Does Nigeria Need the $3 Billion Loan?
Published on 21st November 2008
Nigeria struck the black gold jackpot in 1956 when oil was discovered in a small village called, Oloibiri. Nigeria soon became a heavyweight in the oil market, dominating as the top African producer of crude (until Angola briefly stole the 'King of African Crude' crown) and the 8th largest producer of oil in the world.
|$3 Billion Loan?|
According to IMF estimates, Nigeria made over $300 billion since the 1970s from the sale of oil. But, rampant corruption and theft left the nation with little to show for the oil wealth but poverty and incredible debt. Although penalties and late payments forced the country's debt to reach $35 billion in the 1990s, in 2006, Nigeria became the "first African nation to settle with its official lenders" when it arranged to have most of its debt erased by the Paris Club. Nigeria went on to create a plan that allowed it to pay off its debt and has steadily kept its debt low ever since. According to the CIA, Nigeria's debt accounts for only 14.40% of national GDP, in comparison to countries like Zimbabwe (218%), the U.S. (60.8%), Ghana (58.5%), the U.K.(43.6%) or South Africa (31.3%).
A Loan In The Works?
The World bank has offered a 3-year, $3 billion loan for Nigeria's crippled infrastructural facilities via its International Development Assistance program. This loan would push the nation's foreign debt portfolio to $6.5 billion. However, it is not quite clear whether Nigeria has accepted the loan, which amounts to N315 billion, or is merely in talks with the World Bank. According to the Daily Independent Newspaper,
"The Sustainable Development Sector Manager of the World Bank, Semeon Ehui, announced in Abuja last week that the facility comes with zero interest rate.He said the loan would not add any burden to Nigeria, but stressed that one of the conditions is that projects such as education, health, roads and agriculture get priority because of their importance to the economy at all levels"
The possibility of a World Bank loan has raised the ire of various interest groups and members of the National Assembly. NGOs like Human Rights Writers Association of Nigeria (HURIWA) criticized the loan, and condemned the "governments' decision to take the loan facility at this time without conducting referendum to find out from Nigerians whether we are prepared for another enslavement by the World Bank."[sic]HURIWA went on to suggest,
"It is logically wiser to take from Nigeria's foreign reserve some good amount of money to transparently and equitably fix our dilapidated infrastructural facilities ... instead of opting to take a loan that will attract commissions under surreptitious guises and which will in future return Nigeria to a near-pariah status as a heavily indebted nation..."Members of the National Assembly have also come against the loan. On November 14th, the House passed a resolution "to pressure the government to reject the offer of a $3 billion World Bank loan." It also directed the Joint Committee on Finance and Appropriation to advise the government on the consequences of the loan.
Only last week, Nigeria's foreign reserves inexplicably rose from $58.4 billion to $59.7 billion. Nigeria's Central Bank did not explain the rise in reserves even though those reserves had "dropped consistently in the past few months as a result of lower crude oil prices in the international market."In fact, Nigeria has the third largest reserves in Africa, behind Algeria and Libya. This recent increase in foreign reserves also means that Nigeria is ahead of Saudi Arabia, and maybe even the United Kingdom in terms of reserves of foreign exchange and gold according to the CIA.
Considering the foreign reserves, does Nigeria really need to take a $3 billion loan? I am no financial specialist, but I do not believe the risk is worth it. Although the loan is interest free, it comes with a service charge and non-utilization fee of 0.5% and 0.7%, respectively, with up to a 40 years repayment period. Therefore, if, as has been the case in Nigeria's past, that loan is not used as directed but pocketed by those in charge, Nigeria's children will be stuck paying back a loan they never benefited from. It would be much different if the World Bank loan was for a much larger amount, then it could make sense to leverage that money for domestic infrastructure and anti-poverty projects.
Although the World Bank spokesman, Ehui, also said that "The loan has been offered to Nigeria because of the massive improvement in the economy", I can't help but wonder - Who gives a loan with zero percent interest? Sounds like a car dealer trying to get rid of last year's models and I'm just not buying it. I'd rather Nigeria get a loan from its certified billionaire, Aliko Dangote. But, he's only worth about $3 billion. Maybe if we hadn't given Bill Gates so much trouble to get a visa last year, he would have been willing to lend us some chump change.
By Solomon Sydelle