April 24, 2010

What’s Wrong with the External Borrowing Plan

 Who is sure this money will be spent exactly as proposed?
The proposed borrowing plan by the Ag. President Goodluck Jonathan has a familiar ring about it. It is bad enough that Nigeria, with its abundance of resources, has been unable to sustain itself financially but it is worse to have to be highly indebted at the same time. It is bad enough for the country’s political elite to have plundered and continues to plunder the treasury of the nation as if the wealth of the nation belonged to no one but it is worse to also effectively plunder the future earnings of the country in the name of a development plan. In the last couple of years, with the limited political stability the country has achieved, the Nigeria government has been fighting to get debt forgiveness and to pay off the huge external debt so the nations earnings can be spend on useful and needed development internally. Now when it seems the nation’s finances are a little settled this administration is heading straight back into the arms of debtors.

The Problem
What’s wrong with the borrowing plan anyway, since it is intended to finance the huge shortfall in power generation and distribution, a problem that is well appreciated by all, both government, lenders (the world bank, etc) and the masses. Yes what’s wrong? There is one thing that is wrong – the projects that the borrowing is intended to finance is more often never realized, the value the development is supposed to deliver is more often never completed, the contracts are awarded politically and not based entirely on competence. So what is the result – the country would be owing the World Bank billions of dollars and there is still no real value delivered, no problem solved and power generation and distribution capacity would still be the same. Just the same as it has been from the Obasanjo administration till now with billions spent and only marginal increase in power generation. At the end of this administration’s term of office the National Assembly would spend even more money and time probing the expenditure which of course turns out to be chicken chasing. This is a familiar cycle that the country has been through before. I am not fooled.
A Solution
With all the voice I can muster I urge the National Assembly and Senate of the federation not to approve Mr. Jonathan’s borrowing plan except on one condition – that it includes a check that guarantees the money would be spend exactly on what it is intended for only. How can this be done? One way is to allow the Executive to award the contract (through the procurement process) but the contractors would have the loan disbursed straight to then from the World Bank on submission of completion certificates issued through the government or its agencies and subject to independent verification by World Bank officials or World Bank appointed inspectors. So what I propose is this: for construction of a dam, a power plant etc (for example) the government awards the contract on its terms using its qualification criteria. The contractor begins work and gets to a payable milestone he (the contractor) invites government or project sponsor (or custodian) who issues a certificate of work completed. The contractor sends this to World Bank for payment. The World Bank may decide to inspect the work before payment and pays directly to contractor. At end of project the federal government of Nigeria is indebted to the World Bank or the lender to the amount spent on the project from initiation to commissioning.
Nigeria is a multifaceted community with various competing ethnic, cultural, religious, political and selfish tendencies. An uninvolved umpire is a good thing to have here. Western creditors must play a part here. They must help the country control this competing ends constructively without taking anything away from the sovereignty of the country. There is quiet a lot to gain as well from this by the West. The Western creditors must prove more dependable than a neo-colonist organisation. The West is entitled to have a strong and robust ally in Africa. This is one thing Africa needs not the dole.
Links to Amazon books:
External Public Borrowing. Its Role in Economic Development.
EXTERNAL COMMERCIAL BORROWING: ROLE OF ECB IN INDIAN ECONOMIC GROWTHDevelopment and the debt trap: Economic planning and external borrowing in Ghana 


9JA said...

St Eugene - I notice that you constantly recommend the World Bank, IMF, AfriCom and other USA-allied organizations as a solution to many of Nigeria's problems. Makes me think that you must be taking the piss! C'mon think a bit more rigorously and come up with Nigerian solutions, and stop pushing the agenda of the US and her allies! Unless of course you are doing it deliberately...

St Eugene said...

Thanks for your observation. My writing is positively pro-Nigeria by design and feel. Whatever will help Nigeria out of the development hitch is what I intend to explore. In today's reality no country can live in isolation. There is something to be gained from a strategic relationship with select allies. That Nigeria is borrowing money from the World bank for infrastructure that may never be completed is a waste I advice against.

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