibility.
It may be a good idea to take a bitter pill and allocate about 20% of new debt to our transport systems, with strict requirements say to the Chinese around local content and technology transfer. All our states must have metro lines, linked to an expanded national rail system.
What about the solid mineral sector? We have everything, from zinc to lithium to barite to coltan! Could we add value locally before sending abroad? Could debts be used to incentivize investors? Can government put together intervention funds to contribute to these investments? Nigeria just has to take off finally.
I admit it will be tough to wring out $200-$250 billion from this economy without relying heavily again on global markets and all those sharp boys that know how to rip off a country. The yields on our bonds will need to remain high to be attractive anyway, and our ratings have fallen but will improve as serious minded managers take control of the economy and we signal the world by the first few actions of the next administration. But try we must. When theCOVID-19 pandemic landed and everybody scurried back home, I did propose that we try and raise about N20 trillion in local debts on the back of the home bias created by the pandemic. Everybody was looking at returning home then.
The foreign nations to which many of our people had run, suffered a lot more damage than we did. See https://opinion.premiumtimesng.com/2020/03/30/nigeria-must-not-waste-the-opportunity-called-covid-19-crisis-by-tope-fasua/?tztc=1. The idea was not taken up but was replaced by the CBN ways and means mentioned earlier. The meat of the article is to say that we must start by raising funds among our people, by tapping into patriotism and letting our people know that nobody will invest in their country if they don’t themselves. This is also a tool for unity.
The largest countries in the world today raised money from their people first and continue to get the long-term buy-in of their own people till tomorrow. Nigeria and indeed many other African countries have foolishly sought redemption from abroad rather from within. This never works. We should seek to get our citizens to even liquidate investments abroad and bring home for the greatness of our country.
Of course, raising such a large sum at how – even if gradually and over say a 10 year period, will crowd out private investors and borrowers. But it can be balanced. It is indeed a necessity.