■ Economists tell president to change strategy

By Onyedika Agbedo

PRESIDENT Muhammadu Buhari’s 2016-2018 External Borrowing Rolling plan request of $29.960 billion (N9.12 trillion) was rejected through a popular voice vote at the Upper Chamber of the National Assembly last Tuesday. Although the Senate did not elucidate why it took the decision, it is already in public domain that the Presidency would resend the request to the Senate. The Leader of the Senate, Senator Ali Ndume, who moved the motion that the request be considered, at a press conference he called at the end of plenary, expressed shock over the rejection of the President’s application by his colleagues, saying it would be reintroduced.
“I was shocked. I think it was defeated on technical grounds. I will try to reintroduce it again. We must not throw the baby away with the bath water. It ought to have been referred to the relevant committee but because of the omission of some things, it was rejected. We expect them to include those things. There is nothing to worry about. We will do what is right,” Ndume had said.
The Minister of Information, Alhaji Lai Mohammed, and the Senior Special Assistant (SSA) to the President on National Assembly Matters (Senate), Ita Enang, also maintained that President Buhari would reapply for the approval of National Assembly for the loan, stressing that it was rejected on technical grounds.
President Buhari had written the National Assembly on October 20, this year, seeking the approval of the National Assembly to borrow the said fund. He had explained in his letter that $11.274 billion out of the loan would be spent on special infrastructure projects while the sum of $10.686 billion is for Euro bonds of $4.5 billion and Federal Government Budget Support of $3.5 billion.
Other projects listed in the borrowing plan included $75 million for community and social development projects; $125 million for Nigeria states Health Programme Investment Project; $100 million for Nigeria Youth Employment and Social Support Project and $50 million for FADAMA III project respectively.
Although the Presidency had conceived the borrowing plan as the necessary pill for the country’s economic revival over a three-year period, the Senate has continued to receive enormous commendations for throwing away the request from those who were opposed to the plan from the onset. Nevertheless, there are those who feel that Nigeria needs external funds if it must get out of recession in the near future and therefore consider the action of the Senate unhealthy. The issue has continued to dominate public discourse in a very controversial manner, such that should the request be resent to the National Assembly, their ability to understand the issues at stake and take the right decision will be on test.
But why are Nigerians so divided over a proposal that is supposedly meant to make life better for them and put more money in their pockets? Why is President Buhari finding it difficult to get endorsement for a plan he thinks will enable his administration to succeed? Sunday Sun exclusively got the views of two world-class economists, who in dissecting the issues, admitted that there was nothing wrong with borrowing if such funds would be judiciously spent. But they also expressed some fears, which will be of interest to the government and even the ordinary Nigerian. Read the full interviews below:

‘Nigeria needs an economic strategy’
Founder of the Centre for Values in Leadership (CVL), Lagos, and Professor of Political Economy, Prof. Pat Utomi, opines that the absence of a clear economic strategy that has the buy in of all Nigerians might be the reason President Buhari’s external borrowing plan was rejected by the Senate. Excerpts:

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The Senate on Tuesday rejected President Muhammadu Buhari’s request to externally borrow $29.960 billion over the next three years to finance key projects and programmes of the administration. What is your take on that?
First and foremost, I think the issue is not so much about whether to take or not to take a loan. The issue is where is Nigeria going? What will it take to get it out of where it is and move it in a particular direction? There is general talk about how you get out of recession. Part of that general talk says there are more or less two typical ways that you get out of recession. One is you essentially produce your way out of recession. The other one says you can stimulate economic activities by spending your way out of recession; spending is stimulating production and then production will essentially lead to output growth that will take you out of a recession. So, either of the two ways is actually about producing your way out of recession any way.  The other way is to reduce taxes, which is also an incentive to invest. With that you get the same result of more investment, more production, greater output and you get out recession. But you must bear in mind that you provide tax incentives where the tax burden is the reason people are not investing. If you are in an economy where people don’t pay much tax such that a tax rebate will not serve as an incentive to stimulate production, going that track will be meaningless. It follows, therefore, that the key question is how do you stimulate production?
A loan is supposed to be getting money to spend your way out of recession. But just getting the loan of its own does not mean that you are going to be able to stimulate production. You can get the loan and spend it in such a way that the money just enters the system, gets cornered by some champions and eventually taken out of the economy. So, you can in fact deepen the recession with that spend. But if you were to borrow the money and truly apply it to the most critical parts of the economy where output can be increased within the context of a clear direction agreed as the growth track for the country, then you are spending your way out of recession.
My problem is that I do not see any consistent effort to identify where the country is going, sensitise the people in that direction, build confidence that the direction will bring the needed growth and therefore the assurance that when you spend the money that will happen. There are many ways in which I see the problems as that of articulation, strategy and building consensus, because people have to follow if they have confidence in those who are saying, ‘let’s go this way’. I see a general problem of leadership failure, unclear communication and therefore people not having ownership of where Nigeria is supposed to be trying to go. So, whereas I’m not sure how the loan is supposed to be applied, I’m not competent to say whether it is proper or improper, good or bad, and whether it will work or not work.
I have repeated this phrase several times – there is a problem of confidence in the country. That is why in most economies, you have measures of consumer confidence and investor confidence. People invest because they have a certain level of confidence that things will be better, that this direction is better. So, the psychology of investment is significantly responsible for where you go. To generate a certain level of psychology is the reason you have certain people consistently hammering on key talking points about where you are going and the credibility of those people then build up confidence.  A cursory look will show that there is a question of confidence in the direction of policy in the economy on both the side of investors, which is preventing investments, and the side of consumers. Yet there are many things that are positive which can be highlighted to build that confidence but somehow it’s either the actors don’t have a grip on them or something is wrong somewhere.

Considering the issues you have raised, are you backing the Senate’s decision?
I think the first thing to try and do is to build confidence in a particular direction before we begin to announce what we will do. If there is no confidence that you have an idea of where you are going, you can spend all that money and achieve very little. The question, therefore, is how do you build confidence? You build confidence by the clarity in your thinking and your statements about what you want to achieve with what you do, and strong measures of how you are going in that direction. That will show that you have confidence in where you are going and people can begin to buy into your own confidence to go that way.

Now that the Senate has rejected the President’s proposal to externally borrow and spend the country out of recession, where are we heading? Is the country doomed or we can still overcome this challenge without borrowing?
The country does not have to be doomed. The government has to re-think its strategy. Government has to convince ordinary Nigerian citizens as well as their representatives in the National Assembly on how such monies would be applied and the kinds of effects it would have on the economy. What makes this conversation a very difficult one is that a good part of this mess was self-inflicted. We didn’t need to be here. But what can we do? We are here already.
The government has explained, as part of the confidence building strategy, that 61.2 per cent of the loan would go into bankable infrastructure projects while the balance would be spent on social programmes in health and education. Are you saying the explanation was not convincing enough?
You see, again this is where part of the conversation is required. Often, infrastructure is seen as a good way to generate employment. Now, where you have some challenges today in Nigeria with infrastructure and government believing that infrastructure only comes from its construction contracts is that the quality of the use of money in government infrastructure contracts in Nigeria is horrifying. I have a friend who used to work for a famous European telecoms company. He was transferred from Europe to South Africa and from there to Nigeria. He was employed in Europe as European because he carries European passport. When they transferred him to Nigeria, he came home as an European who was sent to South Africa and then to Nigeria. But he attended the same High School with me before going to Europe. Shortly after he returned, I met him on a flight to Abuja and we started talking. The fellow was nearly crying during the flight. He said that the company he works for charges Nigeria about four and a half times what it charges Kenya to execute similar contracts. So, that is the quality of value for money in Nigerian government’s spending that worries people about government saying ‘we are going to spend X-billion on infrastructure.’ People will immediately compute that X-percentage of the amount will go to corruption or incompetence in the management of the process.
So, there is such a failure of leadership in this country that is so shameful that when you hear that $30 billion has been pumped into the economy, you know that a good percentage of it did not get to its intended destination; $12 billion or more will go into a few pockets. Forget the nonsense about corruption being fought or not fought. It makes one to wonder why we are not scared that we are increasing the debt burden on the next generation without getting the benefit of it for them.
But the government has given the assurance that the loan will be judiciously spent. It even gave details of the amount that will go into specific sectors and projects?
I’m not disputing what the government has said. But it’s not by mouth; it’s about what institutional arrangements are on ground to make sure that the money is well spent. I know of the corruption that is going on in Nigeria today inside this corruption fighting arrangement. It’s not about catching thieves; it’s about systems and those systems are still not in place.
I have no problem with a debt if it will produce the result for which the loan was obtained. If you borrow money, use it wisely and produce result and get revenues, you pay it off. My fear is that we can increase the debt burden without doing things efficiently to produce the desired result. What I’m therefore saying is that it is better to provide infrastructure through means other than government just paying contractors. Government can explore private capital through build, operate and transfer schemes, concession schemes or stuffs like that.  This is because government’s use of money for infrastructure in this country is notoriously inefficient. I’m not saying government shouldn’t give some road contracts. What I’m saying is that the whole country needs to be discussing what the issues are so that we can create checks, balances, monitors and all of that. But we are not having a conversation in the country to point out where things had gone wrong in the past and how we need to do things differently.
When you say the government should re-think its strategy, what exactly do you want it to do at this point?
The government is supposed to have a strategy and say, ‘this is our strategy’. It has to explain its strategy to the people so that the people will buy into it and own it and say, ‘this is the way we are going to move forward.’ I have not seen the strategy; you may have seen it. I must admit that I don’t read newspapers as much as I should (laughter).
Are you saying that this government is not communicating with Nigerians?
Not well enough certainly.
How can it up the ante?
I don’t know. Well, it’s not that I don’t know how it can up the ante but it is not my business to lecture anybody. There are many people out there who can help out. They should talk to those people if they need to talk to people.
There are those who suggest cutting the cost of governance instead resorting to external borrowing…
(Cuts in) Of course, I think government in Nigeria is shamelessly expensive. But they won’t agree. These are all the products of military rule that we are suffering. In the ’60s, I walked around in this country as a young person and ran into ministers driving their cars. But every government official in the country today has to have about five-car motorcade. I don’t understand! Is that to show you are important?
We have made so much noise about presidential fleet and they have said they will sell one or two aircraft. The British Prime Minister flies British Airways. We can keep one presidential jet, but we know that even governors don’t fly commercial aircraft anymore. They charter an aircraft to go anywhere they want to go. So, there is a sense of megalomania in power in Nigeria that does not show accountability. The people you are representing, on whose behalf you are taking on all these fantabulous protocol or perquisites or whatever, are people that cannot eat two meals a day. If you have a conscience, how can you sleep when your guest house spends so much money on food and the people who you are ostensibly representing cannot even eat? There are too many issues. It’s not the fault of one person or the other but a system problem. But Nigerians have not helped themselves. Nigerians have not spoken up enough.
How apt is the thinking in some quarters that taking the loan means bequeathing liabilities to the next generation instead of assets?
You see, a loan of its own is not negative if it provides assets to that future generation. In fact, as far as I know, there is only one moral law in economics. That moral law says that the future generation should not pay for something that they do not have benefit of. One of the biggest quarrels I have with how Nigeria has managed oil revenue is that it violates that only moral law in economics. Oil in the ground is a gift to all generation of Nigerians. For one generation to consume it the way we have consumed it sentences all our leaders to heavy sanctions in the court of history and in the court of God. You cannot spend oil money that belongs to my great, great grand children without their possibility of enjoying any benefit of what that money was spent on. So, when you use oil revenues to pay salaries you should go to jail. But that is what the class of ’66, the military that has held Nigeria captive for 50 years, has done to this country.  Oil revenues should be invested in long-term infrastructure that will benefit all the generations coming.
But that is the intention of this government in seeking external borrowing to finance infrastructure projects, which the Senate has rejected?
I don’t see the evidence. I’m not an ideologue on giving loans; I’m very practical. If you borrow money to do anything now, the benefit must be there for those that will repay that debt 20 years from now. It must be something that they will use.
What’s your final thought on this issue?
We need an economic strategy. We don’t have one now as far as I know. And we need to have one and sell it to the Nigerian people so that people will have buy in, own it and monitor its implementation.

‘The terms of the loan must be easy on us’
Prof. Abiola Awosika-Fapetu is a Professor of Business (Finance and Economics). A former Vice President and Dean of Academics at Montreal College, North Carolina, United States of America, she is currently the founder and Rector of Olawoyin Awosika School of Innovative Studies (OASIS), Lagos. She says that even though the Senate has rejected President Muhammadu Buhari’s request to approve the plan, government should watch out for hidden clauses on loan agreement should the proposal eventually get approval of the National Assembly.
Senate last Tuesday rejected the Federal Government’s plan to externally borrow $29.960 billion over the next three years to finance key projects it thinks will revamp the economy. What is your take on that?
The Senate must have a reason for doing that, which is not known to the public. So, I cannot say much about why they rejected the President’s request.
But the government will have to find an alternative means of regenerating the economy. They might decide to wait to see what they make from the oil sector and from all the different sectors of the economy that yield revenues to fund what they need to fund. At this point, the government needs to re-think its strategy because we will need to spend to ginger up this economy. So, it has to re-group and find other ways. Unfortunately, if the plan to borrow does not work, most governments resort to the other aspects of the fiscal policy, which is taxation. So, we have to also be careful to ensure that in rejecting the plan to borrow, citizens will not be taxed more to enable government generate fund.
Nigerians are divided on the issue since the government announced its plan. Do you think it is really necessary for the country to borrow?
Any country that is in the situation that we find ourselves cannot but borrow money because whether we like it or not, it is spending in this economy that is going to get us out of this. When the spending happens in Nigeria, more Nigerians get to work and when they work, the multiplier effect takes place. So, the most important thing that Nigerians should be asking the Federal Government is what would this money be spent on? Now, if they spend it on recurrent expenditure we are doomed, but if they spend it on capital expenditure which will create jobs or on infrastructure like building roads which means the construction companies can keep hiring labourers and the services of people who work for these labourers and engineers are now needed, then that will be growth for the economy. But if they are going to borrow the money to pay salaries of workers, then we are in trouble.
What do you think about the long term effects of the loan, which is really the fear of Nigerians? We have had an ugly experience of external debt burden in the past, which continued to haunt the country until we got relief and paid off the debt under the Obasanjo administration…
First of all, the terms of the loan are important. If it is such that what we need to service the loan would weigh us down, then there is trouble. There is somebody borrowing at three per cent and somebody borrowing at 31 per cent. Now, if you borrow at 31 per cent, it is going to kill you. But if someone gives you a loan at three per cent, it is not going to be too difficult for you to meet the obligations. So, if the terms are good and we borrow and put the money to good use, Nigeria will build its foreign reserve and would be able to do what Obasanjo did in his first term when with Ngozi Okonjo-Iweala and the rest of them paid down our debt and built up our foreign reserve. So, firstly, we must make sure that the terms are ideal.
We have to be careful to read the small prints on the loan agreement because a lot of times, there are tiny little words at the bottom of a contract that most people don’t read because it is not telling them what they want to hear. But the lenders hide those clauses that would come back to haunt you in those small prints. So, if we read the small prints carefully to know that this is not going to come back to haunt us, then we may go ahead. It therefore boils down to what we are borrowing for and the terms of the loan. If the terms are easy on us and we borrow for capital expenditure that will encourage people that are going to export so that we can earn foreign exchange, then it is a good plan.
Some critics have also said that whether the terms are good or not, taking the loan will amount to bequeathing liabilities to the future generation instead of assets. Do you share that view?
The way we govern ourselves is already bequeathing a lot of negative things to the next generation because they will certainly imbibe some of our ways of life. So, it’s not just the loan. You see, everything that we do has an impact on the next generation. But if we don’t borrow now and let the country languish in poverty we are ruining their present; we are ruining their lives now not to talk of their future. It is a child that grows up that will become something and pay the family loan. But if we don’t do that now, the children will die along with the adults. I know it is very real to say we are bequeathing loans to the next generation. But there are still resources in this country. If we have the right government, we will turn things around. We have assets; even our people alone are assets. We see what they are doing in other parts of the world. So, it tells us that it is our leadership that is faulty. Therefore, if good leadership comes to Nigeria, all of these monies will be paid off. If we don’t have people who borrow the money, steal it and run us aground, if we have people who build Nigeria up, $30 billion is not a big deal for this nation.
There has also been this argument that instead of borrowing, government should find a way of curtailing the bogus lifestyle of our elected officials by cutting down on the funds that go to them from government coffers. What is your take on that?
For me, if we are going to get any money out of the National Assembly, the governors or whomever, we should put the National Assembly on part time. When we have bills to pass, we invite them to Abuja and they will deliberate on it; when the bill is passed they go back to their villages or wherever they reside. I believe that if we are going to get any money out of that sector of this economy, we should sack them. Some African countries had done it. Even when America started, all their senators and people in government were on part time.  They came to New York, which was then the seat of power (now Washington) for a limited amount of time and went back to their farms. So, I don’t know why we cannot do part time for our elected officials.
In what other ways do you think we can stimulate the economy out of recession?
For me as an economist, we have to spend, spend and spend our way out of recession. That is my position! There are other schools of thought. But we have tried monetary policy and it continues to run us into the ground. Monetary policy is what the Central Bank has been doing at least since the past seven years that I have been back in Nigeria. In monetary policy, you try to control the money in the economy, inflation and interest rate. Unfortunately, they are mopping up the economy on one hand and the government, especially the previous governments, keeps pouring more free money into the economy. So, we need to move away from monetary policy to fiscal policy, which involves spending so that people can have employment; and when they have employment, they in turn can spend that money. The multiplier effect gets the economy going. It might be slow but it’s like the wheel; when you start pushing, it’s very slow and then suddenly it catches on the speed and rolls on its own. But a lot must be done to make sure that that happens. We must spend on things that will earn foreign exchange; we must become net exporter instead of the net importer that we are today.