Who will repay our mounting debts?

The way our state governors are clamouring for bailout from President Muhammadu Buhari (PMB) shows that some of our political leaders are yet to come to terms with the emerging global oil economy! Anybody looking for funds to “carry on as usual” appears not to have realised that the present depressed crude oil prices represent the beginning of a new era of whittled-down crude oil power! If crude price should rise in answer to our prayers, it will simply boost the production of shale oil, which is still relatively more expensive to extract than the conventional crude. Therefore, the low crude prices distressing us today have actually slowed down the “shale oil” onslaught!

But with the hectic pace of development of the shale oil technology, its competitiveness will progressively improve. And many nations presently importing oil have the potential to become “shale” oil producers. In fact, many of them are racing to join the United States which used to be the biggest importer of Nigerian crude, until it attained its “shale” breakthrough. There are even prospects of the US going beyond oil self-sufficiency to become a shale oil exporter! Already, we are hearing of ships laden with Nigerian crude in the international oil market looking for buyers, even at a discount!

The verdict is therefore clear: Our crude oil revenue, going forward, will not even be as high as what we are lamenting today! The chilling situation we all knew would one day come but did not expect, at least for 30 more years – i.e., Nigeria without its crude oil power – is here! Crude oil is becoming a mere commodity!

If therefore we start piling up debts today in an attempt to bridge the current revenue shortfall, what will the upcoming generations use to repay the debts? If both federal and state governments are already crying about debt burdens today, how will our upcoming generations (with the crumbled crude oil revenues) be able to repay them? The state governments that are piling up debts today are simply creating economic gunpowder for their upcoming generations! Even the banks giving out such loans today might as well start sharpening their disaster management skills – because massive loan defaults may be looming!

The burning task before President Buhari is therefore to urgently reengineer the nation to be able to survive with its tumbling oil revenue! I shall make an elaborate submission on this reengineering. But for now, let me single out one aspect of it, because of the way our politicians seem to be rushing to pile up more debts – i.e., deflating the monstrous cost of this democracy, including government’s bizarre expenditure structure!

The real culprit is our bloated governance cost! Our democracy can give us world-class governance even from a fraction of what we now regard as diminished revenue. Take the federal government as an example. In 2001, all our democratic institutions had come in place; yet, the FG budget for that year (by the Appropriation Act 8 of the National Assembly) was less than N1 trillion, out of which 56 percent was budgeted for capital projects. Government budgeted only N0.4 trillion for its “recurrent” expenditure (what it would spend on its officials and other overheads, rather than on capital development projects). Remarkably, by our 2014 budget, the recurrent component had ballooned to N3.6 trillion, gulping 76 percent of our total budget of N4.7 trillion, and leaving a paltry 24 percent (or N1.1 trillion) for capital development projects! The 2015 budget is even worse!

Of what good therefore is “more revenue” to Nigerians, if it is only 24 percent of what comes in that can go into development? Does government exist for itself, rather than for the people?

The problem is not “revenue”; it is what we are doing with it! For example, the total budget for our National Assembly in 2001 was only N15.5 billion. But by 2014 appropriation, it had shot up to a whopping N150 billion – i.e., 10 times the 2001 figure! What on earth is the justification for that? Has there been an increase in the number of elected senators and members of the House? Similar questions are begging for answers across the entire system!

As another example, I reviewed the data published by the Central Bank of Nigeria (CBN) on federally collected revenue for the period 1961 to 2010 (the data stopped at 2010) and found the results very shocking. In the 29 years from 1970 to 1998, the total federally collected revenue (oil and non-oil) was only N3.6 trillion. However, because of the unprecedented oil price surge that started with this democracy in 1999, we amassed a whopping N24.8 trillion in the next eight years, from 1999 to 2006 (the Obasanjo years), and a further N25.7 trillion in four additional years, from 2007 to 2010 (the Yar’Adua years, mostly)!

We can all remember many of the achievements of the N3.6 trillion of the first 29 years: the federal highways, refineries, steel plants, power plants, fertiliser plants, dams, river basins, seaports (in Lagos, Port Harcourt, Warri, etc), Nitel’s telecoms network; federal universities, colleges of education, and unity schools; our old capital, Lagos (including the massive 3rd Mainland Bridge and other bridges and flyovers, and the Ikoyi secretariat); and the new federal capital, Abuja (including more secretariats, the  massive Gwarinpa estate said to be the largest in Africa, as well as other mass-housing estates – constructed ironically by the much-maligned Abacha administration!)

Now, what on earth did we achieve with the massive N24.8 trillion that poured into the country in the next eight years? Repair existing refineries? Build new refineries? More housing estates? Power plants? Steel plants? Fertiliser plants? Where on earth then did all that money go? The same questions can be asked of the N25.7 trillion that poured in during the next four years, from 2007 to 2009!

There were two tragic achievements of those windfalls – poverty and higher domestic debt! According to the figures published by National Bureau of Statistics (NBS), our population in poverty soared from 67 million in 1996 to a bewildering 112 million by 2010! So Nigerians became vastly poorer in 2010 than in 1996 – despite all those massive windfalls!

The same sad story greets us from CBN’s data on our domestic debt. In 1998, FG’s domestic debt outstanding was only N561 billion. But by 2007, it had shot up to N2.9 trillion; and continued upwards, reaching N4.6 trillion by 2010! In other words, not only are we hard-pressed to tell our unborn generations what we did with the massive windfalls of 1999-2010, we even increased the domestic debt burden on them by a whopping 712 percent during that period! If government incurred such huge debts during that revenue boom, is it with the tumbling oil earnings that we shall repay them? What future are we preparing for our unborn generations?

Since this democracy, our leaders have been preoccupied with “more revenues”, including massive borrowings, to fund this expenditure monster. That’s why the monster has continued to balloon unabated! There was no single year from 1999 to 2010 that the federal recurrent expenditure did not increase – despite government’s privatisation and monetisation policies, whose principal goal was to reduce this expenditure!

Any government at any level that wants to deliver democracy dividends must start with the political will to attack this expenditure monster. Doing so will (far more) significantly boost its impact than leaving the monster to chase “more revenue”! For example, assuming that PMB during 2015 is able to increase revenue by 20 percent on the N4.7 trillion of 2014, this will bring an extra N0.9 trillion to the table. Note, however, that unless something has been done to our expenditure structure, most of this (over 70 percent, about N0.7 trillion) will go into recurrent expenditure, leaving a paltry N0.2 trillion for capital development!

On the other hand, if he attacks the expenditure monster and is able to reduce it by the same 20 percent, from the N3.6 trillion in 2014 (which, by the way, is no rocket science), that alone will release N0.7 trillion from recurrent cost to the capital budget, boosting the latter by 64 percent! The difference is clear!

There is therefore no justification for government at any level to further endanger Nigeria’s unborn generations by piling up more debts! If we are lamenting the debt burden today, our future generations, with crumbling crude oil revenue, will be even more hopelessly unable to repay them!

Gabriel Zowam