Billionaire entrepreneur and lawyer, Dr.Ned Nwoko, has urged Nigeria and other African countries to be wary of syndicated loans and bilateral debts which are mostly tied to medium or big construction projects.
In a paper titled: Towards Efficient Management of Nigeria’s Foreign Loans: The Perspective of a Passionate Stakeholder, he delivered at the University of Ibadan during the University of Ibadan Alumni Association 2019 National Public Service lecture, he specifically urged African countries to be wary of loans from China.
He said: “A curious observation will show that most of the foreign companies that execute such projects apart from being owned by the ‘benefactor countries’ also bring their citizens as engineers and even artisans to execute such projects. That way, a large chunk of the funds is repatriated back to such countries while the debtor countries are made to bear the weight of loan repayment.
“China is particularly guilty of this practice. Chinese loans look juicy on the surface but beneath the veneer are coated bitter pills that may choke in future.”
Dr Nwokolo advised Nigeria to be very careful in accessing this kind of loans to avoid “mortgaging her economy or creating a situation where public debts would increase to more than 50per cent of her GDP as is the case in many other countries in sub-Sahara Africa.”
He also advised the Federal Government to exercise restraint by limiting or avoiding going for bail outs from multinational organisations such as the World Bank or International Monetary Fund (IMF). These Bretton Woods institutions, he said, insist on the harsh conditionality and policy reforms that give little consideration to local economic conditions, cultures and environments in the countries in need of such bail outs.
“Such generalist approaches which relegate local dynamics and peculiarities were evidently behind the austerity measures and budgetary belt tightening recipes recommended or imposed on Nigerian’s government in the late 1980s and early 1990s which proved too harsh for the majority of the people especially the poor and ended up inflicting severe damage on the country’s economy,” he said.
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Dr. Nwoko listed the pitfalls Nigeria and other African country in need of foreign loans must watch out for.
Apart from ensuring that the loans are properly negotiated and secured on favourable terms and conditions, he urged the authorities to ensure that they properly understand the terms and conditions of such loan.
“If the terms and conditions are shrouded in secrecy or are nebulous and unnecessarily complex for the beneficiary to comprehend, then the risk of walking into booby trap becomes higher,” he said.
In negotiating foreign loans, the international entrepreneur urged Nigeria to always secure the services of consultants or officials with requisite technical and professional know how.
While advising countries to access foreign loans only when it is absolutely necessary, he said it is safer for a country such as Nigeria to fall back on her accumulated external reserves and other savings rather than rush into incurring avoidable foreign debts.
“If the procedure is followed, it will make the country to record increase in real economic growth and reduce capital flights through servicing or repayment of foreign loans,” he said.
To avoid bigger economic problems, Dr Nwoko advised borrower country and her regulatory agencies to ensure that foreign loans are channeled into productive or profit generating ventures to make the payment stress-free.
He said: “The essence of foreign loans is to engender the economic growth and development of the debtor country and boost the welfare and standard of living of her citizens. We should provide safety guards on the country to ensure that foreign loans are not channeled into white elephant projects, election financing or recurrent expenditure that makes repayment very difficult.”
As Nigeria’s leading debt regulatory agency, Dr. Nwokolo urged the Debt Management Office (DMO) to remain active in policing the way and manner foreign loans are secured, negotiated and incurred.
Vate and public sector projects that can generate enough returns to repay the principal and pay interest should be sourced from the Internal Capital Market (ICM) while loans for social infrastructure should be sourced from concessional windows.
Nigerian’s foreign external debt stood at $25.61 billion in the first quarter of 2019, from $21.60 billion in the fourth quarter of 2018. External debt in Nigeria averaged $9.6 billion from 2008 until 2019, reaching an all-time high of $29.59 billion in the third quarter of 2018. Development economists and financial experts have continued to caution the federal government to slow down on foreign loans to guide against unfavourable future backlash.